Self-Regulatory Organizations; New York Stock Exchange LLC; NYSE MKT LLC; Notice of Filings of Amendment No. 1, and Order Granting Accelerated Approval of Proposed Rule Changes, as Modified by Amendment No. 1, To Provide for How the Exchanges Would Determine an Official Closing Price if the Exchanges Are Unable To Conduct a Closing Transaction, 38747-38751 [2016-13964]

Download as PDF srobinson on DSK5SPTVN1PROD with NOTICES Federal Register / Vol. 81, No. 114 / Tuesday, June 14, 2016 / Notices opportunities, which should prevent shares from trading at a material discount or premium from NAV. 6. With respect to Funds that hold non-U.S. Portfolio Positions and that effect creations and redemptions of Creation Units in kind, applicants request relief from the requirement imposed by section 22(e) in order to allow such Funds to pay redemption proceeds within fifteen calendar days following the tender of Creation Units for redemption. Applicants assert that the requested relief would not be inconsistent with the spirit and intent of section 22(e) to prevent unreasonable, undisclosed or unforeseen delays in the actual payment of redemption proceeds. 7. Applicants request an exemption to permit Funds of Funds to acquire Fund shares beyond the limits of section 12(d)(1)(A) of the Act; and the Funds, and any principal underwriter for the Funds, and/or any broker or dealer registered under the Exchange Act, to sell shares to Funds of Funds beyond the limits of section 12(d)(1)(B) of the Act. The application’s terms and conditions are designed to, among other things, help prevent any potential (i) undue influence over a Fund through control or voting power, or in connection with certain services, transactions, and underwritings, (ii) excessive layering of fees, and (iii) overly complex fund structures, which are the concerns underlying the limits in sections 12(d)(1)(A) and (B) of the Act. 8. Applicants request an exemption from sections 17(a)(1) and 17(a)(2) of the Act to permit persons that are Affiliated Persons, or Second Tier Affiliates, of the Funds, solely by virtue of certain ownership interests, to effectuate purchases and redemptions in-kind. The deposit procedures for in-kind purchases of Creation Units and the redemption procedures for in-kind redemptions of Creation Units will be the same for all purchases and redemptions and Deposit Instruments and Redemption Instruments will be valued in the same manner as those Portfolio Positions currently held by the Funds. Applicants also seek relief from the prohibitions on affiliated transactions in section 17(a) to permit a Fund to sell its shares to and redeem its shares from a Fund of Funds, and to engage in the accompanying in-kind transactions with the Fund of Funds.2 2 The requested relief would apply to direct sales of shares in Creation Units by a Fund to a Fund of Funds and redemptions of those shares. Applicants, moreover, are not seeking relief from section 17(a) for, and the requested relief will not apply to, transactions where a Fund could be deemed an Affiliated Person, or a Second-Tier Affiliate, of a VerDate Sep<11>2014 19:36 Jun 13, 2016 Jkt 238001 The purchase of Creation Units by a Fund of Funds directly from a Fund will be accomplished in accordance with the policies of the Fund of Funds and will be based on the NAVs of the Funds. 9. Applicants also request relief to permit a Feeder Fund to acquire shares of another registered investment company managed by the Adviser having substantially the same investment objectives as the Feeder Fund (‘‘Master Fund’’) beyond the limitations in section 12(d)(1)(A) and permit the Master Fund, and any principal underwriter for the Master Fund, to sell shares of the Master Fund to the Feeder Fund beyond the limitations in section 12(d)(1)(B). 10. Section 6(c) of the Act permits the Commission to exempt any persons or transactions from any provision of the Act if such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Section 12(d)(1)(J) of the Act provides that the Commission may exempt any person, security, or transaction, or any class or classes of persons, securities, or transactions, from any provision of section 12(d)(1) if the exemption is consistent with the public interest and the protection of investors. Section 17(b) of the Act authorizes the Commission to grant an order permitting a transaction otherwise prohibited by section 17(a) if it finds that (a) the terms of the proposed transaction are fair and reasonable and do not involve overreaching on the part of any person concerned; (b) the proposed transaction is consistent with the policies of each registered investment company involved; and (c) the proposed transaction is consistent with the general purposes of the Act. For the Commission, by the Division of Investment Management, under delegated authority. Robert W. Errett, Deputy Secretary. [FR Doc. 2016–13967 Filed 6–13–16; 8:45 am] BILLING CODE 8011–01–P Fund of Funds because an Adviser or an entity controlling, controlled by or under common control with an Adviser provides investment advisory services to that Fund of Funds. PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 38747 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–78015; File Nos. SR–NYSE– 2016–18; SR–NYSEMKT–2016–31] Self-Regulatory Organizations; New York Stock Exchange LLC; NYSE MKT LLC; Notice of Filings of Amendment No. 1, and Order Granting Accelerated Approval of Proposed Rule Changes, as Modified by Amendment No. 1, To Provide for How the Exchanges Would Determine an Official Closing Price if the Exchanges Are Unable To Conduct a Closing Transaction June 8, 2016. I. Introduction On March 2, 2016, New York Stock Exchange LLC (‘‘NYSE’’) and NYSE MKT LLC (‘‘NYSE MKT’’) (each an ‘‘Exchange,’’ and together the ‘‘Exchanges’’) each filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend, respectively, NYSE Rule 123C and NYSE MKT Rule 123C—Equities (both hereinafter ‘‘Rule 123C’’) to provide for how each Exchange will determine an Official Closing Price if it is unable to conduct a closing transaction. The proposed rule changes were published for comment in the Federal Register on March 11, 2016.3 The Commission received one comment letter in response to the NYSE proposal.4 On April 21, 2016, the Commission extended the time period within which to approve the proposed rule changes, disapprove the proposed rule changes, or institute proceedings to determine whether to disapprove the proposed rule changes, to June 9, 2016.5 On May 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 77305 (March 7, 2016), 81 FR 12977 (SR–NYSE–2016–18) (‘‘NYSE Notice’’); Securities Exchange Act Release No. 77306 (March 7, 2016), 81 FR 12986 (SR– NYSEMKT–2016–31) (‘‘MKT Notice’’). The proposals are substantially similar and the Commission is hereby noticing the Amendments No. 1 and granting accelerated approval jointly. 4 See Letter from Theodore R. Lazo, Managing Director and Associate General Counsel, Securities Industry and Financial Markets Association, to Brent J. Fields, Secretary, Commission, dated April 5, 2016 (submitted to File No. SR–NYSE–2016–18) (‘‘SIFMA Letter’’). The Commission notes that this comment letter was also submitted in response to a similar filing by the Nasdaq Stock Market LLC. See Securities Exchange Act Release No. 77309 (March 7, 2016), 81 FR 13007 (March 11, 2016) (SR– NASDAQ–2016–035). 5 See Securities Exchange Act Release Nos. 77677, 81 FR 24907 (April 27, 2016) (SR–NYSE–2016–18); 2 17 E:\FR\FM\14JNN1.SGM Continued 14JNN1 38748 Federal Register / Vol. 81, No. 114 / Tuesday, June 14, 2016 / Notices 26, 2016, NYSE submitted a response to the comment letter,6 and each Exchange filed an Amendment No. 1 to its proposal.7 The Commission is publishing this notice to solicit comments on the Amendments No. 1 from interested persons, and is approving the proposed rule changes, each as modified by its respective Amendment No. 1, on an accelerated basis. srobinson on DSK5SPTVN1PROD with NOTICES II. Description of the Proposed Rule Changes Each Exchange proposes to amend its rules to specify closing contingency procedures for determining an Official Closing Price for its listed securities if it is unable to conduct a closing transaction in one or more securities due to a systems or technical issue. Specifically, each Exchange proposes to amend its Rule 123C to provide for how it would determine an Official Closing Price if it is impaired.8 For each Exchange, under its current rules, the ‘‘Official Closing Price’’ of a security it lists is the price established in a closing transaction of one round lot or more.9 If there is no closing 77676, 81 FR 24907 (April 27, 2016) (SR– NYSEMKT–2016–31). 6 See Letter from Elizabeth K. King, General Counsel and Corporate Secretary, New York Stock Exchange, to Brent J. Fields, Secretary, Commission, dated May 26, 2016 (‘‘NYSE Response Letter’’). 