[Federal Register Volume 86, Number 133 (Thursday, July 15, 2021)]
[Notices]
[Pages 37367-37373]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15039]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92374; File No. SR-NYSE-2020-89]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Amendment No. 2 and Order Granting Accelerated 
Approval to a Proposed Rule Change, as Modified by Amendment No. 2, To 
Amend NYSE Rule 7.35C

July 9, 2021.

I. Introduction

    On October 23, 2020, New York Stock Exchange LLC (``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 
(1) provide the Exchange authority to facilitate a Trading Halt Auction 
if a security has not reopened by 3:30 p.m. following a market-wide 
circuit-breaker halt (``MWCB Halt''); (2) widen the Auction Collar for 
an Exchange-facilitated Trading Halt Auction following an MWCB Halt; 
(3) provide that certain DMM (designated market maker) Interest will 
not be canceled following an Exchange-facilitated Auction; and (4) 
change the Auction Reference Price for Exchange-facilitated Core Open 
Auctions.\3\ The proposed rule change was published for

[[Page 37368]]

comment in the Federal Register on November 12, 2020.\4\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ By amendment of the proposed rule change, the Exchange has 
removed several of these proposed changes from the original 
proposal. See infra notes 7 and 10.
    \4\ See Securities Exchange Act Release No. 90363 (Nov. 5, 
2020), 85 FR 71964 (Nov. 12, 2020).
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    On December 18, 2020, pursuant to Section 19(b)(2) of the Act,\5\ 
the Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change, extending the date for Commission action to February 10, 
2020.\6\ On February 5, 2021, the Exchange filed Amendment No. 1 to the 
proposed rule change, which replaced and superseded the proposed rule 
change in its entirety.\7\ On February 10, 2021, the Commission 
published notice of Amendment No. 1 and instituted proceedings pursuant 
to Section 19(b)(2)(B) of the Act \8\ to determine whether to approve 
or disapprove the proposed rule change, as modified by Amendment No. 
1.\9\ On March 17, 2021, the Exchange filed Amendment No. 2 to the 
proposed rule change, which replaced and superseded the proposed rule 
change, as modified by Amendment No. 1, in its entirety.\10\ The 
Commission has received no comment letters on the proposal.
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    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 90726 (Dec. 20, 
2020), 85 FR 84431 (Dec. 28, 2020).
    \7\ In Amendment No. 1, the Exchange removed one of the proposed 
changes from the original proposal. Specifically, the Exchange 
removed the proposed change to adopt a new definition of Auction 
Reference Price for exchange-facilitated Core Open Auctions and to 
amend the temporary rule related to such auctions set forth in 
Commentary .04 to Rule 7.35C. This aspect of the original proposal 
is now the subject of a separate proposed rule change filed by the 
Exchange on February 8, 2021 (SR-NYSE-2021-13).
    \8\ 15 U.S.C. 78s(b)(2)(B).
    \9\ See Securities Exchange Act Release No. 91095 (Feb. 10, 
2021), 86 FR 9978 (Feb. 17, 2020).
    \10\ In Amendment No. 2, the Exchange removed several more 
proposed changes from the original proposal, as modified by 
Amendment No. 1. Specifically, the Exchange removed the proposed 
changes to make permanent the temporary rules pertaining to: (i) 
Permitting the CEO to determine that the Exchange will facilitate a 
Trading Halt Auction in one or more securities following a MWCB Halt 
if the security has not reopened by 3:30 p.m. Eastern Time, and (ii) 
establishing wider Auction Collars for Trading Halt Auctions 
following a MWCB Halt.
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    The Commission is publishing this notice to solicit comments on 
Amendment No. 2 to the proposed rule change from interested persons, 
and is approving the proposed rule change, as modified by Amendment No. 
2, on an accelerated basis.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change, as Modified by Amendment 
No. 2

