[Federal Register Volume 60, Number 170 (Friday, September 1, 1995)]
[Notices]
[Pages 45756-45758]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21756]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36156; File No. SR-NYSE-95-22]
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change Relating to the
Exchange's Wireless Data Communications Initiatives
August 25, 1995.
I. Introduction
On June 1, 1995, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') submitted to the Securities Exchange Commission (``SEC''
or ``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934
[[Page 45757]]
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
introduce into its trading floor wireless data communications
technology that allows a member in a trading crowd or elsewhere on the
floor to communicate with others by means of a hand-held wireless
device. The Exchange also proposed an interpretation with respect to
NYSE Rule 117 which requires members' orders to be in writing.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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The proposed rule change was published for comment in Securities
Exchange Act Release No. 35931 (June 30, 1995), 60 FR 35767. No
comments were received on the proposal.
II. Description of the Proposals
The Exchange's proposed wireless data communications technology
involves the floor-based use of wireless hand-held data communication
devices. The Exchange proposes to implement a four-phase process to
integrate the new technology into the floor environment (``NYSE
Plan'').\3\ The Exchange's basic operating premise is to allow private
vendors to provide wireless data communications services to Exchange
members on the floor, but only in a manner that treats members
equitably and does not unfairly discriminate among members. The
Exchange also proposes to provide its own wireless data communications
service on a non-discriminatory basis.
\3\ A detailed description of the wireless communication plan
and its requirements are set out in Securities Exchange Act Release
No. 35931 (June 30, 1995), 60 FR 35767 (July 11, 1995).
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Phase I, which has been completed, allowed the Exchange to
supervise and monitor three ``proof-of-concept'' pilot programs on the
floor to the Exchange.\4\ Each of the programs tested the viability of
the operation and functionality of wireless hand-held data devices on
the floor. Members participating in the pilot programs were instructed
to use the devices strictly for the purposes of evaluating the devices
and to compare results that might have been achieved had the devices
been used for actual trading purposes with results from actual trades
using traditional paper tickets, telephones and the like.
\4\ One pilot program was conducted by the Exchange and the
other two were conducted by member-sponsored, private wireless data
communications vendors.
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Phase II will involve additional, more structured, pilot testing of
independent wireless data communications services, including that
offered by the Exchange. A prototype of the infrastructure that will be
required to be installed in order to support the wide-scale use of the
wireless hand-held data devices will be used to support the Phase II
pilot programs.
In Phase III, the Exchange will conduct on the floor a pre-
production pilot test of its wireless data communications system
infrastructure. The Exchange will design that infrastructure to use the
2.4 Ghz radio frequency band and to support all hand-held device
wireless data communications services of the Exchange and vendors. The
Exchange will select an integrator to assist in the design,
installation, testing and maintenance of the infrastructure.\5\ In
addition, the Exchange plans to allow its wireless data communication
service to interface with the Exchange's Broker Booth Support System.
\5\ The Exchange plans to have the integrator define
requirements, analyze technology and design the infrastructure
during Phase II.
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In Phase IV, the Exchange will have installed and tested the
infrastructure and moved its own wireless data communications system to
the infrastructure. At that point, the Exchange will have commenced the
production roll-out of the wireless data communications infrastructure
and will have directed all vendors to migrate their systems to the
infrastructure. All authorized vendors will be permitted to offer their
wireless data communications services (and the Exchange will offer its
own system) to such number of members as their respective systems can
accommodate. At that point, the floor-based wireless data
communications technology should be available to all members.
Implementation of the NYSE's Plan will affect Exchange Rule 117
which prohibits members on the floor of the Exchange from making a bid,
offer or transaction for or on behalf of another member except pursuant
to a written order.\6\ The Exchange is proposing an interpretation\7\
that will deem a transmission of an order that a member located on the
floor of the Exchange receives by means of an authorized hand-held
device to constitute a ``written order'' for the purposes of Rule 117
if the member can show that the transmission of the order:
\6\ Rule 117 also provides that if a member to whom an order has
been entrusted leaves the trading crowd without actually
transferring the written order to another member, the order shall
not be represented in the market during his absence. The use of
wireless data communications devices does not affect this portion of
Rule 117. If a member receives an order by means of a transmission
to his wireless device and he leaves a trading crowd without
transferring a written version of the order to another member, the
order may not be represented in the market in his absence.
\7\ The Exchange intends to notify its members of this
interpretation through an information memo.
