Federal Register / Vol. 86, No. 181 / Wednesday, September 22, 2021 / Notices 52719 

43 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4Capitalized terms used in connection with 

Auctions on the Exchange are defined in Rule 

7.35(a). 

5For purposes of Auctions, the term ‘‘DMM 

Interest’’ is defined in Rule 7.35(a)(9) 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 Rule 7.35(a)(9)(A)); (ii) ‘‘DMM 

Orders,’’ which are orders, as defined under Rule 

7.31, entered by a DMM unit (see 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 

Rule 7.35(a)(9)(C)). 

6Auction-Only Orders available for the Closing 

Auction are defined in Rule 7.31(c)(2)(A)–(D) as the 

Limit-on-Close Order (‘‘LOC Order’’), Market-onClose Order (‘‘MOC Order’’), Closing D Order, and 

Closing Imbalance Offset Order (‘‘Closing IO 

Order’’). 

7The Commission recently approved proposed 

changes to Rule 7.35B that 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 Rule 7.35(a)(10) to mean 

orders represented orally by a Floor broker at the 

point of sale. 

In light of the Floor Broker Interest Approval 

Order, the Exchange is proposing conforming 

changes to Rule 7.35B(j)(2) and subparagraph 

(A)(iii) to that Rule. Specifically, 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. Because the Exchange has eliminated Floor 

Broker Interest at the close, the Exchange proposes 

to delete the phrase ‘‘or represented to a DMM 

orally’’ in Rule 7.35B(j)(2). For similar reasons, the 

Exchange proposes to delete the phrase ‘‘and Floor 

Broker Interest’’ in Rule 7.35B(j)(2)(A)(iii). 

8See Rule 7.35B(e)(1)(A). DMM Orders, as 

defined in Rule 7.35(d)(9)(B), that have been 

entered by the DMM in advance of a Closing 

Auction are included in the Closing Auction 

Imbalance Information. 

9See 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. 

10See Rule 7.35B(e)(3). 

11See Rule 7.35(b)(1)(C)(ii). 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–IEX– 

2021–11, and should be submitted on or 

before October 13, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.43

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–20453 Filed 9–21–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–93037; File No. SR–NYSE– 

2021–44] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Notice of 

Filing of Proposed Rule Change To 

Amend Rules 7.31, 7.35, 7.35B, 7.35C, 

98, and 104 Relating to the Closing 

Auction 

September 16, 2021. 

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 

September 3, 2021, New York Stock 

Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the self-regulatory 

organization. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

Rules 7.31 (Orders and Modifiers), 7.35 

(General), 7.35B (DMM-Facilitated 

Closing Auctions), 7.35C (ExchangeFacilitated Auctions), 98 (Operation of a 

DMM Unit), and 104 (Dealings and 

Responsibilities of DMMs) relating to 

the Closing Auction. 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. 

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 

Rules 7.31 (Orders and Modifiers), 7.35 

(General), 7.35B (DMM-Facilitated 

Closing Auctions), 7.35C (ExchangeFacilitated Auctions), 98 (Operation of a 

DMM Unit), and 104 (Dealings and 

Responsibilities of DMMs) relating to 

the Closing Auction.4

Overview of Current Closing Auction 

Process 

The following rules currently describe 

the Closing Auction process on the 

Exchange: Rule 7.31 (identifying the 

order types eligible to participate in an 

Auction); Rule 7.35 (general rules and 

definitions applicable to Auctions); Rule 

7.35B (describing the process for DMMfacilitated Closing Auctions); Rule 7.35C 

(describing the process for Exchangefacilitated Auctions); and Rule 104 

(establishing DMM obligations with 

respect to Closing Auctions and trading 

leading into the Closing Auction). 

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); 5

• Auction-Only Orders; 6 and 

• DMM Auction Liquidity entered by 

the DMM in connection with facilitating 

the Closing Auction.7

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.8

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.9

The Closing Auction Imbalance 

Information also includes an Imbalance 

Reference Price, which is the Exchange 

Last Sale Price bound by the Exchange 

BBO.10 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.11 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 

52720 Federal Register / Vol. 86, No. 181 / Wednesday, September 22, 2021 / Notices 

12See Rule 7.35(c)(1) and (2). 

13See Rule 7.35(a)(8) (defining the ‘‘Closing 

Auction Imbalance Freeze Time’’ to be 10 minutes 

before the scheduled end of Core Trading Hours). 

14As defined in 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. 

15See Rule 7.35B(d)(1). 

16See Rule 7.35B(f)(1)(A) and (B). 

17See Rule 7.35B(f)(2)(A) and (B). 

18See Rule 7.35B(f)(3). 

19Reserve Orders, including the non-displayed 

reserve interest of such orders, are eligible to 

participate in the Closing Auction. See, e.g., 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). 

20The term ‘‘Exchange Last Sale Price’’ is defined 

in Rule 7.35 to mean the most recent trade on the 

Exchange of a round lot or more in a security during 

Core Trading Hours on that trading day, and if 

none, the Official Closing Price from the prior 

trading day for that security. 

21See 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.’’) 

Auction begins.12 In addition, if at the 

Closing Auction Imbalance Freeze 

Time 13 the Closing Imbalance 14 is 500 

round lots or more, the Exchange will 

disseminate a Regulatory Closing 

Imbalance to both the securities 

information processor and proprietary 

data feeds.15

The Exchange begins accepting 

Auction-Only Orders for the Closing 

Auction at 6:30 a.m. Eastern Time and 

they can be entered and cancelled 

without restriction until 10 minutes 

before the scheduled end of Core 

Trading Hours. If a Regulatory Closing 

Imbalance has not been published, 

during the Closing Auction Imbalance 

Freeze the Exchange will reject all MOC 

and LOC Orders. If a Regulatory Closing 

Imbalance has been published, during 

the Closing Auction Imbalance Freeze 

the Exchange will accept MOC and LOC 

Orders opposite the Side of the 

Regulatory Closing Imbalance and will 

reject MOC and LOC Orders on the Side 

of the Imbalance.16 In addition, from the 

beginning of the Closing Auction 

Imbalance Freeze until two minutes 

before the scheduled end of Core 

Trading Hours, MOC, LOC, and Closing 

IO Orders may be cancelled or reduced 

in size only to correct a Legitimate 

Error, and requests to cancel such orders 

in the last two minutes of trading will 

be rejected.17 Closing D Orders can be 

entered or cancelled without restriction 

until 10 seconds before the scheduled 

close of trading, at which point, a 

request to either enter or cancel, cancel 

and replace, or modify a Closing D 

Order will be rejected.18

Pursuant to Rule 104(a)(3), Designated 

Market Makers (‘‘DMM’’) have the 

responsibility to facilitate the close of 

trading for each of the securities in 

which the DMM is registered as 

required by Exchange rules, which may 

include supplying liquidity as needed. 

Rule 104(a)(3) further provides that 

DMMs and DMM unit algorithms 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 19 and MOC and LOC Order 

quantities, are available to DMMs at 

each price point. This information is 

available at the point of sale to DMMs. 

In addition, it is 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. 

Rule 7.35B specifies the process for 

DMM-facilitated Closing Auctions. 

Pursuant to 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.20 As provided for in 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 Rule 7.35B(c), the DMM may 

effectuate a closing manually or 

electronically. 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. 

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.21

Proposed Amendments to Rules 7.31, 

7.35, 7.35B, and 7.35C 

The Exchange proposes to amend 

Rules 7.31, 7.35, and 7.35B to revise the 

DMM-facilitated Closing Auction 

process. The proposed changes would 

modify how the Closing Auction Price 

would be determined and how DMMs 

would be able to participate in the 

Closing Auction, but would not change 

their Rule 104 obligation to facilitate the 

Closing Auction, including to supply 

liquidity as needed. The Exchange 

believes that the proposed changes 

would make the Closing Auction more 

transparent and deterministic, while 

still retaining the DMMs’ unique 

obligation to facilitate the Closing 

Auction. 

The Exchange also proposes to make 

conforming changes to Rule 7.35C to 

revise the orders eligible to participate 

in Exchange-facilitated Closing 

Auctions. 

Proposed Changes to Closing Auction 

Price. The Exchange proposes to amend 

Rule 7.35B(g) to add explicit price 

parameters to the Closing Auction Price. 

As noted above, the DMM is responsible 

for determining a Closing Auction Price 

that is able to satisfy all better-priced 

orders on the Side of the Imbalance. 

This requirement would not change. 

The Exchange proposes to add that the 

Closing Auction Price determined by 

the DMM must also be at a price that is 

at or between the last-published 

Imbalance Reference Price and 

Continuous Book Clearing Price. 

Specifically, the Exchange proposes to 

amend Rule 7.35B(g) as follows 

(proposed changes italicized): 

(g) Determining an Auction Price. The 

DMM is responsible for determining the 

Auction Price for a Closing Auction 

under this Rule. If there is an Imbalance 

of any size[,]: 

(1) The DMM must select an Auction 

Price at which all better-priced orders 

on the Side of the Imbalance can be 

satisfied; and 

(2) if the Side of the Imbalance is to 

buy (sell), the Auction Price must be at 

or above (below) the last-published 

Imbalance Reference Price and not 

above (below) the last-published nonzero Continuous Book Clearing Price. 

The Exchange believes that adding 

this proposed Closing Auction Price 

parameter is consistent with how the 

Closing Auction Price has been 

determined for the vast majority of 

Closing Auctions. For example, in the 

period January 1, 2021 to July 23, 2021, 

96.5% of all Closing Auctions were 

priced at or between the last-published 

Imbalance Reference Price and 

Continuous Book Clearing Price. 

Similarly, during this same period, 

94.9% of closing auction volume priced 

within these parameters. The Exchange 

further believes that this proposed 

change would eliminate any potential 

Federal Register / Vol. 86, No. 181 / Wednesday, September 22, 2021 / Notices 52721 

22The only circumstance when the Continuous 

Book Clearing Price could change after the end of 

Core Trading Hours would be if 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. 

23For example, if there is an Imbalance to buy, 

the Imbalance Reference Price is $10.00, and the 

Continuous Book Clearing Price is $10.10, the DMM 

could enter DMM Auction Liquidity to sell only at 

prices ranging from $10.10 to $10.00 and only if 

there is Unpaired Quantity at such prices. If the 

DMM determines to close that security at $10.03 

and there is Unpaired Quantity to buy of 1,000 

shares at that price (excluding at-priced offsetting 

Yielding Orders to sell), the DMM could enter DMM 

Auction Liquidity to sell up to only 1,000 shares. 