7 In its Amendment No. 1, each Exchange amended its proposed rule text to (1) add proposed Rule 123C(1)(e)(iv), which provides that, if the Exchange determines the Official Closing Price under Rule 123C(1)(e)(ii) or (e)(iii), the Exchange will publicly announce the manner by which it will determine its Official Closing Price and the designated alternate exchange, if applicable, and will cancel all open interest designated for the Exchange close; and (2) amend Rule 123C(1)(e)(i) to specify how the Exchange will determine the Official Closing Price for a security that has transferred its listing to the Exchange or is a new listing and does not have any last-sale eligible trades on the Exchange on its first day of trading on the Exchange. The Exchanges’ respective Amendments No. 1 are available at: https:// www.nyse.com/publicdocs/nyse/markets/nyse/rulefilings/filings/2016/NYSE-201618,%20Pt.%20Am.%201.pdf and https:// www.nyse.com/publicdocs/nyse/markets/nyse-mkt/ rule-filings/filings/2016/NYSEMKT-201631,%20Pt.%20Am.%201.pdf. 8 According to the Exchanges, this proposal was developed in consultation with one another, their affiliated exchange, NYSE Arca, Inc. (‘‘NYSE Arca’’), and the NASDAQ Stock Market LLC (‘‘Nasdaq’’), and took into consideration feedback from discussions with industry participants. See NYSE Notice, supra note 3, at 12978; NYSE MKT Notice, supra note 3, at 12986. The Commission notes that the Nasdaq Stock Market LLC has also filed a similar proposed rule change with the Commission. See Securities Exchange Act Release No. 77309 (March 7, 2016), 81 FR 13007 (March 11, 2016) (SR–NASDAQ–2016–035). 9 See Rule 123C(1)(e)(i). See also Securities Exchange Act Release Nos. 76598 (Dec. 9, 2015), 80 FR 77688 (Dec. 15, 2015) (SR–NYSE–2015–62); 76601 (Dec. 9, 2015), 80 FR 77680 (Dec. 15, 2015) (SR–NYSEMKT–2015–98). VerDate Sep<11>2014 19:36 Jun 13, 2016 Jkt 238001 transaction in a security, or if a closing transaction is less than one round lot, the Official Closing Price will be the most-recent last-sale-eligible trade in that security on the Exchange on that trading day.10 Currently, if an Exchange is unable to conduct a closing transaction in a security due to a systems or technical issue, the Official Closing Price will be the last consolidated last-sale-eligible trade for that security during regular trading hours on that trading day, and if there were no such consolidated last-sale eligible trades, the Official Closing Price will be the prior day’s Official Closing Price.11 Each Exchange proposes to amend its Rule 123C(1)(e)(ii) to provide for a proposed new contingency plan for how it would determine an Official Closing Price if it is unable to conduct a closing transaction in a security due to a systems or technical issue.12 Each Exchange proposes that, if it determines at or before 3:00 p.m. Eastern Time that it is unable to conduct a closing transaction in one or more securities due to a systems or technical issue, it would designate an alternate exchange for those securities. The affected Exchange would publicly announce the exchange designated as the alternate exchange via Trader Update.13 In these circumstances, the Official Closing Price of each affected security on an Exchange would be determined based on the following hierarchy: • The Official Closing Price would be the official closing price for that security under the rules of the designated 10 See Rule 123C(1)(e)(i). Rule 123C(1)(e)(ii). 12 Each Exchange states that, if it determines that it is impaired before 3:00 p.m. and the Official Closing Price for an Exchange-listed security is determined pursuant to proposed Rule 123C(1)(e)(ii), the SIP would publish the Official Closing Price for that security no differently than how the SIP publishes the Official Closing Price for an Exchange-listed security pursuant to current Rule 123C(1)(e)(i). See NYSE Notice, supra note 3, at 12979; NYSE MKT Notice, supra note 3, at 12987–88. Accordingly, if the Official Closing Price of a security is determined pursuant to proposed Rule 123C(1)(e)(ii), the Exchanges note that recipients of SIP data would not have to make any changes to their systems. See NYSE Notice, supra note 3, at 12979; NYSE MKT Notice, supra note 3, at 12987–88. 13 See NYSE Notice, supra note 3, at 12978; NYSE MKT Notice, supra note 3, at 12987. The Exchanges represent that they expect to designate an affiliated exchange as the alternate exchange and would designate Nasdaq only if the affiliated exchanges were also impacted by the systems or technical issue. See NYSE Notice, supra note 3, at 12978 n.6; NYSE MKT Notice, supra note 3, at 12987 n.6. In its respective Amendment No. 1, each Exchange specified that this determination would be publicly announced and that, in the event of such a determination, all open interest designated for the Exchange close would be deemed canceled. See Amendments No. 1. 11 See PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 alternate exchange.14 For example, if NYSE Arca is the designated alternate exchange, the Official Closing Price would be based on NYSE Arca Equities Rule 1.1(ggP), which defines how NYSE Arca establishes an official closing price.15 If Nasdaq were designated as the alternate exchange, the Official Closing Price would be the official closing price established in Nasdaq Rule 4754. • If the designated alternate exchange does not have an official closing price in a security, the Official Closing Price would be the volume-weighted average price (‘‘VWAP’’) of the consolidated last-sale-eligible prices of the last five minutes of trading during regular trading hours up to the time that the VWAP is processed.16 The VWAP would include any closing transactions on an exchange and would take into account any trade breaks or corrections up to the time the VWAP is processed. • If the designated alternate exchange does not have an official closing price in a security and there were no consolidated last-sale eligible trades in the last five minutes of trading during regular trading hours in that security, the Official Closing Price would be the last consolidated last-sale-eligible trade during regular trading hours on that trading day.17 • If the designated alternate exchange does not have an official closing price in a security and there were no consolidated last-sale-eligible trades in a security on a trading day in that security, the Official Closing Price would be the prior day’s Official Closing Price.18 • If an Official Closing Price for a security cannot be determined as provided above, and there is no prior day’s Official Closing Price, the Exchange would not publish an Official Closing Price for that security.19 In addition, each Exchange has proposed Rule 123C(1)(e)(iii) to describe how it would determine the Official Closing Price for a security if it determines after 3:00 p.m. Eastern Time that it is unable to conduct a closing transaction in one or more securities 14 See Proposed Rule 123C(1)(e)(ii)(A). to the Exchanges, NYSE Arca will be filing a rule proposal to amend its Rule 1.1(ggP)(1) to provide that the manner by which NYSE Arca determines the Official Closing Price for securities listed on NYSE Arca would also be applicable to any securities for which NYSE Arca conducts a closing auction, including securities that trade on an unlisted-trading-privileges basis. See NYSE Notice, supra note 3, at 12978 n.7; NYSE MKT Notice, supra note 3, at 12987 n.7. 16 See proposed Rule 123C(1)(e)(ii)(B). 17 See proposed Rule 123C(1)(e)(ii)(C). 18 See proposed Rule 123C(1)(e)(ii)(D). 19 See proposed Rule 123C(1)(e)(ii)(E). 15 According E:\FR\FM\14JNN1.SGM 14JNN1 Federal Register / Vol. 81, No. 114 / Tuesday, June 14, 2016 / Notices srobinson on DSK5SPTVN1PROD with NOTICES due to a systems or technical issue.20 According to each Exchange, if an announcement were made after 3:00 p.m. Eastern Time that the Exchange was impaired and unable to conduct a closing transaction, market participants would not have sufficient time to redirect closing-only orders to an alternate venue.21 Therefore, each Exchange proposes that the process for determining an Official Closing Price for a security under these circumstances would not contemplate a closing transaction on a designated alternate exchange. Accordingly, in such a scenario, each Exchange proposes to use the following hierarchy for determining the Official Closing Price for a security: • The Official Closing Price would be the VWAP of the consolidated last-saleeligible prices of the last five minutes of trading during regular trading hours up to the time that the VWAP is processed, including any closing transactions on an exchange.22 The VWAP would take into account any trade breaks or corrections up to the time the VWAP is processed. • If there were no consolidated lastsale eligible trades in the last five minutes of trading during regular trading hours in such security, the Official Closing Price would be the last consolidated last-sale-eligible trade during regular