[Federal Register Volume 81, Number 97 (Thursday, May 19, 2016)]
[Notices]
[Pages 31671-31674]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-11760]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77830; File No. SR-NYSEArca-2016-72]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Relating to Changes
to Procedures Regarding Establishing the LBMA Silver Price
May 13, 2016.
Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on May 12, 2016, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II 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 changes to the methodology utilized by CME
Group, Inc. (``CME Group'') and Thomson Reuters to establish the London
Bullion Market Association (``LBMA'') Silver Price (formerly the London
Silver Price). The LBMA Silver Price is the price used with respect to
calculation of the net asset value for the iShares Silver Trust, ETFS
Silver Trust, and ETFS Precious Metals Basket Trust, each of which is
currently listed on the Exchange under NYSE Arca Equities Rule 8.201,
and is the underlying benchmark for ProShares Ultra Silver and
ProShares UltraShort Silver, each of which is currently listed on the
Exchange under NYSE Arca Equities Rule 8.200. 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
The Exchange is submitting this proposed rule change in connection
with changes to the methodology, as described below, used by CME Group
and Thomson Reuters to establish the LBMA Silver Price (formerly the
London Silver Price), to be implemented on May 16, 2016. The LBMA
Silver Price is the price used with respect to calculation of the net
asset value for the iShares Silver Trust, ETFS Silver Trust, and ETFS
Precious Metals Basket Trust (together, the ``Silver Trusts''), each of
which is currently listed on the Exchange under NYSE Arca Equities Rule
8.201 (Commodity-Based Trust Shares), and is the underlying benchmark
for ProShares Ultra Silver and ProShares UltraShort Silver (together,
the ``Silver Funds''), each of which is currently listed on the
Exchange under NYSE Arca Equities Rule 8.200 (Trust Issued
Receipts).\4\
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\4\ ETFS White Metals Basket Trust, shares of which were
previously listed and traded on the Exchange under NYSE Arca
Equities Rule 8.201, was delisted from the Exchange on March 3,
2016.
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As of August 14, 2014, the London Silver Price (now known as the
``LBMA Silver Price'') replaced the ``London Silver Fix'' as the
mechanism for pricing silver. As of such date, CME Group has provided
the price platform and methodology for the LBMA Silver Price and
Thomson Reuters has been responsible for governance and oversight of
the LBMA Silver Price. Currently, six price participants have been
accredited to contribute to the LBMA Silver Price as follows: China
Construction Bank, HSBC Bank USA NA, JPMorgan Chase Bank, The Bank of
Nova Scotia--ScotiaMocatta, The Toronto Dominion Bank and UBS AG.
In connection with implementation of the LBMA Silver Price as a
replacement
[[Page 31672]]
for the London Silver Fix, the Exchange filed a proposed rule change
regarding the change to the benchmark price for the Silver Trusts and
the change to the ``Underlying Benchmark'' for the Silver Funds from
the London Silver Fix to the London Silver Price.\5\ Specifically, with
respect to the Silver Trusts, the Exchange proposed to change the
benchmark price used by the Silver Trusts for calculation of the net
asset value of shares of each of such trust. In addition, the Exchange
proposed to reflect a change in the Underlying Benchmark applicable to
the Silver Funds. In this filing, the Exchange describes new measures
to be implemented by CME Group and Thomson Reuters on May 16, 2016
relating to the LBMA Silver Price.
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\5\ See Securities Exchange Act Release No. 72847 (August 14,
2014), 79 FR 49350 (August 20, 2014) (SR-NYSEArca-2014-88) (notice
of filing and immediate effectiveness of proposed rule change (1) to
reflect a change to the value used by the iShares Silver Trust, ETFS
Silver Trust, ETFS White Metals Basket Trust and ETFS Precious
Metals Basket Trust with respect to calculation of the net asset
value of shares of each trust; and (2) to reflect a change to the
underlying benchmark for ProShares Ultra Silver and ProShares
UltraShort Silver) (the ``Prior Notice'').
