Document ID: SEC-2014-1574-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT LLC
Posted Date: 2014-09-19T04:00Z

[Federal Register Volume 79, Number 182 (Friday, September 19, 2014)]
[Notices]
[Pages 56419-56421]
From the Federal Register Online via the Government Printing 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?memoid=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