Self-Regulatory Organizations; New York Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto Relating to NYSE Rule 36, RCMMs' Ability to Use Exchange Authorized and Issued Portable Phones on the NYSE Floor, 7103-7106 [E6-1839]

Download as PDF Federal Register / Vol. 71, No. 28 / Friday, February 10, 2006 / Notices The Commission believes that expanding short interest reporting to OTC equity securities will protect investors and the public interest by requiring NASD members to increase the information available to investors and other interested parties related to trading in OTC equity securities. immediately upon filing. The Commission is publishing this notice, as amended, to solicit comments on the proposed rule change from interested persons. VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,29 that the proposed rule change (SR–NASD–2005– 112) be, and it hereby is, approved. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.30 Nancy M. Morris, Secretary. [FR Doc. E6–1842 Filed 2–9–06; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–53213; File No. SR–NYSE– 2005–80] Self-Regulatory Organizations; New York Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto Relating to NYSE Rule 36, RCMMs’ Ability to Use Exchange Authorized and Issued Portable Phones on the NYSE Floor February 2, 2006. rmajette on PROD1PC67 with NOTICES1 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, 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 Items I and II below, which Items have been prepared by the Exchange. On January 18, 2006, NYSE filed Amendment No. 1 to the proposed rule change.3 NYSE filed this proposal pursuant to Section 19(b)(3)(A) of the Act 4 and Rule 19b–4(f)(6) thereunder 5 as non-controversial, and therefore the proposed rule change is effective proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 29 15 U.S.C. 78s(b)(2). 30 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 In Amendment No. 1, the Exchange clarified proposed NYSE Rule 36.22 and added in the purpose section a new footnote relating to surveillance and examination procedures to monitor the activities of RCMMs. 4 15 U.S.C. 78s(b)(3)(A). 5 17 CFR 240.19b–4(f)(6). VerDate Aug<31>2005 15:10 Feb 09, 2006 Jkt 208001 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change This filing amends NYSE Rule 36 to permit Registered Competitive Market Makers (‘‘RCMMs’’), as defined in NYSE Rule 107A, to use Exchange authorized and provided portable phones and consists of proposed member education bulletins which describe the conditions under which Floor brokers and RCMMs may use such phones pursuant to the Exchange’s portable phone pilot (‘‘Pilot’’). The conditions under which a Floor broker and a RCMM may use a portable phone pursuant to the Pilot are proposed as NYSE Rules 36.21 and 36.22. 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. 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 Background The Commission approved implementation of the Exchange’s amendment to NYSE Rule 36 allowing Floor brokers to use Exchange authorized and provided portable phones on the Exchange Floor as a sixmonth pilot 6 beginning no later than June 23, 2003.7 Since the inception of the Pilot, the Exchange has extended the Pilot five times, with the current Pilot expiring on January 31, 2006.8 In 6 See Securities Exchange Act Release No. 47671 (April 11, 2003), 68 FR 19048 (April 17, 2003) (SR– NYSE–2002–11) (‘‘Original Order’’). 7 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). 8 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); PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 7103 addition, the Exchange filed for permanent approval of this rule.9 The Exchange represents that no administrative or technical problems, other than routine telephone maintenance issues, have resulted from the Pilot over the past few months.10 NYSE Rule 36 NYSE Rule 36 (Communications Between Exchange and Members’ Offices) governs the establishment of telephone or electronic communications between the Exchange Floor and any other location. Today, NYSE Rule 36.20 permits a Floor broker to use an Exchange authorized and provided portable telephone on the Exchange Floor. NYSE Rule 36.20 does not apply to specialists who are prohibited under this rule from communicating with offFloor locations from the Exchange Floor.11 Currently, under the Pilot, with the approval of the Exchange, a Floor broker is 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 Floor broker’s customers.12 Such 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); 51464 (March 31, 2005), 70 FR 17746 (April 7, 2005) (SR–NYSE–2005–20) (extending the Pilot for additional four months ending July 31, 2005); and 52188 (August 1, 2005), 70 FR 46252 (August 9, 2005) (SR–NYSE–2005–53) (extending the Pilot for an additional six months ending January 31, 2006). 9 See SR–NYSE–2004–52, pending with the Commission. 10 The Exchange notes that it began receiving records of incoming telephone calls in June 2005 and will continue to receive monthly updates. With respect to regulatory actions concerning the Pilot, there is an open investigation into possible insider trading in an NYSE listed security in which the trading activity of two RCMMs has been identified and is under review. With respect to one of these RCMMs, the use by the RCMM of an Exchange authorized and provided portable phone in or about January 2005 is under review as part of the investigation. Telephone conversation between Jeff Rosenstrock, Senior Special Counsel, NYSE, and Molly M. Kim, Attorney, Division of Market Regulation, Commission, on January 27, 2006. 