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 7.35C (Exchange-Facilitated 
Auctions) to provide that certain DMM Interest \11\ would not be 
cancelled following an Exchange-facilitated Auction.\12\
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    \11\ For purposes of Auctions, the term ``DMM Interest'' is 
defined in Rule 7.35(a)(8) to mean all buy and sell interest entered 
by a DMM unit in its assigned securities and includes: ``DMM Auction 
Liquidity,'' which is non-displayed buy and sell interest that is 
designated for an Auction only (see Rule 7.35(a)(8)(A)); ``DMM 
Orders'' which are orders, as defined under Rule 7.31, entered by a 
DMM unit (see Rule 7.35(a)(8)(B)); and ``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 Rule 7.35(a)(8)(C)).
    \12\ In this Amendment No. 2, the Exchange is removing its 
proposed changes to (1) the Exchange authority to facilitate a 
Trading Halt Auction if a security has not reopened following a 
Level 1 or Level 2 trading halt due to extraordinary market 
volatility under Rule 7.12 (``MWCB Halt'') by 3:30 p.m.; and (2) 
widen the Auction Collar for an Exchange-facilitated Trading Halt 
Auction following a MWCB Halt, which are currently temporary rules 
set forth in Commentaries .01 and .02 to Rule 7.35C.
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    These proposed changes are currently in place on a temporary basis, 
as described in Commentary .03 to Rule 7.35C.
Background
    To slow the spread of COVID-19 through social-distancing measures, 
on March 18, 2020, the CEO of the Exchange made a determination under 
Rule 7.1(c)(3) that, beginning March 23, 2020, the Trading Floor 
facilities located at 11 Wall Street in New York City would close and 
the Exchange would move, on a temporary basis, to fully electronic 
trading.\13\ On May 14, 2020, the CEO of the Exchange made a 
determination under Rule 7.1(c)(3) to reopen the Trading Floor on a 
limited basis on May 26, 2020 to a subset of Floor brokers, subject to 
safety measures designed to prevent the spread of COVID-19.\14\ On June 
15, 2020, the CEO of the Exchange made a determination under Rule 
7.1(c)(3) to begin the second phase of the Trading Floor reopening by 
allowing DMMs to return on June 17, 2020, subject to safety measures 
designed to prevent the spread of COVID-19.\15\
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    \13\ Pursuant to Rule 7.1(e), the CEO notified the Board of 
Directors of the Exchange of this determination. The Exchange's 
current rules establish how the Exchange will function fully-
electronically. The CEO also closed the NYSE American Options 
Trading Floor, which is located at the same 11 Wall Street 
facilities, and the NYSE Arca Options Trading Floor, which is 
located in San Francisco, CA. See Press Release, dated March 18, 
2020, available here: https://ir.theice.com/press/press-releases/all-categories/2020/03-18-2020-204202110.
    \14\ See Securities Exchange Act Release No. 88933 (May 22, 
2020), 85 FR 32059 (May 28, 2020) (SR-NYSE-2020-47) (Notice of 
filing and immediate effectiveness of proposed rule change).
    \15\ See Securities Exchange Act Release No. 89086 (June 17, 
2020) (SR-NYSE-2020-52) (Notice of filing and immediate 
effectiveness of proposed rule change).
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    Rule 7.35C sets forth the procedures for Exchange-facilitated 
Auctions. The first time the Exchange facilitated any Auctions pursuant 
to Rule 7.35C was on March 19, 2020, when two DMM firms temporarily 
left the Trading Floor in connection with implementing their business 
continuity plans related to the COVID-19 pandemic. Beginning on March 
23, 2020, when the Exchange temporarily closed the Trading Floor, the 
Exchange began facilitating Auctions on behalf of all DMM firms. During 
the period of March 23, 2020 through June 16, 2020, among the DMM 
firms, the percentage of Auctions that were facilitated by the Exchange 
ranged from 1% to 3.2% of the securities assigned to each DMM. During 
this period, the vast majority of Auctions were facilitated 
electronically by DMMs pursuant to Rules 7.35A and 7.35B.
    In connection with both the market-wide volatility associated with 
the COVID-19 pandemic in March 2020 and the full and partial closing of 
the Trading Floor facilities, the Exchange added Commentary .03 to Rule 
7.35C,\16\ which is in effect until the earlier of a full reopening of 
the Trading Floor facilities to DMMs or after the Exchange closes on 
April 30, 2021.\17\
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    \16\ See Securities Exchange Act Release No. 88413 88562 (April 
3, 2020), 85 FR 20002 (April 9, 2020) (SR-NYSE-2020-29) (amending 
Rule 7.35C to add Commentary .03) (``DMM Interest Filing'').
    \17\ See Securities Exchange Act Release No. 90795 (December 23, 
2020), 85 FR 86608 (December 30, 2020) (SR-NYSE-2020-106) (Notice of 
filing and immediate effectiveness of proposed rule change to extend 
the temporary period for Commentaries to Rules 7.35, 7.35A, 7.35B, 
and 7.35C; and temporary rule relief in Rule 36.30 to end on the 
earlier of a full reopening of the Trading Floor facilities to DMMs 
or after the Exchange closes on April 30, 2020). [The Commission 
notes that, after submitting Amendment No. 2, the Exchange extended 
the outside date for effectiveness of the temporary relief from 
April 30, 2021 to August 31, 2021. See Securities Exchange Act 
Release No. 91778 (May 5, 2021), 86 FR 25902 (May 11, 2021)].

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[[Page 37369]]

    The Exchange believes that Commentary .03 to Rule 7.35C, which is 
in effect on a temporary basis, has supported the fair and orderly 
operation of the Exchange during both the market volatility associated 
with COVID-19 and the temporary period that the Trading Floor 
facilities have been closed either in full or in part due to COVID-19. 
The Exchange further believes the functionality that has been operating 
on a temporary basis would continue to support the fair and orderly 
operation of the Exchange under any circumstances where there may be 
either market-wide volatility or the need for the Exchange to 
facilitate one or more Auctions. Accordingly, the Exchange proposes 
that the changes to how DMM Interest may participate in an Exchange-
facilitated Auction be made permanent.
Proposed Rule Changes
    As set forth in Rule 7.35C(a)(1), if the Exchange facilitates an 
Auction, DMM Interest would not be eligible to participate in such 
Auction and previously-entered DMM Interest would be cancelled. When a 
DMM cannot facilitate an Auction because the DMM unit is experiencing a 
system issue that prevents it from communicating with Exchange systems, 
cancelling DMM Interest following an Exchange-facilitated Auction would 
help ensure that DMM Interest that may be at stale prices does not 
participate in trading on the Exchange. On the other hand, by 
cancelling DMM Interest when the DMM units' systems are operating 
normally, DMMs may be limited in their ability to maintain price 
continuity with reasonable depth, i.e., provide passive liquidity at 
the Exchange best bid and offer and at depth, immediately following an 
Exchange-facilitated Auction.
    After a period of operating Exchange-facilitated Auctions, the 
Exchange identified a way to provide DMMs with a greater opportunity to 
provide passive liquidity immediately following an Auction, thereby 
dampening volatility, while still limiting DMM risk. To effect this 
change, the Exchange added Commentary .03 to Rule 7.35C, which provides 
that for the temporary period that begins on April 6, 2020 and ends on 
the earlier of a full reopening of the Trading Floor facilities to DMMs 
or after the Exchange closes on December 31, 2020, if the Exchange 
facilitates an Auction, DMM Interest (i) 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, and (ii) will not be 
cancelled unless the limit price of such DMM Interest would be priced 
through the Auction Price or Auction Collars, as applicable, or such 
DMM Interest would be marketable against other unexecuted orders.\18\
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    \18\ See DMM Interest Filing, supra note 10.
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    The Exchange proposes to make permanent the changes to how 
Exchange-facilitated Auctions function, as described in Commentary .03 
to Rule 7.35C. By making this functionality permanent, such rules would 
continue to apply both during the continuation of the current Trading 
Floor closure and if the Exchange were to facilitate Auctions any time 
after the Trading Floor fully reopens.
    To effect this change, the Exchange proposes to amend 7.35C(a)(1) 
as follows (new text underlined, deleted text bracketed):
[GRAPHIC] [TIFF OMITTED] TN15JY21.105

    This proposed rule change would make permanent the temporary 
functionality set forth in paragraph (a)(1) to Commentary .03.
    With this change, DMM Interest would not participate in any 
Exchange-facilitated Auctions that would result in a trade. This is how 
DMM Interest currently functions when the Exchange facilitates an 
Auction pursuant to either Rule 7.35C(a)(1) or Commentary .03 to Rule 
7.35C. Based on experience operating pursuant to Commentary .03 to Rule 
7.35C, the Exchange believes that this functionality should continue 
permanently when the Exchange facilitates an Auction, including, for 
example, when the Trading Floor is open but the DMM is unable to 
facilitate an Auction because of a systems or technical issue.
    More specifically, when a DMM facilitates an Auction that results 
in a trade, the DMM determines whether to participate on the buy or 
sell side and, based on that direction from the DMM, DMM Orders that do 
not participate in the Auction and that would lock or cross other 
orders, which would include other DMM Orders, will be cancelled.\19\ If 
the DMM has entered both buy and sell interest in advance of the 
Auction and the Exchange facilitates the Auction, the DMM would not be 
able to control whether the DMM's buy or sell interest would 
participate in a trade and the Exchange would not have that instruction 
from the DMM of which side of the market that the DMM would 
participate. As a result, there may be crossing DMM Interest that could 
result in a wash-sale trade that would not have occurred if the DMM had 
facilitated the Auction. Excluding DMM Interest from participating in 
an Exchange-facilitated Auction that results in a trade eliminates the 
potential for a wash-sale trade. In addition, the Exchange believes it 
promotes fair and orderly Exchange-facilitated Auctions that result in 
a trade to exclude DMM Interest from participating in such Auctions, 
because if a DMM's buy or sell interest does not reflect up-to-date 
prices, it could impact pricing of the Auction.
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    \19\ See Rule 7.35A(h)(3)(C) (providing that after a Core Open 
or Trading Halt Auction, better at-priced DMM Orders that do not 
receive an allocation and that lock or cross other unexecuted orders 
and buy and sell better-priced DMM Orders will be cancelled after 
the Auction Processing Period concludes).
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    By contrast, the Exchange believes that the proposed change for DMM

[[Page 37370]]

Interest to participate in an Exchange-facilitated Auction that results 
in a quote would promote fair and orderly markets. This proposed change 
is consistent with Commentary .03(a)(1) to Rule 7.35C, but differs from 
current Rule 7.35C(a)(1). A security opens on a quote if there is no 
buy interest willing to trade with sell interest at the same price. The 
Exchange believes that under such circumstances, including DMM Interest 
in the Exchange's quote would assist the DMMs in meeting their 
obligation to maintain a two-sided quote as well as to maintain 
continuity and depth in their assigned securities.\20\ Accordingly, the 
Exchange believes that making this change permanent would promote fair 
and orderly markets in connection with Exchange-facilitated Auctions 
that result in a quote.
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    \20\ See Rule 104(f)(2).
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    The final element of the proposed change to Rule 7.35C(a)(1) is 
that DMM Interest would no longer be automatically cancelled after an 
Exchange-facilitated Auction. The Exchange believes that this proposed 
change would assist DMMs in meeting their obligation, as required by 
Rule 104(f)(2), to provide passive liquidity in order to maintain 
continuity with reasonable depth in their assigned securities 
immediately following a Core Open Auction or Trading Halt Auction that 
was facilitated by the Exchange. In advance of an Auction, DMMs can 
enter DMM Orders, which if not traded in an Auction, would be part of 
the DMM Interest on the Exchange Book after the Auction. In addition, 
DMMs can enter DMM After-Auction Orders, which do not participate in 
Auctions and are specifically designed to assist the DMMs to maintain 
passive liquidity on the Exchange immediately following an Auction, 
which supports their ability to maintain continuity with reasonable 
depth immediately following an Auction. If DMM Interest is not 
automatically cancelled following an Exchange-facilitated Auction, the 
DMM would be better able to timely meet these obligations by ensuring 
that passive liquidity remains on the Exchange Book immediately 
following an Auction.
    The Exchange believes that there remain circumstances when DMM 
Interest should be cancelled following an Exchange-facilitated Auction. 
As proposed, the Exchange would cancel unexecuted DMM Interest under 
the same circumstances that unexecuted orders of other member 
organizations would be cancelled following such Auctions.
    To effect this change, the Exchange proposes to amend Rule 
7.35C(g)(1), which currently describes which unexecuted orders would be 
cancelled if a security opens or reopens on a trade via an Exchange-
facilitated Auction, and Rule 7.35C(g)(2), which currently describes 
which unexecuted orders would be cancelled if a security opens or 
reopens on a quote that is above (below) the upper (lower) Auction 
Collar via an Exchange-facilitated Auction. The Exchange proposes that 
these two subparagraphs would be replaced with the following text to 
incorporate that under the same circumstances, DMM Interest would 
similarly be cancelled (proposed new text underlined):
[GRAPHIC] [TIFF OMITTED] TN15JY21.106

    These proposed rule changes would make permanent the temporary 
functionality set forth in paragraphs (b)(1) and (2) to Commentary .03.
    The Exchange further believes that if previously-entered DMM 
Interest would be marketable against either other DMM Interest or 
contra-side unexecuted orders, such DMM Interest should be cancelled. 
For example, if for a security, the Auction Reference Price is $10.00, 
the lower Auction Collar is $9.00 and the upper Auction Collar is 
$11.00, and the orders on the Exchange Book in advance of the Auction 
are as follows:
    <bullet> Order 1--Buy DMM Order 1000 shares at $10.05
    <bullet> Order 2--Sell DMM Order 1000 shares at $10.00
    <bullet> Order 3--Buy DMM Order 1000 shares at $10.02
    <bullet> Order 4--Sell Limit Order at $10.03,

the orders in this example would be processed as follows in an 
Exchange-facilitated Auction:
    <bullet> Order 1 would be cancelled (because DMM Interest would not 
be eligible to participate in an Auction trade, and here, Order 1 is 
marketable with Orders 2 and 4)

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    <bullet> Order 2 would be cancelled (because DMM Interest would not 
be eligible to participate in an Auction trade, and here Order 2 is 
marketable with Order 3), and
    <bullet> Order 3 would not be cancelled because it is no longer 
marketable with any other interest, i.e., it no longer locks or crosses 
the price of any other contra-side interest in the Exchange Book. Order 
3 would therefore be included in the opening quote.
    This Exchange-facilitated Auction would result in the following 
quote: $10.02 (Order 3-DMM Order) x $10.03 (Order 4-Limit Order).
    To effect this change, the Exchange proposes new subparagraph 
(g)(3) to Rule 7.35C to specify the additional circumstances when DMM 
Interest would be cancelled, as follows:

    The Exchange will cancel DMM Interest that is marketable against 
contra-side unexecuted orders. If the contra-side unexecuted order 
against which such DMM Interest is marketable is DMM Interest, the 
DMM Interest with the earlier working time will be canceled.

    This proposed rule change would make permanent the temporary 
functionality set forth in paragraph (b)(3) to Commentary .03.
    The Exchange believes that these proposed rule changes would 
promote fair and orderly markets whenever the Exchange facilitates an 
Auction under Rule 7.35C--under any circumstance--by supporting DMMs in 
maintaining continuity with reasonable depth in their assigned 
securities immediately following an Exchange-facilitated Core Open 
Auction or Trading Halt Auction that was facilitated by the Exchange.
    The Exchange proposes that, with these proposed changes to Rules 
7.35C(a)(1) and (g), Commentary .03 to Rule 7.35C would be deleted in 
its entirety.
    In further support of making the functionality set forth in 
Commentary .03 to Rule 7.35C permanent, the Exchange notes that after 
the Exchange implemented that Commentary, the Exchange observed 
improved performance relating to Exchange-facilitated Auctions.
    <bullet> For the period March 23, 2020 to April 3, 2020, 4.9% of 
all Core Open Auctions were facilitated by the Exchange. For the period 
April 6, 2020 through June 16, 2020, the Exchange facilitated only 2% 
of all Core Open Auctions. In addition, the percentage of Exchange-
facilitated Core Open Auctions that were bound by an Auction Collar 
decreased from 1.3% from the pre-April 6, 2020 period, to 0.58% in the 
April 6, 2020-June 16, 2020 period.
    <bullet> In addition, the Exchange observed that after April 6, 
2020, Exchange-listed securities experienced reduced volatility in the 
first half hour of trading. The Exchange uses a quote-based metric to 
measure volatility in securities,\21\ and based on that metric, 
volatility in Exchange-listed securities between the period of April 6, 
2020 and June 16, 2020 was 28.4% lower than the same measure between 
March 23, 2020 and April 3, 2020. In addition, the Exchange further 
observed that between these two periods, the difference between the 
Core Open Auction Price and the subsequent five-minute VWAP dropped by 
31.3%.
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    \21\ As described in an Exchange blog post, this metric is 
calculated using second-to-second ``quote returns,'' which is 
calculated by averaging the midpoints of all NBBO updates for a 
security within each second of the day from 9:35 a.m. to 4:00 p.m., 
and then calculating the percentage rate of return of these average 
quote midpoints from one second to the next. The variance of returns 
are then calculated in aggregated time periods (e.g., 5-minute 
buckets) and annualized from seconds to 6.5 hour trading days to 252 
trading days in the years. Finally, the Exchange takes the square 
root of the annualized variance in the aggregated periods, which 
creates the Exchange's quote volatility metric. See NYSE Data 
Insights, Introducing Quote Volatility (QV)--a new metric to measure 
price volatility, available here: https://www.nyse.com/data-insights/introducing-quote-volatility-qv-a-new-metric-to-measure-price-volatility.
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    For DMM firms that have already returned staff to the Trading 
Floor, this proposed change has limited application because the 
Exchange has not facilitated any Auctions on behalf of those firms 
since June 16, 2020. In addition, the Exchange anticipates that once 
the Trading Floor facilities open in full to DMMs, and all DMM firms 
have staffing on the Trading Floor, the need for Exchange-facilitated 
Auctions would be obviated, and the Exchange will revert to pre-
pandemic rates of Exchange-facilitated Auctions, which were none. 
Accordingly, the proposed changes to Rule 7.35C will likely have 
limited application and would be available as a business continuity 
functionality should DMMs be unable to facilitate an Auction in one or 
more securities, for any reason.
    There are no technology changes associated with this proposed rule 
change and the Exchange would be able to implement it immediately upon 
approval of this proposed rule change.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\22\ in general, and furthers the objectives of Section 6(b)(5) of 
the Act,\23\ in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that Commentary .03 to Rule 7.35C, which is 
currently in effect on a temporary basis, has supported the fair and 
orderly operation of the Exchange during both the market volatility 
associated with COVID-19 and the temporary period that the Trading 
Floor facilities have been closed either in full or in part due to 
COVID-19. The Exchange further believes the functionality that has been 
operating on a temporary basis would continue to support the fair and 
orderly operation of the Exchange under any circumstances where there 
may be either market-wide volatility or the need for the Exchange to 
facilitate one or more Auctions.
    As noted above, beginning March 19, 2020, the Exchange began 
facilitating auctions as provided for under Rule 7.35C for the first 
time, and then, beginning March 23, 2020, when the Trading Floor was 
temporarily closed to reduce the spread of COVID-19, began facilitating 
Auctions on behalf of all DMM firms. Based on that experience, the 
Exchange added Commentary .03 to Rule 7.35C, which is in effect only 
for a temporary period while the Trading Floor is closed. The Exchange 
believes that it would remove impediments to and perfect the mechanism 
of a free and open market and a national market system to make the 
changes described in Commentary .03 to Rule 7.35C permanent because it 
would allow DMMs to maintain continuity with reasonable depth in their 
assigned securities immediately following an Exchange-facilitated 
Auction.
    As described above, the Exchange is proposing that DMM Interest 
would continue not to participate in an Exchange-facilitated Auction 
that results in a trade. As noted above, under both the current Rule 
and temporary Commentary .03, DMM Interest does not participate in an 
Exchange-facilitated Auction that results in a trade in part to prevent 
wash-trade sales of previously-entered DMM buy and sell interest and 
therefore reduces DMM units' risk. It also protects the fair and 
orderly operation of such Auctions because such DMM Interest may be at 
stale prices, and therefore could impact pricing of the Auction in a 
manner that does not reflect up-to-date trading interest. For this 
reason, the Exchange believes it would continue to promote

[[Page 37372]]

fair and orderly Auctions for DMM Interest not to participate in an 
Exchange-facilitated Auction that results in a trade.
    By contrast, the Exchange believes that the proposed change that 
DMM Interest would be included in an Exchange-facilitated Auction that 
results in a quote would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because it would promote fair and orderly resumption of trading by 
allowing DMM Interest to be considered as part of the opening quote. A 
security only opens on a quote when there are no buy and sell orders 
that can be crossed at a single price. Accordingly, when a security 
opens on a quote, the DMM has an immediate obligation to maintain a 
two-sided quote and to provide continuity and depth. Including DMM 
interest in an Exchange-facilitated Auction that results in a quote 
would assist DMMs in meeting those obligations.
    The Exchange believes it would remove impediments to and perfect 
the mechanism of a free and open market and a national market system 
not to automatically cancel DMM Interest following an Exchange-
facilitated Auction because it would provide DMMs with the opportunity 
to provide passive liquidity immediately following an Exchange-
facilitated Auction, thereby reducing volatility while still limiting 
DMM risk. Similarly, the Exchange believes that because DMM Interest 
would not be participating in an Exchange-facilitated Auction that 
results in a trade, it would remove impediments to and perfect the 
mechanism of a free and open market and a national market system to 
cancel DMM Interest that would be marketable against unexecuted orders 
because, if not cancelled, such interest could trade at a price that 
would not be consistent with the Auction Price or opening or reopening 
quote determined in the Exchange-facilitated Auction. The proposed 
changes would also remove impediments to and perfect the mechanism of a 
free and open market because DMM Interest that, following an Exchange-
facilitated Auction, would be priced through the Auction Price or 
Auction Collars, as applicable, would be cancelled in the same manner 
that other unexecuted orders would be cancelled.
    The Exchange further believes that the proposed changes to Rules 
7.35C(a) and (g) would remove impediments to and perfect the mechanism 
of a free and open market and a national market system because the 
Exchange observed improved performance following Exchange-facilitated 
Auctions after the Exchange implemented Commentary .03 to Rule 7.35C. 
Accordingly, should circumstances ever arise again that would require 
the Exchange to facilitate any Auctions, which, based on pre-pandemic 
experience, would likely be rare, the Exchange believes that these 
proposed changes would improve the performance of Exchange-facilitated 
Auctions by enabling better engagement by the DMMs in both the Auction 
and the immediate after-market while still limiting DMM risk.

III. Discussion and Commission Findings

    After careful review, the Commission is approving the proposed rule 
change, as modified by Amendment No. 2, for the reasons discussed 
below.\24\ The Commission finds that the proposed rule change, as 
modified, is consistent with the requirements of the Act and the rules 
and regulations thereunder applicable to a national securities 
exchange, including Section 6(b)(5) of the Act, 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 foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.\25\
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    \24\ 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).
    \25\ 17 U.S.C. 78f(b)(5).
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    The Exchange proposes to make permanent certain provisions of its 
rules that have been temporarily in effect during the course of the 
COVID-19 pandemic, as the Exchange has operated with fully and 
partially closed floor trading facilities. The Exchange proposes that, 
when it facilitates an auction because a DMM is unable to connect to 
Exchange systems, DMM Interest will not be able to participate in the 
auction if that auction results in a trade, but will be able to 
participate if the auction results in a quote (i.e., if no buy interest 
in the auction is willing to trade with sell interest at the same 
price). This aspect of the proposal is consistent with Section 6(b)(5) 
of the Act because (1) in the case of an Exchange-facilitated auction 
that results in a trade, the rule is reasonably designed to prevent 
wash-sale trades between DMM Interest on opposite sides of the market 
and to prevent DMM Interest that does not reflect up-to-date prices 
from affecting the price of the auction; and (2) in the case of an 
Exchange-facilitated auction that results in a quote, to allow DMM 
Interest to populate the Exchange's order book after the auction, 
assisting DMMs in meeting their obligations to maintain a two-sided 
quote and continuity and depth in their assigned securities.
    The Exchange also proposes that DMM Interest would no longer be 
automatically canceled after an Exchange-facilitated opening or 
reopening auction. Under the proposal, the Exchange would cancel DMM 
Interest after an auction under the same circumstances in which it 
cancels unexecuted limit orders of other member organizations, namely 
(1) in the case of an Exchange-facilitated auction that opens or 
reopens on a trade, when the interest is better-priced than the auction 
price, and (2) in the case of an Exchange-facilitated auction that 
opens or reopens on a quote, when the interest is priced better than 
the Auction Collar under the Exchange's rules. Other DMM Interest, 
however, including DMM After-Auction Orders, would not be canceled and 
would be incorporated into the Exchange's order book immediately upon 
the commencement of continuous trading following the auction. This 
aspect of the proposal is consistent with Section 6(b)(5) of the Act 
because the proposed rule is reasonably designed to permit DMMs to 
provide passive liquidity in continuous trading immediately following 
an auction and thereby meet their obligations to maintain price 
continuity with reasonable depth.
    For these reasons, the Commission finds that this proposed rule 
change is consistent with the requirements of the Act and in particular 
Section 6(b)(5) because it is reasonably designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.

IV. Solicitation of Comments on Amendment No. 2

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 2 is consistent with the 
Act. Comments may be submitted by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or

[[Page 37373]]

    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#5b292e373e76383436363e352f281b283e38753c342d"><span class="__cf_email__" data-cfemail="85f7f0e9e0a8e6eae8e8e0ebf1f6c5f6e0e6abe2eaf3">[email protected]</span></a>. Please include 
File Number SR-NYSE-2020-89 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2020-89. 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 (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for 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 this filing will also be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change.
    Persons submitting comments are cautioned that we do not redact or 
edit personal identifying information from comment submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-NYSE-2020-89 
and should be submitted on or before August 5, 2021.

V. Accelerated Approval of the Proposed Rule Change, as Modified by 
Amendment No. 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 2, prior to the thirtieth day 
after the date of publication of Amendment No. 2 in the Federal 
Register. In Amendment No. 2, the Exchange removed from the original 
proposal the proposed changes to its permanent rules to: (i) Permit the 
CEO to determine that the Exchange will facilitate a Trading Halt 
Auction in one or more securities following a MWCB Halt if the security 
has not reopened by 3:30 p.m. Eastern Time, and (ii) establish wider 
Auction Collars for Trading Halt Auctions following a MWCB Halt.\26\
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    \26\ See supra note 10.
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    The Commission finds that Amendment No. 2 is consistent with the 
Act in that is designed, among other things, to prevent fraudulent and 
manipulative acts and practices and to promote just and equitable 
principles of trade. Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Act,\27\ to approve the proposed 
rule change, as modified by Amendment No. 2, on an accelerated basis.
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    \27\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\28\ that the proposed rule change SR-NYSE-2020-89, as modified by 
Amendment No. 2, be, and hereby is, approved on an accelerated basis.
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    \28\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15039 Filed 7-14-21; 8:45 am]
BILLING CODE 8011-01-P


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