Self-Regulatory Organizations; New York Stock Exchange LLC; Order Approving a Proposed Rule Change To Amend NYSE Rule 7.35B Relating to the Closing Auction and Make Certain Conforming and Non-Substantive Changes to NYSE Rules 7.31, 7.35, 7.35B and 104, 56099-56103 [2022-19682]
Download as PDF
<![CDATA[
Federal Register / Vol. 87, No. 176 / Tuesday, September 13, 2022 / Notices
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.17
A proposed rule change filed under
Rule 19b-4(f)(6) 18 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b4(f)(6)(iii),19 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest. The
Exchange has asked the Commission to
waive the 30-day operative delay so that
the proposal may become operative
immediately upon filing. The
Commission believes that waiver of the
operative delay is consistent with the
protection of investors and the public
interest because it will allow the
Exchange to provide, without delay,
further protections against potentially
erroneous executions. Accordingly, the
Commission hereby waives the 30-day
operative delay and designates the
proposal operative upon filing.20
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 21 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
jspears on DSK121TN23PROD with NOTICES
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
17 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has fulfilled this requirement.
18 17 CFR 240.19b–4(f)(6).
19 17 CFR 240.19b–4(f)(6)(iii).
20 For purposes only of accelerating the operative
date of this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
21 15 U.S.C. 78s(b)(2)(B).
VerDate Sep<11>2014
17:30 Sep 12, 2022
Jkt 256001
56099
Comments may be submitted by any of
the following methods:
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
[Release No. 34–95691; File No. SR–NYSE–
2022–32]
• 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–
NYSEARCA–2022–57 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to: Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEARCA–2022–57. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSEARCA–2022–57 and
should be submitted on or before
October 4, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–19680 Filed 9–12–22; 8:45 am]
BILLING CODE 8011–01–P
22 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00112
Fmt 4703
Sfmt 4703
Self-Regulatory Organizations; New
York Stock Exchange LLC; Order
Approving a Proposed Rule Change To
Amend NYSE Rule 7.35B Relating to
the Closing Auction and Make Certain
Conforming and Non-Substantive
Changes to NYSE Rules 7.31, 7.35,
7.35B and 104
September 7, 2022.
I. Introduction
On July 13, 2022, 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 NYSE Rule 7.35B
(DMM-Facilitated Closing Auctions)
relating to the Closing Auction, and
make certain conforming and nonsubstantive changes to NYSE Rules 7.31
(Orders and Modifiers), 7.35 (General),
7.35B, and NYSE Rule 104 (Dealings
and Responsibilities of DMMs). The
proposed rule change was published for
comment in the Federal Register on July
28, 2022.3 The Commission has received
no comment letters on the proposed rule
change. This order approves the
proposal.
II. Description of the Proposal
The Exchange proposes to amend
NYSE Rule 7.35B to add price
parameters within which Designated
Market Makers (‘‘DMMs’’) must select a
Closing Auction Price when facilitation
the Closing Auctions in their assigned
securities. As described below, the
Closing Auction Price determined by
the DMM must be at a price that is at
or between the last-published Imbalance
Reference Price and the last-published
Continuous Book Clearing Price.
Further, the Exchange proposes to
modify how the DMM would participate
in the Closing Auction by canceling any
resting DMM Orders at the end of Core
Trading Hours. The Exchange also
proposes to make conforming changes to
other affected rules.
The Exchange states that the proposed
changes would make the Closing
Auction more transparent and
deterministic while retaining the
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 95354
(July 22, 2022), 87 FR 45382 (July 28, 2022)
(‘‘Notice’’).
2 17
E:\FR\FM\13SEN1.SGM
13SEN1
56100
Federal Register / Vol. 87, No. 176 / Tuesday, September 13, 2022 / Notices
DMMs’ unique obligation to facilitate
the Closing Auction.
jspears on DSK121TN23PROD with NOTICES
Overview of Current Closing Auction
Process 4
Pursuant to NYSE Rule 104(a)(3),
DMMs have the responsibility to
facilitate the close of trading for each of
the securities in which the DMM is
registered, which may include
supplying liquidity as needed.5 NYSE
Rule 104(a)(3) further provides that
DMMs and DMM unit algorithms will
have access to aggregate order
information in order to comply with
their requirement to facilitate the close
of trading for each of the securities in
which the DMM is registered.
Accordingly, aggregate order
information about all orders eligible to
participate in the Closing Auction,
including the full quantity of Reserve
Orders 6 and Market-on-Close and Limiton-Close Order quantities, is available to
DMMs at each price point. This
information is available at the point of
sale to DMMs, and is also made
available to DMM unit algorithms in
connection with the electronic message
sent to a DMM unit algorithm to close
an assigned security electronically,
which is sent shortly after the end of
Core Trading Hours.
NYSE Rule 7.35B specifies the
process for DMM-facilitated Closing
Auctions. Pursuant to NYSE Rule
7.35B(a), it is the responsibility of each
DMM to ensure that registered securities
close as soon after the end of Core
Trading Hours as possible, while at the
same time not unduly hasty,
particularly when at a price disparity
from the Exchange Last Sale Price.7 As
provided for in NYSE Rule 7.35B(a)(2),
a DMM may enter or cancel DMM
4 The following NYSE rules describe the Closing
Auction process on the Exchange: NYSE Rule 7.31
(identifying the order types eligible to participate in
an Auction); NYSE Rule 7.35 (general rules and
definitions applicable to Auctions); NYSE Rule
7.35B (describing the process for DMM-facilitated
Closing Auctions); NYSE Rule 7.35C (describing the
process for Exchange-facilitated Auctions); and
NYSE Rule 104 (establishing DMM obligations with
respect to Closing Auctions and trading leading into
the Closing Auction).
5 The Exchange does not propose to change the
DMMs’ NYSE Rule 104 obligation to facilitate the
Closing Auction, including the obligation to supply
liquidity as needed.
6 Reserve Orders, including the non-displayed
reserve interest of such orders, are eligible to
participate in the Closing Auction. See NYSE Rule
7.35B(h)(2)(B) (describing the allocation ranking of
at-priced orders ranked Priority 3—Non-Displayed
Orders, which refers to the reserve interest of
Reserve Orders).
7 The term ‘‘Exchange Last Sale Price’’ is defined
in NYSE Rule 7.35(a)(12)(B) to mean the most
recent trade on the Exchange of a round lot or more
in a security during Core Trading Hours on that
trading day, and if none, the Official Closing Price
from the prior trading day for that security.
