[Federal Register Volume 69, Number 130 (Thursday, July 8, 2004)]
[Notices]
[Pages 41323-41325]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-15489]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49954; File No. SR-NYSE-2004-30]


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

July 1, 2004.
    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 June 15, 2004, 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. 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.
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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'') until November 30, 2004. The Pilot was in effect on a six-
month pilot basis expiring on June 16, 2004.\3\ The text of the 
proposed rule change is available at the Office of the Secretary, the 
Exchange, and at the Commission.
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    \3\ See Securities Exchange Act Release No. 48919 (December 12, 
2003), 68 FR 70853 (December 19, 2003) (SR-NYSE-2003-38).
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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
    The Commission originally approved the Pilot to be implemented as a 
six-month pilot \4\ beginning no later than June 23, 2003.\5\ The 
Exchange extended the Pilot for an additional six months ending on June 
16, 2004.\6\ 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 until 
November 30, 2004, while the Exchange makes a request to the Commission 
for permanent approval of the Pilot.\7\
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    \4\ See Securities Exchange Act Release No. 47671 (April 11, 
2003), 68 FR 19048 (April 17, 2003) (SR-NYSE-2002-11) (``Original 
Order'').
    \5\ See Securities Exchange Act Release No. 47992 (June 5, 
2003), 68 FR 35047 (June 11, 2003) (SR-NYSE-2003-19) (delaying the 
implementation date for portable phones from on or about May 1, 2003 
to no later than June 23, 2003).
    \6\ See note 3, supra.
    \7\ See note 20, infra. To date the Exchange has not submitted 
such a request.
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    NYSE Rule 36 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 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 until November 30, 
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.\8\ In addition, Exchange rules require that any Floor broker 
receiving orders from the public over portable phones must be properly 
qualified to engage in such direct access business under Exchange Rules 
342 and 345, among others.\9\
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    \8\ 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).
    \9\ 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) and 91-25 (July 8, 1991).
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    In addition, 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''),\10\ 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.
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    \10\ 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.
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    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

[[Page 41324]]

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.\11\ 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.
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    \11\ 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).
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    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.\12\ 
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.
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    \12\ 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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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 February 2, 
2004 through February 6, 2004, an average of 19,363 calls per day were 
originated from portable phones, and an average of 4,911 calls per day 
were received on portable phones. Of the calls originated from portable 
phones, an average of 16,525 calls per day were internal calls to the 
booth, and 2,838 calls per day were external calls. Thus, over 85% of 
the calls originated from portable phones were internal calls to the 
booth. With regard to received calls, of the 4,911 average calls per 
day received, an average of 2,171 calls per day were external calls, 
and an average of 2,740 calls per day were internal calls received from 
the booth. Thus, approximately 56% of all received calls were 
internally generated, and 44% were calls from the outside.
    The Exchange represents that no regulatory actions or 
administrative or technical problems, other than routine telephone 
maintenance issues, have resulted from the Pilot since its inception. 
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 
earlier, no 3 regulatory or administrative or 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 until November 30, 2004. During this 
period, the Exchange intends to file for permanent approval of the 
Pilot by the Commission.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act \13\ in general, and furthers the 
objectives of section 6(b)(5) of the Act \14\ 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.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 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 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 immediately effective pursuant to section 19(b)(3)(A) 
of the Act,\15\ and Rule 19b-4(f)(6) thereunder.\16\ 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.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
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    The Exchange requests that the Commission waive the 30-day 
operative period under Rule 19b-4(f)(6)(iii).\17\ The Exchange believes 
that the continuation of the Pilot is in the public interest as it will 
avoid the inconvenience and interruption to the public and members of 
the Exchange currently using portable phones on the Exchange floor. 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 upon filing on 
June 15, 2004.\18\ 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 until November 30, 
2004.
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    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ For purposes only of waiving the 30-day operative delay of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition and capital formation. 15 U.S.C. 
78c(f).
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    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

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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 requires,\19\ and that orders are being handled in compliance 
with NYSE rules. The Commission expects the Exchange to 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.\20\
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    \19\ See note 8 supra, and accompanying text for other NYSE 
requirements that Floor brokers be properly qualified before doing 
public customer business.
    \20\ This information along with any proposal to extend, or 
permanently approve, the pilot should be submitted no later than 
August 31, 2004.
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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. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment for (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-NYSE-2004-30 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-NYSE-2004-30. 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, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 the 
filing also will be available for inspection and copying at the 
principal office of the NYSE. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NYSE-2004-30 and should be submitted on or before July 
29, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-15489 Filed 7-7-04; 8:45 am]
BILLING CODE 8010-01-P