24The Exchange also proposes to amend 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. 

25As a related change, because DMM Orders 

would no longer be either participating in the 

Closing Auction or included in the Closing Auction 

Imbalance information, the Exchange proposes to 

amend Rule 7.35(b)(1)(D) to specify that the 

references to DMM Interest and the Imbalance 

Reference Price in that Rule would be applicable 

only if DMM Interest would be included in the Core 

Open or Trading Halt Auction Imbalance 

Information. 

26The Yielding Modifier is not necessary for 

DMMs because their transactions on the Exchange 

are as a dealer acting in the capacity as a market 

maker, and therefore they are not subject to the 

trading prohibitions specified in Section 11(a) of 

the Act. 15 U.S.C. 78k(a)(1) and 15 U.S.C. 

78k(a)(1)(i). 

for a Closing Auction Price to be lower 

(higher) than the last-published 

Imbalance Reference Price in the case of 

a Buy (Sell) Imbalance. This proposed 

change would also promote 

transparency and determinism with 

respect to the Closing Auction because 

the Closing Auction Price would be 

required to be within a pre-determined 

range of prices that have been 

disseminated via the Closing Auction 

Imbalance Information and that cannot 

be changed after the end of Core Trading 

Hours.22

Proposed Changes to How DMMs 

Would Participate in the Closing 

Auction. The Exchange proposes to 

change how DMMs would be able to 

enter buy and sell interest to participate 

in the Closing Auction by limiting the 

circumstances of when a DMM could 

enter or cancel interest after the end of 

Core Trading Hours. 

Currently, 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. Consistent with 

this current Rule, the Exchange does not 

block a DMM from entering or 

cancelling DMM Interest after the end of 

Core Trading Hours. Instead, the DMM’s 

determination of whether to enter or 

cancel DMM Interest after the end or 

Core Trading Hours is subject to the 

DMM’s obligation to maintain a fair and 

orderly market, as specified in Rule 104. 

The Exchange proposes to amend 

Rule 7.35B(a)(2) to provide that after the 

end of Core Trading Hours, a DMM may 

enter only DMM Auction Liquidity and 

only if such interest would offset any 

Unpaired Quantity at the Closing 

Auction Price. With this change, DMMs 

would be systematically restricted with 

respect to the side, price, and quantity 

of the DMM Auction Liquidity that they 

may enter after the end of Core Trading 

Hours. Because DMM Auction Liquidity 

would have priority over at-priced 

Yielding Orders (described in more 

detail below), the Exchange further 

proposes that offsetting at-priced 

Yielding Orders would not be included 

in the calculation of the Unpaired 

Quantity that a DMM may offset with 

DMM Auction Liquidity. With these 

proposed changes, a DMM could enter 

DMM Auction Liquidity after the end of 

Core Trading Hours only to close a 

security at a price that is at or closer to 

the Imbalance Reference Price than the 

published Continuous Book Clearing 

Price.23 The Exchange proposes to 

systematically enforce this new 

requirement and block any DMM buy 

and sell interest that does not meet 

these new requirements. 

The Exchange proposes to cancel 

DMM Orders (i.e., DMM buy and sell 

orders resting on the Exchange Book) at 

the end of Core Trading Hours because 

it also proposes that DMM Orders 

would not be eligible to participate in 

the Closing Auction.24 Therefore DMM 

Orders would not be included in the 

Auction Imbalance Information for the 

Closing Auction. The Exchange also 

proposes to eliminate the ability of a 

DMM to cancel any DMM Interest after 

the end of Core Trading Hours. To effect 

these changes, the Exchange proposes to 

amend Rule 7.35B(a)(2) as follows 

(proposed additions italicized, proposed 

deletions bracketed): 25

(2) DMM Interest: A DMM may enter 

[or cancel] DMM Auction 

Liquidity[Interest] after the end of Core 

Trading Hours [in order]only to [supply 

liquidity as needed to meet the DMM’s 

obligation to facilitate the Closing 

Auction in a fair and orderly 

manner]offset any Unpaired Quantity at 

the Closing Auction Price. Offsetting atpriced Yielding Orders will not be 

included in the calculation of the 

Unpaired Quantity that a DMM may 

offset with DMM Auction Liquidity. The 

entry of DMM Auction 

Liquidity[Interest] after the end of Core 

Trading Hours will not be subject to 

Limit Order Price Protection. DMM 

Orders will not be eligible to participate 

in the Closing Auction, will not be 

included in the Auction Imbalance 

Information for the Closing Auction, 

and will be cancelled at the end of Core 

Trading Hours. 

With this proposed change to Rule 

7.35B(a)(2), DMMs would have fewer 

tools available to manage the risk of the 

DMM leading into the Closing Auction, 

particularly since their DMM Orders 

would automatically be cancelled before 

the Closing Auction and they would be 

systematically restricted with respect to 

the side, price, and quantity of DMM 

Auction Liquidity that they may enter 

after the end of Core Trading Hours. Yet, 

as required by their obligations in Rule 

104, in connection with the Closing 

Auction, DMMs would still be required 

to contribute their own capital to supply 

liquidity as needed to assist in the 

maintenance of a fair and orderly 

market. In addition, DMMs would 

continue to have an obligation with 

respect to determining a Closing 

Auction Price that satisfies all betterpriced orders on the Side of the 

Imbalance. 

In recognition of both the continued 

obligations of DMMs with respect to the 

Closing Auction and their ongoing need 

to manage the risk of the DMM leading 

into the Closing Auction, the Exchange 

proposes to provide DMMs with 

different tools to participate in the 

Closing Auction. Specifically, the 

Exchange proposes to make the existing 

Closing D Order type available to 

DMMs. Currently, only Floor brokers 

may enter Closing D Orders. To enable 

DMMs to enter Closing D Orders, the 

Exchange proposes to amend Rule 

7.31(c)(2)(C)(i) to provide that a Closing 

D Order may be entered only by a Floor 

broker or DMM. The Exchange proposes 

that Closing D Orders would function 

for DMMs in a similar manner as they 

currently function for Floor brokers, 

with the following differences: 

First, the Exchange would not offer 

the Yielding Modifier to DMMs, and 

therefore a Closing D Order entered by 

the DMM could not include a Yielding 

Modifier.26 Accordingly, the Exchange 

proposes to amend Rule 7.31(c)(2)(C)(iii) 

to add the clause ‘‘entered by a Floor 

broker’’ to make clear that adding a 

Yielding Modifier to a Closing D Order 

would be available only to Floor 

brokers. 

Second, unlike Closing D Orders in 

NYSE-listed securities entered by a 

Floor broker, Closing D Orders entered 

by a DMM in NYSE-listed securities 

would not be able to participate in a 

52722 Federal Register / Vol. 86, No. 181 / Wednesday, September 22, 2021 / Notices 

27The Exchange does not propose this difference 

for Closing D Orders entered by DMMs in UTP 

Securities as such orders would be routed for 

participation in an opening or reopening auction on 

the primary listing market and DMMs would not 

have a unique role in those auctions. By contrast, 

because DMMs have a parity allocation in Core 

Open Auctions and Trading Halt Auctions, the 

Exchange believes it would simplify Exchange rules 

to provide that such orders would not participate 

in Exchange Core Open and Trading Halt Auctions. 

28The term ‘‘UTP Security’’ is defined in Rule 1.1 

to mean a security that is listed on a national 

securities exchange other than the Exchange and 

that trades on the Exchange pursuant to unlisted 

trading privileges. 

29See Rule 7.35(b)(1)(C)(ii). 

30As today, the Closing Auction Imbalance 

Information would not identify the source of orders 

included in the Continuous Book Clearing Price, 

including whether an order is entered by a DMM, 

Floor broker, or other member organization. 

Core Open Auction or Trading Halt 

Auction.27 As currently set forth in Rule 

7.31(c)(2)(C)(ii), on arrival, a Closing D 

Order is processed as a Limit Order and 

may trade or route prior to the Closing 

Auction, which means that such orders 

are eligible to trade both in continuous 

trading and in Auctions prior to the 

Closing Auction. Because the purpose of 

providing Closing D Orders to DMMs is 

to provide them with a tool to 

participate in Closing Auctions, the 

Exchange does not believe that Closing 

D Orders entered by DMMs in NYSElisted securities would need to 

participate in a Core Open Auction or 

Trading Halt Auction on the Exchange. 

To effect this proposed difference, the 

Exchange proposes to add the following 

text to Rule 7.31(c)(2)(C)(ii): 

provided that a Closing D Order entered by 

a DMM in an NYSE-listed security will not 

be eligible to trade in a Core Open Auction 

or Trading Halt Auction. The Exchange will 

reject a Closing D Order that is sent by a 

DMM in an NYSE-listed security either 

before the Core Open Auction or during a 

trading halt or pause, provided that the 

Exchange will accept such orders beginning 

ten minutes before the scheduled end of Core 

Trading Hours even if the security remains 

halted or paused or never opened. The 

Exchange will cancel a Closing D Order 

entered by a DMM in an NYSE-listed security 

if the security is halted or paused earlier than 

10 minutes before the scheduled end of Core 

Trading Hours. 

The reason why the Exchange would 

accept, or not cancel, a Closing D Order 

entered by a DMM in the last ten 

minutes of trading is because, as 

provided for in Rule 7.35(d), the 

Exchange will not open or reopen a 

security that has not yet opened or is 

halted or paused and will not transition 

to continuous trading if such opening or 

reopening would be in the last ten 

minutes of trading before the end of 

Core Trading Hours. Instead, the 

Exchange will remain unopened, halted, 

or paused and will close the security as 

provided for in the Rule 7.35 Series. 

Because in these circumstances, the 

Exchange would proceed to a Closing 

Auction, the Exchange proposes to 

accept (or not cancel) Closing D Orders 

entered by DMMs in NYSE-listed 

securities during this ten-minute period, 

even if the security is in a halt state 

during that period. 

Except for these differences, Closing D 

Orders entered by DMMs would 

function the same as they do for Floor 

brokers, including that: 

• Entry of such orders can begin at 

6:30 a.m. (Rule 7.34(a)(1)). 

• Such orders can be entered in any 

securities trading on the Exchange, 

including a UTP Security,28 and the 

DMM can provide instruction of 

whether a Closing D Order in a UTP 

Security would be routed to the primary 

listing market as either a MOC or LOC 

Order (Rule 7.31(c)(2)(iv)). 

