Document ID: SEC-2017-0219-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2017-02-10T05:00Z

[Federal Register Volume 82, Number 27 (Friday, February 10, 2017)]
[Notices]
[Pages 10418-10422]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02735]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79975; File No. SR-NYSEArca-2017-08]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend NYSE Arca 
Equities Rule 5.2(j)(6)(v) To Add the EURO STOXX 50 Volatility Futures 
to the Definition of Futures Reference Asset

February 6, 2017.
    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 January 27, 2017, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory

[[Page 10419]]

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 amend NYSE Arca Equities Rule 5.2(j)(6)(v) 
to add the EURO STOXX 50 Volatility (VSTOXX[supreg]) Futures (``VSTOXX 
Futures'') to the definition of Futures Reference Asset. 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.

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
    NYSE Arca Equities Rule 5.2(j)(6) provides for Exchange listing and 
trading, including listing pursuant to Rule 19b-4(e) under the Act,\4\ 
of ``Index-Linked Securities'',\5\ and, in particular, Futures-Linked 
Securities, which are Index-Linked Securities with a payment at 
maturity based on the performance of a Futures Reference Asset.\6\ The 
proposed rule change is based on recently approved amendments to Bats 
BZX Exchange, Inc. (``BZX'') Rule 14.11(d) to add VSTOXX Futures to the 
definition of Futures Reference Asset for purposes of listing Index-
Linked Securities on BZX.\7\
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    \4\ Rule 19b-4(e) under the Act provides that the listing and 
trading of a new derivative securities product by a self-regulatory 
organization (``SRO'') shall not be deemed a proposed rule change, 
pursuant to section (c)(1) of Rule 19b-4, if the Commission has 
approved, pursuant to Section 19(b) of the Act, the SRO's trading 
rules, procedures, and listing standards for the product class and 
the SRO has a surveillance program for the product class.
    \5\ As defined in NYSE Arca Equities Rule 5.2(j)(6), the term 
``Index-Linked Securities'' includes Equity Index-Linked Securities, 
Commodity-Linked Securities, Currency-Linked Securities, Fixed 
Income Index-Linked Securities, Futures-Linked Securities and 
Multifactor Index-Linked Securities.
    \6\ As defined in NYSE Arca Equities Rule 5.2(j)(6)(v),``Futures 
Reference Asset'' includes ``an index of (a) futures on Treasury 
Securities, GSE Securities, supranational debt and debt of a foreign 
country or a subdivision thereof, or options or other derivatives on 
any of the foregoing; or (b) interest rate futures or options or 
derivatives on the foregoing in this subparagraph (b); or (c) CBOE 
Volatility Index (VIX) Futures.''
    \7\ See Securities Exchange Act Release No. 79069 (October 7, 
2016), 81 FR 70714 (October 13, 2016) (SR-BatsBZX-2016-26) (``BATS 
Filing''). Additional information regarding the VSTOXX and VSTOXX 
Futures is included in the BATS Filing.
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    The Exchange proposes to amend NYSE Arca Equities Rule 5.2(j)(6)(v) 
in order to add VSTOXX Futures to the definition of Futures Reference 
Asset, which would allow the Exchange to list Futures-Linked Securities 
linked to VSTOXX Futures through generic listing standards pursuant to 
Rule 19b-4(e) under NYSE Arca Equities Rule 5.2(j)(6).\8\ Prior to 
listing Futures-Linked Securities linked to VSTOXX Futures pursuant to 
Rule 5.2(j)(6), an issuer would be required to represent to the 
Exchange that it will advise the Exchange of any failure of the 
Futures-Linked Securities to comply with the continued listing 
requirements.
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    \8\ The Exchange also proposes to delete as duplicative the word 
``or'' in two places in NYSE Arca Equities Rule 5.2(j)(6)(v).
