[Federal Register Volume 79, Number 182 (Friday, September 19, 2014)]
[Notices]
[Pages 56419-56421]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-22332]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73095; File No. SR-NYSEMKT-2014-63]
Self-Regulatory Organizations; NYSE MKT LLC; Order Approving
Proposed Rule Change Removing Building Access and Other Restrictions on
Traders Conducting Certain Futures and Options Trading on ICE Futures
U.S., Inc. in Space Rented From the Exchange
September 15, 2014.
On July 15, 2014, NYSE MKT LLC (the ``Exchange'' or ``NYSE MKT''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ filed with the Securities
and Exchange Commission (the ``Commission'') a proposed rule change to
removing building access and other restrictions on traders conducting
certain futures and options trading on ICE Futures U.S., Inc. The
proposed rule change was published for public comment in the Federal
Register on August 1, 2014.\3\ The Commission received no comments on
the proposal. This order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 72680 (July 28, 2014),
79 FR 44953.
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I. Background and Introduction
The Exchange proposes to remove building access and other
restrictions on traders conducting certain futures and options trading
on ICE Futures U.S., Inc. (``IFUS'') \4\ in space rented from the
Exchange (the ``IFUS Trading Floor'').
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\4\ IFUS is a Designated Contract Market pursuant to the
Commodity Exchange Act, as amended, and is regulated by the U.S.
Commodity Futures Trading Commission (``CFTC'').
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1. Background
On February 13, 2013, the Exchange filed a proposed rule change to
relocate trading of certain futures and options contracts conducted on
IFUS from rented space at the New York Mercantile Exchange (``NYMEX'')
to trading space at 20 Broad Street, New York, New York, commonly known
as the ``Blue Room'', and to amend NYSE MKT Rule 6A--Equities, which
defines the terms ``Trading Floor'' and ``NYSE Amex Options Trading
Floor'' (the ``Original Filing'').\5\ The Original Filing stated that
the IFUS Traders relocating to 20 Broad Street and their clerical
employees \6\ would only utilize the 18 Broad Street entrance to access
the Blue Room \7\ and, once inside, be prohibited from entering the
Main Room, where most of the NYSE MKT and New York Stock Exchange LLC
(``NYSE'') Equities Floor brokers and all NYSE MKT and NYSE Designated
Market Makers (``DMMs'') are located, as well as the NYSE Amex Options
trading floor. In addition, the Original Filing represented that the
IFUS Traders would sit together in dedicated booth space approximately
[[Page 56420]]
40 feet long by 10 feet wide with privacy barriers consisting of eight
foot walls on both sides except for the two gated and badge access
entry and exit security doors at the front and back of the booth, which
are four feet high. A compliance officer from IFUS Market Regulation is
also present in the Blue Room performing on-site surveillance on a
regular basis.
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\5\ See Securities Exchange Act Release Nos. 68997 (February 27,
2013), 78 FR 17982 (March 5, 2013) (SR-NYSEMKT-2013-13).
\6\ Currently, there are 24 IFUS Traders and 13 clerical staff
on the IFUS Trading Floor. At the time of the Original Filing, there
were 40 IFUS Traders.
\7\ Specifically, the IFUS Traders must use the 18 Broad Street
entrance elevator and enter the Trading Floor using the turnstile
nearest the Blue Room. The Exchange has been monitoring badge swipes
at other locations to identify instances where the IFUS Traders
utilize a different entrance and referring those findings to IFUS
Compliance for appropriate action. Last year, there were
approximately 22 instances in which individual IFUS Traders or their
clerical staff used an entrance or turnstile other than 18 Broad
entrance and turnstiles authorized for their use. However, IFUS
Compliance found that all of these were inadvertent use of either of
a wrong turnstile for the 18 Broad St. entrance, another entrance
necessitated for use when gaining visitor access or when the 18
Broad St. entrance was temporarily inaccessible, or to access a
bathroom, and therefore, chose not to take any disciplinary action.