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The LBMA Silver Price Mechanism \6\
As described in the Prior Notice, according to the ETFS Silver
Registration Statement, as of August 15, 2014, CME Group has conducted
an ``equilibrium auction'' once daily during London trading hours among
LBMA-authorized participating bullion banks and market makers (``silver
participants'') that establishes a price--the LBMA Silver Price--which
provides reference silver prices for that day's trading.\7\
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\6\ The description in the Prior Notice of the London Silver
Price mechanism was based, in part, on the ``ETFS Silver
Registration Statement'', defined in the Prior Notice as follows:
Post-Effective Amendment No. 1 on Form S-1 under the 1933 Act for
the ETFS White Metals Basket Trust, filed with the Commission on
August 13, 2014 (No. 333-195441); Post-Effective Amendment No. 1 on
Form S-3 under the 1933 Act for the ETFS Precious Metals Basket
Trust, filed with the Commission on August 13, 2014 (No. 333-
195675); Post-Effective Amendment No. 1 on Form S-3 under the 1933
Act for the ETFS Silver Trust, filed with the Commission on August
8, 2014 (No. 333-195514).
\7\ The term ``LBMA Silver Price'' means the price for an ounce
of silver set by LBMA-authorized participating bullion banks and
market makers in the electronic, over-the-counter auction operated
by CME Group at approximately 12:00 noon London time, on each
working day and disseminated by Thomson Reuters. CME Group provides
the electronic auction platform on which the price is calculated,
while the LBMA accredits market participants. Thomson Reuters is
responsible for governance and oversight of the LBMA Silver Price,
and is regulated by the Financial Conduct Authority (``FCA'') for
its role as the benchmark administrator. The LBMA Silver Price is
regulated under the FCA's Market Conduct (MAR) Sourcebook (MAR 8.3).
As the LBMA Silver Price Administrator, Thomson Reuters has adopted
and issued the LBMA Silver Price Administrator Code of Conduct and
has undertaken to perform the LBMA Silver Price Administrator
responsibilities in accordance with MAR 8.3. Among the LBMA Silver
Price Administrator's responsibilities are that it: (1) Have in
place effective arrangements and procedures that allow the regular
monitoring and surveillance of the auction process; (2) monitor the
benchmark submissions in order to identify breaches of its practice
standards and conduct that may involve manipulation, or attempted
manipulation, of the specified benchmark it administers and provide
to the oversight committee of the specified benchmark timely updates
of suspected breaches of practice standards and attempted
manipulation; (3) notify the FCA and provide all relevant
information where it suspects that, in relation to the specified
benchmark it administers, there has been (i) a material breach of
the benchmark administrator's practice standards; (ii) conduct that
may involve manipulation or attempted manipulation of the specified
benchmark it administers; or (iii) collusion to manipulate or to
attempt to manipulate the specified benchmark it administers; (4)
ensure that the specified benchmark it administers is determined
using adequate benchmark submissions; and (5) establish an oversight
committee. The LBMA Silver Price Oversight Committee reviews and
maintains the definition, setting, scope and methodology of the
benchmark. See Thomson Reuters Benchmark Services--LBMA Silver Price
Administrator Code of Conduct, available at http://financial.thomsonreuters.com/content/dam/openweb/documents/pdf/financial/lbma-silver-price-administrator-code-of-conduct-2015.pdf.
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CME Group has established an electronic, over-the-counter, auction
market for silver participants that discovers the LBMA Silver Price
over multiple auction rounds that begin at 12:00 noon London time each
business day. The LBMA Silver Price is the result of an ``equilibrium
auction'' because it establishes a price for a troy ounce of silver
London Good Delivery Bars \8\ that will clear the maximum amount of
bids and offers for silver entered by order-submitting silver
participants each day. Once the LBMA Silver Price, which is calculated
in US dollars, is established, Thomson Reuters disseminates that day's
LBMA Silver Price to the markets and other market data providers such
as Bloomberg via the Thomson Reuters Eikon and Elektron systems.
