Notice2026-21650
Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change To Amend Rule 7.10 (Clearly Erroneous Executions)
Primary source
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Published
October 23, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 204 (Friday, October 23, 2026)</title>
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[Federal Register Volume 91, Number 204 (Friday, October 23, 2026)]
[Notices]
[Pages 66892-66902]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-21650]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-106705; File No. SR-NYSE-2026-50]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change To Amend Rule 7.10 (Clearly
Erroneous Executions)
October 20, 2026.
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 October 8, 2026, New York Stock Exchange LLC (``NYSE'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III 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 7.10 (Clearly Erroneous
Executions). The proposed rule change is available on the Exchange's
website at <a href="http://www.nyse.com">www.nyse.com</a> and at the principal office of the Exchange.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend Rule 7.10
(Clearly Erroneous Executions). Specifically, the Exchange proposes to:
(1) reorganize the Rule to enhance its clarity; (2) specify the impact
of missing or erroneous LULD Price Bands \4\ on the availability of
Clearly Erroneous review during the Core Trading Session or Overnight
Protected Hours; \5\ (3) amend provisions on ``multi-stock events'';
(4) remove references to ``multi-day events''; (5) add a provision on
reasonable cross-market coordination; and (6) eliminate redundancies in
the Rule.
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\4\ ``LULD Price Bands'' or ``Price Bands'' means Price Bands as
defined in Section V of the Plan to Address Extraordinary Market
Volatility (the ``LULD Plan'') and Overnight Price Bands as defined
in Section VIII of the LULD Plan.
\5\ The term ``Core Trading Session'' is defined in Rule
7.34(a)(2). The term ``Overnight Protected Hours'' is defined in
Section VIII of the LULD Plan.
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Background
Following a severe disruption in the U.S. equities markets on May
6, 2010 (known as the Flash Crash), the Commission approved, on a pilot
basis, the clearly erroneous rule to ``provide greater transparency and
certainty to the process of breaking trades.'' \6\ Largely,
[[Page 66893]]
the pilot reduced the discretion of the Exchange, other national
securities exchanges, and Financial Industry Regulatory Authority
(``FINRA'') to deviate from the objective standards in their respective
rules when dealing with potentially erroneous transactions. After
revisions in 2013 and 2014,\7\ the clearly erroneous pilot was extended
in six-month increments numerous times until 2022.
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\6\ See Securities Exchange Act Release No. 62886 (September 10,
2010), 75 FR 56613 (September 16, 2010) (SR-NYSE-2010-47).
\7\ See Securities Exchange Act Release Nos. 68804 (February 1,
2013), 78 FR 8677 (February 6, 2013) (SR-NYSE-2013-11) and 72434
(June 19, 2014), 79 FR 36110 (June 25, 2014) (SR-NYSE-2014-22). The
2010, 2013, and 2014 filings pertain to Rule 128, which is no longer
applicable to any securities that trade on the Exchange and has been
replaced with Rule 7.10. See Securities Exchange Act Release Nos.
82945 (March 26, 2019), 83 FR 13553, 13565 (March 29, 2019) (SR-
NYSE-2017-36) and 85962 (May 29, 2019), 84 FR 26188, 26189 n.13
(June 5, 2019) (SR-NYSE-2019-05).
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In April 2019, the Commission approved an amendment to the LULD
Plan to make that Plan permanent.\8\ Following that change, in 2022,
the Commission approved a proposal to amend the clearly erroneous rule
(the ``2022 Amendment'' to Rule 7.10).\9\ The 2022 Amendment made the
clearly erroneous rule permanent and aimed to harmonize it with the
LULD Plan by making explicit that, with limited exceptions, the LULD
mechanism was the primary means of preventing clearly erroneous trades
during the Core Trading Session.
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\8\ See Securities Exchange Act Release No. 84843 (December 18,
2018), 83 FR 66464 (December 26, 2018) (``Notice''); 85623 (April
11, 2019), 84 FR 16086 (April 17, 2019) (File No. 4-631)
(``Amendment 18'').
\9\ See Securities Exchange Act Release Nos. 95658 (September 1,
2022), 87 FR 55060 (September 8, 2022) (SR-CboeBZX-2022-037) (Order
Approving a Proposed Rule Change, as Modified by Amendment Nos. 1
and 2, to Amend BZX Rule 11.17, Clearly Erroneous Executions) and
95822 (September 19, 2022), 87 FR 58140 (September 23, 2022) (SR-
NYSE-2022-44) (Notice of Filing and Immediate Effectiveness of
Proposed Rule Change to Amend Rule 7.10).
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In 2026, in conjunction with the industry's plans for the
introduction of 23/5 Trading, the Operating Committee of the LULD Plan
filed proposed Amendment 27 to the LULD Plan, which proposed to
establish price band protections during overnight trading hours
(``Overnight Price Bands'').\10\ On August 5, 2026, the Commission
approved the proposal.\11\ On September 14, 2026, in light of the
addition of Overnight Price Bands to the LULD Plan, the Exchange filed
an amendment to Rule 7.10 that extended the restrictions on clearly
erroneous review that apply in the Core Trading Session to the
Overnight Protected Hours when Overnight Price Bands are in place.\12\
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\10\ See Securities Exchange Act Release No. 105596 (June 1,
2026), 91 FR 33774 (June 4, 2026) (File No. 4-631) (Notice of Filing
of 27th Amendment to the National Market System Plan).
\11\ See Securities Exchange Act Release No. 106042 (August 5,
2026), 91 FR 51515 (August 10, 2026) (File No. 4-631) (Order
Granting Approval of the 27th Amendment to the National Market
System Plan to Address Extraordinary Market Volatility to Establish
Temporary Price Band Protections in Overnight Trading).
\12\ See Securities Exchange Act Release No. 106407 (September
17, 2026), 91 FR 60165 (September 22, 2026).
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Proposed Amendment
Following the 2022 Amendment, market disruptions on January 24,
2023 and June 3, 2024 \13\ further highlighted the close interplay of
the LULD Plan and the clearly erroneous rule. Following those events,
the Exchange, in consultation with other equities exchanges, closely
reviewed the current text of Rule 7.10 and identified areas where the
Exchange believes the Rule's clarity can be enhanced, its organization
can be improved, and duplicate and obsolete sections can be eliminated.
In sum, the proposed rule text is not substantively new, but rather a
reorganization and further specification of existing Exchange
authority.
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\13\ On January 24, 2023, LULD bands in numerous securities were
calculated based on anomalous reference prices supplied by NYSE. On
June 3, 2024, a software defect caused the CTA SIP to incorrectly
calculate LULD bands across numerous securities. In each case, NYSE
and other exchanges declared numerous trades clearly erroneous.
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Accordingly, the Exchange proposes to reorganize Rule 7.10 into
three clear paragraphs: (a) Definitions, (b) Availability of Clearly
Erroneous Review, and (c) Procedures. In the current Rule, definitions
are spread across paragraphs (a), (c), and (d); rules on the
availability of clearly erroneous review are split between paragraphs
(c), (g), (h), and (i); and procedures are split across paragraphs (b),
(c), (e), and (f). By reorganizing the Rule and gathering similar
provisions together, the Exchange believes the proposed rule text will
be easier for market participants to navigate, understand, and use.
(a) Definitions
The Exchange proposes to amend paragraph (a) of Rule 7.10 to
include the definitions of terms used in the current version of the
Rule, as well as new terms that would be added as a result of this
proposal, as follows:
<bullet> Proposed paragraph (a) would be titled ``Definitions'' and
would provide that ``[f]or purposes of this Rule, the terms below have
the following meanings.''
<bullet> Proposed subparagraph (a)(1) would define ``CEE Reference
Price'' as the consolidated last sale immediately prior to the
execution(s) under review, or, in cases where there are no prior
trades, the previous day's official closing price, unless an Officer
determines to utilize a Revised CEE Reference Price \14\ as provided in
this Rule. The first part of this definition is based on the current
definition of ``Reference Price'' in paragraph (d) of Rule 7.10. The
second part of this definition is based on the Exchange's definition of
``Official Closing Price'' in Rule 1.1(u)(1)(D), which states that when
there have been no consolidated last-sale eligible trades during the
Core Trading Hours on that trading day, the Exchange's Official Closing
Price will be the previous day's Official Closing Price. As such, the
proposed definition of ``CEE Reference Price'' in subparagraph (a)(1)
is not novel.
