Notice2024-13418
Self-Regulatory Organizations; New York Stock Exchange LLC; Order Approving a Proposed Rule Change Amending Rule 7.35 and Rule 7.35B
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 20, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 119 (Thursday, June 20, 2024)</title>
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[Federal Register Volume 89, Number 119 (Thursday, June 20, 2024)]
[Notices]
[Pages 51918-51921]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-13418]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100327; File No. SR-NYSE-2024-13]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Approving a Proposed Rule Change Amending Rule 7.35 and Rule 7.35B
June 13, 2024.
I. Introduction
On March 1, 2024, New York Stock Exchange LLC (the ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
amend NYSE Rules 7.35 and 7.35B. The proposed rule change was published
for comment in the Federal Register on March 18, 2024.\3\ On April 4,
2024, 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 approve or disapprove the
proposed rule change.\4\ The Commission received no comment letters on
the proposed rule change. This order approves the proposed rule change.
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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. 99719 (Mar. 12,
2024), 89 FR 19370 (Mar. 18, 2024) (``Notice'').
\4\ See Securities Exchange Act Release No. 100027, 89 FR 35288
(May 1, 2024).
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II. Description of the Proposal
As described more fully below, the Exchange proposes to amend NYSE
Rule 7.35 (General) and NYSE Rule 7.35B (DMM-Facilitated Closing
[[Page 51919]]
Auctions) to: (i) align the definition of Imbalance Reference Price for
a Closing Imbalance; (ii) replace the Regulatory Closing Imbalance with
an enhanced Significant Closing Imbalance; and (iii) include Closing D
Orders in the Total Imbalance calculation ten minutes before the
scheduled end of Core Trading Hours.
A. Background
According to the Exchange, Imbalance information on the Exchange
means better-priced orders on one side of the market compared to both
better-priced and at-price orders on the other side of the market. The
Exchange disseminates two types of Imbalance publications: Total
Imbalance and Closing Imbalance. Total Imbalance information is
disseminated for all Auctions, and Closing Imbalance information is
disseminated for the Closing Auction only.
The Exchange states that, beginning ten 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.\5\ 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.\6\ The Closing Auction Imbalance
Information also includes an Imbalance Reference Price, which is the
Exchange Last Sale Price bound by the Exchange BBO.\7\
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\5\ See NYSE Rule 7.35B(e)(1)(A). DMM Orders, as defined in NYSE
Rule 7.35(a)(9)(B), that have been entered by the DMM in advance of
a Closing Auction are currently included in the Closing Auction
Imbalance Information.
\6\ See NYSE 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.
\7\ See NYSE Rule 7.35B(e)(3).
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Currently, according to the Exchange, 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.\8\ 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 Auction begins.\9\
In addition, if at the Closing Auction Imbalance Freeze Time (e.g.,
3:50 p.m. Eastern Time) \10\ the Closing Imbalance \11\ is 500 round
lots or more, the Exchange will disseminate a Regulatory Closing
Imbalance to both the securities information processor and proprietary
data feeds.\12\
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\8\ See NYSE Rule 7.35(b)(1)(C)(ii).
\9\ See NYSE Rule 7.35(c)(1) and (2).
\10\ See NYSE Rule 7.35(a)(8) (defining the ``Closing Auction
Imbalance Freeze Time'' to be 10 minutes before the scheduled end of
Core Trading Hours).
\11\ As defined in NYSE 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. NYSE Rule 7.35(a)(4)(A)(ii) further defines
a ``Regulatory Closing Imbalance'' as a Closing Imbalance
disseminated at or after the Closing Auction Imbalance Freeze Time.
\12\ See NYSE Rule 7.35B(d)(1).
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B. Proposed Rule Change
1. Significant Closing Imbalance
The Exchange currently publishes a Regulatory Closing Imbalance at
the Closing Auction Imbalance Freeze Time if the Closing Imbalance is
500 round lots or more. The Exchange proposes to retire the Regulatory
Closing Imbalance based on a static round-lot trigger and instead
publish a Significant Closing Imbalance based on a dynamic formula that
would consider the notional size of the imbalance and the recent
closing activity of the relevant security. As proposed, unless
determined otherwise by the Exchange and announced by Trader Update, a
Closing Imbalance would be considered ``Significant'' if:
<bullet> the Closing Imbalance is equal to or greater than 30
percent of the 20-day Average Closing Size for NYSE-listed securities
in the S&P 500[supreg] Index; 50 percent of the 20-day Average Closing
Size for securities in the S&P 400[supreg] Index and the S&P
600[supreg] Index; or 70 percent of the 20-day Average Closing Size for
all other securities,\13\ and
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\13\ See Proposed NYSE Rule 7.35B(d)(1)(A).