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\8\ A London Good Delivery Bar is acceptable for delivery in
settlement of a transaction on the over-the counter market. A London
Good Delivery Bar must contain between 750 ounces and 1,100 ounces
of silver with a minimum fineness (or purity) of 999.0 parts per
1,000. A London Good Delivery Bar must also bear the stamp of one of
the refiners who are on the LBMA-approved list.
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CME Group Auction Process
As described in the Prior Notice, the CME Group auction process
begins with a notice of an auction round issued to silver participants
before the commencement of the auction round stating a silver price in
US dollars at which the auction round will be conducted. An auction
round lasts 30 seconds. Silver participants electronically place bid
and offer orders at the round's stated price and indicate whether the
orders are for their own account or for the account of clients. The
Prior Notice stated that all auction round order information other than
the identity of those placing orders are displayed electronically in
real time for all silver participants. The CME Group system
administrator observes all auction round bid and offer order
information, including the identity of those submitting orders. As long
as the auction is open, silver participants may alter, change or
withdraw their orders.
At the end of the auction round, the CME Group system evaluates the
equilibrium of the bid and offer orders submitted. If bid and offer
orders indicate an imbalance outside of acceptable tolerances
established for the CME Group system (e.g., too many purchase orders
submitted compared to sell orders or vice versa), a CME Group system
algorithm calculates a new auction round price principally based on the
volume weighting of bid and offer orders submitted in the immediately
completed auction round. To clear the imbalance, the CME Group system
then issues another notice of auction round to silver participants at
the newly calculated price. During this next 30 second auction round,
silver participants again submit orders, and after it ends, the CME
Group system evaluates for order imbalances. If order imbalances
persist, a new auction price will be calculated and a further auction
round will occur. This auction round process continues until an
equilibrium within specified tolerances is determined to exist. Once
the CME Group system determines that orders are in equilibrium within
system tolerances, the auction process ends and the equilibrium auction
round price becomes the LBMA Silver Price.
Currently, the LBMA Silver Price and all bid and offer order
information for all auction rounds become publicly available
electronically via Thomson Reuters instantly after the conclusion of
the equilibrium auction. The CME Group system also simultaneously
matches bid and offer orders from the equilibrium auction for bilateral
settlement among the silver participants. Orders reflecting any
imbalance between bids and offers that are within the CME Group system
tolerances are then allocated to the first tier participants for
settlement.
On March 22, 2016, CME Group and Thomson Reuters issued a press
release \9\ announcing implementation of
[[Page 31673]]
new measures relating to the LBMA Silver Price Benchmark, effective May
16, 2016.\10\ The following are the principal new measures to be
implemented. First, a ``blind auction'' will be introduced. Only prices
will be visible during each round. Once an auction round has ended,
aggregate buy and sell volumes will be publicly available. Second, with
respect to sharing the imbalance in the auction, the imbalance (where
applicable) will be shared equally among all registered participants of
the auction, even if a participant has not placed an order in the
auction for that day. Currently, the imbalance is shared only among
participants that have placed an order in the auction for that day.\11\
Third, in exceptional circumstances, the calculation agent (CME Group)
can increase the imbalance threshold during an auction, within an
approved range, to establish the LBMA Silver Price and settle the
auction.
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\9\ See ``CME Group and Thomson Reuters to Enhance LBMA Silver
Price Benchmark'', dated March 22, 2016 (``March 22 Press
Release'').
\10\ CME Group, Thomson Reuters and the independent Silver Price
Oversight Committee previously announced in a press release a change
to the LBMA Silver Price protocol, in place since January 29, 2016,
to suspend an auction if CME Group and Thomson Reuters believe the
integrity of the auction or participants is threatened. See
``Developments to LBMA Silver Price Benchmark--Joint Statement by
Thomson Reuters, CME Group and the independent Silver Price
Oversight Committee'', dated February 4, 2016. According to the
March 22 Press Release, this change in protocol allows for the
auction to be stopped, reset and restarted to address significant
price movements during the auction, which are inconsistent with the
underlying market.
\11\ As an equilibrium auction, settlement occurs when, at the
end of a round, the total of buy and sell orders are within a
predefined imbalance tolerance.