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\14\ ``Revised CEE Reference Price'' is described below.
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<bullet> Proposed subparagraph (a)(2), the definition of ``Clearly
erroneous,'' would encompass the text of current paragraph (a), without
substantive change.
<bullet> Proposed subparagraph (a)(3) would define ``LULD Plan'' to
mean the Plan to Address Extraordinary Market Volatility Pursuant to
Rule 608 of Regulation NMS under the Act. This term is currently
defined in paragraph (c)(1) of Rule 7.10.
<bullet> Proposed subparagraph (a)(4) would define ``LULD Price
Bands'' or ``Price Bands'' as the Price Bands defined in Section V of
the LULD Plan and Overnight Price Bands as defined in Section VIII of
the LULD Plan. These terms are currently defined in paragraph (c)(1) of
Rule 7.10.
<bullet> Proposed subparagraph (a)(5) would define ``LULD Protected
Hours'' to include the Core Trading Session and Overnight Protected
Hours. This term is currently defined in paragraph (c)(1) of Rule 7.10.
<bullet> Proposed subparagraph (a)(6) would define ``LULD Reference
Price'' as the Reference Price or Overnight Reference Prices defined in
the LULD Plan. This definition does not appear in the current text of
Rule 7.10 and is being added for clarity to facilitate the proposed
reorganization of the Rule.
<bullet> Proposed subparagraph (a)(7) would define ``LULD Tier'' as
Tier 1 or Tier 2 as defined in Appendix A to the LULD Plan. This
definition does not appear in the current text of Rule 7.10 and is
being added for clarity to facilitate the proposed reorganization of
the Rule.
<bullet> Proposed subparagraph (a)(8) would define ``Multi-Stock
Event'' as an event involving 50 or more securities whose executions
occurred within 5 minutes. As discussed below, this is a proposed
[[Page 66894]]
increase to 50 securities from 20 securities in the current Rule.
<bullet> Proposed subparagraph (a)(9) would define ``Numerical
Guidelines'' as the percentage difference from the CEE Reference Price
specified in Case 5A \15\ below for transactions executed during LULD
Protected Hours in NMS stocks that are not subject to the LULD Plan and
transactions executed outside of LULD Protected Hours. This term is
currently defined in paragraph (c)(2)(A) of Rule 7.10.
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\15\ ``Case 5A'' and the other Cases are defined and discussed
below.
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<bullet> Proposed subparagraph (a)(10) would define ``Officer'' as
an Officer of the Exchange or such other employee designee of the
Exchange. This term is currently defined in paragraph (b) of Rule 7.10.
<bullet> Proposed subparagraph (a)(11) would define ``Overnight
Protected Hours'' as the Overnight Protected Hours defined in Section
VIII of the LULD Plan. This term is not defined in the current text of
Rule 7.10 and is being added for clarity to facilitate the proposed
reorganization of the Rule.
<bullet> Proposed subparagraph (a)(12) would define ``Percentage
Parameter'' as the Percentage Parameter defined in Appendix A to the
LULD Plan or Overnight Percentage Parameter defined in Section VIII of
the LULD Plan. These terms are currently defined in paragraph (c)(1)(B)
of Rule 7.10.
<bullet> Proposed subparagraph (a)(13) would define ``SRO'' as a
national securities exchange and/or a national securities association,
as those terms are defined in Regulation NMS. This definition does not
appear in the current text of Rule 7.10.
(b) Availability of Clearly Erroneous Review
Next, the Exchange proposes to reorganize all rule text about the
availability of clearly erroneous review into a revised paragraph (b).
In the current Rule, this content is spread across paragraph (c)(1),
which addresses the availability of clearly erroneous review during the
Core Trading Session; paragraph (c)(2), which addresses the
availability of clearly erroneous review outside of the Core Trading
Session and for stocks not subject to the LULD Plan; paragraph (g),
which addresses transactions occurring outside of LULD Price Bands;
paragraph (h), which addresses Multi-Day Events; and paragraph (i),
which addresses transactions occurring during trading halts.
The Exchange proposes to reorganize all of these provisions into
proposed paragraph (b). Further, instead of separating the rules for
clearly erroneous review during the Core Trading Session vs. other
times (i.e., current paragraphs (c)(1) vs. (c)(2)) as in the current
Rule, the Exchange proposes to assign a ``Case'' number to each
circumstance where clearly erroneous review is available, and to
include within the Case description all of the rules relevant to that
particular Case. In addition, to the extent that the rules in current
paragraphs (c)(1) and (c)(2) address the same issues as current
paragraphs (g) and (i), the Exchange proposes to combine and streamline
such rules within the relevant Case.
Specifically, the Exchange proposes to replace paragraph (b) of
Rule 7.10 as follows:
<bullet> The Exchange proposes to title the revised paragraph (b)
as ``Availability of Clearly Erroneous Review.'' Proposed paragraph (b)
would specify that ``transactions are reviewable as clearly erroneous
only in the enumerated cases below.''
<bullet> Proposed subparagraph (b)(1) would be titled ``Case 1--
Transactions Erroneously Executed During a Trading Halt, Suspension, or
Pause.''
<bullet> Proposed subparagraph (b)(2) would be titled ``Case 2--
Transactions Executed Outside LULD Price Bands.''
<bullet> Proposed subparagraph (b)(3) would be titled ``Case 3--
Unavailable or Missing LULD Price Bands.''
<bullet> Proposed subparagraph (b)(4) would be titled ``Case 4--
Erroneous LULD Price Bands.''
<bullet> Proposed subparagraph (b)(5) would be titled ``Case 5--
Transactions Executed During LULD Protected Hours in NMS Stocks Not
Subject to the LULD Plan, and Transactions Executed Outside of LULD
Protected Hours.''
Each of the Cases is discussed further below.
Case 1--Transactions Erroneously Executed During a Trading Halt,
Suspension, or Pause
Proposed Case 1 (proposed subparagraph (b)(1)) is based on current
paragraph (i) of Rule 7.10, with certain changes identified below.
Proposed Case 1 would apply when a ``transaction was executed after
implementation of a regulatory trading halt, suspension, or pause that
has been declared by the primary listing market or imposed by the
Commission \16\ and before such regulatory halt, suspension, or pause
officially ended according to the primary listing market.'' The current
text of paragraph (i) expresses the same concept, but includes
additional unnecessary detail about the event where a trading halt,
suspension or pause is ``prematurely lifted in error and then re-
instituted,'' which the Exchange believes is encompassed in the more
general language above. The Exchange believes that removing such
unnecessary detail will streamline the rule text and enhance
comprehension of the Rule.
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\16\ In addition to referencing regulatory trading halts,
suspensions, or pauses that have been declared by the primary
listing market, the Exchange proposes to include ``or imposed by the
Commission'' to capture summary suspension orders issued by the
Commission under Section 12(k) in the public interest and to protect
investors. Such summary suspension orders by the Commission have the
same effect as halts declared by primary listing markets--e.g., to
halt trading--and so the Exchange believes that including them here
adds further specification to the rule and not a material change to
the rule.
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In addition, the current text of paragraph (i) includes language
limiting the application of the Rule to ``the event of any disruption,
or malfunction in the operation of the electronic communications and
trading facilities of the Exchange, another market center or
responsible single plan processor in connection with the transmittal or
receipt of a regulatory trading halt, suspension or pause . . . .'' The
Exchange believes that such limitation is unnecessary, because
transactions erroneously executed during a trading halt, suspension, or
pause should be nullified in all cases, whether the cause was one of
the conditions listed in current paragraph (i) or some other issue that
has not yet been imagined. The inclusion of such limiting language has
the potential to cause confusion and add delay to the process of
addressing such trades.
