[Federal Register Volume 69, Number 235 (Wednesday, December 8, 2004)]
[Notices]
[Pages 71090-71093]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3535]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50777; File No. SR-NYSE-2004-67]


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

December 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 November 22, 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 March 31, 2005. The Pilot was in effect on a five-
month pilot basis expiring on November 30, 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. 49954 (July 1, 
2004), 69 FR 41323 (July 8, 2004) (SR-NYSE-2004-30).
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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.

[[Page 71091]]

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 further extended the Pilot for an additional 
five months ending on November 30, 2004.\7\ 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 four months, until March 31, 2005.
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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 Securities Exchange Act Release No. 48919 (December 12, 
2004), 68 FR 70853 (December 19, 2003) (SR-NYSE-2004-38).
    \7\ See note 3, supra.
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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 at the point of sale in the trading crowd to speak 
with a person located off the Floor.
    The Exchange proposes to extend the Pilot until March 31, 2005. 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. Under NYSE Rule 123(d), 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 NYSE 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 
http://www.nyse.com/regulation) and 91-25 (July 8, 1991).
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    In addition, orders in Investment Company Units (as defined in 
Section 703.16 of Listed Company Manual), also known as Exchange-Traded 
Funds (``ETFs''), would also be subject to the same FESC requirements 
as orders in any other security listed on the Exchange.\10\ As a 
result, the Pilot would continue to allow for the use of portable 
phones for orders in ETFs.\11\
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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.
    \11\ Telephone conversation between Jeffrey Rosenstrock, Senior 
Special Counsel, NYSE and Marisol Rubecindo, Attorney, Division of 
Market Regulation, Commission, dated November 30, 2004.
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    The Exchange believes that the extension of the Pilot for an 
additional four months 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.\12\ 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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    \12\ 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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    In addition, NYSE Rule 36.20, both prior to the Pilot, and as 
proposed to be amended, would not apply to specialists who are 
prohibited from speaking from the post to upstairs trading desks or 
customers. The Exchange 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.\13\
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    \13\ 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 July 12, 2004 
through July 16, 2004, an average of 16,608 calls per day were 
originated from portable phones, and an average of 5,219 calls per day 
were received on portable phones. Of the calls originated from portable 
phones, an average of 13,271 calls per day were internal calls to the 
booth, and 3,337 calls per day were external calls. Thus, over 80% of 
the calls originated from portable phones were internal calls to the 
booth. With regard to received calls, of the 5,219 average calls per 
day received, an average of 2,447 calls per day were external calls, 
and an average of 2,772 calls per day were internal calls received from 
the booth. Thus, approximately 53% of all received calls

[[Page 71092]]

were internally generated, and 47% 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 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 March 31, 2005.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \14\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \15\ 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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    \14\ 15 U.S.C. 78f(b).
    \15\ 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 foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) Impose any significant burden on competition; and (iii) 
Become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-
4(f)(6) thereunder.\17\ 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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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6).
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    The Exchange requests that the Commission waive the five-day pre-
filing period and 30-day operative period under Rule 19b-
4(f)(6)(iii).\18\ The Exchange believes that the continuation of the 
Pilot is in the public interest as it will 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 five-day pre-filing period and the 30-day operative delay and 
make this proposed rule change immediately effective upon filing on 
November 22, 2004.\19\ 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 March 31, 2005.
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    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ 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 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,\20\ 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, in any future additional filings on 
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.\21\
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    \20\ See note 9 supra, and accompanying text for other NYSE 
requirements that Floor brokers be properly qualified before doing 
public customer business.
    \21\ This information along with any proposal to extend the 
pilot should be submitted at least one to two months prior to the 
expiration of the four-month pilot.
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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-2004-67 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-2004-67. 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

[[Page 71093]]

information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NYSE-2004-67 and should be submitted on or before 
December 29, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-3535 Filed 12-7-04; 8:45 am]
BILLING CODE 8010-01-P