[Federal Register Volume 79, Number 148 (Friday, August 1, 2014)]
[Notices]
[Pages 44953-44956]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-18115]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72680; File No. SR-NYSEMKT-2014-63]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of
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
July 28, 2014.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on July 15, 2014, NYSE MKT LLC (the ``Exchange'' or ``NYSE
MKT'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
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''). The text of the proposed rule
change is available on the Exchange's Web site at www.nyse.com, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
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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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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 self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those 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 parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to remove the building access and other
restrictions on the IFUS traders conducting certain futures and options
trading on the IFUS Trading Floor, currently located in Exchange
facilities at 20 Broad Street (the ``IFUS Traders'').\5\
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\5\ On November 13, 2013, pursuant to the Amended and Restated
Agreement and Plan of Merger, dated as of March 19, 2013, by and
among IntercontinentalExchange, Inc. (``ICE''),
IntercontinentalExchange Group, Inc. (the ``Company''), NYSE
Euronext, Braves Merger Sub, Inc. (``Braves Merger Sub'') and NYSE
Euronext Holdings LLC (formerly known as Baseball Merger Sub, LLC),
Braves Merger Sub was merged with and into ICE and NYSE Euronext was
merged with and into NYSE Euronext Holdings (the ``Mergers''). As a
result of the Mergers, NYSE Euronext and ICE are wholly-owned
subsidiaries of the Company. NYSE Euronext owns 100% of the equity
interest of NYSE Group, Inc., a Delaware corporation (``NYSE
Group''), which in turn directly or indirectly owns, among other
things, 100% of the equity interest of the Exchange. IFUS is a
wholly-owned subsidiary of ICE.
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[[Page 44954]]
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'').\6\ The Original Filing stated that
the IFUS Traders relocating to 20 Broad Street and their clerical
employees \7\ would only utilize the 18 Broad Street entrance to access
the Blue Room \8\ 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
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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\6\ See Securities Exchange Act Release Nos. 68997 (February 27,
2013), 78 FR 14378 (March 5, 2013) (SR-NYSEMKT-2013-13).
\7\ 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.
\8\ 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'').\9\
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\9\ Certain of the IFUS Traders conduct business on foreign
markets on Exchange holidays. See Securities Exchange Act Release
Nos. 69764 (June 13, 2013), 78 FR 37259 (June 20, 2013) (SR-NYSEMKT-
2013-49).
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Proposed Rule Change
The Exchange now proposes to remove certain restrictions on the
IFUS Traders set forth in the Original and Supplemental Filings. In
particular, the Exchange proposes to 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. The Exchange further proposes to eliminate the restriction
on the IFUS Traders entering or crossing the Main Room in order to
access the IFUS Trading Floor. Finally, the Exchange proposes to 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 does not believe that removing the restrictions on the
IFUS Traders entering or crossing the Main Room would provide the IFUS
Traders with an unfair competitive advantage over other market
participants. As set forth in the previous filings, IFUS trades its
products exclusively on an electronic trading platform. Notwithstanding
that there is still a physical IFUS Trading Floor, there is no open
outcry trading on that floor. 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''). The 24 IFUS Traders (down from 40 last year)
\11\ utilize the IFUS Trading Floor as a place from which they may
accept customer orders for IFUS Contracts by telephone or
electronically and enter such orders electronically to the IFUS trading
platform. IFUS Traders are prohibited by IFUS rules from orally
discussing orders or transactions with each other while on the IFUS
Trading Floor. Instead, communications between IFUS Traders on the IFUS
Trading Floor must be made via instant message, email, or recorded
telephone line. Order tickets are prepared and time-stamped for each
customer order. IFUS Traders may also enter orders electronically for
their own proprietary account. 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. While IFUS Traders
effect transactions in all IFUS Contracts, they predominantly trade
options on cotton futures.\12\
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\10\ These include the Russell 2000, Russell 1000, and Russell
Value and Growth, all of which qualify as broad-based indices. The
Exchange understands, 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\ No IFUS Traders are members of the Exchange, NYSE or NYSE
Amex Options.
\12\ See Securities Exchange Act Release Nos. 68997 (February
27, 2013), 78 FR 14378 (March 5, 2013) (SR-NYSEMKT-2013-13).