Proposed Case 1 would further provide: ``A Case 1 transaction shall
be nullified by an Officer acting on his or her own motion or at the
request of a third party without regard to the Percentage Parameters or
Numerical Guidelines set forth in this Rule, and without regard to the
trading session during which the transaction was executed.'' The
provisions providing that an Officer shall nullify such transactions
acting on his or her own motion and that such action will be taken
without regard to the Percentage Parameters or Numerical Guidelines are
taken directly from current paragraph (i), without substantive change.
The Exchange proposes to add the further language ``without regard to
the trading session during which the transaction was executed'' to make
explicit that Case 1 applies both during LULD Protected Hours and
outside of them. The Exchange also proposes to add that an Officer may
nullify such a
[[Page 66895]]
transaction ``acting on his or her own motion or at the request of a
third party.'' Current paragraph (g), regarding transactions executed
outside of LULD Price Bands, currently contains such language, and so
it is not novel. The Exchange believes it is reasonable to also include
such language in proposed Case 1, to make explicit that a third party
market participant may inform the Exchange when such third party
becomes aware of transactions erroneously executed during a trading
halt, suspension, or pause.
Current paragraph (i) contains additional language regarding the
timing of the Officer's review, the notification of parties involved in
the subject transaction, and the appeal rights of aggrieved parties.
This language is substantively identical to the procedural language
contained in current paragraph (f). In light of the Exchange's proposal
to reorganize all such procedural language into one location (i.e.,
paragraph (c) of the proposed Rule), the Exchange proposes not to
include such procedural language within Case 1 itself, but instead to
include it in the ``Procedures'' section of the proposed Rule at
paragraph (c)(1)(B).
The Exchange notes that current paragraph (c)(1)(B) includes a
provision that indicates that a transaction that ``is executed after
the primary listing market for the security declares a regulatory
trading halt, suspension, or pause pursuant to paragraph (i)'' will be
``subject to review . . . and found to be clearly erroneous if the
price of the transaction to buy (sell) that is subject of the complaint
is greater than (less than) the Reference Price, described in paragraph
(d) below, by an amount that equals or exceeds the applicable
Percentage Parameter . . . .'' This provision was added as part of the
2022 Amendment and appears to be inconsistent with paragraph (i), which
requires the Exchange to nullify such transactions without regard to
Percentage Parameters. The Exchange believes that the paragraph (i)
approach--which has been part of the clearly erroneous rule since 2014
\17\--is the more reasonable approach, and that transactions executed
during a trading halt, suspension, or pause should be nullified without
further analysis. For that reason, the Exchange proposes to eliminate
the inconsistent provisions of paragraph (c)(1)(B) and adopt the
paragraph (i) approach, as described and revised above, in Case 1.
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\17\ See Securities Exchange Act Release No. 72434 (June 19,
2014), 79 FR 36110 (June 25, 2014) (SR-NYSE-2014-22) (adding
``Trading Halts'' section as paragraph (k) of Rule 128).
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Case 2--Transactions Executed Outside LULD Price Bands
Proposed Case 2 (proposed subparagraph (b)(2)) is based on current
paragraph (g) of Rule 7.10, with certain changes identified below.
Proposed Case 2 would apply when a ``transaction was executed
during LULD Protected Hours outside the LULD Price Bands at a time when
the Price Bands were available and correct, as determined by an
Officer, using his or her own discretion.'' Current paragraph (g)
contains this concept, but with the limitation that the execution of
such a transaction outside the LULD Price Bands must be ``as a result
of an Exchange technology or systems issue.'' The Exchange believes
that such limitation is unnecessary, because transactions erroneously
executed outside of available and correct Price Bands during LULD
Protected Hours should be nullified in all cases, whether the cause was
an Exchange technology or systems issue or some other issue that has
not yet been imagined. The inclusion of such limiting language has the
potential to cause confusion and add delay to the process of addressing
such trades.
As noted above, proposed Case 2 would apply ``when Price Bands were
available and correct, as determined by an Officer, using his or her
own discretion.'' The Exchange proposes to add this condition to
distinguish Case 2 from other potential scenarios where transactions
should be evaluated when the LULD Price Bands were erroneous or
missing, as described below in proposed Cases 3 and 4. The Exchange
believes it is appropriate for an Officer, using his or her own
discretion, to determine whether the Price Bands were available and
correct such that Case 2 applies.
Proposed Case 2 would provide: ``A Case 2 transaction shall be
nullified by an Officer acting on his or her own motion or at the
request of a third party, without regard to the Percentage Parameters
or Numerical Guidelines set forth in this Rule.'' The provision
providing that an Officer shall nullify such transactions acting on his
or her own motion is taken directly from current paragraph (g), without
substantive change. The Exchange proposes to add ``without regard to
the Percentage Parameters or Numerical Guidelines set forth in this
Rule'' to make clear that such nullification by the Officer is not
discretionary, nor is it based on computations described elsewhere in
the Rule.
Current paragraph (g) contains additional language regarding the
timing of the Officer's review, the notification of parties involved in
the subject transaction, and the appeal rights of aggrieved parties.
This language is substantively identical to the procedural language
contained in current paragraph (f). As with Case 1 above, the Exchange
proposes not to include the procedural language within Case 2 itself,
but to include it instead in the ``Procedures'' section of the proposed
Rule at paragraph (c)(1)(B).
The Exchange notes that current paragraph (c)(1)(B) includes a
provision that indicates that a transaction that ``is the result of an
Exchange technology or systems issue that results in the transaction
occurring outside of the applicable LULD Price Bands pursuant to
paragraph (g)'' will be ``subject to review . . . and found to be
clearly erroneous if the price of the transaction to buy (sell) that is
subject of the complaint is greater than (less than) the Reference
Price, described in paragraph (d) below, by an amount that equals or
exceeds the applicable Percentage Parameter . . . .'' This provision
was added as part of the 2022 Amendment and appears to be inconsistent
with paragraph (g), which requires the Exchange simply to nullify such
transactions. The Exchange believes that the paragraph (g) approach--
which has been part of the clearly erroneous rule since 2013 \18\--is
the more reasonable approach, and that transactions executed outside
LULD Price Bands should be nullified without further analysis. For that
reason, the Exchange proposes to eliminate the inconsistent provisions
of paragraph (c)(1)(B) and adopt the paragraph (g) approach, as
described and revised above, in Case 2.
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\18\ See Securities Exchange Act Release Nos. 68804 (February 1,
2013), 78 FR 8677 (February 6, 2013) (SR-NYSE-2013-11) (adding
``Securities Subject to Limit Up-Limit Down Plan'' section as
paragraph (i) of Rule 128).
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Finally, current paragraph (g) includes the caveat that ``[i]n the
event that a single plan processor experiences a technology or systems
issue that prevents the dissemination of Price Bands, the Exchange will
make the determination of whether to nullify transactions based on
paragraph (c)(1)(B) above.'' Because the Exchange proposes to address
such processor issues in Cases 3 and 4 below, the Exchange proposes not
to include this sentence in Case 2.
Case 3--Unavailable or Missing LULD Price Bands
Proposed Case 3 (proposed subparagraph (b)(3)) would apply when
[[Page 66896]]
a ``transaction was executed during LULD Protected Hours at a time when
Price Bands under the LULD Plan were unavailable, because (a) the first
Price Bands had not yet been received after a security's opening or
reopening; or (b) the Price Bands are missing.''
This proposed language is a clarification of the portion of current
paragraph (c)(1)(B), added in the 2022 Amendment, that provides that
clearly erroneous review is available if the transaction ``was executed
at a time when Price Bands under the LULD Plan were not available.''
The Exchange's Rule 19b-4 filing in support of the 2022 Amendment noted
that in certain circumstances during the Core Trading Session, clearly
erroneous review should act as a ``backstop'' to the LULD Plan:
[T]here are instances, such as the opening auction on the
primary listing market, or circumstances where a transaction that
ordinarily would have been subject to the LULD Plan is not--due, for
example, to some issue with processing the Price Bands. These
transactions would continue to be eligible for clearly erroneous
review [under the 2022 Amendment], effectively ensuring that such
review remains available as a backstop when the LULD Plan would not
prevent executions from occurring at erroneous prices in the first
instance.\19\
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\19\ See Securities Exchange Act Release No. 95822 (September
19, 2022), 87 FR 58140 at 58142 (September 23, 2022) (SR-NYSE-2022-
44) (Notice of Filing and Immediate Effectiveness of Proposed Rule
Change to Amend Rule 7.10).
