[Federal Register Volume 81, Number 183 (Wednesday, September 21, 2016)]
[Notices]
[Pages 64966-64969]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-22730]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78855; File No. SR-NYSE-2016-31]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Granting Approval of Proposed Rule Change Amending NYSE Rule 6A To
Exclude the Physical Area Within Fully Enclosed Telephone Booths
Located in 18 Broad Street From the Definition of Trading Floor
September 15, 2016.
I. Introduction
On May 31, 2016, New York Stock Exchange LLC (``NYSE'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend NYSE Rule 6A (``Trading Floor'') to
exclude a physical area within fully enclosed telephone booths located
in 18 Broad Street from the definition of Trading Floor. The proposed
rule change was published for comment in the Federal Register on June
17, 2016.\3\ On July 29, 2016, pursuant to Section 19(b)(2) of the
Act,\4\ the Commission designated a longer period within which to
either approve the proposed rule change, disapprove the proposed rule
change, or institute proceedings to determine whether to disapprove the
proposed rule change.\5\ The Commission received no comments on the
proposed rule change. This order grants approval of the proposed rule
change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 78057 (June 13,
2016), 81 FR 39722 (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 78442 (July 29,
2016), 81 FR 51521 (August 4, 2016). The Commission designated
September 15, 2016 as the date by which it shall approve,
disapprove, or institute proceedings to determine whether to
disapprove the proposed rule change.
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The Exchange proposes to amend NYSE Rule 6A (``Trading Floor'') to
exclude an area within fully enclosed telephone booths located in 18
Broad Street from the definition of ``Trading Floor.'' Under the
proposal, as discussed in more detail below, the area within the
enclosed telephone booths will remain within the Exchange's broader
definition of Floor under Rule 6.\6\ The Exchange also proposes to
revise the definition of ``Trading Floor'' to reflect the renaming of a
portion of its physical area and relocation of where NYSE Amex-listed
options are traded.\7\
---------------------------------------------------------------------------
\6\ See, infra, notes 16-17 and accompanying text.
\7\ See proposed Rule 6A.
---------------------------------------------------------------------------
The Exchange currently defines ``Trading Floor'' in Rule 6A to mean
the restricted-access physical areas designated by the Exchange for the
trading of securities, commonly known as the ``Main Room,'' the ``Blue
Room,'' and the ``Garage.'' \8\ Rule 6A then excludes from the
definition of ``Trading Floor'' those areas designated by the Exchange
where NYSE Amex-listed options are traded, commonly known as the
``Extended Blue Room,'' which, for the purposes of the Exchange's
Rules, are referred to as the ``NYSE Amex Options Trading Floor.'' \9\
---------------------------------------------------------------------------
\8\ See NYSE Rule 6A; see also Securities Exchange Act Release
No. 59479 (Mar. 2, 2009), 74 FR 10325 (Mar. 10, 2009) (SR-NYSE-2009-
23).
\9\ See NYSE Rule 6A.
---------------------------------------------------------------------------
The Exchange proposes to exclude an additional area from the
definition of Trading Floor. Specifically, the proposal would exclude
from the defined Trading Floor the physical area within fully enclosed
telephone booths located in 18 Broad Street at the Southeast wall of
the Trading Floor.\10\ These telephone booths are located in a
vestibule area adjacent to the 18 Broad Street elevator banks that
provide access to the Trading Floor. The vestibule area is separated
from the equity trading areas of the Main Room by approximately forty
(40) feet and a partial physical barrier. The Exchange represents that,
while inside the telephone booths, there is no visual or auditory
access to activities conducted at the trading posts or by Floor
Brokers.\11\
---------------------------------------------------------------------------
\10\ See proposed Rule 6A.
\11\ See Notice, supra note 3, at 39722-23.