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<bullet> the notional value of the Closing Imbalance, calculated as
the product of the imbalance quantity and the reference price, is equal
to or greater than $200,000 for S&P and all other securities.\14\
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\14\ See id. at (B).
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For purposes of calculating the proposed Significant Closing
Imbalance, Average Closing Size would be calculated for each symbol
based on the most recent 20 trading days where the security closed on a
last sale eligible trade. For securities with less than the specified
trading data, including but not limited to IPOs, direct listings, and
transfers, the Closing Imbalance would be considered Significant if the
notional value of the Closing Imbalance, calculated as the product of
the imbalance quantity and the reference price, is equal to or greater
than $200,000 for S&P and all other securities or an alternative
specified dollar amount as determined by the Exchange and announced by
Trader Update. Only trading days with an NYSE close would be considered
for purposes of the Significant Closing Imbalance calculation.\15\
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\15\ See id. at (C).
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The Exchange states that it believes that publishing imbalance
information where the imbalance is of a size that equals or exceeds a
large percentage of a security's average closing size over the most
recent 20 trading days and is of a high notional value imparts more
valuable information to the marketplace about potential trading
anomalies or opportunities than an imbalance publication based solely
on an imbalance size of 500 round lots or more.\16\ As a result, the
Exchange states, it believes that publication of Significant Closing
Imbalance information as proposed could facilitate entry of offsetting
orders and the price discovery process on the Exchange, to the benefit
of the marketplace and public investors.\17\ In addition, the Exchange
states that it believes that it would be appropriate to retain
flexibility to determine the percentage amounts and notional value in
the formula for what constitutes a Significant Closing Imbalance so
that the Exchange may timely take into consideration market movements
and the changing trading characteristics of different securities.\18\
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\16\ See Notice, supra note 3, 89 FR at 19372.
\17\ See id.
\18\ See id. The Exchange notes that the options markets
operated by the Exchange's affiliates have similar flexibility in
their rules to specify different parameters based on a Trader
Update. See, e.g., NYSE Arca, Inc., Rules 6.62P-O(a)(3)(C)
(specifying the thresholds applicable to limit order price
protection) & 6.64P-O(c) (specifying interval when Auction Imbalance
Information is updated).
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2. Imbalance Reference Price
Currently, 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.\19\ The Closing Auction Imbalance
Information also includes an Imbalance Reference Price, which is the
Exchange Last Sale Price bound by the Exchange BBO.\20\ The Imbalance
Reference Price for a Closing Imbalance
[[Page 51920]]
is currently the Exchange Last Sale Price.\21\
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\19\ See NYSE 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.
\20\ See NYSE Rule 7.35B(e)(3).
\21\ See NYSE Rule 7.35B(d). See NYSE Rule
7.35(a)(12)(B)(defining ``Exchange Last Sale Price'' 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).
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The Exchange proposes to align the definition of Imbalance
Reference Price for a Closing Imbalance in NYSE Rule 7.35B(d) with the
current definition of Imbalance Reference Price for the Closing Auction
Imbalance Information in NYSE Rule 7.35B(e)(3). As proposed, the
Imbalance Reference Price for a Closing Imbalance would be equal to
<bullet> the BB if the Exchange Last Sale Price is lower than the
BB;
<bullet> the BO if the Exchange Last Sale Price is higher than the
BO; or
<bullet> the Exchange Last Sale Price if it is at or between the
BBO or if the security was halted or not opened by the Closing Auction
Imbalance Freeze Time.\22\
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\22\ See Proposed NYSE Rule 7.35B(d).
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The Exchange states that it believes that the proposal will enhance
the value of the imbalance publication by providing a more accurate
depiction of the market interest available in a security because
bounding the Imbalance Reference Price by the BBO keeps the price in
line with actual trading in that security.\23\
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\23\ See Notice, supra note 3, 89 FR at 19372.
