Document ID: SEC-2020-0727-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange, LLC
Posted Date: 2020-05-05T04:00Z

[Federal Register Volume 85, Number 87 (Tuesday, May 5, 2020)]
[Notices]
[Pages 26771-26774]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-09517]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88765; File No. SR-NYSE-2020-03]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Amendment No. 1 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To 
Add New Exchange Rule 46B To Permit the Appointment of Regulatory 
Trading Officials and Amend Exchange Rule 47 To Permit Regulatory 
Trading Officials To Review Whether a Bid or Offer Is Eligible for 
Inclusion in the Closing Auction

April 29, 2020.

I. Introduction

    On January 14, 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 add new Exchange Rule 46B to permit the 
appointment of Regulatory Trading Officials and corresponding 
amendments to Rules 47 and 75 to permit Regulatory Trading Officials to 
review whether a bid or offer was verbalized at the point of sale in 
time to be eligible for inclusion in the Closing Auction. The proposed 
rule change was published for comment in the Federal Register on 
January 30, 2020.\3\ On March 11, 2020, pursuant to Section 19(b)(2) of 
the Act,\4\ the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to disapprove the 
proposed rule change.\5\ The Commission has received no comment letters 
on the proposal. On April 7, 2020, the Exchange filed Amendment No. 1 
to the proposed rule change,\6\ which replaced and superseded the 
proposed rule change as originally filed, and is described in Items II 
and III below, which Items have been prepared by the self-regulatory 
organization.\7\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as modified by Amendment No. 1, 
from interested persons, and is approving the proposed rule change, as 
modified by Amendment No. 1, on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 88033 (Jan. 24, 
2020), 85 FR 5511 (Jan. 30, 2020) (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 88357 (Mar. 11, 
2020), 85 FR 15241 (Mar.17, 2020). The Commission designated April 
29, 2020, as the date by which the Commission should approve, 
disapprove, or institute proceedings to determine whether to 
disapprove the proposed rule change.
    \6\ See Sections II and III for a description of Amendment No. 
1. In Amendment No. 1, the Exchange no longer proposes changes to 
Exchange rule 75.
    \7\ The proposed rule change, as modified by Amendment No. 1, is 
available at: https://www.nyse.com/publicdocs/nyse/markets/nyse/rule-filings/filings/2020/SR-NYSE-2020-03,%20Am.%201.pdf.
---------------------------------------------------------------------------

II. Self Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes a new Rule 46B to permit the appointment of 
Regulatory Trading Officials and corresponding amendments to Rule 47 to 
permit Regulatory Trading Officials to review whether a bid or offer is 
eligible for inclusion in the Closing Auction. This Amendment No. 1 to 
SR-NYSE-2020-03 replaces SR-NYSE-2020-03 as originally filed and 
supersedes such filing in its entirety. This proposed rule change is 
available on the Exchange's website at www.nyse.com, at the principal 
office of the Exchange, and at

[[Page 26772]]

the Commission's Public Reference Room.

III. 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 a new Rule 46B to permit the appointment of 
Regulatory Trading Officials and corresponding amendments to Rule 47 to 
permit Regulatory Trading Officials to review whether a bid or offer is 
eligible for inclusion in the Closing Auction.
Background
    Rule 46 permits the Exchange to appoint active NYSE members \8\ as 
Floor Officials. Rule 46 also permits the Exchange to appoint 
``qualified'' \9\ ICE employees to act as Floor Governors, one of the 
more senior types of Floor Officials (``Staff Governors'').\10\ Floor 
Officials are delegated certain authority from the Board of Directors 
of the Exchange to supervise and regulate active openings and unusual 
situations that arise in connection with the making of bids, offers or 
transactions on the Trading Floor,\11\ and to review and approve 
certain trading actions.
---------------------------------------------------------------------------