---------------------------------------------------------------------------
Currently Exchange members and employees of member organizations
are allowed to use personal portable or wireless communication devices
outside the Trading Floor, provided that such use is consistent with
all other Exchange Rules and federal securities laws and rules
thereunder.\12\ By excluding the physical area within the fully
enclosed telephone booths described herein from the definition of
Trading Floor, the proposal would create an exception to restrictions
that would otherwise prohibit the use of personal cellular telephones
while in the telephone booths. In its filing, the Exchange states that
it designed the telephone booths for use by Designated Market Makers
(``DMMs'') and DMMs could use this space to communicate with issuers.
However, the telephone booths could be used by anyone with access to
the Trading Floor, including Floor Brokers.\13\ In the Exchange's view,
a DMM's use of a personal cellular telephone while within a telephone
booth to communicate with an issuer is no different than a DMM's use of
a personal cellular telephone to communicate with an issuer from a
DMM's office off the Exchange or while outside the restricted-access
areas of the Floor.\14\
---------------------------------------------------------------------------
\12\ See NYSE Rule 36, Supplementary Material .23.
\13\ Currently, Floor Brokers on the Trading Floor are only
allowed to use an approved telephone line or Exchange authorized and
provided portable phone. See NYSE Rule, Supplementary Material .20
and .21.
\14\ See Notice, supra note 3, at 39723.
---------------------------------------------------------------------------
The Exchange states in its filing that, while in a telephone booth,
a DMM would not have access to any time and place information that he
or she may have at a trading post. According to the Exchange, the
following aspects of the telephone booths would create privacy: (1) The
closest location of any Floor Broker operations, which also contains
privacy barriers, is approximately forty (40) feet from the proposed
location of the telephone booths; (2) there are high arching walls with
limited line and sight vision separating the telephone booths from any
trading posts on the Trading Floor; and (3) the telephone booths are
fully enclosed so any conversation that would occur would take place
behind closed doors. The Exchange states that it ``believes that the
combination of these visual and acoustical barriers would substantially
[[Page 64967]]
eliminate the risk that any conversations occurring inside the
telephone booth could be overheard [and] it substantially eliminates
the risk that an individual having a conversation while inside the
telephone booth would be able to hear or see anything at a trading post
where securities trade.'' \15\
---------------------------------------------------------------------------
\15\ See Notice, supra note 3, at 39723.
---------------------------------------------------------------------------
The term ``Trading Floor'' is distinct from the term ``Floor,''
which is defined as the trading Floor of the Exchange and the premises
immediately adjacent thereto, such as the various entrances and lobbies
of the 11 Wall Street, 18 New Street, 8 Broad Street, 12 Broad Street
and 18 Broad Street Buildings, and the telephone facilities available
in these locations.\16\ Because the area within the fully enclosed
telephone booths, while outside the ``Trading Floor,'' would still fall
within the broader definition of ``Floor'' under Exchange rules, the
Exchange would retain jurisdiction over its members while they are
within the telephone booths. The Exchange notes that it would therefore
retain jurisdiction within the telephone booths to regulate conduct
that is inconsistent with Exchange Rules and the federal securities
laws and rules thereunder.\17\
---------------------------------------------------------------------------
\16\ See NYSE Rule 6.
\17\ See Notice, supra note 3, at 39723.
---------------------------------------------------------------------------
Specifically, current Exchange restrictions governing the
protection of material non-public information would continue to apply
to DMMs even when off the Trading Floor and thus would apply to their
communications within the telephone booths. NYSE Rule 98 (``Operation
of a DMM Unit'') provides that ``[w]hen a Floor-based employee of a DMM
unit moves to a location off of the Trading Floor of the Exchange or if
any person that provides risk management oversight or supervision of
the Floor-based operations of the DMM unit is aware of Floor-based non-
public order information,\18\ he or she shall not (1) make such
information available to customers, (2) make such information available
to individuals or systems responsible for making trading decisions in
DMM securities in away markets or related products, or (3) use any such
information in connection with making trading decisions in DMM
securities in away markets or related products.'' \19\ The Exchange, in
its filing, explains that the proposed rule change is not intended to
circumvent the restrictions prescribed in Rule 98 applicable to DMMs,
including those pertaining to the misuse of material non-public
information.\20\
---------------------------------------------------------------------------
\18\ NYSE Rule 98(b)(4) states that ``Floor-based non-public
order'' means ``any order, whether expressed electronically or
verbally, or any information regarding a reasonably imminent non-
public transaction or series of transactions entered or intended for
entry or execution on the Exchange and which is not publicly
available on a real-time basis via an Exchange-provided datafeed,
such as NYSE OpenBook[supreg] or otherwise not publicly available.''