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On June 3, 2013, the Exchange filed a proposed rule change to
clarify that the IFUS Traders may, on an as needed basis and only prior
to 7 a.m., access the Blue Room via the Exchange's 11 Wall Street
facilities, which would entail walking through the Main Room to access
the Blue Room, and that the IFUS Traders may access the Blue Room via
the Exchange's 11 Wall Street facilities on days that the Exchange is
closed (the ``Supplemental Filing'').\8\
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\8\ Certain of the IFUS Traders conduct business on foreign
markets on Exchange holidays. See Securities Exchange Act Release
No. 69764 (June 13, 2013), 78 FR 37259 (June 20, 2013) (SR-NYSEMKT-
2013-49).
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2. Proposed Rule Change
The Exchange is proposing to: (i) Eliminate the building access
restrictions, which would allow the IFUS Traders to enter the
Exchange's facilities from either the 11 Wall Street or 18 Broad Street
entrances; (ii) eliminate the restriction on the IFUS Traders entering
or crossing the Main Room in order to access the IFUS Trading Floor;
and (iii) remove the gated and badge access entry and exit security
doors at the front and back of the IFUS Traders' booth (the
``Proposal'').
The Exchange states that it does not believe that removing the
restrictions on the IFUS Traders would provide the IFUS Traders with an
unfair competitive advantage over other market participants. The
Exchange states that it believes removing certain restrictions on the
IFUS Traders entering or crossing the Main Room is appropriate, in
part, because IFUS is purely an electronic trading market. Although
there is a physical IFUS Trading Floor, the Exchange notes that there
is no open outcry trading. IFUS Traders may accept customer orders for
IFUS contracts by telephone or electronically and enter such orders
electronically to the IFUS trading platform. However, IFUS Traders are
prohibited by IFUS rules from orally discussing orders or transactions
with each other while on the IFUS Trading Floor and communications
between IFUS Traders on the IFUS Trading Floor must be made via instant
message, email, or recorded telephone line. In addition, order tickets
are prepared and time-stamped for each customer order. IFUS Traders may
also enter orders electronically for their own proprietary account.
There are 24 IFUS Traders,\9\ and four of the 24 IFUS Traders engage in
proprietary-only trading, while the rest enter customer orders for
execution and engage in proprietary trading on IFUS. IFUS lists and
trades futures and options on futures on cotton, frozen concentrated
orange juice, coffee, sugar, cocoa, energy, foreign currencies, and
certain Russell Indices \10\ (the ``IFUS Contracts''), but effects
transactions primarily on options on cotton futures.\11\
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\9\ There were 40 IFUS Traders last year and no IFUS Traders are
members of the Exchange, NYSE or Amex Options.
\10\ These include the Russell 2000, Russell 1000, and Russell
Value and Growth, all of which qualify as broad-based indices. The
Exchange states, however, that the IFUS Traders trade only a small
volume of the Russell products and, of that small volume, most is in
the Russell 2000 mini-contracts.
\11\ See Securities Exchange Act Release No. 68997 (February 27,
2013), 78 FR 14378 (March 5, 2013) (SR-NYSEMKT-2013-13).
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The Exchange also notes that IFUS traders do not have wireless
hand-held devices and can only conduct trading in IFUS products via
terminals located on the IFUS Trading Floor. In addition, none of the
IFUS Traders are registered to trade any of the securities traded on
the Exchange, nor have the capability to enter orders in Exchange-
traded securities from the IFUS Trading Floor via the IFUS electronic
trading system.
The Exchange represents that there is a limited nexus between
products that trade on IFUS and those that trade on the Exchange and
that the only IFUS Contracts related to Exchange-traded products are
futures and options on futures on certain Russell indexes, all of which
are broad-based indexes as defined in Section 3(a)(55)(C)(vi) of the
Securities Exchange Act of 1934 and that market participants ability to
manipulate these are limited.\12\ The Exchange further notes that
pricing information about the products traded on the IFUS Trading Floor
is contemporaneously and publicly available on Bloomberg and other
quotation reporting systems. Thus, to the extent there is any
correlation between the price movements of the products traded on the
IFUS Trading Floor and Exchange-listed companies with exposure to those
commodity-based products, the Exchange believes IFUS Traders are not in
possession of any non-public information regarding pricing of such
products that could be used improperly by the IFUS Traders or Exchange
members. The Exchange represents that IFUS Traders represent only a
small proportion of IFUS's total trading volume.\13\
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\12\ 15 U.S.C. 78c(a)(55)(A). IFUS product offerings have
historically been benchmark futures and options contracts relating
to agricultural products, currencies, and broad-based market
indexes. There are no plans to offer single stock futures on IFUS.
