[Federal Register Volume 84, Number 58 (Tuesday, March 26, 2019)]
[Notices]
[Pages 11382-11385]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05698]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85367; File No. SR-NYSE-2019-09]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change To Amend Rules 104 and 36 To
Require and Facilitate Routine Communications Between Designated Market
Makers (``DMMs'') and Designated Representatives of Listed Issuers
March 20, 2019.
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 March 8, 2019, 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 Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rules 104 and 36 to require and
facilitate routine communications between Designated Market Makers
(``DMMs'') and designated representatives of listed issuers. 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 [sic] 104 (Dealings and
Responsibilities of DMMs) and Rule 36 (Communication Between Exchange
and Members' Offices) to require and facilitate routine DMM
communication with designated representatives of listed issuers.
Proposed Rule Change
As described below, the Exchange proposes to amend Rule 104 to
require DMM units to communicate with designated individuals at each
issuer of listed securities in whose securities DMMs associated with
the DMM unit are registered and would describe how the communication
requirement can be met. The Exchange also proposes to amend Rule 36 to
facilitate written electronic communications with issuers from the
Floor of the Exchange (the ``Floor'') \4\ pursuant to proposed Rule
104(l) during specified time periods and subject to certain
restrictions.
---------------------------------------------------------------------------
\4\ Rule 6 defines the Floor as the trading Floor of the
Exchange and the premises immediately adjacent thereto, such as the
various entrances and lobbies of the 11 Wall Street, 18 New Street,
8 Broad Street, 12 Broad Street and 18 Broad Street Buildings, and
also means the telephone facilities available in these locations.
---------------------------------------------------------------------------
Rule 104
Rule 104 sets forth the obligations of Exchange DMMs. The Exchange
proposes to add a new paragraph (l) to Rule 104 titled ``Communication
with Issuers of Listed Securities'' that would set forth the obligation
of DMMs to communicate with their listed issuers.
Proposed Rule 104(1)(1) would provide that, on at least a quarterly
basis, each DMM unit must communicate with one or more senior officials
of each issuer of listed securities in whose securities DMMs associated
with the DMM unit are registered, with the exception of American
Depositary Receipts (``ADR'').\5\ The proposed rule would also provide
that the senior official designated by the listed issuer for the
proposed contacts must be of the rank of Corporate Secretary or higher
and must not be involved in market or trading operations for or on
behalf of the listed issuer or with respect to the listed security. The
Exchange proposes to provide the senior officials at the issuer with
the option to designate an individual to communicate with the DMMs on
their behalf by including the clause ``or a designee thereof''
following ``Corporate Secretary or above,'' which the Exchange believes
would enable issuers to more efficiently manage the communication
process. As proposed, the designee would also have to be a person at
the issuer who is not be involved in market or trading operations for
or on behalf of the listed issuer or with respect to the listed
security.
---------------------------------------------------------------------------
\5\ ADRs are certificates representing a specified number of
shares in non-U.S. issuers that are deposited and issued through
U.S. banks. The shares underlying ADRs are primarily listed and
traded on non-U.S. markets. The Exchange believes that the purpose
for the proposed change is not furthered by requiring DMMs to
contact foreign issuers whose ordinary listing is not on the
Exchange and therefore proposes to exclude ADRs from the periodic
communication requirement.
---------------------------------------------------------------------------
This proposed obligation would be on the DMM units only. DMM units
would be required to communicate with the listed issuer contact, but
the listed issuer contact would not be required to reciprocate. For
example, a DMM unit could meet its obligation by sending an email
communication to the listed issuer contact. However, the listed issuer
contact would not be obligated to respond to that communication in
writing or otherwise.
To address the possibility that a DMM unit may not have contact
information for any individuals at a listed issuer, proposed Rule
104(1)(A) would provide that if a DMM unit does not have contact
information for a listed issuer, the DMM unit can seek to communicate
with the Corporate Secretary most recently named on a public filing by
such issuer.
Proposed Rule 104(l)(2) would describe the ways in which the
periodic communication requirement set forth in proposed subparagraph
(l)(1) can be met. Specifically, proposed subparagraph (l)(2) would
provide that the communication requirement may be met by either in-
person meetings, telephone calls, or written communications.
