Notice2024-08569
Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 123D
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Published
April 23, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 79 (Tuesday, April 23, 2024)</title>
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[Federal Register Volume 89, Number 79 (Tuesday, April 23, 2024)]
[Notices]
[Pages 30415-30418]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-08569]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99974; File No. SR-NYSE-2024-22]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Rule 123D
April 17, 2024.
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 April 11, 2024, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 123D (Halts in Trading) to set
forth specific requirements for halting and resuming trading in a
security that is subject to a reverse stock split. The proposed rule
change is available on the Exchange's website at <a href="http://www.nyse.com">www.nyse.com</a>, 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
In conjunction with the increase in overall reverse stock splits in
recent years, the Exchange proposes to amend Rule 123D (Halts in
Trading) to set forth specific requirements for halting and resuming
trading in a security that is subject to a reverse stock split.
Background
The Commission recently approved a proposal filed by The Nasdaq
Stock Exchange (``Nasdaq'') providing for a regulatory halt at the end
of trading on the day immediately before the market effective date of a
reverse stock split and a delayed opening of the security on the market
effective date of the reverse stock split.\4\ In its filing, Nasdaq
noted that it had observed a recent increase in reverse stock split
activity in the current market environment.
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\4\ See Securities Exchange Act Release No. 98878 (November 7,
2023) (SR-NASDAQ-2023-036) (approving halt provisions with respect
to reverse stock splits).
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The Exchange has not itself experienced the increase in the number
of reverse stock splits that Nasdaq described in its filings.
Nevertheless, the Exchange proposes to adopt similar changes at the
request of market participants who say that they would benefit from a
consistent approach across exchanges with respect to regulatory halt
rules around reverse stock splits. The Exchange believes that
harmonizing its rules with Nasdaq's in this area would enhance investor
protection and maintain fair and orderly markets by minimizing the
chance that market participants might make erroneous trades in a
security because they were unaware that it had undergone a reverse
stock split.
Accordingly, the Exchange proposes to adopt amendments to its
trading halt rules to require the Exchange to declare a regulatory halt
in trading before the end of after-hours trading on the day immediately
before the market effective date of a reverse stock split, and to open
the security on the market effective date of a reverse stock split with
a Trading Halt Auction \5\ starting at 9:30 a.m., at the start of the
Exchange's Core Trading Session.\6\ This proposed change is modeled on
the recently-approved Nasdaq rule.
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\5\ The term ``Trading Halt Auction'' is defined in Rule
7.35(a)(1)(B) as an auction ``that reopens trading following a
trading halt or pause.'' The Trading Halt Auction would be
effectuated by the security's designated market maker (``DMM'')
pursuant to Rule 7.35A (DMM-Facilitated Core Open and Trading Halt
Auctions). An Exchange-listed security that opens trading for the
day with a Trading Halt Auction would not undergo a Core Open
Auction (defined in Rule 7.35(a)(1)(A)).
\6\ The term ``Core Trading Session'' is defined in Rule
7.34(a)(2).
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This change would help reduce the potential for market
participants' misunderstanding of the impact on the value of the
issuer' securities resulting from investors' lack of advance knowledge
of the reverse stock split, as well as errors resulting in a material
effect on the market resulting from market participants' processing of
the reverse stock split, including incorrect adjustment or entry of
orders.
Proposed Amendment to Rule 123D
The Exchange currently processes reverse stock splits overnight,
with the security available for trading on other markets at 4:00
a.m.\7\ on a split-adjusted basis. Market participants have recently
expressed concerns with allowing trading on an adjusted basis during
those early trading sessions, noting that it is not optimal because
system errors or problems with orders may go unnoticed for a period of
time when a security that has undergone a reverse stock split opens for
trading with the other thousands of securities. These errors have the
potential to adversely affect investors, market participants, and the
issuer. For example, problems
[[Page 30416]]
in connection with the processing of a reverse stock split could result
in a broker executing trades selling more shares than customers held in
their accounts, resulting in a temporary short position.