    \8\ Rule 2(a) states that the term ``member,'' when referring to 
a natural person, means a natural person associated with a member 
organization who has been approved by the Exchange and designated by 
such member organization to effect transactions on the Exchange 
Trading Floor or any facility thereof. See also note 11, infra.
    \9\ Supplementary Material .10 defines ``qualified'' employees 
as ``employees of ICE or any of its subsidiaries, excluding 
employees of NYSE Regulation, Inc., who shall have satisfied any 
applicable testing or qualification required by the NYSE for all 
Floor Governors.''
    \10\ Pursuant to Rules 46 and 46A, Floor Governors are one of 
several ranks of the broader category of Floor Officials, including, 
in order of increasing seniority, Floor Officials, Senior Floor 
Officials, Executive Floor Officials, Floor Governors and Executive 
Floor Governors. See Securities Exchange Act Release No. 57627 
(April 4, 2008), 73 FR 19919 (April 11, 2008) (SR-NYSE-2008-19).
    \11\ The term ``Trading Floor'' is defined in Rule 6A to mean 
the restricted-access physical areas designated by the Exchange for 
the trading of securities, commonly known as the ``Main Room'' and 
the ``Buttonwood Room.''
---------------------------------------------------------------------------

    Currently, only Floor Officials are authorized to act under the 
Exchange's rules in connection with certain situations involving bids, 
offers or transactions on the Trading Floor. Specifically, under Rule 
47 (Floor Officials--Unusual Situations), 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.''
    Unusual situations may arise that could impede or prevent Floor 
brokers from representing customer interest before the end of Core 
Trading Hours.\12\ Unusual situations may arise, for example, if the 
Floor broker hand-held device malfunctions or ceases to work or if a 
Floor broker is physically impeded, as a result of a crowd condition 
beyond that of normal traffic flow on the Exchange's trading Floor or 
some other circumstance beyond the Floor broker's control, in his or 
her ability to be present at a post before the DMM closes the 
security.\13\ In the event of such a potentially unusual situation, a 
Floor broker may consult with a Floor Official and the Designated 
Market Maker (``DMM'') in the relevant security regarding whether and 
how that customer interest can be represented so that it is eligible to 
participate in the Closing Auction.\14\ The Floor Official's role in 
this consultation is to provide an impartial professional assessment of 
the situation consistent with NYSE Rule 47. Currently, the DMM makes 
the final determination whether to include or exclude Floor broker 
verbal interest in the Closing Auction.
---------------------------------------------------------------------------

    \12\ See NYSE Rule 52. Core Trading Hours are defined in Rule 
1.1(d) to mean the hours of 9:30 a.m. ET through 4:00 p.m. ET, or 
such other hours as may be determined by the Exchange, for example, 
an early scheduled closing time.
    \13\ See NYSE Member Education Bulletin 19-01 (June 21, 2019).
    \14\ Floor broker buy and sell interest is eligible to 
participate in the Closing Auction if, by the end of Core Trading 
Hours, such interest is (1) entered into an Exchange system and 
recorded in accordance with Rule 123(e), and (2) either entered 
electronically or verbally represented at the point of sale. When 
verbally representing customer interest, Floor brokers must bid or 
offer by articulating the following elements: Symbol, side (buy or 
sell), size, and, if the order is a limit order, the price. See 
Member Education Bulletin 19-01 (June 21, 2019); see generally Rule 
123(b) (record of orders must contain the required terms of the 
order, including the name and amount of the security, the terms of 
the order and the time when such order was received).
---------------------------------------------------------------------------