The required communications would be explicitly subject to existing
restrictions on DMMs. First, as set forth in proposed Rule
104(l)(2)(A), during the required communications, employees of the DMM
unit would have to comply with the requirements of Rule 98 \6\ with
respect to the information that may be shared with the listed issuer
[[Page 11383]]
contact. Second, as described in proposed Rule 104(l)(2)(B), an
employee of a DMM unit may not communicate with a listed issuer contact
from the Floor via telephone. However, the Exchange proposes that an
employee of a DMM unit would be able to communicate with a listed
issuer contact from the Floor using electronic written communications,
subject to the requirements and safeguards set forth in proposed Rule
36.31, described below. Finally, proposed Rule 104(l)(2)(C) would
provide that DMM units must establish written policies and procedures
reasonably designed to ensure that DMMs are in compliance with the
requirements of the proposed rule.
---------------------------------------------------------------------------
\6\ Rule 98 governs the operation of DMM units and imposes
certain restrictions on DMM trading including, among other things,
requiring that DMM units to protect against the misuse of Floor-
based non-public order information. See, e.g., Rule 98(c)(3).
---------------------------------------------------------------------------
Proposed Rule 104(l)(3) would describe the non-regulatory penalties
to be imposed if DMMs fail to initiate the required contacts with
listed issuers. Specifically, if a DMM unit fails to initiate the
required communication with the listed issuer for a single quarter, the
Exchange would issue an initial warning letter to the DMM unit. If a
DMM unit fails to initiate the required communication with the listed
issuer for a two or more quarters, that DMM unit would be ineligible to
participate in the allocation process for a minimum of one month
following the second quarter of its failure to meet its contact
requirement.
The proposed rule is substantively similar to former NYSE Rule
106(a), which provided that ``[d]uring each quarter, each Exchange
specialist unit shall contact one or more senior officials, of the rank
of Corporate Secretary or above, of each company in whose stock
specialists associated with the specialist unit are registered.'' NYSE
Rule 106 was deleted in 2008.\7\ At the time, the Exchange determined
that the requirement in former Rule 106 that specialist units make
themselves available for contact with their listing companies
periodically throughout the year was unnecessary to ensure that listed
issuers were informed about trading in their listed securities given
the availability of public information and the fact that specialist
units had internal departments responsible for communicating with
issuers during the trading day.\8\ Following the deletion of Rule 106,
the internal departments responsible for communicating with issuers
were largely dismantled, and DMM communications with issuers have
become less regular.
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 83540 (October 24,
2008), 73 FR 65435 (November 3, 2008) (SR-NYSE-2008-52).
\8\ See id., 73 FR at 65437.
---------------------------------------------------------------------------
Because each listed security is assigned to a single DMM, the
Exchange believes that one of the core functions of the DMM units is to
maintain regular communications with listed issuers about trading
activity in their securities. While DMM firms may no longer be
structured as they were when former Rule 106 was in place, DMM units
still regularly communicate with their listed issuers. The Exchange
proposes to reinstate the mandated interaction between DMMs and listed
issuers \9\ because the Exchange believes that this would ensure that a
minimum level of communication is occurring between DMM units and all
listed issuers. The proposed rule would therefore establish a minimum
level of required contacts. The Exchange understands that most DMM
units have more frequent communications with their listed issuers.
---------------------------------------------------------------------------
\9\ Former Rule 106 also required, for instance, that the
specialist unit makes itself available to the Exchange's fifteen
(15) largest member organizations through required semiannual ``off
the Exchange Floor'' contact. See id.
---------------------------------------------------------------------------
Rule 36
Rule 36 governs the establishment of telephone or electronic
communications connections between the Floor and other locations, which
requires Exchange approval. Supplementary Material .31 to Rule 36
(``DMM Electronically Transmitted Written Communications'') permits DMM
units to install and maintain certain written electronic communications
applications. Specifically, Rule 36.31(a) permits a DMM unit, subject
to Exchange approval and the conditions set forth in Rule 36.31, to
install and maintain a wired or wireless device capable of sending and
receiving written communications electronically through an Exchange-
approved connection (a ``Permitted Communications Device'').\10\ Under
Rule 36.31(b), DMM units can connect Floor-based personnel via a
Permitted Communications Device to persons with whom they are otherwise
permitted to communicate pursuant to Rules 36.30 and 98, i.e., certain
personnel in the off-Floor offices of the DMM unit, the DMM unit's
clearing operations, and persons who are permitted to provide non-
trading related services to the DMM unit under Rule 98. Once connected,
on-Floor and off-Floor personnel are permitted to use the Permitted
Communications Device for two-way written electronic communications as
permitted by Rules 36.30 and 98.