trading hours on that trading day.23 • If there were no consolidated lastsale-eligible trades in the security on a trading day, the Official Closing Price would be the prior day’s Official Closing Price.24 • If an Official Closing Price for a security cannot be determined as provided above and there is no prior day’s Official Closing Price, the 20 Each Exchange states that, similar to how the Official Closing Price would be published under proposed Rule 123C(1)(e)(ii), if it determines that it is impaired after 3:00 p.m. and the Official Closing Price for a security is determined pursuant to proposed Rule 123C(1)(e)(iii), the SIP would publish the Official Closing Price for that security no differently than how the SIP publishes the Official Closing Price for an Exchange-listed security pursuant to current Rule 123C(1)(e)(i). See NYSE Notice, supra note 3, at 12980; NYSE MKT Notice, supra note 3, at 12988. Accordingly, if the Official Closing Price is determined pursuant to proposed Rule 123C(1)(e)(iii), the Exchanges note that recipients of SIP data would not have to make any changes to their systems. See NYSE Notice, supra note 3, at 12980; NYSE MKT Notice, supra note 3, at 12988. In its Amendment No. 1, each Exchange has specified that this determination would be publicly announced and that, in the event of such determination, all open interest designated for the Exchange close would be deemed canceled. See Amendment No. 1. 21 See NYSE Notice, supra note 3, at 12979; NYSE MKT Notice, supra note 3, at 12988. 22 See proposed Rule 123C(1)(e)(iii)(A). 23 See proposed Rule 123C(1)(e)(iii)(B). 24 See proposed Rule 123C(1)(e)(iii)(C). VerDate Sep<11>2014 19:36 Jun 13, 2016 Jkt 238001 Exchange would not publish an Official Closing Price for that security.25 The Exchanges propose to implement the closing contingency procedures for determining an Official Closing Price no later than 120 days after approval, on a date to be announced via Trader Update.26 III. Summary of Comments As noted above, the Commission received one comment letter on the NYSE proposal and a response letter from NYSE.27 The commenter generally supports the proposal but suggests certain modifications to the proposal.28 The Commission notes that, while this comment letter was submitted in response only to the NYSE proposal, the Exchanges’ proposals are substantively similar and the comments raised are equally relevant to both. First, the commenter suggests that NYSE’s rules should specify that any designation of an alternate exchange would be publicly announced at or before 3:00 p.m. and that the announcement would be made through the SIP feed in addition to any other forms of communication.29 According to the commenter, if a determination is made at 3:00 p.m., then the time between 3:00 p.m. and when member firms actually receive notice of the designation would cut into the time needed to re-direct closing interest to the designated alternate exchange.30 NYSE agreed with the commenter’s 25 See proposed Rule 123C(1)(e)(iii)(D). NYSE Notice, supra note 3, at 12980; NYSE MKT Notice, supra note 3, at 12988. Each Exchange further notes that, under the proposed rule change, for purposes of NYSE Rule 440B(b) and NYSE MKT Rule 440B(b)—Equities, the Official Closing Price would continue to be determined based on Rule 123C and that, if the Exchange is impaired, the Official Closing Price as defined in proposed Rules 123C(1)(e)(ii) and (iii) would be used for purposes of determining whether a Short Sale Price Test is triggered in a security the next trading day. See NYSE Notice, supra note 3, at 12980; NYSE MKT Notice, supra note 3, at 12988. Each Exchange also proposes to specify in Rule 123C(1)(e)(i) that, for a security that has transferred its listing to the Exchange and does not have any last-sale-eligible trades on the Exchange on its first trading day, the Official Closing Price would be the prior day’s closing price disseminated by the primary listing market that previously listed such security. See Amendments No. 1. In addition, for a new listing that does not have any last-sale eligible trades on an Exchange on its first trading day, the Official Closing Price would be based on a derived last sale associated with the price of that security before it begins trading. See id. 27 See SIFMA Letter, supra note 4; NYSE Response Letter, supra note 6. 28 See SIFMA Letter, supra note 4, at 1. The commenter also encourages NYSE and Nasdaq to continue to work with industry participants on this issue and to refine the backup mechanism as a next step. See id. at 3. 29 See id. at 2–3. 30 See id. 26 See PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 38749 suggestion that it should publicly announce the designation of an alternate exchange.31 As a result, each Exchange amended its proposal to specify that any designation of an alternate exchange will be publicly announced at or before 3:00 p.m.32 Second, the commenter suggests that, if NYSE determines not to carry out its own closing transaction, it should expressly assume responsibility for the cancellation of all closing interest that NYSE has already received.33 According to the commenter, this would allow market participants to treat their closing interest as canceled even if they have not received an official notification of the cancellation.34 The commenter also suggests that NYSE’s rules should state that the official closing transaction will be canceled once NYSE determines that it is unable to conduct its own closing transaction, so as to avoid uncertainty regarding whether NYSE might change course if it determines before 4:00 p.m. that it can, in fact, conduct its own closing transaction.35 NYSE agreed with the commenter’s suggestion that it provide members with certainty that their open interest will not be executed if NYSE determines to employ the closing contingency procedures. As a result, each Exchange has amended its proposal to expressly state that it would cancel all open interest designated for the Exchange close if it determines to employ the closing contingency procedures.36 The Commission also notes that, under the proposals, once an Exchange publicly announces that it will employ the closing contingency procedures, it will not revert to its ordinary closing procedures, and the Official Closing Price would be determined according to the hierarchies discussed above.37 Third, the commenter suggests that, when using the VWAP methodology, NYSE not include any other exchange’s closing transaction in the calculation.38 According to the commenter, a fiveminute VWAP methodology should 31 The public announcement of an alternate exchange designation, however, would not be disseminated through the SIP feed. 32 See NYSE Response Letter, supra note 6, at 1. See also Amendments No. 1. 33 See SIFMA Letter, supra note 4, at 3. The commenter also asserts that, if NYSE executes the closing interest despite canceling the closing transaction, NYSE should be responsible under its own rules for any resulting losses to the member firms. See id. The Exchanges have not revised their proposals to assume this liability. 34 See SIFMA Letter, supra note 4, at 3. 35 See id. 36 See NYSE Response Letter, supra note 6, at 2. See also Amendments No. 1. 37 See supra notes 14–25 and accompanying text. 38 See SIFMA Letter, supra note 4, at 3. E:\FR\FM\14JNN1.SGM 14JNN1 38750 Federal Register / Vol. 81, No. 114 / Tuesday, June 14, 2016 / Notices result in a price that is largely tradable and achievable.39 However, according to the commenter, if a VWAP used as the official closing price included auction prints from other exchanges’ closing transactions, the ability to trade and achieve the official closing price process would be reduced.40 The Exchanges have not amended the proposals to exclude closing transactions from the VWAP calculation, but have stated that they would consider whether to do so at a later date.41 srobinson on DSK5SPTVN1PROD with NOTICES IV. Discussion and Commission Findings After careful review of the proposals, as modified by the respective Amendments No. 1, and of the comment letter, the Commission finds that the proposed rule changes are consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.42 In particular, the Commission finds that the proposed rule changes are consistent with section 6(b)(5) of the Act,43 which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission believes that the proposed rule changes would provide transparency regarding how the Exchanges would determine the Official Closing Price in Exchange-listed securities when the Exchanges are unable to conduct a closing transaction due to a systems or technical issue. The Commission notes that the primary listing market’s closing price for a security is relied upon by market participants for a variety of reasons, including, but not limited to, calculation of index values, calculation of the net asset value of mutual funds and exchange-traded products, and the price of derivatives that are based on the security. As the Exchanges note, the proposed closing contingency procedures would provide a pre39 See id. id. 41 See NYSE Response Letter, supra note 6, at 2. 