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\7\ All times referred to in this filing are Eastern Time.
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As such, the Exchange believes it is appropriate to impose a
regulatory halt, which would prohibit pre-market trading immediately
after a reverse stock split, and to re-open trading in such securities
using a Trading Halt Auction. These changes would allow the Exchange
and market participants to better detect any errors or problems with
orders for the security resulting from the reverse stock split before
trading in the security begins and thereby avoid any material effect on
the market.
The Exchange proposes to add new subparagraph (f) to Rule 123D,
which would provide that the Exchange will halt trading in a security
for which the Exchange is the Primary Listing Market \8\ before the end
of post-market trading on other markets on the day immediately before
the market effective date of a reverse stock split. Such a trading halt
due to a reverse stock split would be mandatory pursuant to proposed
Rule 123D(f). In general, the Exchange expects to initiate the halt at
7:50 p.m., prior to the end of post-market trading on other markets at
8:00 p.m. on the day immediately before the split is effective.\9\
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\8\ The term ``Primary Listing Market'' is defined in Section
XI(a)(i)(H) of the CTA Plan as ``the national securities exchange on
which an Eligible Security is listed. If an Eligible Security is
listed on more than one national securities exchanges, Primary
Listing Market means the exchange on which the security has been
listed the longest.''
\9\ It is the Exchange's policy not to halt a security after
4:00 p.m. in advance of a material news disclosure by a listed
company, but the Exchange does implement regulatory halts after 4:00
p.m. when necessary for other reasons. In the case of a security
undergoing a reverse stock split, initiating the halt at
approximately 7:50 p.m. would provide the Exchange with a limited
buffer to ensure that trading in a security that is undergoing a
reverse stock split would not continue after the end of post-market
trading. While the Exchange does not anticipate halting a security
that undergoes a reverse stock split sooner than 7:50 p.m., the
Exchange may halt trading earlier than 7:50 p.m. for other reasons
as described elsewhere in Rule 123D or Rule 7.18. The Exchange would
provide notice of the halt through the SIP and on the Exchange's
trading halt web page at <a href="https://www.nyse.com/trade-halt">https://www.nyse.com/trade-halt</a>.
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Proposed Rule 123D(f) would further provide that trading in the
security will resume with a Trading Halt Auction starting at 9:30
a.m.\10\ on the day the reverse stock split is effective.\11\ The
Exchange believes that this halt and delayed opening \12\ would give
sufficient time for investors to review their orders and the quotes for
the security and allow market participants to ensure that their systems
have properly adjusted for the reverse stock split.
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\10\ The Exchange's affiliates NYSE American LLC (``NYSE
American'') and NYSE Arca, Inc. (``NYSE Arca'') have each filed
similar rule changes proposing to re-open a security subject to a
reverse stock split trading halt with a Trading Halt Auction that
would take place at 9:00 a.m., thirty minutes before the Core
Trading Session would start. See SR-NYSEAMER-2024-24 and SR-
NYSEARCA-2024-29. Both NYSE American and NYSE Arca have Early
Trading Sessions, and thus the 9:00 a.m. Trading Halt Auction would
take place while trading on those exchanges is already in progress.
See NYSE American Rule 7.34E(a)(1) and NYSE Arca Rule 7.34-E(a)(1)
(defining ``Early Trading Session''). Because the Exchange does not
have an early trading session for securities for which it is the
Primary Listing Market, the Exchange instead proposes that a
security subject to a reverse stock split trading halt would re-open
with a Trading Halt Auction starting at 9:30 a.m., at the start of
the Exchange's Core Trading Session. The Exchange believes that re-
opening the security with a Trading Halt Auction starting at 9:30
a.m. would promote fair and orderly trading because it would provide
market participants and the Exchange ample opportunity to notice
errors or problems with orders for the security due to the reverse
stock split. In addition, the Exchange believes that re-opening the
security with a Trading Halt Auction starting at 9:30 a.m. (instead
of at 9:00 a.m. as on NYSE American and NYSE Arca) would promote
fair and orderly trading because it would follow the Exchange's
usual opening process for securities that are re-opening at the
start of the Core Trading Session after a regulatory halt. The
Exchange believes that this approach is preferable to creating an
entirely new trading session commencing at 9:00 a.m. solely for the
re-opening of securities listed on the Exchange subject to a
regulatory halt in advance of a reverse stock split, which the
Exchange believes would cause confusion among market participants.