• Such orders would be included in 

the Closing Auction Imbalance 

Information at their undisplayed 

discretionary price beginning five 

minutes before the end of Core Trading 

Hours (Rule 7.35(b)(1)(C)(ii)). 

• Beginning 10 seconds before the 

scheduled close of trading, a request to 

enter a Closing D Order in any security 

or to cancel, cancel and replace, or 

modify such order in an AuctionEligible Security would be rejected 

(Rule 7.35B(f)(3)). 

The Exchange further proposes to 

exclude Closing D Orders entered by a 

DMM from the definition of ‘‘DMM 

Orders’’ in Rule 7.35(a)(9)(B). With this 

change, the proposed reference to DMM 

Orders in the amendment to Rule 

7.35B(a)(2) would not include Closing D 

Orders, and therefore, Closing D Orders 

entered by a DMM would not be 

cancelled at the end of Core Trading 

Hours. The Exchange also proposes a 

clarifying change to Rule 7.35(a)(9)(C) to 

provide that DMM After-Auction Orders 

means ‘‘DMM Orders,’’ and not just 

‘‘orders.’’ With this change, the 

definition of DMM After-Auction Orders 

would similarly not include Closing D 

Orders entered by a DMM. The 

Exchange also proposes to delete the 

phrase ‘‘as defined under Rule 7.31’’ in 

Rule 7.35(a)(9)(C) as unnecessary 

because the defined term ‘‘DMM 

Orders’’ already references Rule 7.31. 

The Exchange believes that providing 

DMMs with the ability to enter Closing 

D Orders in their assigned securities 

would provide them with a replacement 

mechanism both to supply liquidity as 

needed for the Closing Auction, as 

required by Rule 104(a)(3), and to 

manage the risk of the DMM leading 

into the Closing Auction, in a manner 

that is more transparent and 

deterministic than the current process. 

Specifically, the Exchange proposes that 

Closing D Orders entered by a DMM 

would be included in the Closing 

Auction Imbalance Information at their 

undisplayed discretionary price 

beginning five minutes before the end of 

Core Trading Hours, which is when 

Closing D Orders entered by Floor 

brokers are included in the Closing 

Auction Imbalance Information.29 With 

this change, Closing D Orders entered 

by DMMs would be reflected in the 

Closing Auction Imbalance Information, 

which is not the case for DMM Interest 

currently entered or cancelled after the 

end of Core Trading Hours. Market 

participants would be able to respond to 

any changes in the Closing Auction 

Imbalance Information that may result 

from Closing D Orders entered by 

DMMs by entering interest into the 

continuous order book or retaining the 

services of a Floor broker to enter 

Closing D Orders on their behalf.30

Moreover, because Closing D Orders 

entered by DMMs would function 

similarly to Closing D Orders entered by 

Floor brokers, and would not be 

permitted to be entered or cancelled in 

the last ten seconds of trading, the 

manner by which the Continuous Book 

Clearing Price would be determined 

would be the same as today and would 

not change in the last ten seconds due 

to the entry of a Closing D Order. In 

addition, because DMMs could not enter 

or cancel any new interest after the end 

of Core Trading Hours (other than 

offsetting interest), the potential range of 

Closing Auction Prices would no longer 

be able to be changed by a DMM after 

the end of Core Trading Hours. 

The Exchange further believes that 

providing DMMs with the ability to 

enter Closing D Orders in all securities 

that trade on the Exchange, including 

UTP Securities, would generally 

support the maintenance of a fair and 

orderly market in securities traded on 

the Exchange by providing for a 

mechanism for DMMs to enter such 

orders directly. Currently, a DMM may 

choose to use a Floor broker to enter 

Closing D Orders in securities that have 

not been assigned to that DMM. The 

Exchange believes that allowing DMMs 

to enter Closing D Orders directly would 

reduce operational complexity and cost 

for DMMs, thereby creating an incentive 

for additional firms to register as a 

DMM. This proposed change would also 

make it easier for regulatory staff to 

monitor DMM trading activity on the 

Exchange. 

The Exchange also believes that 

providing DMMs with the ability to 

Federal Register / Vol. 86, No. 181 / Wednesday, September 22, 2021 / Notices 52723 

31Pursuant to Rule 98(c)(1), to operate a DMM 

unit, a member organization must obtain approval 

from the Exchange. To obtain approval, among 

other things, the DMM unit must maintain and 

enforce written policies and procedures consistent 

with Rule 98 requirements relating both to 

protecting material non-public information 

generally, and more specifically to protecting 

against the misuse of Floor-based non-public order 

information. 

32See Rule 7.35B(h)(1). 33Under Rule 7.36(a)(5), the term ‘‘DMM 

Participant’’ means the DMM assigned to the 

security. Accordingly, a DMM is eligible for a DMM 

Participant parity allocation only in securities 

assigned to that DMM. 

34Under Rule 7.36(a)(5), the term ‘‘Book 

Participant’’ means orders collectively represented 

in the Exchange Book that have not been entered 

by a Floor broker or DMM. Pursuant to Rule 

7.37(b)(5), an allocation to the Book Participant will 

be allocated to orders that comprise the Book 

Participant by working time. 

35The Exchange proposes a non-substantive 

amendment to re-number current Rules 

7.35B(h)(2)(E) and (F) as proposed Rules 

7.35B(h)(2)(F) and (G). 

enter Closing D Orders in all securities 

that trade on the Exchange would serve 

as an incentive for additional brokerdealers to register as a DMM on the 

Exchange. Currently, there are 

numerous costs associated with 

becoming a DMM. For example, before 

being approved to operate as a DMM, 

among other things, a firm must develop 

and implement DMM-specific 

technology designed to interface with 

Exchange systems consistent with the 

obligations under Rule 104 (e.g., to 

maintain depth and continuity in 

assigned securities and to facilitate 

Auctions both manually and 

electronically); hire, train, and maintain 

staff on the Trading Floor; and develop 

and implement policies and procedures 

and surveillances designed to comply 

with DMM-specific rules (e.g., Rules 36, 

98, and 104).31 The Exchange 

understands that in the past, to justify 

incurring such upfront costs, firms 

would not register as a DMM firm 

unless they had certainty that once they 

started operations as a DMM, they 

would have had a roster of listed 

securities allocated to the firm. In the 

past, this has been achieved by a new 

entrant acquiring an existing DMM firm, 

with the new firm being allocated the 

listed securities previously allocated to 

the acquired firm. In the absence of such 

opportunities, which would arise only if 

an existing firm seeks to exit the DMM 

business, the Exchange believes that 

providing potential new DMM entrants 

with additional opportunities to provide 

liquidity across all securities that trade 

on the Exchange may serve as an 

incentive for new entrants to undertake 

the costs to register as a DMM unit 

without a significant roster of allocated 

securities. The Exchange believes that 

additional DMMs would promote 

diversity of DMMs on the Exchange, 

providing greater choice to issuers when 

selecting the DMM that would be 

assigned to their securities. 

DMM Interest Allocation in the 

Closing Auction. Because of the changes 

to what type of DMM interest would be 

eligible to participate in a Closing 

Auction, the Exchange proposes to 

change how much such DMM Interest 

would be allocated in a Closing 

Auction, as described in Rule 7.35B(h), 

as follows: 

First, the Exchange proposes to amend 

Rule 7.35B(h)(1) to provide that betterpriced Closing D Orders—whether 

entered by a Floor broker or a DMM— 

would be guaranteed to participate in 

the Closing Auction (subject to DMM 

allocation self-trade prevention, 

described below). The Exchange 

believes that because DMMs would be 

entering Closing D Orders before the 

end of Core Trading Hours and such 

interest would be included in the 

Closing Auction Imbalance Information, 

if they are better-priced orders, they 

should be included in the Closing 

Auction in the same manner that all 

other better-priced orders entered by 

other member organizations are 

allocated in the Closing Auction. The 

Exchange does not consider this a 

benefit for DMMs because all betterpriced interest is guaranteed to 

participate in the Closing Auction.32

Therefore, DMMs would not receive a 

different allocation opportunity from 

other participants for such better-priced 

Closing D Orders. 

Second, the Exchange proposes to 

amend Rule 7.35B(h)(2)(A) to provide 

that at-priced Closing D Orders entered 

by a DMM in securities that are assigned 

to that DMM would be included in the 

DMM Participant 33 for purposes of a 

parity allocation. Rule 7.35B(h)(2) 

currently provides that at-priced orders 

and DMM Interest of any price are not 

guaranteed to participate in the Closing 

Auction. The Exchange proposes that atpriced Closing D Orders would also not 

be guaranteed to participate in the 

Closing Auction. In addition, current 

Rule 7.35B(h)(2)(A) further provides 

that orders ranked Priority 2—Display 

Orders, which include DMM Interest, 

are ranked on parity by Participant 

pursuant to Rule 7.37(b)(2)–(7). 

Accordingly, currently, at-priced DMM 

Interest is allocated on parity by DMM 

Participant in the Closing Auction. The 

Exchange therefore believes that ranking 

at-priced Closing D Orders entered by a 

DMM in its assigned securities on parity 

by DMM Participant would not be 

novel. The distinction from current 

rules, however, would be that Closing D 

Orders would be required to be entered 

before the end of Core Trading Hours. 

By contrast, under the current rules, 

DMMs could receive a parity allocation 

of at-priced DMM Interest entered after 

the end of Core Trading Hours. 

In addition, proposed Rule 

7.35B(h)(2)(A) would provide that atpriced Closing D Orders entered by a 

DMM in securities not assigned to that 

DMM would be included in the Book 

Participant. This allocation 

methodology would be new because, 

currently, a member organization acting 

in its capacity as a DMM is not 

permitted to enter orders in securities 

that are not assigned to it. Because a 

member organization entering orders in 

NYSE-listed securities not assigned to it 

in its capacity as a DMM would not be 

functioning as a DMM, the Exchange 

proposes that such at-priced Closing D 

Orders be included in the Book 

Participant 34 for purposes of parity 

allocations in the Closing Auction. 