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The Prior Notice stated that the LBMA Silver Price auction process
is fully auditable by third parties since an audit trail exists from
the time of each notice of an auction round. The LBMA Silver Price
auction process will continue to be fully auditable. Moreover, the LBMA
Silver Price's audit trail and active, real time surveillance of the
auction process by the CME Group system administrator combined with
silver participants' agreement to abide by CME Group silver market
rules and the Thomson Reuters code of conduct will deter manipulative
and abusive conduct in establishing each day's LBMA Silver Price.\12\
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\12\ According to LBMA, the Prudential Regulation Authority
(PRA) at the Bank of England now has overall responsibility for the
prudential regulation of banks, building societies, credit unions,
insurers and major investment firms, many of whom are active in the
bullion market. The conduct of financial institutions is overseen by
the FCA, which was formed from the former Financial Services
Authority and is separate from the Bank of England.
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2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under section 6(b)(5) \13\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\13\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that,
according to the LBMA,\14\ the LBMA Silver Price mechanism is
electronic, auction-based and auditable. In the Prior Notice, the
Exchange represented that it believed that the LBMA Silver Price
(formerly, the London Silver Price) mechanism serves as an appropriate
replacement to the London Silver Fix for purposes of determining the
net asset value of shares of the Silver Trusts or as the Underlying
Benchmark applicable to the Silver Funds because of the transparency of
the auction process, the participation of an increased number of market
participants compared to the London Silver Fix, and the auditability of
the silver pricing mechanism. The CME Group system administrator will
observe all auction round bid and offer order information, including
the identity of those submitting orders. While aggregate bid and offer
volumes would no longer be disclosed during the auction round, the
London Silver Price and all bid and offer order information for all
auction rounds will become publicly available electronically via
Thomson Reuters after the conclusion of the equilibrium auction. The
LBMA Silver Price is widely disseminated by one or more major market
data vendors and/or exchanges.
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\14\ See ``LBMA Silver Price Solution: CME Group & Thomson
Reuters,'' dated July 11, 2014, available at: http://www.lbma.org.uk/_blog/lbma_media_centre/post/silverpricesolution/.
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The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that the LBMA Silver Price auction process is fully
transparent in real time to the general public at the close of each
equilibrium auction. The LBMA Silver Price auction process also is
fully auditable by third parties since an audit trail exists from the
time of each notice of an auction round. Moreover, the LBMA Silver
Price's audit trail and active, real time surveillance of the auction
process by the CME Group system administrator combined with silver
participants' agreement to abide by CME Group silver market rules and
the Thomson Reuters code of conduct deters manipulative and abusive
conduct in establishing each day's LBMA Silver Price.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
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
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 for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, it has become effective pursuant to section
19(b)(3)(A) of the Act \15\ and Rule 19b-4(f)(6) thereunder.\16\
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the 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.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \17\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \18\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. 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
states that waiver of the 30-day delayed operative date is consistent
with the protection of investors and the public interest because: (1)
CME and Thomson Reuters will implement the changes described above
beginning May 16, 2016; (2) waiver of the 30-day delayed operative date
would accommodate trading of the
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Silver Trusts and Silver Funds as of May 16, 2016; (3) the Silver
Trusts and the Silver Funds do not control the date on which changes to
the LBMA Silver Price auction procedures are implemented; and (4) the
Silver Trusts and Silver Funds collectively represent approximately
$6.9 billion in market value, and any trading suspension would cause
significant harm to investors. Based on the foregoing, the Commission
believes the waiver of the operative delay is consistent with the
protection of investors and the public interest. Therefore, the
Commission hereby waives the operative delay and designates the
proposal operative upon filing.\19\
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\17\ 17 CFR 240.19b-4(f)(6).
\18\ 17 CFR 240.19b-4(f)(6)(iii).
\19\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such 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 shall institute proceedings to
determine whether the proposed rule change should be approved or
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-NYSEArca-2016-72 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-2016-72. 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-NYSEArca-2016-72 and should
be submitted on or before June 9, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-11760 Filed 5-18-16; 8:45 am]
BILLING CODE 8011-01-P