\11\ The Exchange may change the resumption time if, for
example, there was ``Extraordinary Market Activity,'' as defined in
the CTA Plan, that could interfere with a fair and orderly
resumption at the start of Core Trading Hours. The Exchange will
provide notice of the re-opening of the security through the SIP and
on the Exchange's trading halt web page at <a href="https://www.nyse.com/trade-halt">https://www.nyse.com/trade-halt</a>.
\12\ Trading in a security that has undergone a reverse stock
split would have a delayed opening because following the reverse
stock split, the security would not be available for early-session
trading at 4:00 a.m. on away markets, but would instead re-open with
a Trading Halt Auction at the start of the Core Trading Session.
Orders that have been entered for execution prior to the Trading
Halt Auction and not canceled would be eligible to execute in the
Trading Halt Auction.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\13\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\14\ 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 mechanism 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.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposal removes impediments to and
perfects the mechanism of a free and open market and a national market
system and protects investors and the public interest. The Exchange is
proposing these changes at the request of market participants who say
that they would benefit from a consistent approach across exchanges
with respect to regulatory halt rules around reverse stock splits. As
such, the Exchange believes that harmonizing its rules with Nasdaq's in
this area would enhance investor protection and maintain fair and
orderly markets by minimizing the chance that market participants might
make erroneous trades in a security because they were unaware that it
had undergone a reverse stock split.
The Exchange believes that its proposed rule change establishing a
reverse stock split trading halt rule would protect investors by giving
the Exchange non-discretionary authority to act in situations where it
is necessary to maintain fair and orderly markets, such as when a
security is subject to a reverse stock split and companies have not
updated their systems to account for the new stock price. It would also
ensure that the process for resuming trading following a reverse stock
split halt is consistent with other types of halts initiated by the
Exchange. Currently, none of the Exchange's rules provide authority to
pre-emptively halt the trading in a security undergoing a significant
corporate action that could lead to investor or market confusion.
The Exchange believes that the proposed amendments would provide
greater transparency and clarity with respect to the manner in which
trading would be halted due to a reverse stock split, and the process
through which that halt would be implemented and terminated.
Particularly, the Exchange would not have discretion in determining
whether to declare a trading halt in a security following the
declaration of a reverse stock split. Rather, following the reverse
stock split of a security for which the Exchange is the Primary Listing
Market, trading in the security would halt prior to the close of the
post-market trading session on other markets on the day immediately
before the market effective date of the reverse stock split. The
Exchange also believes it is appropriate
[[Page 30417]]
to re-open the security with a Trading Halt Auction on the effective
date of the reverse stock split because doing so would give the
Exchange and market participants an opportunity to identify any orders
in a security that has undergone a reverse stock split that have not
correctly adjusted to the security's new stock price. The proposed
changes seek to achieve consistency with respect to the initiation and
termination of a trading halt with respect to securities that have
undergone a reverse stock split, while maintaining a fair and orderly
market, protecting investors, and protecting the public interest.
Additionally, the Exchange believes that establishing a mandatory
trading halt for securities that have undergone a reverse stock split
and resuming trading thereafter promotes fair and orderly markets and
the protection of investors because it allows the Exchange to protect
the broader interests of the national market system and addresses
potential concerns that system errors may affect immediate trading in
those securities. The Exchange believes that given the increase in
companies effecting reverse stock splits, the proposal would help the
Exchange reduce the potential for errors resulting in a material effect
on the market resulting from market participants' processing of the
reverse stock split, including incorrect adjustment or entry of orders.