Third, the Exchange proposes to 

amend Rule 7.35B(h)(2) to add new 

subparagraph (E) providing that DMM 

Auction Liquidity, i.e., the offsetting 

interest that a DMM would be permitted 

to enter after the end of Core Trading 

Hours in connection with facilitating 

the Closing Auction and that would 

always be at-priced interest, would be 

allocated after both LOC Orders and 

Closing IO Orders.35 This would be 

new, because currently, all at-priced 

DMM Interest, including that entered 

after the end of Core Trading Hours, 

would be allocated before at-priced LOC 

Orders and Closing IO Orders. As 

described above, the Exchange proposes 

that only at-priced interest entered by a 

DMM before the end of Core Trading 

Hours, i.e., Closing D Orders, would be 

allocated before LOC Orders and 

Closing IO Orders. However, that would 

not be a unique benefit because 

currently, all displayed and nondisplayed orders, including Closing D 

Orders entered by Floor brokers, are 

allocated before LOC Orders and 

Closing IO Orders. Accordingly, DMMs 

would not receive a unique benefit with 

this allocation sequence. 

As proposed, DMM Auction 

Liquidity, which can be entered only 

after the end of Core Trading Hours, 

would be allocated after the following 

at-priced orders have any opportunity to 

participate in the Closing Auction: 

orders ranked Priority 2—Displayed 

Orders and Closing D Orders; orders 

ranked Priority 3—Non-Display Orders; 

LOC Orders; and Closing IO Orders. As 

further proposed, among at-priced 

orders, DMM Auction Liquidity would 

52724 Federal Register / Vol. 86, No. 181 / Wednesday, September 22, 2021 / Notices 

36The second sentence of Rule 7.35(a)(9)(A) 

currently provides that ‘‘[f]or purposes of ranking 

and allocation in an Auction, DMM Auction 

Liquidity is ranked Priority 2—Display Orders.’’ 

37Current Rule 7.35B(h)(3)(A) provides: ‘‘Atpriced DMM Orders will be placed on the allocation 

wheel for the Closing Auction based on the time of 

entry and any other orders or interest from such 

DMM will join that position on the allocation 

wheel. If the only DMM Interest available to 

participate in a Closing Auction is DMM Auction 

Liquidity or better priced DMM Orders or both, 

such DMM Interest will be placed last on the 

allocation wheel.’’ 

38Under Rule 7.31(i)(2)(C)(i), STPD works as 

follows: ‘‘if both orders are equivalent in size, both 

orders will be cancelled back to the originating 

member organization. If the orders are not 

equivalent in size, the equivalent size will be 

cancelled back to the originating Client ID and the 

larger order will be decremented by the size of the 

smaller order with the balance remaining on the 

Exchange Book.’’ 

39As described above, the STPD functionality 

would be implemented for DMMs as a tool to help 

enable them to meet their obligations to facilitate 

the Closing Auction in a fair and orderly manner 

while systematically preventing the DMM from 

engaging in certain trading activity such as ‘‘wash 

sales.’’ The Exchange notes that it does not propose 

to implement self-trade prevention for all market 

participants in the Closing Auction, rather only for 

the limited case of DMM Auction Liquidity entered 

after the end of Core Trading Hours. Because the 

Closing Auction is a single transaction involving 

many different participants at a single clearing 

price, it would be difficult to implement this 

functionality from a technological and operational 

perspective across multiple parties and all other 

types of auction interest because it would require 

the Exchange to continually provisionally cancel 

and recalculate the prospective auction. 

40Rule 104(g)(1)(B) defines the ‘‘position of the 

DMM unit’’ for purposes of Rule 104(g)(1)(B) as 

‘‘the DMM unit’s inventory of securities exclusive 

of pending, unexecuted orders and has the same 

meaning as ‘net position information in DMM 

securities’ in Rule 98(c)(5).’’ 

41See Securities Exchange Act Release No. 81150 

(July 1, 2017), 82 FR 33534, 33536 (July 20, 3017) 

(SR–NYSE–2016–71) (‘‘Disapproval Order’’). The 

Exchange has since amended Rule 104 to revise 

how Prohibited Transactions function on the 

receive an allocation opportunity before 

orders ranked Priority 4—Yielding 

Orders and Closing D Orders with a 

Yielding Modifier. The Exchange 

believes that this allocation would be 

consistent with a fair and orderly 

market because orders with a Yielding 

Modifier are, by their terms, 

conditional, intended to yield to other 

available interest, and not guaranteed an 

execution in the Closing Auction. 

As noted above in connection with 

the discussion relating to proposed 

amendments to Rule 7.35B(a)(2), 

because DMM Auction Liquidity would 

be allocated ahead of Yielding Orders, 

the Exchange would not include 

offsetting at-priced Yielding Orders in 

the calculation of the Unpaired Quantity 

that would be provided to DMMs to let 

them know the full quantity of DMM 

Auction Liquidity that they would be 

eligible to trade at a price point. In 

addition, because the Exchange 

proposes to change how DMM Auction 

Liquidity would be ranked and 

allocated in a Closing Auction, the 

Exchange proposes to amend the second 

sentence of Rule 7.35(a)(9)(A) 36 to 

specify that the ranking and allocation 

of DMM Auction Liquidity, as described 

in that Rule, would be applicable only 

for a Core Open Auction or Trading Halt 

Auction. 

Finally, the Exchange proposes to 

amend Rule 7.35B(h)(3)(A) relating to 

DMM Participant allocation. The 

current rule addresses how DMM 

Orders would be allocated within the 

DMM Participant.37 Because DMM 

Orders would no longer participate in 

the Closing Auction, the Exchange 

proposes to delete the current rule text. 

The Exchange proposes that Rule 

7.35B(h)(3)(A) would instead address 

how the Exchange would apply selftrade prevention within the DMM 

Participant Allocation. 

As noted above, a DMM would not be 

able to enter or cancel Closing D Orders 

in the last ten seconds of Core Trading 

Hours. In addition, DMMs would be 

permitted to enter DMM Auction 

Liquidity after the end of Core Trading 

Hours, and only to offset Unpaired 

Quantity at the Closing Auction Price. 

Accordingly, it could be possible that a 

DMM has a Closing D Order to buy (sell) 

that is eligible to participate in the 

Closing Auction when there is a buy 

(sell) Unpaired Quantity, and therefore 

the DMM may be entering offsetting 

DMM Auction Liquidity to sell (buy). If 

the prices of two such contra-side orders 

either lock or cross, the Exchange 

proposes to apply STP Decrement and 

Cancel (‘‘STPD’’), as described in Rule 

7.31(i)(2)(C)(i), to such locking/crossing 

interest.38 The Exchange believes that 

by applying STPD, the Exchange would 

systematically ensure that DMM 

Auction Liquidity would not trade in a 

Closing Auction where there are also 

contra-side Closing D Orders entered by 

the DMM.39 It would also ensure that 

only the equivalent size of the two 

orders would be cancelled. Therefore, 

such cancellation would have minimal 

impact on how the Closing Auction 

Price would be determined. The 

Exchange further proposes that if there 

is more than one Closing D order to sell 

(buy) to be cancelled, such orders would 

be cancelled in price/time sequence, 

from lowest (highest) price first, and 

then at each price, from oldest to 

newest. 

Exchange-Facilitated Auctions. Rule 

7.35C(a)(1) currently provides that if the 

Exchange facilitates an Auction, DMM 

Interest will not be eligible to 

participate if such Auction results in a 

trade and will be eligible to participate 

if such Auction results in a quote. The 

Exchange proposes that because, as 

described above, Closing D Orders 

entered by DMMs would be processed 

similarly to Floor broker Closing D 

Orders, including that they would be 

included in Closing Auction Imbalance 

Information, Closing D Orders entered 

by a DMM be processed similarly to 

Closing D Orders entered by Floor 

brokers in an Exchange-facilitated 

Auction. Accordingly, the Exchange 

proposes to amend Rule 7.35C(a)(1) to 

provide that Closing D Orders entered 

by a DMM would be eligible to 

participate in an Exchange-facilitated 

Closing Auction. 

Proposed Amendments to Rules 104 and 

98 

Prohibited Transactions. In 

connection with the above-described 

changes to the process for DMMfacilitated Closing Auctions, the 

Exchange proposes to amend Rule 104 

to eliminate the current restriction on 

DMMs engaging in ‘‘Prohibited 

Transactions’’ during the last ten 

minutes of trading prior to the 

scheduled close of trading. The 

Exchange believes that the proposed 

changes to the Closing Auction process 

obviate the need for this current 

restriction and the Exchange proposes to 

delete the text currently set forth in Rule 

104(g)(1)(B) and subparagraph (i) thereto 

in its entirety. 

Rule 104(g)(1)(A) currently defines an 

‘‘Aggressing Transaction’’ as a DMM 

unit transaction that: ‘‘(i) is a purchase 

(sale) that reaches across the market to 

trade as the contra-side to the Exchange 

published offer (bid); and (ii) is priced 

above (below) the last differently-priced 

trade on the Exchange and above 

(below) the last differently-priced 

published offer (bid) on the Exchange.’’ 

Rule 104(g)(1)(B) further provides that: 

Aggressing Transactions during the last ten 

minutes prior to the scheduled close of 

trading that would result in a new high (low) 

price for a security on the Exchange for the 

day at the time of the DMM’s transaction are 

prohibited, unless such transaction would 

match another market’s better bid or offer 

price, bring the price of that security into 

parity with an underlying or related security 

or asset, or would liquidate or decrease the 

position of the DMM unit.40

These are referred to as ‘‘Prohibited 

Transactions.’’ When the Exchange 

previously sought to remove Prohibited 

Transactions, the Commission 

disapproved the proposed rule change 

and noted that it analyzed the proposal 

‘‘in the context of the unique role 

played by DMMs on the Exchanges.’’ 41

Federal Register / Vol. 86, No. 181 / Wednesday, September 22, 2021 / Notices 52725 

Exchange. See Securities Exchange Act Release No. 

85637 (April 12, 2019), 84 FR 16079 (SR–NYSE– 

2018–34) (Order approving amendments to Rule 

104, including modifying the definition of 

prohibited transactions) (‘‘Prohibited Transactions 

Approval Order’’). 

42See Rule 7.35B(a)(1)(B). 

43See Securities Exchange Act Release No. 89086 

(June 17, 2020), (SR–NYSE–202–52) (Commentary 

.03 to Rule 7.35B was in effect on a temporary basis 

from June 17, 2020 until July 23, 2021, when the 

Commission issued the Floor Broker Interest 

Approval Order). 

44See Floor Broker Interest Approval Order, 

supra note 7. 

In assessing the DMM’s benefits and 

obligations with respect to the close, in 

the Disapproval Order, the Commission 

reiterated that it assesses ‘‘whether the 

rewards granted to DMMs . . . are 

commensurate with their obligations’’ 

and whether Exchange rules reflect ‘‘an 

appropriate balance of DMM obligations 

against the benefits provided to DMMs.’’ 

