Information Memo Member Firm Regulation NYSE Regulation, Inc. 20 Broad Street New York, NY 10005 nyse.com Number 07-43 May 9, 2007 ATTENTION: TO: SUBJECT: CHIEF EXECUTIVE OFFICER/MANAGING PARTNER AND COMPLIANCE, REGULATORY, AND LEGAL DEPARTMENTS ALL MEMBER ORGANIZATIONS REQUIREMENTS FOR CONDUCTING A PUBLIC BUSINESS ON THE TRADING FLOOR This Information Memo serves as a reminder of existing NYSE policy and other regulatory requirements related to member organizations conducting, or intending to conduct, a public business on the NYSE Floor. Series 7 / 7A Registration, Dual Employment, and Pork Chop 1 Arrangements Every natural person (e.g., a Trading Assistant) 2 who is associated with a member organization qualified to conduct a public business must pass the Series 7 examination before participating in the conduct of such public business on the Floor with other than professional customers. 3 A natural person associated with a qualified member organization, seeking to participate in conducting a public business from the Floor solely with professional customers, must pass either the Series 7 or the Series 7A examination. All registration candidates must submit a Form U4 4 and a fingerprint card to Web CRD. A registered person affiliated with a non-qualified member organization (i.e., not qualified to conduct public business) may simultaneously work as a part-time employee 1 Pork chop is a Floor term that refers to an arrangement where a Floor employee at a booth answers the phone, receives an order for, passes such order to, and is compensated by, a Floor broker other than the registered owner of the booth. 2 See NYSE Member Education Bulletin 2005-19 (November 11, 2005), which provides guidance on the scope of permissible activities by trading assistants and booth clerks under NYSE rules. 3 A professional customer includes a bank, trust company, insurance company, investment trust, state or political subdivision thereof, charitable or nonprofit educational institution regulated under the laws of the United States, or any state, or pension or profit sharing plan subject to ERISA or of an agency of the United States or of a state or a political subdivision thereof or any person who has a net worth of at least $45 million of which $40 million are financial assets (NYSE Interpretation Handbook Rule 345.15/02). 4 Uniform Application for Securities Industry Registration or Transfer.
2 of a qualified member organization and may conduct a public business through such qualified member organization. The member organizations employing such part-time registered representative are responsible for supervising such person s activities performed on its behalf. Accordingly, the public customer accounts must be recorded on the books of the employing, qualified member organization and such employing, qualified member organization is responsible for knowing the customers pursuant to NYSE Rule 405 and for monitoring the activity of the customer accounts. Registered representatives may not bill public customers directly. The qualified member organization employer must bill and receive all commissions generated from the public business and then may make payment to the registered representative. A Floor employee who receives compensation for services rendered in excess of $200 per year from another member organization must become employed by and registered with such member organization. 5 In all dual employment arrangements, both the primary and secondary employers must file a Form U4. Each Form U4 must reflect all employment associations of the dual employee. Floor employees, such as Trading Assistants, who are party to pork chop arrangements are subject to the requirements outlined above with respect to both registration and supervision. General Guide for Conducting a Public Business on the Trading Floor Member organizations that conduct a public business on the Floor must: Provide for supervision of full-time and part-time registered representatives (see NYSE Rule 342) by an individual qualified by a Series 9/10 ( Branch Office Manager ) examination 6 or another examination acceptable to the NYSE which demonstrates competency relevant to assigned responsibilities. 7 Employ a qualified Compliance Official. 8 If a member organization s commissions and other fees from their public business (retail and institutional) were $500,000 or greater in the preceding calendar year, then the Compliance Official must pass the Series 14 (Compliance Official Qualification Examination) examination. Employ a person qualified by the Series 27 ( Financial and Operations Principal ) or Series 28 ( Introducing Broker-Dealer/Financial and Operations Principal ) examinations. 5 See NYSE Rule 350(b). 6 The Series 9/10 examination qualifies an individual to supervise equities, options, and municipals. 7 The Series 24 examination (if taken after 7/1/01) or the Series 12 examination qualifies an individual to supervise equities only. See, NYSE-SR-2007-41 (April 19, 2007) and Release No. 34-55670 (April 25, 2007), in which the NYSE filed for immediate effectiveness the rescission of the Series 12 examination. The Series 12 examination is being rescinded primarily because its content is now covered by the Series 10 examination, which is the general securities portion of the Series 9/10 examination. The Series 12 qualification status will still be recognized after the examination is rescinded for those individuals who have taken the examination prior to the rescission date. For further reference, see Information Memo 07-32 (April 11, 2007), which discusses the rescission of the Series 12 examination. 8 See NYSE Rule 342.13.