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    NYSE Arca Equities Rule 5.2(j)(6)(B)(V) (``Futures-Linked 
Securities Listing Standards'') requires that a Futures-Linked Security 
meet one of the following standards: (1) That the Futures Reference 
Asset to which the security is linked shall have been reviewed and 
approved for the trading of Futures-Linked Securities or options or 
other derivatives by the Commission under Section 19(b)(2) of the Act 
and rules thereunder and the conditions set forth in the Commission's 
approval order, including with respect to comprehensive surveillance 
sharing agreements (``CSSAs''), continue to be satisfied; or (2) the 
pricing information for components of a Futures Reference Asset must be 
derived from a market which is a member or affiliate of a member of the 
Intermarket Surveillance Group (``ISG'') or a market with which the 
Exchange has a CSSA.\9\ A Futures Reference Asset may include 
components representing not more than 10% of the dollar weight of such 
Futures Reference Asset for which the pricing information is derived 
from markets that do not meet requirement (2) above; provided, however, 
that no single component subject to this exception exceeds 7% of the 
dollar weight of the Futures Reference Asset. As proposed, adding 
VSTOXX Futures to the definition of Futures Reference Asset would 
satisfy the first criterion described above and the second criterion 
would be satisfied by virtue of Eurex Deutschland's (``Eurex'') 
membership in ISG, as further described below.
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    \9\ ISG is comprised of an international group of exchanges, 
market centers, and market regulators that perform front-line market 
surveillance in their respective jurisdictions. See https://www.isgportal.org/home.html.
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    Further, any Futures-Linked Securities linked to VSTOXX Futures 
would also be required to meet both the initial and continued listing 
standards in NYSE Arca Equities Rule 5.2(j)(6)(B)(V) or be subject to 
delisting or removal proceedings, which include: (i) That the value of 
the Futures Reference Asset be calculated and widely disseminated by 
one or more major market data vendors on at least a 15-second basis 
during the Exchange's Core Trading Session (normally, 9:30 a.m. to 4:00 
p.m., Eastern Time); (ii) for Futures-Linked Securities that are 
periodically redeemable, the indicative value of the subject Futures-
Linked Securities must be calculated and widely disseminated by the 
Exchange or one or more major market data vendors on at least a 15-
second basis during the Exchange's Core Trading Session; (iii) the 
aggregate market value or the principal amount of the Futures-Linked 
Securities must be at least $400,000; (iv) the value of the Futures 
Reference Asset is no longer calculated or available and a new Futures 
Reference Asset is substituted, unless the new Futures Reference Asset 
meets the requirements of Rule 5.2(j)(6); or (v) if such other event 
occurs or condition exists which in the opinion of the Exchange makes 
further dealings on the Exchange inadvisable. Any Futures-Linked 
Securities linked to VSTOXX Futures would also be required to meet the 
listing standards applicable to all Index-Linked Securities under NYSE 
Arca Equities Rule 5.2(j)(6)(A). Finally, all Index-Linked Securities 
listed pursuant to NYSE Arca Equities Rule 5.2(j)(6) are included 
within the definition of ``security'' or ``securities'' as such terms 
are used in the Exchange rules and, as such, are subject to Exchange 
rules and procedures that currently govern the trading of securities on 
the Exchange.
    The Exchange believes that the proposed standards would continue to 
ensure transparency surrounding the listing process for Index-Linked 
Securities. The Exchange also believes that the existing standards for 
listing and trading Futures-Linked Securities are reasonably designed 
to promote a fair and orderly market for such

[[Page 10420]]