\13\ As noted in the Original Filing, approximately 83% of
IFUS's total daily contract volume is in IFUS energy contracts. The
IFUS Traders transact less than 5% of the 17% of IFUS's average
daily volume that is not related to energy contracts and a fraction
of 1% of the total average daily IFUS volume (which includes the
energy contracts transacted on IFUS).
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The Exchange represents that Financial Industry Regulatory
Authority, Inc. (``FINRA'') is provided with the names of the IFUS
Traders to assist in identifying any potentially violative trading \14\
and that, to date, FINRA has not identified any regulatory or other
concerns about the IFUS Traders, identified suspicious activity or
behavior, or identified instances where confidential order information
was compromised or inappropriately used. The Exchange further
represents that the following important safeguards will remain in
place: (i) IFUS Traders sitting together in segregated booth space with
privacy barriers to reduce the likelihood that trading screens can be
viewed or conversations overheard between firms and traders; (ii) IFUS
Market Regulation compliance officer performing on-site surveillance on
a regular basis; and (iii) Exchange's equities and options on-Floor
surveillance staff being located near the IFUS Trading Floor. Finally,
the Exchange represents that its members and member organizations have
been notified of their responsibly to protect the confidentiality of
nonpublic order and trade information, and to not engage in any
trading, order or market related communications with the IFUS Traders
or their clerical staff.\15\
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\14\ Providing the names of the IFUS Traders to FINRA was for
the purpose of regulatory information sharing. Neither the Exchange
nor FINRA will be responsible for regulating or surveilling the IFUS
Traders' activity, and the IFUS Traders are not subject to the
Exchange's jurisdiction. Rather, the IFUS Traders will continue to
be regulated by IFUS.
\15\ See Member Education Bulletin 2013-5 (March 20, 2013),
available at http://www.nyse.com/nysenotices/nyse/education-bulletins/pdf.action?memo_id=2013-5.
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III. Commission Findings
After careful consideration, 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.\16\ The Commission believes that the proposal
[[Page 56421]]
is consistent with Section 6(b)(5) \17\ in particular, in that it is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, 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.
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\16\ In approving this rule change, the Commission notes that it
has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
\17\ 15 U.S.C. 78f(b)(5).
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According to the Exchange, safeguards will remain in place to
protect against IFUS Traders gaining an unfair competitive advantage
over other market participants. The Exchange emphasizes that IFUS
traders do not have wireless hand-held devices, are restricted to
trading IFUS products at terminals located in the IFUS Trading Floor,
and that IFUS Market Regulation compliance officers perform on-site
surveillance on a regular basis. In addition, no IFUS Traders are
registered to trade any Exchange securities, and they do not have the
ability to enter orders in Exchange-traded securities from the IFUS
Trading Floor via the IFUS electronic trading system. The Exchange also
notes that there is a limited pricing nexus between products traded on
IFUS, and that pricing information about the products traded on the
IFUS Trading Floor is contemporaneously and publicly available on
Bloomberg and other quotation reporting systems. Finally, the Exchange
notes that equities and options on-Floor surveillance staff will
continue to be located near the IFUS Trading Floor and FINRA has been
provided with the names of the IFUS Traders to assist in identifying
any potentially violative trading involving the IFUS Traders.
Based on the foregoing, the Commission believes the proposed rule
change to eliminate the restrictions on the manner in which the IFUS
Traders enter the Exchange's facilities and the prohibition on IFUS
Traders from entering or crossing the Main Room on the way to the IFUS
Trading Floor is consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-NYSEMKT-2014-63), is hereby approved.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-22332 Filed 9-18-14; 8:45 am]
BILLING CODE 8011-01-P