[Federal Register Volume 83, Number 242 (Tuesday, December 18, 2018)]
[Notices]
[Pages 64910-64913]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27278]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84804; File No. SR-NYSE-2018-58]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change To Amend Rule 123C To Extend
the Cut-Off Times for Order Entry and Cancellation for Participation in
the Closing Auction and When the Exchange Will Begin Disseminating
Order Imbalance Information for the Closing Auction
December 12, 2018.
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 November 30, 2018, New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The
[[Page 64911]]
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 123C (The Closing Procedures)
to extend the cut-off times for order entry and cancellation for
participation in the closing auction and when the Exchange will begin
disseminating Order Imbalance Information for the closing auction. The
proposed rule change is available on the Exchange's website at
www.nyse.com, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 123C (The Closing Procedures)
to extend the cut-off times for order entry and cancellation for
participation in the closing auction and when the Exchange would begin
disseminating Order Imbalance Information \4\ for the closing auction
from 3:45 p.m. to 3:50 p.m. Eastern Time.\5\ The Exchange also proposes
non-substantive amendments to Rule 123C.
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\4\ Order Imbalance Information is described under Rule
123C(6)(a)(i) and (ii).
\5\ Unless otherwise noted, all times listed in this proposal
are Eastern Time.
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Proposed Amendment To Change 3:45 p.m. to 3:50 p.m. in Rule 123C
Rule 123C sets forth the closing procedures on the Exchange. Among
other things, Rule 123C specifies the time by which by which Market-on-
Close (``MOC'') Orders,\6\ Limit-on-Close (``LOC'') Orders,\7\ and
Closing Offset (``CO'') Orders \8\ may be entered or cancelled. Until
3:45 p.m., these orders can be entered or cancelled without
restriction.\9\ At 3:45 p.m., if there is a significant imbalance of
buy MOC and marketable LOC Orders against sell MOC and marketable LOC
Orders, the Exchange will publish a Mandatory MOC/LOC Imbalance
Publication.\10\ After 3:45 p.m., MOC and LOC Orders may be entered
only to offset a Mandatory MOC/LOC Imbalance Publication.\11\ In
addition, between 3:45 p.m. and 3:58 p.m., MOC, LOC, and CO Orders may
be cancelled or reduced in size only to correct a legitimate error.\12\
In addition, as provided for in Rule 123C(6), at 3:45 p.m., the
Exchange begins disseminating an Order Imbalance Information Data Feed
for the close. Supplemental Material .40 to Rule 123C further provides
that if not otherwise specified, if the scheduled close of trading is
before 4:00 p.m., the times specified in Rule 123C shall be adjusted
based on the early scheduled time, and references to 3:45 p.m. shall
mean 15 minutes before the early scheduled close.
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\6\ An MOC Order is a Market Order in a security that, by its
terms, is to be executed in its entirety at the closing price. See
Rule 13(c)(4).
\7\ An LOC Order is a Limit Order in a security that is entered
for execution at the closing price of the security on the Exchange
provided that the closing price is at or within the specified limit.
See [sic] 13(c)(2).
\8\ A CO Order is a day Limit Order to buy or sell as part of
the closing transaction where the eligibility to participate in the
closing transaction is contingent upon: (i) An imbalance in the
security on the opposite side of the market from the CO Order; (ii)
after taking into account all other types of interest eligible for
execution at the closing price, there is still an imbalance in the
security on the opposite side of the market from the CO Order; and
(iii) the limit price of the CO Order being at or within the price
of the closing transaction. See Rule 13(c)(1).
\9\ See Rule 123C(2)(a).
\10\ A Mandatory MOC/LOC Imbalance Publication is the
dissemination of information that indicates a disparity between MOC
and marketable LOC interest to buy and MOC and marketable LOC
interest to sell, measured at 3:45 p.m. See Rule 123C(1)(d). Rule
123C(4) sets forth how the MOC and LOC Imbalance is to be calculated
and Rule 123C(5) sets forth the circumstances of when a Mandatory
MOC/LOC Imbalance Publication would be published.