11 NYSE Rule 36.30 provides that, with the approval of the Exchange, a specialist unit may maintain a telephone line at its stock trading post location to the off-Floor offices of the specialist unit or the unit’s clearing firm. Such telephone connection shall not be used for the purpose of transmitting to the Floor orders for the purchase or sale of securities but may be used to enter options or futures hedging orders through the unit’s offFloor office or the unit’s clearing firm or through a member (on the floor) of an options or futures exchange. 12 Floor brokers receiving orders from the public over portable phones must be properly qualified to engage in such direct access business under NYSE E:\FR\FM\10FEN1.SGM Continued 10FEN1 7104 Federal Register / Vol. 71, No. 28 / Friday, February 10, 2006 / Notices communication permit Floor brokers to accept orders consistent with Exchange rules and provide status and oral execution reports for orders previously received, as well as ‘‘market look’’ observations as historically have been routinely transmitted from a Floor broker’s booth location. The use of a portable telephone on the Exchange Floor other than one authorized and provided by the Exchange is prohibited. RCMMs The Commission approved the Exchange’s proposed rule to permit members to register as RCMMs on May 1, 1978.13 Under NYSE Rule 107A, RCMMs may trade for their own account or the account of their member organization and may also serve as Floor brokers executing customer orders.14 Currently, there are eleven (11) registered RCMMs. RCMMs are also subject to being called by a Floor Official or a Floor broker holding an unexecuted customer order to improve the market in any listed stock by either bidding/offering to narrow the spread by at least the minimum trading variation or improving the depth of the market by at least one unit of trading (normally 100 shares).15 Further, a member may not act as a RCMM and a broker representing an agency order in the same security on the same day.16 rmajette on PROD1PC67 with NOTICES1 Proposed Changes to NYSE Rule 36 Prior approval orders by the Commission concerning the Pilot and the current NYSE Rule 36.20 only apply to a Floor broker’s ability to use an Exchange authorized and provided portable phone. RCMMs are nonspecialist members of the Exchange and do not have the same type of information (i.e., access to the Display Book) that a specialist has. As such, the Exchange believes it is appropriate for RCMMs to participate in the Pilot so that they could communicate with their offices in order to, among other things, enter off-Floor orders and better monitor their positions. Therefore, in order to clarify that NYSE Rule 36.20 would Rules 342 and 345, among others. For more information regarding Exchange requirements for conducting a public business on the Exchange Floor, see Information Memos 05–37 (May 27, 2005) and 01–18 (July 11, 2001) (both available on http:// www.nyse.com) and 91–25 (July 8, 1991). 13 See Securities Exchange Act Release No. 14718 (May 1, 1978), 45 FR 19738 (May 8, 1978) (SR– NYSE–78–24). 14 The Exchange has developed surveillance and examination procedures to monitor the activities of RCMMs, including their use of Exchange authorized and provided portable phones. 15 These RCMM trades are referred to as ‘‘affirmative obligation’’ trades or ‘‘call-in notifications.’’ 16 See NYSE Rule 107A.B(1). VerDate Aug<31>2005 15:10 Feb 09, 2006 Jkt 208001 apply to RCMMs and Floor brokers, the Exchange proposes to delete the current reference in NYSE Rule 36.20 to ‘‘members and member organizations other than a specialist or specialist member organization’’ and replacing it with the terms ‘‘Floor brokers and RCMMs.’’ The Exchange believes that providing portable phones to RCMMs would increase the efficiency of their trading in accordance with NYSE Rule 107A, especially given the changes in the speed of trading.17 However, given their ability to trade for their own account or the account of their member organizations without the restrictions that apply to other non-specialist members and member organizations, the Exchange also believes it appropriate to limit RCMMs’ use of portable phones in accordance with the Pilot, as follows: • Limit their use of the portable phone solely to communications with their upstairs office’s land line and the land line of their clearing member organization’s upstairs office to enter off-Floor orders and discuss matters related to the clearance and settlement of transactions; • RCMMs, their off-Floor offices, and their member organization’s off-Floor offices would not be allowed to use portable phones to transmit to the Floor orders for the purchase or sale of securities by public customers or any other agency business; • RCMMs’ use of the portable phone pursuant to proposed NYSE Rules 36.20 and 36.22 must comply with all other rules, policies, and procedures of both the federal securities laws and the Exchange, including the record retention requirements, as set forth in NYSE Rule 440 and Rules 17a–3 and 17a–4 under the Act; 18 • Require that RCMMs implement procedures designed to deter their upstairs office or their clearing member organization’s upstairs office calling their portable phone number from using caller ID block or other means to conceal the phone number from which a call is being made; and • Call-forwarding or conference calling are prohibited by RCMMs, their upstairs office personnel, and their 17 The Exchange believes that, currently, allowing Floor brokers to use portable phones enables the Exchange to continue 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. See Securities Exchange Act Release No. 52188 (August 1, 2005), 70 FR 46252 (August 9, 2005) (SR–NYSE–2005–53). 