Proposed Case 3 would make explicit that clearly erroneous review
is available when a transaction was executed during LULD Protected
Hours at a time when the first Price Bands had not yet been received
after a security's opening or reopening (i.e., clause (a) of proposed
paragraph (b)(3)). This provision is intended to capture the first
circumstance identified in the quoted passage above: the case of an
opening (or reopening) auction, when LULD Price Bands are not yet in
effect. Because the protection of the Price Bands is not available at
that time, transactions executed during that interval should be
entitled to clearly erroneous review.
Proposed Case 3 would also make explicit that clearly erroneous
review is available in the case of missing Price Bands during LULD
Protected Hours (i.e., clause (b) of proposed subparagraph (b)(3)). The
Exchange believes that Case 3 should cover all cases where Price Bands
are missing during LULD Protected Hours, regardless of whether the
missing Price Bands are caused by the processor's failure to
disseminate them, the Exchange's failure to receive or implement them,
or some other reason that has not yet been imagined. As such, the
Exchange does not propose to include limiting language such as the
language in current paragraph (g) (i.e., ``[i]n the event that a single
plan processor experiences a technology or systems issue that prevents
the dissemination of Price Bands''), because the Exchange believes that
clearly erroneous review should be available in all instances during
LULD Protected Hours where Price Bands are unavailable or missing,
regardless of the cause.\20\
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\20\ Note that proposed Case 3 would cover only unavailable and
missing Price Bands--i.e., the absence of Price Bands during LULD
Protected Hours. The presence of incorrect Price Bands would be
covered in proposed Case 4.
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Finally, proposed Case 3 would specify that a ``Case 3 transaction
shall be found to be clearly erroneous if the price of the transaction
to buy (sell) that is the subject of the complaint is greater than
(less than) the consolidated last sale immediately prior to the
execution(s) under review (or, in cases where there are no prior
trades, the previous day's official closing price) by an amount that
equals or exceeds the applicable Percentage Parameter.'' This language
is based on current paragraph (c)(1), without substantive change, but
instead of cross-referencing the definition of ``Reference Price,'' it
incorporates the relevant portion of the definition of ``CEE Reference
Price'' from proposed paragraph (a)(1).
Case 4--Erroneous LULD Price Bands
Proposed Case 4 (proposed subparagraph (b)(4)) would apply when a
``transaction was executed during LULD Protected Hours at a time when
Price Bands under the LULD Plan were available but erroneous, as
determined by an Officer using his or her own discretion.''
Similar to Case 3 above, the Exchange's Rule 19b-4 filing in
support of the 2022 Amendment contemplated that clearly erroneous
review would be available in such situations. The Exchange intended for
erroneous Price Bands to be among the ``issue[s] with processing the
Price Bands'' where the clearly erroneous rules would act as ``a
backstop.'' \21\ Proposed Case 4 would make explicit that clearly
erroneous review is available when a transaction was executed during
LULD Protected Hours at a time when Price Bands under the LULD Plan
were available but those Price Bands were erroneous, as determined by
an Officer using his or her own discretion.
---------------------------------------------------------------------------
\21\ See supra note 14.
---------------------------------------------------------------------------
Current Rule 7.10(c)(1)(C) already includes two specific examples
in which clearly erroneous review is available during LULD Protected
Hours due to erroneous LULD Price Bands: in cases involving ``(1) a
corporate action or new issue or (2) a security that enters a Trading
Pause pursuant to the LULD Plan and resumes trading without an
auction'' where the Reference Price ``is determined to be erroneous by
an Officer of the Exchange because it clearly deviated from the
theoretical value of the security.'' The Exchange now proposes to bring
those two examples under Case 4, and to also specify several
additional, non-exclusive factors contemplated by the ``issue[s] with
processing the Price Bands'' language from the Exchange's Rule 19b-4
filing in support of the 2022 Amendment, where clearly erroneous review
should be available due to erroneous LULD Price Bands, as determined by
an Officer using his or her own discretion. The proposed Rule would
provide that an Officer ``may consider factors including, but not
limited to,'' the following.
Proposed subparagraph (A)(1) would describe one such factor:
``whether the LULD Reference Price that was used to calculate the Price
Bands was based on a price that equaled or exceeded the Numerical
Guidelines.'' This factor illustrates the fact that if the LULD
Reference Price deviates from the theoretical value of the security by
an amount that equals or exceeds the Numerical Guidelines, it is a
telltale sign that the LULD Price Bands are erroneous. Such an instance
would be an ``issue with processing the Price Bands'' within the
language that the Exchange included in its Rule 19b-4 filing in support
of the 2022 Amendment and is therefore not novel.
Proposed subparagraph (A)(2) would describe a second factor:
``whether there was an issue that impacted the processor's calculation
of the Price Bands.'' This factor would include cases such as the
processor experiencing a software or hardware issue, as well as the
instances described in footnote 12 [sic] above. This factor is a clear
example of the ``issue with processing the Price Bands'' language that
the Exchange included in its Rule 19b-4 filing in support of the 2022
Amendment and is therefore not novel.
Proposed subparagraph (A)(3) would describe a third factor:
``whether the security at issue was included in the correct LULD Tier
under the LULD Plan.'' This factor refers to the LULD Plan's
requirement that a security must
[[Page 66897]]
be categorized into either ``Tier 1'' or ``Tier 2,'' with Percentage
Parameters of either 5% (for Tier 1) or 10% (for Tier 2) for NMS
securities with an LULD Reference Price of more than $3.00.\22\ A
security incorrectly classified into the wrong LULD Tier would have the
wrong Percentage Parameters applied to its LULD Reference Price,
meaning that the resulting LULD Price Bands would be erroneous. This
factor is another clear example of the ``issue with processing the
Price Bands'' language that the Exchange included in its Rule 19b-4
filing in support of the 2022 Amendment and is therefore not novel.
---------------------------------------------------------------------------
\22\ See LULD Plan, supra note 4, Appendix A--Percentage
Parameters.
---------------------------------------------------------------------------
Proposed subparagraph (A)(4) would describe a fourth factor:
``whether the transaction involved a corporate action or new issue
where the LULD Reference Price clearly deviated from the theoretical
value of the security due to conflicting or incorrect information in
the market about the security, or an objective error like a processing
or technical error.'' This factor is based on paragraph (c)(1)(C)(1) of
the current rule, but replaces the term ``Reference Price'' with ``LULD
Reference Price'' as defined in proposed Rule 7.10(a)(4) (i.e., an
erroneous reference price was used for calculating the LULD Price
Bands), since it is clear from context that is the meaning contemplated
by the current rule text. The Exchange proposes to supplement the
current rule text by adding ``due to conflicting or incorrect
information in the market about the security, or an objective error
like a processing or technical error,'' as illustrative examples of the
types of errors that could result in a corporate action or new issue
having an erroneous LULD Reference Price.\23\ The Exchange believes
this addition is not material and will enhance comprehension of the
Rule.
---------------------------------------------------------------------------
\23\ For instance, clearly erroneous review would be available
under Case 4 for transactions involving a reverse stock split that
was incorrectly reported to the market as a forward stock split.
That scenario would result in an incorrect LULD Reference Price for
the security, meaning that any LULD Price Bands calculated using
that incorrect LULD Reference Price would be erroneous.
---------------------------------------------------------------------------
Proposed subparagraph (A)(5) would describe a fifth factor:
``whether the transaction involved a security that entered a Trading
Pause pursuant to the LULD Plan and resumed trading without an auction,
where the LULD Reference Price clearly deviated from the theoretical
value of the security.'' This factor is based on paragraph (c)(1)(C)(2)
of the current Rule, but, as in proposed subparagraph (A)(4) above,
replaces the term ``Reference Price'' with ``LULD Reference Price'' as
defined in proposed Rule 7.10(a)(4) (i.e., an erroneous reference price
was used for calculating the LULD Price Bands), since it is clear from
context that is the meaning contemplated by the current rule text.
