[Federal Register Volume 86, Number 30 (Wednesday, February 17, 2021)]
[Notices]
[Pages 9978-9985]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-03088]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91095; File No. SR-NYSE-2020-89]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Amendment No. 1 and Order Instituting Proceedings 
To Determine Whether To Approve or Disapprove a Proposed Rule Change, 
as Modified by Amendment No. 1, To Amend Rule 7.35C

February 10, 2021.

I. Introduction

    On October 23, 2020, New York Stock Exchange LLC (``NYSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Rule 7.35C (Exchange-Facilitated 
Auctions) to (1) provide the Exchange authority to facilitate a Trading 
Halt Auction if a security has not reopened by 3:30 p.m. following a 
MWCB Halt; (2) widen the Auction Collar for an Exchange-facilitated 
Trading Halt Auction following an MWCB Halt; (3) provide that certain 
DMM Interest would not be canceled following an Exchange-facilitated 
Auction; and (4) change the Auction Reference Price for Exchange-
facilitated Core Open Auctions.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in the Federal 
Register on November 12, 2020.\3\ On December 18, 2020, the Commission 
extended the time period within which to either approve the proposed 
rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to approve or disapprove the proposed 
rule change, to February 10, 2020.\4\ On February 5, 2020, the Exchange 
filed Amendment No. 1 to the proposed rule change.\5\ The Commission 
has received no comments on the proposed rule change.
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    \3\ See Securities Exchange Act Release No. 90363 (Nov. 5, 
2020), 85 FR 71964 (Nov. 12 2020) (``Notice'').
    \4\ See Securities Exchange Act Release No. 90726 (Dec. 20, 
2020), 85 FR 84431 (Dec. 28, 2020).
    \5\ In Amendment No. 1, the Exchange removed one of the proposed 
changes from the original proposal. Specifically, the Exchange 
removed the proposed change to adopt a new definition of Auction 
Reference Price for exchange-facilitated Core Open Auctions and to 
amend the temporary rule related to such auctions set forth in 
Commentary .04 to Rule 7.35C. This aspect of the original proposal 
is now the subject of a separate proposed rule change filed by the 
Exchange on February 8, 2021 (SR-NYSE-2021-13).
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    The Commission is publishing this notice to solicit comments on the 
proposed rule change, as modified by Amendment No. 1, from interested 
persons and is instituting proceedings under Section 19(b)(2)(B) of the 
Act to determine whether to approve or disapprove the proposed rule 
change, as modified by Amendment No. 1.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change, as Modified by Amendment 
No. 1

    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 7.35C (Exchange-Facilitated 
Auctions) to (1) provide the Exchange authority to facilitate a Trading 
Halt Auction \6\ if a security has not reopened following a Level 1 or 
Level 2 trading halt due to extraordinary market volatility under Rule 
7.12 (``MWCB Halt'') by 3:30 p.m.; (2) widen the Auction Collar for an 
Exchange-facilitated Trading Halt Auction following a MWCB Halt; and 
(3) provide that certain DMM Interest \7\ would not be cancelled 
following an Exchange-facilitated Auction.\8\
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    \6\ As defined in Rule 7.35(a)(1), an ``Auction'' refers to the 
process for opening, reopening, or closing of trading of Auction-
Eligible Securities on the Exchange, which can result in either a 
trade or a quote.
    \7\ For purposes of Auctions, the term ``DMM Interest'' is 
defined in Rule 7.35(a)(8) to mean all buy and sell interest entered 
by a DMM unit in its assigned securities and includes: ``DMM Auction 
Liquidity,'' which is non-displayed buy and sell interest that is 
designated for an Auction only (see Rule 7.35(a)(8)(A)); ``DMM 
Orders'' which are orders, as defined under Rule 7.31, entered by a 
DMM unit (see Rule 7.35(a)(8)(B)); and ``DMM After-Auction Orders,'' 
which are orders entered by a DMM unit before either the Core Open 
Auction or Trading Halt Auction that do not participate in an 
Auction and are intended instead to maintain price continuity with 
reasonable depth following an Auction (see Rule 7.35(a)(8)(C)).
    \8\ In this Amendment No. 1, the Exchange is removing its 
proposed change to Rule 7.35C(b)(1) relating to the Auction 
Reference Price for Exchange-facilitated Core Open Auctions, which 
will be submitted as a separate proposed rule change.