18 17 CFR 240.17a–3 and 240.17a–4. PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 clearing member organization’s upstairs office.19 In addition, no other electronic communication devices may be used unless approved by the Exchange.20 Finally, RCMMs must execute a written acknowledgement authorizing the portable phone service provider to provide New York Stock Exchange Regulation (‘‘NYSE Regulation’’) with data and records relating to incoming and outgoing calls.21 A member education bulletin describing the above conditions for the use of a portable phone by RCMMs, the acknowledgement procedure, and the proposed rule text would be sent to all RCMMs. The Exchange also proposes that this filing (including proposed conforming changes to NYSE Rule 36) become incorporated into the Pilot. RCMM Acting as a Floor Broker As noted above, RCMMs are permitted to serve as Floor brokers, executing customer orders, provided they do not execute RCMM and customer orders in the same security on the same day. However, the Pilot permits broader portable phone usage for Floor brokers than RCMMs. Accordingly, RCMMs would not be allowed to use a portable phone to conduct any agency business until issues involving the use of portable phones by a RCMM acting in a capacity of an agent have been fully reviewed and resolved by NYSE Regulation.22 Use of Portable Phones by Floor Brokers As noted above, the Exchange is providing in proposed NYSE Rule 36.21 the conditions under which Floor brokers can use portable phones during the Pilot. In addition, the Exchange has developed an acknowledgement for Floor brokers participating in the Pilot to sign. Floor brokers must acknowledge the following: • They authorize the portable phone service provider to provide NYSE 19 All Exchange authorized and provided portable phones do not have call-forwarding or conference calling capabilities and would continue to not have such capabilities. 20 Currently, only Exchange authorized and provided portable phones are approved. 21 This provision is being proposed as a precautionary measure to address the privacy concerns by the portable phone service provider. 22 In the future, the Exchange would consider allowing RCMMs to notify NYSE Regulation in writing of their intent to conduct such agency business, and NYSE Regulation would make a determination whether to require that a RCMM amend his or her Form BD with the Commission and/or file an amended membership application with NYSE Regulation. However, allowing RCMMs acting as Floor brokers to use portable phones would involve further discussions with the Commission and would be the subject of a separate filing with the Commission. E:\FR\FM\10FEN1.SGM 10FEN1 Federal Register / Vol. 71, No. 28 / Friday, February 10, 2006 / Notices Regulation with data and records relating to incoming and outgoing calls; • Their use of the portable phone pursuant to NYSE Rule 36.20 complies with all other rules, policies, and procedures of both the federal securities laws and the Exchange, including the record retention requirements, as set forth in NYSE Rule 440 and Rules 17a– 3 and 17a–4 under the Act; 23 • They are required to implement procedures designed to deter anyone calling their portable phone number from using caller ID block or other means to conceal the phone number from which a call is being made; members and member organizations are required to make and retain records demonstrating compliance with such procedures; and • No other electronic communication devices may be used unless approved by the Exchange.24 A member education bulletin describing the proposed rule text and the acknowledgement procedure would be sent to all Floor brokers participating in the Pilot. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act 25 in general, and further the objectives of Section 6(b)(5) of the Act 26 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. B. Self-Regulatory Organization’s Statement on Burden on Competition rmajette on PROD1PC67 with NOTICES1 The Exchange does not believe that the proposed rule change, as amended, would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. 23 17 CFR 240.17a–3 and 240.17a–4. only Exchange authorized and provided portable phones are approved. 25 15 U.S.C. 78f(b). 26 15 U.S.C. 78f(b)(5). 