Document ID: SEC-2021-0315-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2021-03-05T05:00Z

[Federal Register Volume 86, Number 42 (Friday, March 5, 2021)]
[Notices]
[Pages 12991-12993]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-04530]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91227; File No. SR-NYSE-2020-95]

Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To Make Permanent Commentaries to Rule 7.35A and 
Commentaries to Rule 7.35B and Make Related Changes to Rules 7.32, 
7.35C, 46B, and 47

March 1, 2021.

I. Introduction

    On November 13, 2020, New York Stock Exchange LLC (``Exchange'' or 
``NYSE'') filed with the Securities and Exchange Commission 
(``Commission'') pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to make permanent Commentaries .01(a) and (b) and 
.06 to Rule 7.35A (DMM-Facilitated Core Open and Trading Halt Auctions) 
and Commentaries .01 and .03 to Rule 7.35B (DMM-Facilitated Closing 
Auctions) and to make related changes to Rules 7.32 (Order Entry), 
7.35C (Exchange-Facilitated Closing Auctions), 46B (Regulatory Trading 
Official), and 47 (Floor Officials--Unusual Situations). The proposed 
rule change was published for comment in the Federal Register on 
December 1, 2020.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 90495 (Nov. 24, 
2020), 85 FR 77304 (Dec. 1, 2020) (SR-NYSE-2020-95) (``Notice'').
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    On January 13, 2020, the Commission extended to March 1, 2021, the 
time period in which to approve the proposal, disapprove the proposal, 
or institute proceedings to determine whether to approve or disapprove 
the proposal.\4\ The Commission has received no comments on the 
proposal. This order institutes proceedings under Section 19(b)(2)(B) 
of the Act to determine whether to approve or disapprove the proposal.
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    \4\ See Securities Exchange Act Release No. 90917 (Jan. 13, 
2021), 86 FR 6403 (Jan. 21, 2020).
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II. Description of the Proposal

Proposed Changes to Parameters for DMM-Facilitated Electronic Auctions

    The Exchange proposes to make permanent the parameters for DMM-
facilitated electronic auctions that are currently in effect on a 
temporary basis during the Covid-19 pandemic, as set forth in 
Commentaries .01(a) and (b) to Rule 7.35A and Commentary .01 to Rule 
7.35B.\5\
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    \5\ See Notice, supra note 3, at 77305.
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    Current Rules 7.35A(c)(1)(G) and (H) provide that a DMM may not 
effect a Core Open or Trading Halt Auction electronically if (i) the 
Auction Price will be more than 4% away from the Consolidated Last Sale 
Price,\6\ or (ii) the paired volume for the Auction will be more than 
1,500 round lots for securities with an average opening volume of 1,000 
round lots or fewer in the previous calendar quarter, or 5,000 round 
lots for securities with an average opening volume of over 1,000 round 
lots in the previous calendar quarter. Rule 7.35A(c)(2) further 
provides that if, as of 9:00 a.m., the E-mini S&P 500 Futures are +/- 
2% from the prior day's closing price of the E-mini S&P 500 Futures, or 
if the Exchange determines that it is necessary or appropriate for the 
maintenance of a fair and orderly market, a DMM may effect an opening 
or reopening electronically if the Auction Price will be up to 8% away 
from Consolidated Last Sale Price, without any volume limitations.\7\
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    \6\ The term ``Consolidated Last Sale Price'' is defined in Rule 
7.35 to mean the most recent consolidated last-sale eligible trade 
in a security on any market during Core Trading Hours on that 
trading day, and if none, the Official Closing Price from the prior 
trading day for that security.
    \7\ See Notice, supra note 3, at 77305.
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    Current Rule 7.35B(c)(1)(G) and (H) provide that a DMM may not 
effect a Closing Auction electronically if (i) the Auction Price will 
be more than a designated percentage away from the Exchange Last Sale 
Price, or (ii) the paired volume for the Closing Auction will be more 
than 1,000 round lots for such security.\8\
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    \8\ See id.
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    The Exchange proposes to make the price percentage parameter 10% 
and eliminate the volume restrictions for all DMM-facilitated Auctions. 
These parameters are currently in effect on a temporary basis pursuant 
to Commentaries .01(a) and (b) to Rule 7.35A and Commentary .01 to Rule 
7.35B.\9\
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    \9\ See Notice, supra note 3, at 77305-77306.
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Proposed Changes to Applicable Price Range for Pre-Opening Indications