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[[Page 9979]]

    These proposed changes are currently in place on a temporary basis, 
as described in Commentaries .01-.03 to Rule 7.35C.

Background

    To slow the spread of COVID-19 through social-distancing measures, 
on March 18, 2020, the CEO of the Exchange made a determination under 
Rule 7.1(c)(3) that, beginning March 23, 2020, the Trading Floor 
facilities located at 11 Wall Street in New York City would close and 
the Exchange would move, on a temporary basis, to fully electronic 
trading.\9\ On May 14, 2020, the CEO of the Exchange made a 
determination under Rule 7.1(c)(3) to reopen the Trading Floor on a 
limited basis on May 26, 2020 to a subset of Floor brokers, subject to 
safety measures designed to prevent the spread of COVID-19.\10\ On June 
15, 2020, the CEO of the Exchange made a determination under Rule 
7.1(c)(3) to begin the second phase of the Trading Floor reopening by 
allowing DMMs to return on June 17, 2020, subject to safety measures 
designed to prevent the spread of COVID-19.\11\
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    \9\ Pursuant to Rule 7.1(e), the CEO notified the Board of 
Directors of the Exchange of this determination. The Exchange's 
current rules establish how the Exchange will function fully-
electronically. The CEO also closed the NYSE American Options 
Trading Floor, which is located at the same 11 Wall Street 
facilities, and the NYSE Arca Options Trading Floor, which is 
located in San Francisco, CA. See Press Release, dated March 18, 
2020, available here: https://ir.theice.com/press/press-releases/all-categories/2020/03-18-2020-204202110.
    \10\ See Securities Exchange Act Release No. 88933 (May 22, 
2020), 85 FR 32059 (May 28, 2020) (SR-NYSE-2020-47) (Notice of 
filing and immediate effectiveness of proposed rule change).
    \11\ See Securities Exchange Act Release No. 89086 (June 17, 
2020) (SR-NYSE-2020-52) (Notice of filing and immediate 
effectiveness of proposed rule change).
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    Rule 7.35C sets forth the procedures for Exchange-facilitated 
Auctions. The first time the Exchange facilitated any Auctions pursuant 
to Rule 7.35C was on March 19, 2020, when two DMM firms temporarily 
left the Trading Floor in connection with implementing their business 
continuity plans related to the COVID-19 pandemic. Beginning on March 
23, 2020, when the Exchange temporarily closed the Trading Floor, the 
Exchange began facilitating Auctions on behalf of all DMM firms. During 
the period of March 23, 2020 through June 16, 2020, among the DMM 
firms, the percentage of Auctions that were facilitated by the Exchange 
ranged from 1% to 3.2% of the securities assigned to each DMM. During 
this period, the vast majority of Auctions were facilitated 
electronically by DMMs pursuant to Rules 7.35A and 7.35B.
    In connection with both the market-wide volatility associated with 
the COVID-19 pandemic in March 2020 and the full and partial closing of 
the Trading Floor facilities, the Exchange added Commentaries .01, .02, 
.03, and .04 to Rule 7.35C \12\ that are in effect until the earlier of 
a full reopening of the Trading Floor facilities to DMMs or after the 
Exchange closes on April 30, 2021.\13\ These Commentaries set forth how 
the Exchange has been functioning during this temporary period when the 
Trading Floor facilities have been closed either in full or in part in 
connection with COVID-19.
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    \12\ See Securities Exchange Act Release Nos. 88413 (March 18, 
2020), 85 FR 16713 (March 24, 2020) (SR-NYSE-2020-19) (amending Rule 
7.35C to add Commentary .01) (``First Rule 7.35C Filing''); 88444 
(March 20, 2020), 85 FR 17141 (March 26, 2020) (SR-NYSE-2020-22) 
(amending Rules 7.35A to add Commentary .01, 7.35B to add Commentary 
.01, and 7.35C to add Commentary .02) (``Second Rule 7.35C 
Filing''); 88562 (April 3, 2020), 85 FR 20002 (April 9, 2020) (SR-
NYSE-2020-29) (amending Rule 7.35C to add Commentary .03) (``DMM 
Interest Filing''); and 89059 (June 12, 2020), 85 FR 36911 (June 18, 
2020) (SR-NYSE-2020-50) (amending Rule 7.35C to add Commentary .04) 