In sum, proposed subparagraph (A) under Case 4 provides
illustrative examples of the types of factors that might lead to LULD
Price Bands being erroneous, but as mentioned above, the list is
intended to be non-exclusive and subject to Officer discretion.
In proposed subparagraph (B) under Case 4, the first sentence would
provide that if the Officer determines that the LULD Price Bands are
erroneous, the Officer may use a different CEE Reference Price that is
based on the theoretical value of the security (the ``Revised CEE
Reference Price'') for the purpose of clearly erroneous review. The
Exchange believes that this provision is necessary because erroneous
LULD Price Bands may be the byproduct of the security trading at prices
that deviate from the theoretical value of the security. In such a
case, it is likely that the CEE Reference Price that would ordinarily
be used for clearly erroneous review \24\ may also deviate from the
theoretical value of the security. In such a case, the impact of such
error can be corrected by using a Revised CEE Reference Price that is
based on the theoretical value of the security. This proposed text is
based on paragraph (c)(1)(C) of the current Rule, without substantive
change, and is consistent with paragraph (d)(3) of the current Rule,
which permits using a Revised CEE Reference Price when ``necessary for
the maintenance of a fair and orderly market and the protection of
investors and the public interest.''
---------------------------------------------------------------------------
\24\ In most cases, the CEE Reference Price is the last
consolidated round lot sale.
---------------------------------------------------------------------------
The second sentence of proposed subparagraph (B) under Case 4 would
incorporate rule text from current Rule 7.10(c)(1)(C) about how the
Exchange would determine the Revised CEE Reference Price in the
instances described in subparagraph (A)(4) above. It would provide
that: ``With respect to transactions that involved a corporate action
or new issue, the Exchange would consider a number of factors to
determine a Revised CEE Reference Price that is based on the
theoretical value of the security, including but not limited to, the
offering price of the new issue, the ratio of the stock split applied
to the prior day's closing price, the theoretical price derived from
the numerical terms of the corporate action transaction such as the
exchange ratio and spin-off terms, and for an OTC up-listing, the price
of the security as provided in the prior day's FINRA Trade
Dissemination Service final closing report.'' This language is based on
paragraph (c)(1)(C) and the first two sentences of paragraph (d)(2) of
the current Rule, without substantive alteration.
The third sentence of proposed subparagraph (B) under Case 4 would
incorporate rule text from current Rule 7.10(c)(1)(C) and (d)(2) about
how the Exchange would determine the Revised CEE Reference Price in the
instances described in subparagraph (A)(5) above. It would provide
that: ``With respect to transactions that involved a security that
entered a Trading Pause pursuant to the LULD Plan and resumed trading
without an auction, the Exchange may use the last effective upper or
lower Price Band that triggered the limit state before the Trading
Pause or another appropriate Revised CEE Reference Price.'' This
language is based on the last sentence of paragraph (d)(2) of the
current Rule, but substitutes the phrase ``the last effective upper or
lower Price Band that triggered the limit state before the Trading
Pause'' for the current text (``the last effective Price Band that was
in a limit state before the Trading Pause''). The Exchange believes
that the addition of the words ``upper,'' ``lower,'' and ``triggered''
adds further specification to the situation described in the current
Rule. In addition, the Exchange proposes to add the language ``or
another appropriate Revised CEE Reference Price'' because although the
Price Band that triggered the LULD Trading Pause may be a reasonable
indicator of the theoretical value of the security at the time of the
LULD Trading Pause, trading following the LULD Trading Pause (albeit
without a re-opening auction) may suggest that another price may be
more appropriate.
Proposed subparagraph (C) under Case 4 would specify that a ``Case
4 transaction shall be found to be clearly erroneous if the price of
the transaction to buy (sell) is greater than (less than) the Revised
CEE Reference Price by an amount that equals or exceeds the Percentage
Parameters.'' This language is based on paragraph (c)(1)(C) of the
current Rule with two alterations. First, the Exchange proposes to
replace the term ``new Reference Price'' in the current Rule with
``Revised CEE Reference Price'' in the proposed Rule, since that term
is used in proposed subparagraph (B). Second, the current text of
paragraph (c)(1)(C) references not just the Percentage Parameters, but
also the Numerical Guidelines, ``as applicable depending on whether the
[[Page 66898]]
security is subject to the LULD Plan.'' The Exchange proposes not to
include that phrase in proposed Case 4 because transactions in
securities not subject to the LULD Plan would be moved into Case 5
(discussed below) in the revised Rule.
Case 5--Transactions Executed During LULD Protected Hours in NMS Stocks
Not Subject to the LULD Plan, and Transactions Executed Outside of LULD
Protected Hours
Proposed Case 5 (proposed subparagraph (b)(5)) is based on current
paragraphs (c)(1)(A) and (c)(2) of Rule 7.10, with changes as described
below. Proposed Case 5 would describe the availability of clearly
erroneous review for transactions that are not subject to the LULD
Plan, either because (1) the transactions were executed during LULD
Protected Hours in securities that are not subject to the LULD Plan
(i.e., rights or warrants) (current paragraph (c)(1)(A)), or (2)
because the transactions were executed outside of LULD Protected Hours
when the LULD Plan is not operational (current paragraph (c)(2)). The
Exchange proposes to locate both of these rules in the same Case 5 to
simplify the Rule's organization, reduce the need to cross-reference
within the Rule, and enhance the Rule's clarity.
Proposed subparagraph (b)(5) would provide that ``[e]xcept in the
case of an Outlier Transaction (discussed below),\25\ transactions
executed during LULD Protected Hours in NMS Stocks not subject to the
LULD Plan and transactions executed outside of LULD Protected Hours
shall be found to be clearly erroneous in the following two
situations,'' and would go on to define Case 5A and Case 5B in the
following subparagraphs.
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\25\ Outlier Transactions are discussed below in proposed
paragraph (c)(1)(A)(2)(b).
---------------------------------------------------------------------------
Case 5A--Numerical Guideline Requirement
Proposed Case 5A (subparagraph (b)(6)(A)) would describe the first
of the two situations in which the transaction under Case 5 shall be
found to be clearly erroneous, namely, when, ``[s]ubject to the
additional factors described below in this Case 5A, the price of the
transaction to buy (sell) that is the subject of the complaint is
greater than (less than) the Reference Price by an amount that equals
or exceeds the Numerical Guidelines set forth below.'' This language is
based on paragraph (c)(2)(A) of the current Rule, without substantive
change.
The ``Additional Factors'' included in Case 5A is substantively
identical to paragraph (c)(2)(C) of the current Rule, and would provide
that ``an Officer may also consider additional factors to determine
whether an execution is clearly erroneous, provided the execution
occurred during the Early Trading Session or during LULD Protected
Hours in NMS Stocks not subject to the LULD Plan. Such additional
factors include, but are not limited to, system malfunctions or
disruptions, volume and volatility for the security, derivative
securities products that correspond to greater than 100% in the
direction of a tracking index, news released for the security, whether
trading in the security was recently halted/resumed, whether the
security is an IPO, whether the security was subject to a stock-split,
reorganization, or other corporate action, overall market conditions,
executions outside of the Core Trading Session, validity of the
consolidated tapes trades and quotes, consideration of primary market
indications, and executions inconsistent with the trading pattern in
the stock. Each additional factor will be considered with a view toward
maintaining a fair and orderly market and the protection of investors
and the public interest.''
Consistent with current practice, when the Exchange considers these
additional factors, it typically looks for a representation in the
clearly erroneous filing indicating the existence of an error. Such
errors may include, for example, a system malfunction or disruption
(such as at the Exchange, trade reporting facility, data processor, or
market participant), which resulted in incorrect market data or
executions, incorrect processing of a corporate action, or a
typographical error in the material terms of an order.
Proposed subparagraph (A) under Case 5A would also incorporate the
table from current paragraph (c)(2)(A), with the following alteration.