24 Currently, VerDate Aug<31>2005 15:10 Feb 09, 2006 Jkt 208001 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, as amended, 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 27 and Rule 19b–4(f)(6) thereunder.28 At any time within 60 days of the filing of the proposed rule change, as amended, 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.29 The Exchange has requested that the Commission waive the 30-day operative period under Rule 19b–4(f)(6)(iii) of the Act.30 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, as amended, immediately effective upon filing on November 21, 2005. The Commission believes that the waiver of the 30-day operative delay may increase the efficiency of the Exchange by providing immediate use of Exchange authorized portable phones to RCMMs. For this reason, the Commission designates the proposal to be effective and operative upon filing with the Commission.31 The Commission notes that proper surveillance is an essential component 27 15 U.S.C. 78s(b)(3)(A). 28 17 CFR 240.19b–4(f)(6). 29 For purposes of calculating the 60-day period within which the Commission may summarily abrogate the proposed rule change under Section 19(b)(3)(C) of the Act, the Commission considers the period to commence on January 18, 2006, the date NYSE filed Amendment No. 1 to the proposed rule change. See 15 U.S.C. 78s(b)(3)(C). 30 17 CFR 240.19b–4(f)(6)(iii). 31 For purposes only of waiving the operative delay for this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 7105 of any telephone access policy to an Exchange Floor. Surveillance procedures should help to ensure that Floor brokers and RCMMs use portable phones as authorized by NYSE Rule 36 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 Pilot. In this regard, the Commission notes that the Exchange should address whether telephone records are adequate for surveillance purposes. The Commission also requests that the Exchange report any problems, surveillance, or enforcement matters associated with use of an Exchange authorized and provided portable telephone by Floor brokers and RCMMs on the Exchange Floor. As stated in the Original Order, 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 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.32 IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change, as amended, 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 rulecomments@sec.gov. Please include File Number SR–NYSE–2005–80 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSE–2005–80. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your 32 The Commission expects the information to distinguish between Floor brokers’ and RCMMs’ usage of the phones E:\FR\FM\10FEN1.SGM 10FEN1 7106 Federal Register / Vol. 71, No. 28 / Friday, February 10, 2006 / Notices 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 also will 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–2005–80 and should be submitted on or before March 3, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.33 Nancy M. Morris, Secretary. [FR Doc. E6–1839 Filed 2–9–06; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–53228; File No. SR–Phlx– 2005–91] Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto To Amend the Equity Option Specialist Deficit (Shortfall) Fee rmajette on PROD1PC67 with NOTICES1 February 6, 2006. 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 December 29, 2005, the Philadelphia Stock Exchange, Inc. (‘‘Phlx’’ 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 Phlx. On February 1, 2006, the Phlx filed 33 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Aug<31>2005 15:10 Feb 09, 2006 Jkt 208001 Amendment No. 1 to the proposed rule change.3 The Phlx filed the proposal pursuant to Section 19(b)(3)(A)(ii) of the Act 4 and Rule 19b–4(f)(2) thereunder,5 which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Phlx proposes to amend its Specialist Deficit (Shortfall) Fee (‘‘shortfall fee’’) in two ways: (1) Eliminate the DROT Exemption (as defined herein), so that a specialist 6 will be assessed a shortfall fee, subject to the maximum caps currently in effect,7 even when one or more Streaming Quote Traders (‘‘SQTs’’) 8 or 3 In Amendment No. 1, the Exchange made additional changes to the proposed rule text to clarify the assessment of the shortfall fee and the application of the shortfall credit. 4 15 U.S.C. 78s(b)(3)(A)(ii). 5 17 CFR 240.19b–4(f)(2). 6 The Exchange uses the terms ‘‘specialist’’ and ‘‘specialist unit’’ interchangeably herein. 7 Certain shortfall fee caps apply to transactions in any of the top 120 equity options pursuant to the following: (1) If Phlx volume in any top 120 equity option, except options on Nasdaq-100 Index Tracking StockSM (traded under the symbol ‘‘QQQQ’’), is less than or equal to 50 percent of the current threshold volume (presently 6 percent), a cap of $10,000 will apply; (2) If Phlx volume in any top 120 equity option, except options on QQQQ, is greater than 50 percent of the current threshold volume (presently 6 percent) and less than 12 percent of the total national monthly contract volume, a cap of $5,000 will apply; (3) If Phlx volume in options on QQQQ is less than or equal to 50 percent of the current threshold volume (presently 6 percent), a cap of $20,000 will apply; and (4) If Phlx volume in options on QQQQ is greater than 50 percent of the current threshold volume (presently 6 percent) and less than 12 percent of the total national monthly contract volume, a cap of $10,000 will apply. The Nasdaq100, Nasdaq-100 Index, Nasdaq, The Nasdaq Stock Market, Nasdaq-100 SharesSM, Nasdaq-100 Trust SM, Nasdaq-100 Index Tracking StockSM, and QQQSM are trademarks or service marks of The Nasdaq Stock Market, Inc. (‘‘Nasdaq’’) and have been licensed for use for certain purposes by the Phlx pursuant to a License Agreement with Nasdaq. The Nasdaq-100 Index (the ‘‘Index’’) is determined, composed, and calculated by Nasdaq without regard to the Licensee, the Nasdaq-100 TrustSM, or the beneficial owners of Nasdaq-100 SharesSM. Nasdaq has complete control and sole discretion in determining, comprising, or calculating the Index or in modifying in any way its method for determining, comprising, or calculating the Index in the future. 