    The Exchange proposes to make permanent that the Applicable Price 
Range for determining whether to publish a pre-opening indication would 
be 10% for securities with an Indication Reference Price higher than 
$3.00 and $0.30 for securities with an Indication Reference Price equal 
to or lower than $3.00, which are currently in effect on a temporary 
basis during the Covid-19 pandemic, as set forth in Commentary .06 to 
Rule 7.35A.\10\
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    \10\ See Notice, supra note 3, at 77307.
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    Rule 7.35A(d)(1)(A) currently provides that a DMM will publish a 
pre-opening indication before a security opens or reopens if the Core 
Open or Trading Halt Auction is anticipated to be a change of more than 
the ``Applicable Price Range,'' as specified in Rule 7.35A(d)(3), from 
a specified ``Indication Reference Price,'' as specified in Rule 
7.35A(d)(2).\11\
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    \11\ See id.
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    Rule 7.35A(d)(3)(A) provides that the Applicable Price Range will 
be 5% for securities with an Indication Reference Price over $3.00 and 
$0.15 for securities with an Indication Reference Price equal to or 
lower than $3.00. Rule 7.35A(d)(3)(B) further provides that, if as of 
9:00 a.m., the E-mini S&P 500 Futures are +/-2% from the prior day's 
closing price of the E-mini S&P 500 Futures, when reopening trading 
following a market-wide trading halt under Rule 7.12, or if the 
Exchange

[[Page 12992]]

determines that it is necessary or appropriate for the maintenance of a 
fair and order market, the Applicable Price Range for determining 
whether to publish a pre-opening indication will be 10% for securities 
with an Indication Reference Price over $3.00 and $0.30 for securities 
with an Indication Reference Price equal to or lower than $3.00.\12\
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    \12\ See id.
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    Current Rule 7.35A(1)(A) further provides that a DMM may not effect 
a Core Open or Trading Halt Auction electronically if a pre-opening 
indication has been published for the Core Open Auction. The Exchange 
notes that if a DMM chooses to facilitate a Core Open Auction or 
Trading Halt Auction manually (i.e., if there is less than a 10% price 
movement), a DMM could still choose to publish a pre-opening indication 
in connection with such Auction, even if the Applicable Price Range has 
not been triggered.\13\
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    \13\ See id.
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Proposed Changes to Floor Broker Interest for the Closing Auction