The two rows in the current table concerning Multi Stock Events (i.e.,
``Multi Stock Events--Filings involving five or more, but less than
twenty, securities whose executions occurred within a period of five
minutes or less'' and ``Multi Stock Events--Filings involving twenty or
more securities whose executions occurred within a period of five
minutes or less'') would be deleted and replaced with descriptive text
in Case 5B, described below.
Case 5B--Multi-Stock Events
Proposed Case 5B (subparagraph (b)(6)(B)) would describe the second
of the two situations in which the transaction under Case 5 may be
found to be clearly erroneous, namely, Multi-Stock Events.
As an initial matter, the current version of Rule 7.10 contains two
scenarios involving ``Multi Stock Events'': (1) ``filings involving
five or more, but less than twenty, securities whose executions
occurred within a period of five minutes or less,'' and (2) filings
involving twenty or more securities whose executions occurred within a
period of five minutes or less.'' The Exchange believes that the
numbers of affected securities referenced in those scenarios are now
too low to justify special treatment, and that events of such size are
more properly analyzed on a security-by-security basis by applying the
Case 1 through Case 5A as discussed above.
The Exchange proposes instead that an event should be treated as a
``Multi-Stock Event'' only if it involves 50 or more securities whose
executions occurred within 5 minutes. The Exchange believes that 50
securities is a more appropriate trigger for the application of the
Multi-Stock Event rule. The 20-security threshold in the current Rule
has not been updated since 2010,\26\ and given the Exchange's
experience in processing clearly erroneous reviews over the past 16
years, the Exchange believes that it would be able to process clearly
erroneous requests involving fewer than 50 securities without resorting
to the Multi-Stock Event rule. In addition, while the current Rule
assumes that Multi-Stock Events will be brought to the Exchange's
attention via a filing from a customer, the Exchange proposes that Case
5B would state that a Multi-Stock Event may be reviewable as clearly
erroneous ``by an Officer acting on his or her own motion.'' The
Exchange believes that with respect to events of this size, it would be
reasonable for an Officer to act on his or her own motion without
insisting on the requirement that a customer file a formal request for
review.
---------------------------------------------------------------------------
\26\ See Securities Exchange Act Release No. 62886 (September
10, 2010), 75 FR 56613 (September 16, 2010) (SR-NYSE-2010-47)
(adding ``Multi-Stock Events Involving Twenty or More Securities''
to Rule 128).
---------------------------------------------------------------------------
Apart from these modifications, proposed Case 5B is based on
current Rule 7.11(c)(2)(B). The third sentence of proposed Case 5B--
which would provide that ``[s]uch transactions will be nullified
provided the price of the transactions to buy (sell) are greater than
(less than) the Reference Price for each security by an amount that
equals or exceeds 30%''--is based on the final sentence of current Rule
7.11(c)(2)(B),
[[Page 66899]]
without substantive differences. The fourth sentence of proposed Case
5B--which would provide that ``[t]he Exchange will coordinate with
other SROs regarding the appropriate review period (which may be
greater than the 5-minute period that triggered the application of this
paragraph) and Reference Prices to use for this analysis''--is based on
the third and fourth sentences of current Rule 7.11(c)(2)(B), without
substantive differences.
Finally, the Exchange proposes to add as the fifth sentence of
proposed Case 5B a requirement providing that ``[a]ny action taken in
connection with this paragraph will be taken in a timely fashion, and
no later than 8:30 a.m. Eastern Time on the trading day following the
date of the executions under review.'' This proposed reference to 8:30
a.m. Eastern Time is consistent with other references in this proposed
Rule to an 8:30 a.m. cut-off time in light of T+1 settlement.
Case 5A and Case 5B--Use of Revised CEE Reference Price
Proposed subparagraph (C) under Case 5 would be titled ``Use of
Revised Reference Price in Case 5A and Case 5B'' and would provide:
``In Case 5A and Case 5B, the Exchange may use a Revised CEE Reference
Price in circumstances involving, for example, relevant news impacting
a security or securities, periods of extreme market volatility,
sustained illiquidity, or widespread system issues, where use of a
Revised CEE Reference Price is necessary for the maintenance of a fair
and orderly market and the protection of investors and the public
interest.'' This language is based on paragraph (d)(3) of the current
Rule, without substantive change. The Exchange proposes to omit the
proviso in current paragraph (d)(3) (i.e., ``provided that such
circumstances occurred during the Early Trading Session or during LULD
Protected Hours in NMS Stocks not subject to the LULD Plan'') because
the proposed inclusion of the phrase ``[i]n Case 5A and Case 5B''
provides the same limitation.\27\
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\27\ The Exchange proposes to delete paragraph (h) of the
current Rule 7.10 pertaining to ``Multi Day Event.'' That provision
was added to the rule in 2014 to cover ``[a] series of transactions
in a particular security on one or more trading days . . . [that
are] based on the same fundamentally incorrect or grossly
misinterpreted issuance information resulting in a severe valuation
error for all such transactions.'' See Securities Exchange Act
Release No. 72434 (June 19, 2014), 79 FR 36110 (June 25, 2014) (SR-
NYSE-2014-22) (adding ``Multi Day Event'' section as paragraph (j)
of Rule 128). In light of the fact that settlement cycles have been
greatly shortened since this provision was added in 2014, and
particularly, in light of the T+1 settlement cycle instituted in
2024, the Exchange believes that the provision for ``Multi Day
Events'' is obsolete and should be deleted from the rule.
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(c) Procedures
Finally, the Exchange proposes to reorganize all rule text about
the procedures under the clearly erroneous rule in to a revised
paragraph (c). In the current Rule, such procedures are split across
paragraphs (b), (c), (e), and (f). The Exchange believes that
reorganizing all of the procedures into one area of the Rule will
enhance the clarity and comprehension of the Rule.
The Exchange proposes to organize the procedures into two
categories: ``Review Procedures'' in subparagraph (1) and ``Appeals''
in subparagraph (2).
(c)(1)--Review Procedures
Proposed subparagraph (c)(1) would set out all the procedures for
the review of potentially clearly erroneous transactions.
Request for Review by Member Organization
Proposed subparagraph (c)(1)(A), titled ``Request for Review by
Member Organization,'' would set forth the procedures for reviewing a
transaction when a member organization requests such review.
Proposed subparagraph (c)(1)(A)(1) would be titled ``General.'' The
first sentence would provide: ``A member organization may request that
the Exchange review a transaction for its own account or for its
customer's account under the Rule.'' This language is based on the
first sentence of paragraph (b) of the current Rule, except that it
omits the phrase ``submitted erroneously'' as used in the current Rule.
This change would clarify that a member organization may request review
of any transaction. Whether the transaction is ``erroneous'' would be
determined by the review process, and a belief that it was ``submitted
erroneously'' should not be a precursor to requesting review.
The second sentence of proposed subparagraph (c)(1)(A)(1) would
provide: ``Member organizations are responsible for submitting valid
requests for review to the Exchange within the timeframes set out
below.'' This language does not appear in the current version of the
Rule, but the Exchange proposes to include it in the revised version to
add specificity to the review procedure.
The third and fourth sentences of proposed subparagraph
(c)(1)(A)(1) would provide: ``An Officer will review the transaction
under dispute and determine whether it is clearly erroneous, with a
view toward maintaining a fair and orderly market and the protection of
investors and the public interest. Such request for review will be made
in writing via email or other electronic means specified from time to
time by the Exchange in a circular distributed to member
organizations.'' This language is based on the second and third
sentences of paragraph (b) of the current Rule, without substantive
change.