Proposed Rule Change
    The Exchange proposes a new ``Regulatory Trading Official'' who 
would perform the functions currently performed by Floor Officials 
regarding whether a bid or offer is eligible for inclusion in the 
Closing Auction by the DMM. Floor Officials would continue to supervise 
and regulate all other unusual situations not enumerated for the 
Regulatory Trading Official to perform.
    To effectuate this change, the Exchange proposes a new Rule 46B 
that would provide that a Regulatory Trading Official would be an 
Exchange employee or officer designated by the Chief Regulatory Officer 
or its designee to perform the functions specified in Exchange rules. 
The Exchange further proposes to amend Rule 47 to specify the functions 
that would be performed by the Regulatory Trading Official.
    First, the existing rule text of Rule 47 would be designated 
subsection (a) and would be amended to specify that whether a verbal 
bid or verbal offer is eligible for inclusion in the Closing Auction by 
a DMM would be governed by new subsection (b) to Rule 47. This 
amendment therefore carves out the Floor Official's specific function 
with respect to unusual situations that would no longer be performed by 
Floor Officials.
    Second, proposed new Rule 47(b) would set forth the authority of 
Regulatory Trading Officials. As proposed, subsection (b) would provide 
that situations regarding whether a verbal bid or verbal offer is 
eligible for inclusion in the Closing Auction by the DMM shall be 
supervised and regulated as follows in the proposed rule. Under the 
proposed rule, a Floor broker with the interest to be included in the 
Closing Auction or the DMM responsible for the Closing Auction in the 
relevant security may consult a Regulatory Trading Official regarding 
whether a bid or offer is eligible for inclusion in the Closing Auction 
by the DMM. Proposed Rule 47(b) would also provide that if such a 
request has been made, the DMM will not facilitate the Closing Auction 
until a Regulatory Trading Official has completed his or her review. 
The proposed rule would also provide, consistent with current rules, 
that the final determination to include or exclude interest from the 
Closing Auction will be made by the DMM pursuant to Rule 104. Finally, 
proposed Rule 47(b) would specify that the Regulatory Trading 
Official's review will be documented in Exchange systems no later than 
one business day following the review.
    The Exchange believes that it is more appropriate for a regulatory 
employee to review the eligibility of Floor broker interest in the 
Closing Auction. Whether a bid or offer is eligible for inclusion in 
the Closing Auction, including whether

[[Page 26773]]

such a bid or offer was verbalized at the point of sale in time to be 
eligible for the Closing Auction, will often require assessing whether 
a Floor broker complied with the rules for entry of its interest prior 
to the Closing Auction.\15\ The Exchange believes that having a 
regulatory employee involved in such discussions will emphasize the 
importance of including all eligible Floor broker interest in the 
Closing Auction.
---------------------------------------------------------------------------

    \15\ See note 14, supra.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\16\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\17\ in particular, because it 
is designed to prevent fraudulent and manipulative acts and practices, 
promote just and equitable principles of trade, remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and protect investors and the public interest.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In particular, the Exchange believes that creating a new category 
of trading official to perform the functions currently performed by 
Floor Officials in reviewing whether a bid or offer is eligible for 
inclusion in the Closing Auction would promote just and equitable 
principles of trade and remove impediments to a free and open market by 
continuing to provide certainty to the Closing Auction when a dispute 
arises at the point of sale regarding whether a bid or offer can 
participate in the Closing Auction, thereby facilitating fair 
competition among brokers and dealers and among exchange markets. The 
Exchange's Closing Auction is a recognized industry reference 
point,\18\ and the Exchange believes that maintaining the current 
process with a regulatory employee would continue to promote the 
efficient execution of the Closing Auction, thereby contributing to 
fair and orderly markets and strengthening investor confidence in the 
market.
---------------------------------------------------------------------------

    \18\ For example, the pricing and valuation of certain indices, 
funds, and derivative products require primary market prints.
---------------------------------------------------------------------------

    The Exchange believes that assigning responsibility for reviewing 
whether Floor broker interest was eligible for inclusion in the Closing 
Auction to a regulatory employee designated by the Chief Regulatory 
Officer will contribute to the protection of investors and the public 
interest. As noted above, the Exchange believes that regulatory 
employees are appropriately suited to the role of consultation 
regarding the eligibility of Floor broker interest, including verbal 
interest, to participate in the Closing Auction. The Exchange also 
believes the proposed amendments further the goal of transparency and 
add clarity to the Exchange's rules, which would not be inconsistent 
with the public interest and the protection of investors because 
investors would not be harmed and in fact would benefit from such 
increased transparency and clarity in the Exchange's rules, thereby 
reducing potential confusion.
    For the foregoing reasons, the Exchange believes that the proposal 
is consistent with the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
not designed to address and competitive issues, but rather assign 
responsibility for reviewing eligibility of verbal interest for 
inclusion in the Closing Auction to a regulatory employee. Since the 
proposal does not substantively modify the Closing Auction or system 
functionality, the proposed changes will not impose any burden on 
competition.

