[Federal Register Volume 68, Number 244 (Friday, December 19, 2003)]
[Notices]
[Pages 70853-70855]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-31263]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48919; File No. SR-NYSE-2003-38]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the New York Stock Exchange, 
Inc. To Extend for an Additional Six Months Its Pilot Program 
Permitting a Floor Broker To Use an Exchange Authorized and Provided 
Portable Telephone on the Exchange Floor

December 12, 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 November 24, 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, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange proposes to extend its pilot program that amends 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 
(``Pilot'') for an additional six months to expire on June 16, 2004. 
The Pilot is currently in effect on a six-month pilot basis and set to 
expire on December 16, 2003.\3\ The text of the proposed rule change is 
available at the Office of the Secretary, the Exchange, and at the 
Commission.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 47671 (April 11, 
2003), 68 FR 19048 (April 17, 2003) (SR-NYSE-2002-11) (``Original 
Order'').
---------------------------------------------------------------------------

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 IV 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
    In the Original Order,\4\ the Commission approved the Pilot to be 
implemented as a six-month pilot beginning on or about May 1, 2003. On 
June 5, 2003, the Exchange extended the implementation date for the 
Pilot to begin no later than June 23, 2003, instead of on or about May 
1, 2003, as originally adopted in the Original Order.\5\ In a 
memorandum to all non-specialist members and member organizations, the 
Exchange stated that the Pilot was implemented on June 16, 2003, and 
thus would expire on December 16, 2003. The Exchange represents that no 
regulatory actions, or administrative or technical problems, other than 
routine telephone maintenance issues, have resulted from the Pilot over 
the past few months. Therefore, the Exchange seeks to extend the Pilot 
for an additional six months.
---------------------------------------------------------------------------

    \4\ See Original Order, supra note 3.
    \5\ See Securities Exchange Act Release No. 47992 (June 5, 
2003), 68 FR 35047 (June 11, 2003) (SR-NYSE-2003-19).
---------------------------------------------------------------------------

    NYSE Rule 36 (Communications Between Exchange and Members' Offices) 
governs the establishment of telephone or electronic communications 
between the Exchange's Trading Floor and any other location. Prior to 
the Pilot, NYSE Rule 36.20 prohibited the use of portable telephone 
communications between the Trading Floor and any off-Floor location, 
and the only way that voice communication could be conducted by Floor 
brokers

[[Page 70854]]

between the Trading Floor and an off-Floor location was by means of a 
telephone located at a broker's booth. These communications often 
involved a customer calling a broker at the booth for ``market look'' 
information. Prior to the Pilot, a broker could not use a portable 
phone in a trading crowd at the point of sale to speak with a person 
located off the Floor.
    The Exchange is proposing to extend the Pilot for an additional six 
months, expiring on June 16, 2004. The Pilot would amend NYSE Rule 36 
to permit a Floor broker to use an Exchange authorized and issued 
portable telephone on the 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 have historically been routinely transmitted from a 
broker's booth location. Use of a portable telephone on the Exchange 
Floor other than one authorized and issued by the Exchange would 
continue to be prohibited.
    Furthermore, both incoming and outgoing calls would continue to 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.\6\ 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.\7\ Furthermore, since the Exchange currently permits 
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''),\8\ and the 
Pilot would allow for the use of portable phones for orders in ETFs, 
orders in ETFs would also be subject to the same FESC requirements as 
orders in any other security listed on the Exchange.
---------------------------------------------------------------------------

    \6\ 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).
    \7\ For more information regarding Exchange requirements for 
conducting a public business on the Exchange Floor, see Information 
Memos 01-41 (November 21, 2001), 01-18 (July 11, 2001) (available on 
www.nyse.com/regulation/regulation.html) and 91-25 (July 8, 1991).
    \8\ Previously, under an exception to NYSE Rule 123(e), orders 
in ETFs could first be executed and then entered into FESC. However, 
in SR-NYSE-2003-09, the Exchange eliminated the exception to NYSE 
Rule 123(e) for ETFs, and, as part of its proposal in SR-NYSE-2002-
11, allowed the use of portable phones for orders in ETFs. See 
Securities Exchange Act Release No. 47667 (April 11, 2003), 68 FR 
19063 (April 17, 2003). NYSE Rule 123(e) provides that all orders in 
any security traded on the Exchange be entered into FESC before they 
can be represented in the Exchange's auction market.
---------------------------------------------------------------------------

    As noted above, under the policy prior to the Pilot, an off-Floor 
customer could communicate with a broker in a trading crowd only in an 
indirect way by calling a broker's booth and using the booth clerk as 
an intermediary. The Exchange believes that the extension of the Pilot 
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.\9\ By 
enabling customers to speak directly to a Floor broker in a trading 
crowd on an Exchange authorized and issued portable telephone, the 
Exchange believes that the proposed rule change would expedite and make 
more direct the free flow of information, which, prior to the Pilot, 
had to be transmitted somewhat more circuitously via the broker's 
booth.
---------------------------------------------------------------------------

    \9\ See, e.g., Securities Exchange Act Release No. 43493 
(October 30, 2000), 65 FR 67022 (November 8, 2000) (SR-CBOE-00-04) 
(expanding the Chicago Board Options Exchange, Inc.'s existing 
policy and rules governing the use of telephones at equity option 
trading posts by allowing for the receipt of orders over outside 
telephone lines, from any source, directly at equity trading posts), 
and 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 current prohibitions 
against Floor Brokers' use of cellular or cordless phones to make 
calls to persons located off the trading floor).
---------------------------------------------------------------------------