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IFUS traders can only conduct trading in IFUS products from within
IFUS Trading Floor space via terminals located in the IFUS Trading
Floor; they do not have wireless hand-held devices. Accordingly, the
IFUS Traders could not conduct any trading in futures from any other
location, for example, at an equities trading post in the Main Room. In
addition, none of the IFUS Traders are registered to trade any of the
securities traded on the Exchange, nor does any have the capability to
enter orders in Exchange-traded securities from the IFUS Trading Floor
via the IFUS electronic trading system.
The Exchange further notes that there is a limited nexus between
products that trade on IFUS and those that trade on the Exchange. The
only IFUS Contracts that are 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.\13\ As the Commission previously
found, a market participant's ability to manipulate the price of broad-
based ETFs, Trust Issued Receipts or related options is limited.\14\
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\13\ 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.
\14\ See Exchange Act Release No. 46213 (July 16, 2002) (SR-Amex
2002-21).
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Moreover, given that IFUS Traders represent only a small proportion
of IFUS's total trading volume, the Exchange does not believe IFUS
Traders would be in possession of any non-public information that could
be used by Exchange members to their advantage or to gain an unfair
competitive advantage over other market participants. As noted in the
previous filings, 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
[[Page 44955]]
and a fraction of 1% of the total average daily IFUS volume (which
includes the energy contracts transacted on IFUS). Further, pricing
information about the products traded on the IFUS Trading Floor--
cotton, frozen concentrated orange juice, coffee, sugar, cocoa, energy,
broad-based equity indices and foreign currencies--is contemporaneously
and publicly available on Bloomberg and other quotation reporting
systems. 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 notes that such information is publicly
available and 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.
Finally, the Exchange's experience with the IFUS Trading Floor the
past year has not given the Exchange reason to believe that there is an
increased likelihood of potentially collusive trading. To date, the
Financial Industry Regulatory Authority, Inc. (``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 notes that important safeguards will remain in
place. The IFUS Traders will continue to sit 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. An IFUS Market Regulation compliance officer will continue to
be present performing on-site surveillance on a regular basis. The
Exchange's equities and options on-Floor surveillance staff will also
continue to be located near the IFUS Trading Floor. Moreover, FINRA has
been provided with the names of the IFUS Traders to assist in
identifying any potentially violative trading involving the IFUS
Traders.\15\ The Exchange has reminded its members and member
organizations to protect the confidentiality of nonpublic order and
trade information, and that members and employees of member
organizations should not engage in any trading, order or market related
communications with the IFUS Traders or their clerical staff.\16\
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\15\ 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.
\16\ 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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In short, based on the limited trading conducted by the IFUS
Traders, the extremely negligible trading in related products, the
experience with the IFUS Trading Floor during the past year and the
significant controls that will remain in place, the Exchange does not
believe that prescribing the manner in which the IFUS Traders enter the
Exchange's facilities or prohibiting the IFUS Traders from entering or
crossing the Main Room on the way to the IFUS Trading Floor serves a
necessary regulatory purpose.
2. Statutory Basis
The Exchange believes that the Proposal is consistent with the
provisions of Section 6 of the Act,\17\ in general, and Section 6(b)(5)
of the Act,\18\ 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, and 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
Proposal is designed to remove impediments to and perfect the mechanism
of a free and open market and a national market system because it would
eliminate restrictions on the manner that IFUS Traders may access the
IFUS Trading Floor that are not necessary for the protection of
investors or the public interest given that the only securities related
to IFUS Contracts are securities based on broad-based indexes. The
Exchange further believes that eliminating the building access and
other restrictions will enable IFUS Traders to efficiently and
effectively conduct business on the IFUS Trading Floor.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(4) and (5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the Proposal will impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The proposal is designed to
promote competition by providing the Exchange additional flexibility to
maximize the use of its trading floor space.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change 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 email to [email protected]. Please include
File Number SR-NYSEMKT-2014-63 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEMKT-2014-63. This
file number should be included on the subject line if email is used. To
help the Commission process and review your 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
[[Page 44956]]
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 Web site viewing and printing in the Commission's Public
Reference Room, 100 F Street NE., Washington, DC 20549, on official
business days between the hours of 10 a.m. and 3 p.m. Copies of the
filing will also be available for inspection and copying at the NYSE's
principal office and on its Internet Web site at www.nyse.com. 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-NYSEMKT-2014-63 and should
be submitted on or before August 22, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18115 Filed 7-31-14; 8:45 am]
BILLING CODE 8011-01-P