Futures-Linked Securities and the addition of VSTOXX Futures to Futures 
Reference Assets does not affect this. The proposed addition of VSTOXX 
Futures to those instruments included in Futures Reference Assets would 
also work in conjunction with the existing initial and continued 
listing criteria related to surveillance procedures and trading 
guidelines.
    The Exchange believes that its surveillance procedures are adequate 
to continue to properly monitor the trading of Futures-Linked 
Securities linked to VSTOXX Futures in all trading sessions and to 
deter and detect violations of Exchange rules. The issuer of a series 
of Index-Linked Securities is and will continue to be required to 
comply with Rule 10A-3 under the Act \10\ for the initial and continued 
listing of Index-Linked Securities, as provided in NYSE Arca Equities 
Rule 5.2(j)(6)(A)(f). The Exchange notes that the proposed change is 
not intended to amend any other component or requirement of NYSE Arca 
Equities Rule 5.2(j)(6).
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    \10\ 17 CFR 240.10A-3.
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    Additional information regarding the VSTOXX and VSTOXX Futures can 
be found on the STOXX Limited (``STOXX'') Web site and the Eurex Web 
site, respectively.\11\ The VSTOXX is based on EURO STOXX 50 Index 
(``Index'') real-time option prices that are listed on the Eurex and 
are designed to reflect the market expectations of near-term up to 
long-term volatility by measuring the square root of the implied 
variances across all options of a given time to expiration. The Index 
includes 50 stocks that are among the largest free-float market 
capitalization stocks from 12 Eurozone countries. VSTOXX Futures are 
cash settled and trade between the hours of 7:30 a.m. and 10:30 p.m. 
Central European Time (``CET'') (2:30 a.m. and 5:30 p.m. Eastern Time). 
The VSTOXX Futures contract value is 100 Euros per index point of the 
underlying and it is traded to two decimal places with a minimum price 
change of 0.05 points (equivalent to a value of 5 Euros). The daily 
settlement price is determined during the closing auction of the 
respective futures contract. The last trading day and final settlement 
day is 30 calendar days prior to the third Friday of the expiration 
month of the underlying options, which is usually the Wednesday prior 
to the second to last Friday of the respective maturity month.
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    \11\ Eurex is a member of the ISG and, as such, the Exchange may 
obtain information regarding trading in the underlying VSTOXX 
Futures contracts. For a list of the current members and affiliate 
members of ISG, see www.isgportal.com.
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    STOXX will compute the Index on a real-time basis throughout each 
trading day, from 8:50 a.m. until 5:30 CET (3:50 a.m. until 12:30 p.m. 
Eastern Time. VSTOXX levels will be calculated by STOXX and 
disseminated by major market data vendors on a real-time basis 
throughout each trading day.
    The Exchange believes that the proposed amendment to add VSTOXX 
Futures as an underlying Futures Reference Asset will provide investors 
with the ability to better diversify and hedge their portfolios using 
an exchange listed security without having to trade directly in the 
underlying futures contracts, and will facilitate the listing and 
trading of additional Futures-Linked Securities that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\12\ in general, and furthers the 
objectives of Sections 6(b)(5) of the Act,\13\ in particular, because 
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 regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to, and 
perfect the mechanisms of, a free and open market and a national market 
system and, in general, to protect investors and the public interest 
and because it is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The proposed amendment to add VSTOXX Futures as an underlying 
Futures Reference Asset will provide investors with the ability to 
better diversify and hedge their portfolios using an exchange-listed 
security without having to trade directly in the underlying futures 
contracts, and will facilitate the listing and trading of additional 
Futures-Linked Securities that will enhance competition among market 
participants, to the benefit of investors and the marketplace. As noted 
above, the Exchange has in place surveillance procedures relating to 
trading in Futures-Linked Securities and may obtain information 
regarding both the Futures-Linked Securities and VSTOXX Futures via ISG 
from other exchanges that are members of ISG or with which the Exchange 
has entered into a CSSA. In addition, as noted above, investors will 
have ready access to information on an intraday basis regarding: (i) 
The value of the Futures Reference Asset, which will be calculated and 
widely disseminated by one or more major market data vendors on at 
least a 15-second basis during the Exchange's Core Trading Session; 
(ii) for Futures-Linked Securities that are periodically redeemable, 
the indicative value of the securities, which must be calculated and 
widely disseminated by the Exchange or one or more major market data 
vendors on at least a 15-second basis during the Exchange's Core 
Trading Session; and (iii) information regarding market price and 
trading of Futures-Linked Securities, which will be available on 
brokers' computer screens and other electronic services, and quotation 
and last sale information for the securities, which will be available 
on the facilities of the Consolidated Tape Association. Further, any 
Futures-Linked Securities linked to VSTOXX Futures would be required to 
meet both the initial and continued listing standards under NYSE Arca 
Equities Rule 5.2(j)(6)(B)(V) or be subject to delisting or removal 
proceedings, which include: (i) That the value of the Futures Reference 
Asset be calculated and widely disseminated by one or more major market 
data vendors on at least a 15-second basis during the Exchange's Core 
Trading Session; (ii) for Futures-Linked Securities that are 
periodically redeemable, the indicative value of the securities must be 
calculated and widely disseminated by the Exchange or one or more major 
market data vendors on at least a 15-second basis during the Exchange's 
Core Trading Session; (iii) the aggregate market value or the principal 
amount of the Futures-Linked Securities must be at least $400,000; (iv) 
the value of the Futures Reference Asset is no longer calculated or 
available and a new Futures Reference Asset is substituted, unless the 
new Futures Reference Asset meets the requirements of Rule 5.2(j)(6); 
or (v) if such other event occurs or condition exists which in the 
opinion of the Exchange makes further dealings on the Exchange 
inadvisable. Any Futures-Linked Securities linked to VSTOXX Futures 
would also be required to meet the listing standards applicable to all 
Index-Linked Securities in Rule 5.2(j)(6). All Index-Linked Securities 
listed pursuant to NYSE Arca Equities Rule 5.2(j)(6) are included 
within the definition of ``security'' or ``securities'' as such terms 
are used in the Exchange rules and, as such, are subject to Exchange 
rules and procedures that