(``Fourth Rule 7.35C Filing'').
    \13\ See Securities Exchange Act Release No. 90795 (December 23, 
2020), 85 FR 86608 (December 30, 2020) (SR-NYSE-2020-106) (Notice of 
filing and immediate effectiveness of proposed rule change to extend 
the temporary period for Commentaries to Rules 7.35, 7.35A, 7.35B, 
and 7.35C; and temporary rule relief in Rule 36.30 to end on the 
earlier of a full reopening of the Trading Floor facilities to DMMs 
or after the Exchange closes on April 30, 2020).
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    The Exchange believes that the rules that it has added on a 
temporary basis to Rule 7.35C have supported the fair and orderly 
operation of the Exchange during both the market volatility associated 
with COVID-19 and the temporary period that the Trading Floor 
facilities have been closed either in full or in part due to COVID-19. 
The Exchange further believes the functionality that has been operating 
on a temporary basis would continue to support the fair and orderly 
operation of the Exchange under any circumstances where there may be 
either market-wide volatility or the need for the Exchange to 
facilitate one or more Auctions. Accordingly, the Exchange proposes 
that the following changes be made permanent in Exchange rules:
     Provide the Exchange with authority to facilitate a 
Trading Halt Auction if a security has not reopened following a MWCB 
Halt by 3:30 p.m. Eastern Time.
     Widen the Auction Collars for an Exchange-facilitated 
Trading Halt Auction following a MWCB Halt to the greater of $0.15 or 
10%.
     Allow DMM Interest to remain on the Exchange Book after an 
Exchange-facilitated Auction.
Proposed Rule Changes
Exchange Authority To Facilitate a Trading Halt Auction Following a 
MWCB Halt
    In the midst of the market-wide volatility relating to COVID-19 and 
before the Exchange temporarily closed the Trading Floor, the Exchange 
added Commentary .01 to Rule 7.35C, which provided, at the time of 
filing, that: \14\
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    \14\ See First Rule 7.35C Filing, supra note 12.
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    Until May 15, 2020, to facilitate the fair and orderly reopening of 
securities following either a Level 1 or Level 2 trading halt due to 
extraordinary market volatility under Rule 7.12 (``MWCB Halt''), the 
CEO of the Exchange or his or her designee may determine that the 
Exchange will facilitate a Trading Halt Auction in one or more 
securities under this Rule if a security has not reopened by 3:30 p.m. 
If the Exchange facilitates a Trading Halt Auction following a MWCB 
Halt pursuant to this Commentary, the Auction Collars will be the 
greater of $0.15 or 10% away from the Auction Reference Price.
    Following the temporary closure of the Trading Floor, the substance 
of this Commentary was revised and moved to Commentary .02 to Rule 
7.35C, as follows: \15\
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    \15\ See Second Rule 7.35C Filing, supra note 12.
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    If the Trading Floor facilities reopen, through trading on December 
31, 2020, to facilitate the fair and orderly reopening of securities 
following a MWCB Halt, the CEO of the Exchange or his or her designee 
may determine that the Exchange will facilitate a Trading Halt Auction 
in one or more securities under this Rule if a security has not 
reopened by 3:30 p.m. Eastern Time. If the Exchange facilitates a 
Trading Halt Auction following a MWCB Halt pursuant to this Commentary, 
the Auction Collars will be the greater of $0.15 or 10% away from the 
Auction Reference Price.
    As described in more detail in the First Rule 7.35C Filing, under 
Rule 7.35C, the Exchange will facilitate an Auction only if a DMM 
cannot facilitate an Auction for one or more securities. In support of 
the proposed rule change, the Exchange explained:
    The Exchange continues to believe that DMM-facilitated Trading Halt 
Auctions following a MWCB Halt provide the greatest opportunity for 
fair and orderly reopenings of securities, and would therefore continue 
to provide