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.

IV. Solicitation of Comments on the Proposed Rule Change, as Modified 
by Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as modified by Amendment No. 1, 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-2020-03 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-2020-03. 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-2020-03 and should be submitted on 
or before May 26, 2020.

V. Commission's Findings and Discussion

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\19\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act \20\ which requires, among other things, 
that the rules of a national securities exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, to 
remove impediments to and perfect the mechanism of a free and open 
market

[[Page 26774]]

and a national market system, and, in general, to protect investors and 
the public interest, and that the rules not be designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \19\ In approving this proposed rule change, as modified by 
Amendment No. 1, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
    \20\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange proposes to permit the appointment of a new 
``Regulatory Trading Official'' \21\ whose primary responsibility would 
be to conduct reviews of unusual situations involving the eligibility 
of verbal interest for inclusion in the Closing Auction by the DMM. The 
proposal would also provide that if a request for such a review by a 
Regulatory Trading Official has been made, the DMM will not facilitate 
the Closing Auction until a Regulatory Trading Official has completed 
his or her review. As proposed, the final determination to include or 
exclude interest from the Closing Auction would continue to be made by 
the DMM pursuant to Exchange Rule 104. Finally, the proposal would 
specify that the Regulatory Trading Official's review will be 
documented in Exchange systems no later than one business day following 
the review.
---------------------------------------------------------------------------

    \21\ As proposed, a Regulatory Trading Employee would be an 
Exchange employee or officer designated by the Chief Regulatory 
Officer or its designee to perform those functions specified in 
Exchange rules. See supra, Section III.A.1.
---------------------------------------------------------------------------

    The Commission notes that the proposal would shift one regulatory 
function--the review, in cases involving unusual situations, of whether 
a verbal bid or verbal offer is eligible for inclusion in the Closing 
Auction by the DMM--from Floor Officials to the newly proposed 
Regulatory Trading Officials without substantive change.\22\ The new 
proposed Regulatory Trading Officials would be Exchange employees or 
officers who would perform this discrete consultative function at the 
close. The Commission further notes that, as proposed, and consistent 
with current rules, the final determination as to whether to include or 
exclude interest in the Closing Auction would continue to be made by 
the DMM pursuant to Rule 104.
---------------------------------------------------------------------------

    \22\ See id.
---------------------------------------------------------------------------

    The Exchange represented that Floor Officials currently review 
cases involving unusual situations that may arise with regard to 
whether a verbal bid or verbal offer is eligible for inclusion in the 
Closing Auction by the DMM. The Commission believes that a Regulatory 
Trading Official whose sole responsibility would be to perform this 
specific function currently performed by Floor Officials and who is a 
regulatory employee is appropriately suited to the role of consultation 
regarding the eligibility of Floor broker interest. The Commission 
believes that the proposal should promote just and equitable principles 
of trade by continuing to provide Floor brokers with the ability to 
consult with and obtain a review from a third party in cases involving 
unusual situations relating to the eligibility of the Floor broker's 
verbal interest to participate in the close.
    For the reasons discussed above, the Commission finds the proposed 
rule change, as modified by Amendment No. 1, is consistent with the 
requirements of Section 6(b)(5) of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.

VI. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
1 in the Federal Register. In Amendment No. 1, the Exchange moved the 
substance of the proposal from Rule 75 commentary into the text of Rule 
47 without substantive change. Accordingly, the Commission believes the 
proposal, as modified by Amendment No. 1 raises no novel or significant 
issues, and therefore finds good cause, pursuant to Section 19(b)(2) of 
the Act, to approve the proposal, as modified by Amendment No. 1, on an 
accelerated basis.

VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-NYSE-2020-03), as modified by 
Amendment No. 1 be, and it hereby is, approved on an accelerated basis.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-09517 Filed 5-4-20; 8:45 am]
 BILLING CODE 8011-01-P