[Federal Register Volume 70, Number 152 (Tuesday, August 9, 2005)]
[Notices]
[Pages 46252-46255]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4276]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52188; File No. SR-NYSE-2005-53]


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

August 1, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``the Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on July 22, 2005, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in

[[Page 46253]]

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 seeks 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, until January 31, 2006. The 
last extension of the Pilot was in effect on a four-month pilot basis 
expiring on July 31, 2005.\3\ The text of the proposed rule change is 
available on the Exchange's Web site (http://www.nyse.com), at the 
Exchange's principal office, and at the Commission's Public Reference 
Room.
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    \3\ See Securities Exchange Act Release No. 51464 (March 31, 
2005), 70 FR 17746 (April 7, 2005) (SR-NYSE-2005-20).
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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\ Since the 
inception of the Pilot, the Exchange has extended the Pilot four times, 
with the current Pilot expiring on July 31, 2005.\6\ In addition, the 
Exchange has filed a proposed rule change to permanently approve the 
Pilot.\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.\8\ Therefore, the Exchange seeks to extend the Pilot for an 
additional six months, until January 31, 2006.
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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 Nos. 48919 (December 12, 
2003), 68 FR 70853 (December 19, 2003) (SR-NYSE-2003-38) (extending 
the Pilot for an additional six months ending on June 16, 2004); 
49954 (July 1, 2004), 69 FR 41323 (July 8, 2004) (SR-NYSE-2004-30) 
(extending the Pilot for an additional five months ending on 
November 30, 2004); 50777 (December 1, 2004), 69 FR 71090 (December 
8, 2004) (SR-NYSE-2004-67) (extending the Pilot for an additional 
four months ending March 31, 2005); and 51464, supra note 3.
    \7\ See SR-NYSE-2004-52, pending with the Commission.
    \8\ The Exchange notes that it has received incoming telephone 
records for the period of June 5, 2005 through July 4, 2005, and 
will continue to receive monthly updates. Telephone conversation 
between Jeff Rosenstrock, Senior Special Counsel, NYSE, and Cyndi N. 
Rodriguez, Special Counsel, Division of Market Regulation, 
Commission, on July 27, 2005.
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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 for an additional six 
months, expiring on January 31, 2006. 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(e), 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.\9\ 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.\10\
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    \9\ 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).
    \10\ See Information Memos 01-41 (November 21, 2001), 01-18 
(July 11, 2001) (available on http://www.nyse.com/regulation.html) 
and 91-25 (July 8, 1991) for more information regarding Exchange 
requirements for conducting a public business on the Exchange Floor.
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    Furthermore, 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.\11\ As a 
result, the Pilot would continue to allow for the use of portable 
phones for orders in ETFs.
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    \11\ 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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    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.\12\
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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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    The Exchange believes that an extension of the Pilot for an 
additional

[[Page 46254]]

six 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.\13\ 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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    \13\ See, e.g., Securities Exchange Act Release Nos. 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 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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    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 June 20, 2005 through June 24, 2005, an average of 
12,156 calls per day were originated from portable phones, and an 
average of 5,624 calls per day were received on portable phones. Of the 
calls originated from portable phones, an average of 8,816 calls per 
day were internal calls to the booth, and 3,340 calls per day were 
external calls. Thus, approximately 73% of the calls originated from 
portable phones were internal calls to the booth. With regard to 
received calls, of the 5,624 average calls per day received, an average 
of 2,781 calls per day were external calls, and an average of 2,843 
calls per day were internal calls received from the booth. Thus, 
approximately 51% of all received calls were internally generated, and 
49% 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 identified with their 
usage. The Exchange believes that the Pilot appears to facilitate 
communication on the Floor without any corresponding drawbacks. 
Therefore, the Exchange believes it is appropriate to extend the Pilot 
for an additional six months, expiring on January 31, 2006.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \14\ in general, and further 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 could 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 has waived the five-day pre-
filing requirement for this proposed rule change. In addition, 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 
July 22, 2005.\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 January 31, 
2006.
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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. In this regard, the 
Commission notes that the Exchange should address whether telephone 
records, including incoming telephone records, are adequate for 
surveillance purposes.
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    \20\ See note 10 supra and accompanying text for other NYSE 
requirements that Floor brokers be properly qualified before doing 
public customer business.
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    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, the Commission 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

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concerns, and any advantages or disadvantages that have resulted.

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 form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-NYSE-2005-53 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 20549-9303.
    All submissions should refer to File Number SR-NYSE-2005-53. 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 such 
filing will also be available for inspection and copying at the 
principal office of 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-2005-53 and should be submitted on or before August 30, 2005.

    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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-4276 Filed 8-8-05; 8:45 am]
BILLING CODE 8010-01-P