[[Page 10421]]

currently govern the trading of securities on the Exchange. Trading in 
the securities may be halted under the conditions specified in NYSE 
Arca Equities Rule 5.2(j)(6)(E).

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\14\ the Exchange 
believes that the proposed rule change would not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The Exchange believes that the proposed rule 
change would facilitate the listing and trading of additional types of 
Futures-Linked Securities, which will enhance competition among market 
participants, to the benefit of investors and the marketplace and 
provide investors with the ability to better diversify and hedge their 
portfolios using an exchange listed security without having to trade 
directly in the underlying futures contracts. The Exchange believes 
that this would reduce the time frame for bringing Futures-Linked 
Securities linked to VSTOXX Futures to market, thereby reducing the 
burdens on issuers and other market participants and promoting 
competition. The proposed rule change would enhance competition among 
listing exchanges because the proposed rule is based on an approved 
listing standard on BZX.
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    \14\ 15 U.S.C. 78f(b)(8).
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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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \15\ and Rule 19b-4(f)(6) thereunder.\16\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \15\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \16\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \17\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\18\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
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    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Exchange asserts that waiving the operative delay would be 
consistent with the protection of investors and the public interest 
because the Commission has already approved a substantially identical 
proposed rule change submitted by another national securities exchange. 
In addition, the Exchange asserts that a waiver would accommodate 
listing and trading, including trading pursuant to unlisted trading 
privileges, of an issue of Future-Linked Securities based on VSTOXX 
Futures without additional delay, and would thereby promote intermarket 
competition in listing and trading such securities, to the benefit of 
the investing public.
    The Commission believes that waiving the operative delay with 
respect to the proposed rule change is consistent with the protection 
of investors and the public interest because the proposal does not 
raise any regulatory issues that were not already addressed by the 
Commission when approving a substantially identical proposal by another 
national securities exchange.\19\ Accordingly, the Commission hereby 
waives the 30-day operative delay and designates the proposal operative 
upon filing.\20\
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    \19\ See note 7, supra.
    \20\ For purposes only of waiving the operative delay of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of this proposed rule 
change, the Commission summarily may temporarily suspend the rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission will institute proceedings under 
Section 19(b)(2)(B) \21\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \21\ 15 U.S.C. 78s(b)(2)(B).
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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-NYSEArca-2017-08 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-NYSEArca-2017-08. 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 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. 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-

[[Page 10422]]

NYSEArca-2017-08 and should be submitted on or before March 3, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-02735 Filed 2-9-17; 8:45 am]
BILLING CODE 8011-01-P