\19\ See NYSE Rule 98(c)(3)(C). Rule 98(c)(3)(C) does not
restrict communications between a DMM and the DMM's risk manager off
the Trading Floor, as may be necessary if a Floor Broker needs to
discuss the risk profile of a proposed transaction.
\20\ See Notice, supra note 3, at 39723.
---------------------------------------------------------------------------
NYSE Rule 36, Supplementary Material .30 (``DMM Unit Post Wires'')
permits DMMs to maintain telephone lines at their trading posts to
communicate with personnel at the off-Floor offices of the DMM, the
DMM's clearing firm, or with persons providing non-trading-related
services to the DMM, and wired or wireless devices that are registered
with the Exchange to communicate with the system employing the DMM's
algorithms and with individual algorithms.\21\ The Exchange further
states in its filing that it is not proposing any changes to Rule 36
and that DMMs would continue to be subject to Supplementary Material
.30 to Rule 36.\22\
---------------------------------------------------------------------------
\21\ See NYSE Rule 36, Supplementary Material .30.
\22\ See Notice, supra note 3, at 39723.
---------------------------------------------------------------------------
Additionally, the Exchange proposes amendments to reflect the
renaming and relocation of certain trading areas. The Exchange has
renamed the former ``Garage'' as the ``Buttonwood Room.'' \23\ The
Exchange also recently closed the ``Blue Room'' and the ``Extended Blue
Room'' and moved all member organizations, member organization
employees, and NYSE Amex Options trading activities that were
previously housed in these areas to the Buttonwood Room. Therefore the
proposal would delete references to the ``Blue Room'' and ``Extended
Blue Room'' and replace them with references to the ``Buttonwood
Room.'' \24\ The current rule excludes the NYSE Amex Options Trading
Floor from the definition of Trading Floor.\25\ The proposal would
exclude from the definition of Trading Floor the designated areas in
the Buttonwood Room where NYSE Amex-listed options are traded, which,
for the purposes of the Exchange's Rules, would continue to be referred
to as the ``NYSE Amex Options Trading Floor.'' \26\ The Exchange states
that this proposal does not alter the substance of the rule and
reflects only the location change for NYSE Amex Options.\27\
---------------------------------------------------------------------------
\23\ See Notice, supra note 3, at 39722.
\24\ See Notice, supra note 3, at 39722.
\25\ See NYSE Rule 6A.
\26\ See proposed Rule 6A. The Exchange states that, as when the
NYSE Amex Options Trading Floor was located in the Extended Blue
Room, the Exchange has erected physical barriers between the NYSE
Amex Options Trading Floor and any Exchange member organizations or
Exchange personnel that are also located in the Buttonwood Room. See
Notice, supra note 3, at 39722 n7.
\27\ See Notice, supra note 3, at 39722.
---------------------------------------------------------------------------
II. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\28\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\29\ which
requires, among other things, that the rules of a national securities
exchange be designed to prevent fraudulent and manipulative acts and
practices, 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.
---------------------------------------------------------------------------
\28\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\29\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange proposes to exclude from the definition of ``Trading
Floor'' the physical area within fully enclosed telephone booths
located in 18 Broad Street.\30\ Through this definitional change, the
proposal would allow persons within the telephone booths to use
personal portable or wireless communications devices outside the
Trading Floor, provided such use is consistent with all other Exchange
Rules and federal securities laws and the rules thereunder.\31\ The
Exchange states that it designed the telephone booths for use by DMMs,
and DMMs could use a personal cellular telephone within this space to
communicate with issuers, but the telephone booths could also be used
by anyone with access to the Trading Floor.\32\
---------------------------------------------------------------------------
\30\ See proposed Rule 6A.