42 In approving these proposed rule changes, the Commission has considered the proposed rules’ impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 43 15 U.S.C. 78f(b)(5). 40 See VerDate Sep<11>2014 19:36 Jun 13, 2016 Jkt 238001 determined, consistent solution that would result in the SIP disseminating an official closing price for securities on behalf of the listing Exchange within a reasonable time frame relative to the normal closing time; would minimize the need for industry participants to modify their processing of data from the SIP; and would provide advance notification of the initiation of a closing contingency plan to provide sufficient time for industry participants to route any closing interest to an alternate venue to participate in that venue’s closing auction.44 The Commission believes that each Exchange’s proposal is reasonably designed to achieve these important goals and to prevent any issues that may result if the Exchange were unable to provide a closing price for its listed securities due to a systems or technical issue. For these reasons, the Commission finds that the proposed rule change is consistent with the Act. V. Solicitation of Comments on Amendment No. 1 Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether each Exchange’s respective Amendment No. 1 is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Numbers SR–NYSE–2016–18 and SR– NYSEMKT–2016–31 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Numbers SR–NYSE–2016–18 and SR– NYSEMKT–2016–31. These file numbers 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 (https://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 44 See NYSE Notice, supra note 3, at 12978, 12980; NYSE MKT Notice, supra note 3, at 12986, 12988–89. PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 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 Numbers SR–NYSE– 2016–18 and SR–NYSEMKT–2016–31 and should be submitted on or before July 5, 2016. VI. Accelerated Approval of Proposed Rule Changes, as Modified by Their Respective Amendments No. 1 The Commission finds good cause to approve the proposed rule changes, as modified by their respective Amendments No. 1, prior to the 30th day after the date of publication of the notices of each Amendment No. 1 in the Federal Register. As noted above, in its respective Amendment No. 1, each Exchange amended the proposed rule text to add Rule 123C(1)(e)(iv), which provides that if the Exchange determines the Official Closing Price under Rule 123C(1)(e)(ii) or (e)(iii), the Exchange will publicly announce the manner by which it will determine the Official Closing Price and the designated alternate exchange, if applicable, and will cancel all open interest designated for the Exchange close. As noted above, the Exchanges made these amendments in response to comments received on the NYSE proposal. In addition, in its respective Amendment No. 1, each Exchange amended its Rule 123C(1)(e)(i) to specify how it will determine the Official Closing Price for a security that has transferred its listing to the Exchange or that is a new listing and does not have any last-sale-eligible trades on the Exchange on its first day of trading on the Exchange. Specifically, for a security that has transferred its listing to the Exchange and does not have any last-sale-eligible trades on the Exchange on its first trading day, the Official Closing Price would be the prior day’s closing price disseminated by the E:\FR\FM\14JNN1.SGM 14JNN1 Federal Register / Vol. 81, No. 114 / Tuesday, June 14, 2016 / Notices primary listing market that previously listed that security.45 For a new listing that does not have any last-sale eligible trades on the Exchange on its first trading day, the Official Closing Price would be based on a derived last sale associated with the price of such security before it begins trading.46 Each Exchange states that its Amendment No. 1 is intended to provide increased transparency in the Exchange’s rules as to how the Exchange would determine the Official Closing Price for such new or transferred listings.47 Because each Amendment No. 1 responded to the comments received on the original proposal, and provided additional transparency to the operation of the closing contingency procedures for transferred and newly listed securities, the Commission finds good cause for approving the proposed rule changes, as modified by the respective Amendments No. 1, on an accelerated basis, pursuant to section 19(b)(2) of the Act.48 VII. Conclusion It is therefore ordered, pursuant to section 19(b)(2) of the Act,49 that the proposed rule changes (SR–NYSE– 2016–18 and SR–NYSEMKT–2016–31), as modified by their respective Amendments No. 1, be, and hereby are, approved on an accelerated basis. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.50 Robert W. Errett, Deputy Secretary. [FR Doc. 2016–13964 Filed 6–13–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION srobinson on DSK5SPTVN1PROD with NOTICES Sunshine Act Meeting Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94–409, that the Securities and Exchange Commission will hold a Closed Meeting on Thursday, June 16, 2016 at 2:00 p.m. Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the Closed Meeting. Certain staff members who have an interest in the matters also may be present. The General Counsel of the Commission, or her designee, has 45 See Amendments No. 1. 46 See id. 47 See id. 48 15 U.S.C. 78s(b)(2). 49 15 U.S.C. 78s(b)(2). 50 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 19:36 Jun 13, 2016 certified that, in her opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (7), 9(B) and (10) and 17 CFR 200.402(a)(3), (5), (7), 9(ii) and (10), permit consideration of the scheduled matter at the Closed Meeting. Chair White, as duty officer, voted to consider the items listed for the Closed Meeting in closed session. The subject matter of the Closed Meeting will be: Institution and Settlement of injunctive actions; Institution and settlement of administrative proceedings; Adjudicatory matters; Opinion; and Other matters relating to enforcement proceedings. At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact Brent J. Fields from the Office of the Secretary at (202) 551–5400. I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change Brent J. Fields, Secretary. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change [FR Doc. 2016–14080 Filed 6–10–16; 11:15 am] BILLING CODE 8011–01–P The Exchange is filing a proposal to adopt Exchange Rule 519C, Mass Cancellation of Trading Interest. The text of the proposed rule change is available on the Exchange’s Web site at https://www.miaxoptions.com/filter/ wotitle/rule_filing, at MIAX’s principal office, 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 Exchange 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 these 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 aspects of such statements. 1. Purpose SECURITIES AND EXCHANGE COMMISSION [Release No. 34–78023; File No. SR–MIAX– 2016–14] Self-Regulatory Organizations; Miami International Securities Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Exchange Rule 519C, Mass Cancellation of Trading Interest June 8, 2016. Pursuant to the provisions of Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on May 27, 2016, Miami International Securities Exchange LLC (‘‘MIAX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 2 17 Jkt 238001 38751 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00096 Fmt 4703 Sfmt 4703 The Exchange proposes to adopt new Rule 519C, Mass Cancellation of Trading Interest, to codify the Exchange’s current practice of cancelling quotes and/or orders upon the receipt of a verbal or an electronic request from a Member.3 Proposed Rule 519C would codify the current process by which Members may call or send an electronic message to the Exchange’s designated staff and to direct them to cancel all quotations and/or orders they have in the System.4 All of the directing Member’s quotations then in the System will be cancelled; a Member may submit a request to cancel all or any subset of its orders in the System. Currently, Exchange Members may cancel all quotations and/or open orders in the System electronically or, in the alternative, may request Exchange staff to do so verbally by phone or via electronic message. The proposed rule would codify the current process of 3 The term ‘‘Member’’ means an individual or organization approved to exercise trading rights associated with a Trading Permit. Members are deemed ‘‘members’’ under the Act. See Exchange Rule 100. 4 The term ‘‘System’’ means the automated trading system used by the Exchange for the trading of securities. See Exchange Rule 100. E:\FR\FM\14JNN1.SGM 14JNN1