8 An SQT is an Exchange Registered Options Trader (‘‘ROT’’) who has received permission from the Exchange to generate and submit option quotations electronically through an electronic interface with AUTOM via an Exchange approved proprietary electronic quoting device in eligible options to which such SQT is assigned. See Phlx Rule 1014(b)(ii)(A). AUTOM is the Exchange’s electronic order delivery, routing, execution and reporting system, which provides for the automatic PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 Remote Streaming Quote Traders (‘‘RSQTs’’) 9 trading on the Exchange’s electronic options trading platform, Phlx XL,10 have been designated to receive Directed Orders 11 from Order Flow Providers 12 for the same top 120 equity option13 in which that specialist unit is acting as the specialist; and (2) establish a shortfall credit of $0.35 per contract in any top 120 equity option for each specialist unit whose trading volume for such equity option effected on the Exchange in one month exceeds 15% of the total national monthly contract volume for such equity option in that same month, up to the total amount of the shortfall fee, if any, that is incurred in connection with the trading of other top 120 equity options that has not met the volume threshold, which is currently set at 12% of the total national monthly contract volume. The Exchange also proposes to make a minor, technical change to the shortfall fee section in its Summary of Equity Option Charges by inserting the word ‘‘equity’’ in the phrase ‘‘top 120 options’’ to clarify the type of options to which the Exchange is referring in the shortfall fee section. In addition, the Exchange proposes to clarify that the reference to ‘‘transition period’’ in the first paragraph of the shortfall fee entry and routing of equity option and index option orders to the Exchange trading floor. See Phlx Rule 1080(a). 9 An RSQT is a ROT that is a member or member organization of the Exchange with no physical trading floor presence who has received permission from the Exchange to generate and submit option quotations electronically through AUTOM in eligible options to which such RSQT has been assigned. An RSQT may only submit such quotations electronically from off the floor of the Exchange. An RSQT may only trade in a market making capacity in classes of options in which he is assigned. See Phlx Rule 1014(b)(ii)(B). See generally Securities Exchange Act Release Nos. 51126 (February 2, 2005), 70 FR 6915 (February 9, 2005) (SR–Phlx–2004–90) and 51428 (March 24, 2005), 70 FR 16325 (March 30, 2005) (SR–Phlx– 2005–12). 10 In July 2004, the Exchange began trading equity options on Phlx XL, followed by index options in December 2004. See Securities Exchange Act Release No. 50100 (July 27, 2004), 69 FR 46612 (August 3, 2004) (SR–Phlx–2003–59). 11 The term ‘‘Directed Order’’ means any customer order to buy or sell which has been directed to a particular specialist, RSQT, or SQT by an Order Flow Provider (as defined herein). See Phlx Rule 1080(l)(i)(A). The provisions of Phlx Rule 1080(l) are in effect for a one-year pilot period to expire on May 27, 2006. See Securities Exchange Act Release No. 51759 (May 27, 2005), 70 FR 32860 (June 6, 2005) (SR–Phlx–2004–91). 12 The term ‘‘Order Flow Provider’’ means any member or member organization that submits, as agent, customer orders to the Exchange. See Phlx Rule 1080(l)(i)(B). 13 The Exchange defines a top 120 equity option as one of the 120 most actively traded equity options in terms of the total number of contracts in that option that were traded nationally for a specified month, based on volume reflected by The Options Clearing Corporation. E:\FR\FM\10FEN1.SGM 10FEN1

Agencies

[Federal Register Volume 71, Number 28 (Friday, February 10, 2006)]
[Notices]
[Pages 7103-7106]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-1839]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53213; File No. SR-NYSE-2005-80]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendment No. 1 Thereto Relating to NYSE Rule 36, RCMMs' Ability to 
Use Exchange Authorized and Issued Portable Phones on the NYSE Floor

February 2, 2006.
    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, 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 Items I and 
II below, which Items have been prepared by the Exchange. On January 
18, 2006, NYSE filed Amendment No. 1 to the proposed rule change.\3\ 
NYSE filed this proposal pursuant to Section 19(b)(3)(A) of the Act \4\ 
and Rule 19b-4(f)(6) thereunder \5\ as non-controversial, and therefore 
the proposed rule change is effective immediately upon filing. The 
Commission is publishing this notice, as amended, 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.