With respect to that proposed rule 

change, the Commission found that 

‘‘[i]n return for their obligations and 

responsibilities, DMMs have significant 

priority and informational advantages in 

trading on the Exchanges, both during 

continuous trading and during the 

closing auction.’’ Among other things, 

the Commission noted that ‘‘during the 

Auction itself, DMMs are aware of 

interest represented by Floor brokers, 

which is not publicly disseminated.’’ 

The Commission further noted that 

‘‘when offsetting an imbalance during 

the closing auction, DMM interest trades 

at parity with limit orders on the 

Exchange order book, and DMM interest 

takes priority over limit-on-close orders 

with a price equal to the closing price 

and over closing-offset orders.’’ 

Since 2017, the Exchange has 

implemented changes relating to trading 

functions on the Exchange leading into 

the Closing Auction that have altered 

the balance of DMM obligations against 

the benefits provided to DMMs. First, in 

2019, in connection with the transition 

to the Pillar trading platform, the 

Exchange amended its rules to provide 

that Floor Broker Interest (i.e., interest 

verbalized in the trading crowd by a 

Floor Broker) would be included in 

Closing Auction Imbalance 

Information.42 Accordingly, from 

August 2019, when Pillar was 

implemented, until March 2020, when 

the Trading Floor was temporarily 

closed as a precaution to prevent the 

spread of COVID–19, the information 

available to DMMs regarding Floor 

Broker Interest became available to 

subscribers of the Closing Auction 

Imbalance Feed. 

Second, beginning in 2020, the 

Exchange temporarily suspended the 

availability of Floor Broker Interest to be 

eligible to participate in the Closing 

Auction.43 The Exchange recently 

amended its rules to permanently 

exclude Floor Broker Interest from the 

Closing Auction.44 Because of the 

absence of Floor Broker Interest in the 

Closing Auction, any remaining 

information advantage that DMMs might 

have had with respect to orders from 

Floor brokers—even after such interest 

was included in the Closing Auction 

Imbalance Information—has since been 

eliminated. Accordingly, one of the 

information advantages of DMMs that 

the Commission cited to in the 

Disapproval Order no longer exists. 

The Exchange believes that this 

proposed rule change further alters the 

balance of DMM obligations compared 

to the benefits provided to DMMs with 

respect to the Closing Auction. The 

Exchange believes that in the aggregate, 

these changes (including the 

elimination of Floor Broker Interest) 

result in a shift that decreases the 

benefits available to DMMs without a 

commensurate decrease in obligations. 

Specifically, with this proposed rule 

change: 

• DMMs must still meet their Rule 

104 obligation to facilitate the Closing 

Auction and supply liquidity as needed. 

They must also select an Auction Price 

that satisfies all better-priced orders on 

the Side of the Imbalance. However, 

they would now be systematically 

restricted as to the price range at which 

the Closing Auction Price could be 

determined. As proposed, if the Side of 

the Imbalance is to buy (sell), the 

Auction Price must be at or above 

(below) the last-published Imbalance 

Reference Price and not above (below) 

the last-published non-zero Continuous 

Book Clearing Price. Accordingly, with 

this proposed change, DMMs will be 

subject to a further limitation on how 

they may select the Closing Auction 

Price. By contrast, under current rules, 

there is no express requirement for a 

DMM to close a stock within the 

Continuous Book Clearing Price, 

although DMMs are obligated to, among 

other things, supply liquidity as needed 

to facilitate the Closing Auction in a fair 

and orderly manner. This proposed 

change promotes transparency and 

determinism of the Closing Auction 

Price and systematically constrains how 

a DMM selects a Closing Auction Price. 

The Exchange therefore believes that 

this proposed change decreases the 

unique benefits granted to the DMMs 

without decreasing the obligations on 

the DMMs with respect to the Closing 

Auction. 

• The only interest that a DMM may 

enter after the end of Core Trading 

Hours to participate in the Closing 

Auction would be DMM Auction 

Liquidity, and such interest could be 

entered only to offset Unpaired Quantity 

at the Auction Price. Such interest is 

thus restricted by side, price, and 

quantity. By contrast, under current 

rules, DMMs have no systematic 

restrictions on entering or cancelling 

DMM Interest after the end of Core 

Trading Hours. This change ensures that 

DMM Auction Liquidity could be used 

only to dampen significant price 

movements at the close. The Exchange 

believes this proposed change 

significantly decreases unique benefits 

to the DMMs because they would still 

be required to supply liquidity as 

needed to support a fair and orderly 

Closing Auction, but would have 

limited tools to enter any such interest 

after the end of Core Trading Hours. The 

Exchange proposes to make the Closing 

D Order available to DMMs in part to 

offset this reduction of unique benefits 

with respect to entering or cancelling 

DMM Interest after the end of Core 

Trading Hours. However, unlike how 

DMMs currently may enter and cancel 

DMM Interest, DMMs would not receive 

any unique treatment with respect to the 

availability of this order type. To the 

contrary, Closing D Orders for DMMs 

would function similarly to Closing D 

Orders available to Floor brokers, 

including that they may not be entered 

or cancelled in the last ten seconds of 

trading and the interest would be 

included in the Closing Auction 

Imbalance Information. Accordingly, the 

Exchange is not providing a bespoke 

tool for DMMs to supply liquidity for 

the Closing Auction. In addition, the 

Exchange proposes to make Closing D 

Orders available for a wholly 

independent reason to provide an 

incentive for more broker-dealers to 

seek to register as a DMM, which would 

increase DMM diversity on the 

Exchange to increase issuer choice. 

• DMM Auction Liquidity entered in 

connection with facilitating the Closing 

Auction would, by its terms, be atpriced interest and would be allocated 

after at-priced displayed orders, nondisplayed orders, LOC Orders, and 

Closing IO Orders. Accordingly, unlike 

at-priced DMM Interest under current 

Rules, it would not have priority over 

LOC Orders and Closing IO Orders. 

While such DMM Auction Liquidity 

would have priority over orders with a 

Yielding Modifier, the Exchange notes 

that such orders are, by their terms, 

conditional in nature and designed to 

yield to other orders. Accordingly, 

DMMs would have a reduced benefit in 

connection with Closing Auction 

52726 Federal Register / Vol. 86, No. 181 / Wednesday, September 22, 2021 / Notices 

45As noted above, DMM unit algorithms are not 

provided aggregated buying and selling interest for 

the Closing Auction until after the end of Core 

Trading Hours. 46See Disapproval Order at 33536, supra, note 40. 

47See Securities Exchange Act Release No. 86131 

(June 18, 2019), 84 FR 29565 (June 23, 2019) (SR– 

NYSE–2019–25) (Notice of filing and immediate 

effectiveness of proposed rule change). See also 

Prohibited Transactions Approval Order, supra note 

40. 

allocations for their at-priced DMM 

Auction Liquidity. The Exchange notes 

that the proposed allocation of Closing 

D Orders entered by the DMM would 

not provide them with a unique benefit 

because they would function similarly 

to Closing D Orders entered by Floor 

brokers. Accordingly, if a Closing D 

Order is better-priced, it would be 

guaranteed to participate in the Closing 

Auction (subject to DMM-specific selftrade prevention), just as any other 

better-priced interest would be 

guaranteed an allocation. In addition, 

that information would be transparent 

because such Closing D Orders would 

be included in Closing Auction 

Imbalance Information. DMMs would 

therefore not be receiving a unique 

benefit in this allocation. The Exchange 

further believes it is appropriate that atpriced DMM-entered Closing D Orders 

in their assigned securities would be 

allocated on parity as part of the DMM 

Participant because DMMs would 

continue to have a significant obligation 

with respect to the Closing Auction, and 

the benefit associated with a parity 

allocation for such orders is designed to 

offset that obligation, in part. The 

Exchange would not propose the same 

benefit for Closing D Orders entered by 

a DMM in securities that are not 

assigned to the DMM; in such case, such 

orders would be included in the Book 

Participant, and therefore would not 

receive any allocation priority over 

other market participants. 

DMMs would continue to have 

benefits in connection with their unique 

role. For example, at the point of sale, 

DMMs have access to aggregated buying 

and selling interest that is eligible to 

participate in the Closing Auction.45

However, pursuant to current Rule 

104(h)(ii), a DMM may not use any 

information provided by Exchange 

systems in a manner that would violate 

Exchange rules or federal securities laws 

or regulations. In addition, pursuant to 

current Rule 104(h)(iii), Floor brokers 

may request that a DMM provide them 

with the information that is available to 

the DMM at the post, including such 

aggregated buying and selling interest 

for the Closing Auction. The Exchange 

continues to believe that it benefits the 

trading community as a whole to 

continue to make such information 

available to DMMs because Floor 

brokers who request such market looks 

can use that information to provide their 

customers with information necessary 

for them to make trading decisions 

leading into the close. 

Providing Closing D Orders to DMMs 

would also provide them with a benefit. 

However, that benefit would not be 

unique to DMMs, as this order type is 

also available to Floor brokers. Because 

all Floor brokers operate on an agencyonly basis, any market participant can 

avail themselves of Floor broker services 

and use Closing D Orders. The Exchange 

also believes that providing Closing D 

Orders to DMMs is designed to offset 

the current significant barriers to entry 

for new DMM firms on the Exchange, 

which is an obligation independent of 

the obligations related to the Closing 

Auction. 

In the aggregate, the Exchange 

believes that the above-described 

changes have altered the balance of 

benefits and obligations for DMMs and 

the resulting scope of obligations would 

no longer be commensurate with DMM 

benefits. For example, with respect to 

the benefits specifically identified by 

the Commission in the Disapproval 

Order, DMMs no longer have an 

informational advantage relating to 

Floor broker verbal interest at the close 

and their at-priced DMM Auction 

Liquidity would no longer have priority 

over LOC or Closing IO Orders. 

The Exchange believes that as a result 

of these significant alterations to DMM 

obligations and benefits, any current 

need for Prohibited Transactions as a 

DMM obligation has been obviated. As 

described by the Commission, 

Prohibited Transactions provide for a 

bright-line rule designed to prevent a 

DMM from aggressively taking liquidity 

and moving prices on the Exchange 

immediately before the Closing Auction, 

and therefore destabilizing the market.46

Prohibited Transactions make sense 

when a DMM has discretion over the 

Closing Auction Price and when a DMM 

can enter and cancel interest after the 

end of Core Trading Hours. However, 

with the proposed changes described in 

this filing, DMM discretion is explicitly 

limited; the Closing Auction Price must 

be within a defined and transparent 

parameter that cannot be changed after 

the end of Core Trading Hours and 

DMMs would be limited in what 

offsetting interest they can enter after 

the end of Core Trading Hours. So while 

the DMM would still have an obligation 

to facilitate the Closing Auction and 

supply liquidity as needed, DMMs 

would no longer have the same 

discretion in how they fulfill this 

obligation. As a result, any trading 

activity that a DMM would engage in 

the last ten minutes of trading would be 

no different than how other market 

participants trade leading into the close. 