Agencies

[Federal Register Volume 81, Number 114 (Tuesday, June 14, 2016)]
[Notices]
[Pages 38747-38751]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-13964]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78015; File Nos. SR-NYSE-2016-18; SR-NYSEMKT-2016-31]


Self-Regulatory Organizations; New York Stock Exchange LLC; NYSE 
MKT LLC; Notice of Filings of Amendment No. 1, and Order Granting 
Accelerated Approval of Proposed Rule Changes, as Modified by Amendment 
No. 1, To Provide for How the Exchanges Would Determine an Official 
Closing Price if the Exchanges Are Unable To Conduct a Closing 
Transaction

June 8, 2016.

I. Introduction

    On March 2, 2016, New York Stock Exchange LLC (``NYSE'') and NYSE 
MKT LLC (``NYSE MKT'') (each an ``Exchange,'' and together the 
``Exchanges'') each filed with the Securities and Exchange Commission 
(``Commission''), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend, respectively, NYSE Rule 123C and NYSE 
MKT Rule 123C--Equities (both hereinafter ``Rule 123C'') to provide for 
how each Exchange will determine an Official Closing Price if it is 
unable to conduct a closing transaction. The proposed rule changes were 
published for comment in the Federal Register on March 11, 2016.\3\ The 
Commission received one comment letter in response to the NYSE 
proposal.\4\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 77305 (March 7, 
2016), 81 FR 12977 (SR-NYSE-2016-18) (``NYSE Notice''); Securities 
Exchange Act Release No. 77306 (March 7, 2016), 81 FR 12986 (SR-
NYSEMKT-2016-31) (``MKT Notice''). The proposals are substantially 
similar and the Commission is hereby noticing the Amendments No. 1 
and granting accelerated approval jointly.
    \4\ See Letter from Theodore R. Lazo, Managing Director and 
Associate General Counsel, Securities Industry and Financial Markets 
Association, to Brent J. Fields, Secretary, Commission, dated April 
5, 2016 (submitted to File No. SR-NYSE-2016-18) (``SIFMA Letter''). 
The Commission notes that this comment letter was also submitted in 
response to a similar filing by the Nasdaq Stock Market LLC. See 
Securities Exchange Act Release No. 77309 (March 7, 2016), 81 FR 
13007 (March 11, 2016) (SR-NASDAQ-2016-035).
---------------------------------------------------------------------------

    On April 21, 2016, the Commission extended the time period within 
which to approve the proposed rule changes, disapprove the proposed 
rule changes, or institute proceedings to determine whether to 
disapprove the proposed rule changes, to June 9, 2016.\5\ On May

[[Page 38748]]

26, 2016, NYSE submitted a response to the comment letter,\6\ and each 
Exchange filed an Amendment No. 1 to its proposal.\7\ The Commission is 
publishing this notice to solicit comments on the Amendments No. 1 from 
interested persons, and is approving the proposed rule changes, each as 
modified by its respective Amendment No. 1, on an accelerated basis.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release Nos. 77677, 81 FR 24907 
(April 27, 2016) (SR-NYSE-2016-18); 77676, 81 FR 24907 (April 27, 
2016) (SR-NYSEMKT-2016-31).
    \6\ See Letter from Elizabeth K. King, General Counsel and 
Corporate Secretary, New York Stock Exchange, to Brent J. Fields, 
Secretary, Commission, dated May 26, 2016 (``NYSE Response 
Letter'').
    \7\ In its Amendment No. 1, each Exchange amended its proposed 
rule text to (1) add proposed Rule 123C(1)(e)(iv), which provides 
that, if the Exchange determines the Official Closing Price under 
Rule 123C(1)(e)(ii) or (e)(iii), the Exchange will publicly announce 
the manner by which it will determine its Official Closing Price and 
the designated alternate exchange, if applicable, and will cancel 
all open interest designated for the Exchange close; and (2) amend 
Rule 123C(1)(e)(i) to specify how the Exchange will determine the 
Official Closing Price for a security that has transferred its 
listing to the Exchange or is a new listing and does not have any 
last-sale eligible trades on the Exchange on its first day of 
trading on the Exchange. The Exchanges' respective Amendments No. 1 
are available at: https://www.nyse.com/publicdocs/nyse/markets/nyse/rule-filings/filings/2016/NYSE-2016-18,%20Pt.%20Am.%201.pdf and 
https://www.nyse.com/publicdocs/nyse/markets/nyse-mkt/rule-filings/filings/2016/NYSEMKT-2016-31,%20Pt.%20Am.%201.pdf.
---------------------------------------------------------------------------