[[Page 9980]]

DMMs an opportunity to reopen securities before effectuating an 
Exchange-facilitated Trading Halt Auction. The proposal would provide 
the Exchange with another tool during volatile markets to reopen 
securities before 3:50 p.m., for continuous trading to resume leading 
into the close . . . . . The Exchange believes that specifying a time 
in the Rule at which the Exchange could exercise such discretion would 
put DMMs on notice of the time that the Exchange could begin 
facilitating such auctions. The Exchange further believes that it is 
not appropriate to provide that the Exchange would automatically 
facilitate reopening auctions at 3:30 p.m. There may be facts and 
circumstances where DMMs would be able to reopen all securities before 
3:50 p.m., but that the DMM-facilitated process may not have completed 
by 3:30 p.m. The Exchange would take those facts and circumstances into 
account before invoking the proposed relief. Exchange staff would 
communicate with the impacted DMMs verbally on the Floor during such 
times, and therefore the DMMs would be on notice of whether the 
Exchange would invoke this relief, and for which securities.
    The Exchange continues to believe that the ability for the Exchange 
to facilitate a Trading Halt Auction following a MWCB Halt if a 
security has not reopened by 3:30 p.m. would promote the fair and 
orderly reopening of one or more securities so that continuous trading 
may resume leading into the close. Accordingly, the Exchange proposes 
that the relief described above should be made a permanent part of Rule 
7.35C. To effect this change, the Exchange proposes to amend 7.35C to 
add new subparagraph (a)(4) as follows, which is based on current 
Commentary .02 to Rule 7.35C without any substantive differences:
    The CEO of the Exchange, or his or her designee, may determine that 
the Exchange will facilitate a Trading Halt Auction in one or more 
securities under this Rule if a security is subject to either a Level 1 
or Level 2 trading halt due to extraordinary market volatility under 
Rule 7.12 (``MWCB Halt'') and has not reopened by 3:30 p.m. Eastern 
Time.
    The Exchange further proposes to delete Commentary .02 to Rule 
7.35C, which would be replaced by proposed Rule 7.35C(a)(4).
    There are no technology changes associated with this proposed rule 
change and the Exchange would be able to implement it immediately upon 
approval of this proposed rule change.
Wider Auction Collars for a Trading Halt Auction Following a MWCB Halt
    As noted above, as set forth in Commentary .01(a) to Rule 
7.35C,\16\ the Exchange also widened the Auction Collars for an 
Exchange-facilitated Trading Halt Auction following a MWCB Halt to the 
greater of $0.15 or 10% away from the Auction Reference Price. Absent 
this temporary relief, the Auction Collars for all Exchange-facilitated 
Trading Halt Auctions, including reopenings following a MWCB Halt, is 
the greater of $0.15 or 5% away from the Auction Reference Price and 
does not include extension logic.\17\
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    \16\ Commentary .01(a) to Rule 7.35C currently provides that: 
``For a temporary period that begins March 23, 2020, when the 
Trading Floor facilities have been closed pursuant to Rule 
7.1(c)(3), and ends on the earlier of a full reopening of the 
Trading Floor facilities to DMMs or after the Exchange closes on 
December 31, 2020: (a) The Auction Collar for a Trading Halt Auction 
following a either a Level 1 or Level 2 trading halt due to 
extraordinary market volatility under Rule 7.12 (``MWCB Halt'') will 
be the greater of $0.15 or 10% away from the Auction Reference 
Price.''
    \17\ See Securities Exchange Act Release No. 85962 (May 29, 
2019), 84 FR 26188 (June 5, 2019) (SR-NYSE-2019-05) (Order 
approving, among other rules, Rule 7.35C, including that extension 
logic would not be applied to Exchange-facilitated Trading Halt 
Auctions). The Exchange continues to believe that extension logic is 
not necessary for Exchange-facilitated Trading Halt Auctions 
following a MWCB Halt because marketable orders priced through the 
Auction Collars would be cancelled, which would serve the same 
purpose as the extension logic. The proposed wider Auction Collars 
for an Exchange-facilitated Trading Halt Auction following a MWCB 
Halt would allow for more interest to participate in such auction, 
thereby reducing the potential for orders to be cancelled.
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    As described in the First Rule 7.35C Filing, the widening of the 
Auction Collars was designed to provide the Exchange with more 
flexibility to respond to the then unprecedented market-wide declines 
that resulted from the ongoing spread of COVID-19 at that time if the 
Exchange were to facilitate a Trading Halt Auction following a MWCB 
Halt. The Exchange cannot predict if and when the U.S. equities market 
will experience market-wide declines that would trigger a MWCB Halt 
again. However, if such market-wide volatility were to occur, the 
Exchange believes that the widened Auction Collars would promote fair 
and orderly reopenings following a MWCB Halt by providing a wider price 
range at which the Exchange could facilitate such a reopening.
    To effect this change, the Exchange proposes to amend Rule 
7.35C(b)(3)(A)(ii) to provide as follows (proposed new text 
italicized), which is based on current Commentary .01 to Rule 7.35C 
without any substantive differences:

    The Auction Collar for the Trading Halt Auction will be based on 
a price that is the greater of $0.15 or 5% away from the Auction 
Reference Price for the Trading Halt Auction, provided that, the 
Auction Collar for a Trading Halt Auction following a MWCB Halt will 
be the greater of $0.15 or 10% away from the Auction Reference 
Price.

    The Exchange further proposes to delete Commentary .01 to Rule 
7.35C, which would be replaced by the proposed amendment to Rule 
7.35C(b)(3)(A)(ii).
    There are no technology changes associated with this proposed rule 
change and the Exchange would be able to implement it immediately upon 
approval of this proposed rule change.
DMM Interest and Exchange-Facilitated Auctions
    As set forth in Rule 7.35C(a)(1), if the Exchange facilitates an 
Auction, DMM Interest would not be eligible to participate in such 
Auction and previously-entered DMM Interest would be cancelled. When a 
DMM cannot facilitate an Auction because the DMM unit is experiencing a 
system issue that prevents it from communicating with Exchange systems, 
cancelling DMM Interest following an Exchange-facilitated Auction would 
help ensure that DMM Interest that may be at stale prices does not 
participate in trading on the Exchange. On the other hand, by 
cancelling DMM Interest when the DMM units' systems are operating 
normally, DMMs may be limited in their ability to maintain price 
continuity with reasonable depth, i.e., provide passive liquidity at 
the Exchange best bid and offer and at depth, immediately following an 
Exchange-facilitated Auction.
    After a period of operating Exchange-facilitated Auctions, the 
Exchange identified a way to provide DMMs with a greater opportunity to 
provide passive liquidity immediately following an Auction, thereby 
dampening volatility, while still limiting DMM risk. To effect this 
change, the Exchange added Commentary .03 to Rule 7.35C, which provides 
that for the temporary period that begins on April 6, 2020 and ends on 
the earlier of a full reopening of the Trading Floor facilities to DMMs 
or after the Exchange closes on December 31, 2020, if the Exchange 
facilitates an Auction, DMM Interest (i) will not be eligible to 
participate if such Auction results in a trade, and will be eligible to 
participate if such Auction results in a quote, and (ii) will not be 
cancelled unless the limit price of such DMM Interest would be priced 
through the Auction Price or Auction Collars, as applicable, or such 
DMM Interest would

[[Page 9981]]

be marketable against other unexecuted orders.\18\
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    \18\ See DMM Interest Filing, supra note 12.
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    The Exchange proposes to make permanent the changes to how 
Exchange-facilitated Auctions function, as described in Commentary .03 
to Rule 7.35C. By making this functionality permanent, such rules would 
continue to apply both during the continuation of the current Trading 
Floor closure and if the Exchange were to facilitate Auctions any time 
after the Trading Floor fully reopens.
    To effect this change, the Exchange proposes to amend 7.35C(a)(1) 
as follows (new text italicized, deleted text bracketed):

    If the Exchange facilitates an Auction, DMM Interest will not be 
eligible to participate [in]if such Auction results in a trade, and 
will be eligible to participate if such Auction results in a 
quote[and previously-entered DMM Interest will be cancelled].