3 Ensure that any individual having the status or performing the function of a principal executive officer has the appropriate qualifications. 9 Comply with applicable state registration requirements 10 prescribed for conducting a public business. Provide for an annual audit of financial statements and reports conducted in accordance with the audit requirements of the NYSE and of the applicable requirements of the SEC by independent public accountants (see NYSE Rule 418). Meet capital requirements prescribed for conducting a public business (see Securities Exchange Act ( Exchange Act ) Rule 15c3-1 and NYSE Rules 325 and 326). Maintain fidelity bond coverage (see NYSE Rule 319). Maintain purchase & sale blotters, order tickets, and account documents and make them available for NYSE review (see Exchange Act Rules 17a-3 and 17a-4 and NYSE Rules 410, 418 and 440). 11 File and update organizational documents, as required (see NYSE Rules 304, 311, 312 and 313). Maintain a current Form BD (see Exchange Act Rule 17a-3(a)(12)(i)(H)). File FOCUS PART II monthly for Carrying Firms. 12 File FOCUS PART IIA quarterly for Introducing Firms 13 Be party to an approved carrying agreement pursuant to NYSE Rule 382, unless self-clearing. Comply with Know your Customer responsibilities (see NYSE Rule 405). 9 See NYSE Rules 311(b)(5), 304(b), and their Interpretations. See also Information Memo 05-69 (September 16, 2005), which discusses amendments to Rule 311 pertaining to dual, multi, or codesignation of principal executive officers. 10 State registration requirements apply based on the residence of the beneficial owner of the account. See also NYSE Information Memo No. 03-18. Since registration requirements differ from state to state, member organizations should consult with their compliance department or attorneys for further information about requirements. 11 For more information regarding record retention requirements, see NYSE Information Memos No. 03-07, 03-16, 03-18, and 03-51. 12 See Exchange Act Rules 17a-5(a)(2)(i) and 17a-5(a)(2)(ii) and Interpretation /01 to Rule17a-5(a)(2)(i) in the NYSE Interpretation Handbook). 13 See Exchange Act Rules 17a-5(a)(2)(iii) and 17a-5(a)(2)(iv).
4 Promptly update all applicable organizational information related to its business via the NYSE s Electronic Filing Platform ( EFP ) and certify quarterly that such information is accurate (see NYSE Rule 416A). 14 Ensure that its Anti-Money Laundering Compliance Program (required pursuant to NYSE Rule 445) adequately addresses the public business conducted. 15 Ensure that its Business Continuity Plan (required pursuant to NYSE Rule 446) adequately addresses public customers. 16 Ensure that electronic and other communications are maintained and retained in compliance with the requirements of NYSE Rule 440 and Exchange Act Rule 17a-4. Such communications include, but are not limited to, email, instant messaging, and market looks transmitted from a Floor broker s handheld device. Develop, establish and effectively maintain adequate controls over each of its business activities pursuant to NYSE Rule 342.23. Such controls must provide for the establishment of procedures for independent verification and testing of those business activities. An ongoing analysis, based upon appropriate criteria, may be employed to assess and prioritize those business activities requiring independent verification and testing. Exempted from the independent verification and testing requirement are member organizations that do not conduct a public business, or have a capital requirement of $5,000 or less, or employ ten or fewer registered representatives. Note, however, that no member organization is exempt from the general requirement to have adequate controls over each of its business activities. Prevent the execution of trades at prices inferior to protected quotations displayed by other market centers and comply with all obligations pursuant to SEC Regulation NMS ( National Market System ). 17 Prepare and submit to the Exchange, pursuant to NYSE Rule 342.30, an Annual Report by April 1 st of each year. The Annual Report must address the member organization s supervision and compliance efforts during the preceding calendar year, as well as ongoing compliance processes and procedures. The report must also include a certification, signed by the member organization s Chief Executive Officer ( CEO ), that processes are in place to establish, maintain and review policies and procedures reasonably designed to achieve compliance with applicable Exchange rules and federal securities laws and regulations. The certification must be made in conformity with the provisions of Rule 342.30(e) 14 See NYSE Information Memo 04-61. 15 See NYSE Information Memos No. 02-21, 02-34, 02-46, 02-64, 03-32, and 06-4. 16 See NYSE Information Memos No. 04-24, 05-80, and 06-30. 17 See Securities Exchange Act Release No. 51808 (June 9, 2005), 17 CFR Parts 200, 201, 230, 240, 242, 249 and 270; see also, 70 FR 374496 (June 29, 2005).