II. Description of the Proposed Rule Changes

    Each Exchange proposes to amend its rules to specify closing 
contingency procedures for determining an Official Closing Price for 
its listed securities if it is unable to conduct a closing transaction 
in one or more securities due to a systems or technical issue. 
Specifically, each Exchange proposes to amend its Rule 123C to provide 
for how it would determine an Official Closing Price if it is 
impaired.\8\
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    \8\ According to the Exchanges, this proposal was developed in 
consultation with one another, their affiliated exchange, NYSE Arca, 
Inc. (``NYSE Arca''), and the NASDAQ Stock Market LLC (``Nasdaq''), 
and took into consideration feedback from discussions with industry 
participants. See NYSE Notice, supra note 3, at 12978; NYSE MKT 
Notice, supra note 3, at 12986. The Commission notes that the Nasdaq 
Stock Market LLC has also filed a similar proposed rule change with 
the Commission. See Securities Exchange Act Release No. 77309 (March 
7, 2016), 81 FR 13007 (March 11, 2016) (SR-NASDAQ-2016-035).
---------------------------------------------------------------------------

    For each Exchange, under its current rules, the ``Official Closing 
Price'' of a security it lists is the price established in a closing 
transaction of one round lot or more.\9\ If there is no closing 
transaction in a security, or if a closing transaction is less than one 
round lot, the Official Closing Price will be the most-recent last-
sale-eligible trade in that security on the Exchange on that trading 
day.\10\ Currently, if an Exchange is unable to conduct a closing 
transaction in a security due to a systems or technical issue, the 
Official Closing Price will be the last consolidated last-sale-eligible 
trade for that security during regular trading hours on that trading 
day, and if there were no such consolidated last-sale eligible trades, 
the Official Closing Price will be the prior day's Official Closing 
Price.\11\
---------------------------------------------------------------------------

    \9\ See Rule 123C(1)(e)(i). See also Securities Exchange Act 
Release Nos. 76598 (Dec. 9, 2015), 80 FR 77688 (Dec. 15, 2015) (SR-
NYSE-2015-62); 76601 (Dec. 9, 2015), 80 FR 77680 (Dec. 15, 2015) 
(SR-NYSEMKT-2015-98).
    \10\ See Rule 123C(1)(e)(i).
    \11\ See Rule 123C(1)(e)(ii).
---------------------------------------------------------------------------

    Each Exchange proposes to amend its Rule 123C(1)(e)(ii) to provide 
for a proposed new contingency plan for how it would determine an 
Official Closing Price if it is unable to conduct a closing transaction 
in a security due to a systems or technical issue.\12\ Each Exchange 
proposes that, if it determines at or before 3:00 p.m. Eastern Time 
that it is unable to conduct a closing transaction in one or more 
securities due to a systems or technical issue, it would designate an 
alternate exchange for those securities. The affected Exchange would 
publicly announce the exchange designated as the alternate exchange via 
Trader Update.\13\ In these circumstances, the Official Closing Price 
of each affected security on an Exchange would be determined based on 
the following hierarchy:
---------------------------------------------------------------------------

    \12\ Each Exchange states that, if it determines that it is 
impaired before 3:00 p.m. and the Official Closing Price for an 
Exchange-listed security is determined pursuant to proposed Rule 
123C(1)(e)(ii), the SIP would publish the Official Closing Price for 
that security no differently than how the SIP publishes the Official 
Closing Price for an Exchange-listed security pursuant to current 
Rule 123C(1)(e)(i). See NYSE Notice, supra note 3, at 12979; NYSE 
MKT Notice, supra note 3, at 12987-88. Accordingly, if the Official 
Closing Price of a security is determined pursuant to proposed Rule 
123C(1)(e)(ii), the Exchanges note that recipients of SIP data would 
not have to make any changes to their systems. See NYSE Notice, 
supra note 3, at 12979; NYSE MKT Notice, supra note 3, at 12987-88.
    \13\ See NYSE Notice, supra note 3, at 12978; NYSE MKT Notice, 
supra note 3, at 12987. The Exchanges represent that they expect to 
designate an affiliated exchange as the alternate exchange and would 
designate Nasdaq only if the affiliated exchanges were also impacted 
by the systems or technical issue. See NYSE Notice, supra note 3, at 
12978 n.6; NYSE MKT Notice, supra note 3, at 12987 n.6. In its 
respective Amendment No. 1, each Exchange specified that this 
determination would be publicly announced and that, in the event of 
such a determination, all open interest designated for the Exchange 
close would be deemed canceled. See Amendments No. 1.
---------------------------------------------------------------------------

     The Official Closing Price would be the official closing 
price for that security under the rules of the designated alternate 
exchange.\14\ For example, if NYSE Arca is the designated alternate 
exchange, the Official Closing Price would be based on NYSE Arca 
Equities Rule 1.1(ggP), which defines how NYSE Arca establishes an 
official closing price.\15\ If Nasdaq were designated as the alternate 
exchange, the Official Closing Price would be the official closing 
price established in Nasdaq Rule 4754.
---------------------------------------------------------------------------

    \14\ See Proposed Rule 123C(1)(e)(ii)(A).
    \15\ According to the Exchanges, NYSE Arca will be filing a rule 
proposal to amend its Rule 1.1(ggP)(1) to provide that the manner by 
which NYSE Arca determines the Official Closing Price for securities 
listed on NYSE Arca would also be applicable to any securities for 
which NYSE Arca conducts a closing auction, including securities 
that trade on an unlisted-trading-privileges basis. See NYSE Notice, 
supra note 3, at 12978 n.7; NYSE MKT Notice, supra note 3, at 12987 
n.7.
---------------------------------------------------------------------------

     If the designated alternate exchange does not have an 
official closing price in a security, the Official Closing Price would 
be the volume-weighted average price (``VWAP'') of the consolidated 
last-sale-eligible prices of the last five minutes of trading during 
regular trading hours up to the time that the VWAP is processed.\16\ 
The VWAP would include any closing transactions on an exchange and 
would take into account any trade breaks or corrections up to the time 
the VWAP is processed.
---------------------------------------------------------------------------

    \16\ See proposed Rule 123C(1)(e)(ii)(B).
---------------------------------------------------------------------------

     If the designated alternate exchange does not have an 
official closing price in a security and there were no consolidated 
last-sale eligible trades in the last five minutes of trading during 
regular trading hours in that security, the Official Closing Price 
would be the last consolidated last-sale-eligible trade during regular 
trading hours on that trading day.\17\
---------------------------------------------------------------------------

    \17\ See proposed Rule 123C(1)(e)(ii)(C).
---------------------------------------------------------------------------

     If the designated alternate exchange does not have an 
official closing price in a security and there were no consolidated 
last-sale-eligible trades in a security on a trading day in that 
security, the Official Closing Price would be the prior day's Official 
Closing Price.\18\
---------------------------------------------------------------------------

    \18\ See proposed Rule 123C(1)(e)(ii)(D).
---------------------------------------------------------------------------

     If an Official Closing Price for a security cannot be 
determined as provided above, and there is no prior day's Official 
Closing Price, the Exchange would not publish an Official Closing Price 
for that security.\19\
---------------------------------------------------------------------------

    \19\ See proposed Rule 123C(1)(e)(ii)(E).
---------------------------------------------------------------------------