---------------------------------------------------------------------------
\10\ Examples of Permitted Communications Devices include email
and instant messaging via a desktop or laptop computer.
---------------------------------------------------------------------------
To facilitate the DMM unit's proposed obligation to maintain
regular communications with listed issuers, the Exchange proposes to
amend Rule 36.31(b) to permit Floor-based DMM personnel to utilize
Permitted Communications Devices for written electronic communications
with the listed issuer representative designated under Rule 104(l)(1).
To effectuate this change, the Exchange would replace ``shall only
permit written electronic communications'' before ``Permitted
Communications Device'' in Rule 36.31(b) with ``may be used while on
the Trading Floor for written electronic communications'' and add new
subparagraphs (1) and (2).
Proposed Rule 36(b)(1) would reflect the current rule that
Permitted Communications Devices may be used for electronic written
communications between individuals located at the DMM unit's post on
the Floor and persons with whom they are otherwise permitted to
communicate pursuant to Rules 36.30 and 98.
Proposed Rule 36(b)(2) would reflect the proposed rule that
Permitted Communications Devices may be used for written electronic
communications with the listed issuer representative designated under
proposed Rule 104(l)(1), subject to the content restrictions set forth
in that rule as described above and provided that a DMM unit may not
use a Permitted Communications Device for this purpose for the periods
9:15 a.m. Eastern Time (``E.T.'') until the security is opened, and
again beginning 15 minutes before the scheduled close of trading until
the security is closed.
The proposed time restrictions are designed to limit communications
between the DMM and listed issuer during the period when a DMM would
need to access non-public trading information to facilitate the opening
or closing transactions, i.e., the fifteen minutes prior to a security
being opened and closed by the DMM.\11\ The Exchange believes that this
proposed bright-line restriction on communications would eliminate any
potential for non-public information to be shared by the DMM with a
listed
[[Page 11384]]
issuer in advance of the opening or closing of trading. The Exchange
further believes that the Rule 98 requirements for the DMM to have
policies and procedures reasonably designed to protect against the
misuse of Floor-based non-public order information would restrict the
DMMs from being able to share any non-public information the rest of
the trading day.\12\
---------------------------------------------------------------------------
\11\ In connection with opening and closing a security, DMMs
have access to non-public order information, specifically, the
aggregate amount of specified Reserve Orders that are eligible to
participate in the opening and closing transactions. See Rule
104(a)(2) and (3) (specifying that DMMs and DMM unit algorithms have
access to aggregate order information in order to comply with their
requirement to facilitate openings and closings).
\12\ See Rule 98(c)(3)(A).
---------------------------------------------------------------------------
Finally, the requirements in current Rule 36.31(c) that a DMM unit
must maintain records of all written communications sent from or to the
DMM via the Permitted Communications Device in accordance with Rule 440
and SEC Rule 17a-4(b)(4) \13\ and in such format as may be prescribed
by the Exchange, and the requirement in current Rule 36.31(d) that a
DMM's member organization must establish policies and procedures
reasonably designed to ensure that use of the Permitted Communications
Device is consistent with all SEC rules and Exchange rules, policies
and procedures, would remain unchanged.
---------------------------------------------------------------------------
\13\ See Rule 440 (Books and Records) & 17 CFR 240.17a-4(b)(4).
---------------------------------------------------------------------------
The Exchange believes that allowing DMM units to use a Permitted
Communications Device to communicate with issuers from the Floor is
appropriate because the DMM units would continue to be subject to the
requirements of Rule 98 and existing restrictions on the use of
Permitted Communications Devices.
The proposed rule change would in no way alter the obligations of a
DMM unit to meet existing requirements under Rule 98 to, among other
things, protect non-public order information and maintain appropriate
information barriers in accordance with Rule 98. Because DMM units
would continue to be subject to Rule 98, while on the Floor, DMM unit
personnel could not use the Permitted Communications Device to
communicate with issuers in violation of Rule 98. For example, DMM
units would continue to be subject to the provisions of Rule 98
governing restrictions on communications with off-Floor individuals or
systems responsible for making trading decisions in related products.