VerDate Sep<11>2014
17:30 Sep 12, 2022
Jkt 256001
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, and entry of DMM
Interest after the end of Core Trading
Hours is not subject to Limit Order Price
Protection. Pursuant to NYSE Rule
7.35B(c), the DMM may effectuate a
Closing Auction manually or
electronically. NYSE Rule 7.35B(g)
provides that the DMM is responsible
for determining the Auction Price for a
Closing Auction and that if there is an
Imbalance of any size, the DMM must
select an Auction Price at which all
better-priced orders on the Side of the
Imbalance can be satisfied.8
The following interest is eligible to
participate in a Closing Auction:
unexecuted buy and sell orders resting
on the Exchange Book at the end of Core
Trading Hours (including DMM
Orders); 9 Auction-Only Orders; 10 and
DMM Auction Liquidity entered by the
DMM in connection with facilitating the
Closing Auction.11
8 NYSE Rule 7.35C specifies the process for
Exchange-facilitated Auctions if a DMM cannot
facilitate an Auction in one or more securities in
which the DMM is registered. DMM Interest does
not participate in an Exchange-facilitated Closing
Auction trade. See NYSE Rule 7.35C(a)(1) (‘‘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.’’).
9 NYSE Rule 7.35(a)(9) defines ‘‘DMM Interest’’
for purposes of Auctions to mean all buy and sell
interest entered by a DMM unit in its assigned
securities and includes the following: (i) ‘‘DMM
Auction Liquidity,’’ which is non-displayed buy
and sell interest that is designated for an Auction
only (see NYSE Rule 7.35(a)(9)(A)); (ii) ‘‘DMM
Orders,’’ which are orders, as defined under NYSE
Rule 7.31, entered by a DMM unit (see NYSE Rule
7.35(a)(9)(B)); and (iii) ‘‘DMM After-Auction
Orders,’’ which are orders entered by a DMM unit
before either the Core Open Auction or Trading Halt
Auction that do not participate in an Auction and
are intended instead to maintain price continuity
with reasonable depth following an Auction (see
NYSE Rule 7.35(a)(9)(C)).
10 Auction-Only Orders available for the Closing
Auction are defined in NYSE Rule 7.31(c)(2)(A)–(D)
as the Limit-on-Close Order (‘‘LOC Order’’), Marketon-Close Order (‘‘MOC Order’’), Closing D Order,
and Closing Imbalance Offset Order (‘‘Closing IO
Order’’).
11 In 2021, NYSE Rule 7.35B was amended to
provide that Floor Broker Interest is no longer
eligible to participate in the Closing Auction. 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’’).
The term ‘‘Floor Broker Interest’’ is defined in
NYSE Rule 7.35(a)(10) to mean orders represented
orally by a Floor broker at the point of sale. The
Exchange states that, in light of the Floor Broker
Interest Approval Order, it proposes conforming
changes to Rules 7.35B(c)(1)(B), NYSE Rule
7.35B(j)(2), and NYSE Rule 7.35B(j)(2)(A)(iii). NYSE
Rule 7.35B(c)(1)(B) provides that a DMM may not
effect a Closing Auction electronically if, among
other things, Floor Broker Interest for the Closing
Auction that has been electronically entered or
requested to be canceled has not yet been accepted
PO 00000
Frm 00113
Fmt 4703
Sfmt 4703
Beginning 10 minutes before the
scheduled end of Core Trading Hours,
the Exchange begins disseminating
through its proprietary data feed Closing
Auction Imbalance Information that is
calculated based on the interest eligible
to participate in the Closing Auction.12
The Closing Auction Imbalance
Information includes the Continuous
Book Clearing Price, which is the price
at which all better-priced orders eligible
to trade in the Closing Auction on the
Side of the Imbalance can be traded.13
The Closing Auction Imbalance
Information also includes an Imbalance
Reference Price, which is the Exchange
Last Sale Price bounded by the
Exchange Best Bid and Offer.14
Beginning five minutes before the end of
Core Trading Hours, Closing D Orders
are included in the Closing Auction
Imbalance Information at their
undisplayed discretionary price.15 The
Closing Auction Imbalance Information
is updated at least every second (unless
there is no change to the information)
and is disseminated until the Closing
Auction begins.16 In addition, if at the
Closing Auction Imbalance Freeze
Time 17 the Closing Imbalance 18 is 500
round lots or more, the Exchange will
by the DMM. NYSE Rule 7.35B(j)(2) provides that,
to avoid closing price dislocation that may result
from an order entered into Exchange systems or
represented to a DMM orally at or near the end of
Core Trading Hours, the Exchange may temporarily
suspend the requirement to enter all order
instructions by the end of Core Trading Hours. The
Exchange states that, because it has eliminated
Floor Broker Interest at the close, it proposes to
delete NYSE Rule 7.35B(c)(1)(B) in its entirety. The
remaining subsections of NYSE Rule 7.35B(c)(1)
would be renumbered accordingly, and the
Exchange proposes conforming changes to NYSE
Rule 7.35B(j)(1)(A) and (B) to update the cross
references from NYSE Rule 7.35B(c)(1)(G) to NYSE
Rule 7.35B(c)(1)(F). The Exchange also proposes, for
the same reasons, to delete the phrase ‘‘or
represented to a DMM orally’’ in NYSE Rule
7.35B(j)(2) and the phrase ‘‘and Floor Broker
Interest’’ in NYSE Rule 7.35B(j)(2)(A)(iii).
12 See NYSE Rule 7.35B(e)(1)(A). DMM Orders, as
defined in NYSE Rule 7.35(d)(9)(B), that have been
entered by the DMM in advance of a Closing
Auction are currently included in the Closing
Auction Imbalance Information.
13 See NYSE Rule 7.35(a)(4)(C). In the case of a
buy Imbalance, the Continuous Book Clearing Price
would be the highest potential Closing Auction
Price and in the case of a sell Imbalance, the
Continuous Book Clearing Price would be the
lowest potential Closing Auction Price.
14 See NYSE Rule 7.35B(e)(3).
15 See NYSE Rule 7.35(b)(1)(C)(ii).
16 See NYSE Rule 7.35(c)(1) and (2).
17 See NYSE Rule 7.35(a)(8) (defining the
‘‘Closing Auction Imbalance Freeze Time’’ to be 10
minutes before the scheduled end of Core Trading
Hours).
18 As defined in NYSE Rule 7.35(a)(4)(A)(ii), a
‘‘Closing Imbalance’’ means the Imbalance of MOC
and LOC Orders to buy and MOC and LOC Orders
to sell. That Rule further defines a ‘‘Regulatory
Closing Imbalance’’ as a Closing Imbalance
disseminated at or after the Closing Auction
Imbalance Freeze Time.
E:\FR\FM\13SEN1.SGM
13SEN1
Federal Register / Vol. 87, No. 176 / Tuesday, September 13, 2022 / Notices
disseminate a Regulatory Closing
Imbalance to both the securities
information processor and proprietary
data feeds.19
Proposed Changes to the Closing
Auction Price
The Exchange proposes to amend
NYSE Rule 7.35B(g) to add explicit
price parameters to the Closing Auction
Price.20 The Exchange proposes that the
Closing Auction Price determined by
the DMM must be at a price that is at
or between the last-published Imbalance
Reference Price and the last-published
Continuous Book Clearing Price.21 The
Exchange also proposes related
clarifying and conforming changes.22
The Exchange states that the proposed
Closing Auction Price parameter would
be consistent with how the Closing
Auction Price has been determined for
the vast majority of Closing Auctions.