\11\ See Rules 123C(2)(b)(i) and (ii).
\12\ See Rule 123C(3)(b). A ``legitimate error'' means an error
in any term of an MOC or LOC Order, such as price, number of shares,
side of the transaction (buy or sell) or identification of the
security. See Rule 123C(1)(c). After 3:58 p.m., MOC, LOC, and CO
Orders may not be cancelled for any reason. Rule 123(c)(3)[sic].
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The Exchange proposes to amend Rule 123C to change all references
to 3:45 p.m. in the Rule to 3:50 p.m.\13\ The Exchange also proposes to
amend Supplementary Material .40 to Rule 123C to provide that
references to 3:50 p.m. shall mean 10 minutes before the early
scheduled close. This proposed rule change would have the substantive
effect of changing: (1) The publication time for the Mandatory MOC/LOC
Imbalance Publication; (2) the cut-off time for unrestricted entry and
cancellation of MOC Orders and LOC Orders; (3) cancellation of CO
Orders; and (4) the time when the Exchange would begin disseminating
Order Imbalance Information for the close.
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\13\ To effect this change, the Exchange proposes to amend Rules
123C(1)(b), (d), (d)(ii), and (f); 123C(2)(a), (a)(i), (b), (b)(ii),
(c)(i), (c)(ii), and (c)(iii); 123C(3)(a), (b); 123C(4)(a)(i); Rule
123C(5)(a), (b), (b)(i), (b)(ii), (c); and Rule 123C(6)(a)(iv),
(a)(v), and (b).
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As the equities markets continue to evolve and become more
efficient and automated, the Exchange believes that the current cut-off
times can be extended and still serve the same purpose. The Exchange
believes that the proposed changes would give member organizations
greater control over their MOC, LOC, and CO Orders while continuing to
provide market participants enough time at the end of the trading day
to react to and offset closing order imbalances. Shortening the time
frame for order entry and cancellation restrictions and when Order
Imbalance Information would be disseminated is also consistent with the
related cut-off times available on other equity exchanges.\14\
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\14\ The Commission recently approved a proposed rule change by
the Nasdaq Stock Market LLC (``Nasdaq'') to move the cut-off times
for the entry of MOC and LOC Orders from 3:50 p.m. to 3:55 p.m. See
Securities Exchange Act Release No. 84454 (October 19, 2018), 83 FR
53923 (October 25, 2018) (SR-Nasdaq-2018-68) (Approval Order). In
addition, Cboe BZX Exchange, Inc. (``BZX'') offers ``Late-Limit-On-
Close Order'' and accepts this order until 4:00 p.m. and BZX uses a
3:55 p.m. cut-off for regular MOC and LOC Order entry in its closing
auction. See BZX Rules 11.23(a)(11) and (c)(1)(A). Finally, the
Exchange's affiliate, NYSE Arca, Inc. (``NYSE Arca'') initiates its
``Closing Auction Imbalance Freeze'' for all MOC and LOC Orders at
3:59 p.m. See NYSE Arca Rule 7.35-E(d)(2).
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Non-Substantive Amendments to Rule 123C
The Exchange proposes to amend Rule 123C(1)(c) to include CO Orders
in the definition of ``legitimate error''. This change would harmonize
the definition of ``legitimate error'' with Rule 123C(3)(B), which sets
forth the cut-off time for when an MOC, LOC, and CO Order may be
cancelled or reduced in size to correct a legitimate error.
The Exchange also proposes the following non-substantive changes to
Rule 123C: (i) Remove the period from the titles of the sections (1),
(2), (3), and (5) to conform to the punctuation in other sections the
Rule; and (ii) capitalize the word ``Orders'' in the title of section
(3). The Exchange proposes a non-substantive correction to add a ``.''
