Document ID: SEC-2014-1285-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2014-08-01T04:00Z

[Federal Register Volume 79, Number 148 (Friday, August 1, 2014)]
[Notices]
[Pages 44906-44908]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18116]

[[Page 44906]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72681; File No. SR-NYSE-2014-39]

Self-Regulatory Organizations; New York Stock Exchange 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, New York Stock Exchange LLC (``NYSE'' or 
the ``Exchange'') 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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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 Rule 6A, 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 and NYSE MKT LLC (``NYSE MKT'') Equities Floor brokers 
and all NYSE and NYSE MKT Equities 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. 68996 (February 27, 
2013), 78 FR 14378 (March 5, 2013) (SR-NYSE-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. 69763 (June 13, 2013), 78 FR 37265 (June 20, 2013) (SR-NYSE-
2013-38).
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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

[[Page 44907]]

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 MKT or 
NYSE Amex Options.
    \12\ See Securities Exchange Act Release Nos. 68996 (February 
27, 2013), 78 FR 14378 (March 5, 2013) (SR-NYSE-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 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

[[Page 44908]]

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 rule-comments@sec.gov. Please include 
File Number SR-NYSE-2014-39 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-NYSE-2014-39. 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 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-NYSE-2014-39 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. 2014-18116 Filed 7-31-14; 8:45 am]
BILLING CODE 8011-01-P