For example, the Exchange states,
during the period of January 1, 2021, to
June 17, 2022, 95.6% of all Closing
Auctions were priced at or between the
last-published Imbalance Reference
Price and the Continuous Book Clearing
Price. Similarly, the Exchange states
that, during the same period, 94.6% of
closing auction volume priced within
these parameters. Moreover, according
to the Exchange, of the 4.4% of Closing
Auctions that did not price within those
parameters, 73.6% closed at prices that
were only one or two cents away from
those boundaries.23 The Exchange states
that more recent Closing Auction data
also shows that auctions executing
within the proposed range resulted in
more representative prices for market
participants.24 The Exchange states that
19 See
NYSE Rule 7.35B(d)(1).
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.
21 See Proposed NYSE Rule 7.35B(g).
22 Specifically, the Exchange proposes to amend
NYSE Rule 7.35(a)(4) (which provides that if there
is no Imbalance of all orders eligible to trade in the
Auction, the Continuous Book Clearing Price will
be the Imbalance Reference Price) to clarify that if
the Imbalance Reference Price is in an increment
smaller than the minimum price variation (‘‘MPV’’)
for the security (e.g., the Exchange Last Sale Price
reflects a midpoint execution in a penny-spread
security), it will be rounded to the MPV for the
security. The Exchange would also make a
conforming change to NYSE Rule 7.35B(c)(1)(G) (to
be renumbered F), which provides that a DMM may
not effect a Closing Auction electronically if the
Closing Auction Price will be more than 10% away
from Exchange Last Sale Price. The Exchange
would replace Exchange Last Sale Price with lastpublished Imbalance Reference Price.
23 More specifically, the Exchanges states that
59.6% were one cent away and 14.0% were two
cents away.
24 The Exchange states that, during the last
quarter of 2021 and year to date, 95.0% of Closing
Auctions occurred within the proposed pricing
jspears on DSK121TN23PROD with NOTICES
20 The
VerDate Sep<11>2014
17:30 Sep 12, 2022
Jkt 256001
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 believes this
this proposed change would 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.25
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 modifying how a
DMM could enter or cancel interest after
the end of Core Trading Hours.26
parameters and that these numbers did not
materially change for volatile trading days. For
example, the Exchange states that in the December
2021 quarterly rebalance, 96.5% of Closing
Auctions occurred within this range, and in the
March 2022 quarterly rebalance, 95.6% of Closing
Auctions occurred within the range. According to
the Exchange, Closing Auctions pricing outside the
range were mostly within 2 cents of the range; only
1% of all auctions occurred more than 2 cents
outside the range. The Exchange states that, for
instance, in the December 2021 quarterly rebalance,
just 0.6% of all Closing Auctions occurred more
than 2 cents outside the range, and in the more
volatile March 2022 rebalance, just 1.2% of Closing
Auctions occurred more than 2 cents outside the
range. The Exchange states that Closing Auctions
executing within the proposed range during the
same period (excluding rebalance days) were 11.3%
closer to the consolidated two-minute VWAP price
benchmark than Closing Auctions that priced
outside of the proposed range, i.e., Closing Auctions
executing within the proposed range were more in
line with the range of continuous trading leading
into the close. The Exchange states that this was
true for rebalance days as well: During the
December 2021 rebalance, Closing Auctions
executing within the proposed range were 14%
closer to the VWAP benchmark, and during the
March 2022 rebalance, Closing Auctions executing
within the proposed range were 40% closer to the
VWAP benchmark.
25 The only circumstance when 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.
26 Currently, NYSE Rule 7.35B(a)(2) provides that
a DMM may enter or 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 Rule, the Exchange
does not systematically block a DMM from entering
or canceling DMM Interest after the end of Core
Trading Hours. Instead, the Exchange states that the
DMM’s determination of whether to enter or cancel
DMM Interest after the end of Core Trading Hours
is subject to the DMM’s obligation to maintain a fair
and orderly market, as specified in NYSE Rule 104.
PO 00000
Frm 00114
Fmt 4703
Sfmt 4703
56101
Specifically, 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 DMM
Auction Liquidity only in order to
supply liquidity as needed to meet the
DMM’s obligation to facilitate the
Closing Auction in a fair and orderly
manner.27 As proposed, a DMM could
enter DMM Auction Liquidity after the
end of Core Trading Hours only to close
a security within the proposed new
price parameters, described above.28
The Exchanges states that, because only
DMM Auction Liquidity could be
entered after the end of Core Trading
Hours, such interest could be either
entered electronically in response to the
electronic message sent to a DMM unit
algorithm to close an assigned security
or entered manually.
The Exchange proposes that DMM
Orders (i.e., DMM buy and sell orders
resting on the Exchange Book) would
not be eligible to participate in the
Closing Auction.29 Because DMM
Orders would not participate in the
Closing Auction, the Exchange further
proposes that this interest would not be
included in the calculation of the
Continuous Book Clearing Price.30 The
Exchange states that, with this proposed
change, the Continuous Book Clearing
Price would be based on non-DMM
interest eligible to participate in the
Closing Auction. Finally, the Exchange
states that because, as proposed, resting
DMM Orders would not participate in
the Closing Auction, the Exchange also
proposes to cancel DMM Orders at the
end of Core Trading Hours.31
27 See
Proposed NYSE Rule 7.35B(a)(2).
example, the Exchange states that, 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 $10.00
to $10.10. The Exchange states it does not propose
to systematically prescribe whether such interest
must be offsetting to the last-published Imbalance
because DMM same-side interest could result in
more orders participating in the Closing Auction.
For example, the Exchange states that DMM
Auction Liquidity entered on the same side of the
Imbalance could result in greater liquidity being
supplied by the DMM to trade with at-priced
orders, which are not included in the calculation
of the Imbalance. The Exchange states that, in such
a scenario, even though the DMM may be
participating on the same-side of the imbalance,
such interest would not move the Closing Price
outside the Continuous Book Clearing Price.
29 See Proposed NYSE Rule 7.35B(a)(2). 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.
30 See Proposed NYSE Rule 7.35B(a)(2).
31 See Proposed NYSE Rule 7.35B(a)(2).The
Exchange states that, as it understands, it is current
practice for DMMs to cancel their DMM Orders at
28 For
E:\FR\FM\13SEN1.SGM
Continued
13SEN1
56102
Federal Register / Vol. 87, No. 176 / Tuesday, September 13, 2022 / Notices
The Exchange states that, in
connection with the Closing Auction,
with this proposed change to NYSE
Rule 7.35B(a)(2), DMMs would still be
required, consistent with their
obligations under NYSE Rule 104, to
contribute their own capital to supply
liquidity as needed to assist in the
maintenance of a fair and orderly
market. DMMs would also 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.
jspears on DSK121TN23PROD with NOTICES
Proposed Conforming and NonSubstantive Amendments
The Exchange proposes to amend
NYSE Rule 104 to eliminate obsolete
rule text and update rule references, and
to make other conforming changes to
NYSE Rules 7.31 and 104 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, as obsolete, the
reference to NYSE Rule 13 and Reserve
Order interest procedures at the
opening. 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, as the
Exchange states this is also obsolete
now that the Exchange trades on Pillar.