[[Page 64912]]
at the end of the Rules 123C(4)(a)(i) and Rule 123(1)(b) [sic].
Finally, the Exchange proposes a non-substantive amendment to Rule
123C(5)(c) to capitalize the term ``Trading Halt'' as that is a defined
term under Rule 123C(1)(g).
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\15\ in general, and furthers the objectives of Section
6(b)(5),\16\ in particular, because it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, to
remove impediments to, and perfect the mechanism of, a free and open
market and a national market system and, in general, to protect
investors and the public interest.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that extending the cut-off times for entry
and cancellation of MOC and LOC Orders, cancellation of CO Orders, as
well as when the Exchange would begin disseminating Order Imbalance
Information for the close would remove impediments to and perfect the
mechanism of a free and open market and a national market system
because it would allow market participants to retain control over their
orders for a longer period of time, and thereby assist those market
participants in managing their trading at the close. As the equities
markets continue to evolve and become more efficient and automated, the
Exchange believes that the current 3:45 p.m. cut-off time is no longer
necessary for market participants to respond to offset auction
imbalances. The Exchange believes that the proposed 3:50 p.m. cut-off
time reflects the efficiency and more automated nature of trading in
today's market, while also retaining sufficient time for market
participants to react to and offset any order imbalances leading into
the close. The proposed rule change should also improve price discovery
by facilitating additional participation in the closing auction.
The Exchange further believes that the proposed rule change would
remove impediments to and perfect the mechanism of free and open market
and a national market system because it would more closely align the
Exchange's cut-off times with those of other equity exchanges. For
example, the Commission recently approved a proposed rule change by
Nasdaq to move the cut-off times for the entry of MOC and LOC Orders
from 3:50 p.m. to 3:55 p.m.\17\ In addition, BZX offers ``Late-Limit-
On-Close Order'' and accepts this order until 4:00 p.m. and also uses a
3:55 p.m. cut-off for regular MOC and LOC Order entry in its closing
auction.\18\ Finally, the Exchange's affiliate, NYSE Arca, initiates
its ``Closing Auction Imbalance Freeze'' for all MOC and LOC Orders at
3:59 p.m.\19\ The Exchange, therefore, believes that there is ample
precedent in the industry for extending the order entry cut-off time to
3:50 p.m. as proposed.
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\17\ See supra note 14.
\18\ Id.
\19\ Id.
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The Exchange also believes the proposal would promote just and
equitable principles of trade because the proposed rule change would
not alter the basic operations of the Exchange's closing procedures.
Rather, the proposed rule change would provide more time for
unrestricted order entry and cancellation leading into the close, while
maintaining existing requirements for how to determine whether to
publish a Mandatory MOC/LOC Imbalance Publication, the order entry and
cancellation requirements in the Rule, and the content of Order
Imbalance Information. Finally, the Exchange believes that the proposed
non-substantive amendments to Rule 123C would promote clarity and
consistency in Exchange rules.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act, but rather will serve to
improve competition for order flow at the close of trading. The
Commission recently approved a proposed rule change by Nasdaq to move
the cut-off times for the entry of MOC and LOC Orders from 3:50 to 3:55
p.m.\20\ In addition, other exchanges operate closing auctions with
later cut-off times than proposed by the Exchange. The Exchange
believes that market participants that trade in the Exchange's closing
auction would similarly benefit from a later cut-off time, while also
continuing to have a period to enter orders to offset a published
imbalance. The proposed cut-off time would apply equally to all market
participants and reflects the current market environment where trading
is increasingly more automated and efficient. The non-substantive
amendments to Rule 123C are not designed to address any competitive
issues.
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\20\ See supra note 14.
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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 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
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSE-2018-58 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2018-58. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the
[[Page 64913]]
proposed rule change between the Commission and any person, other than
those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSE-2018-58 and should be
submitted on or before January 8, 2019.
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\21\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018-27278 Filed 12-17-18; 8:45 am]
BILLING CODE 8011-01-P