[Federal Register Volume 83, Number 58 (Monday, March 26, 2018)]
[Notices]
[Pages 12980-12982]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-06014]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82907; File No. SR-NYSEArca-2018-08]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a 
Proposed Rule Change To Amend NYSE Arca Rule 1.1(ll) To Establish How 
the Official Closing Price Would Be Determined for an Exchange-Listed 
Security That Is a Derivative Securities Product if the Exchange Does 
Not Conduct a Closing Auction or if a Closing Auction Trade Is Less 
Than a Round Lot

March 20, 2018.

I. Introduction

    On January 19, 2018, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') 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 Arca Rule 1.1(ll) to establish how 
the Official Closing Price \3\ would be determined for an Exchange-
listed security that is a Derivative Securities Product \4\ if the

[[Page 12981]]

Exchange does not conduct a Closing Auction \5\ or if a Closing Auction 
trade is less than a round lot. The proposed rule change was published 
for comment in the Federal Register on February 6, 2018.\6\ 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 NYSE Arca Rule 1.1(ll) for a definition of Official 
Closing Price.
    \4\ With respect to equities traded on the Exchange, the term 
``Derivative Securities Product'' means a security that meets the 
definition of ``derivative securities product'' in Rule 19b-4(e) 
under the Act. See NYSE Arca Rule 1.1(k). For purposes of Rule 19b-
4(e), a ``derivative securities product'' means any type of option, 
warrant, hybrid securities product or any other security, other than 
a single equity option or a security futures product, whose value is 
based, in whole or in part, upon the performance of, or interest, 
in, an underlying instrument. 17 CFR 240.19b-4(e).
    \5\ See NYSE Arca Rule 7.35-E(d) for further information on how 
the Closing Auctions would function on the Exchange.
    \6\ See Securities Exchange Act Release No. 82608 (January 31, 
2018), 83 FR 5284 (``Notice'').
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II. Description of the Proposed Rule Change

    Current NYSE Arca Rule 1.1(ll)(1) provides how the Exchange 
establishes the ``Official Closing Price'' for Auction-Eligible 
Securities,\7\ which is used for purposes of NYSE Arca Rule 7-E.\8\ 
Specifically, the Official Closing Price for Auction-Eligible 
Securities is the price established in a Closing Auction of one round 
lot or more on a trading day.\9\ If there is no Closing Auction or if a 
Closing Auction trade is less than a round lot on a trading day, the 
Official Closing Price is the most recent consolidated last-sale 
eligible trade during Core Trading Hours \10\ on that trading day. If 
there were no consolidated last-sale eligible trades during Core 
Trading Hours on that trading day, the Official Closing Price will be 
the prior trading day's Official Closing Price.\11\ For a security that 
has transferred listing to NYSE Arca and does not have any consolidated 
last-sale eligible trades on its first trading day, the Official 
Closing Price will be the prior day's closing price disseminated by the 
former primary listing market.\12\ For a security that is a new listing 
and does not have any consolidated last-sale eligible trades on its 
first trading day, the Official Closing Price will be based on a 
derived last-sale associated with the price of such security before it 
begins trading on the Exchange.\13\
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    \7\ For purposes of the Closing Auction, an ``Auction-Eligible 
Security'' is defined to mean all securities for which the Exchange 
is the primary listing market and UTP Securities designated by the 
Exchange. See NYSE Arca Rule 7.35-E(a)(1).
    \8\ In NYSE Arca Rule 7-E, the Exchange uses the Official 
Closing Price for three purposes: (1) to determine the Auction 
Reference Price for a security, as provided for in NYSE Arca Rule 
7.35-E(a)(8)(A); (2) to determine the Trading Collar for a security 
if there is no consolidated last-sale price on the same trading day, 
as provided for in NYSE Arca Rule 7.31-E(a)(1)(B)(i); and (3) for 
securities listed on the Exchange only, for purposes of determining 
whether to trigger a Short Sale Price Test, as defined under NYSE 
Arca Rule 7.16-E(f)(2).
    \9\ See NYSE Arca Rule 1.1(ll)(1).
    \10\ The term ``Core Trading Hours'' means the hours of 9:30 
a.m. Eastern Time through 4:00 p.m. Eastern Time or such other hours 
as may be determined by the Exchange from time to time. See NYSE 
Arca Rule 1.1(j).
    \11\ See NYSE Arca Rule 1.1(ll)(1)(A).
    \12\ See NYSE Arca Rule 1.1(ll)(1)(B).
    \13\ See NYSE Arca Rule 1.1(ll)(1)(C).
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    The Exchange proposes to amend how the Official Closing Price for 
an Exchange-listed security that is a Derivative Securities Product 
would be determined if the Exchange does not conduct a Closing Auction 
or if a Closing Auction trade is less than a round lot.\14\ The 
Exchange proposes that the Official Closing Price for such securities 
would be comprised of both a time-weighted average price (``TWAP'') of 
the midpoint of the NBBO \15\ over the last five minutes of trading 
before the end of Core Trading Hours and any last-sale eligible trades 
during that period.
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    \14\ According to the Exchange, if a security is thinly traded 
or generally illiquid, the Official Closing Price for such security 
will currently be based on a last-sale trade that may be hours, 
days, or months old and may not be indicative of the true and 
current value of the security. See Notice, supra note 6, at 5285.
    \15\ The term ``NBBO'' means the national best bid or offer. See 
NYSE Arca Rule 1.1(dd).
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    Specifically, if the Official Closing Price for an Exchange-listed 
security that is a Derivative Securities Product cannot be determined 
under proposed NYSE Arca Rule 1.1(ll)(1)(A) (i.e., if the Exchange does 
not conduct a Closing Auction or if a Closing Auction trade is less 
than a round lot), the Official Closing Price for such security would 
be derived by adding a percentage of the TWAP of the NBBO midpoint 
measured over the last five minutes before the end of Core Trading 
Hours and a percentage of the last consolidated last-sale eligible 
trade before the end of Core Trading Hours on that trading day, and the 
percentages assigned to each would depend on when the last consolidated 
last-sale eligible trade occurred.\16\
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    \16\ See proposed NYSE Arca Rule 1.1(ll)(1)(B).
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    The Exchange proposes that, if the last consolidated last-sale 
eligible trade occurred:
    (i) Prior to 5 minutes before the end of Core Trading Hours, the 
TWAP would be given 100% weighting;
    (ii) between 5 minutes and 4 minutes before the end of Core Trading 
Hours, the TWAP will be given 40% weighting and the consolidated last-
sale eligible trade would be given 60% weighting;
    (iii) between 4 minutes and 3 minutes before the end of Core 
Trading Hours, the TWAP will be given 30% weighting and the 
consolidated last-sale eligible trade would be given 70% weighting;
    (iv) between 3 minutes and 2 minutes before the end of Core Trading 
Hours, the TWAP will be given 20% weighting and the consolidated last-
sale eligible trade would be given 80% weighting;
    (v) between 2 minutes and 1 minute before the end of Core Trading 
Hours, the TWAP will be given 10% weighting and the consolidated last-
sale eligible trade would be given 90% weighting; and
    (vi) during the last 1 minute before the end of Core Trading Hours, 
the TWAP will be given 0% weighting and the consolidated last-sale 
eligible trade would be given 100% weighting.
    If the Official Closing Price cannot be determined under proposed 
NYSE Arca Rule 1.1(ll)(1)(A) or (B), as described above, the most 
recent consolidated last-sale eligible trade during Core Trading Hours 
on that trading day would be the Official Closing Price.\17\ If there 
are no consolidated last-sale eligible trades during Core Trading Hours 
on that trading day, the Official Closing Price will be the prior 
trading day's Official Closing Price, as under the current rule.\18\
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    \17\ See proposed NYSE Arca Rule 1.1(ll)(1)(C).
    \18\ See proposed NYSE Arca Rule 1.1(ll)(1)(D). Current NYSE 
Arca Rule 1.1(ll)(1)(B) and (C) will similarly continue to apply as 
renumbered proposed Arca Rule 1.1(ll)(1)(E) and (F).
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    The Exchange states that it will implement the proposed rule change 
no later than 120 days after this approval of the proposed rule change 
and will announce the implementation date via Trader Update.\19\
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    \19\ See Notice, supra note 6, at 5285.
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III. Discussion and Commission's 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.\20\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\21\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system and, in general, to protect investors and the public interest, 
and not be designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.