    The Exchange proposes to make permanent that Floor Broker Interest 
would not be eligible to participate in the Closing Auction, as set 
forth in Commentary .03 to Rule 7.35B. The term ``Floor Broker 
Interest'' is defined in Rule 7.35(a)(9) to mean orders represented 
orally by a Floor broker at the point of sale.\14\
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    \14\ See id.
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    Rule 7.35B(a)(1) currently provides that Floor Broker Interest is 
eligible to participate in the Closing Auction provided that the Floor 
broker has electronically entered such interest before the Auction 
Processing Period for the Closing Auction begins. The Rule further 
provides that for such interest to be eligible to participate in the 
Closing Auction, a Floor broker must first, by the end of, but not 
after, Core Trading Hours, orally represent Floor Broker Interest at 
the point of sale, including symbol, side, size, and limit price, and 
then second, electronically enter such interest after the end of Core 
Trading Hours. Current Rules 7.35B(a)(1)(B) and (C) set forth 
additional requirements relating to electronic acceptance of such 
interest by the DMM and circumstances when such interest can be 
cancelled.\15\
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    \15\ See Notice, supra note 3, at 77307-77308.
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    To effect this change, the Exchange proposes to amend Rule 
7.35B(a)(1) to provide that Floor Broker Interest would not be eligible 
to participate in the Closing Auction. The Exchange further proposes to 
provide that Floor brokers must enter any orders for the Closing 
Auction, as defined in Rule 7.31, electronically during Core Trading 
Hours. The Exchange states that the cross-reference to Rule 7.31 in the 
Rule would provide notice to Floor brokers and their customers of which 
order types are available for electronic entry by Floor brokers for the 
Closing Auction, which include both Auction-Only Orders described in 
Rule 7.31(c) and other orders that may be resting on the Exchange Book 
that are eligible to participate in the Closing Auction. The Exchange 
also proposes to delete Commentary .03 to Rule 7.35B.\16\
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    \16\ See Notice, supra note 3, at 77308.
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    The Exchange proposes to make related changes by deleting the 
clause ``and Floor Broker Interest intended for the Closing Auction as 
defined in Rule 7.35B(a)(1)'' from Rule 7.32. Similarly, the Exchange 
proposes to delete the text set forth in Rule 7.35C(a)(2) relating to 
Floor Broker Interest that provides that ``Floor Broker Interest that 
has been electronically accepted by the DMM and that has not been 
cancelled as provided for in Rule 7.35B(a)(1)(C) will be eligible to 
participate in an Exchange-facilitated Closing Auction.'' \17\
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    \17\ See id.
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    In addition, the Exchange proposes to delete Rule 46B and amend 
Rule 47(b). Under Rule 47, Floor Officials have the authority to 
``supervise and regulate active openings and unusual situations that 
may arise in connection with the making of bids, offers or transactions 
on the Floor.'' The Exchange recently amended its rules to add 
Regulatory Trading Officials (``RTO''), which are defined in Rule 
46B.\18\ The Exchange amended Rule 47 to add subparagraph (b), which 
provides that RTOs, instead of Floor Officials, would be responsible 
for supervising and regulating situations regarding whether a verbal 
bid or verbal offer is eligible for inclusion in the Closing Auction by 
the DMM.\19\
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    \18\ See Securities Exchange Act Release No. 88765 (April 29, 
2020), 85 FR 26771 (May 5, 2020) (SR-NYSE-2020-03) (``RTO Approval 
Order'').
    \19\ See id.
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    In connection with eliminating verbal bids or verbal offers for the 
Closing Auction, the Exchange proposes to delete the last clause of 
Rule 47(a) and subparagraph (b) to Rule 47.\20\ According to the 
Exchange, as proposed, Rule 47 would revert to the rule text in effect 
prior to the RTO Approval Order and would provide that ``Floor 
Officials shall have power to supervise and regulate active openings 
and unusual situations that may arise in connection with the making of 
bids, offers or transactions on the Floor.'' According to the Exchange, 
with this proposed change, RTOs would no longer have a role under 
Exchange rules, and it therefore proposes to delete Rule 46B.\21\
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    \20\ RTOs were approved when the Trading Floor was temporarily 
closed. Id. Because Commentary .03 to Rule 7.35B was implemented 
when DMMs returned to the Trading Floor, there has not been any 
Floor Broker Interest for Closing Auctions since RTOs were created 
and therefore RTOs have not had to perform the functions as 
described in Rule 46(b).
    \21\ See id.
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    The Exchange also proposes to delete Commentary .02 to Rule 7.35B. 
According to the Exchange, this Commentary is obsolete because it has 
not been in effect since May 22, 2020.

III. Proceedings To Determine Whether To Disapprove SR-NYSE-2020-95 and 
Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \22\ to determine whether the proposal should be 
disapproved. Institution of such proceedings is appropriate at this 
time in view of the legal and policy issues raised by the proposal, as 
discussed below. Institution of disapproval proceedings does not 
indicate that the Commission has reached any conclusions with respect 
to any of the issues involved. Rather, as described in greater detail 
below, the Commission seeks and encourages interested persons to 
provide additional comment on the proposal.
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    \22\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act, the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act,\23\ which requires that the rules of an exchange be 
designed, among other things, to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system and, in general, to protect 
investors and the public interest. In addition, Section 6(b)(5) of the 
Act prohibits the rules of an exchange from being designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers.
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    \23\ 15 U.S.C. 78f(b)(5).
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    Under the proposal, the Exchange seeks to amend Rules 7.35A and 
7.35B to widen the price parameters to 10% for DMM-facilitated 
electronic Core Open, Trading Halt, and Closing Auctions. Accordingly, 
the Commission seeks public comment on the proposed price parameters 
for DMM-facilitated