• 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, as obsolete, the reference to
NYSE Rule 13 and Reserve Order
interest procedures at the close.
• 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 NYSE Rule 7.31, DMM unit
algorithms may use the orders and
modifiers set forth in NYSE Rule
7.31.’’ 32
the end of Core Trading Hours. The Exchange also
proposes a related amendment to delete as moot the
phrase ‘‘or cancel’’ in the first sentence of NYSE
Rule 7.35B(a)(2).
32 NYSE Rule 104(b)(2) currently provides that
‘‘Exchange systems shall enforce the proper
sequencing of incoming orders and algorithmicallygenerated 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
VerDate Sep<11>2014
17:30 Sep 12, 2022
Jkt 256001
• The Exchange proposes to amend
NYSE Rule 7.31(a)(3) to reflect that
Inside Limit Orders are not available to
DMMs,33 because all of the orders and
modifiers set forth in NYSE Rule
104(b)(6) that are unavailable to DMMs
are reflected in NYSE Rule 7.31 except
for Inside Limit Orders, which
limitation was added only to NYSE Rule
104(b)(6).34
• The Exchange proposes to amend
NYSE Rule 104(b)(3) to delete references
to ‘‘Floor broker agency interest files or
reserve interest,’’ as the Exchange states
that these references are now obsolete.35
• The Exchange proposes to amend
NYSE Rule 104(b) by deleting
subparagraph (4).36 The Exchanges
states that, with the transition to Pillar,
the Exchange 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. The Exchange states
that, accordingly, this current rule is
obsolete. The Exchange proposes a nonsubstantive amendment to renumber
NYSE Rule 104(b)(5) as NYSE Rule
104(b)(4).
• The Exchange proposes to delete
the text accompanying current Rules
104(c), (d), and (e) as obsolete now that
the Exchange trades on Pillar.37 With
interest, the resting DMM interest will be
cancelled.’’ The Exchange states that, since the
Exchange transitioned to Pillar, the Exchange no
longer enforces self-trade prevention on behalf of
DMMs. Instead, DMMs may use one of the SelfTrade Prevention Modifiers (‘‘STP’’) described in
NYSE Rule 7.31(i)(2). In addition, NYSE Rule
104(b)(6) currently provides that ‘‘DMM Units may
not enter the following orders and modifiers:
Market Orders, Inside Limit Orders, MOO Orders,
CO Orders, MOC Orders, LOC Orders, or Last Sale
Peg Orders.’’ The Exchange states that because in
the Pillar rules NYSE Rule 7.31 sets forth which
orders and modifiers are not available to DMMs,
NYSE Rule 104(b)(6) is therefore obsolete.
33 The Exchange states that the proposed new text
for NYSE Rule 104(b)(2) would provide
transparency that NYSE Rule 7.31 would describe
which orders and modifiers would be available to
DMMs, including STP modifiers.
34 See Securities Exchange Act Release No. 94030
(January 24, 2022), 87 FR 4695, 4696 (Jan. 28, 2022)
(SR–NYSE–2022–05) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
To Modify NYSE Rule 7.31 To Provide for Inside
Limit Orders and Make Other Conforming Changes).
35 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 member organizations, as described
in NYSE Rule 7.31.
36 NYSE Rule 104(b)(4) currently provides that
‘‘[t]he DMM unit’s algorithm may place within
Exchange systems trading interest to be known as
a ‘Capital Commitment Schedule’. (See NYSE Rule
1000 concerning the operation of the Capital
Commitment Schedule).’’
37 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
PO 00000
Frm 00115
Fmt 4703
Sfmt 4703
these proposed deletions, the Exchange
proposes non-substantive amendments
to renumber 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).
• 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.38
The Exchange proposes that the nonsubstantive amendments to NYSE Rule
104 would be operative immediately
upon approval of this proposed rule
change. The Exchange states, that,
because of the technology changes
associated with the proposed changes to
NYSE Rule 7.35B, it proposes that,
subject to approval of the proposed rule
change, the Exchange will announce the
implementation date of the remaining
proposed rule changes by Trader
Update.39
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
transactions.’’ The Exchange states that NYSE Rule
7.31 now describes how Reserve Orders function.
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 [NYSE] Rule 1000).’’ The Exchange
states that 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,
as described above, with Pillar, the Exchange has
deleted NYSE Rule 1000 and no longer offers the
Capital Commitment Schedule to DMMs. 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.’’ The Exchange states that this requirement
is obsolete.
38 Specifically, the Exchange states that 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
NYSE Rule 104(e)(ii) to delete this rule text.
39 Subject to approval of this proposed rule
change, the Exchange states that it anticipates that
these changes will be implemented in the fourth
quarter of 2022. See Notice, supra note 3, 87 FR at
45386.
E:\FR\FM\13SEN1.SGM
13SEN1
Federal Register / Vol. 87, No. 176 / Tuesday, September 13, 2022 / Notices
jspears on DSK121TN23PROD with NOTICES
securities exchange.40 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,41 which requires,
among other things, that the rules of a
national securities exchange be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to 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; and
that the rules of a national securities
exchange are not designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
As described above, the DMM is
responsible for determining the Auction
Price for the Closing Auctions in its
assigned securities, and if there is an
Imbalance of any size, the DMM must
select an Auction Price that is able to
satisfy all better-priced orders on the
Side of the Imbalance. 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 the last-published
Continuous Book Clearing Price. The
Exchange has included statistics in its
proposal showing that the proposed
Closing Auction Price parameters are,
for the vast majority of Closing
Auctions, consistent with how the
Closing Auction Price has been
determined under the current rules.42
The Exchange has also included
statistics in its proposal showing that, as
to more recent Closing Auction data,
auctions executing within the proposed
range resulted in more representative
prices for market participants.43
The Exchange also proposes that
DMM Orders would not participate in
the Closing Auction or factor into the
calculation of the Continuous Book
Clearing Price and that, after the end of
Core Trading Hours, a DMM would be
able to enter DMM Auction Liquidity
only in order to supply liquidity as
needed to meet the DMM’s obligation to
facilitate the Closing Auction in a fair
and orderly manner within the
proposed pricing parameters.
40 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
41 15 U.S.C. 78f(b)(5).
42 See Section II supra.
43 The Exchange also included statistics in its
proposal showing that during the last quarter of
2021 and year to date, 95.0% of Closing Auctions
occurred within the proposed pricing parameters,
and that these numbers did not materially change
for volatile trading days.