Proposed subparagraph (c)(1)(A)(2) would be titled ``Timing of
Requests for Review.'' Proposed subparagraph (c)(1)(A)(2)(a) would be
titled ``General'' and would provide: ``Requests for review must be
received by the Exchange within 30 minutes of execution time and will
include information concerning the time of the transaction(s), security
symbol(s), number of shares, price(s), side (bought or sold), and the
factual basis for believing that the trade is clearly erroneous. Upon
receipt of a timely filed request, the counterparty to the trade will
be notified by the Exchange as soon as practicable, but generally
within 30 minutes. An Officer may request additional supporting written
information to aid in the resolution of the matter. If requested, each
party to the transaction will provide, within 30 minutes of the
request, any supporting written information. Either party to the
disputed trade may request supporting written information provided by
the other party on the matter.'' This language is identical to the
paragraph (b)(1) of the current Rule, except for the following
differences. The current Rule is limited to ``receipt of a timely filed
request that satisfies the numerical guidelines set forth in Section
(c)(1) of this Rule,'' but in the proposed Rule, the Numerical
Guidelines would apply only to Case 5A. The Exchange believes that the
clarity of the Rule would be enhanced by removing the limitation,
making clear that proposed subparagraph (c)(1)(A)(2)(a) applies to all
requests for review under any Case.
Proposed subparagraph (c)(1)(A)(2)(b) would be titled ``Outlier
Transactions'' and would include a reorganized and streamlined version
of language from paragraph (c)(2)(D) of the current Rule. The first
sentence of proposed subparagraph (c)(1)(A)(2)(b) would provide: ``In
Case 5A transactions where the execution price of the security is
greater than three times the current Numerical Guidelines set forth in
this Rule (an ``Outlier Transaction''), an Officer may, at his or her
sole discretion, and on a case-by-case basis, consider requests
received after 30
[[Page 66900]]
minutes, but not longer than 60 minutes after the transaction in
question, depending on the facts and circumstances surrounding such
request.'' This language is based on subparagraphs (c)(2)(D) and
(c)(2)(D)(i) of the current Rule, except that the Exchange proposes to
replace the limitation in the current Rule (i.e., ``during the Early
Trading Session or eligible for review pursuant to paragraph
(c)(1)(A)'') with ``[i]n Case 5A transactions.'' This is a non-
substantive change, since proposed Case 5A captures the limiting
language in the current Rule.
The second sentence of proposed subparagraph (c)(1)(A)(2)(b) would
provide: ``If the execution price of the security in question is not
within the Outlier Transaction parameters described in the previous
sentence but breaches the 52-week high or 52-week low, the Exchange may
consider the additional factors in paragraph (b)(6)(A) of Case 5A in
determining if the transaction qualifies for further review or if the
Exchange shall decline to act.'' This language is based on paragraph
(c)(2)(D)(ii) of the current Rule.
Proposed subparagraph (c)(1)(A)(3) would be titled ``Determination
by Officer'' and would include a revised version of the language in
paragraph (e)(1) of the current Rule. While the current version of the
Rule implies that all requests for review will be submitted to an
Officer for determination, the Exchange believes that certain facially
insufficient requests should not progress to that stage. As such, the
Exchange proposes to include new language in the first sentence of
subparagraph (c)(1)(A)(3) providing that ``[i]f the request for review
is untimely, was submitted by a non-member, and/or does not indicate a
reason why the execution is clearly erroneous, the request will be
deemed invalid and the Officer will decline to act on it.''
The second sentence of proposed subparagraph (c)(1)(A)(3) would
provide that ``[i]n the case of a valid request, unless both parties to
the disputed transaction agree to withdraw the initial request for
review, the Officer will review the disputed transaction and render a
determination that it either is or is not clearly erroneous.'' This
language is based on the first sentence of current subparagraph (e)(1),
with slight modifications to enhance its clarity.
The third, fourth, and fifth sentences of proposed subparagraph
(c)(1)(A)(3) would provide: ``In the event that the Officer determines
that the disputed transaction is clearly erroneous, the Officer will
declare the transaction null and void. A determination will be made
generally within 30 minutes of receipt of the complaint, but in no case
later than 8:30 a.m. Eastern Time on the following trading day. The
parties will be promptly notified of the determination.'' This language
is based on the third, fourth, and fifth sentences of current paragraph
(e)(1) (and similar language in current paragraphs (g) and (i)),
without substantive change, except the Exchange proposes the 8:30 a.m.
Eastern Time deadline instead of ``the start of Core Trading'' (as
paragraph (e)(1) currently provides) in light of T+1 settlement.
Officer Acting On Own Motion
Proposed subparagraph (c)(1)(B), titled ``Officer Acting On Own
Motion,'' would be substantively identical to paragraph (f) of the
current Rule, with updated cross-references. Specifically, in the first
sentence, the Exchange proposes to replace the current text's reference
to ``during the Early Trading Session or during LULD Protected Hours in
NMS Stocks not subject to the LULD Plan'' with ``pursuant to paragraph
(b) above.'' In the second sentence, the Exchange proposes to replace
the current text's reference to ``paragraphs (c)(1) and (c)(2)'' with
an updated reference to ``paragraph (b).'' In the fourth sentence, the
Exchange proposes to replace the current text's reference to ``the
start of Core Trading'' to ``no later than 8:30 Eastern Time'' in light
of T+1 settlement. In the last sentence, the Exchange proposes to
delete the phrase ``[w]hen such action is taken independently'' from
the current text as extraneous, and proposes to replace the current
cross-reference to the appeal provisions in ``subsection (e)(2)-(4)
above'' with a cross reference to ``paragraph (c)(2) below.'' None of
these changes is substantive.
Cross-Market Coordination
The Exchange proposes to add a new provision as paragraph
(c)(1)(C), titled ``Cross-Market Coordination.''
The Exchange proposes that subparagraph (c)(1)(C)(1) would provide:
``Regarding events involving trading activity on multiple SROs, the
Exchange will use reasonable efforts as appropriate to coordinate with
other SROs regarding the Exchange's determinations, if any, about (a)
whether transactions occurred outside of available and correct Price
Bands, (b) whether the LULD Price Bands or LULD Reference Price are
erroneous, (c) what CEE Reference Price or Revised CEE Reference Price
to use, and (d) issues related to Multi-Stock Events.'' The proposed
language reflects the Exchange's existing practice of coordinating with
other SROs on such topics whenever a market event involving trading
activity on multiple SROs raises questions about the availability of
clearly erroneous review. Cross-exchange coordination is already
reflected in the current rule text applicable to Multi-Stock Events and
Multi-Day Events, and in practice, the exchanges currently coordinate
with each other about additional aspects of market-wide events. The
proposed rule text synthesizes the existing rule text and the
Exchange's current practices, making explicit the Exchange's practice
of using reasonable efforts as appropriate to coordinate with other
markets on such issues.
The Exchange proposes that subparagraph (c)(1)(C)(2) would provide:
``Regarding events involving trading activity on multiple SROs, if
another SRO receives a valid request to review a transaction(s) as
clearly erroneous and coordinates with the Exchange about such request,
an Officer may declare transactions on the Exchange that meet the same
criteria to be clearly erroneous on his or her own motion, pursuant to
paragraph (c)(1)(B) above.'' The proposed language reflects the
Exchange's existing practice of acting on its Officer's own motion to
declare transactions clearly erroneous based on criteria agreed upon as
a result of coordination with other affected exchanges.\28\
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\28\ Notwithstanding this existing practice of considering such
events on its Officer's own motion, the Exchange still wishes to
encourage member organizations to submit requests for clearly
erroneous review directly to the exchange, even in events involving
trading activity on multiple SROs. For that reason, the Exchange has
proposed to add the second sentence of proposed subparagraph
(c)(1)(A)(1), described above, providing that ``[m]ember
organizations are responsible for submitting valid requests for
review to the Exchange within the timeframes set out below.''
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In light of these proposed provisions about cross-market
coordination, the Exchange proposes to delete current paragraph (b)(2),
which is titled ``Routed Executions.'' That provision currently
provides that ``[o]ther market centers will generally have an
additional 30 minutes from receipt of their participant's timely
filing, but no longer than 60 minutes from the time of the execution at
issue, to file with the Exchange for review of transactions routed to
the Exchange from that market center and executed on the Exchange.''