    \3\ In Amendment No. 1, the Exchange clarified proposed NYSE 
Rule 36.22 and added in the purpose section a new footnote relating 
to surveillance and examination procedures to monitor the activities 
of RCMMs.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    This filing amends NYSE Rule 36 to permit Registered Competitive 
Market Makers (``RCMMs''), as defined in NYSE Rule 107A, to use 
Exchange authorized and provided portable phones and consists of 
proposed member education bulletins which describe the conditions under 
which Floor brokers and RCMMs may use such phones pursuant to the 
Exchange's portable phone pilot (``Pilot''). The conditions under which 
a Floor broker and a RCMM may use a portable phone pursuant to the 
Pilot are proposed as NYSE Rules 36.21 and 36.22.

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. 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
Background
    The Commission approved implementation of the Exchange's amendment 
to NYSE Rule 36 allowing Floor brokers to use Exchange authorized and 
provided portable phones on the Exchange Floor as a six-month pilot \6\ 
beginning no later than June 23, 2003.\7\ Since the inception of the 
Pilot, the Exchange has extended the Pilot five times, with the current 
Pilot expiring on January 31, 2006.\8\ In addition, the Exchange filed 
for permanent approval of this rule.\9\ The Exchange represents that no 
administrative or technical problems, other than routine telephone 
maintenance issues, have resulted from the Pilot over the past few 
months.\10\
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    \6\ See Securities Exchange Act Release No. 47671 (April 11, 
2003), 68 FR 19048 (April 17, 2003) (SR-NYSE-2002-11) (``Original 
Order'').
    \7\ 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).
    \8\ 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); 51464 (March 31, 2005), 70 FR 
17746 (April 7, 2005) (SR-NYSE-2005-20) (extending the Pilot for 
additional four months ending July 31, 2005); and 52188 (August 1, 
2005), 70 FR 46252 (August 9, 2005) (SR-NYSE-2005-53) (extending the 
Pilot for an additional six months ending January 31, 2006).
    \9\ See SR-NYSE-2004-52, pending with the Commission.
    \10\ The Exchange notes that it began receiving records of 
incoming telephone calls in June 2005 and will continue to receive 
monthly updates. With respect to regulatory actions concerning the 
Pilot, there is an open investigation into possible insider trading 
in an NYSE listed security in which the trading activity of two 
RCMMs has been identified and is under review. With respect to one 
of these RCMMs, the use by the RCMM of an Exchange authorized and 
provided portable phone in or about January 2005 is under review as 
part of the investigation. Telephone conversation between Jeff 
Rosenstrock, Senior Special Counsel, NYSE, and Molly M. Kim, 
Attorney, Division of Market Regulation, Commission, on January 27, 
2006.
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NYSE Rule 36
    NYSE Rule 36 (Communications Between Exchange and Members' Offices) 
governs the establishment of telephone or electronic communications 
between the Exchange Floor and any other location. Today, NYSE Rule 
36.20 permits a Floor broker to use an Exchange authorized and provided 
portable telephone on the Exchange Floor. NYSE Rule 36.20 does not 
apply to specialists who are prohibited under this rule from 
communicating with off-Floor locations from the Exchange Floor.\11\
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    \11\ NYSE Rule 36.30 provides that, with the approval of the 
Exchange, a specialist unit may maintain a telephone line at its 
stock trading post location to the off-Floor offices of the 
specialist unit or the unit's clearing firm. Such telephone 
connection shall not be used for the purpose of transmitting to the 
Floor orders for the purchase or sale of securities but may be used 
to enter options or futures hedging orders through the unit's off-
Floor office or the unit's clearing firm or through a member (on the 
floor) of an options or futures exchange.
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    Currently, under the Pilot, with the approval of the Exchange, a 
Floor broker is 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 Floor broker's customers.\12\ 
Such

[[Page 7104]]

communication permit Floor brokers to accept orders consistent with 
Exchange rules and provide status and oral execution reports for orders 
previously received, as well as ``market look'' observations as 
historically have been routinely transmitted from a Floor broker's 
booth location. The use of a portable telephone on the Exchange Floor 
other than one authorized and provided by the Exchange is prohibited.
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    \12\ Floor brokers 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. For more 
information regarding Exchange requirements for conducting a public 
business on the Exchange Floor, see Information Memos 05-37 (May 27, 
2005) and 01-18 (July 11, 2001) (both available on http://
www.nyse.com) and 91-25 (July 8, 1991).