\31\ See NYSE Rule 36, Commentary .23.
\32\ See Notice, supra note 3, at 39723.
---------------------------------------------------------------------------
When approving the use of personal portable or wireless
communications devices outside of the Exchange's Trading Floor and
other restricted access areas, the Commission found there to be a
reasonable balance between the Exchange's interest in providing a
convenient and comfortable space for Exchange members and member firm
employees to use personal portable communications devices inside the
Exchange buildings and in minimizing
[[Page 64968]]
the risk of misuse of such devices.\33\ Based on representations made
by the Exchange, the Commission believes that this proposal provides a
similar balance between the Exchange's interest to provide a convenient
location for DMMs and others on the Trading Floor to place telephone
calls while minimizing the risk of any potential time and place
advantage that could come with using personal portable communication
devices in proximity to trading activity.\34\ While the telephone
booths fall within the physical turnstiles that generally control entry
onto the Trading Floor, they are separated from trading activity by
approximately forty (40) feet. According to the Exchange, the location
of the telephone booths, and the enclosed setting within such booths,
would provide sufficient visual and auditory barriers between the area
within the telephone booths and trading activity, so as to minimize the
possibility of any time and place advantage.\35\ The Exchange has also
indicated that the glass on the telephone booths has been frosted to
make it opaque, which should help further reduce any sight lines to
non-public Trading Floor information.\36\ Additionally, the Commission
believes that given the current speed of electronic trading, any Floor-
based non-public order information that the DMM, or other floor-based
personnel using the telephone booths, had prior to leaving his or her
trading post or booth area would likely be rendered stale by the time
he or she reached the telephone booths, thereby substantially reducing
the risk of any time and place advantage.
---------------------------------------------------------------------------
\33\ See Securities Exchange Act Release No. 60983 (November 10,
2009), 74 FR 59596, 59598 (November 18, 2009) (Order Approving SR-
NYSE-2009-84) (noting that personal portable communications devices
are not subject to the same surveillance as devices authorized and
issued by the Exchange).
\34\ The Commission notes that ``[t]he term `facility' when used
with respect to an exchange includes its premises, tangible or
intangible property whether on the premises or not, any right to the
use of such premises or property or any service thereof for the
purpose of effecting or reporting a transaction on an exchange
(including, among other things, any systems of communication to or
from the exchange, by ticker or otherwise, maintained by or with the
consent of the exchange), and any right of the exchange to the use
of any property or service.'' 15 U.S.C. 78c(a)(2).
\35\ See Notice, supra note 3, at 39723. The Commission notes
the Exchange's representation that ``while inside the telephone
booths, there is not any visual or auditory access to activities
conducted at the trading posts or by Floor Brokers.'' See id.
\36\ See note 32, supra, at 59597 n12, which noted when
approving the use of personal portable or wireless communication
devices outside the Exchange's Trading Floor that the majority of
the doors that require card swipe entry are opaque. The Commission
expects the Exchange to continue to ensure that the telephone booths
remain in an area inside the Trading Floor turnstiles that minimizes
any line of sight, including through the use of opaque glass on the
booths. The Exchange has represented that it continues to monitor
and surveil its Trading Floor for the misuse of material, non-public
information, including trading ahead of customer orders, and that
these surveillance procedures should be effective for monitoring for
the misuse of material non-public information with the addition of
telephone booths in close proximity to the Trading Floor within
which individuals may use personal cellular telephones.
---------------------------------------------------------------------------
The Commission notes that the Exchange will retain jurisdiction
over its members and member organizations, including DMM units and
their employees, for their conduct within the telephone booths because
this area is still within the broader definition of Floor under NYSE
Rule 6.\37\ With respect to DMMs in particular, NYSE Rule 98 contains
restrictions on a DMM's conduct while on and off the Trading Floor.