This provision predates the Exchange's current practice of coordinating
with other SROs whenever a market event involving trading activity on
multiple SROs raises questions about the availability of clearly
erroneous review,
[[Page 66901]]
regardless of whether particular orders had been routed to particular
exchanges. As such, the Exchange believes that the language in current
paragraph (b)(2) setting a particular time limit to consider routed
orders is unnecessarily limiting, and proposes instead to replace
current paragraph (b)(2) with the procedures regarding cross-market
collaboration in proposed subparagraph (c)(1)(C).
(c)(2)--Appeals
Proposed subparagraph (c)(2) would set out the appeal procedures
for clearly erroneous review. This proposed subparagraph would be
identical to current paragraph (e)(2)-(6), with the following
alterations.
First, the Exchange proposes to renumber the several subparagraphs
of the Rule. Current subparagraph (e)(3), (e)(4), (e)(5), and (e)(6)
would become proposed subparagraphs (c)(2)(C), (c)(2)(D), (c)(2)(E),
and (c)(2)(F), respectively.
Second, the reference in current paragraph (e)(2) to decisions
``under paragraph (g)'' would be updated to refer to ``Case 2,'' and
the current reference to ``applicable Price Bands'' would be updated to
refer to ``available and correct Price Bands,'' which is the language
used in proposed Case 2.
Third, the Exchange proposes to reduce the number of member
organization representatives that must be designated to serve on the
CEE Panel to 5 (in proposed subparagraph (c)(2)(B)), from 10 (in
current paragraph (e)(2)(B). The Exchange notes that in practice,
appeals from clearly erroneous determination are quite rare and the CEE
Panel meets infrequently. The requirement to have 10 member
organization representatives at the ready for such a small number of
appeals has become excessive, and accordingly, the Exchange proposes to
recalibrate that number to better reflect the actual need for CEE Panel
members currently.
Fourth, the Exchange proposes to change the time for the CEE Panel
to render a decision from ``no later than the trading day following the
date of the execution under review'' (in current paragraph (e)(3)) to
``no later than 8:30 a.m. Eastern Time on the trading day following the
date of the execution under review.'' The Exchange proposes this 8:30
a.m. Eastern Time deadline in light of T+1 settlement.
Fifth, the cross-reference to ``Rule 7.10(E)(1)'' in current
subparagraph (e)(5) would be updated in proposed subparagraph (c)(2)(E)
to refer instead to ``paragraph (c)(1)(A) or (B).''
Implementation
The Exchange will publish a trader notice before implementing the
proposed changes.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the requirements of Section 6(b) of the Act,\29\ in general, and
Section 6(b)(5) of the Act,\30\ in particular, in that it is designed
to remove impediments to and perfect the mechanism of a free and open
market and a national market system, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest and not to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\29\ 15 U.S.C. 78f(b).
\30\ 15 U.S.C. 78f(b)(5).
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Reorganization. The Exchange believes that it is consistent with
just and equitable principles of trade to reorganize Rule 7.10 into
three clear subsections addressing (a) Definitions, (b) Availability of
Clearly Erroneous Review, and (c) Procedures, as proposed here. The
current Rule is an amalgam of rule text originating in 2010, 2013,
2014, 2022, and 2026, and has not been comprehensively reorganized
since its inception. The Exchange believes that the clarity of the Rule
can be enhanced and improved by the reorganizing the Rule and gathering
similar provisions together. In addition, the Exchange believes that
identifying each situation in which clearly erroneous review is
available and assigning such situations with easy-to-identify Case
numbers will make it easier for market participants to navigate,
understand, and use the Rule.
Definitions. The Exchange believes that it is consistent with just
and equitable principles of trade to include in proposed paragraph (a),
``Definitions,'' definitions of all terms used within the Rule, and to
move definitions that previously existed elsewhere in the Rule to the
``Definitions'' section in paragraph (a). The Exchange believes that
gathering definitions in one paragraph at the start of the Rule will
enhance the ability of market participants to navigate, understand, and
use the Rule, and minimize the amount of cross-referencing that market
participants must do in order to comprehend and apply the Rule text.
Cases 1 and 2 and the Elimination of Inconsistent and Duplicative
Provisions. The Exchange believes it is consistent with just and
equitable principles of trade and with the protection of investors and
the public interest to delete from the Rule the provisions of current
paragraph (c)(1)(B) that direct the Exchange to perform an analysis
using Percentage Parameters in cases where a transaction occurred
outside of LULD Price bands pursuant current to paragraph (g) or during
a regulatory halt, suspension, or pause pursuant to current paragraph
(i). As noted above, the reference to Percentage Parameters in such
cases was added to the Rule as part of the 2022 Amendment, and appears
to be inconsistent with preexisting requirements of paragraphs (g) and
(i), which require the Exchange to nullify such transactions without
regard to Percentage Parameters. The Exchange believes that the
approach in paragraphs (g) and (i)--which have been part of the clearly
erroneous rule since 2013 and 2014 respectively \31\--should be
maintained and thus proposes in Cases 1 and 2 that transactions
executed outside of LULD Bands or during a trading halt, suspension, or
pause should be nullified without further analysis.
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\31\ See supra notes 12 and 13.
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Cases 3 and 4 Covering Unavailable, Missing, and Erroneous LULD
Price Bands. The Exchange believes that it is consistent with just and
equitable principles of trade and with the protection of investors and
the public interest to add rule text making explicit that clearly
erroneous review is available in the cases of unavailable or missing
LULD Price Bands (proposed Case 3) and erroneous LULD Price Bands
(proposed Case 4). As explained above, current paragraph (c)(1)(B)
provides that clearly erroneous review is available if the transaction
``was executed at a time when Price Bands under the LULD Plan were not
available,'' and the Exchange's Rule 19b-4 filing in support of the
2022 Amendment explained that clearly erroneous review should be
available to act as a ``backstop'' to the LULD Plan during the Core
Trading Session in situations where there is ``some issue with
processing the Price Bands.'' \32\ The proposed addition of Cases 3 and
4 would make explicit that the ``issue[s] with processing the Price
Bands'' referred to in the Exchange's Rule 19b-4 filing include cases
where the Price Bands are unavailable because the first Price Bands had
not yet been received after a security's opening or reopening, the
Price Bands are missing, or the Price Bands were available but
erroneous. As such, this proposed change is not substantive, but would
be a clarification of the existing rule text and rationale.
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\32\ See supra note 14.
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[[Page 66902]]
Case 5B--Multi-Stock Events. The Exchange believes that it is
consistent with just and equitable principles of trade to combine the
two Multi-Stock Events currently codified in Rule 7.10 into proposed
Case 5B, which sets forth a single standard of review for erroneous
transactions involving at least 50 securities occurring outside of the
Core Trading Session over a five-minute period. Rather than having two
separate criteria for reviewing Multi-Stock Events, which occur
infrequently, the Exchange believes that moving to one set of criteria
would provide a more uniform application of the Rule and enable the
Exchange to respond more efficiently during situations where a large
number of transactions across multiple securities are under review.
Procedures. The Exchange believes that it is consistent with
equitable principles of trade and with the protection of investors and
the public interest to make the proposed clarifying changes to the
procedures for clearly erroneous review, as described above. In
particular, the Exchange believes that referring in the proposed Rule
to its existing procedures regarding cross-market coordination on
events involving trading activity on multiple SROs would provide
greater certainty and clarity to market participants about the clearly
erroneous review process.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposal would ensure
the continued, uninterrupted operation of harmonized clearly erroneous
execution rules across the U.S. equities markets while also amending
those rules to provide greater certainty to SROs, member organizations,
and investors regarding the particular Cases where clearly erroneous
review is available. The Exchange understands that the other national
securities exchanges and FINRA will also file similar proposals, the
substance of which are identical to this proposal. Thus, the proposed
rule change will help to ensure consistency across SROs without
implicating any competitive issues.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<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#344641585119575b5959515a4047744751571a535b42"><span class="__cf_email__" data-cfemail="a9dbdcc5cc84cac6c4c4ccc7dddae9daccca87cec6df">[email protected]</span></a>. Please include
file number SR-NYSE-2026-50 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-2026-50. 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 filing 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-2026-50 and should be submitted on
or before November 13, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-21650 Filed 10-22-26; 8:45 am]
BILLING CODE 8011-01-P
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