    In addition, each Exchange has proposed Rule 123C(1)(e)(iii) to 
describe how it would determine the Official Closing Price for a 
security if it determines after 3:00 p.m. Eastern Time that it is 
unable to conduct a closing transaction in one or more securities

[[Page 38749]]

due to a systems or technical issue.\20\ According to each Exchange, if 
an announcement were made after 3:00 p.m. Eastern Time that the 
Exchange was impaired and unable to conduct a closing transaction, 
market participants would not have sufficient time to re-direct 
closing-only orders to an alternate venue.\21\ Therefore, each Exchange 
proposes that the process for determining an Official Closing Price for 
a security under these circumstances would not contemplate a closing 
transaction on a designated alternate exchange. Accordingly, in such a 
scenario, each Exchange proposes to use the following hierarchy for 
determining the Official Closing Price for a security:
---------------------------------------------------------------------------

    \20\ Each Exchange states that, similar to how the Official 
Closing Price would be published under proposed Rule 123C(1)(e)(ii), 
if it determines that it is impaired after 3:00 p.m. and the 
Official Closing Price for a security is determined pursuant to 
proposed Rule 123C(1)(e)(iii), the SIP would publish the Official 
Closing Price for that security no differently than how the SIP 
publishes the Official Closing Price for an Exchange-listed security 
pursuant to current Rule 123C(1)(e)(i). See NYSE Notice, supra note 
3, at 12980; NYSE MKT Notice, supra note 3, at 12988. Accordingly, 
if the Official Closing Price is determined pursuant to proposed 
Rule 123C(1)(e)(iii), the Exchanges note that recipients of SIP data 
would not have to make any changes to their systems. See NYSE 
Notice, supra note 3, at 12980; NYSE MKT Notice, supra note 3, at 
12988. In its Amendment No. 1, each Exchange has specified that this 
determination would be publicly announced and that, in the event of 
such determination, all open interest designated for the Exchange 
close would be deemed canceled. See Amendment No. 1.
    \21\ See NYSE Notice, supra note 3, at 12979; NYSE MKT Notice, 
supra note 3, at 12988.
---------------------------------------------------------------------------

     The Official Closing Price would be the VWAP of the 
consolidated last-sale-eligible prices of the last five minutes of 
trading during regular trading hours up to the time that the VWAP is 
processed, including any closing transactions on an exchange.\22\ The 
VWAP would take into account any trade breaks or corrections up to the 
time the VWAP is processed.
---------------------------------------------------------------------------

    \22\ See proposed Rule 123C(1)(e)(iii)(A).
---------------------------------------------------------------------------

     If there were no consolidated last-sale eligible trades in 
the last five minutes of trading during regular trading hours in such 
security, the Official Closing Price would be the last consolidated 
last-sale-eligible trade during regular trading hours on that trading 
day.\23\
---------------------------------------------------------------------------

    \23\ See proposed Rule 123C(1)(e)(iii)(B).
---------------------------------------------------------------------------

     If there were no consolidated last-sale-eligible trades in 
the security on a trading day, the Official Closing Price would be the 
prior day's Official Closing Price.\24\
---------------------------------------------------------------------------

    \24\ See proposed Rule 123C(1)(e)(iii)(C).
---------------------------------------------------------------------------

     If an Official Closing Price for a security cannot be 
determined as provided above and there is no prior day's Official 
Closing Price, the Exchange would not publish an Official Closing Price 
for that security.\25\
---------------------------------------------------------------------------

    \25\ See proposed Rule 123C(1)(e)(iii)(D).
---------------------------------------------------------------------------

    The Exchanges propose to implement the closing contingency 
procedures for determining an Official Closing Price no later than 120 
days after approval, on a date to be announced via Trader Update.\26\
---------------------------------------------------------------------------

    \26\ See NYSE Notice, supra note 3, at 12980; NYSE MKT Notice, 
supra note 3, at 12988. Each Exchange further notes that, under the 
proposed rule change, for purposes of NYSE Rule 440B(b) and NYSE MKT 
Rule 440B(b)--Equities, the Official Closing Price would continue to 
be determined based on Rule 123C and that, if the Exchange is 
impaired, the Official Closing Price as defined in proposed Rules 
123C(1)(e)(ii) and (iii) would be used for purposes of determining 
whether a Short Sale Price Test is triggered in a security the next 
trading day. See NYSE Notice, supra note 3, at 12980; NYSE MKT 
Notice, supra note 3, at 12988. Each Exchange also proposes to 
specify in Rule 123C(1)(e)(i) that, for a security that has 
transferred its listing to the Exchange and does not have any last-
sale-eligible trades on the Exchange on its first trading day, the 
Official Closing Price would be the prior day's closing price 
disseminated by the primary listing market that previously listed 
such security. See Amendments No. 1. In addition, for a new listing 
that does not have any last-sale eligible trades on an Exchange on 
its first trading day, the Official Closing Price would be based on 
a derived last sale associated with the price of that security 
before it begins trading. See id.
---------------------------------------------------------------------------

III. Summary of Comments

    As noted above, the Commission received one comment letter on the 
NYSE proposal and a response letter from NYSE.\27\ The commenter 
generally supports the proposal but suggests certain modifications to 
the proposal.\28\ The Commission notes that, while this comment letter 
was submitted in response only to the NYSE proposal, the Exchanges' 
proposals are substantively similar and the comments raised are equally 
relevant to both.
---------------------------------------------------------------------------

    \27\ See SIFMA Letter, supra note 4; NYSE Response Letter, supra 
note 6.
    \28\ See SIFMA Letter, supra note 4, at 1. The commenter also 
encourages NYSE and Nasdaq to continue to work with industry 
participants on this issue and to refine the backup mechanism as a 
next step. See id. at 3.
---------------------------------------------------------------------------

    First, the commenter suggests that NYSE's rules should specify that 
any designation of an alternate exchange would be publicly announced at 
or before 3:00 p.m. and that the announcement would be made through the 
SIP feed in addition to any other forms of communication.\29\ According 
to the commenter, if a determination is made at 3:00 p.m., then the 
time between 3:00 p.m. and when member firms actually receive notice of 
the designation would cut into the time needed to re-direct closing 
interest to the designated alternate exchange.\30\ NYSE agreed with the 
commenter's suggestion that it should publicly announce the designation 
of an alternate exchange.\31\ As a result, each Exchange amended its 
proposal to specify that any designation of an alternate exchange will 
be publicly announced at or before 3:00 p.m.\32\
---------------------------------------------------------------------------

    \29\ See id. at 2-3.
    \30\ See id.
    \31\ The public announcement of an alternate exchange 
designation, however, would not be disseminated through the SIP 
feed.
    \32\ See NYSE Response Letter, supra note 6, at 1. See also 
Amendments No. 1.
---------------------------------------------------------------------------