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(i) Provides adequate information relating to the price, size and
time of the order, the cancellation of the order, and the like;\8\
\8\ All orders entered from off the floor must be transmitted to
a booth terminal before they are retransmitted to a hand-held
device.
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(ii) Satisfies the Exchange's audit trail requirements; and
(iii) Satisfies all other Exchange reporting and recordkeeping
requirements.\9\
\9\ In the case where an order is transmitted electronically
from a member's off-floor location to a booth terminal and then the
order is retransmitted from the booth terminal to a member's hand-
held device, a record must be established and maintained which
reflects the time the order was received by the booth terminal and
the time the order was received by the hand-held device. The record
of time of receipt by the booth terminal may be established and
maintained by such terminal or by a server which records the time
such terminal acknowledges receipt of the order. The booth terminal
must display the order (and the time of receipt, on inquiry) and the
automated record of the order (including time of receipt) must be
supplemented by a paper record of the order at the booth. If the
paper record cannot be produced at the booth terminal, it must then
be produced by hand. The record of time of receipt by a hand-held
device may be established and maintained by such device or by the
server or the booth terminal which receives a message
acknowledgement from the hand-held device. Regardless of whether the
hand-held device records are maintained in such device or in the
booth terminal or a server, such records must be capable of being
printed at the booth location.
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III. Discussion
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, and, in
particular, with the requirements of Section 6(b) of the Act.\10\
Specifically, the Commission believes the proposal is consistent with
the Section 6(b)(5) requirements that the rules of an exchange be
designed to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, to protect investors
and the public interest, and are not designed to permit unfair
discrimination between customers, issuers, brokers or dealers.
\10\ 15 U.S.C. 78f(b).
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The Commission believes that the NYSE Plan should foster
coordination with persons engaged in facilitating transactions in
securities, remove impediments to and perfect the mechanism of a free
and open market, and protect investors and the public
[[Page 45758]]
interest by expediting and making more efficient the process by which
members receive and execute orders on the floor of the Exchange.
The Commission also believes that the NYSE's Plan to phase in the
wireless technology is not designed to permit unfair discrimination
between customers, issuers, brokers, and dealers. Before implementing
Phase II of the NYSE Plan, each of the vendors of the pilot programs
must describe its procedures for selecting the 25 participants that
will participate in its program. These procedures must provide a fair
and non-discriminatory environment and must comply with the Exchange's
selection requirements. For example, each vendor must demonstrate to
the Exchange that it is willing and able to offer any member who wishes
to use that vendor's system the opportunity to participate in the
vendor's pilot program, subject to (i) The capacity constraints of the
vendor's system, (ii) reasonable lead-time that the vendor may need to
bring new users on-line and (iii) the NYSE Plan limit of 25
participants per pilot program. Each vendor is required, among other
things, to offer its service in a reasonable manner that does not give
the vendor (if it is also a member), or a member that is a sponsor or
affiliate of the vendor, an unfair advantage over other Exchange
members. In addition, the Exchange will prohibit a vendor from
providing its pilot program to any member that primarily trades \11\ in
one stock unless and until (i) The vendor is prepared to provide its
service to all members who primarily trade in the same stock and who
desire to participate in the pilot program or (ii) the Exchange
otherwise permits. Moreover, the Exchange will develop procedures for
selecting its own pilot program participants on the same basis. The
Commission believes that these procedures and limitations will result
in a fair implementation of the NYSE Plan.
\11\ The Exchange deems a member to ``primarily trade in one
stock'' if more than 50 percent of either his trades or share volume
occur in that stock. The Exchange will base determinations of
percentages of trades and share volumes on, among other things, the
Exchange's audit trail data.
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Finally, the Commission believes that the proposed interpretation
to Rule 117, under which the transmission of an order that is received
by means of an authorized hand-held device will be deemed to constitute
a ``written order'' for purposes of Rule 117, in general, protects
investors and the public interest. The proposed interpretation provides
that an order recieved through a hand-held device will be considered a
``written order'' only if it meets the specified requirements,
concerning the information to be maintained about the order. The
Commission believes the proposed interpretation to Rule 117 will
provide a more efficient means of communicating orders on the floor at
the same time it requires the same information that is currently
available for orders processed manually.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\12\ that the proposed rule change (SR-NYSE-95-22) is approved.
\12\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
\13\ 17 U.S.C. 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-21756 Filed 8-31-95; 8:45 am]
BILLING CODE 8010-01-M