[[Page 12982]]

The Commission also finds that the proposed rule change is consistent 
with Section 6(b)(8) of the Act,\22\ which requires that the rules of 
an exchange not impose any burden on competition that is not necessary 
or appropriate in furtherance of the purposes of the Act.
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    \20\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \21\ 15 U.S.C. 78f(b)(5).
    \22\ 15 U.S.C. 78f(b)(8).
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    The proposal would set forth the procedures governing how the 
Exchange would determine the Official Closing Price in Exchange-listed 
securities that are Derivative Securities Products when the Exchange 
does not conduct a Closing Auction or if a Closing Auction trade is 
less than a round lot. The Commission notes that the primary listing 
market's closing price for a security is relied upon by market 
participants for a variety of reasons, including, but not limited to, 
calculation of index values, calculation of the net asset value of 
mutual funds and exchange-traded products, the price of derivatives 
that are based on the security, and certain types of trading benchmarks 
such as volume weighted average price strategies. As the Exchange 
notes, the proposed calculation for the Official Closing Price is 
designed to utilize more recent and reliable market information to 
provide a closing price that more accurately reflects the true and 
current value of a security that may be thinly traded or generally 
illiquid and when the Official Closing Price for such security may 
otherwise be based on a potentially stale last-sale trade.\23\ The 
Commission further notes that this objective calculation would take 
into account more recent firm quotations over less recent trades, which 
trades may provide less information about the value of a security, and 
would assign less weight to the last consolidated last-sale eligible 
trade the farther away it occurred from the end of Core Trading Hours. 
The Commission therefore believes that the Exchange's proposal is 
reasonably designed to achieve the Act's objectives to protect 
investors and the public interest. Accordingly, the Commission finds 
that the proposed rule change is consistent with the requirements of 
the Act.
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    \23\ See Notice, supra note 6, at 5285-86.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\24\ that the proposed rule change (SR-NYSEArca-2018-08) be, and 
hereby is, approved.
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    \24\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-06014 Filed 3-23-18; 8:45 am]
 BILLING CODE 8011-01-P