Because the Exchange proposes to 

eliminate Prohibited Transactions, the 

Exchange proposes to make a 

conforming amendment to Rule 98 to 

delete subparagraphs (c)(5) and (c)(5)(A) 

and renumber subparagraphs (c)(6) and 

(c)(7) as (c)(5) and (c)(6). The Exchange 

added Rule 98(c)(5) for the sole purpose 

of requiring DMMs to provide net 

position information in connection with 

monitoring their compliance with 

Prohibited Transactions.47 Accordingly, 

if Prohibited Transactions are 

eliminated, that reporting requirement 

becomes obsolete. 

Proposed Non-Substantive 

Amendments to Rule 104. In addition to 

eliminating prohibited transactions, the 

Exchange proposes to amend Rule 104 

to eliminate obsolete rule text and 

update rule references, and make other 

conforming changes, as follows: 

• The Exchange proposes to amend 

Rule 104(a)(2) to update the cross 

reference from Rule 123D to Rule 7.35A 

and to use the Pillar terms of ‘‘Core 

Open Auctions and Trading Halt 

Auctions’’ instead of referring to 

‘‘openings.’’ The Exchange also 

proposes to delete the reference to Rule 

13 and Reserve Order interest 

procedures at the opening as obsolete. 

Finally, the Exchange proposes to delete 

the reference to Supplementary Material 

.05 to Rule 104 with respect to odd-lot 

order information to the DMM unit 

algorithm, as this is also obsolete now 

that the Exchange trades on Pillar. 

• The Exchange proposes to amend 

Rule 104(a)(3) to update the cross 

reference from Rule 123C to Rule 7.35B 

and to use the Pillar term of ‘‘Closing 

Auctions’’ instead of ‘‘closes.’’ The 

Exchange also proposes to delete the 

reference to Rule 13 and Reserve Order 

interest procedures at the close as 

obsolete. 

• The Exchange proposes to amend 

Rule 104(b) by deleting subparagraphs 

(2) and (6) and replacing the text for 

Rule 104(b)(2) with the following: 

‘‘Unless otherwise specified in Rule 

7.31, DMM unit algorithms may use the 

orders and modifiers set forth in Rule 

7.31.’’ 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 

Federal Register / Vol. 86, No. 181 / Wednesday, September 22, 2021 / Notices 52727 

48 15 U.S.C. 78f(b). 

49 15 U.S.C. 78f(b)(5). 

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.’’ 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 Rule 

7.31(i)(2). 

Rule 104(b)(6) currently provides that 

‘‘DMM Units may not enter the 

following orders and modifiers: Market 

Orders, MOO Orders, CO Orders, MOC 

Orders, LOC Orders, or Buy Minus Zero 

Plus Instructions.’’ In the Pillar rules, 

Rule 7.31 sets forth which orders and 

modifiers are not available to DMMs, 

and therefore Rule 104(b)(6) is obsolete. 

The Exchange believes that the 

proposed new text for Rule 104(b)(2) 

would provide transparency that Rule 

7.31 would describe which orders and 

modifiers would be available to DMMs, 

including STP modifiers. 

• The Exchange proposes to amend 

Rule 104(b)(3) to delete references to 

‘‘Floor broker agency interest files or 

reserve interest’’ as such references are 

now obsolete. The Exchange 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 Rule 7.31. 

• The Exchange proposes to amend 

Rule 104(b) by deleting subparagraph 

(4), which provides that ‘‘[t]he DMM 

unit’s algorithm may place within 

Exchange systems trading interest to be 

known as a ‘‘Capital Commitment 

Schedule’’. (See Rule 1000 concerning 

the operation of the Capital 

Commitment Schedule).’’ With the 

transition to Pillar, the Exchange has 

replaced the ‘‘Capital Commitment 

Schedule’’ with Capital Commitment 

Orders, as described in Rule 7.31(d)(5), 

and has deleted Rule 1000. Accordingly, 

this current rule is obsolete. The 

Exchange proposes a non-substantive 

amendment to renumber Rule 104(b)(5) 

as 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. 

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.’’ Rule 7.31 now 

describes how Reserve Orders function. 

Rule 104(d) currently provides: ‘‘A 

DMM unit may provide algorithmicallygenerated price improvement to all or 

part of an incoming order that can be 

executed at or within the Exchange BBO 

through the use of Capital Commitment 

Schedule interest (see Rule 1000). Any 

orders eligible for execution in 

Exchange systems at the price of the 

DMM unit’s interest will trade on parity 

with such interest, as will any displayed 

interest representing a d-Quote enabling 

such interest to trade at the same price 

as the DMM unit’s interest.’’ As noted 

above, with Pillar, the Exchange has 

deleted Rule 1000 and no longer offers 

the Capital Commitment Schedule to 

DMMs. 

Rule 104(e) currently provides: ‘‘DMM 

units shall provide contra side liquidity 

as needed for the execution of odd-lot 

quantities that are eligible to be 

executed as part of the opening, reopening and closing transactions but 

remain unpaired after the DMM has 

paired all other eligible round lot sized 

interest.’’ This requirement is obsolete. 

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 update crossreferences in proposed Rule 104(e)(iii) 

from subparagraph (h)(ii) and (iii) to 

(e)(ii) and (iii). 

• The Exchange proposes to amend 

current Rule 104(h)(ii) (proposed Rule 

104(e)(ii)) to delete reference to 

information that is no longer available 

to a DMM at the post. Specifically, the 

Exchange no longer provides DMMs at 

the post with the following information: 

‘‘the price and size of any individual 

order or Floor broker agency interest file 

and the entering and clearing firm 

information for such order, except that 

the display shall exclude any order or 

portion thereof that a market participant 

has elected not to display to a DMM’’. 

Accordingly, the Exchange proposes to 

amend Rule 104(e)(ii) to delete that rule 

text. 

* * * * * 

The Exchange proposes that the nonsubstantive amendments to Rule 104 

(not including the proposed elimination 

of prohibited transactions) would be 

operative immediately upon approval of 

this proposed rule change. Because of 

the technology changes associated with 

the proposed changes to the Closing 

Auction process and availability of 

Closing D Orders for DMMs, the 

Exchange proposes that, subject to 

approval of the proposed rule change, 

the Exchange will announce the 

implementation date of the remaining 

proposed rule changes, including the 

elimination of prohibited transactions, 

by Trader Update. Subject to approval of 

this proposed rule change, the Exchange 

anticipates that such changes will be 

implemented in the first half of 2022. 

2. Statutory Basis 

The Exchange believes that the 

proposal is consistent with Section 6(b) 

of the Act,48 in general, and furthers the 

objectives of Sections 6(b)(5) of the 

Act,49 in particular, because it is 

designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to foster cooperation and 

coordination with persons engaged in 

regulating, clearing, settling, processing 

information with respect to, and 

facilitating transactions in securities, to 

remove impediments to, and perfect the 

mechanisms of, a free and open market 

and a national market system and, in 

general, to protect investors and the 

public interest and because it is not 

designed to permit unfair 

discrimination between customers, 

issuers, brokers, or dealers. 

Proposed Changes to Closing Auction 

Price. The Exchange believes that the 

proposed amendment to Rule 7.35B(g) 

regarding how the Closing Auction Price 

would be determined would remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system because it 

would promote a more transparent and 

deterministic Closing Auction process. 

Specifically, the proposed change 

would require that the DMM determine 

a Closing Auction Price that is at or 

between the last-published Imbalance 

Reference Price and Continuous Book 

Clearing Price. Accordingly, the Closing 

Auction Price must be within a predetermined range of prices that would 

have been disseminated via the Closing 

Auction Imbalance Information and that 

cannot be changed after the end of Core 

Trading Hours. The Exchange further 

believes that this proposed parameter is 

consistent with how Closing Auction 

Prices have been determined for the vast 

majority of Closing Auctions. For 

example, in the period January 1, 2021 

to July 23, 2021, 96.5% of all Closing 

Auctions were priced at or between the 

last-published Imbalance Reference 

Price and Continuous Book Clearing 

Price. Similarly, during this same 

period, 94.9% of closing auction volume 

priced within these parameters. 

Proposed Changes to How DMMs 

Would Participate in the Closing 

Auction. The Exchange believes that the 

proposed amendments to Rules 

52728 Federal Register / Vol. 86, No. 181 / Wednesday, September 22, 2021 / Notices 

50See supra note 26. 

7.35B(a)(2), 7.31(c)(2)(C), and 7.35(a)(9) 

regarding how DMMs would participate 

in the Closing Auction would remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system because 

the proposed changes would promote 

transparency and determinism regarding 

the Closing Auction process by 

eliminating DMMs’ ability to cancel 

interest after the end of Core Trading 

Hours and limiting their ability to enter 

interest after the end of Core Trading 

Hours. As a result of the proposed 

changes, DMMs would no longer have 

discretion after the end of Core Trading 

Hours to enter or cancel DMM Interest, 

which could potentially impact the 

Closing Auction Price. Instead, as 

proposed, DMMs would be able to meet 

their obligation under Rule 104(a)(3) to 

supply liquidity as needed by either 

entering Closing D Orders before the 

end of Core Trading Hours or entering 

DMM Auction Liquidity after the end of 

Core Trading Hours, but only to offset 

Unpaired Quantity at the Closing 

Auction Price (which must be within a 

predetermined range, as described 

above). Accordingly, with these 

proposed changes, a DMM could enter 

DMM Auction Liquidity after the end of 

Core Trading Hours only to close a 

security at a price that is at or closer to 

the Imbalance Reference Price than the 

published Continuous Book Clearing 

Price. 