VerDate Sep<11>2014
17:30 Sep 12, 2022
Jkt 256001
The Commission finds that the
proposed pricing parameters for
determining the Closing Auction Price,
as well as the proposed limitation on
the entry of DMM interest (specifically,
DMM Auction Liquidity) after the close
of regular trading, are reasonably
designed to (1) limit the price range
within which a DMM can facilitate the
Closing Auction in its assigned
securities to a price range that reflects
the natural forces of supply and demand
for a security in the Closing Auction;
and (2) enhance transparency and
certainty for market participants with
respect to the Closing Auction. The
proposed price parameters and
limitation on DMM Auction Liquidity
are therefore reasonably designed to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system. Moreover,
by providing that DMM Orders will
neither participate in the Closing
Auction nor figure into the calculation
of the Continuous Book Clearing Price—
one of the proposed pricing parameters
for the Closing Auction—the Exchange’s
proposal would limit the extent to
which a DMM could influence the price
parameters for the Closing Auction
Price, which is reasonably designed to
prevent fraudulent and manipulative
acts and practices. The Commission
further finds that the other conforming
and non-substantive changes proposed
by the Exchange are consistent with the
substantive changes discussed above
and do not raise any regulatory issues.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,44 that the
proposed rule change (SR–NYSE–2022–
32) be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.45
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–19682 Filed 9–12–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–95694; File No. SR–
NYSEAMER–2022–39]
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Modify the NYSE
American Options Fee Schedule
September 7, 2022.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on August
31, 2022, NYSE American LLC (‘‘NYSE
American’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to modify the
NYSE American Options Fee Schedule
(‘‘Fee Schedule’’) regarding credits for
certain Qualified Contingent Cross
(‘‘QCC’’) transactions and to make an
administrative change. The Exchange
proposes to implement the fee change
effective September 1, 2022. The
proposed rule change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
1 15
44 Id.
45 17
PO 00000
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
CFR 200.30–3(a)(12).
Frm 00116
Fmt 4703
Sfmt 4703
56103
E:\FR\FM\13SEN1.SGM
13SEN1
]]>Agencies
[Federal Register Volume 87, Number 176 (Tuesday, September 13, 2022)]
[Notices]
[Pages 56099-56103]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-19682]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95691; File No. SR-NYSE-2022-32]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Approving a Proposed Rule Change To Amend NYSE Rule 7.35B Relating to
the Closing Auction and Make Certain Conforming and Non-Substantive
Changes to NYSE Rules 7.31, 7.35, 7.35B and 104
September 7, 2022.
I. Introduction
On July 13, 2022, 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 NYSE Rule 7.35B (DMM-Facilitated Closing
Auctions) relating to the Closing Auction, and make certain conforming
and non-substantive changes to NYSE Rules 7.31 (Orders and Modifiers),
7.35 (General), 7.35B, and NYSE Rule 104 (Dealings and Responsibilities
of DMMs). The proposed rule change was published for comment in the
Federal Register on July 28, 2022.\3\ The Commission has received no
comment letters on the proposed rule change. This order approves the
proposal.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 95354 (July 22,
2022), 87 FR 45382 (July 28, 2022) (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposal
The Exchange proposes to amend NYSE Rule 7.35B to add price
parameters within which Designated Market Makers (``DMMs'') must select
a Closing Auction Price when facilitation the Closing Auctions in their
assigned securities. As described below, the Closing Auction Price
determined by the DMM must be at a price that is at or between the
last-published Imbalance Reference Price and the last-published
Continuous Book Clearing Price. Further, the Exchange proposes to
modify how the DMM would participate in the Closing Auction by
canceling any resting DMM Orders at the end of Core Trading Hours. The
Exchange also proposes to make conforming changes to other affected
rules.
The Exchange states that the proposed changes would make the
Closing Auction more transparent and deterministic while retaining the
[[Page 56100]]
DMMs' unique obligation to facilitate the Closing Auction.
Overview of Current Closing Auction Process \4\
---------------------------------------------------------------------------
\4\ The following NYSE rules describe the Closing Auction
process on the Exchange: NYSE Rule 7.31 (identifying the order types
eligible to participate in an Auction); NYSE Rule 7.35 (general
rules and definitions applicable to Auctions); NYSE Rule 7.35B
(describing the process for DMM-facilitated Closing Auctions); NYSE
Rule 7.35C (describing the process for Exchange-facilitated
Auctions); and NYSE Rule 104 (establishing DMM obligations with
respect to Closing Auctions and trading leading into the Closing
Auction).
---------------------------------------------------------------------------
Pursuant to NYSE Rule 104(a)(3), DMMs have the responsibility to
facilitate the close of trading for each of the securities in which the
DMM is registered, which may include supplying liquidity as needed.\5\
NYSE Rule 104(a)(3) further provides that DMMs and DMM unit algorithms
will have access to aggregate order information in order to comply with
their requirement to facilitate the close of trading for each of the
securities in which the DMM is registered. Accordingly, aggregate order
information about all orders eligible to participate in the Closing
Auction, including the full quantity of Reserve Orders \6\ and Market-
on-Close and Limit-on-Close Order quantities, is available to DMMs at
each price point. This information is available at the point of sale to
DMMs, and is also made available to DMM unit algorithms in connection
with the electronic message sent to a DMM unit algorithm to close an
assigned security electronically, which is sent shortly after the end
of Core Trading Hours.
---------------------------------------------------------------------------
\5\ The Exchange does not propose to change the DMMs' NYSE Rule
104 obligation to facilitate the Closing Auction, including the
obligation to supply liquidity as needed.
\6\ Reserve Orders, including the non-displayed reserve interest
of such orders, are eligible to participate in the Closing Auction.
See NYSE Rule 7.35B(h)(2)(B) (describing the allocation ranking of
at-priced orders ranked Priority 3--Non-Displayed Orders, which
refers to the reserve interest of Reserve Orders).
---------------------------------------------------------------------------
NYSE Rule 7.35B specifies the process for DMM-facilitated Closing
Auctions. Pursuant to NYSE Rule 7.35B(a), it is the responsibility of
each DMM to ensure that registered securities close as soon after the
end of Core Trading Hours as possible, while at the same time not
unduly hasty, particularly when at a price disparity from the Exchange
Last Sale Price.\7\ As provided for in NYSE Rule 7.35B(a)(2), a DMM may
enter or 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, and entry
of DMM Interest after the end of Core Trading Hours is not subject to
Limit Order Price Protection. Pursuant to NYSE Rule 7.35B(c), the DMM
may effectuate a Closing Auction manually or electronically. NYSE Rule
7.35B(g) provides that the DMM is responsible for determining the
Auction Price for a Closing Auction and that if there is an Imbalance
of any size, the DMM must select an Auction Price at which all better-
priced orders on the Side of the Imbalance can be satisfied.\8\
---------------------------------------------------------------------------
\7\ The term ``Exchange Last Sale Price'' is defined in NYSE
Rule 7.35(a)(12)(B) to mean the most recent trade on the Exchange of
a round lot or more in a security during Core Trading Hours on that
trading day, and if none, the Official Closing Price from the prior
trading day for that security.
\8\ NYSE Rule 7.35C specifies the process for Exchange-
facilitated Auctions if a DMM cannot facilitate an Auction in one or
more securities in which the DMM is registered. DMM Interest does
not participate in an Exchange-facilitated Closing Auction trade.