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RCMMs
    The Commission approved the Exchange's proposed rule to permit 
members to register as RCMMs on May 1, 1978.\13\ Under NYSE Rule 107A, 
RCMMs may trade for their own account or the account of their member 
organization and may also serve as Floor brokers executing customer 
orders.\14\ Currently, there are eleven (11) registered RCMMs. RCMMs 
are also subject to being called by a Floor Official or a Floor broker 
holding an unexecuted customer order to improve the market in any 
listed stock by either bidding/offering to narrow the spread by at 
least the minimum trading variation or improving the depth of the 
market by at least one unit of trading (normally 100 shares).\15\ 
Further, a member may not act as a RCMM and a broker representing an 
agency order in the same security on the same day.\16\
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    \13\ See Securities Exchange Act Release No. 14718 (May 1, 
1978), 45 FR 19738 (May 8, 1978) (SR-NYSE-78-24).
    \14\ The Exchange has developed surveillance and examination 
procedures to monitor the activities of RCMMs, including their use 
of Exchange authorized and provided portable phones.
    \15\ These RCMM trades are referred to as ``affirmative 
obligation'' trades or ``call-in notifications.''
    \16\ See NYSE Rule 107A.B(1).
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Proposed Changes to NYSE Rule 36
    Prior approval orders by the Commission concerning the Pilot and 
the current NYSE Rule 36.20 only apply to a Floor broker's ability to 
use an Exchange authorized and provided portable phone. RCMMs are non-
specialist members of the Exchange and do not have the same type of 
information (i.e., access to the Display Book[reg]) that a specialist 
has. As such, the Exchange believes it is appropriate for RCMMs to 
participate in the Pilot so that they could communicate with their 
offices in order to, among other things, enter off-Floor orders and 
better monitor their positions. Therefore, in order to clarify that 
NYSE Rule 36.20 would apply to RCMMs and Floor brokers, the Exchange 
proposes to delete the current reference in NYSE Rule 36.20 to 
``members and member organizations other than a specialist or 
specialist member organization'' and replacing it with the terms 
``Floor brokers and RCMMs.''
    The Exchange believes that providing portable phones to RCMMs would 
increase the efficiency of their trading in accordance with NYSE Rule 
107A, especially given the changes in the speed of trading.\17\ 
However, given their ability to trade for their own account or the 
account of their member organizations without the restrictions that 
apply to other non-specialist members and member organizations, the 
Exchange also believes it appropriate to limit RCMMs' use of portable 
phones in accordance with the Pilot, as follows:
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    \17\ The Exchange believes that, currently, allowing Floor 
brokers to use portable phones enables the Exchange to continue 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. See Securities 
Exchange Act Release No. 52188 (August 1, 2005), 70 FR 46252 (August 
9, 2005) (SR-NYSE-2005-53).
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     Limit their use of the portable phone solely to 
communications with their upstairs office's land line and the land line 
of their clearing member organization's upstairs office to enter off-
Floor orders and discuss matters related to the clearance and 
settlement of transactions;
     RCMMs, their off-Floor offices, and their member 
organization's off-Floor offices would not be allowed to use portable 
phones to transmit to the Floor orders for the purchase or sale of 
securities by public customers or any other agency business;
     RCMMs' use of the portable phone pursuant to proposed NYSE 
Rules 36.20 and 36.22 must comply with all other rules, policies, and 
procedures of both the federal securities laws and the Exchange, 
including the record retention requirements, as set forth in NYSE Rule 
440 and Rules 17a-3 and 17a-4 under the Act; \18\
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    \18\ 17 CFR 240.17a-3 and 240.17a-4.
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     Require that RCMMs implement procedures designed to deter 
their upstairs office or their clearing member organization's upstairs 
office calling their portable phone number from using caller ID block 
or other means to conceal the phone number from which a call is being 
made; and
     Call-forwarding or conference calling are prohibited by 
RCMMs, their upstairs office personnel, and their clearing member 
organization's upstairs office.\19\
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    \19\ All Exchange authorized and provided portable phones do not 
have call-forwarding or conference calling capabilities and would 
continue to not have such capabilities.
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    In addition, no other electronic communication devices may be used 
unless approved by the Exchange.\20\ Finally, RCMMs must execute a 
written acknowledgement authorizing the portable phone service provider 
to provide New York Stock Exchange Regulation (``NYSE Regulation'') 
with data and records relating to incoming and outgoing calls.\21\
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    \20\ Currently, only Exchange authorized and provided portable 
phones are approved.
    \21\ This provision is being proposed as a precautionary measure 
to address the privacy concerns by the portable phone service 
provider.
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    A member education bulletin describing the above conditions for the 
use of a portable phone by RCMMs, the acknowledgement procedure, and 
the proposed rule text would be sent to all RCMMs. The Exchange also 
proposes that this filing (including proposed conforming changes to 
NYSE Rule 36) become incorporated into the Pilot.