The Exchange believes that making 

Closing D Orders available to DMMs 

would remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system because they would provide 

DMMs with a replacement mechanism 

both to meet their ongoing Rule 

104(a)(3) obligations with respect to the 

Closing Auction to contribute their own 

capital to supply liquidity as needed to 

assist in the maintenance of a fair and 

orderly market and to manage the risk 

of the DMM. The Exchange further 

believes that it would promote 

transparency and determinism to the 

Closing Auction process for DMMs to 

enter their interest before the end of 

Core Trading Hours. Specifically, the 

Exchange proposes that Closing D 

Orders entered by a DMM would be 

included in the Closing Auction 

Imbalance Information at their 

undisplayed discretionary price 

beginning five minutes before the end of 

Core Trading Hours, which is when 

Closing D Orders entered by Floor 

brokers are included in the Closing 

Auction Imbalance Information. With 

this change, Closing D Orders entered 

by DMMs would be reflected in the 

Closing Auction Imbalance Information, 

which is not the case for DMM Interest 

currently entered or cancelled after the 

end of Core Trading Hours. Market 

participants would be able to respond to 

any changes in the Closing Auction 

Imbalance Information that may result 

from Closing D Orders entered by 

DMMs by entering interest into the 

continuous order book or retaining the 

services of a Floor broker to enter 

Closing D Orders on their behalf. 

In addition, Closing D Orders are not 

novel and the Exchange proposes that 

they would function for DMMs in a 

similar manner as they currently 

function for Floor brokers, with only 

two substantive differences. First, 

DMMs could not combine a Yielding 

Modifier with a Closing D Order. The 

Yielding Modifier is not necessary for 

DMMs because their transactions on the 

Exchange are as a dealer acting in the 

capacity as a market maker, and 

therefore they are not subject to the 

trading prohibitions specified in Section 

11(a) of the Act.50 Second, Closing D 

Orders entered by a DMM in NYSElisted securities would not be able to 

participate in a Core Open Auction or 

Trading Halt Auction. Because the 

purpose of providing Closing D Orders 

to DMMs is to provide them with a tool 

to participate in Closing Auctions, the 

Exchange does not believe that Closing 

D Orders entered by DMMs in NYSElisted securities would need to 

participate in a Core Open Auction or 

Trading Halt Auction on the Exchange. 

The Exchange further believes that 

providing DMMs with the ability to 

enter Closing D Orders in securities that 

trade on the Exchange, including UTP 

Securities, that are not assigned to them 

as a DMM, would remove impediments 

to and perfect the mechanism of a free 

and open market and a national market 

system and support the maintenance of 

a fair and orderly market because it 

would provide a mechanism for DMMs 

to enter such orders directly. Currently, 

a DMM may choose to use a Floor 

broker to enter Closing D Orders in 

securities that have not been assigned to 

that DMM. The Exchange believes that 

allowing DMMs to enter Closing D 

Orders directly would reduce 

operational complexity and cost for 

DMMs, thereby creating an incentive for 

additional firms to register as a DMM. 

This proposed change would also make 

it easier for regulatory staff to monitor 

DMM trading activity on the Exchange. 

In addition, the Exchange believes 

that making this order type available to 

DMMs for all securities that trade on the 

Exchange would provide an incentive 

for additional broker-dealers to register 

as a DMM on the Exchange. 

Specifically, the Exchange believes that 

providing potential new DMM entrants 

with additional opportunities to provide 

liquidity across all securities that trade 

on the Exchange may serve as an 

incentive for new entrants to undertake 

the costs to register as a DMM unit 

without a significant roster of allocated 

securities. The Exchange further 

believes that promoting diversity of 

DMMs would remove impediments to 

and perfect the mechanism of a free and 

open market and a national market 

system by providing issuers with 

additional choice in their DMM 

assignments. 

The Exchange believes that the 

proposed amendments to Rule 

7.35(a)(9)(B) and (C) would remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system because 

they would promote clarity and 

transparency regarding the terms ‘‘DMM 

Order’’ and ‘‘DMM Auction Liquidity’’ 

in a manner designed to conform to the 

substantive changes to how DMMs 

would participate in the Closing 

Auction. The Exchange further believes 

that the proposed amendment to Rule 

7.35B(j)(2)(A)(iii) would similarly 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system because 

the proposed amendment is consistent 

with the proposal that DMM Orders 

would not be eligible to participate in a 

Closing Auction; if a DMM were 

permitted to enter DMM Orders during 

a Solicitation Period under that Rule, 

such orders would need to be cancelled 

before the Closing Auction, per 

proposed changes to Rule 7.35B(a)(2). 

DMM Interest Allocation in the 

Closing Auction. The Exchange believes 

that the proposed amendments to Rule 

7.35B(h) to change how DMM Interest, 

including Closing D Orders entered by 

a DMM, would be allocated in a Closing 

Auction, would remove impediments to 

and perfect the mechanism of a free and 

open market and a national market 

system because the proposed changes 

are designed to process DMM Interest 

consistent with the role of the DMM in 

a particular Closing Auction: 

• The Exchange believes that 

amending Rule 7.35B(h)(1) to provide 

that better-priced Closing D Orders 

entered by a DMM would be guaranteed 

to participate in the Closing Auction 

(subject to DMM-specific self-trade 

prevention) would promote a fair and 

orderly Closing Auction process because 

better-priced DMM Closing D Orders 

would not receive a different allocation 

opportunity from other Participants that 

Federal Register / Vol. 86, No. 181 / Wednesday, September 22, 2021 / Notices 52729 

have entered better-priced interest; all 

better-priced interest is guaranteed to 

participate in the Closing Auction. In 

addition, because DMMs would be 

entering Closing D Orders before the 

end of Core Trading Hours and such 

interest would be included in the 

Closing Auction Imbalance Information, 

if they are better-priced orders, the 

Exchange believes that should be 

included in the Closing Auction in the 

same manner that all other better-priced 

orders entered by other member 

organizations are allocated in the 

Closing Auction. Accordingly, DMMs 

would not be receiving a unique benefit 

as a result of this proposed allocation. 

• The Exchange believes that 

amending Rule 7.35B(h)(2)(A) to 

provide that at-priced Closing D Orders 

in securities that are assigned to the 

DMM would be included in the DMM 

Participant allocation would promote a 

fair and orderly Closing Auction process 

because it is consistent with the current 

allocation of at-priced DMM Interest in 

the Closing Auction, and therefore it is 

not novel. This benefit is designed to 

offset the DMM’s significant obligation 

to facilitate the Closing Auction and 

supply liquidity as needed. The 

Exchange further notes that the 

proposed amendment would allow this 

at-priced DMM Participant allocation 

only for Closing D Orders, which, by 

their terms, must be entered before the 

end of Core Trading Hours and would 

be included in the Closing Auction 

Imbalance Information. Accordingly, 

this proposed allocation would be 

consistent with how Closing D Orders 

are currently allocated for Floor brokers 

in the Closing Auction because they 

would be allocated as part of the 

allocation of orders ranked Priority 2— 

Display Orders, which currently get an 

allocation opportunity before orders 

ranked Priority 3—Non-Display Orders 

and LOC Orders. The Exchange likewise 

believes that the proposal that at-priced 

Closing D Orders entered by DMMs in 

securities not assigned to the DMM be 

included in the Book Participant would 

be consistent with existing Rules 

because in such case, the member 

organization entering such orders would 

not be functioning as a DMM, and 

therefore would not be eligible for a 

DMM Participant allocation for such 

orders. 

• The Exchange believes that 

amending Rule 7.35B(h)(2) to add new 

sub-paragraph (E) describing how DMM 

Auction Liquidity would be allocated 

would promote a fair and orderly 

Closing Auction process. Specifically, 

because DMM Auction Liquidity could 

be entered only to offset Unpaired 

Quantity at the Closing Auction Price, 

the Exchange does not believe that such 

interest should get an allocation benefit. 

Accordingly, DMM Auction Liquidity 

would be allocated after not only 

displayed and non-displayed orders, but 

also after LOC Orders and Closing IO 

Orders. The Exchange further believes 

providing DMM Auction Liquidity with 

an allocation opportunity before orders 

ranked Priority 4—Yielding Orders 

would be consistent with a fair and 

orderly market because orders with a 

Yielding Modifier are, by their terms, 

intended to yield to other available 

interest and not guaranteed an 

execution in the Closing Auction. 

Because DMM Auction Liquidity would 

have an allocation opportunity before 

orders with a Yielding Modifier, the 

Exchange further believes it would be 

consistent with a fair and orderly 

Closing Auction process to not include 

offsetting Yielding Orders in the 

calculation of Unpaired Quantity that a 

DMM would be permitted to offset with 

DMM Auction Liquidity. 

• The Exchange believes that deleting 

the text currently set forth in Rule 

7.35B(h)(3)(A) and replacing it with a 

description of how self-trade prevention 

would be applied within the DMM 

Participant Allocation would remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system because it 

would promote transparency of the 

circumstances of when and how DMM 

Interest would be decremented and 

cancelled to prevent a self-trade 

between Closing D Order(s) to buy (sell) 

entered by a DMM and DMM Auction 

Liquidity to sell (buy). By applying 

STPD, the Exchange believes that the 

proposed mechanism would reduce the 

impact of such cancellation on the 

Closing Auction Price. 

Exchange-Facilitated Auctions. The 

Exchange believes that the proposed 

amendment to Rule 7.35C(a)(1) would 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system because it 

would allow for Closing D Orders 

entered by DMMs, which would be 

entered before the end of Core Trading 

Hours, to participate in an Exchangefacilitated Closing Auction. Currently, 

Closing D Orders entered by Floor 

brokers are eligible to participate in an 

Exchange-facilitated Closing Auction, 

and the Exchange believes that Closing 

D Orders entered by DMMs should not 

be processed differently. 

Prohibited Transactions. The 

Exchange believes that the proposed 

changes to the Closing Auction process, 

combined with the elimination of Floor 

Broker Interest in the Closing Auction, 

would significantly alter the balance of 

benefits and obligations for DMMs and 

the resulting scope of obligations would 

no longer be commensurate with DMM 

benefits. The Exchange therefore 

believes that eliminating Prohibited 

Transactions would remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national system and would 

promote just and equitable principles of 

trade because, as a result of the 

proposed changes, DMMs’ unique 

benefits vis-a`-vis the Closing Auction 

process would be significantly altered, 

obviating the need for Prohibited 

Transactions. Specifically: 

• DMMs would still have the 

obligation to select a Closing Auction 

Price that satisfies all better-priced 

orders on the Side of the Imbalance and 

supply liquidity as needed to facilitate 

a fair and orderly Closing Auction 

Process. However, as proposed, the 

DMM would now be systematically 

restricted as to the price range at which 

the Closing Auction Price could be 

determined and therefore DMMs would 

be subject to a further limitation on how 

they may select the Closing Auction 

Price. Accordingly, the Exchange 

believes this proposed change would 

maintain obligations on DMMs with 

respect to the Closing Auction while 

decreasing the tools available to meet 

those obligations. 