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3. Closing D Orders
Finally, the Exchange proposes to include Closing D Orders earlier
in the imbalance information provided to the marketplace. The Exchange
disseminates two types of Imbalance publications: Total Imbalance and
Closing Imbalance. Total Imbalance information is disseminated for all
Auctions, and Closing Imbalance information is disseminated for the
Closing Auction only.
NYSE Rule 7.35(a)(4)(A)(i) provides that ``Total Imbalance'' means
for the Core Open and Trading Halt Auctions, the Imbalance of all
orders eligible to participate in an Auction and for the Closing
Auction, the Imbalance of MOC, LOC, and Closing IO Orders, and
beginning five minutes before the scheduled end of Core Trading Hours,
Closing D Orders.
In addition, for the Closing Auction, the Exchange provides
information on the ``Paired Quantity,'' which is the volume of better-
priced and at-priced buy shares that can be paired with better-priced
and at-priced sell shares at the Imbalance Reference Price, and
``Unpaired Quantity,'' meaning the volume of better-priced and at-
priced buy shares that cannot be paired with both at-priced and better-
priced sell shares at the Imbalance Reference Price. Paired and
Unpaired Quantity as defined in NYSE Rule 7.35(a)(4)(B)(ii) to include
MOC, LOC, and Closing IO Orders, and beginning five minutes before the
scheduled end of Core Trading Hours, Closing D Orders.
Further, NYSE Rule 7.35(b) sets forth general rules for how
different types of orders are ranked for purposes of how they are
included in Auction Imbalance Information or for an Auction allocation.
NYSE Rule 7.35(b)(1) provides that orders are ranked based on the price
at which they would participate in an Auction. The price at which an
order would be ranked would be used to determine whether it is a
better-priced or an at-priced order. In this regard, beginning five
minutes before the end of Core Trading Hours, the ranked price of a
Closing D Order is the order's undisplayed discretionary price. In
addition, under NYSE Rule 7.35(b)(2), the working time of a Closing D
Order would be the later of its entry time or five minutes before the
end of Core Trading Hours.
The Exchange proposes to amend these rules. The Exchange states
that it believes that earlier inclusion of this order type in the
imbalance information published by the Exchange would enhance the
information available to the marketplace leading into the Closing
Auction.\24\ The Exchange also states that it believes that including
Closing D Orders in its publicly disseminated imbalance information
earlier would provide more information to the marketplace about the
volume and type of orders going into the Closing Auction as well as
additional time for the market to respond to any auction
imbalances.\25\
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\24\ See id.
\25\ See id., at 19372-73.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\26\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\27\ 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 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.
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\26\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\27\ 15 U.S.C. 78f(b)(5).
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The Commission believes that the proposed rule change to include
Closing D Orders in the Closing Auction Imbalance Information published
by the Exchange beginning ten minutes before the scheduled end of Core
Trading Hours, rather than the current five minutes, is reasonably
designed to enhance the information available to the marketplace
leading into the Closing Auction and to provide additional time for the
market to respond to auction imbalances. The Commission also believes
that the proposal to publish a Significant Closing Imbalance based on a
dynamic formula--rather than the current Regulatory Closing Imbalance
at the Closing Auction Imbalance Freeze Time if the Closing Imbalance
is 500 round lots or more--is reasonably designed to provide meaningful
information to market participants about interest in a security and to
assist market participants in trading in the Closing Auction in that
security. Moreover, allowing the Exchange the flexibility to determine
the percentage amounts and notional value in the formula for what would
constitute a Significant Closing Imbalance is reasonably designed to
enable the Exchange to take market movements and the characteristics of
different securities into consideration and to update the metrics if
needed. Finally, the Commission believes that it is reasonable for the
Exchange to determine the Imbalance Reference Price for the Closing
Auction in a security in the same way the Exchange currently determines
the Imbalance Reference Price for the Closing Auction Imbalance
Information, because this change would enhance consistency in the
Exchange's rulebook and because bounding the Imbalance Reference Price
by the BBO is reasonably designed to keep the Imbalance Reference Price
in line with actual trading in that security.
Based on the foregoing, the Commission finds that the proposed rule
change is consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\28\ that the
[[Page 51921]]
proposed rule change (SR-NYSE-2024-13) be, and hereby is, approved.
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\28\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-13418 Filed 6-18-24; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on June 20, 2024.
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