Self-Regulatory Organizations; New York Stock Exchange LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Amend NYSE Rules 7.31, 7.35, 7.35B, 7.35C, 98, and 104 Relating to the Closing Auction, 73060-73069 [2021-27814]
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73060
Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Notices
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–EMERALD–2021–44, and
should be submitted on or before
January 13, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.58
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–27816 Filed 12–22–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93809; File No. SR–NYSE–
2021–44]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Order
Instituting Proceedings To Determine
Whether To Approve or Disapprove a
Proposed Rule Change To Amend
NYSE Rules 7.31, 7.35, 7.35B, 7.35C,
98, and 104 Relating to the Closing
Auction
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December 17, 2021.
I. Introduction
On September 3, 2021, New York
Stock Exchange LLC (‘‘NYSE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend Rules 7.31 (Orders and
Modifiers), 7.35 (General), 7.35B (DMM17 CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
58
1 15
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Facilitated Closing Auctions), 7.35C
(Exchange-Facilitated Auctions), 98
(Operation of a DMM Unit), and 104
(Dealings and Responsibilities of
DMMs) relating to the Closing Auction.
The proposed rule change was
published for comment in the Federal
Register on September 22, 2021.3 The
Commission has received one comment
letter on the proposal.4
On November 1, 2021, the
Commission extended the time period
within which to either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
approve or disapprove the proposed
rule change, to December 21, 2021.5
This order institutes proceedings under
Section 19(b)(2)(B) of the Act to
determine whether to approve or
disapprove the proposal.
II. Description of the Proposal 6
The Exchange has proposed to amend
NYSE Rules 7.31 (Orders and
Modifiers), 7.35 (General), 7.35B (DMMFacilitated Closing Auctions), 7.35C
(Exchange-Facilitated Auctions), 98
(Operation of a DMM Unit), and 104
(Dealings and Responsibilities of
DMMs) relating to the Closing Auction.7
Proposed Amendments to NYSE Rules
7.31, 7.35, 7.35B, and 7.35C
The Exchange proposes to amend
NYSE Rules 7.31, 7.35, and 7.35B to
revise the DMM-facilitated Closing
Auction process. According to the
Exchange, the proposed changes would
modify how the Closing Auction Price
would be determined and how DMMs
would be able to participate in the
Closing Auction, but would not change
DMMs’ NYSE Rule 104 obligation to
facilitate the Closing Auction, including
to supply liquidity as needed. The
Exchange asserts that the proposed
changes would make the Closing
Auction more transparent and
deterministic, while still retaining the
DMMs’ unique obligation to facilitate
the Closing Auction.8
The Exchange also proposes to make
conforming changes to NYSE Rule 7.35C
to revise the orders eligible to
3 See Securities Exchange Act Release No. 93037
(Sept. 16, 2021), 86 FR 52719 (Sept. 22, 2021) (SR–
NYSE–2021–44) (‘‘Notice’’).
4 See Anonymous Letter (Sept. 27, 2021).
5 See Securities Exchange Act Release No. 93488
(Nov. 1, 2021), 86 FR 61352 (Nov. 5, 2021).
6 For further details about the proposal, see the
Notice, supra note 3.
7 Capitalized terms used in connection with
Auctions on the Exchange are defined in NYSE
Rule 7.35(a). See Notice, supra note 3, 86 FR 52719
n.4.
8 See id. at 52720.
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participate in Exchange-facilitated
Closing Auctions.9
Proposed Changes to Closing Auction
Price. The Exchange proposes to amend
NYSE Rule 7.35B(g) to add explicit
price parameters to the Closing Auction
Price. Under current Exchange rules, the
DMM is responsible for determining a
Closing Auction Price that is able to
satisfy all better-priced orders on the
Side of the Imbalance. This requirement
would not change. The Exchange
proposes to add that the Closing
Auction Price determined by the DMM
must also be at a price that is at or
between the last-published Imbalance
Reference Price and Continuous Book
Clearing Price. The Exchange asserts
that adding this proposed Closing
Auction Price parameter is consistent
with how the Closing Auction Price has
been determined for the vast majority of
Closing Auctions and that, in the period
January 1, 2021 to July 23, 2021, 96.5%
of all Closing Auctions were priced at or
between the last-published Imbalance
Reference Price and Continuous Book
Clearing Price, and, during this same
period, 94.9% of closing auction volume
priced within these parameters.10 The
Exchange further asserts that this
proposed change would eliminate any
potential for a Closing Auction Price to
be lower (higher) than the lastpublished Imbalance Reference Price in
the case of a Buy (Sell) Imbalance. The
Exchange further asserts that this
proposed change would also promote
transparency and determinism with
respect to the Closing Auction because
the Closing Auction Price would be
required to be within a pre-determined
range of prices that have been
disseminated via the Closing Auction
Imbalance Information and that cannot
be changed after the end of Core Trading
Hours.11
Proposed Changes to How DMMs
Would Participate in the Closing
Auction. The Exchange proposes to
change how DMMs would be able to
enter buy and sell interest to participate
in the Closing Auction by limiting the
circumstances of when a DMM could
enter or cancel interest after the end of
Core Trading Hours.12
Currently, NYSE Rule 7.35B(a)(2)
provides that a DMM may enter or
9 See
id.
id. at 52720.
11 According to the Exchange, the only
circumstance in which the Continuous Book
Clearing Price could change after the end of Core
Trading Hours would be if NYSE Rule
7.35B(j)(2)(A), described below, were invoked and
the requirement to enter all order instructions by
the end of Core Trading Hours were temporarily
suspended for a security. See id. at 52721.
12 See id.
10 See
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cancel DMM Interest after the end of
Core Trading Hours in order to supply
liquidity as needed to meet the DMM’s
obligation to facilitate the Closing
Auction in a fair and orderly manner.
The Exchange states that, consistent
with this current NYSE Rule, it does not
block a DMM from entering or canceling
DMM Interest after the end of Core
Trading Hours. Instead, according to the
Exchange, the DMM’s determination of
whether to enter or cancel DMM Interest
after the end or Core Trading Hours is
subject to the DMM’s obligation to
maintain a fair and orderly market, as
specified in Rule 104.13
The Exchange proposes to amend
NYSE Rule 7.35B(a)(2) to provide that
after the end of Core Trading Hours, a
DMM may enter only DMM Auction
Liquidity and only if such interest
would offset any Unpaired Quantity at
the Closing Auction Price. With this
change, the Exchange states, DMMs
would be systematically restricted with
respect to the side, price, and quantity
of the DMM Auction Liquidity that they
may enter after the end of Core Trading
Hours. According to the Exchange,
because DMM Auction Liquidity would
have priority over at-priced Yielding
Orders (described in more detail below),
the Exchange further proposes that
offsetting at-priced Yielding Orders
would not be included in the
calculation of the Unpaired Quantity
that a DMM may offset with DMM
Auction Liquidity. With these proposed
changes, the Exchange states, a DMM
could enter DMM Auction Liquidity
after the end of Core Trading Hours only
to close a security at a price that is at
or closer to the Imbalance Reference
Price than the published Continuous
Book Clearing Price.14 The Exchange
proposes to systematically enforce this
new requirement and block any DMM
buy and sell interest that does not meet
these new requirements.15
The Exchange states that it proposes
to cancel DMM Orders (i.e., DMM buy
and sell orders resting on the Exchange
Book) at the end of Core Trading Hours
because it also proposes that DMM
Orders would not be eligible to
13 See
id.
Exchange has provided the following
example. If there is an Imbalance to buy, the
Imbalance Reference Price is $10.00, and the
Continuous Book Clearing Price is $10.10, the DMM
could enter DMM Auction Liquidity to sell only at
prices ranging from $10.10 to $10.00 and only if
there is Unpaired Quantity at such prices. If the
DMM determines to close that security at $10.03
and there is Unpaired Quantity to buy of 1,000
shares at that price (excluding at-priced offsetting
Yielding Orders to sell), the DMM could enter DMM
Auction Liquidity to sell up to only 1,000 shares.
See id.
15 See id.
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participate in the Closing Auction.16
Therefore, according to the Exchange,
DMM Orders would not be included in
the Auction Imbalance Information for
the Closing Auction. The Exchange also
proposes to eliminate the ability of a
DMM to cancel any DMM Interest after
the end of Core Trading Hours.17
The Exchange states that with this
proposed change to NYSE Rule
7.35B(a)(2), DMMs would have fewer
tools available to manage the risk of the
DMM leading into the Closing Auction,
particularly since their DMM Orders
would automatically be canceled before
the Closing Auction and they would be
systematically restricted with respect to
the side, price, and quantity of DMM
Auction Liquidity that they may enter
after the end of Core Trading Hours. The
Exchange also states that, as required by
their obligations in Rule 104, in
connection with the Closing Auction,
DMMs would still be required to
contribute their own capital to supply
liquidity as needed to assist in the
maintenance of a fair and orderly
market. In addition, according to the
Exchange DMMs would continue to
have an obligation with respect to
determining a Closing Auction Price
that satisfies all better-priced orders on
the Side of the Imbalance.18
The Exchange states that, in
recognition of both the continued
obligations of DMMs with respect to the
Closing Auction and their ongoing need
to manage the risk of the DMM leading
into the Closing Auction, it proposes to
provide DMMs with different tools to
participate in the Closing Auction.
Specifically, the Exchange proposes to
make the existing Closing D Order type
available to DMMs. Currently, according
to the Exchange, only Floor brokers may
enter Closing D Orders. The Exchange
states that, to enable DMMs to enter
Closing D Orders, it proposes to amend
NYSE Rule 7.31(c)(2)(C)(i) to provide
that a Closing D Order may be entered
only by a Floor broker or DMM. The
Exchange proposes that Closing D
Orders would function for DMMs in a
similar manner as they currently
function for Floor brokers, with the
following differences:
First, the Exchange would not offer
the Yielding Modifier to DMMs, and
therefore a Closing D Order entered by
the DMM could not include a Yielding
16 The Exchange also proposes to amend NYSE
Rule 7.35B(j)(2)(A)(iii) to provide that DMM Orders
would be rejected if entered after the end of Core
Trading Hours (i.e., during the ‘‘Solicitation
Period’’) to offset an extreme order imbalance at or
near the close. See id.
17 See id.
18 See id.
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Modifier.19 The Exchange proposes to
amend NYSE Rule 7.31(c)(2)(C)(iii) to
add the clause ‘‘entered by a Floor
broker’’ to make clear that adding a
Yielding Modifier to a Closing D Order
would be available only to Floor
brokers.20
Second, the Exchange proposes that,
unlike Closing D Orders in NYSE-listed
securities entered by a Floor broker,
Closing D Orders entered by a DMM in
NYSE-listed securities would not be
able to participate in a Core Open
Auction or Trading Halt Auction.21 The
Exchange states that, as currently set
forth in NYSE Rule 7.31(c)(2)(C)(ii), on
arrival, a Closing D Order is processed
as a Limit Order and may trade or route
prior to the Closing Auction, which,
according to the Exchange, means that
such orders are eligible to trade both in
continuous trading and in Auctions
prior to the Closing Auction. The
Exchange states that, because the
purpose of providing Closing D Orders
to DMMs is to provide them with a tool
to participate in Closing Auctions, the
Exchange does not believe that Closing
D Orders entered by DMMs in NYSElisted securities would need to
participate in a Core Open Auction or
Trading Halt Auction on the
Exchange.22
The Exchange states that the reason it
would accept, or not cancel, a Closing
D Order entered by a DMM in the last
ten minutes of trading is that, as
provided for in NYSE Rule 7.35(d), the
Exchange will not open or reopen a
security that has not yet opened or is
halted or paused and will not transition
to continuous trading if such opening or
reopening would be in the last ten
minutes of trading before the end of
Core Trading Hours. The Exchange
states that it will remain unopened,
halted, or paused and will close the
security as provided for in the NYSE
Rule 7.35 Series. Because in these
circumstances, the Exchange would
19 According to the Exchange, the Yielding
Modifier is not necessary for DMMs because their
transactions on the Exchange are as a dealer acting
in the capacity as a market maker, and they are
therefore not subject to the trading prohibitions
specified in Section 11(a) of the Act. 15 U.S.C.
78k(a)(1) and 15 U.S.C. 78k(a)(1)(i). See id.
20 See id.
21 The Exchange states that it does not propose
this difference for Closing D Orders entered by
DMMs in UTP Securities as such orders would be
routed for participation in an opening or reopening
auction on the primary listing market and DMMs
would not have a unique role in those auctions. The
Exchange states that, by contrast, because DMMs
have a parity allocation in Core Open Auctions and
Trading Halt Auctions, the Exchange believes it
would simplify Exchange rules to provide that such
orders would not participate in Exchange Core
Open and Trading Halt Auctions. See id. at 52722.
22 See id.
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proceed to a Closing Auction, the
Exchange proposes to accept (or not
cancel) Closing D Orders entered by
DMMs in NYSE-listed securities during
this ten-minute period, even if the
security is in a halt state during that
period.23
According to the Exchange, except for
these differences, Closing D Orders
entered by DMMs would function the
same as they do for Floor brokers,
including that:
• Entry of such orders can begin at
6:30 a.m. (NYSE Rule 7.34(a)(1)).
• Such orders can be entered in any
securities trading on the Exchange,
including a UTP Security,24 and the
DMM can provide instruction of
whether a Closing D Order in a UTP
Security would be routed to the primary
listing market as either a MOC or LOC
Order (NYSE Rule 7.31(c)(2)(iv)).
• Such orders would be included in
the Closing Auction Imbalance
Information at their undisplayed
discretionary price beginning five
minutes before the end of Core Trading
Hours (NYSE Rule 7.35(b)(1)(C)(ii)).
• Beginning 10 seconds before the
scheduled close of trading, a request to
enter a Closing D Order in any security
or to cancel, cancel and replace, or
modify such order in an AuctionEligible Security would be rejected
(NYSE Rule 7.35B(f)(3)).25
The Exchange further proposes to
exclude Closing D Orders entered by a
DMM from the definition of ‘‘DMM
Orders’’ in NYSE Rule 7.35(a)(9)(B). The
Exchange states that, with this change,
the proposed reference to DMM Orders
in the amendment to NYSE Rule
7.35B(a)(2) would not include Closing D
Orders, and therefore, Closing D Orders
entered by a DMM would not be
canceled at the end of Core Trading
Hours. The Exchange also proposes a
clarifying change to NYSE Rule
7.35(a)(9)(C) to provide that DMM AfterAuction Orders means ‘‘DMM Orders,’’
and not just ‘‘orders.’’ With this change,
according to the Exchange, the
definition of DMM After-Auction Orders
would similarly not include Closing D
Orders entered by a DMM. The
Exchange also proposes to delete the
phrase ‘‘as defined under Rule 7.31’’ in
NYSE Rule 7.35(a)(9)(C) as unnecessary
because the defined term ‘‘DMM
Orders’’ already references NYSE Rule
7.31.26
23 See
id.
24 The term ‘‘UTP Security’’ is defined in NYSE
Rule 1.1 to mean a security that is listed on a
national securities exchange other than the
Exchange and that trades on the Exchange pursuant
to unlisted trading privileges. See id.
25 See id.
26 See id.
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The Exchange asserts that providing
DMMs with the ability to enter Closing
D Orders in their assigned securities
would provide them with a replacement
mechanism both to supply liquidity as
needed for the Closing Auction, as
required by Rule 104(a)(3), and to
manage the risk of the DMM leading
into the Closing Auction, in a manner
that is more transparent and
deterministic than the current process.
The Exchange proposes that Closing D
Orders entered by a DMM would be
included in the Closing Auction
Imbalance Information at their
undisplayed discretionary price
beginning five minutes before the end of
Core Trading Hours, which is when
Closing D Orders entered by Floor
brokers are included in the Closing
Auction Imbalance Information.27 With
this change, according to the Exchange,
Closing D Orders entered by DMMs
would be reflected in the Closing
Auction Imbalance Information, which
is not the case for DMM Interest
currently entered or canceled after the
end of Core Trading Hours. The
Exchange states that market participants
would be able to respond to any changes
in the Closing Auction Imbalance
Information that may result from
Closing D Orders entered by DMMs by
entering interest into the continuous
order book or retaining the services of
a Floor broker to enter Closing D Orders
on their behalf.28
According to the Exchange, because
Closing D Orders entered by DMMs
would function similarly to Closing D
Orders entered by Floor brokers, and
would not be permitted to be entered or
canceled in the last ten seconds of
trading, the manner by which the
Continuous Book Clearing Price would
be determined would be the same as
today and would not change in the last
ten seconds due to the entry of a Closing
D Order. The Exchange also states that,
because DMMs could not enter or cancel
any new interest after the end of Core
Trading Hours (other than offsetting
interest), the potential range of Closing
Auction Prices would no longer be able
to be changed by a DMM after the end
of Core Trading Hours.29
The Exchange further asserts that
providing DMMs with the ability to
enter Closing D Orders in all securities
that trade on the Exchange, including
UTP Securities, would generally
27 See
id. (citing NYSE Rule 7.35(b)(1)(C)(ii)).
28 The Exchange states that, as today, the Closing
Auction Imbalance Information would not identify
the source of orders included in the Continuous
Book Clearing Price, including whether an order is
entered by a DMM, Floor broker, or other member
organization. See id.
29 See id.
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support the maintenance of a fair and
orderly market in securities traded on
the Exchange by providing for a
mechanism for DMMs to enter such
orders directly. Currently, according to
the Exchange, a DMM may choose to
use a Floor broker to enter Closing D
Orders in securities that have not been
assigned to that DMM. The Exchange
asserts that allowing DMMs to enter
Closing D Orders directly would reduce
operational complexity and cost for
DMMs, thereby creating an incentive for
additional firms to register as a DMM.
The Exchange asserts that this proposed
change would also make it easier for
regulatory staff to monitor DMM trading
activity on the Exchange.30
The Exchange also asserts that
providing DMMs with the ability to
enter Closing D Orders in all securities
that trade on the Exchange would serve
as an incentive for additional brokerdealers to register as a DMM on the
Exchange. The Exchange states that,
currently, there are numerous costs
associated with becoming a DMM. For
example, according to the Exchange,
before being approved to operate as a
DMM, among other things, a firm must
develop and implement DMM-specific
technology designed to interface with
Exchange systems consistent with the
obligations under NYSE Rule 104 (e.g.,
to maintain depth and continuity in
assigned securities and to facilitate
Auctions both manually and
electronically); hire, train, and maintain
staff on the Trading Floor; and develop
and implement policies and procedures
and surveillances designed to comply
with DMM-specific rules (e.g., NYSE
Rules 36, 98, and 104).31 The Exchange
states that it understands that in the
past, to justify incurring such upfront
costs, firms would not register as a
DMM firm unless they had certainty
that once they started operations as a
DMM, they would have had a roster of
listed securities allocated to the firm.
The Exchange states that, in the past,
this has been achieved by a new entrant
acquiring an existing DMM firm, with
the new firm being allocated the listed
securities previously allocated to the
acquired firm. The Exchange asserts
that, the absence of such opportunities,
which would arise only if an existing
firm seeks to exit the DMM business,
30 See
id.
31 Pursuant
to NYSE Rule 98(c)(1), to operate a
DMM unit, a member organization must obtain
approval from the Exchange. To obtain approval,
among other things, the DMM unit must maintain
and enforce written policies and procedures
consistent with NYSE Rule 98 requirements relating
both to protecting material non-public information
generally, and more specifically to protecting
against the misuse of Floor-based non-public order
information.
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providing potential new DMM entrants
with additional opportunities to provide
liquidity across all securities that trade
on the Exchange may serve as an
incentive for new entrants to undertake
the costs to register as a DMM unit
without a significant roster of allocated
securities. The Exchange asserts that
additional DMMs would promote
diversity of DMMs on the Exchange,
providing greater choice to issuers when
selecting the DMM that would be
assigned to their securities.32
DMM Interest Allocation in the
Closing Auction. The Exchange states
that, because of the changes to what
type of DMM interest would be eligible
to participate in a Closing Auction, it
proposes to change how much such
DMM Interest would be allocated in a
Closing Auction, as described in NYSE
Rule 7.35B(h), as follows:
First, the Exchange proposes to amend
NYSE Rule 7.35B(h)(1) to provide that
better-priced Closing D Orders—
whether entered by a Floor broker or a
DMM—would be guaranteed to
participate in the Closing Auction
(subject to DMM allocation self-trade
prevention, described below). The
Exchange asserts that because DMMs
would be entering Closing D Orders
before the end of Core Trading Hours
and such interest would be included in
the Closing Auction Imbalance
Information, if they are better-priced
orders, they should be included in the
Closing Auction in the same manner
that all other better-priced orders
entered by other member organizations
are allocated in the Closing Auction.
The Exchange states that it does not
consider this a benefit for DMMs
because all better-priced interest is
guaranteed to participate in the Closing
Auction.33 Therefore, according to the
Exchange, DMMs would not receive a
different allocation opportunity from
other participants for such better-priced
Closing D Orders.
Second, the Exchange proposes to
amend NYSE Rule 7.35B(h)(2)(A) to
provide that at-priced Closing D Orders
entered by a DMM in securities that are
assigned to that DMM would be
included in the DMM Participant 34 for
purposes of a parity allocation. NYSE
Rule 7.35B(h)(2) currently provides that
at-priced orders and DMM Interest of
any price are not guaranteed to
participate in the Closing Auction. The
Exchange proposes that at-priced
32 See
id. at 52723.
id.
34 Under NYSE Rule 7.36(a)(5), the term ‘‘DMM
Participant’’ means the DMM assigned to the
security. Accordingly, a DMM is eligible for a DMM
Participant parity allocation only in securities
assigned to that DMM. See id.
33 See
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Closing D Orders would also not be
guaranteed to participate in the Closing
Auction. In addition, current NYSE Rule
7.35B(h)(2)(A) further provides that
orders ranked Priority 2—Display
Orders, which include DMM Interest,
are ranked on parity by Participant
pursuant to NYSE Rule 7.37(b)(2)–(7).
Accordingly, currently, at-priced DMM
Interest is allocated on parity by DMM
Participant in the Closing Auction. The
Exchange states that it therefore believes
that ranking at-priced Closing D Orders
entered by a DMM in its assigned
securities on parity by DMM Participant
would not be novel. The Exchange
states that the distinction from current
rules, however, would be that Closing D
Orders would be required to be entered
before the end of Core Trading Hours.
The Exchange states that by contrast,
under the current rules, DMMs could
receive a parity allocation of at-priced
DMM Interest entered after the end of
Core Trading Hours.35
In addition, proposed NYSE Rule
7.35B(h)(2)(A) would provide that atpriced Closing D Orders entered by a
DMM in securities not assigned to that
DMM would be included in the Book
Participant. The Exchange states that
this allocation methodology would be
new because, currently, a member
organization acting in its capacity as a
DMM is not permitted to enter orders in
securities that are not assigned to it. The
Exchange states that, because a member
organization entering orders in NYSElisted securities not assigned to it in its
capacity as a DMM would not be
functioning as a DMM, the Exchange
proposes that such at-priced Closing D
Orders be included in the Book
Participant 36 for purposes of parity
allocations in the Closing Auction.37
Third, the Exchange proposes to
amend Rule 7.35B(h)(2) to add new
subparagraph (E) providing that DMM
Auction Liquidity, i.e., the offsetting
interest that a DMM would be permitted
to enter after the end of Core Trading
Hours in connection with facilitating
the Closing Auction and that would
always be at-priced interest, would be
allocated after both LOC Orders and
Closing IO Orders.38 The Exchange
states that this would be new because
35 See
id.
36 Under
NYSE Rule 7.36(a)(5), the term ‘‘Book
Participant’’ means orders collectively represented
in the Exchange Book that have not been entered
by a Floor broker or DMM. Pursuant to NYSE Rule
7.37(b)(5), an allocation to the Book Participant will
be allocated to orders that comprise the Book
Participant by working time. See id.
37 See id.
38 The Exchange proposes a non-substantive
amendment to re-number current NYSE Rules
7.35B(h)(2)(E) and (F) as proposed NYSE Rules
7.35B(h)(2)(F) and (G). See id.
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currently, all at-priced DMM Interest,
including that entered after the end of
Core Trading Hours, would be allocated
before at-priced LOC Orders and Closing
IO Orders. As described above, the
Exchange proposes that only at-priced
interest entered by a DMM before the
end of Core Trading Hours, i.e., Closing
D Orders, would be allocated before
LOC Orders and Closing IO Orders.
According to the Exchange, that would
not be a unique benefit because
currently, all displayed and nondisplayed orders, including Closing D
Orders entered by Floor brokers, are
allocated before LOC Orders and
Closing IO Orders. The Exchange states
that, accordingly, DMMs would not
receive a unique benefit with this
allocation sequence.39
As proposed, DMM Auction
Liquidity, which can be entered only
after the end of Core Trading Hours,
would be allocated after the following
at-priced orders have any opportunity to
participate in the Closing Auction:
Orders ranked Priority 2—Displayed
Orders and Closing D Orders; orders
ranked Priority 3—Non-Display Orders;
LOC Orders; and Closing IO Orders. As
further proposed, among at-priced
orders, DMM Auction Liquidity would
receive an allocation opportunity before
orders ranked Priority 4—Yielding
Orders and Closing D Orders with a
Yielding Modifier. The Exchange asserts
that this allocation would be consistent
with a fair and orderly market because
orders with a Yielding Modifier are, by
their terms, conditional, intended to
yield to other available interest, and not
guaranteed an execution in the Closing
Auction.40
The Exchange states that, because
DMM Auction Liquidity would be
allocated ahead of Yielding Orders, the
Exchange would not include offsetting
at-priced Yielding Orders in the
calculation of the Unpaired Quantity
that would be provided to DMMs to let
them know the full quantity of DMM
Auction Liquidity that they would be
eligible to trade at a price point. The
Exchange further states that, because it
proposes to change how DMM Auction
Liquidity would be ranked and
allocated in a Closing Auction, it
proposes to amend the second sentence
of NYSE Rule 7.35(a)(9)(A) 41 to specify
that the ranking and allocation of DMM
Auction Liquidity, as described in that
Rule, would be applicable only for a
39 See
id.
id. at 52723–24.
41 The second sentence of NYSE Rule
7.35(a)(9)(A) currently provides that ‘‘[f]or purposes
of ranking and allocation in an Auction, DMM
Auction Liquidity is ranked Priority 2—Display
Orders.’’ See id. at 52724.
40 See
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Core Open Auction or Trading Halt
Auction.42
Finally, the Exchange proposes to
amend NYSE Rule 7.35B(h)(3)(A)
relating to DMM Participant allocation.
The current rule addresses how DMM
Orders would be allocated within the
DMM Participant.43 The Exchange states
that, because DMM Orders would no
longer participate in the Closing
Auction, it proposes to delete the
current rule text. The Exchange
proposes that Rule 7.35B(h)(3)(A) would
instead address how the Exchange
would apply self-trade prevention
within the DMM Participant
Allocation.44
The Exchange states that a DMM
would not be able to enter or cancel
Closing D Orders in the last ten seconds
of Core Trading Hours. In addition,
according to the Exchange DMMs would
be permitted to enter DMM Auction
Liquidity only after the end of Core
Trading Hours, and only to offset
Unpaired Quantity at the Closing
Auction Price. Accordingly, the
Exchange states, it could be possible
that a DMM has a Closing D Order to
buy (sell) that is eligible to participate
in the Closing Auction when there is a
buy (sell) Unpaired Quantity, and
therefore the DMM may be entering
offsetting DMM Auction Liquidity to
sell (buy). If the prices of two such
contra-side orders either lock or cross,
the Exchange proposes to apply STP
Decrement and Cancel (‘‘STPD’’), as
described in NYSE Rule 7.31(i)(2)(C)(i),
to such locking/crossing interest.45 The
Exchange asserts that by applying STPD,
the Exchange would systematically
ensure that DMM Auction Liquidity
would not trade in a Closing Auction
where there are also contra-side Closing
D Orders entered by the DMM.46
42 See
id.
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43 Current
NYSE Rule 7.35B(h)(3)(A) provides:
‘‘At-priced DMM Orders will be placed on the
allocation wheel for the Closing Auction based on
the time of entry and any other orders or interest
from such DMM will join that position on the
allocation wheel. If the only DMM Interest available
to participate in a Closing Auction is DMM Auction
Liquidity or better priced DMM Orders or both,
such DMM Interest will be placed last on the
allocation wheel.’’ See id.
44 See id.
45 Under NYSE Rule 7.31(i)(2)(C)(i), STPD works
as follows: ‘‘if both orders are equivalent in size,
both orders will be cancelled back to the originating
member organization. If the orders are not
equivalent in size, the equivalent size will be
cancelled back to the originating Client ID and the
larger order will be decremented by the size of the
smaller order with the balance remaining on the
Exchange Book.’’ See id.
46 According to the Exchange, the STPD
functionality would be implemented for DMMs as
a tool to help enable them to meet their obligations
to facilitate the Closing Auction in a fair and
orderly manner while systematically preventing the
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According to the Exchange, this would
also ensure that only the equivalent size
of the two orders would be canceled.
Therefore, the Exchange asserts, such
cancellation would have minimal
impact on how the Closing Auction
Price would be determined. The
Exchange further proposes that if there
is more than one Closing D order to sell
(buy) to be canceled, such orders would
be canceled in price/time sequence,
from lowest (highest) price first, and
then at each price, from oldest to
newest.47
Exchange-Facilitated Auctions. NYSE
Rule 7.35C(a)(1) currently provides that
if the Exchange facilitates an Auction,
DMM Interest will not be eligible to
participate if such Auction results in a
trade and will be eligible to participate
if such Auction results in a quote. The
Exchange proposes that because, as
described above, Closing D Orders
entered by DMMs would be processed
similarly to Floor broker Closing D
Orders, including that they would be
included in Closing Auction Imbalance
Information, Closing D Orders entered
by a DMM be processed similarly to
Closing D Orders entered by Floor
brokers in an Exchange-facilitated
Auction. The Exchange states that it
accordingly proposes to amend Rule
7.35C(a)(1) to provide that Closing D
Orders entered by a DMM would be
eligible to participate in an Exchangefacilitated Closing Auction.48
Proposed Amendments to Rules 104 and
98
Prohibited Transactions. The
Exchange states that, in connection with
the above-described changes to the
process for DMM-facilitated Closing
Auctions, it proposes to amend Rule 104
to eliminate the current restriction on
DMMs engaging in ‘‘Prohibited
Transactions’’ during the last ten
minutes of trading prior to the
scheduled close of trading. The
Exchange asserts that the proposed
changes to the Closing Auction process
obviate the need for this current
restriction and the Exchange proposes to
DMM from engaging in certain trading activity such
as ‘‘wash sales.’’ The Exchange states that it does
not propose to implement self-trade prevention for
all market participants in the Closing Auction,
rather only for the limited case of DMM Auction
Liquidity entered after the end of Core Trading
Hours. According to the Exchange, because the
Closing Auction is a single transaction involving
many different participants at a single clearing
price, it would be difficult to implement this
functionality from a technological and operational
perspective across multiple parties and all other
types of auction interest because it would require
the Exchange to continually provisionally cancel
and recalculate the prospective auction. See id.
47 See id.
48 See id.
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delete the text currently set forth in Rule
104(g)(1)(B) and subparagraph (i) thereto
in its entirety.49
NYSE Rule 104(g)(1)(A) currently
defines an ‘‘Aggressing Transaction’’ as
a DMM unit transaction that: ‘‘(i) is a
purchase (sale) that reaches across the
market to trade as the contra-side to the
Exchange published offer (bid); and (ii)
is priced above (below) the last
differently-priced trade on the Exchange
and above (below) the last differentlypriced published offer (bid) on the
Exchange.’’ NYSE Rule 104(g)(1)(B)
further provides that:
Aggressing Transactions during the last ten
minutes prior to the scheduled close of
trading that would result in a new high (low)
price for a security on the Exchange for the
day at the time of the DMM’s transaction are
prohibited, unless such transaction would
match another market’s better bid or offer
price, bring the price of that security into
parity with an underlying or related security
or asset, or would liquidate or decrease the
position of the DMM unit.50
These are referred to as ‘‘Prohibited
Transactions.’’ 51
The Exchange states that, since 2017,
it has implemented changes relating to
trading functions on the Exchange
leading into the Closing Auction that
have altered the balance of DMM
obligations against the benefits provided
to DMMs. The Exchange states that,
first, in 2019, in connection with the
transition to the Pillar trading platform,
it amended its rules to provide that
Floor Broker Interest (i.e., interest
verbalized in the trading crowd by a
Floor Broker) would be included in
Closing Auction Imbalance
Information.52 The Exchange states that,
accordingly, from August 2019, when
Pillar was implemented, until March
2020, when the Trading Floor was
temporarily closed as a precaution to
prevent the spread of COVID–19, the
information available to DMMs
regarding Floor Broker Interest became
available to subscribers of the Closing
Auction Imbalance Feed.
Second, according to the Exchange,
beginning in 2020, it temporarily
suspended the availability of Floor
Broker Interest to be eligible to
participate in the Closing Auction.53
49 See
id.
Rule 104(g)(1)(B) defines the ‘‘position of
the DMM unit’’ for purposes of NYSE Rule
104(g)(1)(B) as ‘‘the DMM unit’s inventory of
securities exclusive of pending, unexecuted orders
and has the same meaning as ‘net position
information in DMM securities’ in Rule 98(c)(5).’’
See id.
51 See id.
52 See id. at 52725 (citing NYSE Rule
7.35B(a)(1)(B)).
53 See Securities Exchange Act Release No. 89086
(June 17, 2020), (SR–NYSE–202–52) (Commentary
50 NYSE
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The Exchange recently amended its
rules to permanently exclude Floor
Broker Interest from the Closing
Auction.54 Because of the absence of
Floor Broker Interest in the Closing
Auction, any remaining information
advantage that DMMs might have had
with respect to orders from Floor
brokers—even after such interest was
included in the Closing Auction
Imbalance Information—has since been
eliminated. The Exchange asserts that,
accordingly, one of the information
advantages of DMMs that the
Commission cited to in the Disapproval
Order no longer exists.55
The Exchange asserts that this
proposed rule change further alters the
balance of DMM obligations compared
to the benefits provided to DMMs with
respect to the Closing Auction. The
Exchange further asserts that in the
aggregate, these changes (including the
elimination of Floor Broker Interest)
result in a shift that decreases the
benefits available to DMMs without a
commensurate decrease in obligations.
Specifically, according to the Exchange,
with this proposed rule change:
• DMMs must still meet their NYSE
Rule 104 obligation to facilitate the
Closing Auction and supply liquidity as
needed. They must also select an
Auction Price that satisfies all betterpriced orders on the Side of the
Imbalance. However, they would now
be systematically restricted as to the
price range at which the Closing
Auction Price could be determined. As
proposed, if the Side of the Imbalance
is to buy (sell), the Auction Price must
be at or above (below) the last-published
Imbalance Reference Price and not
above (below) the last-published nonzero Continuous Book Clearing Price.
Accordingly, with this proposed change,
DMMs will be subject to a further
limitation on how they may select the
Closing Auction Price. By contrast,
under current rules, there is no express
requirement for a DMM to close a stock
within the Continuous Book Clearing
Price, although DMMs are obligated to,
among other things, supply liquidity as
needed to facilitate the Closing Auction
.03 to Rule 7.35B was in effect on a temporary basis
from June 17, 2020 until July 23, 2021, when the
Commission approved proposed changes to Rule
7.35B that provide that Floor Broker Interest is no
longer eligible to participate in the Closing Auction.
The term ‘‘Floor Broker Interest’’ is defined in Rule
7.35(a)(10) to mean orders represented orally by a
Floor broker at the point of sale. See Securities
Exchange Act Release No. 92480 (July 23, 2021), 86
FR 40886 (July 29, 2021) (SR–NYSE–2020–95)
(‘‘Floor Broker Interest Approval Order’’). See also
Notice, supra note 3, 86 FR 52725.
54 See Floor Broker Interest Approval Order,
supra note 55.
55 See Notice, supra note 3, 86 FR 52725.
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in a fair and orderly manner. This
proposed change promotes transparency
and determinism of the Closing Auction
Price and systematically constrains how
a DMM selects a Closing Auction Price.
The Exchange therefore believes that
this proposed change decreases the
unique benefits granted to the DMMs
without decreasing the obligations on
the DMMs with respect to the Closing
Auction.56
• The only interest that a DMM may
enter after the end of Core Trading
Hours to participate in the Closing
Auction would be DMM Auction
Liquidity, and such interest could be
entered only to offset Unpaired Quantity
at the Auction Price. Such interest is
thus restricted by side, price, and
quantity. By contrast, under current
rules, DMMs have no systematic
restrictions on entering or canceling
DMM Interest after the end of Core
Trading Hours. This change ensures that
DMM Auction Liquidity could be used
only to dampen significant price
movements at the close. The Exchange
believes this proposed change
significantly decreases unique benefits
to the DMMs because they would still
be required to supply liquidity as
needed to support a fair and orderly
Closing Auction, but would have
limited tools to enter any such interest
after the end of Core Trading Hours. The
Exchange proposes to make the Closing
D Order available to DMMs in part to
offset this reduction of unique benefits
with respect to entering or canceling
DMM Interest after the end of Core
Trading Hours. However, unlike how
DMMs currently may enter and cancel
DMM Interest, DMMs would not receive
any unique treatment with respect to the
availability of this order type. To the
contrary, Closing D Orders for DMMs
would function similarly to Closing D
Orders available to Floor brokers,
including that they may not be entered
or canceled in the last ten seconds of
trading and the interest would be
included in the Closing Auction
Imbalance Information. Accordingly, the
Exchange is not providing a bespoke
tool for DMMs to supply liquidity for
the Closing Auction. In addition, the
Exchange proposes to make Closing D
Orders available for a wholly
independent reason to provide an
incentive for more broker-dealers to
seek to register as a DMM, which would
increase DMM diversity on the
Exchange to increase issuer choice.57
• DMM Auction Liquidity entered in
connection with facilitating the Closing
Auction would, by its terms, be at56 See
57 See
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priced interest and would be allocated
after at-priced displayed orders, nondisplayed orders, LOC Orders, and
Closing IO Orders. Accordingly, unlike
at-priced DMM Interest under current
Rules, it would not have priority over
LOC Orders and Closing IO Orders.
While such DMM Auction Liquidity
would have priority over orders with a
Yielding Modifier, the Exchange notes
that such orders are, by their terms,
conditional in nature and designed to
yield to other orders. Accordingly,
DMMs would have a reduced benefit in
connection with Closing Auction
allocations for their at-priced DMM
Auction Liquidity. The Exchange notes
that the proposed allocation of Closing
D Orders entered by the DMM would
not provide them with a unique benefit
because they would function similarly
to Closing D Orders entered by Floor
brokers. Accordingly, if a Closing D
Order is better-priced, it would be
guaranteed to participate in the Closing
Auction (subject to DMM-specific selftrade prevention), just as any other
better-priced interest would be
guaranteed an allocation. In addition,
that information would be transparent
because such Closing D Orders would
be included in Closing Auction
Imbalance Information. DMMs would
therefore not be receiving a unique
benefit in this allocation. The Exchange
further believes it is appropriate that atpriced DMM-entered Closing D Orders
in their assigned securities would be
allocated on parity as part of the DMM
Participant because DMMs would
continue to have a significant obligation
with respect to the Closing Auction, and
the benefit associated with a parity
allocation for such orders is designed to
offset that obligation, in part. The
Exchange would not propose the same
benefit for Closing D Orders entered by
a DMM in securities that are not
assigned to the DMM; in such case, such
orders would be included in the Book
Participant, and therefore would not
receive any allocation priority over
other market participants.58
According to the Exchange, DMMs
would continue to have benefits in
connection with their unique role. For
example, states the Exchange, at the
point of sale, DMMs have access to
aggregated buying and selling interest
that is eligible to participate in the
Closing Auction.59 The Exchange states
that, however, pursuant to current Rule
104(h)(ii), a DMM may not use any
58 See
id. at 52725–26.
Exchange states that DMM unit algorithms
are not provided aggregated buying and selling
interest for the Closing Auction until after the end
of Core Trading Hours. See id. at 52726.
59 The
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information provided by Exchange
systems in a manner that would violate
Exchange rules or federal securities laws
or regulations. In addition, according to
the Exchange, pursuant to current Rule
104(h)(iii), Floor brokers may request
that a DMM provide them with the
information that is available to the
DMM at the post, including such
aggregated buying and selling interest
for the Closing Auction. The Exchange
states that it continues to believe that it
benefits the trading community as a
whole to continue to make such
information available to DMMs because
Floor brokers who request such market
looks can use that information to
provide their customers with
information necessary for them to make
trading decisions leading into the
close.60
The Exchange asserts that providing
Closing D Orders to DMMs would also
provide them with a benefit, but that
this benefit would not be unique to
DMMs, as this order type is also
available to Floor brokers. According to
the Exchange, because all Floor brokers
operate on an agency-only basis, any
market participant can avail themselves
of Floor broker services and use Closing
D Orders. The Exchange also asserts that
providing Closing D Orders to DMMs is
designed to offset the current significant
barriers to entry for new DMM firms on
the Exchange, which is an obligation
independent of the obligations related to
the Closing Auction.61
The Exchange asserts that, in the
aggregate, the above-described changes
have altered the balance of benefits and
obligations for DMMs and the resulting
scope of obligations would no longer be
commensurate with DMM benefits. For
example, according to the Exchange,
DMMs no longer have an informational
advantage relating to Floor broker verbal
interest at the close and their at-priced
DMM Auction Liquidity would no
longer have priority over LOC or Closing
IO Orders.62
The Exchange asserts that as a result
of these significant alterations to DMM
obligations and benefits, any current
need for Prohibited Transactions as a
DMM obligation has been obviated. The
Exchange asserts that Prohibited
Transactions make sense when a DMM
has discretion over the Closing Auction
Price and when a DMM can enter and
cancel interest after the end of Core
Trading Hours, but that, with the
proposed changes described in this
filing, DMM discretion is explicitly
limited; the Closing Auction Price must
60 See
id.
id.
62 See id.
61 See
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be within a defined and transparent
parameter that cannot be changed after
the end of Core Trading Hours and
DMMs would be limited in what
offsetting interest they can enter after
the end of Core Trading Hours. The
Exchange asserts that while the DMM
would still have an obligation to
facilitate the Closing Auction and
supply liquidity as needed, DMMs
would no longer have the same
discretion in how they fulfill this
obligation. As a result, according to the
Exchange, any trading activity that a
DMM would engage in the last ten
minutes of trading would be no different
than how other market participants
trade leading into the close.63
Because the Exchange proposes to
eliminate Prohibited Transactions, the
Exchange proposes to make a
conforming amendment to NYSE Rule
98 to delete subparagraphs (c)(5) and
(c)(5)(A) and renumber subparagraphs
(c)(6) and (c)(7) as (c)(5) and (c)(6). The
Exchange states that it added NYSE
Rule 98(c)(5) for the sole purpose of
requiring DMMs to provide net position
information in connection with
monitoring their compliance with
Prohibited Transactions.64 Accordingly,
the Exchange asserts, if Prohibited
Transactions are eliminated, that
reporting requirement becomes
obsolete.65
Proposed Non-Substantive
Amendments to NYSE Rule 104. In
addition to eliminating prohibited
transactions, the Exchange proposes to
amend NYSE Rule 104 to eliminate rule
text it describes as obsolete, to update
rule references, and to make other
conforming changes, as follows:
• The Exchange proposes to amend
NYSE Rule 104(a)(2) to update the cross
reference from NYSE Rule 123D to
NYSE Rule 7.35A and to use the Pillar
terms of ‘‘Core Open Auctions and
Trading Halt Auctions’’ instead of
referring to ‘‘openings.’’ The Exchange
also proposes to delete the reference to
NYSE Rule 13 and Reserve Order
interest procedures at the opening as
obsolete. Finally, the Exchange proposes
to delete the reference to Supplementary
Material .05 to NYSE Rule 104 with
respect to odd-lot order information to
the DMM unit algorithm, stating that
this is also obsolete now that the
Exchange trades on Pillar.66
63 See
id.
id. See also Securities Exchange Act
Release No. 86131 (June 18, 2019), 84 FR 29565
(June 23, 2019) (SR–NYSE–2019–25) (Notice of
filing and immediate effectiveness of proposed rule
change).
65 See Notice, supra note 3, 86 FR 52726.
66 See id.
64 See
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• The Exchange proposes to amend
NYSE Rule 104(a)(3) to update the cross
reference from NYSE Rule 123C to
NYSE Rule 7.35B and to use the Pillar
term of ‘‘Closing Auctions’’ instead of
‘‘closes.’’ The Exchange also proposes to
delete the reference to NYSE Rule 13
and Reserve Order interest procedures
at the close as obsolete.67
• The Exchange proposes to amend
NYSE Rule 104(b) by deleting
subparagraphs (2) and (6) and replacing
the text for NYSE Rule 104(b)(2) with
the following: ‘‘Unless otherwise
specified in Rule 7.31, DMM unit
algorithms may use the orders and
modifiers set forth in Rule 7.31.’’NYSE
Rule 104(b)(2) currently provides that
‘‘Exchange systems shall enforce the
proper sequencing of incoming orders
and algorithmically-generated messages
and will prevent incoming DMM
interest from trading with resting DMM
interest. If the incoming DMM interest
would trade with resting DMM interest
only, the incoming DMM interest will
be cancelled. If the incoming DMM
interest would trade with interest other
than DMM interest, the resting DMM
interest will be cancelled.’’ The
Exchange states that, since it
transitioned to Pillar, it no longer
enforces self-trade prevention on behalf
of DMMs. Instead, according to the
Exchange, DMMs may use one of the
Self-Trade Prevention Modifiers
(‘‘STP’’) described in NYSE Rule
7.31(i)(2).68 NYSE Rule 104(b)(6)
currently provides that ‘‘DMM Units
may not enter the following orders and
modifiers: Market Orders, MOO Orders,
CO Orders, MOC Orders, LOC Orders, or
Buy Minus Zero Plus Instructions.’’ In
the Pillar rules, NYSE Rule 7.31 sets
forth which orders and modifiers are not
available to DMMs, and the Exchange
states that therefore NYSE Rule
104(b)(6) is obsolete. The Exchange
asserts that the proposed new text for
NYSE Rule 104(b)(2) would provide
transparency and that NYSE Rule 7.31
would describe which orders and
modifiers would be available to DMMs,
including STP modifiers.
D The Exchange states that it proposes
to amend NYSE Rule 104(b)(3) to delete
references to ‘‘Floor broker agency
interest files or reserve interest’’ as such
references are now obsolete. The
Exchange states that it no longer uses
‘‘Floor broker agency interest files’’ and
no longer provides Floor brokers with
reserve interest functionality that differs
from the Reserve Orders available to all
67 See
68 See
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member organizations, as described in
NYSE Rule 7.31.69
D The Exchange proposes to amend
NYSE Rule 104(b) by deleting
subparagraph (4), which provides that
‘‘[t]he DMM unit’s algorithm may place
within Exchange systems trading
interest to be known as a ‘‘Capital
Commitment Schedule.’’ (See Rule 1000
concerning the operation of the Capital
Commitment Schedule).’’ With the
transition to Pillar, the Exchange states
that it has replaced the ‘‘Capital
Commitment Schedule’’ with Capital
Commitment Orders, as described in
NYSE Rule 7.31(d)(5), and has deleted
NYSE Rule 1000. Accordingly, the
Exchange states, this current rule is
obsolete. The Exchange proposes a nonsubstantive amendment to renumber
Rule 104(b)(5) as Rule 104(b)(4).70
D The Exchange proposes to delete
the text accompanying current NYSE
Rules 104(c), (d), and (e) as obsolete
now that the Exchange trades on Pillar.
NYSE Rule 104(c) currently provides:
‘‘A DMM unit may maintain reserve
interest consistent with Exchange rules
governing Reserve Orders. Such reserve
interest is eligible for execution in
manual transactions.’’ The Exchange
states that NYSE Rule 7.31 now
describes how Reserve Orders
function.71
NYSE Rule 104(d) currently provides:
‘‘A DMM unit may provide
algorithmically-generated price
improvement to all or part of an
incoming order that can be executed at
or within the Exchange BBO through the
use of Capital Commitment Schedule
interest (see Rule 1000). Any orders
eligible for execution in Exchange
systems at the price of the DMM unit’s
interest will trade on parity with such
interest, as will any displayed interest
representing a d-Quote enabling such
interest to trade at the same price as the
DMM unit’s interest.’’ The Exchange
states that, with Pillar, the Exchange has
deleted Rule 1000 and no longer offers
the Capital Commitment Schedule to
DMMs.72
NYSE Rule 104(e) currently provides:
‘‘DMM units shall provide contra side
liquidity as needed for the execution of
odd-lot quantities that are eligible to be
executed as part of the opening, reopening and closing transactions but
remain unpaired after the DMM has
paired all other eligible round lot sized
interest.’’ According to the Exchange,
this requirement is obsolete.73
With these proposed deletions, the
Exchange proposes non-substantive
amendments to renumber NYSE Rules
104(f), (g), (h), (i), and (j) as Rules
104(c), (d), (e), (f), and (g) and to update
cross-references in proposed NYSE Rule
104(e)(iii) from subparagraph (h)(ii) and
(iii) to (e)(ii) and (iii).74
D The Exchange proposes to amend
current NYSE Rule 104(h)(ii) (proposed
NYSE Rule 104(e)(ii)) to delete reference
to information that is no longer
available to a DMM at the post.
Specifically, the Exchange states, it no
longer provides DMMs at the post with
the following information: ‘‘the price
and size of any individual order or Floor
broker agency interest file and the
entering and clearing firm information
for such order, except that the display
shall exclude any order or portion
thereof that a market participant has
elected not to display to a DMM.’’
Accordingly, the Exchange proposes to
amend Rule 104(e)(ii) to delete that rule
text.75
III. Comments Received
The commenter generally agrees with
the proposal.76 The commenter supports
efforts to address what the commenter
describes as the ability of DMMs to
manipulate ‘‘with impunity,’’ arguing
that DMMs are allowed to alter closing
prices and utilize aggressing
transactions ‘‘solely for their own
benefit,’’ which, according to the
commenter, not only destabilizes the
market, but also harms retail traders,
pension funds, and small companies
alike.77
The commenter, however, believes
that the proposal contains a loophole,
which is the Exchange’s proposal to
accept and not cancel Closing D Orders
entered by DMMs beginning ten
minutes before the scheduled end of
Core Trading Hours even if the security
remains halted or pause or never
opened, arguing that, if the objective is
to reduce the power of DMM’s and
eliminate the possibilities for fraud and
manipulation, such a blatant
opportunity should not be left in
place.78
IV. Proceedings To Determine Whether
To Approve or Disapprove SR–NYSE–
2021–44 and Grounds for Disapproval
Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 79 to determine
74 See
id.
id.
76 See Anonymous Letter, supra note 4.
77 Id.
78 See id.
79 15 U.S.C. 78s(b)(2)(B).
69 See
id. at 52727.
70 See id.
71 See id.
72 See id.
73 See id.
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75 See
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73067
whether the proposal should be
approved or disapproved. Institution of
such proceedings is appropriate at this
time in view of the legal and policy
issues raised by the proposal, as
discussed below. Institution of
disapproval proceedings does not
indicate that the Commission has
reached any conclusions with respect to
any of the issues involved. Rather, as
described in greater detail below, the
Commission encourages interested
persons to provide additional comment
on the proposal.
Pursuant to Section 19(b)(2)(B) of the
Act, the Commission is providing notice
of the grounds for disapproval under
consideration. The Commission is
instituting proceedings to allow for
additional analysis of the proposed rule
change’s consistency with Section
6(b)(5) of the Act,80 which requires that
the rules of an exchange be designed,
among other things, to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest. In addition, Section
6(b)(5) of the Act prohibits the rules of
an exchange from being designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
Further, Section 6(b)(9) of the Act
requires that the rules of an exchange
not impose any burden on competition
that is not necessary or appropriate
under the Act.81
The Exchange proposes, among other
things, to: (1) Require that the Closing
Auction Price selected by a DMM when
facilitating an auction must be between
the Imbalance Reference Price and the
Continuous Book Clearing Price; (2)
allow DMMs to use Closing D Orders in
assigned as well as non-assigned
securities; (3) change various types of
DMM trading interest would participate
in the Closing Auction in assigned
securities; and (4) eliminate the current
NYSE rule provision that forbids DMMs
from engaging in ‘‘Prohibited
Transactions’’ during the last ten
minutes of trading prior to the
scheduled close of trading. Accordingly,
the Commission seeks additional public
comment on the following topics:
1. The Exchange argues that the
proposed Closing Auction Price
constraints would promote transparency
and determinism with respect to the
Closing Auction because the Closing
Auction Price would be required to be
80 15
81 15
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within a pre-determined range of prices
that have been disseminated via the
Closing Auction Imbalance Information.
The Exchange also represents that, from
January 1, 2021, to July 23, 2021, 96.5%
of all Closing Auctions, and 94.9% of all
Closing Auction volume, occurred
within the proposed parameters for the
Closing Auction Price.82 Considering
these statements by the Exchange, what
are commenters’ views on whether this
proposal represents a significant
constraint on how the Closing Auction
Price is currently determined? Do
commenters believe that an efficient
Closing Auction Price is more likely to
be identified through the use of the
proposed Closing Auction Price
constraints, and that the Exchange has
sufficiently demonstrated this to be the
case? Do commenters believe that the
proposal might under some market
conditions impede the efficient
determination of an appropriate Closing
Auction Price? What are commenters’
views on whether the proposed Closing
Auction Price constraints would
support a fair and orderly market in
securities listed on the Exchange? Do
commenters believe that the statistics
offered by the Exchange reflect a
representative sample period?
2. Do commenters believe that any
other aspect of the proposal represents
a meaningful change from how Closing
Auction Prices are currently determined
by the DMM? Do commenters agree with
the Exchange’s assertion that the
proposed mechanism for determining
the Closing Auction Price
‘‘systematically constrains how a DMM
selects a Closing Auction Price and
thereby decreases the unique benefits
granted to the DMMs,’’ as the Exchange
argues? Do commenters believe that the
proposed Closing Auction Price
parameters would impose an obligation
on DMMs that is material? Do
commenters believe that the proposed
Closing Auction Price parameters would
materially affect the balance of benefits
and obligations of DMMs on the
Exchange?
3. What are commenters’ views on the
proposal to permit DMMs to use the
Closing D Order type, which is currently
available exclusively to NYSE Floor
brokers, who trade as agent on behalf of
their customers? Do commenters believe
that permitting DMMs to use Closing D
Orders in their assigned securities
represents a material change to the
balance of benefits and obligations of
DMMs? What are commenters’ views of
the arguments the Exchange has
advanced in favor of extending the use
of Closing D Orders to DMMs in their
82 See
Notice, supra note 3, 86 FR 52720.
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assigned securities? Do commenters
believe that permitting DMMs to use
Closing D Orders in their assigned
securities is necessary in order for
DMMs to be able to manage their risk
while fulfilling their obligations under
Exchange rules to facilitate the Closing
Auction in their assigned securities? Do
commenters believe that permitting
DMMs to use Closing D Orders in their
assigned securities is necessary in order
for DMMs to be able to facilitate the
Closing Auction within the proposed
Closing Auction Price parameters? To
what extent, if any, do commenters
think that permitting DMMs to use
Closing D Orders in assigned securities
would give DMMs a competitive
advantage over other market
participants?
4. Do commenters believe that
permitting DMMs to use Closing D
Orders in NYSE listed securities other
than their assigned securities and in
UTP securities represents a material
change to the balance of benefits and
obligations of DMMs? To what extent, if
any, do commenters think that
permitting DMMs to use Closing D
Orders in securities they have not been
assigned would give DMMs a
competitive advantage over other
market participants? To what extent do
DMMs currently make indirect use of
Closing D Orders by routing those
orders through NYSE Floor brokers?
Would permitting DMMs to directly
enter Closing D Orders in non-assigned
securities meaningfully change the
access that DMMs have to Closing D
Orders or the cost to DMMs of using
Closing D Orders? Would it have other
effects on Exchange surveillance or on
other Exchange participants? Do
commenters believe that extending the
use of Closing D Orders to DMMs
outside their assigned securities would
create a meaningful incentive for market
participants to seek to become DMMs,
and, if so, do commenters believe that
this incentive would create any
competitive effects that are not
necessary or appropriate?
5. What are commenters’ views on the
proposed changes to the ways in which
DMM trading interest would participate
in the Closing Auction? Specifically,
what are commenters’ views on the
proposed rule that all DMM interest,
except for Closing D Orders, would no
longer participate in the Closing
Auction? What are commenters’ view on
the proposed rule that DMMs would be
able to enter additional trading interest,
in the form of DMM Auction Liquidity,
after the end of Core Trading Hours only
to offset unpaired interest at the Closing
Auction Price? What are commenters’
views on the way in which Closing D
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Orders entered by DMMs would be
allocated executions in assigned
securities and in other securities? Do
commenters believe that this proposed
rule would impose an obligation on
DMMs that is material?
6. What are commenters’ views on the
proposed changes to the interest that
will be reflected in the Exchange’s
disseminated Auction Imbalance
Information? What are commenters’
views on the way in which DMM
Closing D Orders would be reflected in
the Auction Imbalance Information,
which would be different at different
times leading into the Closing Auction?
7. What are commenters’ views
regarding the Exchange’s proposal to
eliminate the Prohibited Transactions
provision of Rule 104? Do commenters
believe that the current prohibition is
necessary to maintain fair and orderly
trading on the Exchange? Do
commenters believe that the current
prohibition impedes fair and orderly
trading on the Exchange? Do
commenters believe that past
developments in the equities markets or
changes to NYSE rules—or the other
changes that the Exchange now
proposes to make (for example, placing
a constraint on the Closing Auction
Price, or changing how DMM interest
can participate in the Closing
Auction)—are sufficient to address any
concerns arising from permitting a
DMM to trade aggressively in its
assigned securities and set a new high
or low for the day on the Exchange in
the last ten minutes of the Core Trading
Session?83 To what extent, if any, do
commenters believe that the DMM’s
current re-entry obligations represent a
meaningful constraint on DMMs that
engage in Aggressing Transactions, as
part of their obligation to maintain a fair
and orderly market? Do commenters
agree with the statement by the
Exchange that, if Prohibited
Transactions were eliminated as
proposed, the DMM’s re-entry
obligations would suffice to effectively
dampen any potential destabilizing
impact of Aggressing Transactions made
by DMMs during the last ten minutes of
the trading day?
8. To what extent, if any, do
commenters agree with the Exchange’s
statements that various changes that the
Exchange has implemented since 2017,
such as the public dissemination of
floor broker interest from 2019 through
2020 and the exclusion of Floor broker
83 See, e.g., Securities Exchange Act Release No.
81150 (July 1, 2017), 82 FR 33534, 33536–37 (July
20, 2017) (SR–NYSE–2016–71, SR–NYSEMKT–
2016–99) (order disapproving proposal to remove
Prohibited Transactions provisions of NYSE Rule
104).
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interest from the Closing Auction
beginning in 2020, have altered the
balance of DMM obligations compared
to the benefits provided to DMMs? To
what extent do commenters agree with
the Exchange’s statement that, in the
aggregate, this proposed rule change
further alters the balance of DMM
obligations compared to the benefits
provided to DMMs with respect to the
Closing Auction?
9. What effect, if any, do commenters
believe the proposed rule changes,
individually or collectively, might have
on the ability or the motive of any
market participants, including DMMs,
to engage in manipulative behavior,
either individually or in concert with
other parties? What effect, if any, do
commenters believe the proposed rule
changes, individually or collectively,
might have on the ability of the
Exchange to detect and deter
manipulative activity?
10. What are commenters’ views on
whether any aspect of the proposal
would permit unfair discrimination
between customers, issuers, brokers, or
dealers? What are commenters’ views on
whether any aspect of the proposal
would impose any burden on
competition that is not necessary or
appropriate under the Act?
11. The Exchange states it proposes to
make Closing D Orders available to
DMMs to, among other things, provide
an incentive for more broker-dealers to
seek to register as a DMM. To what
extent, if any, do commenters believe
that increasing the number of new DMM
entrants will be beneficial for execution
quality or market quality?
12. Do commenters have any views on
other aspects of the proposal?
V. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the issues
identified above, as well as any other
concerns they may have with the
proposal. In particular, the Commission
invites the written views of interested
persons concerning whether the
proposal is consistent with Section
6(b)(5) 84 of the Act or any other
provision of the Act, or the rules and
regulations thereunder. Although there
do not appear to be any issues relevant
to approval or disapproval that would
be facilitated by an oral presentation of
views, data, and arguments, the
Commission will consider, pursuant to
Rule 19b–4 under the Act,85 any request
84 15
U.S.C. 78f(b)(5).
85 17 CFR 240.19b-4.
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20:50 Dec 22, 2021
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for an opportunity to make an oral
presentation.86
Interested persons are invited to
submit written data, views and
arguments regarding whether the
proposal should be disapproved by
January 13, 2022. Any person who
wishes to file a rebuttal to any other
person’s submission must file that
rebuttal by January 27, 2022.
Comments may be submitted by any
of the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSE–2021–44 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
Numbers SR–NYSE–2021–44. The 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 proposal that are
filed with the Commission, and all
written communications relating to the
proposal 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 such
filings also will be available for
inspection and copying at the principal
office of the Exchanges. 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–2021–44 and should
86 Rule 700(c)(2) of the Commission’s Rules of
Practice provides that ‘‘[t]he Commission, in its sole
discretion, may determine whether any issues
relevant to approval or disapproval would be
facilitated by the opportunity for an oral
presentation of views.’’ 17 CFR 201.700(c)(2).
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73069
be submitted on or before January 13,
2022. Rebuttal comments should be
submitted by January 27, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.87
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–27814 Filed 12–22–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93828; File No. SR–
CboeBYX–2021–029]
Self-Regulatory Organizations; Cboe
BYX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change To Make
Juneteenth National Independence Day
a Holiday of the Exchange
December 20, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934,1 and
Rule 19b–4 thereunder,2 notice is
hereby given that on December 6, 2021,
Cboe BYX Exchange, Inc. 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 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 BYX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BYX’’) proposes to
amend its rules to make Juneteenth
National Independence Day a holiday of
the Exchange. 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/
equities/regulation/rule_filings/byx/), 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
87 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\23DEN1.SGM
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]]>Agencies
[Federal Register Volume 86, Number 244 (Thursday, December 23, 2021)]
[Notices]
[Pages 73060-73069]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27814]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93809; File No. SR-NYSE-2021-44]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To Amend NYSE Rules 7.31, 7.35, 7.35B, 7.35C, 98,
and 104 Relating to the Closing Auction
December 17, 2021.
I. Introduction
On September 3, 2021, New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend Rules 7.31 (Orders and Modifiers), 7.35
(General), 7.35B (DMM-Facilitated Closing Auctions), 7.35C (Exchange-
Facilitated Auctions), 98 (Operation of a DMM Unit), and 104 (Dealings
and Responsibilities of DMMs) relating to the Closing Auction. The
proposed rule change was published for comment in the Federal Register
on September 22, 2021.\3\ The Commission has received one comment
letter on the proposal.\4\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 93037 (Sept. 16,
2021), 86 FR 52719 (Sept. 22, 2021) (SR-NYSE-2021-44) (``Notice'').
\4\ See Anonymous Letter (Sept. 27, 2021).
---------------------------------------------------------------------------
On November 1, 2021, the Commission extended the time period within
which to either approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
approve or disapprove the proposed rule change, to December 21,
2021.\5\ This order institutes proceedings under Section 19(b)(2)(B) of
the Act to determine whether to approve or disapprove the proposal.
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 93488 (Nov. 1,
2021), 86 FR 61352 (Nov. 5, 2021).
---------------------------------------------------------------------------
II. Description of the Proposal 6
---------------------------------------------------------------------------
\6\ For further details about the proposal, see the Notice,
supra note 3.
---------------------------------------------------------------------------
The Exchange has proposed to amend NYSE Rules 7.31 (Orders and
Modifiers), 7.35 (General), 7.35B (DMM-Facilitated Closing Auctions),
7.35C (Exchange-Facilitated Auctions), 98 (Operation of a DMM Unit),
and 104 (Dealings and Responsibilities of DMMs) relating to the Closing
Auction.\7\
---------------------------------------------------------------------------
\7\ Capitalized terms used in connection with Auctions on the
Exchange are defined in NYSE Rule 7.35(a). See Notice, supra note 3,
86 FR 52719 n.4.
---------------------------------------------------------------------------
Proposed Amendments to NYSE Rules 7.31, 7.35, 7.35B, and 7.35C
The Exchange proposes to amend NYSE Rules 7.31, 7.35, and 7.35B to
revise the DMM-facilitated Closing Auction process. According to the
Exchange, the proposed changes would modify how the Closing Auction
Price would be determined and how DMMs would be able to participate in
the Closing Auction, but would not change DMMs' NYSE Rule 104
obligation to facilitate the Closing Auction, including to supply
liquidity as needed. The Exchange asserts that the proposed changes
would make the Closing Auction more transparent and deterministic,
while still retaining the DMMs' unique obligation to facilitate the
Closing Auction.\8\
---------------------------------------------------------------------------
\8\ See id. at 52720.
---------------------------------------------------------------------------
The Exchange also proposes to make conforming changes to NYSE Rule
7.35C to revise the orders eligible to participate in Exchange-
facilitated Closing Auctions.\9\
---------------------------------------------------------------------------
\9\ See id.
---------------------------------------------------------------------------
Proposed Changes to Closing Auction Price. The Exchange proposes to
amend NYSE Rule 7.35B(g) to add explicit price parameters to the
Closing Auction Price. Under current Exchange rules, the DMM is
responsible for determining a Closing Auction Price that is able to
satisfy all better-priced orders on the Side of the Imbalance. This
requirement would not change. The Exchange proposes to add that the
Closing Auction Price determined by the DMM must also be at a price
that is at or between the last-published Imbalance Reference Price and
Continuous Book Clearing Price. The Exchange asserts that adding this
proposed Closing Auction Price parameter is consistent with how the
Closing Auction Price has been determined for the vast majority of
Closing Auctions and that, in the period January 1, 2021 to July 23,
2021, 96.5% of all Closing Auctions were priced at or between the last-
published Imbalance Reference Price and Continuous Book Clearing Price,
and, during this same period, 94.9% of closing auction volume priced
within these parameters.\10\ The Exchange further asserts that this
proposed change would eliminate any potential for a Closing Auction
Price to be lower (higher) than the last-published Imbalance Reference
Price in the case of a Buy (Sell) Imbalance. The Exchange further
asserts that this proposed change would also promote transparency and
determinism with respect to the Closing Auction because the Closing
Auction Price would be required to be within a pre-determined range of
prices that have been disseminated via the Closing Auction Imbalance
Information and that cannot be changed after the end of Core Trading
Hours.\11\
---------------------------------------------------------------------------
\10\ See id. at 52720.
\11\ According to the Exchange, the only circumstance in which
the Continuous Book Clearing Price could change after the end of
Core Trading Hours would be if NYSE Rule 7.35B(j)(2)(A), described
below, were invoked and the requirement to enter all order
instructions by the end of Core Trading Hours were temporarily
suspended for a security. See id. at 52721.
---------------------------------------------------------------------------
Proposed Changes to How DMMs Would Participate in the Closing
Auction. The Exchange proposes to change how DMMs would be able to
enter buy and sell interest to participate in the Closing Auction by
limiting the circumstances of when a DMM could enter or cancel interest
after the end of Core Trading Hours.\12\
---------------------------------------------------------------------------
\12\ See id.
---------------------------------------------------------------------------
Currently, NYSE Rule 7.35B(a)(2) provides that a DMM may enter or
[[Page 73061]]
cancel DMM Interest after the end of Core Trading Hours in order to
supply liquidity as needed to meet the DMM's obligation to facilitate
the Closing Auction in a fair and orderly manner. The Exchange states
that, consistent with this current NYSE Rule, it does not block a DMM
from entering or canceling DMM Interest after the end of Core Trading
Hours. Instead, according to the Exchange, the DMM's determination of
whether to enter or cancel DMM Interest after the end or Core Trading
Hours is subject to the DMM's obligation to maintain a fair and orderly
market, as specified in Rule 104.\13\
---------------------------------------------------------------------------
\13\ See id.
---------------------------------------------------------------------------
The Exchange proposes to amend NYSE Rule 7.35B(a)(2) to provide
that after the end of Core Trading Hours, a DMM may enter only DMM
Auction Liquidity and only if such interest would offset any Unpaired
Quantity at the Closing Auction Price. With this change, the Exchange
states, DMMs would be systematically restricted with respect to the
side, price, and quantity of the DMM Auction Liquidity that they may
enter after the end of Core Trading Hours. According to the Exchange,
because DMM Auction Liquidity would have priority over at-priced
Yielding Orders (described in more detail below), the Exchange further
proposes that offsetting at-priced Yielding Orders would not be
included in the calculation of the Unpaired Quantity that a DMM may
offset with DMM Auction Liquidity. With these proposed changes, the
Exchange states, a DMM could enter DMM Auction Liquidity after the end
of Core Trading Hours only to close a security at a price that is at or
closer to the Imbalance Reference Price than the published Continuous
Book Clearing Price.\14\ The Exchange proposes to systematically
enforce this new requirement and block any DMM buy and sell interest
that does not meet these new requirements.\15\
---------------------------------------------------------------------------
\14\ The Exchange has provided the following example. If there
is an Imbalance to buy, the Imbalance Reference Price is $10.00, and
the Continuous Book Clearing Price is $10.10, the DMM could enter
DMM Auction Liquidity to sell only at prices ranging from $10.10 to
$10.00 and only if there is Unpaired Quantity at such prices. If the
DMM determines to close that security at $10.03 and there is
Unpaired Quantity to buy of 1,000 shares at that price (excluding
at-priced offsetting Yielding Orders to sell), the DMM could enter
DMM Auction Liquidity to sell up to only 1,000 shares. See id.
\15\ See id.
---------------------------------------------------------------------------
The Exchange states that it proposes to cancel DMM Orders (i.e.,
DMM buy and sell orders resting on the Exchange Book) at the end of
Core Trading Hours because it also proposes that DMM Orders would not
be eligible to participate in the Closing Auction.\16\ Therefore,
according to the Exchange, DMM Orders would not be included in the
Auction Imbalance Information for the Closing Auction. The Exchange
also proposes to eliminate the ability of a DMM to cancel any DMM
Interest after the end of Core Trading Hours.\17\
---------------------------------------------------------------------------
\16\ The Exchange also proposes to amend NYSE Rule
7.35B(j)(2)(A)(iii) to provide that DMM Orders would be rejected if
entered after the end of Core Trading Hours (i.e., during the
``Solicitation Period'') to offset an extreme order imbalance at or
near the close. See id.
\17\ See id.
---------------------------------------------------------------------------
The Exchange states that with this proposed change to NYSE Rule
7.35B(a)(2), DMMs would have fewer tools available to manage the risk
of the DMM leading into the Closing Auction, particularly since their
DMM Orders would automatically be canceled before the Closing Auction
and they would be systematically restricted with respect to the side,
price, and quantity of DMM Auction Liquidity that they may enter after
the end of Core Trading Hours. The Exchange also states that, as
required by their obligations in Rule 104, in connection with the
Closing Auction, DMMs would still be required to contribute their own
capital to supply liquidity as needed to assist in the maintenance of a
fair and orderly market. In addition, according to the Exchange DMMs
would continue to have an obligation with respect to determining a
Closing Auction Price that satisfies all better-priced orders on the
Side of the Imbalance.\18\
---------------------------------------------------------------------------
\18\ See id.
---------------------------------------------------------------------------
The Exchange states that, in recognition of both the continued
obligations of DMMs with respect to the Closing Auction and their
ongoing need to manage the risk of the DMM leading into the Closing
Auction, it proposes to provide DMMs with different tools to
participate in the Closing Auction. Specifically, the Exchange proposes
to make the existing Closing D Order type available to DMMs. Currently,
according to the Exchange, only Floor brokers may enter Closing D
Orders. The Exchange states that, to enable DMMs to enter Closing D
Orders, it proposes to amend NYSE Rule 7.31(c)(2)(C)(i) to provide that
a Closing D Order may be entered only by a Floor broker or DMM. The
Exchange proposes that Closing D Orders would function for DMMs in a
similar manner as they currently function for Floor brokers, with the
following differences:
First, the Exchange would not offer the Yielding Modifier to DMMs,
and therefore a Closing D Order entered by the DMM could not include a
Yielding Modifier.\19\ The Exchange proposes to amend NYSE Rule
7.31(c)(2)(C)(iii) to add the clause ``entered by a Floor broker'' to
make clear that adding a Yielding Modifier to a Closing D Order would
be available only to Floor brokers.\20\
---------------------------------------------------------------------------
\19\ According to the Exchange, the Yielding Modifier is not
necessary for DMMs because their transactions on the Exchange are as
a dealer acting in the capacity as a market maker, and they are
therefore not subject to the trading prohibitions specified in
Section 11(a) of the Act. 15 U.S.C. 78k(a)(1) and 15 U.S.C.
78k(a)(1)(i). See id.
\20\ See id.
---------------------------------------------------------------------------
Second, the Exchange proposes that, unlike Closing D Orders in
NYSE-listed securities entered by a Floor broker, Closing D Orders
entered by a DMM in NYSE-listed securities would not be able to
participate in a Core Open Auction or Trading Halt Auction.\21\ The
Exchange states that, as currently set forth in NYSE Rule
7.31(c)(2)(C)(ii), on arrival, a Closing D Order is processed as a
Limit Order and may trade or route prior to the Closing Auction, which,
according to the Exchange, means that such orders are eligible to trade
both in continuous trading and in Auctions prior to the Closing
Auction. The Exchange states that, because the purpose of providing
Closing D Orders to DMMs is to provide them with a tool to participate
in Closing Auctions, the Exchange does not believe that Closing D
Orders entered by DMMs in NYSE-listed securities would need to
participate in a Core Open Auction or Trading Halt Auction on the
Exchange.\22\
---------------------------------------------------------------------------
\21\ The Exchange states that it does not propose this
difference for Closing D Orders entered by DMMs in UTP Securities as
such orders would be routed for participation in an opening or
reopening auction on the primary listing market and DMMs would not
have a unique role in those auctions. The Exchange states that, by
contrast, because DMMs have a parity allocation in Core Open
Auctions and Trading Halt Auctions, the Exchange believes it would
simplify Exchange rules to provide that such orders would not
participate in Exchange Core Open and Trading Halt Auctions. See id.
at 52722.
\22\ See id.
---------------------------------------------------------------------------
The Exchange states that the reason it would accept, or not cancel,
a Closing D Order entered by a DMM in the last ten minutes of trading
is that, as provided for in NYSE Rule 7.35(d), the Exchange will not
open or reopen a security that has not yet opened or is halted or
paused and will not transition to continuous trading if such opening or
reopening would be in the last ten minutes of trading before the end of
Core Trading Hours. The Exchange states that it will remain unopened,
halted, or paused and will close the security as provided for in the
NYSE Rule 7.35 Series. Because in these circumstances, the Exchange
would
[[Page 73062]]
proceed to a Closing Auction, the Exchange proposes to accept (or not
cancel) Closing D Orders entered by DMMs in NYSE-listed securities
during this ten-minute period, even if the security is in a halt state
during that period.\23\
---------------------------------------------------------------------------
\23\ See id.
---------------------------------------------------------------------------
According to the Exchange, except for these differences, Closing D
Orders entered by DMMs would function the same as they do for Floor
brokers, including that:
Entry of such orders can begin at 6:30 a.m. (NYSE Rule
7.34(a)(1)).
Such orders can be entered in any securities trading on
the Exchange, including a UTP Security,\24\ and the DMM can provide
instruction of whether a Closing D Order in a UTP Security would be
routed to the primary listing market as either a MOC or LOC Order (NYSE
Rule 7.31(c)(2)(iv)).
---------------------------------------------------------------------------
\24\ The term ``UTP Security'' is defined in NYSE Rule 1.1 to
mean a security that is listed on a national securities exchange
other than the Exchange and that trades on the Exchange pursuant to
unlisted trading privileges. See id.
---------------------------------------------------------------------------
Such orders would be included in the Closing Auction
Imbalance Information at their undisplayed discretionary price
beginning five minutes before the end of Core Trading Hours (NYSE Rule
7.35(b)(1)(C)(ii)).
Beginning 10 seconds before the scheduled close of
trading, a request to enter a Closing D Order in any security or to
cancel, cancel and replace, or modify such order in an Auction-Eligible
Security would be rejected (NYSE Rule 7.35B(f)(3)).\25\
---------------------------------------------------------------------------
\25\ See id.
---------------------------------------------------------------------------
The Exchange further proposes to exclude Closing D Orders entered
by a DMM from the definition of ``DMM Orders'' in NYSE Rule
7.35(a)(9)(B). The Exchange states that, with this change, the proposed
reference to DMM Orders in the amendment to NYSE Rule 7.35B(a)(2) would
not include Closing D Orders, and therefore, Closing D Orders entered
by a DMM would not be canceled at the end of Core Trading Hours. The
Exchange also proposes a clarifying change to NYSE Rule 7.35(a)(9)(C)
to provide that DMM After-Auction Orders means ``DMM Orders,'' and not
just ``orders.'' With this change, according to the Exchange, the
definition of DMM After-Auction Orders would similarly not include
Closing D Orders entered by a DMM. The Exchange also proposes to delete
the phrase ``as defined under Rule 7.31'' in NYSE Rule 7.35(a)(9)(C) as
unnecessary because the defined term ``DMM Orders'' already references
NYSE Rule 7.31.\26\
---------------------------------------------------------------------------
\26\ See id.
---------------------------------------------------------------------------
The Exchange asserts that providing DMMs with the ability to enter
Closing D Orders in their assigned securities would provide them with a
replacement mechanism both to supply liquidity as needed for the
Closing Auction, as required by Rule 104(a)(3), and to manage the risk
of the DMM leading into the Closing Auction, in a manner that is more
transparent and deterministic than the current process. The Exchange
proposes that Closing D Orders entered by a DMM would be included in
the Closing Auction Imbalance Information at their undisplayed
discretionary price beginning five minutes before the end of Core
Trading Hours, which is when Closing D Orders entered by Floor brokers
are included in the Closing Auction Imbalance Information.\27\ With
this change, according to the Exchange, Closing D Orders entered by
DMMs would be reflected in the Closing Auction Imbalance Information,
which is not the case for DMM Interest currently entered or canceled
after the end of Core Trading Hours. The Exchange states that market
participants would be able to respond to any changes in the Closing
Auction Imbalance Information that may result from Closing D Orders
entered by DMMs by entering interest into the continuous order book or
retaining the services of a Floor broker to enter Closing D Orders on
their behalf.\28\
---------------------------------------------------------------------------
\27\ See id. (citing NYSE Rule 7.35(b)(1)(C)(ii)).
\28\ The Exchange states that, as today, the Closing Auction
Imbalance Information would not identify the source of orders
included in the Continuous Book Clearing Price, including whether an
order is entered by a DMM, Floor broker, or other member
organization. See id.
---------------------------------------------------------------------------
According to the Exchange, because Closing D Orders entered by DMMs
would function similarly to Closing D Orders entered by Floor brokers,
and would not be permitted to be entered or canceled in the last ten
seconds of trading, the manner by which the Continuous Book Clearing
Price would be determined would be the same as today and would not
change in the last ten seconds due to the entry of a Closing D Order.
The Exchange also states that, because DMMs could not enter or cancel
any new interest after the end of Core Trading Hours (other than
offsetting interest), the potential range of Closing Auction Prices
would no longer be able to be changed by a DMM after the end of Core
Trading Hours.\29\
---------------------------------------------------------------------------
\29\ See id.
---------------------------------------------------------------------------
The Exchange further asserts that providing DMMs with the ability
to enter Closing D Orders in all securities that trade on the Exchange,
including UTP Securities, would generally support the maintenance of a
fair and orderly market in securities traded on the Exchange by
providing for a mechanism for DMMs to enter such orders directly.
Currently, according to the Exchange, a DMM may choose to use a Floor
broker to enter Closing D Orders in securities that have not been
assigned to that DMM. The Exchange asserts that allowing DMMs to enter
Closing D Orders directly would reduce operational complexity and cost
for DMMs, thereby creating an incentive for additional firms to
register as a DMM. The Exchange asserts that this proposed change would
also make it easier for regulatory staff to monitor DMM trading
activity on the Exchange.\30\
---------------------------------------------------------------------------
\30\ See id.
---------------------------------------------------------------------------
The Exchange also asserts that providing DMMs with the ability to
enter Closing D Orders in all securities that trade on the Exchange
would serve as an incentive for additional broker-dealers to register
as a DMM on the Exchange. The Exchange states that, currently, there
are numerous costs associated with becoming a DMM. For example,
according to the Exchange, before being approved to operate as a DMM,
among other things, a firm must develop and implement DMM-specific
technology designed to interface with Exchange systems consistent with
the obligations under NYSE Rule 104 (e.g., to maintain depth and
continuity in assigned securities and to facilitate Auctions both
manually and electronically); hire, train, and maintain staff on the
Trading Floor; and develop and implement policies and procedures and
surveillances designed to comply with DMM-specific rules (e.g., NYSE
Rules 36, 98, and 104).\31\ The Exchange states that it understands
that in the past, to justify incurring such upfront costs, firms would
not register as a DMM firm unless they had certainty that once they
started operations as a DMM, they would have had a roster of listed
securities allocated to the firm. The Exchange states that, in the
past, this has been achieved by a new entrant acquiring an existing DMM
firm, with the new firm being allocated the listed securities
previously allocated to the acquired firm. The Exchange asserts that,
the absence of such opportunities, which would arise only if an
existing firm seeks to exit the DMM business,
[[Page 73063]]
providing potential new DMM entrants with additional opportunities to
provide liquidity across all securities that trade on the Exchange may
serve as an incentive for new entrants to undertake the costs to
register as a DMM unit without a significant roster of allocated
securities. The Exchange asserts that additional DMMs would promote
diversity of DMMs on the Exchange, providing greater choice to issuers
when selecting the DMM that would be assigned to their securities.\32\
---------------------------------------------------------------------------
\31\ Pursuant to NYSE Rule 98(c)(1), to operate a DMM unit, a
member organization must obtain approval from the Exchange. To
obtain approval, among other things, the DMM unit must maintain and
enforce written policies and procedures consistent with NYSE Rule 98
requirements relating both to protecting material non-public
information generally, and more specifically to protecting against
the misuse of Floor-based non-public order information.
\32\ See id. at 52723.
---------------------------------------------------------------------------
DMM Interest Allocation in the Closing Auction. The Exchange states
that, because of the changes to what type of DMM interest would be
eligible to participate in a Closing Auction, it proposes to change how
much such DMM Interest would be allocated in a Closing Auction, as
described in NYSE Rule 7.35B(h), as follows:
First, the Exchange proposes to amend NYSE Rule 7.35B(h)(1) to
provide that better-priced Closing D Orders--whether entered by a Floor
broker or a DMM--would be guaranteed to participate in the Closing
Auction (subject to DMM allocation self-trade prevention, described
below). The Exchange asserts that because DMMs would be entering
Closing D Orders before the end of Core Trading Hours and such interest
would be included in the Closing Auction Imbalance Information, if they
are better-priced orders, they should be included in the Closing
Auction in the same manner that all other better-priced orders entered
by other member organizations are allocated in the Closing Auction. The
Exchange states that it does not consider this a benefit for DMMs
because all better-priced interest is guaranteed to participate in the
Closing Auction.\33\ Therefore, according to the Exchange, DMMs would
not receive a different allocation opportunity from other participants
for such better-priced Closing D Orders.
---------------------------------------------------------------------------
\33\ See id.
---------------------------------------------------------------------------
Second, the Exchange proposes to amend NYSE Rule 7.35B(h)(2)(A) to
provide that at-priced Closing D Orders entered by a DMM in securities
that are assigned to that DMM would be included in the DMM Participant
\34\ for purposes of a parity allocation. NYSE Rule 7.35B(h)(2)
currently provides that at-priced orders and DMM Interest of any price
are not guaranteed to participate in the Closing Auction. The Exchange
proposes that at-priced Closing D Orders would also not be guaranteed
to participate in the Closing Auction. In addition, current NYSE Rule
7.35B(h)(2)(A) further provides that orders ranked Priority 2--Display
Orders, which include DMM Interest, are ranked on parity by Participant
pursuant to NYSE Rule 7.37(b)(2)-(7). Accordingly, currently, at-priced
DMM Interest is allocated on parity by DMM Participant in the Closing
Auction. The Exchange states that it therefore believes that ranking
at-priced Closing D Orders entered by a DMM in its assigned securities
on parity by DMM Participant would not be novel. The Exchange states
that the distinction from current rules, however, would be that Closing
D Orders would be required to be entered before the end of Core Trading
Hours. The Exchange states that by contrast, under the current rules,
DMMs could receive a parity allocation of at-priced DMM Interest
entered after the end of Core Trading Hours.\35\
---------------------------------------------------------------------------
\34\ Under NYSE Rule 7.36(a)(5), the term ``DMM Participant''
means the DMM assigned to the security. Accordingly, a DMM is
eligible for a DMM Participant parity allocation only in securities
assigned to that DMM. See id.
\35\ See id.
---------------------------------------------------------------------------
In addition, proposed NYSE Rule 7.35B(h)(2)(A) would provide that
at-priced Closing D Orders entered by a DMM in securities not assigned
to that DMM would be included in the Book Participant. The Exchange
states that this allocation methodology would be new because,
currently, a member organization acting in its capacity as a DMM is not
permitted to enter orders in securities that are not assigned to it.
The Exchange states that, because a member organization entering orders
in NYSE-listed securities not assigned to it in its capacity as a DMM
would not be functioning as a DMM, the Exchange proposes that such at-
priced Closing D Orders be included in the Book Participant \36\ for
purposes of parity allocations in the Closing Auction.\37\
---------------------------------------------------------------------------
\36\ Under NYSE Rule 7.36(a)(5), the term ``Book Participant''
means orders collectively represented in the Exchange Book that have
not been entered by a Floor broker or DMM. Pursuant to NYSE Rule
7.37(b)(5), an allocation to the Book Participant will be allocated
to orders that comprise the Book Participant by working time. See
id.
\37\ See id.
---------------------------------------------------------------------------
Third, the Exchange proposes to amend Rule 7.35B(h)(2) to add new
subparagraph (E) providing that DMM Auction Liquidity, i.e., the
offsetting interest that a DMM would be permitted to enter after the
end of Core Trading Hours in connection with facilitating the Closing
Auction and that would always be at-priced interest, would be allocated
after both LOC Orders and Closing IO Orders.\38\ The Exchange states
that this would be new because currently, all at-priced DMM Interest,
including that entered after the end of Core Trading Hours, would be
allocated before at-priced LOC Orders and Closing IO Orders. As
described above, the Exchange proposes that only at-priced interest
entered by a DMM before the end of Core Trading Hours, i.e., Closing D
Orders, would be allocated before LOC Orders and Closing IO Orders.
According to the Exchange, that would not be a unique benefit because
currently, all displayed and non-displayed orders, including Closing D
Orders entered by Floor brokers, are allocated before LOC Orders and
Closing IO Orders. The Exchange states that, accordingly, DMMs would
not receive a unique benefit with this allocation sequence.\39\
---------------------------------------------------------------------------
\38\ The Exchange proposes a non-substantive amendment to re-
number current NYSE Rules 7.35B(h)(2)(E) and (F) as proposed NYSE
Rules 7.35B(h)(2)(F) and (G). See id.
\39\ See id.
---------------------------------------------------------------------------
As proposed, DMM Auction Liquidity, which can be entered only after
the end of Core Trading Hours, would be allocated after the following
at-priced orders have any opportunity to participate in the Closing
Auction: Orders ranked Priority 2--Displayed Orders and Closing D
Orders; orders ranked Priority 3--Non-Display Orders; LOC Orders; and
Closing IO Orders. As further proposed, among at-priced orders, DMM
Auction Liquidity would receive an allocation opportunity before orders
ranked Priority 4--Yielding Orders and Closing D Orders with a Yielding
Modifier. The Exchange asserts that this allocation would be consistent
with a fair and orderly market because orders with a Yielding Modifier
are, by their terms, conditional, intended to yield to other available
interest, and not guaranteed an execution in the Closing Auction.\40\
---------------------------------------------------------------------------
\40\ See id. at 52723-24.
---------------------------------------------------------------------------
The Exchange states that, because DMM Auction Liquidity would be
allocated ahead of Yielding Orders, the Exchange would not include
offsetting at-priced Yielding Orders in the calculation of the Unpaired
Quantity that would be provided to DMMs to let them know the full
quantity of DMM Auction Liquidity that they would be eligible to trade
at a price point. The Exchange further states that, because it proposes
to change how DMM Auction Liquidity would be ranked and allocated in a
Closing Auction, it proposes to amend the second sentence of NYSE Rule
7.35(a)(9)(A) \41\ to specify that the ranking and allocation of DMM
Auction Liquidity, as described in that Rule, would be applicable only
for a
[[Page 73064]]
Core Open Auction or Trading Halt Auction.\42\
---------------------------------------------------------------------------
\41\ The second sentence of NYSE Rule 7.35(a)(9)(A) currently
provides that ``[f]or purposes of ranking and allocation in an
Auction, DMM Auction Liquidity is ranked Priority 2--Display
Orders.'' See id. at 52724.
\42\ See id.
---------------------------------------------------------------------------
Finally, the Exchange proposes to amend NYSE Rule 7.35B(h)(3)(A)
relating to DMM Participant allocation. The current rule addresses how
DMM Orders would be allocated within the DMM Participant.\43\ The
Exchange states that, because DMM Orders would no longer participate in
the Closing Auction, it proposes to delete the current rule text. The
Exchange proposes that Rule 7.35B(h)(3)(A) would instead address how
the Exchange would apply self-trade prevention within the DMM
Participant Allocation.\44\
---------------------------------------------------------------------------
\43\ Current NYSE Rule 7.35B(h)(3)(A) provides: ``At-priced DMM
Orders will be placed on the allocation wheel for the Closing
Auction based on the time of entry and any other orders or interest
from such DMM will join that position on the allocation wheel. If
the only DMM Interest available to participate in a Closing Auction
is DMM Auction Liquidity or better priced DMM Orders or both, such
DMM Interest will be placed last on the allocation wheel.'' See id.
\44\ See id.
---------------------------------------------------------------------------
The Exchange states that a DMM would not be able to enter or cancel
Closing D Orders in the last ten seconds of Core Trading Hours. In
addition, according to the Exchange DMMs would be permitted to enter
DMM Auction Liquidity only after the end of Core Trading Hours, and
only to offset Unpaired Quantity at the Closing Auction Price.
Accordingly, the Exchange states, it could be possible that a DMM has a
Closing D Order to buy (sell) that is eligible to participate in the
Closing Auction when there is a buy (sell) Unpaired Quantity, and
therefore the DMM may be entering offsetting DMM Auction Liquidity to
sell (buy). If the prices of two such contra-side orders either lock or
cross, the Exchange proposes to apply STP Decrement and Cancel
(``STPD''), as described in NYSE Rule 7.31(i)(2)(C)(i), to such
locking/crossing interest.\45\ The Exchange asserts that by applying
STPD, the Exchange would systematically ensure that DMM Auction
Liquidity would not trade in a Closing Auction where there are also
contra-side Closing D Orders entered by the DMM.\46\ According to the
Exchange, this would also ensure that only the equivalent size of the
two orders would be canceled. Therefore, the Exchange asserts, such
cancellation would have minimal impact on how the Closing Auction Price
would be determined. The Exchange further proposes that if there is
more than one Closing D order to sell (buy) to be canceled, such orders
would be canceled in price/time sequence, from lowest (highest) price
first, and then at each price, from oldest to newest.\47\
---------------------------------------------------------------------------
\45\ Under NYSE Rule 7.31(i)(2)(C)(i), STPD works as follows:
``if both orders are equivalent in size, both orders will be
cancelled back to the originating member organization. If the orders
are not equivalent in size, the equivalent size will be cancelled
back to the originating Client ID and the larger order will be
decremented by the size of the smaller order with the balance
remaining on the Exchange Book.'' See id.
\46\ According to the Exchange, the STPD functionality would be
implemented for DMMs as a tool to help enable them to meet their
obligations to facilitate the Closing Auction in a fair and orderly
manner while systematically preventing the DMM from engaging in
certain trading activity such as ``wash sales.'' The Exchange states
that it does not propose to implement self-trade prevention for all
market participants in the Closing Auction, rather only for the
limited case of DMM Auction Liquidity entered after the end of Core
Trading Hours. According to the Exchange, because the Closing
Auction is a single transaction involving many different
participants at a single clearing price, it would be difficult to
implement this functionality from a technological and operational
perspective across multiple parties and all other types of auction
interest because it would require the Exchange to continually
provisionally cancel and recalculate the prospective auction. See
id.
\47\ See id.
---------------------------------------------------------------------------
Exchange-Facilitated Auctions. NYSE Rule 7.35C(a)(1) currently
provides that if the Exchange facilitates an Auction, DMM Interest will
not be eligible to participate if such Auction results in a trade and
will be eligible to participate if such Auction results in a quote. The
Exchange proposes that because, as described above, Closing D Orders
entered by DMMs would be processed similarly to Floor broker Closing D
Orders, including that they would be included in Closing Auction
Imbalance Information, Closing D Orders entered by a DMM be processed
similarly to Closing D Orders entered by Floor brokers in an Exchange-
facilitated Auction. The Exchange states that it accordingly proposes
to amend Rule 7.35C(a)(1) to provide that Closing D Orders entered by a
DMM would be eligible to participate in an Exchange-facilitated Closing
Auction.\48\
---------------------------------------------------------------------------
\48\ See id.
---------------------------------------------------------------------------
Proposed Amendments to Rules 104 and 98
Prohibited Transactions. The Exchange states that, in connection
with the above-described changes to the process for DMM-facilitated
Closing Auctions, it proposes to amend Rule 104 to eliminate the
current restriction on DMMs engaging in ``Prohibited Transactions''
during the last ten minutes of trading prior to the scheduled close of
trading. The Exchange asserts that the proposed changes to the Closing
Auction process obviate the need for this current restriction and the
Exchange proposes to delete the text currently set forth in Rule
104(g)(1)(B) and subparagraph (i) thereto in its entirety.\49\
---------------------------------------------------------------------------
\49\ See id.
---------------------------------------------------------------------------
NYSE Rule 104(g)(1)(A) currently defines an ``Aggressing
Transaction'' as a DMM unit transaction that: ``(i) is a purchase
(sale) that reaches across the market to trade as the contra-side to
the Exchange published offer (bid); and (ii) is priced above (below)
the last differently-priced trade on the Exchange and above (below) the
last differently-priced published offer (bid) on the Exchange.'' NYSE
Rule 104(g)(1)(B) further provides that:
Aggressing Transactions during the last ten minutes prior to the
scheduled close of trading that would result in a new high (low)
price for a security on the Exchange for the day at the time of the
DMM's transaction are prohibited, unless such transaction would
match another market's better bid or offer price, bring the price of
that security into parity with an underlying or related security or
asset, or would liquidate or decrease the position of the DMM
unit.\50\
---------------------------------------------------------------------------
\50\ NYSE Rule 104(g)(1)(B) defines the ``position of the DMM
unit'' for purposes of NYSE Rule 104(g)(1)(B) as ``the DMM unit's
inventory of securities exclusive of pending, unexecuted orders and
has the same meaning as `net position information in DMM securities'
in Rule 98(c)(5).'' See id.
These are referred to as ``Prohibited Transactions.'' \51\
---------------------------------------------------------------------------
\51\ See id.
---------------------------------------------------------------------------
The Exchange states that, since 2017, it has implemented changes
relating to trading functions on the Exchange leading into the Closing
Auction that have altered the balance of DMM obligations against the
benefits provided to DMMs. The Exchange states that, first, in 2019, in
connection with the transition to the Pillar trading platform, it
amended its rules to provide that Floor Broker Interest (i.e., interest
verbalized in the trading crowd by a Floor Broker) would be included in
Closing Auction Imbalance Information.\52\ The Exchange states that,
accordingly, from August 2019, when Pillar was implemented, until March
2020, when the Trading Floor was temporarily closed as a precaution to
prevent the spread of COVID-19, the information available to DMMs
regarding Floor Broker Interest became available to subscribers of the
Closing Auction Imbalance Feed.
---------------------------------------------------------------------------
\52\ See id. at 52725 (citing NYSE Rule 7.35B(a)(1)(B)).
---------------------------------------------------------------------------
Second, according to the Exchange, beginning in 2020, it
temporarily suspended the availability of Floor Broker Interest to be
eligible to participate in the Closing Auction.\53\
[[Page 73065]]
The Exchange recently amended its rules to permanently exclude Floor
Broker Interest from the Closing Auction.\54\ Because of the absence of
Floor Broker Interest in the Closing Auction, any remaining information
advantage that DMMs might have had with respect to orders from Floor
brokers--even after such interest was included in the Closing Auction
Imbalance Information--has since been eliminated. The Exchange asserts
that, accordingly, one of the information advantages of DMMs that the
Commission cited to in the Disapproval Order no longer exists.\55\
---------------------------------------------------------------------------
\53\ See Securities Exchange Act Release No. 89086 (June 17,
2020), (SR-NYSE-202-52) (Commentary .03 to Rule 7.35B was in effect
on a temporary basis from June 17, 2020 until July 23, 2021, when
the Commission approved proposed changes to Rule 7.35B that provide
that Floor Broker Interest is no longer eligible to participate in
the Closing Auction. The term ``Floor Broker Interest'' is defined
in Rule 7.35(a)(10) to mean orders represented orally by a Floor
broker at the point of sale. See Securities Exchange Act Release No.
92480 (July 23, 2021), 86 FR 40886 (July 29, 2021) (SR-NYSE-2020-95)
(``Floor Broker Interest Approval Order''). See also Notice, supra
note 3, 86 FR 52725.
\54\ See Floor Broker Interest Approval Order, supra note 55.
\55\ See Notice, supra note 3, 86 FR 52725.
---------------------------------------------------------------------------
The Exchange asserts that this proposed rule change further alters
the balance of DMM obligations compared to the benefits provided to
DMMs with respect to the Closing Auction. The Exchange further asserts
that in the aggregate, these changes (including the elimination of
Floor Broker Interest) result in a shift that decreases the benefits
available to DMMs without a commensurate decrease in obligations.
Specifically, according to the Exchange, with this proposed rule
change:
DMMs must still meet their NYSE Rule 104 obligation to
facilitate the Closing Auction and supply liquidity as needed. They
must also select an Auction Price that satisfies all better-priced
orders on the Side of the Imbalance. However, they would now be
systematically restricted as to the price range at which the Closing
Auction Price could be determined. As proposed, if the Side of the
Imbalance is to buy (sell), the Auction Price must be at or above
(below) the last-published Imbalance Reference Price and not above
(below) the last-published non-zero Continuous Book Clearing Price.
Accordingly, with this proposed change, DMMs will be subject to a
further limitation on how they may select the Closing Auction Price. By
contrast, under current rules, there is no express requirement for a
DMM to close a stock within the Continuous Book Clearing Price,
although DMMs are obligated to, among other things, supply liquidity as
needed to facilitate the Closing Auction in a fair and orderly manner.
This proposed change promotes transparency and determinism of the
Closing Auction Price and systematically constrains how a DMM selects a
Closing Auction Price. The Exchange therefore believes that this
proposed change decreases the unique benefits granted to the DMMs
without decreasing the obligations on the DMMs with respect to the
Closing Auction.\56\
---------------------------------------------------------------------------
\56\ See id.
---------------------------------------------------------------------------
The only interest that a DMM may enter after the end of
Core Trading Hours to participate in the Closing Auction would be DMM
Auction Liquidity, and such interest could be entered only to offset
Unpaired Quantity at the Auction Price. Such interest is thus
restricted by side, price, and quantity. By contrast, under current
rules, DMMs have no systematic restrictions on entering or canceling
DMM Interest after the end of Core Trading Hours. This change ensures
that DMM Auction Liquidity could be used only to dampen significant
price movements at the close. The Exchange believes this proposed
change significantly decreases unique benefits to the DMMs because they
would still be required to supply liquidity as needed to support a fair
and orderly Closing Auction, but would have limited tools to enter any
such interest after the end of Core Trading Hours. The Exchange
proposes to make the Closing D Order available to DMMs in part to
offset this reduction of unique benefits with respect to entering or
canceling DMM Interest after the end of Core Trading Hours. However,
unlike how DMMs currently may enter and cancel DMM Interest, DMMs would
not receive any unique treatment with respect to the availability of
this order type. To the contrary, Closing D Orders for DMMs would
function similarly to Closing D Orders available to Floor brokers,
including that they may not be entered or canceled in the last ten
seconds of trading and the interest would be included in the Closing
Auction Imbalance Information. Accordingly, the Exchange is not
providing a bespoke tool for DMMs to supply liquidity for the Closing
Auction. In addition, the Exchange proposes to make Closing D Orders
available for a wholly independent reason to provide an incentive for
more broker-dealers to seek to register as a DMM, which would increase
DMM diversity on the Exchange to increase issuer choice.\57\
---------------------------------------------------------------------------
\57\ See id.
---------------------------------------------------------------------------
DMM Auction Liquidity entered in connection with
facilitating the Closing Auction would, by its terms, be at-priced
interest and would be allocated after at-priced displayed orders, non-
displayed orders, LOC Orders, and Closing IO Orders. Accordingly,
unlike at-priced DMM Interest under current Rules, it would not have
priority over LOC Orders and Closing IO Orders. While such DMM Auction
Liquidity would have priority over orders with a Yielding Modifier, the
Exchange notes that such orders are, by their terms, conditional in
nature and designed to yield to other orders. Accordingly, DMMs would
have a reduced benefit in connection with Closing Auction allocations
for their at-priced DMM Auction Liquidity. The Exchange notes that the
proposed allocation of Closing D Orders entered by the DMM would not
provide them with a unique benefit because they would function
similarly to Closing D Orders entered by Floor brokers. Accordingly, if
a Closing D Order is better-priced, it would be guaranteed to
participate in the Closing Auction (subject to DMM-specific self-trade
prevention), just as any other better-priced interest would be
guaranteed an allocation. In addition, that information would be
transparent because such Closing D Orders would be included in Closing
Auction Imbalance Information. DMMs would therefore not be receiving a
unique benefit in this allocation. The Exchange further believes it is
appropriate that at-priced DMM-entered Closing D Orders in their
assigned securities would be allocated on parity as part of the DMM
Participant because DMMs would continue to have a significant
obligation with respect to the Closing Auction, and the benefit
associated with a parity allocation for such orders is designed to
offset that obligation, in part. The Exchange would not propose the
same benefit for Closing D Orders entered by a DMM in securities that
are not assigned to the DMM; in such case, such orders would be
included in the Book Participant, and therefore would not receive any
allocation priority over other market participants.\58\
---------------------------------------------------------------------------
\58\ See id. at 52725-26.
---------------------------------------------------------------------------
According to the Exchange, DMMs would continue to have benefits in
connection with their unique role. For example, states the Exchange, at
the point of sale, DMMs have access to aggregated buying and selling
interest that is eligible to participate in the Closing Auction.\59\
The Exchange states that, however, pursuant to current Rule 104(h)(ii),
a DMM may not use any
[[Page 73066]]
information provided by Exchange systems in a manner that would violate
Exchange rules or federal securities laws or regulations. In addition,
according to the Exchange, pursuant to current Rule 104(h)(iii), Floor
brokers may request that a DMM provide them with the information that
is available to the DMM at the post, including such aggregated buying
and selling interest for the Closing Auction. The Exchange states that
it continues to believe that it benefits the trading community as a
whole to continue to make such information available to DMMs because
Floor brokers who request such market looks can use that information to
provide their customers with information necessary for them to make
trading decisions leading into the close.\60\
---------------------------------------------------------------------------
\59\ The Exchange states that DMM unit algorithms are not
provided aggregated buying and selling interest for the Closing
Auction until after the end of Core Trading Hours. See id. at 52726.
\60\ See id.
---------------------------------------------------------------------------
The Exchange asserts that providing Closing D Orders to DMMs would
also provide them with a benefit, but that this benefit would not be
unique to DMMs, as this order type is also available to Floor brokers.
According to the Exchange, because all Floor brokers operate on an
agency-only basis, any market participant can avail themselves of Floor
broker services and use Closing D Orders. The Exchange also asserts
that providing Closing D Orders to DMMs is designed to offset the
current significant barriers to entry for new DMM firms on the
Exchange, which is an obligation independent of the obligations related
to the Closing Auction.\61\
---------------------------------------------------------------------------
\61\ See id.
---------------------------------------------------------------------------
The Exchange asserts that, in the aggregate, the above-described
changes have altered the balance of benefits and obligations for DMMs
and the resulting scope of obligations would no longer be commensurate
with DMM benefits. For example, according to the Exchange, DMMs no
longer have an informational advantage relating to Floor broker verbal
interest at the close and their at-priced DMM Auction Liquidity would
no longer have priority over LOC or Closing IO Orders.\62\
---------------------------------------------------------------------------
\62\ See id.
---------------------------------------------------------------------------
The Exchange asserts that as a result of these significant
alterations to DMM obligations and benefits, any current need for
Prohibited Transactions as a DMM obligation has been obviated. The
Exchange asserts that Prohibited Transactions make sense when a DMM has
discretion over the Closing Auction Price and when a DMM can enter and
cancel interest after the end of Core Trading Hours, but that, with the
proposed changes described in this filing, DMM discretion is explicitly
limited; the Closing Auction Price must be within a defined and
transparent parameter that cannot be changed after the end of Core
Trading Hours and DMMs would be limited in what offsetting interest
they can enter after the end of Core Trading Hours. The Exchange
asserts that while the DMM would still have an obligation to facilitate
the Closing Auction and supply liquidity as needed, DMMs would no
longer have the same discretion in how they fulfill this obligation. As
a result, according to the Exchange, any trading activity that a DMM
would engage in the last ten minutes of trading would be no different
than how other market participants trade leading into the close.\63\
---------------------------------------------------------------------------
\63\ See id.
---------------------------------------------------------------------------
Because the Exchange proposes to eliminate Prohibited Transactions,
the Exchange proposes to make a conforming amendment to NYSE Rule 98 to
delete subparagraphs (c)(5) and (c)(5)(A) and renumber subparagraphs
(c)(6) and (c)(7) as (c)(5) and (c)(6). The Exchange states that it
added NYSE Rule 98(c)(5) for the sole purpose of requiring DMMs to
provide net position information in connection with monitoring their
compliance with Prohibited Transactions.\64\ Accordingly, the Exchange
asserts, if Prohibited Transactions are eliminated, that reporting
requirement becomes obsolete.\65\
---------------------------------------------------------------------------
\64\ See id. See also Securities Exchange Act Release No. 86131
(June 18, 2019), 84 FR 29565 (June 23, 2019) (SR-NYSE-2019-25)
(Notice of filing and immediate effectiveness of proposed rule
change).
\65\ See Notice, supra note 3, 86 FR 52726.
---------------------------------------------------------------------------
Proposed Non-Substantive Amendments to NYSE Rule 104. In addition
to eliminating prohibited transactions, the Exchange proposes to amend
NYSE Rule 104 to eliminate rule text it describes as obsolete, to
update rule references, and to make other conforming changes, as
follows:
The Exchange proposes to amend NYSE Rule 104(a)(2) to
update the cross reference from NYSE Rule 123D to NYSE Rule 7.35A and
to use the Pillar terms of ``Core Open Auctions and Trading Halt
Auctions'' instead of referring to ``openings.'' The Exchange also
proposes to delete the reference to NYSE Rule 13 and Reserve Order
interest procedures at the opening as obsolete. Finally, the Exchange
proposes to delete the reference to Supplementary Material .05 to NYSE
Rule 104 with respect to odd-lot order information to the DMM unit
algorithm, stating that this is also obsolete now that the Exchange
trades on Pillar.\66\
---------------------------------------------------------------------------
\66\ See id.
---------------------------------------------------------------------------
The Exchange proposes to amend NYSE Rule 104(a)(3) to
update the cross reference from NYSE Rule 123C to NYSE Rule 7.35B and
to use the Pillar term of ``Closing Auctions'' instead of ``closes.''
The Exchange also proposes to delete the reference to NYSE Rule 13 and
Reserve Order interest procedures at the close as obsolete.\67\
---------------------------------------------------------------------------
\67\ See id.
---------------------------------------------------------------------------
The Exchange proposes to amend NYSE Rule 104(b) by
deleting subparagraphs (2) and (6) and replacing the text for NYSE Rule
104(b)(2) with the following: ``Unless otherwise specified in Rule
7.31, DMM unit algorithms may use the orders and modifiers set forth in
Rule 7.31.''NYSE Rule 104(b)(2) currently provides that ``Exchange
systems shall enforce the proper sequencing of incoming orders and
algorithmically-generated messages and will prevent incoming DMM
interest from trading with resting DMM interest. If the incoming DMM
interest would trade with resting DMM interest only, the incoming DMM
interest will be cancelled. If the incoming DMM interest would trade
with interest other than DMM interest, the resting DMM interest will be
cancelled.'' The Exchange states that, since it transitioned to Pillar,
it no longer enforces self-trade prevention on behalf of DMMs. Instead,
according to the Exchange, DMMs may use one of the Self-Trade
Prevention Modifiers (``STP'') described in NYSE Rule 7.31(i)(2).\68\
NYSE Rule 104(b)(6) currently provides that ``DMM Units may not enter
the following orders and modifiers: Market Orders, MOO Orders, CO
Orders, MOC Orders, LOC Orders, or Buy Minus Zero Plus Instructions.''
In the Pillar rules, NYSE Rule 7.31 sets forth which orders and
modifiers are not available to DMMs, and the Exchange states that
therefore NYSE Rule 104(b)(6) is obsolete. The Exchange asserts that
the proposed new text for NYSE Rule 104(b)(2) would provide
transparency and that NYSE Rule 7.31 would describe which orders and
modifiers would be available to DMMs, including STP modifiers.
---------------------------------------------------------------------------
\68\ See id. at 52726-27.
---------------------------------------------------------------------------
[ssquf] The Exchange states that it proposes to amend NYSE Rule
104(b)(3) to delete references to ``Floor broker agency interest files
or reserve interest'' as such references are now obsolete. The Exchange
states that it no longer uses ``Floor broker agency interest files''
and no longer provides Floor brokers with reserve interest
functionality that differs from the Reserve Orders available to all
[[Page 73067]]
member organizations, as described in NYSE Rule 7.31.\69\
---------------------------------------------------------------------------
\69\ See id. at 52727.
---------------------------------------------------------------------------
[ssquf] The Exchange proposes to amend NYSE Rule 104(b) by deleting
subparagraph (4), which provides that ``[t]he DMM unit's algorithm may
place within Exchange systems trading interest to be known as a
``Capital Commitment Schedule.'' (See Rule 1000 concerning the
operation of the Capital Commitment Schedule).'' With the transition to
Pillar, the Exchange states that it has replaced the ``Capital
Commitment Schedule'' with Capital Commitment Orders, as described in
NYSE Rule 7.31(d)(5), and has deleted NYSE Rule 1000. Accordingly, the
Exchange states, this current rule is obsolete. The Exchange proposes a
non-substantive amendment to renumber Rule 104(b)(5) as Rule
104(b)(4).\70\
---------------------------------------------------------------------------
\70\ See id.
---------------------------------------------------------------------------
[ssquf] The Exchange proposes to delete the text accompanying
current NYSE Rules 104(c), (d), and (e) as obsolete now that the
Exchange trades on Pillar.
NYSE Rule 104(c) currently provides: ``A DMM unit may maintain
reserve interest consistent with Exchange rules governing Reserve
Orders. Such reserve interest is eligible for execution in manual
transactions.'' The Exchange states that NYSE Rule 7.31 now describes
how Reserve Orders function.\71\
---------------------------------------------------------------------------
\71\ See id.
---------------------------------------------------------------------------
NYSE Rule 104(d) currently provides: ``A DMM unit may provide
algorithmically-generated price improvement to all or part of an
incoming order that can be executed at or within the Exchange BBO
through the use of Capital Commitment Schedule interest (see Rule
1000). Any orders eligible for execution in Exchange systems at the
price of the DMM unit's interest will trade on parity with such
interest, as will any displayed interest representing a d-Quote
enabling such interest to trade at the same price as the DMM unit's
interest.'' The Exchange states that, with Pillar, the Exchange has
deleted Rule 1000 and no longer offers the Capital Commitment Schedule
to DMMs.\72\
---------------------------------------------------------------------------
\72\ See id.
---------------------------------------------------------------------------
NYSE Rule 104(e) currently provides: ``DMM units shall provide
contra side liquidity as needed for the execution of odd-lot quantities
that are eligible to be executed as part of the opening, re-opening and
closing transactions but remain unpaired after the DMM has paired all
other eligible round lot sized interest.'' According to the Exchange,
this requirement is obsolete.\73\
---------------------------------------------------------------------------
\73\ See id.
---------------------------------------------------------------------------
With these proposed deletions, the Exchange proposes non-
substantive amendments to renumber NYSE Rules 104(f), (g), (h), (i),
and (j) as Rules 104(c), (d), (e), (f), and (g) and to update cross-
references in proposed NYSE Rule 104(e)(iii) from subparagraph (h)(ii)
and (iii) to (e)(ii) and (iii).\74\
---------------------------------------------------------------------------
\74\ See id.
---------------------------------------------------------------------------
[ssquf] The Exchange proposes to amend current NYSE Rule 104(h)(ii)
(proposed NYSE Rule 104(e)(ii)) to delete reference to information that
is no longer available to a DMM at the post. Specifically, the Exchange
states, it no longer provides DMMs at the post with the following
information: ``the price and size of any individual order or Floor
broker agency interest file and the entering and clearing firm
information for such order, except that the display shall exclude any
order or portion thereof that a market participant has elected not to
display to a DMM.'' Accordingly, the Exchange proposes to amend Rule
104(e)(ii) to delete that rule text.\75\
---------------------------------------------------------------------------
\75\ See id.
---------------------------------------------------------------------------
III. Comments Received
The commenter generally agrees with the proposal.\76\ The commenter
supports efforts to address what the commenter describes as the ability
of DMMs to manipulate ``with impunity,'' arguing that DMMs are allowed
to alter closing prices and utilize aggressing transactions ``solely
for their own benefit,'' which, according to the commenter, not only
destabilizes the market, but also harms retail traders, pension funds,
and small companies alike.\77\
---------------------------------------------------------------------------
\76\ See Anonymous Letter, supra note 4.
\77\ Id.
---------------------------------------------------------------------------
The commenter, however, believes that the proposal contains a
loophole, which is the Exchange's proposal to accept and not cancel
Closing D Orders entered by DMMs beginning ten minutes before the
scheduled end of Core Trading Hours even if the security remains halted
or pause or never opened, arguing that, if the objective is to reduce
the power of DMM's and eliminate the possibilities for fraud and
manipulation, such a blatant opportunity should not be left in
place.\78\
---------------------------------------------------------------------------
\78\ See id.
---------------------------------------------------------------------------
IV. Proceedings To Determine Whether To Approve or Disapprove SR-NYSE-
2021-44 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \79\ to determine whether the proposal should be
approved or disapproved. Institution of such proceedings is appropriate
at this time in view of the legal and policy issues raised by the
proposal, as discussed below. Institution of disapproval proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, as described in greater
detail below, the Commission encourages interested persons to provide
additional comment on the proposal.
---------------------------------------------------------------------------
\79\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B) of the Act, the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of the proposed rule change's consistency with Section 6(b)(5)
of the Act,\80\ which requires that the rules of an exchange be
designed, among other things, to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to remove impediments to and perfect the mechanism of a free and open
market and a national market system and, in general, to protect
investors and the public interest. In addition, Section 6(b)(5) of the
Act prohibits the rules of an exchange from being designed to permit
unfair discrimination between customers, issuers, brokers, or dealers.
Further, Section 6(b)(9) of the Act requires that the rules of an
exchange not impose any burden on competition that is not necessary or
appropriate under the Act.\81\
---------------------------------------------------------------------------
\80\ 15 U.S.C. 78f(b)(5).
\81\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
The Exchange proposes, among other things, to: (1) Require that the
Closing Auction Price selected by a DMM when facilitating an auction
must be between the Imbalance Reference Price and the Continuous Book
Clearing Price; (2) allow DMMs to use Closing D Orders in assigned as
well as non-assigned securities; (3) change various types of DMM
trading interest would participate in the Closing Auction in assigned
securities; and (4) eliminate the current NYSE rule provision that
forbids DMMs from engaging in ``Prohibited Transactions'' during the
last ten minutes of trading prior to the scheduled close of trading.
Accordingly, the Commission seeks additional public comment on the
following topics:
1. The Exchange argues that the proposed Closing Auction Price
constraints would promote transparency and determinism with respect to
the Closing Auction because the Closing Auction Price would be required
to be
[[Page 73068]]
within a pre-determined range of prices that have been disseminated via
the Closing Auction Imbalance Information. The Exchange also represents
that, from January 1, 2021, to July 23, 2021, 96.5% of all Closing
Auctions, and 94.9% of all Closing Auction volume, occurred within the
proposed parameters for the Closing Auction Price.\82\ Considering
these statements by the Exchange, what are commenters' views on whether
this proposal represents a significant constraint on how the Closing
Auction Price is currently determined? Do commenters believe that an
efficient Closing Auction Price is more likely to be identified through
the use of the proposed Closing Auction Price constraints, and that the
Exchange has sufficiently demonstrated this to be the case? Do
commenters believe that the proposal might under some market conditions
impede the efficient determination of an appropriate Closing Auction
Price? What are commenters' views on whether the proposed Closing
Auction Price constraints would support a fair and orderly market in
securities listed on the Exchange? Do commenters believe that the
statistics offered by the Exchange reflect a representative sample
period?
---------------------------------------------------------------------------
\82\ See Notice, supra note 3, 86 FR 52720.
---------------------------------------------------------------------------
2. Do commenters believe that any other aspect of the proposal
represents a meaningful change from how Closing Auction Prices are
currently determined by the DMM? Do commenters agree with the
Exchange's assertion that the proposed mechanism for determining the
Closing Auction Price ``systematically constrains how a DMM selects a
Closing Auction Price and thereby decreases the unique benefits granted
to the DMMs,'' as the Exchange argues? Do commenters believe that the
proposed Closing Auction Price parameters would impose an obligation on
DMMs that is material? Do commenters believe that the proposed Closing
Auction Price parameters would materially affect the balance of
benefits and obligations of DMMs on the Exchange?
3. What are commenters' views on the proposal to permit DMMs to use
the Closing D Order type, which is currently available exclusively to
NYSE Floor brokers, who trade as agent on behalf of their customers? Do
commenters believe that permitting DMMs to use Closing D Orders in
their assigned securities represents a material change to the balance
of benefits and obligations of DMMs? What are commenters' views of the
arguments the Exchange has advanced in favor of extending the use of
Closing D Orders to DMMs in their assigned securities? Do commenters
believe that permitting DMMs to use Closing D Orders in their assigned
securities is necessary in order for DMMs to be able to manage their
risk while fulfilling their obligations under Exchange rules to
facilitate the Closing Auction in their assigned securities? Do
commenters believe that permitting DMMs to use Closing D Orders in
their assigned securities is necessary in order for DMMs to be able to
facilitate the Closing Auction within the proposed Closing Auction
Price parameters? To what extent, if any, do commenters think that
permitting DMMs to use Closing D Orders in assigned securities would
give DMMs a competitive advantage over other market participants?
4. Do commenters believe that permitting DMMs to use Closing D
Orders in NYSE listed securities other than their assigned securities
and in UTP securities represents a material change to the balance of
benefits and obligations of DMMs? To what extent, if any, do commenters
think that permitting DMMs to use Closing D Orders in securities they
have not been assigned would give DMMs a competitive advantage over
other market participants? To what extent do DMMs currently make
indirect use of Closing D Orders by routing those orders through NYSE
Floor brokers? Would permitting DMMs to directly enter Closing D Orders
in non-assigned securities meaningfully change the access that DMMs
have to Closing D Orders or the cost to DMMs of using Closing D Orders?
Would it have other effects on Exchange surveillance or on other
Exchange participants? Do commenters believe that extending the use of
Closing D Orders to DMMs outside their assigned securities would create
a meaningful incentive for market participants to seek to become DMMs,
and, if so, do commenters believe that this incentive would create any
competitive effects that are not necessary or appropriate?
5. What are commenters' views on the proposed changes to the ways
in which DMM trading interest would participate in the Closing Auction?
Specifically, what are commenters' views on the proposed rule that all
DMM interest, except for Closing D Orders, would no longer participate
in the Closing Auction? What are commenters' view on the proposed rule
that DMMs would be able to enter additional trading interest, in the
form of DMM Auction Liquidity, after the end of Core Trading Hours only
to offset unpaired interest at the Closing Auction Price? What are
commenters' views on the way in which Closing D Orders entered by DMMs
would be allocated executions in assigned securities and in other
securities? Do commenters believe that this proposed rule would impose
an obligation on DMMs that is material?
6. What are commenters' views on the proposed changes to the
interest that will be reflected in the Exchange's disseminated Auction
Imbalance Information? What are commenters' views on the way in which
DMM Closing D Orders would be reflected in the Auction Imbalance
Information, which would be different at different times leading into
the Closing Auction?
7. What are commenters' views regarding the Exchange's proposal to
eliminate the Prohibited Transactions provision of Rule 104? Do
commenters believe that the current prohibition is necessary to
maintain fair and orderly trading on the Exchange? Do commenters
believe that the current prohibition impedes fair and orderly trading
on the Exchange? Do commenters believe that past developments in the
equities markets or changes to NYSE rules--or the other changes that
the Exchange now proposes to make (for example, placing a constraint on
the Closing Auction Price, or changing how DMM interest can participate
in the Closing Auction)--are sufficient to address any concerns arising
from permitting a DMM to trade aggressively in its assigned securities
and set a new high or low for the day on the Exchange in the last ten
minutes of the Core Trading Session?\83\ To what extent, if any, do
commenters believe that the DMM's current re-entry obligations
represent a meaningful constraint on DMMs that engage in Aggressing
Transactions, as part of their obligation to maintain a fair and
orderly market? Do commenters agree with the statement by the Exchange
that, if Prohibited Transactions were eliminated as proposed, the DMM's
re-entry obligations would suffice to effectively dampen any potential
destabilizing impact of Aggressing Transactions made by DMMs during the
last ten minutes of the trading day?
---------------------------------------------------------------------------
\83\ See, e.g., Securities Exchange Act Release No. 81150 (July
1, 2017), 82 FR 33534, 33536-37 (July 20, 2017) (SR-NYSE-2016-71,
SR-NYSEMKT-2016-99) (order disapproving proposal to remove
Prohibited Transactions provisions of NYSE Rule 104).
---------------------------------------------------------------------------
8. To what extent, if any, do commenters agree with the Exchange's
statements that various changes that the Exchange has implemented since
2017, such as the public dissemination of floor broker interest from
2019 through 2020 and the exclusion of Floor broker
[[Page 73069]]
interest from the Closing Auction beginning in 2020, have altered the
balance of DMM obligations compared to the benefits provided to DMMs?
To what extent do commenters agree with the Exchange's statement that,
in the aggregate, this proposed rule change further alters the balance
of DMM obligations compared to the benefits provided to DMMs with
respect to the Closing Auction?
9. What effect, if any, do commenters believe the proposed rule
changes, individually or collectively, might have on the ability or the
motive of any market participants, including DMMs, to engage in
manipulative behavior, either individually or in concert with other
parties? What effect, if any, do commenters believe the proposed rule
changes, individually or collectively, might have on the ability of the
Exchange to detect and deter manipulative activity?
10. What are commenters' views on whether any aspect of the
proposal would permit unfair discrimination between customers, issuers,
brokers, or dealers? What are commenters' views on whether any aspect
of the proposal would impose any burden on competition that is not
necessary or appropriate under the Act?
11. The Exchange states it proposes to make Closing D Orders
available to DMMs to, among other things, provide an incentive for more
broker-dealers to seek to register as a DMM. To what extent, if any, do
commenters believe that increasing the number of new DMM entrants will
be beneficial for execution quality or market quality?
12. Do commenters have any views on other aspects of the proposal?
V. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal is
consistent with Section 6(b)(5) \84\ of the Act or any other provision
of the Act, or the rules and regulations thereunder. Although there do
not appear to be any issues relevant to approval or disapproval that
would be facilitated by an oral presentation of views, data, and
arguments, the Commission will consider, pursuant to Rule 19b-4 under
the Act,\85\ any request for an opportunity to make an oral
presentation.\86\
---------------------------------------------------------------------------
\84\ 15 U.S.C. 78f(b)(5).
\85\ 17 CFR 240.19b-4.
\86\ Rule 700(c)(2) of the Commission's Rules of Practice
provides that ``[t]he Commission, in its sole discretion, may
determine whether any issues relevant to approval or disapproval
would be facilitated by the opportunity for an oral presentation of
views.'' 17 CFR 201.700(c)(2).
---------------------------------------------------------------------------
Interested persons are invited to submit written data, views and
arguments regarding whether the proposal should be disapproved by
January 13, 2022. Any person who wishes to file a rebuttal to any other
person's submission must file that rebuttal by January 27, 2022.
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-2021-44 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 Numbers SR-NYSE-2021-44. The 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 proposal that are filed with the
Commission, and all written communications relating to the proposal
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 such filings also will be available for inspection
and copying at the principal office of the Exchanges. 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-2021-44 and should be submitted on
or before January 13, 2022. Rebuttal comments should be submitted by
January 27, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\87\
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\87\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27814 Filed 12-22-21; 8:45 am]
BILLING CODE 8011-01-P