RCMM Acting as a Floor Broker
    As noted above, RCMMs are permitted to serve as Floor brokers, 
executing customer orders, provided they do not execute RCMM and 
customer orders in the same security on the same day. However, the 
Pilot permits broader portable phone usage for Floor brokers than 
RCMMs. Accordingly, RCMMs would not be allowed to use a portable phone 
to conduct any agency business until issues involving the use of 
portable phones by a RCMM acting in a capacity of an agent have been 
fully reviewed and resolved by NYSE Regulation.\22\
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    \22\ In the future, the Exchange would consider allowing RCMMs 
to notify NYSE Regulation in writing of their intent to conduct such 
agency business, and NYSE Regulation would make a determination 
whether to require that a RCMM amend his or her Form BD with the 
Commission and/or file an amended membership application with NYSE 
Regulation. However, allowing RCMMs acting as Floor brokers to use 
portable phones would involve further discussions with the 
Commission and would be the subject of a separate filing with the 
Commission.
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Use of Portable Phones by Floor Brokers
    As noted above, the Exchange is providing in proposed NYSE Rule 
36.21 the conditions under which Floor brokers can use portable phones 
during the Pilot. In addition, the Exchange has developed an 
acknowledgement for Floor brokers participating in the Pilot to sign. 
Floor brokers must acknowledge the following:
     They authorize the portable phone service provider to 
provide NYSE

[[Page 7105]]

Regulation with data and records relating to incoming and outgoing 
calls;
     Their use of the portable phone pursuant to NYSE Rule 
36.20 complies with all other rules, policies, and procedures of both 
the federal securities laws and the Exchange, including the record 
retention requirements, as set forth in NYSE Rule 440 and Rules 17a-3 
and 17a-4 under the Act; \23\
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    \23\ 17 CFR 240.17a-3 and 240.17a-4.
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     They are required to implement procedures designed to 
deter anyone calling their portable phone number from using caller ID 
block or other means to conceal the phone number from which a call is 
being made; members and member organizations are required to make and 
retain records demonstrating compliance with such procedures; and
     No other electronic communication devices may be used 
unless approved by the Exchange.\24\
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    \24\ Currently, only Exchange authorized and provided portable 
phones are approved.
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    A member education bulletin describing the proposed rule text and 
the acknowledgement procedure would be sent to all Floor brokers 
participating in the Pilot.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \25\ in general, and further the 
objectives of Section 6(b)(5) of the Act \26\ 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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    \25\ 15 U.S.C. 78f(b).
    \26\ 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, as 
amended, would 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, as amended, 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 \27\ and Rule 19b-
4(f)(6) thereunder.\28\ At any time within 60 days of the filing of the 
proposed rule change, as amended, 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.\29\
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    \27\ 15 U.S.C. 78s(b)(3)(A).
    \28\ 17 CFR 240.19b-4(f)(6).
    \29\ For purposes of calculating the 60-day period within which 
the Commission may summarily abrogate the proposed rule change under 
Section 19(b)(3)(C) of the Act, the Commission considers the period 
to commence on January 18, 2006, the date NYSE filed Amendment No. 1 
to the proposed rule change. See 15 U.S.C. 78s(b)(3)(C).
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    The Exchange has requested that the Commission waive the 30-day 
operative period under Rule 19b-4(f)(6)(iii) of the Act.\30\ 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, as amended, immediately effective 
upon filing on November 21, 2005. The Commission believes that the 
waiver of the 30-day operative delay may increase the efficiency of the 
Exchange by providing immediate use of Exchange authorized portable 
phones to RCMMs. For this reason, the Commission designates the 
proposal to be effective and operative upon filing with the 
Commission.\31\
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    \30\ 17 CFR 240.19b-4(f)(6)(iii).
    \31\ For purposes only of waiving the operative delay for 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 Floor. 
Surveillance procedures should help to ensure that Floor brokers and 
RCMMs use portable phones as authorized by NYSE Rule 36 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 Pilot. In this regard, 
the Commission notes that the Exchange should address whether telephone 
records are adequate for surveillance purposes.
    The Commission also requests that the Exchange report any problems, 
surveillance, or enforcement matters associated with use of an Exchange 
authorized and provided portable telephone by Floor brokers and RCMMs 
on the Exchange Floor. As stated in the Original Order, 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 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.\32\
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    \32\ The Commission expects the information to distinguish 
between Floor brokers' and RCMMs' usage of the phones.
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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, as amended, 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 rule-comments@sec.gov. Please include 
File Number SR-NYSE-2005-80 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-NYSE-2005-80. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your

[[Page 7106]]

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 also will 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-2005-80 and should be 
submitted on or before March 3, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-1839 Filed 2-9-06; 8:45 am]
BILLING CODE 8010-01-P