These restrictions include a general prohibition on the misuse of
Floor-based non-public order information.\38\ When a DMM moves to a
location off the Trading Floor, the DMM must not make Floor-based non-
public order information available to customers or to individuals or
systems responsible for making trading decisions in DMM securities in
away markets or related products, or use any such information in
connection with trading decisions in DMM securities in away markets or
related products.\39\
---------------------------------------------------------------------------
\37\ See note 17 and accompanying text supra.
\38\ See NYSE Rule 98(c)(3)(A).
\39\ See NYSE Rule 98(c)(3)(C).
---------------------------------------------------------------------------
In addition, the Commission has been concerned about whether there
could be a misuse of any information about customer orders or other
material information that is passed to a DMM or other floor personnel
through the use of personal cellular telephones within private
telephone booths in close proximity to the Trading Floor. For similar
reasons noted above that reduce the risk of misuse of Floor-based non-
public order information,\40\ such as the speed of electronic trading,
and the Exchange's representations concerning its surveillance of
transactions occurring on the Exchange Trading Floor, the Commission
believes the Exchange has addressed these concerns.
---------------------------------------------------------------------------
\40\ See supra note 18, which noted that Floor-based non-public
order information includes information expressed verbally.
---------------------------------------------------------------------------
The Exchange has represented that information DMMs and other floor-
based personnel relay, receive, or discuss on personal cellular phones
within the telephone booths adjacent to the Trading Floor, will not, in
the Exchange's view diminish the ability of the Exchange to adequately
surveil its market for the misuse of Floor-based non-public order
information and other material non-public information.\41\ The
Commission, therefore, believes that based on the Exchange's
representations noted above, and in particular its representations that
it has the ability to effectively conduct surveillance for the misuse
of material non-public information despite permitting DMMs and others
to use personal cellular telephones within telephone booths placed
adjacent to the restricted Trading Floor, that the NYSE proposal is
consistent with the Act.
---------------------------------------------------------------------------
\41\ The Exchange has represented that in surveilling for
compliance with its rules, NYSE can require a member firm to produce
any additional information necessary regarding telephone booth use.
In addition, the Exchange has represented that members firms will
need to amend their policies and procedures concerning compliance
with NYSE Rule 98 to account for the introduction of these telephone
booths and will send an Information Memorandum to its members to
remind them of this obligation, as well as obligations to comply
with Rule 98 and, in particular, Rule 98(c)(3).
---------------------------------------------------------------------------
Finally, the Exchange proposes amendments to the definition of
``Trading Floor'' in NYSE Rule 6A to reflect the renaming and
relocation of certain trading areas.\42\ The Commission believes that
updating the names of the renamed or relocated trading areas in the
Exchange rules to reflect the current use of the Exchange Trading Floor
would eliminate any potential confusion among investors and other
market participants on the Exchange regarding the parameters of the
Trading Floor and thereby where certain conduct is, or is not,
permitted.
---------------------------------------------------------------------------
\42\ See proposed Rule 6A.
---------------------------------------------------------------------------
Based on the foregoing, the Commission therefore finds the proposal
to be consistent with the Act. The Commission believes that the
proposal to exclude the area within the telephone booths described
herein from the definition of Trading Floor, and thereby permit the use
of personal communication devices within this area, while not without
risk, is tempered by the existence of physical barriers that limit
visual and auditory access between the telephone booths and the
location of trading activities, the speed of electronic trading, and
the fact that the Exchange retains jurisdiction over its members while
they are in the telephone booths. The Commission expects that the
Exchange will monitor compliance with Exchange rules within the
telephone booths and on the Trading Floor and inform the Commission if
it encounters difficulties in enforcing its rules or otherwise finds
that the amendment to the definition of Trading Floor raises regulatory
concerns.
[[Page 64969]]
IV. Conclusion
It is therefore ordered, pursuant to Section 19b(2) of the Act,\43\
that the proposed rule change (SR-NYSE-2016-31) be, and hereby is,
approved.
---------------------------------------------------------------------------
\43\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\44\
---------------------------------------------------------------------------
\44\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Brent J. Fields,
Secretary.
[FR Doc. 2016-22730 Filed 9-20-16; 8:45 am]
BILLING CODE 8011-01-P