The Exchange also believes that prohibiting written electronic
communications from the Floor before the open and going into the close
further assists DMM units in protecting non-public order information
when communicating with issuers from the Floor.
DMM units would also continue to be obligated to program its
communications system so that a Permitted Communications Device would
not operate in a manner enabling written electronic communications to
or from any location or individual other than as described in proposed
amended Supplementary Material .31. Among other things, the DMM unit
would be required to program its communications system to ensure that
messages cannot be forwarded by DMM Floor personnel to anyone at the
issuer with whom Floor personnel are not permitted to communicate.
Finally, the Exchange believes that use of auditable written
electronic communications as the only permitted method for DMM units to
communicate with issuers from the Floor and the related retention
requirements would facilitate and enhance the Exchange's existing
regulatory program. In particular, the Exchange would be able to review
the email system operating the connections between the Floor and the
issuer, the related written supervisory procedures, and both the
content of, and participants in, any written communications.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\14\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\15\ in particular, in that 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, and to remove impediments to and perfect
the mechanism of a free and open market and a national market system.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
In particular, the Exchange believes that the proposed requirement
that DMMs maintain regular contact with listed issuers would foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, and would remove impediments to and perfect
the mechanism of a free and open market and a national market system by
promoting a better understanding of the needs of listed issuers and
fostering communications among DMMs and listed issuers. The Exchange
believes that routine and regular contacts between DMMs and listed
issuers should be encouraged and will help to foster an understanding
of the DMM function, the operations of the Exchange market, and the
markets that are maintained in the listed issuers' securities, as well
as assisting DMMs to better perform their functions, thereby removing
impediments to and perfecting the mechanism of a free and open market
and a national market system. Moreover, the Exchange believes that
excluding ADRs from the proposed requirement is not inconsistent with
this goal because the shares underlying ADRs are not primarily listed
and traded on the Exchange. The Exchange also believes that the
proposed amendments to Rule 36 support the mechanism of free and open
markets by facilitating DMM communications with issuers from the Floor
during the trading day, subject to the safeguards described above.
Further, the proposed rule change is designed to prevent fraudulent
and manipulative acts and practices and would be consistent with the
public interest and the protection of investors because of the numerous
safeguards surrounding the manner and form in which DMMs can
communicate with listed issuers proposed for inclusion in Rules 104 and
36. The proposed safeguards would include:
Requiring communications to occur with a very senior
official designated by the listed issuer;
requiring that the official designated by the listed
issuer not be involved in market or trading operations for or on behalf
of the listed issuer or with respect to the listed security;
requiring employees of the DMM unit to comply with the
requirements of Rule 98 with respect to the information that may be
shared with the listed issuer contact during the required
communications, including written electronic communications from the
Floor;
preventing employees of the DMM unit from communicating
with a listed issuer contact from the Floor via telephone;
requiring that, while on the Floor, employees of the DMM
unit only communicate with a listed issuer contact in written
electronic form using a monitored Permitted Communications Device; and
prohibiting written electronic communications from the
Floor with the listed issuer contact during the busiest part of the
trading day from 9:15 a.m. E.T. until the security is opened and
beginning fifteen minutes before the scheduled close of trading until
the security is closed.
The Exchange believes that these proposed safeguards establish an
appropriate regulatory framework for supervising and monitoring
mandated DMM communications with listed
[[Page 11385]]
issuers consistent with the objectives of Section 6(b)(5) of the
Act.\16\
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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. The Exchange does not
believe that the proposed rule change will impose any burden on
competition because the proposed change relates to how DMMs communicate
with their listed issuers and proposes no change for other market
participants. In addition, the Exchange does not believe that the
proposed changes will impose any competitive burden because DMMs will
operate in the same manner, including from the Floor, when
communicating with issuers.
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-2019-09 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-2019-09. 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 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-2019-09 and should be submitted on
or before April 16, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
---------------------------------------------------------------------------
\17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05698 Filed 3-25-19; 8:45 am]
BILLING CODE 8011-01-P