    Second, the commenter suggests that, if NYSE determines not to 
carry out its own closing transaction, it should expressly assume 
responsibility for the cancellation of all closing interest that NYSE 
has already received.\33\ According to the commenter, this would allow 
market participants to treat their closing interest as canceled even if 
they have not received an official notification of the 
cancellation.\34\ The commenter also suggests that NYSE's rules should 
state that the official closing transaction will be canceled once NYSE 
determines that it is unable to conduct its own closing transaction, so 
as to avoid uncertainty regarding whether NYSE might change course if 
it determines before 4:00 p.m. that it can, in fact, conduct its own 
closing transaction.\35\ NYSE agreed with the commenter's suggestion 
that it provide members with certainty that their open interest will 
not be executed if NYSE determines to employ the closing contingency 
procedures. As a result, each Exchange has amended its proposal to 
expressly state that it would cancel all open interest designated for 
the Exchange close if it determines to employ the closing contingency 
procedures.\36\ The Commission also notes that, under the proposals, 
once an Exchange publicly announces that it will employ the closing 
contingency procedures, it will not revert to its ordinary closing 
procedures, and the Official Closing Price would be determined 
according to the hierarchies discussed above.\37\
---------------------------------------------------------------------------

    \33\ See SIFMA Letter, supra note 4, at 3. The commenter also 
asserts that, if NYSE executes the closing interest despite 
canceling the closing transaction, NYSE should be responsible under 
its own rules for any resulting losses to the member firms. See id. 
The Exchanges have not revised their proposals to assume this 
liability.
    \34\ See SIFMA Letter, supra note 4, at 3.
    \35\ See id.
    \36\ See NYSE Response Letter, supra note 6, at 2. See also 
Amendments No. 1.
    \37\ See supra notes 14-25 and accompanying text.
---------------------------------------------------------------------------

    Third, the commenter suggests that, when using the VWAP 
methodology, NYSE not include any other exchange's closing transaction 
in the calculation.\38\ According to the commenter, a five-minute VWAP 
methodology should

[[Page 38750]]

result in a price that is largely tradable and achievable.\39\ However, 
according to the commenter, if a VWAP used as the official closing 
price included auction prints from other exchanges' closing 
transactions, the ability to trade and achieve the official closing 
price process would be reduced.\40\ The Exchanges have not amended the 
proposals to exclude closing transactions from the VWAP calculation, 
but have stated that they would consider whether to do so at a later 
date.\41\
---------------------------------------------------------------------------

    \38\ See SIFMA Letter, supra note 4, at 3.
    \39\ See id.
    \40\ See id.
    \41\ See NYSE Response Letter, supra note 6, at 2.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    After careful review of the proposals, as modified by the 
respective Amendments No. 1, and of the comment letter, the Commission 
finds that the proposed rule changes are consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\42\ In particular, the 
Commission finds that the proposed rule changes are consistent with 
section 6(b)(5) of the Act,\43\ which requires, among other things, 
that the rules of a national securities exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest.
---------------------------------------------------------------------------

    \42\ In approving these proposed rule changes, the Commission 
has considered the proposed rules' impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \43\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that the proposed rule changes would 
provide transparency regarding how the Exchanges would determine the 
Official Closing Price in Exchange-listed securities when the Exchanges 
are unable to conduct a closing transaction due to a systems or 
technical issue. The Commission notes that the primary listing market's 
closing price for a security is relied upon by market participants for 
a variety of reasons, including, but not limited to, calculation of 
index values, calculation of the net asset value of mutual funds and 
exchange-traded products, and the price of derivatives that are based 
on the security. As the Exchanges note, the proposed closing 
contingency procedures would provide a pre-determined, consistent 
solution that would result in the SIP disseminating an official closing 
price for securities on behalf of the listing Exchange within a 
reasonable time frame relative to the normal closing time; would 
minimize the need for industry participants to modify their processing 
of data from the SIP; and would provide advance notification of the 
initiation of a closing contingency plan to provide sufficient time for 
industry participants to route any closing interest to an alternate 
venue to participate in that venue's closing auction.\44\ The 
Commission believes that each Exchange's proposal is reasonably 
designed to achieve these important goals and to prevent any issues 
that may result if the Exchange were unable to provide a closing price 
for its listed securities due to a systems or technical issue. For 
these reasons, the Commission finds that the proposed rule change is 
consistent with the Act.
---------------------------------------------------------------------------

    \44\ See NYSE Notice, supra note 3, at 12978, 12980; NYSE MKT 
Notice, supra note 3, at 12986, 12988-89.
---------------------------------------------------------------------------

V. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether each Exchange's 
respective Amendment No. 1 is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Numbers SR-NYSE-2016-18 and SR-NYSEMKT-2016-31 on the subject 
line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Numbers SR-NYSE-2016-18 and SR-
NYSEMKT-2016-31. These file numbers 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 (https://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 Numbers SR-NYSE-2016-18 and SR-NYSEMKT-2016-31 and should be 
submitted on or before July 5, 2016.

VI. Accelerated Approval of Proposed Rule Changes, as Modified by Their 
Respective Amendments No. 1

    The Commission finds good cause to approve the proposed rule 
changes, as modified by their respective Amendments No. 1, prior to the 
30th day after the date of publication of the notices of each Amendment 
No. 1 in the Federal Register. As noted above, in its respective 
Amendment No. 1, each Exchange amended the proposed rule text to add 
Rule 123C(1)(e)(iv), which provides that if the Exchange determines the 
Official Closing Price under Rule 123C(1)(e)(ii) or (e)(iii), the 
Exchange will publicly announce the manner by which it will determine 
the Official Closing Price and the designated alternate exchange, if 
applicable, and will cancel all open interest designated for the 
Exchange close. As noted above, the Exchanges made these amendments in 
response to comments received on the NYSE proposal.
    In addition, in its respective Amendment No. 1, each Exchange 
amended its Rule 123C(1)(e)(i) to specify how it will determine the 
Official Closing Price for a security that has transferred its listing 
to the Exchange or that is a new listing and does not have any last-
sale-eligible trades on the Exchange on its first day of trading on the 
Exchange. Specifically, for a security that has transferred its listing 
to the Exchange and does not have any last-sale-eligible trades on the 
Exchange on its first trading day, the Official Closing Price would be 
the prior day's closing price disseminated by the

[[Page 38751]]

primary listing market that previously listed that security.\45\ For a 
new listing that does not have any last-sale eligible trades on the 
Exchange on its first trading day, the Official Closing Price would be 
based on a derived last sale associated with the price of such security 
before it begins trading.\46\ Each Exchange states that its Amendment 
No. 1 is intended to provide increased transparency in the Exchange's 
rules as to how the Exchange would determine the Official Closing Price 
for such new or transferred listings.\47\
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    \45\ See Amendments No. 1.
    \46\ See id.
    \47\ See id.
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    Because each Amendment No. 1 responded to the comments received on 
the original proposal, and provided additional transparency to the 
operation of the closing contingency procedures for transferred and 
newly listed securities, the Commission finds good cause for approving 
the proposed rule changes, as modified by the respective Amendments No. 
1, on an accelerated basis, pursuant to section 19(b)(2) of the 
Act.\48\
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    \48\ 15 U.S.C. 78s(b)(2).
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VII. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\49\ that the proposed rule changes (SR-NYSE-2016-18 and SR-
NYSEMKT-2016-31), as modified by their respective Amendments No. 1, be, 
and hereby are, approved on an accelerated basis.
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    \49\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\50\
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    \50\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-13964 Filed 6-13-16; 8:45 am]
 BILLING CODE 8011-01-P
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