    The Exchange also notes that 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.\10\ 
The 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.
---------------------------------------------------------------------------

    \10\ 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).
---------------------------------------------------------------------------

Pilot Program Results

    Since the Pilot's inception, the Exchange represents that there 
have been approximately 800 portable phone subscribers. In addition, 
with regard to portable phone usage, for a sample week of July 28, 2003 
through August 1, 2003, an average of 19,611 calls per day were 
originated from portable phones, and an average of 3218 calls per day 
were received on portable phones. Of the calls originated from portable 
phones, an average of 18,116 calls per day were internal calls to the 
booth, and 1495 calls per day were external calls. Thus, over 90% of 
the calls that originated from portable phones were internal calls to 
the booth. With regard to received calls, of the 3218 average calls per 
day received, an average of 1351 calls per day were external calls, and 
an average of 1867 calls per day were internal calls received from the 
booth. Thus, approximately 58% of all received calls were internally 
generated, and 42% were calls from the outside.
    Therefore, the Exchange believes that the Pilot appears to be 
successful in that there is a reasonable degree of usage of portable 
phones, but as noted above, there have been no regulatory, 
administrative, or other technical problems associated with their 
usage. The Exchange believes that the Pilot appears to facilitate 
communication on the Floor without any corresponding drawbacks. 
Accordingly, the Exchange believes it is appropriate to extend the 
Pilot for an additional six months, expiring on June 16, 2004.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act \11\ in general, and furthers the 
objectives of section 6(b)(5) of the Act \12\ in particular, in that it 
is designed 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. The Exchange believes that the 
amendment to NYSE Rule 36 would support 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.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).

---------------------------------------------------------------------------

[[Page 70855]]

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 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

    Because the proposed rule change (1) does not significantly affect 
the protection of investors or the public interest; (2) does not impose 
any significant burden on competition; and (3) does not become 
operative for 30 days from the date of filing, or such shorter time as 
the Commission may designate if consistent with the protection of 
investors and the public interest, and the Exchange provided the 
Commission with written notice of its intent to file the proposed rule 
change at least five days prior to the filing date, the proposed rule 
change has become effective pursuant to section 19(b)(3)(A) of the 
Act,\13\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\14\ At any 
time within 60 days of the filing of the proposed rule change, the 
Commission may summarily abrogate such rule change if it appears to the 
Commission that such action is necessary or appropriate in the public 
interest, for the protection of investors, or otherwise in furtherance 
of the purposes of the Act.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    The Exchange requests that the Commission waive the 30-day delayed 
operative date of Rule 19b-4(f)(6)(iii).\15\ The Exchange believes that 
waiver of this period will allow the current Pilot to operate for an 
additional six months and avoid inconvenience and interruption to the 
public. The Commission believes that it is consistent with the 
protection of investors and the public interest to waive the 30-day 
operative delay and make this proposed rule change immediately 
effective.\16\ The Commission believes that the waiver of the 30-day 
operative delay will allow the Exchange to continue, without 
interruption, the existing operation of its Pilot for an additional six 
months, expiring on June 16, 2004.
---------------------------------------------------------------------------

    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ For purposes of only accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition and capital formation. 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    The Commission believes that the use of Exchange authorized and 
issued portable telephones would allow the Exchange to have access to 
all phone records. This ability to track phone calls, along with the 
data captured in FESC, should aid the Exchange in surveilling for 
compliance with Exchange rules. In this regard, the Commission notes 
that proper surveillance is an essential component of any telephone 
access policy to an Exchange Trading Floor. Surveillance procedures 
should help to ensure that Floor brokers who are interacting with the 
public on portable phones are authorized to do so, as NYSE Rule 36 will 
require,\17\ and that orders are being handled in compliance with NYSE 
rules. The Commission expects that the Exchange actively review these 
procedures and address any potential concerns that have arisen during 
the extension of the Pilot. The Commission also requests that the 
Exchange report any problems, surveillance or enforcement matters 
associated with the Floor brokers' use of an Exchange authorized and 
provided portable telephone on the Floor. As stated in the Original 
Order, the NYSE should also address whether additional surveillance 
would be needed because of the derivative nature of the ETFs. 
Furthermore, if the NYSE decides to request permanent approval or 
another extension of the Pilot, we would expect that the NYSE submit 
information documenting the usage of the phones, any problems that have 
occurred, including, among other things, any regulatory actions or 
concerns, and any advantages or disadvantages that have resulted.\18\
---------------------------------------------------------------------------

    \17\ See note 7 and accompanying text for other NYSE requirement 
that Floor brokers be properly qualified before doing a public 
customer business.
    \18\ This information along with any proposal to extend, or 
permanently approve, the pilot should be submitted at least two to 
three months prior to the expiration of the six-month pilot.
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change 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. 
Comments may also be submitted electronically at the following e-mail 
address: [email protected]. All comment letters should refer to 
File No. SR-NYSE-2003-38. This file number should be included on the 
subject line if e-mail is used. To help the Commission process and 
review your comments more efficiently, comments should be sent in 
hardcopy or by e-mail but not by both methods. 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 NYSE. All 
submissions should refer to File No. SR-NYSE-2003-38 and should be 
submitted by January 9, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-31263 Filed 12-18-03; 8:45 am]
BILLING CODE 8010-01-P