
[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 rule-comments@sec.gov. 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