5 which require, in part, that the processes certified to have been evidenced in a written report (the process report ) and that such report has been reviewed by the CEO, by the member organization s Chief Compliance Officer ( CCO ), and by other such officers of the member organization as the organization may deem necessary to make the certification. 18 Comply with all other relevant NYSE Rules, Regulations, Information Memos, and Interpretive Guidance, as well as other applicable SRO and federal rules and regulations. Errors and Erroneous Reports Exchange Rule 134(d) prohibits a member from effecting transactions on the Floor unless the member utilizes an error account maintained by his or her member organization or participates with his or her member organization in an error account. 19 All Floor related error and erroneous report transactions must be documented using the Mandatory Error Account Detail Log and maintained with the relevant records of each transaction. In addition, under certain circumstances, this account can be used to process an erroneous report given to a non-member for whom a member organization executed an order. 20 Error accounts must only be used to process bona fide error and erroneous report transactions. Each error or erroneous report transaction must be adequately documented and records pertaining to such transactions must be maintained and preserved pursuant to the requirements of Exchange Act Rule 17a-4. Floor Communications Member organization personnel while on the Floor are not permitted to use any wireless communications devices unless specifically approved by the Exchange. NYSE Rule 36.20 21 provides, in part, that: With the approval of the Exchange, a Floor broker or Registered Competitive Market Maker (RCMM), as defined in Rule 107A may maintain a telephone line or use an Exchange authorized and provided portable telephone which permits a non-member off the Floor to communicate with a member or member organization on the Floor. In addition, any Floor broker receiving orders from the public over portable phones must be properly qualified under Exchange rules to conduct such public business (see, for example, NYSE Rules 342 and 345.) The use of a portable telephone on the Floor other than one authorized and issued by the Exchange is prohibited. 18 For additional information regarding the application of NYSE Rule 342.30, see NYSE Information Memos No. 05-101, dated December 16, 2005; No. 06-8, dated March 13, 2006; and No. 07-9, dated January 23, 2007. 19 See NYSE Information Memo 06-63 (August 28, 2006). 20 See NYSE Rule 411(a)(ii) and NYSE Information Memo 06-63. 21 See Securities Exchange Act Release No. 47671 (April 10, 2003), 68 FR 19048 (April 17, 2003) (SR- NYSE-2002-11).
Furthermore, the use of wireless data devices on the Floor is limited by the NYSE policy. 22 Currently, member organization personnel are prohibited from using wireless enabled devices such as Blackberrys, laptop computers, 23 wireless text pagers, or cellular telephones (except by Floor brokers and RCMMs who have been approved to use NYSE authorized and issued portable phones as part of a pilot program approved by the SEC and subject to certain conditions and restrictions). 24 6 Questions regarding the Floor Communications section may be directed to Gordon Brown at (212) 656-5321. Other questions may be directed to Stephen Kasprzak at (212) 656-5226, Cory Figman at (212) 656-4893 or to your Finance Coordinator. Grace B. Vogel Executive Vice President Member Firm Regulation 22 See Securities and Exchange Act Release No. 35931 (June 30, 1995), 60 FR 35767 (July 11, 1995) (SR-NYSE-95-22); See also, Securities and Exchange Act Release No. 39379 (December 1, 1997), 62 FR 64615 (December 8, 1997) (SR-NYSE-97-17). 23 A specialist unit may maintain wired or wireless devices that have been registered with the Exchange, such as computer terminals or laptops, to communicate only with the system employing the firm s algorithms and with individual algorithms. See NYSE Rule 36.30. 24 For additional information concerning Floor communications, please refer to NYSE Information Memos No. 02-60, 03-18, 05-5, and 05-37 as well as Market Surveillance Member Education Bulletins 2003-4, 2005-6, and 2005-23.