[[Page 12993]]

electronic auctions. Specifically, the Commission seeks public comment 
on the following topics:
    1. The NYSE proposal for Trading Halt Auctions facilitated 
electronically by DMMs would differ from other primary listing markets' 
reopening processes after limit-up/limit-down (LULD) pauses and market-
wide circuit breaker (MWCB) halts in that it would permit a fully 
automated reopening of trading at prices up to 10% away from the 
auction reference price immediately after a trading pauses or halts, 
whereas Nasdaq, NYSE Arca, and Cboe BZX establish 5% price bands for 
reopening and then widen those price bands in increments of 5%, with 
additional auction extension messages associated with each widening, 
until market interest can be satisfied. Should the primary listing 
exchanges harmonize their respective processes for reopening trading by 
fully automated auction after an LULD pause or a Level 1 or Level 2 
MWCB halt, and if so, why? If so, which aspects of the reopening 
processes following LULD pauses and MWCB halts should be harmonized 
(e.g., period of auction order entry, type of auction information 
disseminated, length of dissemination period, frequency of 
dissemination, auction reference price, determination of auction match 
price, width of permitted price bands, or expansions of permitted price 
bands) and what are the appropriate parameters? Should NYSE further 
harmonize its proposed Trading Halt Auction process for fully automated 
auctions facilitated electronically by DMMs to align with Nasdaq, NYSE 
Arca, and Cboe BZX regarding the establishment of permitted price 
bands, and/or the limit (or lack thereof) on price band adjustments?
    2. Is it appropriate for the Exchange to permit a DMM to reopen a 
security up to 10% away from the reference price immediately after an 
LULD pause or MWCB halt without human intervention? Are there any 
specific data, statistics, or studies to support the Exchange's 
proposed price parameters within which a DMM can electronically 
facilitate a Trading Halt Auction?
    3. Are there characteristics of the NYSE market structure that 
warrant divergence from the price parameters in place for other 
exchanges' fully automated reopening auctions immediately following an 
LULD pause or MWCB halt? For example, does the nature of DMM 
participation in a Trading Halt Auction, whether the DMM participates 
manually or electronically, justify the ability of the NYSE to 
conducted a fully automated reopening auction 10% away from the 
reference price immediately after an LULD pause or MWCB halt, rather 
than 5% away, as at other primary listing exchanges?
    4. Should the price parameters within which DMMs are permitted to 
electronically facilitate auctions be the same for Core Open Auctions, 
Trading Halt Auctions, and Closing Auctions?

IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5) \24\ of the Act or any other provision 
of the Act, or the rules and regulations thereunder. Although there do 
not appear to be any issues relevant to approval or disapproval that 
would be facilitated by an oral presentation of views, data, and 
arguments, the Commission will consider, pursuant to Rule 19b-4 under 
the Act,\25\ any request for an opportunity to make an oral 
presentation.\26\
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    \24\ 15 U.S.C. 78f(b)(5).
    \25\ 17 CFR 240.19b-4.
    \26\ Rule 700(c)(2) of the Commission's Rules of Practice 
provides that ``[t]he Commission, in its sole discretion, may 
determine whether any issues relevant to approval or disapproval 
would be facilitated by the opportunity for an oral presentation of 
views.'' 17 CFR 201.700(c)(2).
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    Interested persons are invited to submit written data, views and 
arguments regarding whether the proposal should be disapproved by March 
26, 2021. Any person who wishes to file a rebuttal to any other 
person's submission must file that rebuttal by April 9, 2021.
    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-2020-95 on the subject line.

Paper Comments

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

All submissions should refer to File Numbers SR-NYSE-2020-95. The file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposal that are filed with the 
Commission, and all written communications relating to the proposal 
between the Commission and any person, other than those that may be 
withheld from the public in accordance with the provisions of 5 U.S.C. 
552, will be available for website viewing and printing in the 
Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filings also will be available for inspection 
and copying at the principal office of the Exchanges. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSE-2020-95 and should be submitted on 
or before March 26, 2021. Rebuttal comments should be submitted by 
April 9, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-04530 Filed 3-4-21; 8:45 am]
BILLING CODE 8011-01-P