• DMMs would no longer have 

discretion after the end of Core Trading 

Hours to enter or cancel DMM Interest. 

Instead, as proposed, after the end of 

Core Trading Hours, DMMs would be 

able to enter only DMM Auction 

Liquidity and could enter such interest 

only at pre-determined price ranges and 

only if such interest would offset 

Unpaired Quantity at those predetermined price ranges. Accordingly, 

such interest would be systematically 

restricted by side, price, and quantity. 

This change ensures that DMM Auction 

Liquidity could be used only to dampen 

significant price movements at the 

close. The Exchange believes this 

proposed change significantly decreases 

unique benefits to the DMMs because 

they would still be required to supply 

liquidity as needed to support a fair and 

orderly Closing Auction, but would 

have limited tools to enter any such 

interest after the end of Core Trading 

Hours. 

• The Exchange proposes to make the 

Closing D Order available to DMMs in 

part to offset this reduction of unique 

benefits with respect to entering or 

cancelling DMM Interest after the end of 

Core Trading Hours. However, unlike 

how DMMs currently may enter and 

cancel DMM Interest, DMMs would not 

receive any unique treatment with 

52730 Federal Register / Vol. 86, No. 181 / Wednesday, September 22, 2021 / Notices 

51See Disapproval Order at 33536, supra, note 40. 

52See supra note 46. 

53 15 U.S.C. 78f(b)(8). 

respect to the availability of this order 

type. To the contrary, Closing D Orders 

for DMMs would function similarly to 

Closing D Orders available to Floor 

brokers, including that they may not be 

entered or cancelled in the last ten 

seconds of trading and the interest 

would be included in the Closing 

Auction Imbalance Information. 

Accordingly, the Exchange is not 

providing a bespoke tool for DMMs to 

supply liquidity for the Closing 

Auction. In addition, the Exchange 

proposes to make Closing D Orders 

available for a wholly independent 

reason to provide an incentive for more 

broker-dealers to seek to register as a 

DMM, which would increase DMM 

diversity on the Exchange to increase 

issuer choice. In addition, the proposed 

allocation of Closing D Orders entered 

by the DMM would not provide them 

with a unique benefit because they 

would function similarly to Closing D 

Orders entered by Floor brokers. 

Accordingly, if a Closing D Order is 

better-priced, it would be guaranteed to 

participate in the Closing Auction 

(subject to DMM-specific self-trade 

prevention), just as any other betterpriced interest would be guaranteed an 

allocation. In addition, that information 

would be transparent because such 

Closing D Orders would be included in 

Closing Auction Imbalance Information. 

DMMs would therefore not be receiving 

a unique benefit in this allocation 

• DMM Auction Liquidity entered in 

connection with facilitating the Closing 

Auction would, by its terms, be atpriced interest and would be allocated 

after at-priced displayed orders, nondisplayed orders, LOC Orders, and 

Closing IO Orders. Accordingly, unlike 

at-priced DMM Interest under current 

Rules, it would not have priority over 

LOC Orders and Closing IO Orders. 

While such DMM Auction Liquidity 

would have priority over orders with a 

Yielding Modifier, the Exchange notes 

that such orders are, by their terms, 

conditional in nature and designed to 

yield to other orders. Accordingly, 

DMMs would have a reduced benefit in 

connection with Closing Auction 

allocations for their at-priced DMM 

Auction Liquidity. 

In the aggregate, the Exchange 

believes that the above-described 

changes have altered the balance of 

benefits and obligations for DMMs and 

the resulting scope of obligations would 

no longer be commensurate with DMM 

benefits. For example, with respect to 

the benefits specifically identified by 

the Commission in the Disapproval 

Order, DMMs no longer have an 

informational advantage relating to 

Floor broker verbal interest at the close 

and their at-priced DMM Auction 

Liquidity would no longer have priority 

over LOC or Closing IO Orders. 

The Exchange believes that, as a result 

of these significant alterations to DMM 

obligations and benefits, any current 

need for Prohibited Transactions as a 

DMM obligation would be obviated. As 

described by the Commission, 

Prohibited Transactions provide for a 

bright-line rule designed to prevent a 

DMM from aggressively taking liquidity 

and moving prices on the Exchange 

immediately before the Closing Auction, 

and therefore destabilizing the market.51

Prohibited Transactions make sense 

when a DMM has discretion over the 

Closing Auction Price and when a DMM 

can enter and cancel interest after the 

end of Core Trading Hours. However, 

with the proposed changes described in 

this filing, DMM discretion is explicitly 

limited; the Closing Auction Price must 

be within a defined and transparent 

parameter that cannot be changed after 

the end of Core Trading Hours and 

DMMs would be limited in what 

offsetting interest they can enter after 

the end of Core Trading Hours. So, 

while the DMM would still have an 

obligation to facilitate the Closing 

Auction and supply liquidity as needed, 

DMMs would no longer have the same 

discretion in how they fulfill this 

obligation. As a result, any trading 

activity that a DMM would engage in 

the last ten minutes of trading would be 

no different than how other market 

participants trade leading into the close. 

The Exchange notes that in the 

absence of Prohibited Transactions, if a 

DMM engages in an Aggressing 

Transaction in the last ten minutes of 

trading, the DMM would be subject to 

the re-entry obligations specified in 

current Rule 104(g)(2) (proposed Rule 

104(d)(2)). Accordingly, DMMs would 

continue to be subject to a unique 

obligation in the last ten minutes of 

trading that would not be applicable to 

any other member organizations trading 

on the Exchange. To the extent a DMM 

engages in an Aggressing Transaction in 

the last ten minutes of trading, such reentry obligation would dampen any 

potential destabilizing impact of such 

Aggressing Transaction. 

Finally, the Exchange believes that 

the proposed amendments to Rule 98 to 

delete sub-paragraphs (c)(5) and 

(c)(5)(A) and renumber subparagraphs 

(c)(6) and (c)(7) as (c)(5) and (c)(6) 

would remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system because the Exchange added 

Rule 98(c)(5) for the sole purpose of 

requiring DMMs to provide net position 

information in connection with 

monitoring their compliance with 

Prohibited Transactions.52 Accordingly, 

because the Exchange is proposing to 

eliminate Prohibited Transactions, the 

related reporting requirement becomes 

obsolete. 

Proposed Non-Substantive 

Amendments to Rule 104. The Exchange 

believes that the proposed nonsubstantive amendments to Rule 104 

would remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system because the proposed changes 

are designed to eliminate obsolete rule 

text, update rule references to reflect 

Pillar functionality, and make other 

conforming changes. Specifically, the 

Exchange proposes to eliminate 

references to pre-Pillar Rules and 

trading functionality, including 

references to Rules 123D, 123C, Rule 

1000, the Capital Commitment 

Schedule, Floor broker agency interest 

files, odd-lot orders in the close, and 

self-trade prevention. The Exchange also 

proposes to update Rule 104(b) to cross 

reference Rule 7.31 to determine which 

orders and modifiers are available to 

DMMs, rather than separately (and 

duplicatively) including this description 

in Rule 104. The Exchange also 

proposes to update current Rule 

104(h)(ii) (proposed Rule 104(e)(ii)) to 

delete reference to information that is 

no longer available to DMM at the post. 

The Exchange believes that these 

proposed amendments will promote 

transparency and clarity in Exchange 

rules regarding how DMMs function on 

the Exchange, including what 

information is available to them at the 

post. 

The Exchange further believes that the 

proposed non-substantive amendments 

to Rules 7.35B(j)(2) and 

7.35B(j)(2)(A)(iii) to eliminate references 

to Floor broker interest and oral interest 

entered by Floor brokers at the close 

would remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system because these proposed changes 

are designed to conform Exchange rules 

to the changes described in the Floor 

Broker Interest Approval Order. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

In accordance with Section 6(b)(8) of 

the Act,53 the Exchange believes that the 

proposed rule change would not impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

Federal Register / Vol. 86, No. 181 / Wednesday, September 22, 2021 / Notices 52731 

54 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

of the purposes of the Act. The 

proposed change is designed to revise 

the Closing Auction process on the 

Exchange to make it more transparent 

and deterministic, while still retaining 

the DMM market model. The Exchange 

believes that the proposed rule change 

would promote intermarket 

competition, particularly for issuers in 

connection with their determination of 

which exchange to select as a primary 

listing exchange. The Exchange does not 

believe that the proposed rule change 

would impose any burden on intramarket competition that is not necessary 

or appropriate in furtherance of the 

purposes of the Act because they are 

designed to address the DMM’s unique 

role at the Exchange, including the 

DMM’s Rule 104(a)(3) obligation to 

facilitate the Closing Auction by 

supplying liquidity as needed for a fair 

and orderly Closing Auction. The 

proposed changes are designed to make 

the process more transparent and 

deterministic. The proposed changes 

would also result in reducing the overall 

DMM benefits because they would 

eliminate discretion regarding DMM 

Interest entered or cancelled after the 

end of Core Trading Hours and require 

that the DMM select a Closing Auction 

Price from within a pre-determined and 

transparency range of prices. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or such longer period up to 90 

days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

the proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NYSE–2021–44 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NYSE–2021–44. 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 the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. 

All submissions should refer to File 

Number SR–NYSE–2021–44 and should 

be submitted on or before October 13, 

2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.54

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–20448 Filed 9–21–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–93023; File No. SR– 

EMERALD–2021–28] 

Self-Regulatory Organizations; MIAX 

Emerald, LLC; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change by To Amend Its Fee 

Schedule With Respect to Open-Close 

Report Data 

September 16, 2021. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on 

September 2, 2021, MIAX Emerald, LLC 

(‘‘MIAX Emerald’’ or ‘‘Exchange’’), filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) a 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the Exchange. 

The Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange is filing a proposal to 

amend the Exchange’s Fee Schedule 

(‘‘Fee Schedule’’) to provide historical 

Open-Close Report data for free by 

amending the fees for the Open-Close 

Report to: (i) Respond to ad hoc requests 

for end-of-day data free of charge; and 

(ii) provide mid-month subscribers data 

for the entire month in which they 

subscribe. 

The text of the proposed rule change 

is available on the Exchange’s website at 

http://www.miaxoptions.com/rulefilings/emerald, at MIAX’s principal 

office, and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements.