Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change To Make Permanent Commentaries to Rule 7.35A and Commentaries to Rule 7.35B and Make Related Changes to Rules 7.32, 7.35C, 46B, and 47, 77304-77310 [2020-26399]
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77304
Federal Register / Vol. 85, No. 231 / Tuesday, December 1, 2020 / Notices
to the Commission (or its
representatives), upon request;
(4) Section 17(b) of the Exchange Act,
and the rules and regulations
thereunder, as it relates to the obligation
of MGEX, in its capacity as a national
securities exchange, to make itself
available to inspection and examination
by the Commission (or its
representatives), upon request; and
(5) the requirement that MGEX
register with the Commission as a
clearing agency, as set forth in Section
17A of the Exchange Act, and the rules
and regulations thereunder, including
the exemption from registration in
paragraph (b)(7) of that section.
Such exemptions are subject to the
conditions set forth below. To the extent
that one or more of these conditions is
no longer satisfied, the exemptions set
forth in this order will no longer apply
three calendar months after the end of
the month in which any condition was
no longer satisfied.
(1) SPIKES measures the magnitude of
changes in the level of the price of the
units of the SPDR® S&P 500® ETF Trust
(‘‘SPY’’) over a defined period of time,
which magnitude is calculated using the
prices of options on the SPY and
represents: (a) An annualized standard
deviation of percent changes in the
price of the units of the SPY; (b) an
annualized variance of percent changes
in the price of the units of the SPY; or
(c) on a non-annualized basis either the
standard deviation or the variance of
percent changes in the price of the units
of the SPY.
(2) The average daily dollar volume in
the units of the SPY is at least $10
billion calculated over the preceding
180 days.
(3) Units of the SPY are listed and
traded on a national securities exchange
registered under section 6(a) of the
Exchange Act.
(4) The aggregate average daily
notional volume in options on the SPY
is at least $400 million calculated over
the preceding 180 days.
(5) Options on the SPY are listed and
traded on a national securities exchange
registered under section 6(a) of the
Exchange Act.
(6) The SPY is a ‘‘unit investment
trust,’’ as defined in Section 4(2) of the
Investment Company Act of 1940, and
is registered with the Commission as an
investment company under the
Investment Company Act of 1940.
(7) The SPY holds a portfolio of
common stocks designed to provide
investment returns that, before
expenses, correspond generally to the
price and yield performance of the S&P
500 Index.
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(8) The annualized tracking error
between the net asset value (‘‘NAV’’) of
the SPY and the S&P 500 Index does not
meet or exceed 1%; provided, however,
that if over two consecutive trading days
the returns used to calculate annualized
tracking error can be netted, such that
the annualized tracking error falls below
1%, then any such exceedance shall be
deemed not to have occurred on those
two consecutive trading days for
purposes of this condition. For purposes
of this condition, the term ‘‘annualized
tracking error’’ should be calculated by
taking the weekly return differences
between the NAV of the SPY and the
S&P 500 Index for the trailing 12
months (with each week beginning and
ending on a Friday), taking into account
dividends (as applicable), and then
multiplying the standard deviation of
those return differences by the square
root of 52.
(9) The official closing price of the
SPY, as determined pursuant to the
rules of its primary listing exchange,
does not deviate from the NAV of the
SPY by more than 20 basis points for
five or more consecutive trading days.
(10) MGEX shall monitor the daily
closing prices and the NAV of the SPY
and the corresponding returns of the
S&P 500 Index. If (i) at any time the
annualized tracking error between the
NAV of the SPY and the S&P 500 Index
exceeds 0.5% or (ii) for two or more
consecutive trading days the official
closing price of the SPY, as determined
pursuant to the rules of its primary
listing exchange, deviates from the NAV
of the SPY by more than 20 basis points,
MGEX shall (A) promptly notify the
Commission of such divergence, in a
form and manner acceptable to the
Commission, and (B) conduct an
investigation in an attempt to determine
its cause.
Dated: November 24, 2020.
By the Commission.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020–26419 Filed 11–30–20; 8:45 am]
BILLING CODE 8011–01–P
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90495; File No. SR–NYSE–
2020–95]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Proposed Rule Change To
Make Permanent Commentaries to
Rule 7.35A and Commentaries to Rule
7.35B and Make Related Changes to
Rules 7.32, 7.35C, 46B, and 47
November 24, 2020.
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
November 13, 2020, New York Stock
Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’)
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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to make
permanent Commentaries .01(a) and (b)
and .06 to Rule 7.35A and
Commentaries .01 and .03 to Rule 7.35B
and make related changes to Rules 7.32,
7.35C, 46B, and 47. The proposed rule
change is available on the Exchange’s
website 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.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to make
permanent Commentaries .01(a) and (b)
and .06 to Rule 7.35A (DMM-Facilitated
Core Open and Trading Halt Auctions)
and Commentaries .01 and .03 to Rule
7.35B (DMM-Facilitated Closing
Auctions) and make related changes to
Rules 7.32 (Order Entry), 7.35C
(Exchange-Facilitated Closing
Auctions), 46B (Regulatory Trading
Official), and 47 (Floor Officials—
Unusual Situations).
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Background
In connection with the closing of the
Trading Floor facilities located at 11
Wall Street in New York City as of
March 23, 2020 and moving the
Exchange, on a temporary basis, to fully
electronic trading,4 and subsequent
reopening of the Trading Floor on a
limited basis first to Floor Brokers on
May 26, 2020 5 and then to DMMs on
June 15, 2020,6 the Exchange added
Commentaries .01 and .06 to Rule 7.35A
and Commentaries .01 and .03 to
7.35B.7 Currently, these Commentaries
are in effect until the earlier of a full
reopening of the Trading Floor facilities
to DMMs or after the Exchange closes on
December 31, 2020.8
Specifically, Commentary .01 to Rule
7.35A provides:
4 Pursuant to Rule 7.1(e), the CEO notified the
Board of Directors of the Exchange of her
determination under Rule 7.1(c)(3). The Exchange’s
rules establish how the Exchange will function
fully-electronically. See Press Release, dated March
18, 2020, available here: https://ir.theice.com/press/
press-releases/all-categories/2020/03-18-2020204202110.
5 See Securities Exchange Act Release No. 88933
(May 22, 2020), 85 FR 32059 (May 28, 2020) (SR–
NYSE–2020–47) (Notice of filing and immediate
effectiveness of proposed rule change).
6 See Securities Exchange Act Release No. 89086
(June 17, 2020) (SR–NYSE–2020–52) (Notice of
filing and immediate effectiveness of proposed rule
change).
7 See Securities Exchange Act Release Nos. 88444
(March 20, 2020), 85 FR 17141 (March 26, 2020)
(SR–NYSE–2020–22) (amending Rules 7.35A to add
Commentary .01, 7.35B to add Commentary .01, and
7.35C to add Commentary .02) and 89086 (June 17,
2020), 85 FR 37712 (SR–NYSE–2020–52) (amending
Rules 7.35A to add Commentary .06, 7.35B to add
Commentary .03, 76 to add Supplementary Material
20, and Supplementary Material .30 to Rule 36).
8 See Securities Exchange Act Release No. 90005
(September 25, 2020), 85 FR 61999 (October 1,
2020) (SR–NYSE–2020–78) (Notice of filing and
immediate effectiveness of proposed rule change to
extend the temporary period for Commentaries to
Rules 7.35, 7.35A, 7.35B, and 7.35C; and temporary
rule relief in Rule 36.30 to end on the earlier of a
full reopening of the Trading Floor facilities to
DMMs or after the Exchange closes on December 31,
2020).
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For a temporary period that begins
March 23, 2020, when the Trading Floor
facilities have been closed pursuant to
Rule 7.1(c)(3), and ends on the earlier of
a full reopening of the Trading Floor
facilities to DMMs or after the Exchange
closes on December 31, 2020:
(a) The percentage price parameters in
paragraph (c)(1)(G) and (c)(2) of this
Rule are suspended and a DMM may not
effect a Core Open or Trading Halt
Auction electronically if the Core Open
or Trading Halt Auction Price will be
more than 10% away from the
Consolidated Last Sale Price.
(b) The volume parameters in
paragraph (c)(1)(H) of this Rule are
suspended.
(c) The requirement to publish a preopening indication pursuant to
paragraph (d) of this Rule before either
a Core Open or Trading Halt Auction is
suspended.
Commentary .06 to Rule 7.35A
provides:
For a temporary period that begins on
June 17, 2020 and ends on the earlier of
a full reopening of the Trading Floor
facilities to DMMs or after the Exchange
closes on December 31, 2020, the
Applicable Price Range specified in
paragraphs (d)(3)(A) and (B) of this Rule
is suspended and the Applicable Price
Range will be 10% for securities with an
Indication Reference Price higher than
$3.00 and $0.30 for securities with an
Indication Reference Price equal to or
lower than $3.00.
Commentary .01 to Rule 7.35B
provides:
For a temporary period that begins
March 23, 2020, when the Trading Floor
facilities have been closed pursuant to
Rule 7.1(c)(3), and ends on the earlier of
a full reopening of the Trading Floor
facilities to DMMs or after the Exchange
closes on December 31, 2020:
(a) The percentage price parameters in
paragraph (c)(1)(G) of this Rule are
suspended and a DMM may not effect
a Closing Auction electronically if the
Closing Auction Price will be more than
10% away from the Exchange Last Sale
Price.
(b) The volume parameters in
paragraph (c)(1)(H) of this Rule are
suspended.
Finally, Commentary .03 to Rule
7.35B provides:
For a temporary period that begins on
June 17, 2020 and ends on the earlier of
a full reopening of the Trading Floor
facilities to DMMs or after the Exchange
closes on December 31, 2020, Floor
Broker Interest will not be eligible to
participate in the Closing Auction.
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Proposed Rule Changes
Proposed Changes to Parameters for
DMM-Facilitated Electronic Auctions
The Exchange proposes to make
permanent the parameters for DMMfacilitated electronic auctions that are
currently in effect on a temporary basis
as set forth in Commentaries .01(a) and
(b) to Rule 7.35A and Commentary .01
to Rule 7.35B.
Current Rules 7.35A(c)(1)(G) and (H)
provide that a DMM may not effect a
Core Open or Trading Halt Auction
electronically if (i) the Auction Price
will be more than 4% away from the
Consolidated Last Sale Price,9 or (ii) the
paired volume for the Auction will be
more than 1,500 round lots for securities
with an average opening volume of
1,000 round lots or fewer in the
previous calendar quarter, or 5,000
round lots for securities with an average
opening volume of over 1,000 round lots
in the previous calendar quarter. Rule
7.35A(c)(2) further provides that if as of
9:00 a.m., the E-mini S&P 500 Futures
are +/¥2% from the prior day’s closing
price of the E-mini S&P 500 Futures, or
if the Exchange determines that it is
necessary or appropriate for the
maintenance of a fair and orderly
market, a DMM may effect an opening
or reopening electronically if the
Auction Price will be up to 8% away
from Consolidated Last Sale Price,
without any volume limitations.
Current Rule 7.35B(c)(1)(G) and (H)
provide that a DMM may not effect a
Closing Auction electronically if (i) the
Auction Price will be more than a
designated percentage away from the
Exchange Last Sale Price,10 or (ii) the
paired volume for the Closing Auction
will be more than 1,000 round lots for
such security. The designated
percentages are currently as follows:
Exchange last sale price
$25.00 and below .................
$25.01 to $50.00 ..................
Above $50.00 .......................
Designated
percentage
5%
4%
2%
The Exchange proposes to make the
price percentage parameter 10% and
eliminate the volume restrictions for all
DMM-facilitated Auctions. These
9 The term ‘‘Consolidated Last Sale Price’’ is
defined in Rule 7.35 to mean the most recent
consolidated last-sale eligible trade in a security on
any market during Core Trading Hours on that
trading day, and if none, the Official Closing Price
from the prior trading day for that security.
10 The term ‘‘Exchange Last Sale Price’’ is defined
in Rule 7.35 to mean the most recent trade on the
Exchange of a round lot or more in a security during
Core Trading Hours on that trading day, and if
none, the Official Closing Price from the prior
trading day for that security.
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parameters are currently in effect on a
temporary basis pursuant to
Commentaries .01(a) and (b) to Rule
7.35A and Commentary .01 to Rule
7.35B. The Exchange believes that
making these temporary Commentaries
permanent would promote fair and
orderly DMM-facilitated Auctions.
In particular, DMMs have been
operating with the temporary
parameters for Core Open, Trading Halt
Auctions, and Closing Auctions since
March 23, 2020. Accordingly, these
temporary parameters have been in
effect not only during the period when
the Trading Floor was closed in full, but
also for the period when the Trading
Floor has partially reopened to reduced
staff of DMM and Floor brokers firms. In
addition, these temporary parameters
have been in effect during periods of
both extreme volatility and high trading
volumes. Accordingly, DMMs have had
over six months’ of experience of
electronically facilitating Auctions
within these temporary parameters and
apply them during varying market
conditions.
The Exchange has observed that
during the period when these temporary
parameters have been in effect, DMMs
have facilitated more Core Open
Auctions electronically, resulting in a
higher percentage of Core Open
Auctions occurring within two seconds
of 9:30 a.m. Eastern Time. For example,
in February 2020, which was before the
Trading Floor closed, DMMs effected
electronically 85.9% of all Core Open
Auctions and 75.9% of Core Open
Auctions in S&P 500 securities. By
contrast, for the period July 2020
through October 2020, after when
DMMs had returned to the Trading
Floor, DMMs effected electronically
96% of all Core Open Auctions and
89.6% of Core Open Auctions in S&P
500 securities. The increased number of
DMM electronically-facilitated Core
Open Auctions has resulted in more
Core Open Auctions occurring close to
the beginning of Core Trading Hours.
For example, in February 2020, 85.9%
of all Core Open Auctions, and 75.9%
of Core Open Auctions in S&P 500
securities, occurred within two seconds
of 9:30 a.m. Eastern Time. By contrast,
for the period July 2020 through October
2020, 95.9% of all Core Open Auctions,
and 89.6% of Core Open Auctions in
S&P 500 securities, occurred within two
seconds of 9:30 a.m. Eastern Time.
The Exchange has observed similar
trends for Closing Auctions, with DMMs
facilitating more Closing Auctions
electronically, which means more
Closing Auctions occurring closer to
4:00 p.m. Eastern Time. In February
2020, DMMs effected electronically 57%
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of all Closing Auctions and 5.5% of
Closing Auctions in S&P 500 securities.
By contrast, for the period July 2020
through October 2020, DMMs effected
electronically 90.9% of all Closing
Auctions, and 53.6% of Closing
Auctions in S&P 500 securities.
Currently, DMM electronicallyfacilitated Closing Auctions occur
shortly after 4:00 p.m. Eastern Time.11
Accordingly, the increased number of
DMM electronically-facilitated Closing
Auctions translates to an increase in the
number of Closing Auctions that occur
close to 4:00 p.m. Eastern Time. Because
the temporary wider percentage
parameters and eliminated volume
parameters have resulted in more Core
Open Auctions and Closing Auctions
occurring at 9:30 a.m. Eastern Time or
4:00 p.m. Eastern Time, respectively,
the Exchange believes that making these
temporary parameters permanent would
support the continued fair and orderly
operation of Auctions on the Exchange.
The Exchange also notes that during
the period when the temporary
parameters have been in place, the
Exchange has not observed greater
auction price dislocation compared to
the period immediately preceding
implementation of these temporary
parameters, and has even observed
modest improvement. The Exchange
defines auction price dislocation as the
difference between the Core Open
Auction price and the consolidated
volume-weighted average price
(‘‘VWAP’’) over the subsequent fiveminute period, or the difference
between the Closing Auction price and
the consolidated VWAP over the two
minutes preceding the Closing Auction;
the lower the difference, the lower the
auction price dislocation. In February
2020, the Exchange’s average Core Open
Auction dislocation was 3.27x a
security’s average spread; for the period
July 2020 through October 2020 the
average was 3.22x a security’s average
spread.12 Similarly, the median Core
11 When Floor Broker Interest was eligible to
participate in the Closing Auction, DMM
electronically-facilitated Closing Auctions occurred
at 4:02 p.m. Eastern Time. Because there has been
no Floor Broker Interest for the Closing Auction
during the period while the Trading Floor has been
temporarily closed, the Exchange moved the time
for DMM electronically-facilitated Closing Auctions
to closer to 4:00 p.m. With the proposed change,
described below, to permanently eliminate Floor
Broker Interest for the Closing Auction, the
Exchange would continue to conduct DMM
electronically-facilitated Closing Auctions shortly
after 4:00 p.m., rather than revert to the 4:02 p.m.
time for such auctions.
12 Market volatility was, on average, lower in
February 2020 as compared to July 2020–October
2020. Calculating the price dislocation metric in
terms of a security’s average spread incorporates the
wider spreads in the latter period and allows for a
better comparison between the two periods.
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Open Auction dislocation fell from
1.84x a security’s average spread to
1.78x a security’s average spread.
The Exchange also observed similar
trends in the Closing Auction price
dislocation statistics. In February 2020,
the Exchange’s average Closing Auction
Price Dislocation was 0.82x a security’s
average spread; for the period July 2020
through October 2020, the average was
0.69x a security’s average spread.13
Median Closing Auction dislocation
also dropped from 0.5x to 0.43x a
security’s average spread in the
respective periods. Because the
temporary wider percentage parameters
have not resulted in greater auction
price dislocation, the Exchange believes
that making these parameters permanent
would continue to support fair and
orderly Auctions on the Exchange.
To effect these changes, the Exchange
proposes to:
• Amend Rule 7.35A(c)(1)(G) to
replace the current 4% price parameter
for Core Open and Trading Halt
Auctions with a 10% price parameter.
Because the proposed price parameter
would be 10%, the Exchange believes
that the need for the double-wide
parameters set forth in Rule 7.35A(c)(2)
for Core Open and Trading Halt
Auctions would no longer be necessary
and the Exchange proposes to delete
that text.
• Delete Rule 7.35A(c)(1)(H).
• Amend Rule 7.35A(j)(1)(A) to delete
reference to volume parameters and
Rule 7.35A(c)(1)(H).
• Amend Rule 7.35B(c)(1)(G) to
replace the reference to ‘‘designated
percentage’’ parameter for the Closing
Auction with a 10% price parameter.
The Exchange further proposes to delete
the chart specifying the designated
percentages for the Closing Auction.
• Delete Rule 7.35B(c)(1)(H).
• Delete Commentaries .01(a) and (b)
to Rule 7.35A.
• Delete the entirety of Commentary
.01 to Rule 7.35B.
The Exchange proposes to maintain
Commentary .01(c) to Rule 7.35A,
which provides that for a temporary
period that begins March 23, 2020,
when the Trading Floor facilities have
been closed pursuant to Rule 7.1(c)(3),
and ends on the earlier of a full
reopening of the Trading Floor facilities
to DMMs or after the Exchange closes on
December 31, 2020, the requirement to
publish a pre-opening indication
pursuant to Rule 7.35A(d) before either
a Core Open Auction or Trading Halt
13 Closing Auction price dislocation is generally
lower than Core Open Auction price dislocation,
due to the relatively lower levels of volatility
around the Closing Auction compared to the Core
Open Auction.
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Auction is suspended. The Exchange
proposes non-substantive amendments
to delete subparagraph (c) numbering
and move the text of that subparagraph
into the body of Commentary .01.14
Proposed Changes to Applicable Price
Range for Pre-Opening Indications
The Exchange proposes to make
permanent that the Applicable Price
Range for determining whether to
publish a pre-opening indication would
be 10% for securities with an Indication
Reference Price higher than $3.00 and
$0.30 for securities with an Indication
Reference Price equal to or lower than
$3.00, which are currently in effect on
a temporary basis, as set forth in
Commentary .06 to Rule 7.35A.
Rule 7.35A(d)(1)(A) currently
provides that a DMM will publish a preopening indication before a security
opens or reopens if the Core Open or
Trading Halt Auction is anticipated to
be a change of more than the
‘‘Applicable Price Range,’’ as specified
in Rule 7.35A(d)(3), from a specified
‘‘Indication Reference Price,’’ as
specified in Rule 7.35A(d)(2).
Rule 7.35A(d)(3)(A) provides that the
Applicable Price Range will be 5% for
securities with an Indication Reference
Price over $3.00 and $0.15 for securities
with an Indication Reference Price equal
to or lower than $3.00. Rule
7.35A(d)(3)(B) further provides that,
If as of 9:00 a.m., the E-mini S&P 500
Futures are +/¥2% from the prior day’s
closing price of the E-mini S&P 500
Futures, when reopening trading
following a market-wide trading halt
under Rule 7.12, or if the Exchange
determines that it is necessary or
appropriate for the maintenance of a fair
and order market, the Applicable Price
Range for determining whether to
publish a pre-opening indication will be
10% for securities with an Indication
Reference Price over $3.00 and $0.30 for
securities with an Indication Reference
Price equal to or lower than $3.00.
Current Rule 7.35A(1)(A) further
provides that a DMM may not effect a
Core Open or Trading Halt Auction
electronically if a pre-opening
indication has been published for the
Core Open Auction. Accordingly,
Exchange Rules already provide for a
correlation between pre-opening
indications and whether a DMM may
effect a Core Open or Trading Halt
Auction electronically. Currently, that is
14 The Exchange notes that even though the
requirement for pre-opening indications has been
suspended, since June 17, 2020, when DMMs
returned staff to the Trading Floor, DMMs have
published pre-opening indications for IPO Auctions
and the two Direct Listing Auctions on September
30, 2020.
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achieved through similar, though not
identical, percentage parameters: The
price parameter for DMM-facilitated
electronic Core Open and Trading Halt
Auctions is 4% and the Applicable
Price Range for pre-opening indications
is 5%. When there is market-wide
volatility, both are doubled.
The Exchange believes that because of
this existing correlation, in connection
with permanently widening the price
parameters for DMM-facilitated
electronic Core Open and Trading Halt
Auctions to 10%, the Applicable Price
Range for determining whether to
publish a pre-opening indication should
similarly not only be widened, but also
be aligned to 10%. With this proposed
change, if there is a significant enough
price movement to require a DMM to
effect a Core Open or Trading Halt
Auction manually, the DMM would be
required to publish a pre-opening
indication for such Core Open or
Trading Halt Auction. The Exchange
notes that if a DMM chooses to facilitate
a Core Open Auction or Trading Halt
Auction manually (i.e., if there is less
than a 10% price movement), a DMM
could still choose to publish a preopening indication in connection with
such Auction, even if the Applicable
Price Range has not been triggered. For
example, DMMs generally publish preopening indications for IPO Auctions
and Direct Listing Auctions regardless
of whether the Applicable Price Range
has been triggered.
The Exchange does not believe that
permanently widening the Applicable
Price Range for when a DMM is required
to publish a pre-opening indication
would reduce transparency in
connection with Core Open and Trading
Halt Auctions. The Exchange currently
disseminates Auction Imbalance
Information for all Core Open Auctions
and Trading Halt Auctions.15 Since
August 2019, when the Exchange
transitioned Exchange-listed securities
to the Pillar trading platform, all Floor
broker orders for the Core Open and
Trading Halt Auctions must be entered
electronically. Accordingly, all such
interest is reflected in the Auction
Imbalance Information, which was not
the case before the Exchange
transitioned to Pillar. Accordingly, the
15 Pursuant to Commentaries .01 and .02 to Rule
7.35, for the temporary period that ends on the
earlier of a full reopening of the Trading Floor
facilities to DMMs or after the Exchange closes on
December 31, 2020, the Exchange includes IPOs
and Direct Listings in the Auction Imbalance
Information. The Exchange has filed a separate
proposed rule change to include IPOs and Direct
Listings in the Auction Imbalance Information on
a permanent basis. See Securities Exchange Act
Release No. 90387 (November 10, 2020) (SR–NYSE–
2020–93) (Notice of Filing).
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Auction Imbalance Information includes
information about all buy and sell
orders entered in advance of such
Auctions.16
To effect this change, the Exchange
proposes to amend Rule 7.35A(d)(3)(A)
and (B) to make it a single subparagraph
(A) that would provide that the
Applicable Price Range for determining
whether to publish a pre-opening
indication would be 10% for securities
with an Indication Reference Price over
$3.00 and $0.30 for securities with an
Indication Reference Price equal to or
lower than $3.00. The Exchange further
proposes to delete the introductory text
to Rule 7.35A(d)(3)(B) regarding
circumstances when the Exchange could
widen the Applicable Price Range under
the current Rule. The Exchange further
proposes to delete Commentary .06 to
Rule 7.35A.
Proposed Changes to Floor Broker
Interest for the Closing Auction
The Exchange proposes to make
permanent that Floor Broker Interest
would not be eligible to participate in
the Closing Auction, as set forth in
Commentary .03 to Rule 7.35B. The
term ‘‘Floor Broker Interest’’ is defined
in Rule 7.35(a)(9) to mean orders
represented orally by a Floor broker at
the point of sale.
Rule 7.35B(a)(1) currently provides
that Floor Broker Interest is eligible to
participate in the Closing Auction
provided that the Floor broker has
electronically entered such interest
before the Auction Processing Period for
the Closing Auction begins. The Rule
further provides that for such interest to
be eligible to participate in the Closing
Auction, a Floor broker must first, by
the end of, but not after, Core Trading
Hours, orally represent Floor Broker
Interest at the point of sale, including
symbol, side, size, and limit price, and
then second, electronically enter such
interest after the end of Core Trading
Hours. Current Rules 7.35B(a)(1)(B) and
(C) set forth additional requirements
relating to electronic acceptance of such
16 Rule 7.35(a)(4) provides that DMM Auction
Liquidity is never included in Auction Imbalance
Information. By its terms, DMM Auction Liquidity,
as defined in Rule 7.35(d)(8)(A), is entered by the
DMM either manually or electronically as part of
the DMM unit’s electronic message to conduct an
Auction. For an Auction effected electronically by
the DMM, DMM Auction Liquidity is entered
simultaneously with the DMM facilitating the
Auction, which is why it is not included in the
Auction Imbalance Information leading up to such
Auction. For an Auction effected manually by the
DMM, the DMM can factor such interest into the
pre-opening indication price range. DMM Orders, as
defined in Rule 7.35(d)(8)(B), that may be entered
by the DMM in advance of such Auctions would
be included in the Auction Imbalance Information.
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interest by the DMM and circumstances
when such interest can be cancelled.
On June 17, 2020, when the Exchange
reopened the Trading Floor to limited
numbers of DMMs, the Exchange added
Commentary .03 to Rule 7.35B.
Accordingly, from June 17, 2020 to the
present, even though reduced numbers
of DMMs and Floor brokers are present
on the Trading Floor, Floor Broker
Interest has not been eligible to
participate in the Closing Auction.
During this period, the Exchange has
observed that even in the absence of
Floor Broker Interest, Floor broker
participation in Closing Auctions has
returned to similar levels of Floor broker
participation in the Closing Auction for
the period before March 23, 2020. For
example, in February 2020, 34.5% of
Auction-Only Orders for the Closing
Auction were entered as Closing D
Orders, which are available only to
Floor brokers.17 In October 2020, 38.8%
of the Auction-Only Orders for the
Closing Auction were Closing D Orders,
which demonstrates that Floor broker
participation in the Closing Auction has
not only returned since the Trading
Floor reopened, but has actually
increased as compared to February
2020. Moreover, in February 2020, only
0.1% of total Floor broker orders for the
Closing Auction was represented as
Floor Broker Interest, and that Floor
Broker Interest represented less than
0.01% of the total interest that
participated in the Closing Auction.
Based on both the relatively small levels
of Floor Broker Interest that was
participating in the Closing Auction
before the Trading Floor closed and the
ongoing availability of Closing D Orders
for Floor brokers, the Exchange does not
believe that eliminating Floor Broker
Interest for the Closing Auction would
materially impact the ability of Floor
brokers to represent customer orders for
the Closing Auction.
Based on this experience, the
Exchange proposes to make permanent
Commentary .03 to Rule 7.35B. To effect
this change, the Exchange proposes to
amend Rule 7.35B(a)(1) to provide that
Floor Broker Interest would not be
eligible to participate in the Closing
Auction. To provide clarity that a Floor
broker would not be permitted to
represent verbal interest intended for
the Closing Auction, the Exchange
17 For
Exchange-listed securities, Auction-Only
Orders are defined in Rule 7.31 to mean a Limit or
Market Order that is to be traded only in an auction
pursuant to the Rule 7.35 Series. The Exchange
accepts the following Auction-Only Orders for the
Closing Auction: Limit-on-Close Order (‘‘LOC
Order’’), Market-on-Close Order (‘‘MOC Order’’),
Closing D Order, and Closing Imbalance Offset
Orders. All four types of Auction-Only Orders are
available to Floor brokers.
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further proposes to provide that Floor
brokers must enter any orders for the
Closing Auction, as defined in Rule
7.31, electronically during Core Trading
Hours. The Exchange believes that the
cross-reference to Rule 7.31 in the Rule
would provide notice to Floor brokers
and their customers of which order
types are available for electronic entry
by Floor brokers for the Closing
Auction, which include both AuctionOnly Orders described in Rule 7.31(c)
and other orders that may be resting on
the Exchange Book that are eligible to
participate in the Closing Auction. The
Exchange also proposes to delete
Commentary .03 to Rule 7.35B.
The Exchange proposes to make
related changes by deleting the clause
‘‘and Floor Broker Interest intended for
the Closing Auction as defined in Rule
7.35B(a)(1)’’ from Rule 7.32. Similarly,
the Exchange proposes to delete the text
set forth in Rule 7.35C(a)(2) relating to
Floor Broker Interest that provides that
‘‘Floor Broker Interest that has been
electronically accepted by the DMM and
that has not been cancelled as provided
for in Rule 7.35B(a)(1)(C) will be eligible
to participate in an Exchange-facilitated
Closing Auction.’’ The Exchange
proposes to designate that subparagraph as ‘‘Reserved.’’ 18
In addition, the Exchange proposes to
delete Rule 46B and amend Rule 47(b).
Under Rule 47, Floor Officials have the
authority to ‘‘supervise and regulate
active openings and unusual situations
that may arise in connection with the
making of bids, offers or transactions on
the Floor.’’ The Exchange recently
amended its rules to add Regulatory
Trading Officials (‘‘RTO’’), which are
defined in Rule 46B.19 As described in
the RTO Approval Order, unusual
situations that may arise in connection
with Floor Broker Interest for the
Closing Auction could be ‘‘if the Floor
broker hand-held device malfunctions
or ceases to work or if a Floor broker is
physically impeded, as a result of a
crowd condition beyond that of normal
traffic flow on the Exchange’s trading
Floor or some other circumstance
beyond the Floor broker’s control, in his
or her ability to be present at a post
before the DMM closes the security.’’ 20
The Exchange amended Rule 47 to add
subparagraph (b), which provides that
RTOs, instead of Floor Officials, would
be responsible for supervising and
regulating situations regarding whether
18 The Exchange has a pending proposed rule
change to amend Rule 7.35C(a). See (SR–NYSE–
2020–89).
19 See Securities Exchange Act Release No. 88765
(April 29, 2020), 85 FR 26771 (May 5, 2020) (SR–
NYSE–2020–03) (‘‘RTO Approval Order’’).
20 Id. at 26772.
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a verbal bid or verbal offer is eligible for
inclusion in the Closing Auction by the
DMM.
Because the Exchange proposes to
eliminate verbal bids or verbal offers for
the Closing Auction, the Exchange
proposes to delete the last clause of Rule
47(a) and subparagraph (b) to Rule 47.21
As proposed, Rule 47 would revert to
the rule text in effect prior to the RTO
Approval Order and would provide that
‘‘Floor Officials shall have power to
supervise and regulate active openings
and unusual situations that may arise in
connection with the making of bids,
offers or transactions on the Floor.’’
With this proposed change, RTOs would
no longer have a role under Exchange
rules. Therefore, the Exchange proposes
to delete Rule 46B.
The Exchange also proposes to delete
Commentary .02 to Rule 7.35B. This
Commentary is obsolete because it has
not been in effect since May 22, 2020.
2. Statutory Basis
The Exchange believes that the
proposal is consistent with Section 6(b)
of the Act,22 in general, and furthers the
objectives of Sections 6(b)(5) of the
Act,23 in particular, because it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to, and perfect the
mechanisms of, a free and open market
and a national market system and, in
general, to protect investors and the
public interest and because it is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
Proposed Changes to Parameters for
DMM-Facilitated Electronic Auctions
The Exchange believes that the
proposed change to make permanent the
parameters for DMM-facilitated
electronic auctions that are currently in
effect on a temporary basis as set forth
in Commentaries .01(a) and (b) to Rule
7.35A and Commentary .01 to Rule
7.35B would remove impediments to
and perfect the mechanism of a free and
open market and a national market
21 RTOs were approved when the Trading Floor
was temporarily closed. Id. Because Commentary
.03 to Rule 7.35B was implemented when DMMs
returned to the Trading Floor, there has not been
any Floor Broker Interest for Closing Auctions since
RTOs were created and therefore RTOs have not
had to perform the functions as described in Rule
46(b).
22 15 U.S.C. 78f(b).
23 15 U.S.C. 78f(b)(5).
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system because the Exchange believes
that these updated parameters would
promote fair and orderly Auctions on
the Exchange. These temporary
parameters have been in effect not only
during the period when the Trading
Floor was closed in full, but also for the
period when the Trading Floor has
partially reopened to reduced staff of
DMM and Floor brokers firms. In
addition, these temporary parameters
have been in effect during periods of
both extreme volatility and high trading
volumes. Accordingly, DMMs have had
over six months’ of experience of
electronically facilitating Auctions
within these temporary parameters and
applying them during varying market
conditions.
During this period, the Exchange has
observed that with these temporary
parameters, a higher number of Core
Open Auctions and Closing Auctions
have been electronically facilitated by
the DMM, which has resulted in a
greater number of Core Open Auctions
and Closing Auctions occurring shortly
after 9:30 a.m. or 4:00 p.m., respectively.
The Exchange has further observed that
there have been modest improvements
in auction price dislocation during the
period when these temporary
parameters have been in place.
Accordingly, the Exchange believes that
making these parameters permanent
would promote the continued fair and
orderly operation of Auctions for
Exchange-listed securities.
Proposed Changes to Applicable Price
Range for Pre-Opening Indications
The Exchange believes that the
proposed change to make permanent
that the Applicable Price Range for
determining whether to publish a preopening indication would be 10% for
securities with an Indication Reference
Price higher than $3.00 and $0.30 for
securities with an Indication Reference
Price equal to or lower than $3.00,
which are currently in effect on a
temporary basis, would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because
the Exchange believes that this updated
Applicable Price Range would promote
fair and orderly Auctions on the
Exchange.
Exchange rules already provide for a
correlation between the parameters for
when a DMM may facilitate an Auction
electronically and the Applicable Price
Range for determining whether to
disseminate a pre-opening indication.
The Exchange believes that the
proposed Applicable Price Range
should be aligned with the Exchange’s
proposed parameters for when a DMM
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may facilitate an Auction electronically.
Specifically, with this proposed change,
if there is a significant enough price
movement to require a DMM to effect a
Core Open or Trading Halt Auction
manually, the DMM would be required
to publish a pre-opening indication for
such Core Open or Trading Halt
Auction. The Exchange notes that if a
DMM chooses to facilitate a Core Open
Auction or Trading Halt Auction
manually (i.e., if there is less than a 10%
price movement), a DMM could still
choose to publish a pre-opening
indication in connection with such
Auction, even if the Applicable Price
Range has not been triggered.
The Exchange does not believe that
permanently widening the Applicable
Price Range for when a DMM is required
to publish a pre-opening indication
would reduce transparency in
connection with Core Open and Trading
Halt Auctions. The Exchange currently
disseminates Auction Imbalance
Information for Core Open Auctions and
Trading Halt Auctions. Since August
2019, when the Exchange transitioned
Exchange-listed securities to the Pillar
trading platform, all Floor broker orders
for the Core Open and Trading Halt
Auctions must be entered electronically.
Accordingly, all such interest is
reflected in the Auction Imbalance
Information, which was not the case
before the Exchange transitioned to
Pillar. Accordingly, the Auction
Imbalance Information includes
information about all buy and sell
orders entered in advance of such
Auctions.
Proposed Changes to Floor Broker
Interest for the Closing Auction
The Exchange believes that the
proposed change to make permanent
that Floor Broker Interest would not be
eligible to participate in the Closing
Auction, which is currently in effect on
a temporary basis as set forth in
Commentary .03 to Rule 7.35B, would
remove impediments to and perfect the
mechanism of a free and open market
because it would promote fair and
orderly Closing Auctions on the
Exchange.
The Exchange has observed that even
in the absence of Floor Broker Interest,
Floor broker participation in the Closing
Auction has returned, and indeed
increased, as compared to the level of
Floor broker participation in the Closing
Auction for February 2020. Moreover,
even when Floor Broker Interest was
available to participate in Closing
Auctions, such interest represented only
0.1% of total Floor broker orders that
participated in Closing Auctions.
Accordingly, the Exchange does not
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77309
believe that the proposed change would
materially alter Floor brokers’ ability to
meaningfully participate in the Closing
Auction. Moreover, in the absence of
Floor Broker Interest, the Exchange was
able to move the time for DMMfacilitated electronic Closing Auctions
from 4:02 p.m. to shortly after 4:00. By
making this change permanent, DMMfacilitated electronic Closing Auctions
would continue to occur shortly after
4:00.
The Exchange further believes that the
proposed amendments to Rules 7.32,
7.35, 46B, and 47(b) would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because
such rules would no longer be necessary
in the absence of Floor Broker Interest
for the Closing Auction. Accordingly,
these proposed rule changes would
promote transparency and clarity by
removing references that would be
obsolete.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act,24 the Exchange believes that the
proposed rule change would not impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed change is not designed to
address any competitive issues. Instead,
the proposed rule changes are designed
to make permanent changes that have
been implemented on a temporary basis
relating to the functions of Auctions on
the Exchange and that have contributed
to the fair and orderly Auction process
during the period that they have been in
effect. The proposed rule change does
not have any effect on intermarket
competition because these proposed
changes relate to Auctions in Exchangelisted securities for which the Exchange
is the primary listing exchange.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
24 15
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U.S.C. 78f(b)(8).
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reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
Number SR–NYSE–2020–95 and should
be submitted on or before December 22,
2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
J. Matthew DeLesDernier,
Assistant Secretary.
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:
[FR Doc. 2020–26399 Filed 11–30–20; 8:45 am]
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 Number SR–
NYSE–2020–95 on the subject line.
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Extend Its
Early Trading Session
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSE–2020–95. 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 website (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 website 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
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18:11 Nov 30, 2020
Jkt 253001
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90509; File No. SR–
CboeEDGX–2020–056]
November 24, 2020.
Pursuant to 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 November
16, 2020, Cboe EDGX Exchange, Inc.
(the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II,
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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) proposes to
extend its Early Trading Session. The
text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/edgx/),
at the Exchange’s Office of the
Secretary, 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
25 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to extend its
Early Trading Session hours. The
Exchange currently offers four distinct
trading sessions where the Exchange
accepts orders for potential execution:
(1) The ‘‘Early Trading Session,’’ which
begins at 7:00 a.m. Eastern Time (‘‘ET’’)
and continues until 8:00 a.m. ET,3 (2)
the ‘‘Pre-Opening Session,’’ which
begins at 8:00 a.m. ET and continues
until 9:30 a.m. ET,4 (3) ‘‘Regular Trading
Hours,’’ which begin at 9:30 a.m. ET and
continue until 4:00 p.m. ET,5 and (4) the
‘‘Post-Closing Trading Session,’’ which
begins at 4:00 p.m. ET and continues
until 8:00 p.m. ET.6 Users 7 may
designate when their orders are eligible
for execution by selecting their desired
Time-in-Force instruction.8 The
proposed rule change amends Rule
1.5(ii), which defines the Early Trading
Session, to allowing trading to begin at
4:00 a.m. ET. In addition to this, the
proposed rule change amends the time
when orders may start to be entered into
the System prior to the Early Trading
Session in Rule 11.1(a)(1), from 6:00
a.m. ET to 3:30 a.m. ET. The proposed
rule change also updates Rule 11.1(a)(1)
and Rule 14.1(c)(2) to reflect the
proposed Early Trading Session and
order acceptance times, where
applicable. Orders entered for
participation in the Early Trading
Session will continue to be handled in
the same manner as they are today. The
proposed rule change merely permits
the Exchange to begin order acceptance
and commence trading at earlier times,
thereby providing additional time for
market participants to source and access
liquidity on the Exchange outside of
Regular Trading Hours. The Exchange
3 ‘‘Early Trading Session’’ means the time
between 7:00 a.m. and 8:00 a.m. ET. See Rule
1.5(ii).
4 ‘‘Pre-Opening Session’’ means the time between
8:00 a.m. and 9:30 a.m. ET. See Rule 1.5(s).
5 ‘‘Regular Trading Hours’’ means the time
between 9:30 a.m. and 4:00 p.m. ET. See Rule
1.5(y).
6 ‘‘Post-Closing Trading Session’’ means the time
between 4:00 p.m. and 8:00 p.m. ET. See Rule
1.5(r).
7 ‘‘User’’ means any Member or Sponsored
Participant who is authorized to obtain access to the
System pursuant to Rule 11.3. See Rule 1.5(ee).
8 See Rule 11.8.
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]]>Agencies
[Federal Register Volume 85, Number 231 (Tuesday, December 1, 2020)]
[Notices]
[Pages 77304-77310]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26399]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90495; File No. SR-NYSE-2020-95]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change To Make Permanent Commentaries
to Rule 7.35A and Commentaries to Rule 7.35B and Make Related Changes
to Rules 7.32, 7.35C, 46B, and 47
November 24, 2020.
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 November 13, 2020, New York Stock Exchange LLC (``NYSE'' or
``Exchange'') 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to make permanent Commentaries .01(a) and (b)
and .06 to Rule 7.35A and Commentaries .01 and .03 to Rule 7.35B and
make related changes to Rules 7.32, 7.35C, 46B, and 47. The proposed
rule change is available on the Exchange's website 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.
[[Page 77305]]
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to make permanent Commentaries .01(a) and (b)
and .06 to Rule 7.35A (DMM-Facilitated Core Open and Trading Halt
Auctions) and Commentaries .01 and .03 to Rule 7.35B (DMM-Facilitated
Closing Auctions) and make related changes to Rules 7.32 (Order Entry),
7.35C (Exchange-Facilitated Closing Auctions), 46B (Regulatory Trading
Official), and 47 (Floor Officials--Unusual Situations).
Background
In connection with the closing of the Trading Floor facilities
located at 11 Wall Street in New York City as of March 23, 2020 and
moving the Exchange, on a temporary basis, to fully electronic
trading,\4\ and subsequent reopening of the Trading Floor on a limited
basis first to Floor Brokers on May 26, 2020 \5\ and then to DMMs on
June 15, 2020,\6\ the Exchange added Commentaries .01 and .06 to Rule
7.35A and Commentaries .01 and .03 to 7.35B.\7\ Currently, these
Commentaries are in effect until the earlier of a full reopening of the
Trading Floor facilities to DMMs or after the Exchange closes on
December 31, 2020.\8\
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\4\ Pursuant to Rule 7.1(e), the CEO notified the Board of
Directors of the Exchange of her determination under Rule 7.1(c)(3).
The Exchange's rules establish how the Exchange will function fully-
electronically. See Press Release, dated March 18, 2020, available
here: https://ir.theice.com/press/press-releases/all-categories/2020/03-18-2020-204202110.
\5\ See Securities Exchange Act Release No. 88933 (May 22,
2020), 85 FR 32059 (May 28, 2020) (SR-NYSE-2020-47) (Notice of
filing and immediate effectiveness of proposed rule change).
\6\ See Securities Exchange Act Release No. 89086 (June 17,
2020) (SR-NYSE-2020-52) (Notice of filing and immediate
effectiveness of proposed rule change).
\7\ See Securities Exchange Act Release Nos. 88444 (March 20,
2020), 85 FR 17141 (March 26, 2020) (SR-NYSE-2020-22) (amending
Rules 7.35A to add Commentary .01, 7.35B to add Commentary .01, and
7.35C to add Commentary .02) and 89086 (June 17, 2020), 85 FR 37712
(SR-NYSE-2020-52) (amending Rules 7.35A to add Commentary .06, 7.35B
to add Commentary .03, 76 to add Supplementary Material 20, and
Supplementary Material .30 to Rule 36).
\8\ See Securities Exchange Act Release No. 90005 (September 25,
2020), 85 FR 61999 (October 1, 2020) (SR-NYSE-2020-78) (Notice of
filing and immediate effectiveness of proposed rule change to extend
the temporary period for Commentaries to Rules 7.35, 7.35A, 7.35B,
and 7.35C; and temporary rule relief in Rule 36.30 to end on the
earlier of a full reopening of the Trading Floor facilities to DMMs
or after the Exchange closes on December 31, 2020).
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Specifically, Commentary .01 to Rule 7.35A provides:
For a temporary period that begins March 23, 2020, when the Trading
Floor facilities have been closed pursuant to Rule 7.1(c)(3), and ends
on the earlier of a full reopening of the Trading Floor facilities to
DMMs or after the Exchange closes on December 31, 2020:
(a) The percentage price parameters in paragraph (c)(1)(G) and
(c)(2) of this Rule are suspended and a DMM may not effect a Core Open
or Trading Halt Auction electronically if the Core Open or Trading Halt
Auction Price will be more than 10% away from the Consolidated Last
Sale Price.
(b) The volume parameters in paragraph (c)(1)(H) of this Rule are
suspended.
(c) The requirement to publish a pre-opening indication pursuant to
paragraph (d) of this Rule before either a Core Open or Trading Halt
Auction is suspended.
Commentary .06 to Rule 7.35A provides:
For a temporary period that begins on June 17, 2020 and ends on the
earlier of a full reopening of the Trading Floor facilities to DMMs or
after the Exchange closes on December 31, 2020, the Applicable Price
Range specified in paragraphs (d)(3)(A) and (B) of this Rule is
suspended and the Applicable Price Range will be 10% for securities
with an Indication Reference Price higher than $3.00 and $0.30 for
securities with an Indication Reference Price equal to or lower than
$3.00.
Commentary .01 to Rule 7.35B provides:
For a temporary period that begins March 23, 2020, when the Trading
Floor facilities have been closed pursuant to Rule 7.1(c)(3), and ends
on the earlier of a full reopening of the Trading Floor facilities to
DMMs or after the Exchange closes on December 31, 2020:
(a) The percentage price parameters in paragraph (c)(1)(G) of this
Rule are suspended and a DMM may not effect a Closing Auction
electronically if the Closing Auction Price will be more than 10% away
from the Exchange Last Sale Price.
(b) The volume parameters in paragraph (c)(1)(H) of this Rule are
suspended.
Finally, Commentary .03 to Rule 7.35B provides:
For a temporary period that begins on June 17, 2020 and ends on the
earlier of a full reopening of the Trading Floor facilities to DMMs or
after the Exchange closes on December 31, 2020, Floor Broker Interest
will not be eligible to participate in the Closing Auction.
Proposed Rule Changes
Proposed Changes to Parameters for DMM-Facilitated Electronic Auctions
The Exchange proposes to make permanent the parameters for DMM-
facilitated electronic auctions that are currently in effect on a
temporary basis as set forth in Commentaries .01(a) and (b) to Rule
7.35A and Commentary .01 to Rule 7.35B.
Current Rules 7.35A(c)(1)(G) and (H) provide that a DMM may not
effect a Core Open or Trading Halt Auction electronically if (i) the
Auction Price will be more than 4% away from the Consolidated Last Sale
Price,\9\ or (ii) the paired volume for the Auction will be more than
1,500 round lots for securities with an average opening volume of 1,000
round lots or fewer in the previous calendar quarter, or 5,000 round
lots for securities with an average opening volume of over 1,000 round
lots in the previous calendar quarter. Rule 7.35A(c)(2) further
provides that if as of 9:00 a.m., the E-mini S&P 500 Futures are +/-2%
from the prior day's closing price of the E-mini S&P 500 Futures, or if
the Exchange determines that it is necessary or appropriate for the
maintenance of a fair and orderly market, a DMM may effect an opening
or reopening electronically if the Auction Price will be up to 8% away
from Consolidated Last Sale Price, without any volume limitations.
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\9\ The term ``Consolidated Last Sale Price'' is defined in Rule
7.35 to mean the most recent consolidated last-sale eligible trade
in a security on any market during Core Trading Hours on that
trading day, and if none, the Official Closing Price from the prior
trading day for that security.
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Current Rule 7.35B(c)(1)(G) and (H) provide that a DMM may not
effect a Closing Auction electronically if (i) the Auction Price will
be more than a designated percentage away from the Exchange Last Sale
Price,\10\ or (ii) the paired volume for the Closing Auction will be
more than 1,000 round lots for such security. The designated
percentages are currently as follows:
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\10\ The term ``Exchange Last Sale Price'' is defined in Rule
7.35 to mean the most recent trade on the Exchange of a round lot or
more in a security during Core Trading Hours on that trading day,
and if none, the Official Closing Price from the prior trading day
for that security.
------------------------------------------------------------------------
Designated
Exchange last sale price percentage
------------------------------------------------------------------------
$25.00 and below........................................ 5%
$25.01 to $50.00........................................ 4%
Above $50.00............................................ 2%
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The Exchange proposes to make the price percentage parameter 10%
and eliminate the volume restrictions for all DMM-facilitated Auctions.
These
[[Page 77306]]
parameters are currently in effect on a temporary basis pursuant to
Commentaries .01(a) and (b) to Rule 7.35A and Commentary .01 to Rule
7.35B. The Exchange believes that making these temporary Commentaries
permanent would promote fair and orderly DMM-facilitated Auctions.
In particular, DMMs have been operating with the temporary
parameters for Core Open, Trading Halt Auctions, and Closing Auctions
since March 23, 2020. Accordingly, these temporary parameters have been
in effect not only during the period when the Trading Floor was closed
in full, but also for the period when the Trading Floor has partially
reopened to reduced staff of DMM and Floor brokers firms. In addition,
these temporary parameters have been in effect during periods of both
extreme volatility and high trading volumes. Accordingly, DMMs have had
over six months' of experience of electronically facilitating Auctions
within these temporary parameters and apply them during varying market
conditions.
The Exchange has observed that during the period when these
temporary parameters have been in effect, DMMs have facilitated more
Core Open Auctions electronically, resulting in a higher percentage of
Core Open Auctions occurring within two seconds of 9:30 a.m. Eastern
Time. For example, in February 2020, which was before the Trading Floor
closed, DMMs effected electronically 85.9% of all Core Open Auctions
and 75.9% of Core Open Auctions in S&P 500 securities. By contrast, for
the period July 2020 through October 2020, after when DMMs had returned
to the Trading Floor, DMMs effected electronically 96% of all Core Open
Auctions and 89.6% of Core Open Auctions in S&P 500 securities. The
increased number of DMM electronically-facilitated Core Open Auctions
has resulted in more Core Open Auctions occurring close to the
beginning of Core Trading Hours. For example, in February 2020, 85.9%
of all Core Open Auctions, and 75.9% of Core Open Auctions in S&P 500
securities, occurred within two seconds of 9:30 a.m. Eastern Time. By
contrast, for the period July 2020 through October 2020, 95.9% of all
Core Open Auctions, and 89.6% of Core Open Auctions in S&P 500
securities, occurred within two seconds of 9:30 a.m. Eastern Time.
The Exchange has observed similar trends for Closing Auctions, with
DMMs facilitating more Closing Auctions electronically, which means
more Closing Auctions occurring closer to 4:00 p.m. Eastern Time. In
February 2020, DMMs effected electronically 57% of all Closing Auctions
and 5.5% of Closing Auctions in S&P 500 securities. By contrast, for
the period July 2020 through October 2020, DMMs effected electronically
90.9% of all Closing Auctions, and 53.6% of Closing Auctions in S&P 500
securities. Currently, DMM electronically-facilitated Closing Auctions
occur shortly after 4:00 p.m. Eastern Time.\11\ Accordingly, the
increased number of DMM electronically-facilitated Closing Auctions
translates to an increase in the number of Closing Auctions that occur
close to 4:00 p.m. Eastern Time. Because the temporary wider percentage
parameters and eliminated volume parameters have resulted in more Core
Open Auctions and Closing Auctions occurring at 9:30 a.m. Eastern Time
or 4:00 p.m. Eastern Time, respectively, the Exchange believes that
making these temporary parameters permanent would support the continued
fair and orderly operation of Auctions on the Exchange.
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\11\ When Floor Broker Interest was eligible to participate in
the Closing Auction, DMM electronically-facilitated Closing Auctions
occurred at 4:02 p.m. Eastern Time. Because there has been no Floor
Broker Interest for the Closing Auction during the period while the
Trading Floor has been temporarily closed, the Exchange moved the
time for DMM electronically-facilitated Closing Auctions to closer
to 4:00 p.m. With the proposed change, described below, to
permanently eliminate Floor Broker Interest for the Closing Auction,
the Exchange would continue to conduct DMM electronically-
facilitated Closing Auctions shortly after 4:00 p.m., rather than
revert to the 4:02 p.m. time for such auctions.
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The Exchange also notes that during the period when the temporary
parameters have been in place, the Exchange has not observed greater
auction price dislocation compared to the period immediately preceding
implementation of these temporary parameters, and has even observed
modest improvement. The Exchange defines auction price dislocation as
the difference between the Core Open Auction price and the consolidated
volume-weighted average price (``VWAP'') over the subsequent five-
minute period, or the difference between the Closing Auction price and
the consolidated VWAP over the two minutes preceding the Closing
Auction; the lower the difference, the lower the auction price
dislocation. In February 2020, the Exchange's average Core Open Auction
dislocation was 3.27x a security's average spread; for the period July
2020 through October 2020 the average was 3.22x a security's average
spread.\12\ Similarly, the median Core Open Auction dislocation fell
from 1.84x a security's average spread to 1.78x a security's average
spread.
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\12\ Market volatility was, on average, lower in February 2020
as compared to July 2020-October 2020. Calculating the price
dislocation metric in terms of a security's average spread
incorporates the wider spreads in the latter period and allows for a
better comparison between the two periods.
---------------------------------------------------------------------------
The Exchange also observed similar trends in the Closing Auction
price dislocation statistics. In February 2020, the Exchange's average
Closing Auction Price Dislocation was 0.82x a security's average
spread; for the period July 2020 through October 2020, the average was
0.69x a security's average spread.\13\ Median Closing Auction
dislocation also dropped from 0.5x to 0.43x a security's average spread
in the respective periods. Because the temporary wider percentage
parameters have not resulted in greater auction price dislocation, the
Exchange believes that making these parameters permanent would continue
to support fair and orderly Auctions on the Exchange.
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\13\ Closing Auction price dislocation is generally lower than
Core Open Auction price dislocation, due to the relatively lower
levels of volatility around the Closing Auction compared to the Core
Open Auction.
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To effect these changes, the Exchange proposes to:
Amend Rule 7.35A(c)(1)(G) to replace the current 4% price
parameter for Core Open and Trading Halt Auctions with a 10% price
parameter. Because the proposed price parameter would be 10%, the
Exchange believes that the need for the double-wide parameters set
forth in Rule 7.35A(c)(2) for Core Open and Trading Halt Auctions would
no longer be necessary and the Exchange proposes to delete that text.
Delete Rule 7.35A(c)(1)(H).
Amend Rule 7.35A(j)(1)(A) to delete reference to volume
parameters and Rule 7.35A(c)(1)(H).
Amend Rule 7.35B(c)(1)(G) to replace the reference to
``designated percentage'' parameter for the Closing Auction with a 10%
price parameter. The Exchange further proposes to delete the chart
specifying the designated percentages for the Closing Auction.
Delete Rule 7.35B(c)(1)(H).
Delete Commentaries .01(a) and (b) to Rule 7.35A.
Delete the entirety of Commentary .01 to Rule 7.35B.
The Exchange proposes to maintain Commentary .01(c) to Rule 7.35A,
which provides that for a temporary period that begins March 23, 2020,
when the Trading Floor facilities have been closed pursuant to Rule
7.1(c)(3), and ends on the earlier of a full reopening of the Trading
Floor facilities to DMMs or after the Exchange closes on December 31,
2020, the requirement to publish a pre-opening indication pursuant to
Rule 7.35A(d) before either a Core Open Auction or Trading Halt
[[Page 77307]]
Auction is suspended. The Exchange proposes non-substantive amendments
to delete subparagraph (c) numbering and move the text of that
subparagraph into the body of Commentary .01.\14\
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\14\ The Exchange notes that even though the requirement for
pre-opening indications has been suspended, since June 17, 2020,
when DMMs returned staff to the Trading Floor, DMMs have published
pre-opening indications for IPO Auctions and the two Direct Listing
Auctions on September 30, 2020.
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Proposed Changes to Applicable Price Range for Pre-Opening Indications
The Exchange proposes to make permanent that the Applicable Price
Range for determining whether to publish a pre-opening indication would
be 10% for securities with an Indication Reference Price higher than
$3.00 and $0.30 for securities with an Indication Reference Price equal
to or lower than $3.00, which are currently in effect on a temporary
basis, as set forth in Commentary .06 to Rule 7.35A.
Rule 7.35A(d)(1)(A) currently provides that a DMM will publish a
pre-opening indication before a security opens or reopens if the Core
Open or Trading Halt Auction is anticipated to be a change of more than
the ``Applicable Price Range,'' as specified in Rule 7.35A(d)(3), from
a specified ``Indication Reference Price,'' as specified in Rule
7.35A(d)(2).
Rule 7.35A(d)(3)(A) provides that the Applicable Price Range will
be 5% for securities with an Indication Reference Price over $3.00 and
$0.15 for securities with an Indication Reference Price equal to or
lower than $3.00. Rule 7.35A(d)(3)(B) further provides that,
If as of 9:00 a.m., the E-mini S&P 500 Futures are +/-2% from the
prior day's closing price of the E-mini S&P 500 Futures, when reopening
trading following a market-wide trading halt under Rule 7.12, or if the
Exchange determines that it is necessary or appropriate for the
maintenance of a fair and order market, the Applicable Price Range for
determining whether to publish a pre-opening indication will be 10% for
securities with an Indication Reference Price over $3.00 and $0.30 for
securities with an Indication Reference Price equal to or lower than
$3.00.
Current Rule 7.35A(1)(A) further provides that a DMM may not effect
a Core Open or Trading Halt Auction electronically if a pre-opening
indication has been published for the Core Open Auction. Accordingly,
Exchange Rules already provide for a correlation between pre-opening
indications and whether a DMM may effect a Core Open or Trading Halt
Auction electronically. Currently, that is achieved through similar,
though not identical, percentage parameters: The price parameter for
DMM-facilitated electronic Core Open and Trading Halt Auctions is 4%
and the Applicable Price Range for pre-opening indications is 5%. When
there is market-wide volatility, both are doubled.
The Exchange believes that because of this existing correlation, in
connection with permanently widening the price parameters for DMM-
facilitated electronic Core Open and Trading Halt Auctions to 10%, the
Applicable Price Range for determining whether to publish a pre-opening
indication should similarly not only be widened, but also be aligned to
10%. With this proposed change, if there is a significant enough price
movement to require a DMM to effect a Core Open or Trading Halt Auction
manually, the DMM would be required to publish a pre-opening indication
for such Core Open or Trading Halt Auction. The Exchange notes that if
a DMM chooses to facilitate a Core Open Auction or Trading Halt Auction
manually (i.e., if there is less than a 10% price movement), a DMM
could still choose to publish a pre-opening indication in connection
with such Auction, even if the Applicable Price Range has not been
triggered. For example, DMMs generally publish pre-opening indications
for IPO Auctions and Direct Listing Auctions regardless of whether the
Applicable Price Range has been triggered.
The Exchange does not believe that permanently widening the
Applicable Price Range for when a DMM is required to publish a pre-
opening indication would reduce transparency in connection with Core
Open and Trading Halt Auctions. The Exchange currently disseminates
Auction Imbalance Information for all Core Open Auctions and Trading
Halt Auctions.\15\ Since August 2019, when the Exchange transitioned
Exchange-listed securities to the Pillar trading platform, all Floor
broker orders for the Core Open and Trading Halt Auctions must be
entered electronically. Accordingly, all such interest is reflected in
the Auction Imbalance Information, which was not the case before the
Exchange transitioned to Pillar. Accordingly, the Auction Imbalance
Information includes information about all buy and sell orders entered
in advance of such Auctions.\16\
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\15\ Pursuant to Commentaries .01 and .02 to Rule 7.35, for the
temporary period that ends on the earlier of a full reopening of the
Trading Floor facilities to DMMs or after the Exchange closes on
December 31, 2020, the Exchange includes IPOs and Direct Listings in
the Auction Imbalance Information. The Exchange has filed a separate
proposed rule change to include IPOs and Direct Listings in the
Auction Imbalance Information on a permanent basis. See Securities
Exchange Act Release No. 90387 (November 10, 2020) (SR-NYSE-2020-93)
(Notice of Filing).
\16\ Rule 7.35(a)(4) provides that DMM Auction Liquidity is
never included in Auction Imbalance Information. By its terms, DMM
Auction Liquidity, as defined in Rule 7.35(d)(8)(A), is entered by
the DMM either manually or electronically as part of the DMM unit's
electronic message to conduct an Auction. For an Auction effected
electronically by the DMM, DMM Auction Liquidity is entered
simultaneously with the DMM facilitating the Auction, which is why
it is not included in the Auction Imbalance Information leading up
to such Auction. For an Auction effected manually by the DMM, the
DMM can factor such interest into the pre-opening indication price
range. DMM Orders, as defined in Rule 7.35(d)(8)(B), that may be
entered by the DMM in advance of such Auctions would be included in
the Auction Imbalance Information.
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To effect this change, the Exchange proposes to amend Rule
7.35A(d)(3)(A) and (B) to make it a single subparagraph (A) that would
provide that the Applicable Price Range for determining whether to
publish a pre-opening indication would be 10% for securities with an
Indication Reference Price over $3.00 and $0.30 for securities with an
Indication Reference Price equal to or lower than $3.00. The Exchange
further proposes to delete the introductory text to Rule 7.35A(d)(3)(B)
regarding circumstances when the Exchange could widen the Applicable
Price Range under the current Rule. The Exchange further proposes to
delete Commentary .06 to Rule 7.35A.
Proposed Changes to Floor Broker Interest for the Closing Auction
The Exchange proposes to make permanent that Floor Broker Interest
would not be eligible to participate in the Closing Auction, as set
forth in Commentary .03 to Rule 7.35B. The term ``Floor Broker
Interest'' is defined in Rule 7.35(a)(9) to mean orders represented
orally by a Floor broker at the point of sale.
Rule 7.35B(a)(1) currently provides that Floor Broker Interest is
eligible to participate in the Closing Auction provided that the Floor
broker has electronically entered such interest before the Auction
Processing Period for the Closing Auction begins. The Rule further
provides that for such interest to be eligible to participate in the
Closing Auction, a Floor broker must first, by the end of, but not
after, Core Trading Hours, orally represent Floor Broker Interest at
the point of sale, including symbol, side, size, and limit price, and
then second, electronically enter such interest after the end of Core
Trading Hours. Current Rules 7.35B(a)(1)(B) and (C) set forth
additional requirements relating to electronic acceptance of such
[[Page 77308]]
interest by the DMM and circumstances when such interest can be
cancelled.
On June 17, 2020, when the Exchange reopened the Trading Floor to
limited numbers of DMMs, the Exchange added Commentary .03 to Rule
7.35B. Accordingly, from June 17, 2020 to the present, even though
reduced numbers of DMMs and Floor brokers are present on the Trading
Floor, Floor Broker Interest has not been eligible to participate in
the Closing Auction.
During this period, the Exchange has observed that even in the
absence of Floor Broker Interest, Floor broker participation in Closing
Auctions has returned to similar levels of Floor broker participation
in the Closing Auction for the period before March 23, 2020. For
example, in February 2020, 34.5% of Auction-Only Orders for the Closing
Auction were entered as Closing D Orders, which are available only to
Floor brokers.\17\ In October 2020, 38.8% of the Auction-Only Orders
for the Closing Auction were Closing D Orders, which demonstrates that
Floor broker participation in the Closing Auction has not only returned
since the Trading Floor reopened, but has actually increased as
compared to February 2020. Moreover, in February 2020, only 0.1% of
total Floor broker orders for the Closing Auction was represented as
Floor Broker Interest, and that Floor Broker Interest represented less
than 0.01% of the total interest that participated in the Closing
Auction. Based on both the relatively small levels of Floor Broker
Interest that was participating in the Closing Auction before the
Trading Floor closed and the ongoing availability of Closing D Orders
for Floor brokers, the Exchange does not believe that eliminating Floor
Broker Interest for the Closing Auction would materially impact the
ability of Floor brokers to represent customer orders for the Closing
Auction.
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\17\ For Exchange-listed securities, Auction-Only Orders are
defined in Rule 7.31 to mean a Limit or Market Order that is to be
traded only in an auction pursuant to the Rule 7.35 Series. The
Exchange accepts the following Auction-Only Orders for the Closing
Auction: Limit-on-Close Order (``LOC Order''), Market-on-Close Order
(``MOC Order''), Closing D Order, and Closing Imbalance Offset
Orders. All four types of Auction-Only Orders are available to Floor
brokers.
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Based on this experience, the Exchange proposes to make permanent
Commentary .03 to Rule 7.35B. To effect this change, the Exchange
proposes to amend Rule 7.35B(a)(1) to provide that Floor Broker
Interest would not be eligible to participate in the Closing Auction.
To provide clarity that a Floor broker would not be permitted to
represent verbal interest intended for the Closing Auction, the
Exchange further proposes to provide that Floor brokers must enter any
orders for the Closing Auction, as defined in Rule 7.31, electronically
during Core Trading Hours. The Exchange believes that the cross-
reference to Rule 7.31 in the Rule would provide notice to Floor
brokers and their customers of which order types are available for
electronic entry by Floor brokers for the Closing Auction, which
include both Auction-Only Orders described in Rule 7.31(c) and other
orders that may be resting on the Exchange Book that are eligible to
participate in the Closing Auction. The Exchange also proposes to
delete Commentary .03 to Rule 7.35B.
The Exchange proposes to make related changes by deleting the
clause ``and Floor Broker Interest intended for the Closing Auction as
defined in Rule 7.35B(a)(1)'' from Rule 7.32. Similarly, the Exchange
proposes to delete the text set forth in Rule 7.35C(a)(2) relating to
Floor Broker Interest that provides that ``Floor Broker Interest that
has been electronically accepted by the DMM and that has not been
cancelled as provided for in Rule 7.35B(a)(1)(C) will be eligible to
participate in an Exchange-facilitated Closing Auction.'' The Exchange
proposes to designate that sub-paragraph as ``Reserved.'' \18\
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\18\ The Exchange has a pending proposed rule change to amend
Rule 7.35C(a). See (SR-NYSE-2020-89).
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In addition, the Exchange proposes to delete Rule 46B and amend
Rule 47(b). Under Rule 47, Floor Officials have the authority to
``supervise and regulate active openings and unusual situations that
may arise in connection with the making of bids, offers or transactions
on the Floor.'' The Exchange recently amended its rules to add
Regulatory Trading Officials (``RTO''), which are defined in Rule
46B.\19\ As described in the RTO Approval Order, unusual situations
that may arise in connection with Floor Broker Interest for the Closing
Auction could be ``if the Floor broker hand-held device malfunctions or
ceases to work or if a Floor broker is physically impeded, as a result
of a crowd condition beyond that of normal traffic flow on the
Exchange's trading Floor or some other circumstance beyond the Floor
broker's control, in his or her ability to be present at a post before
the DMM closes the security.'' \20\ The Exchange amended Rule 47 to add
subparagraph (b), which provides that RTOs, instead of Floor Officials,
would be responsible for supervising and regulating situations
regarding whether a verbal bid or verbal offer is eligible for
inclusion in the Closing Auction by the DMM.
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\19\ See Securities Exchange Act Release No. 88765 (April 29,
2020), 85 FR 26771 (May 5, 2020) (SR-NYSE-2020-03) (``RTO Approval
Order'').
\20\ Id. at 26772.
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Because the Exchange proposes to eliminate verbal bids or verbal
offers for the Closing Auction, the Exchange proposes to delete the
last clause of Rule 47(a) and subparagraph (b) to Rule 47.\21\ As
proposed, Rule 47 would revert to the rule text in effect prior to the
RTO Approval Order and would provide that ``Floor Officials shall have
power to supervise and regulate active openings and unusual situations
that may arise in connection with the making of bids, offers or
transactions on the Floor.'' With this proposed change, RTOs would no
longer have a role under Exchange rules. Therefore, the Exchange
proposes to delete Rule 46B.
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\21\ RTOs were approved when the Trading Floor was temporarily
closed. Id. Because Commentary .03 to Rule 7.35B was implemented
when DMMs returned to the Trading Floor, there has not been any
Floor Broker Interest for Closing Auctions since RTOs were created
and therefore RTOs have not had to perform the functions as
described in Rule 46(b).
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The Exchange also proposes to delete Commentary .02 to Rule 7.35B.
This Commentary is obsolete because it has not been in effect since May
22, 2020.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act,\22\ in general, and furthers the objectives of
Sections 6(b)(5) of the Act,\23\ in particular, because it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to, and perfect the mechanisms of,
a free and open market and a national market system and, in general, to
protect investors and the public interest and because it is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\22\ 15 U.S.C. 78f(b).
\23\ 15 U.S.C. 78f(b)(5).
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Proposed Changes to Parameters for DMM-Facilitated Electronic Auctions
The Exchange believes that the proposed change to make permanent
the parameters for DMM-facilitated electronic auctions that are
currently in effect on a temporary basis as set forth in Commentaries
.01(a) and (b) to Rule 7.35A and Commentary .01 to Rule 7.35B would
remove impediments to and perfect the mechanism of a free and open
market and a national market
[[Page 77309]]
system because the Exchange believes that these updated parameters
would promote fair and orderly Auctions on the Exchange. These
temporary parameters have been in effect not only during the period
when the Trading Floor was closed in full, but also for the period when
the Trading Floor has partially reopened to reduced staff of DMM and
Floor brokers firms. In addition, these temporary parameters have been
in effect during periods of both extreme volatility and high trading
volumes. Accordingly, DMMs have had over six months' of experience of
electronically facilitating Auctions within these temporary parameters
and applying them during varying market conditions.
During this period, the Exchange has observed that with these
temporary parameters, a higher number of Core Open Auctions and Closing
Auctions have been electronically facilitated by the DMM, which has
resulted in a greater number of Core Open Auctions and Closing Auctions
occurring shortly after 9:30 a.m. or 4:00 p.m., respectively. The
Exchange has further observed that there have been modest improvements
in auction price dislocation during the period when these temporary
parameters have been in place. Accordingly, the Exchange believes that
making these parameters permanent would promote the continued fair and
orderly operation of Auctions for Exchange-listed securities.
Proposed Changes to Applicable Price Range for Pre-Opening Indications
The Exchange believes that the proposed change to make permanent
that the Applicable Price Range for determining whether to publish a
pre-opening indication would be 10% for securities with an Indication
Reference Price higher than $3.00 and $0.30 for securities with an
Indication Reference Price equal to or lower than $3.00, which are
currently in effect on a temporary basis, would remove impediments to
and perfect the mechanism of a free and open market and a national
market system because the Exchange believes that this updated
Applicable Price Range would promote fair and orderly Auctions on the
Exchange.
Exchange rules already provide for a correlation between the
parameters for when a DMM may facilitate an Auction electronically and
the Applicable Price Range for determining whether to disseminate a
pre-opening indication. The Exchange believes that the proposed
Applicable Price Range should be aligned with the Exchange's proposed
parameters for when a DMM may facilitate an Auction electronically.
Specifically, with this proposed change, if there is a significant
enough price movement to require a DMM to effect a Core Open or Trading
Halt Auction manually, the DMM would be required to publish a pre-
opening indication for such Core Open or Trading Halt Auction. The
Exchange notes that if a DMM chooses to facilitate a Core Open Auction
or Trading Halt Auction manually (i.e., if there is less than a 10%
price movement), a DMM could still choose to publish a pre-opening
indication in connection with such Auction, even if the Applicable
Price Range has not been triggered.
The Exchange does not believe that permanently widening the
Applicable Price Range for when a DMM is required to publish a pre-
opening indication would reduce transparency in connection with Core
Open and Trading Halt Auctions. The Exchange currently disseminates
Auction Imbalance Information for Core Open Auctions and Trading Halt
Auctions. Since August 2019, when the Exchange transitioned Exchange-
listed securities to the Pillar trading platform, all Floor broker
orders for the Core Open and Trading Halt Auctions must be entered
electronically. Accordingly, all such interest is reflected in the
Auction Imbalance Information, which was not the case before the
Exchange transitioned to Pillar. Accordingly, the Auction Imbalance
Information includes information about all buy and sell orders entered
in advance of such Auctions.
Proposed Changes to Floor Broker Interest for the Closing Auction
The Exchange believes that the proposed change to make permanent
that Floor Broker Interest would not be eligible to participate in the
Closing Auction, which is currently in effect on a temporary basis as
set forth in Commentary .03 to Rule 7.35B, would remove impediments to
and perfect the mechanism of a free and open market because it would
promote fair and orderly Closing Auctions on the Exchange.
The Exchange has observed that even in the absence of Floor Broker
Interest, Floor broker participation in the Closing Auction has
returned, and indeed increased, as compared to the level of Floor
broker participation in the Closing Auction for February 2020.
Moreover, even when Floor Broker Interest was available to participate
in Closing Auctions, such interest represented only 0.1% of total Floor
broker orders that participated in Closing Auctions. Accordingly, the
Exchange does not believe that the proposed change would materially
alter Floor brokers' ability to meaningfully participate in the Closing
Auction. Moreover, in the absence of Floor Broker Interest, the
Exchange was able to move the time for DMM-facilitated electronic
Closing Auctions from 4:02 p.m. to shortly after 4:00. By making this
change permanent, DMM-facilitated electronic Closing Auctions would
continue to occur shortly after 4:00.
The Exchange further believes that the proposed amendments to Rules
7.32, 7.35, 46B, and 47(b) would remove impediments to and perfect the
mechanism of a free and open market and a national market system
because such rules would no longer be necessary in the absence of Floor
Broker Interest for the Closing Auction. Accordingly, these proposed
rule changes would promote transparency and clarity by removing
references that would be obsolete.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\24\ the Exchange
believes that the proposed rule change would not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. The proposed change is not designed to address any
competitive issues. Instead, the proposed rule changes are designed to
make permanent changes that have been implemented on a temporary basis
relating to the functions of Auctions on the Exchange and that have
contributed to the fair and orderly Auction process during the period
that they have been in effect. The proposed rule change does not have
any effect on intermarket competition because these proposed changes
relate to Auctions in Exchange-listed securities for which the Exchange
is the primary listing exchange.
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\24\ 15 U.S.C. 78f(b)(8).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its
[[Page 77310]]
reasons for so finding or (ii) as to which the self-regulatory
organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSE-2020-95 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2020-95. 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 website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSE-2020-95 and should be submitted on
or before December 22, 2020.
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\25\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-26399 Filed 11-30-20; 8:45 am]
BILLING CODE 8011-01-P