The Exchange further believes that re-opening a security subject to
a reverse stock split with a Trading Halt Auction starting at 9:30 a.m.
would promote fair and orderly trading because it would provide market
participants and the Exchange ample opportunity to notice errors or
problems with orders for the security due to the reverse stock split.
In addition, the Exchange believes that re-opening the security with a
Trading Halt Auction starting at 9:30 a.m. (instead of at 9:00 a.m. as
on NYSE American and NYSE Arca) \15\ would promote fair and orderly
trading because it would follow the Exchange's usual opening process
for securities that are re-opening at the start of the Core Trading
Session after a regulatory halt. The Exchange believes that this
approach is preferable to creating an entirely new trading session
commencing at 9:00 a.m. solely for the re-opening of securities listed
on the Exchange subject to a regulatory halt in advance of a reverse
stock split, which the Exchange believes would cause confusion among
market participants.
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\15\ See supra note 10.
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Based on the foregoing, the Exchange believes that the proposal is
consistent with the Act because it would promote just and equitable
principles of trade and would remove any impediments to a free and open
market and a national market system by allowing sufficient time for
investors to review their orders and the quotes for a security that has
undergone a reverse stock split, and allow market participants to
ensure that their systems have properly accounted for the reverse stock
split. As discussed previously, the Exchange believes that the proposed
amendments establishing the authority and process for reverse stock
split trading halts and the resumption of trading is consistent with
the Act, which itself imposes obligations on exchanges with respect to
issuers that are listed.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposal will not impose any burden
on competition that is not necessary or appropriate in furtherance of
the purposes of Section 6(b)(8) of the Act.\16\
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\16\ 15 U.S.C. 78f(b)(8).
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The Exchange believes that the proposal will not impose a burden on
intermarket competition that is not necessary or appropriate in
furtherance of the purposes of the Act because the proposed rule change
is designed to protect investors and facilitate a fair and orderly
market, which are both important purposes of the Act. To the extent
that there is any impact on intermarket competition, it is incidental
to these objectives. In addition, at least one other exchange (Nasdaq)
has already adopted a substantially similar rule. The Exchange believes
that harmonizing its rules with Nasdaq's in this area would minimize
the chance that market participants might make erroneous trades in a
security because they were unaware that it had undergone a reverse
stock split.
The Exchange does not believe that the proposed rule change imposes
a burden on intra-market competition because the provisions apply to
all market participants and issuers on the Exchange equally. In
addition, information regarding the timing of reverse stock splits and
the halting and resumption of trading in connection with the effecting
of reverse splits would be disseminated using several freely-accessible
sources to ensure the broad availability of this information.
In addition, the proposal includes provisions related to the
declaration and timing of trading halts and the resumption of trading
that are designed to prevent any advantage to those who can react more
quickly than other market participants.
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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \17\ and Rule 19b-4(f)(6) thereunder.\18\
Because the proposed rule change does not: (i) significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\19\
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\17\ 15 U.S.C. 78s(b)(3)(A)(iii).
\18\ 17 CFR 240.19b-4(f)(6).
\19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires the Exchange to give the Commission written notice of its
intent to file the proposed rule change, along with a brief
description and text of the proposed rule change, at least five
business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \20\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\20\ 15 U.S.C. 78s(b)(2)(B).
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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:
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Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#6715120b024a04080a0a020913142714020449000811"><span class="__cf_email__" data-cfemail="bdcfc8d1d890ded2d0d0d8d3c9cefdced8de93dad2cb">[email protected]</span></a>. Please include
file number SR-NYSE-2024-22 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NYSE-2024-22. 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 (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NYSE-2024-22 and should be
submitted on or before May 14, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-08569 Filed 4-22-24; 8:45 am]
BILLING CODE 8011-01-P
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