See NYSE Rule 7.35C(a)(1) (``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 following interest is eligible to participate in a Closing
Auction: unexecuted buy and sell orders resting on the Exchange Book at
the end of Core Trading Hours (including DMM Orders); \9\ Auction-Only
Orders; \10\ and DMM Auction Liquidity entered by the DMM in connection
with facilitating the Closing Auction.\11\
---------------------------------------------------------------------------
\9\ NYSE Rule 7.35(a)(9) defines ``DMM Interest'' for purposes
of Auctions to mean all buy and sell interest entered by a DMM unit
in its assigned securities and includes the following: (i) ``DMM
Auction Liquidity,'' which is non-displayed buy and sell interest
that is designated for an Auction only (see NYSE Rule
7.35(a)(9)(A)); (ii) ``DMM Orders,'' which are orders, as defined
under NYSE Rule 7.31, entered by a DMM unit (see NYSE Rule
7.35(a)(9)(B)); and (iii) ``DMM After-Auction Orders,'' which are
orders entered by a DMM unit before either the Core Open Auction or
Trading Halt Auction that do not participate in an Auction and are
intended instead to maintain price continuity with reasonable depth
following an Auction (see NYSE Rule 7.35(a)(9)(C)).
\10\ Auction-Only Orders available for the Closing Auction are
defined in NYSE Rule 7.31(c)(2)(A)-(D) as the Limit-on-Close Order
(``LOC Order''), Market-on-Close Order (``MOC Order''), Closing D
Order, and Closing Imbalance Offset Order (``Closing IO Order'').
\11\ In 2021, NYSE Rule 7.35B was amended to provide that Floor
Broker Interest is no longer eligible to participate in the Closing
Auction. 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''). The term ``Floor Broker Interest'' is
defined in NYSE Rule 7.35(a)(10) to mean orders represented orally
by a Floor broker at the point of sale. The Exchange states that, in
light of the Floor Broker Interest Approval Order, it proposes
conforming changes to Rules 7.35B(c)(1)(B), NYSE Rule 7.35B(j)(2),
and NYSE Rule 7.35B(j)(2)(A)(iii). NYSE Rule 7.35B(c)(1)(B) provides
that a DMM may not effect a Closing Auction electronically if, among
other things, Floor Broker Interest for the Closing Auction that has
been electronically entered or requested to be canceled has not yet
been accepted by the DMM. NYSE Rule 7.35B(j)(2) provides that, to
avoid closing price dislocation that may result from an order
entered into Exchange systems or represented to a DMM orally at or
near the end of Core Trading Hours, the Exchange may temporarily
suspend the requirement to enter all order instructions by the end
of Core Trading Hours. The Exchange states that, because it has
eliminated Floor Broker Interest at the close, it proposes to delete
NYSE Rule 7.35B(c)(1)(B) in its entirety. The remaining subsections
of NYSE Rule 7.35B(c)(1) would be renumbered accordingly, and the
Exchange proposes conforming changes to NYSE Rule 7.35B(j)(1)(A) and
(B) to update the cross references from NYSE Rule 7.35B(c)(1)(G) to
NYSE Rule 7.35B(c)(1)(F). The Exchange also proposes, for the same
reasons, to delete the phrase ``or represented to a DMM orally'' in
NYSE Rule 7.35B(j)(2) and the phrase ``and Floor Broker Interest''
in NYSE Rule 7.35B(j)(2)(A)(iii).
---------------------------------------------------------------------------
Beginning 10 minutes before the scheduled end of Core Trading
Hours, the Exchange begins disseminating through its proprietary data
feed Closing Auction Imbalance Information that is calculated based on
the interest eligible to participate in the Closing Auction.\12\ The
Closing Auction Imbalance Information includes the Continuous Book
Clearing Price, which is the price at which all better-priced orders
eligible to trade in the Closing Auction on the Side of the Imbalance
can be traded.\13\ The Closing Auction Imbalance Information also
includes an Imbalance Reference Price, which is the Exchange Last Sale
Price bounded by the Exchange Best Bid and Offer.\14\ Beginning five
minutes before the end of Core Trading Hours, Closing D Orders are
included in the Closing Auction Imbalance Information at their
undisplayed discretionary price.\15\ The Closing Auction Imbalance
Information is updated at least every second (unless there is no change
to the information) and is disseminated until the Closing Auction
begins.\16\ In addition, if at the Closing Auction Imbalance Freeze
Time \17\ the Closing Imbalance \18\ is 500 round lots or more, the
Exchange will
[[Page 56101]]
disseminate a Regulatory Closing Imbalance to both the securities
information processor and proprietary data feeds.\19\
---------------------------------------------------------------------------
\12\ See NYSE Rule 7.35B(e)(1)(A). DMM Orders, as defined in
NYSE Rule 7.35(d)(9)(B), that have been entered by the DMM in
advance of a Closing Auction are currently included in the Closing
Auction Imbalance Information.
\13\ See NYSE Rule 7.35(a)(4)(C). In the case of a buy
Imbalance, the Continuous Book Clearing Price would be the highest
potential Closing Auction Price and in the case of a sell Imbalance,
the Continuous Book Clearing Price would be the lowest potential
Closing Auction Price.
\14\ See NYSE Rule 7.35B(e)(3).
\15\ See NYSE Rule 7.35(b)(1)(C)(ii).
\16\ See NYSE Rule 7.35(c)(1) and (2).
\17\ See NYSE Rule 7.35(a)(8) (defining the ``Closing Auction
Imbalance Freeze Time'' to be 10 minutes before the scheduled end of
Core Trading Hours).
\18\ As defined in NYSE Rule 7.35(a)(4)(A)(ii), a ``Closing
Imbalance'' means the Imbalance of MOC and LOC Orders to buy and MOC
and LOC Orders to sell. That Rule further defines a ``Regulatory
Closing Imbalance'' as a Closing Imbalance disseminated at or after
the Closing Auction Imbalance Freeze Time.
\19\ See NYSE Rule 7.35B(d)(1).
---------------------------------------------------------------------------
Proposed Changes to the Closing Auction Price
The Exchange proposes to amend NYSE Rule 7.35B(g) to add explicit
price parameters to the Closing Auction Price.\20\ The Exchange
proposes that the Closing Auction Price determined by the DMM must be
at a price that is at or between the last-published Imbalance Reference
Price and the last-published Continuous Book Clearing Price.\21\ The
Exchange also proposes related clarifying and conforming changes.\22\
---------------------------------------------------------------------------
\20\ 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.
\21\ See Proposed NYSE Rule 7.35B(g).
\22\ Specifically, the Exchange proposes to amend NYSE Rule
7.35(a)(4) (which provides that if there is no Imbalance of all
orders eligible to trade in the Auction, the Continuous Book
Clearing Price will be the Imbalance Reference Price) to clarify
that if the Imbalance Reference Price is in an increment smaller
than the minimum price variation (``MPV'') for the security (e.g.,
the Exchange Last Sale Price reflects a midpoint execution in a
penny-spread security), it will be rounded to the MPV for the
security. The Exchange would also make a conforming change to NYSE
Rule 7.35B(c)(1)(G) (to be renumbered F), which provides that a DMM
may not effect a Closing Auction electronically if the Closing
Auction Price will be more than 10% away from Exchange Last Sale
Price. The Exchange would replace Exchange Last Sale Price with
last-published Imbalance Reference Price.
---------------------------------------------------------------------------
The Exchange states that the proposed Closing Auction Price
parameter would be consistent with how the Closing Auction Price has
been determined for the vast majority of Closing Auctions. For example,
the Exchange states, during the period of January 1, 2021, to June 17,
2022, 95.6% of all Closing Auctions were priced at or between the last-
published Imbalance Reference Price and the Continuous Book Clearing
Price. Similarly, the Exchange states that, during the same period,
94.6% of closing auction volume priced within these parameters.
Moreover, according to the Exchange, of the 4.4% of Closing Auctions
that did not price within those parameters, 73.6% closed at prices that
were only one or two cents away from those boundaries.\23\ The Exchange
states that more recent Closing Auction data also shows that auctions
executing within the proposed range resulted in more representative
prices for market participants.\24\ The Exchange states that 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 believes this
this proposed change would 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.\25\
---------------------------------------------------------------------------
\23\ More specifically, the Exchanges states that 59.6% were one
cent away and 14.0% were two cents away.
\24\ The Exchange states that, during the last quarter of 2021
and year to date, 95.0% of Closing Auctions occurred within the
proposed pricing parameters and that these numbers did not
materially change for volatile trading days. For example, the
Exchange states that in the December 2021 quarterly rebalance, 96.5%
of Closing Auctions occurred within this range, and in the March
2022 quarterly rebalance, 95.6% of Closing Auctions occurred within
the range. According to the Exchange, Closing Auctions pricing
outside the range were mostly within 2 cents of the range; only 1%
of all auctions occurred more than 2 cents outside the range. The
Exchange states that, for instance, in the December 2021 quarterly
rebalance, just 0.6% of all Closing Auctions occurred more than 2
cents outside the range, and in the more volatile March 2022
rebalance, just 1.2% of Closing Auctions occurred more than 2 cents
outside the range. The Exchange states that Closing Auctions
executing within the proposed range during the same period
(excluding rebalance days) were 11.3% closer to the consolidated
two-minute VWAP price benchmark than Closing Auctions that priced
outside of the proposed range, i.e., Closing Auctions executing
within the proposed range were more in line with the range of
continuous trading leading into the close. The Exchange states that
this was true for rebalance days as well: During the December 2021
rebalance, Closing Auctions executing within the proposed range were
14% closer to the VWAP benchmark, and during the March 2022
rebalance, Closing Auctions executing within the proposed range were
40% closer to the VWAP benchmark.
\25\ The only circumstance when 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.
---------------------------------------------------------------------------
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 modifying
how a DMM could enter or cancel interest after the end of Core Trading
Hours.\26\ Specifically, 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 DMM Auction Liquidity only in order to supply liquidity as
needed to meet the DMM's obligation to facilitate the Closing Auction
in a fair and orderly manner.\27\ As proposed, a DMM could enter DMM
Auction Liquidity after the end of Core Trading Hours only to close a
security within the proposed new price parameters, described above.\28\
The Exchanges states that, because only DMM Auction Liquidity could be
entered after the end of Core Trading Hours, such interest could be
either entered electronically in response to the electronic message
sent to a DMM unit algorithm to close an assigned security or entered
manually.
---------------------------------------------------------------------------
\26\ Currently, NYSE Rule 7.35B(a)(2) provides that a DMM may
enter or 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 Rule, the
Exchange does not systematically block a DMM from entering or
canceling DMM Interest after the end of Core Trading Hours. Instead,
the Exchange states that the DMM's determination of whether to enter
or cancel DMM Interest after the end of Core Trading Hours is
subject to the DMM's obligation to maintain a fair and orderly
market, as specified in NYSE Rule 104.
\27\ See Proposed NYSE Rule 7.35B(a)(2).
\28\ For example, the Exchange states that, 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 $10.00 to
$10.10. The Exchange states it does not propose to systematically
prescribe whether such interest must be offsetting to the last-
published Imbalance because DMM same-side interest could result in
more orders participating in the Closing Auction. For example, the
Exchange states that DMM Auction Liquidity entered on the same side
of the Imbalance could result in greater liquidity being supplied by
the DMM to trade with at-priced orders, which are not included in
the calculation of the Imbalance. The Exchange states that, in such
a scenario, even though the DMM may be participating on the same-
side of the imbalance, such interest would not move the Closing
Price outside the Continuous Book Clearing Price.
---------------------------------------------------------------------------
The Exchange proposes that DMM Orders (i.e., DMM buy and sell
orders resting on the Exchange Book) would not be eligible to
participate in the Closing Auction.\29\ Because DMM Orders would not
participate in the Closing Auction, the Exchange further proposes that
this interest would not be included in the calculation of the
Continuous Book Clearing Price.\30\ The Exchange states that, with this
proposed change, the Continuous Book Clearing Price would be based on
non-DMM interest eligible to participate in the Closing Auction.
Finally, the Exchange states that because, as proposed, resting DMM
Orders would not participate in the Closing Auction, the Exchange also
proposes to cancel DMM Orders at the end of Core Trading Hours.\31\
---------------------------------------------------------------------------
\29\ See Proposed NYSE Rule 7.35B(a)(2). 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.
\30\ See Proposed NYSE Rule 7.35B(a)(2).
\31\ See Proposed NYSE Rule 7.35B(a)(2).The Exchange states
that, as it understands, it is current practice for DMMs to cancel
their DMM Orders at the end of Core Trading Hours. The Exchange also
proposes a related amendment to delete as moot the phrase ``or
cancel'' in the first sentence of NYSE Rule 7.35B(a)(2).
---------------------------------------------------------------------------
[[Page 56102]]
The Exchange states that, in connection with the Closing Auction,
with this proposed change to NYSE Rule 7.35B(a)(2), DMMs would still be
required, consistent with their obligations under NYSE Rule 104, to
contribute their own capital to supply liquidity as needed to assist in
the maintenance of a fair and orderly market. DMMs would also 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.
Proposed Conforming and Non-Substantive Amendments
The Exchange proposes to amend NYSE Rule 104 to eliminate obsolete
rule text and update rule references, and to make other conforming
changes to NYSE Rules 7.31 and 104 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, as obsolete, the reference to NYSE Rule 13 and
Reserve Order interest procedures at the opening. 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, as the Exchange states this is also obsolete now that the
Exchange trades on Pillar.
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, as obsolete, the reference to
NYSE Rule 13 and Reserve Order interest procedures at the close.
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 NYSE Rule
7.31, DMM unit algorithms may use the orders and modifiers set forth in
NYSE Rule 7.31.'' \32\
---------------------------------------------------------------------------
\32\ 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 the
Exchange transitioned to Pillar, the Exchange no longer enforces
self-trade prevention on behalf of DMMs. Instead, DMMs may use one
of the Self-Trade Prevention Modifiers (``STP'') described in NYSE
Rule 7.31(i)(2). In addition, NYSE Rule 104(b)(6) currently provides
that ``DMM Units may not enter the following orders and modifiers:
Market Orders, Inside Limit Orders, MOO Orders, CO Orders, MOC
Orders, LOC Orders, or Last Sale Peg Orders.'' The Exchange states
that because in the Pillar rules NYSE Rule 7.31 sets forth which
orders and modifiers are not available to DMMs, NYSE Rule 104(b)(6)
is therefore obsolete.
---------------------------------------------------------------------------
The Exchange proposes to amend NYSE Rule 7.31(a)(3) to
reflect that Inside Limit Orders are not available to DMMs,\33\ because
all of the orders and modifiers set forth in NYSE Rule 104(b)(6) that
are unavailable to DMMs are reflected in NYSE Rule 7.31 except for
Inside Limit Orders, which limitation was added only to NYSE Rule
104(b)(6).\34\
---------------------------------------------------------------------------
\33\ The Exchange states that the proposed new text for NYSE
Rule 104(b)(2) would provide transparency that NYSE Rule 7.31 would
describe which orders and modifiers would be available to DMMs,
including STP modifiers.
\34\ See Securities Exchange Act Release No. 94030 (January 24,
2022), 87 FR 4695, 4696 (Jan. 28, 2022) (SR-NYSE-2022-05) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Modify
NYSE Rule 7.31 To Provide for Inside Limit Orders and Make Other
Conforming Changes).
---------------------------------------------------------------------------
The Exchange proposes to amend NYSE Rule 104(b)(3) to
delete references to ``Floor broker agency interest files or reserve
interest,'' as the Exchange states that these references are now
obsolete.\35\
---------------------------------------------------------------------------
\35\ 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 member organizations, as described in NYSE Rule
7.31.
---------------------------------------------------------------------------
The Exchange proposes to amend NYSE Rule 104(b) by
deleting subparagraph (4).\36\ The Exchanges states that, with the
transition to Pillar, the Exchange 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. The Exchange
states that, accordingly, this current rule is obsolete. The Exchange
proposes a non-substantive amendment to renumber NYSE Rule 104(b)(5) as
NYSE Rule 104(b)(4).
---------------------------------------------------------------------------
\36\ NYSE Rule 104(b)(4) currently provides that ``[t]he DMM
unit's algorithm may place within Exchange systems trading interest
to be known as a `Capital Commitment Schedule'. (See NYSE Rule 1000
concerning the operation of the Capital Commitment Schedule).''
---------------------------------------------------------------------------
The Exchange proposes to delete the text accompanying
current Rules 104(c), (d), and (e) as obsolete now that the Exchange
trades on Pillar.\37\ With these proposed deletions, the Exchange
proposes non-substantive amendments to renumber 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).
---------------------------------------------------------------------------
\37\ 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. 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 [NYSE] Rule 1000).'' The Exchange states that
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, as described above, with Pillar, the Exchange
has deleted NYSE Rule 1000 and no longer offers the Capital
Commitment Schedule to DMMs. 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.'' The Exchange states that this requirement is obsolete.
---------------------------------------------------------------------------
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.\38\
---------------------------------------------------------------------------
\38\ Specifically, the Exchange states that 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 NYSE Rule
104(e)(ii) to delete this rule text.
---------------------------------------------------------------------------
The Exchange proposes that the non-substantive amendments to NYSE
Rule 104 would be operative immediately upon approval of this proposed
rule change. The Exchange states, that, because of the technology
changes associated with the proposed changes to NYSE Rule 7.35B, it
proposes that, subject to approval of the proposed rule change, the
Exchange will announce the implementation date of the remaining
proposed rule changes by Trader Update.\39\
---------------------------------------------------------------------------
\39\ Subject to approval of this proposed rule change, the
Exchange states that it anticipates that these changes will be
implemented in the fourth quarter of 2022. See Notice, supra note 3,
87 FR at 45386.
---------------------------------------------------------------------------
III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national
[[Page 56103]]
securities exchange.\40\ In particular, the Commission finds that the
proposed rule change is consistent with Section 6(b)(5) of the Act,\41\
which requires, among other things, that the rules of a national
securities exchange be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to 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; and that the rules of a national
securities exchange are not designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\40\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\41\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
As described above, the DMM is responsible for determining the
Auction Price for the Closing Auctions in its assigned securities, and
if there is an Imbalance of any size, the DMM must select an Auction
Price that is able to satisfy all better-priced orders on the Side of
the Imbalance. 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 the last-
published Continuous Book Clearing Price. The Exchange has included
statistics in its proposal showing that the proposed Closing Auction
Price parameters are, for the vast majority of Closing Auctions,
consistent with how the Closing Auction Price has been determined under
the current rules.\42\ The Exchange has also included statistics in its
proposal showing that, as to more recent Closing Auction data, auctions
executing within the proposed range resulted in more representative
prices for market participants.\43\
---------------------------------------------------------------------------
\42\ See Section II supra.
\43\ The Exchange also included statistics in its proposal
showing that during the last quarter of 2021 and year to date, 95.0%
of Closing Auctions occurred within the proposed pricing parameters,
and that these numbers did not materially change for volatile
trading days.
---------------------------------------------------------------------------
The Exchange also proposes that DMM Orders would not participate in
the Closing Auction or factor into the calculation of the Continuous
Book Clearing Price and that, after the end of Core Trading Hours, a
DMM would be able to enter DMM Auction Liquidity only in order to
supply liquidity as needed to meet the DMM's obligation to facilitate
the Closing Auction in a fair and orderly manner within the proposed
pricing parameters.
The Commission finds that the proposed pricing parameters for
determining the Closing Auction Price, as well as the proposed
limitation on the entry of DMM interest (specifically, DMM Auction
Liquidity) after the close of regular trading, are reasonably designed
to (1) limit the price range within which a DMM can facilitate the
Closing Auction in its assigned securities to a price range that
reflects the natural forces of supply and demand for a security in the
Closing Auction; and (2) enhance transparency and certainty for market
participants with respect to the Closing Auction. The proposed price
parameters and limitation on DMM Auction Liquidity are therefore
reasonably designed to remove impediments to and perfect the mechanism
of a free and open market and a national market system. Moreover, by
providing that DMM Orders will neither participate in the Closing
Auction nor figure into the calculation of the Continuous Book Clearing
Price--one of the proposed pricing parameters for the Closing Auction--
the Exchange's proposal would limit the extent to which a DMM could
influence the price parameters for the Closing Auction Price, which is
reasonably designed to prevent fraudulent and manipulative acts and
practices. The Commission further finds that the other conforming and
non-substantive changes proposed by the Exchange are consistent with
the substantive changes discussed above and do not raise any regulatory
issues.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\44\ that the proposed rule change (SR-NYSE-2022-32) be, and it
hereby is, approved.
---------------------------------------------------------------------------
\44\ Id.
\45\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19682 Filed 9-12-22; 8:45 am]
BILLING CODE 8011-01-P