    This proposed rule change would make permanent the temporary 
functionality set forth in paragraph (a)(1) to Commentary .03.
    With this change, DMM Interest would not participate in any 
Exchange-facilitated Auctions that would result in a trade. This is how 
DMM Interest currently functions when the Exchange facilitates an 
Auction pursuant to either Rule 7.35C(a)(1) or Commentary .03 to Rule 
7.35C. Based on experience operating pursuant to Commentary .03 to Rule 
7.35C, the Exchange believes that this functionality should continue 
permanently when the Exchange facilitates an Auction, including, for 
example, when the Trading Floor is open but the DMM is unable to 
facilitate an Auction because of a systems or technical issue.
    More specifically, when a DMM facilitates an Auction that results 
in a trade, the DMM determines whether to participate on the buy or 
sell side and, based on that direction from the DMM, DMM Orders that do 
not participate in the Auction and that would lock or cross other 
orders, which would include other DMM Orders, will be cancelled.\19\ If 
the DMM has entered both buy and sell interest in advance of the 
Auction and the Exchange facilitates the Auction, the DMM would not be 
able to control whether the DMM's buy or sell interest would 
participate in a trade and the Exchange would not have that instruction 
from the DMM of which side of the market that the DMM would 
participate. As a result, there may be crossing DMM Interest that could 
result in a wash-sale trade that would not have occurred if the DMM had 
facilitated the Auction. Excluding DMM Interest from participating in 
an Exchange-facilitated Auction that results in a trade eliminates the 
potential for a wash-sale trade. In addition, the Exchange believes it 
promotes fair and orderly Exchange-facilitated Auctions that result in 
a trade to exclude DMM Interest from participating in such Auctions, 
because if a DMM's buy or sell interest does not reflect up-to-date 
prices, it could impact pricing of the Auction.
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    \19\ See Rule 7.35A(h)(3)(C) (providing that after a Core Open 
or Trading Halt Auction, better at-priced DMM Orders that do not 
receive an allocation and that lock or cross other unexecuted orders 
and buy and sell better-priced DMM Orders will be cancelled after 
the Auction Processing Period concludes).
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    By contrast, the Exchange believes that the proposed change for DMM 
Interest to participate in an Exchange-facilitated Auction that results 
in a quote would promote fair and orderly markets. This proposed change 
is consistent with Commentary .03(a)(1) to Rule 7.35C, but differs from 
current Rule 7.35C(a)(1). A security opens on a quote if there is no 
buy interest willing to trade with sell interest at the same price. The 
Exchange believes that under such circumstances, including DMM Interest 
in the Exchange's quote would assist the DMMs in meeting their 
obligation to maintain a two-sided quote as well as to maintain 
continuity and depth in their assigned securities.\20\ Accordingly, the 
Exchange believes that making this change permanent would promote fair 
and orderly markets in connection with Exchange-facilitated Auctions 
that result in a quote.
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    \20\ See Rule 104(f)(2).
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    The final element of the proposed change to Rule 7.35C(a)(1) is 
that DMM Interest would no longer be automatically cancelled after an 
Exchange-facilitated Auction. The Exchange believes that this proposed 
change would assist DMMs in meeting their obligation, as required by 
Rule 104(f)(2), to provide passive liquidity in order to maintain 
continuity with reasonable depth in their assigned securities 
immediately following a Core Open Auction or Trading Halt Auction that 
was facilitated by the Exchange. In advance of an Auction, DMMs can 
enter DMM Orders, which if not traded in an Auction, would be part of 
the DMM Interest on the Exchange Book after the Auction. In addition, 
DMMs can enter DMM After-Auction Orders, which do not participate in 
Auctions and are specifically designed to assist the DMMs to maintain 
passive liquidity on the Exchange immediately following an Auction, 
which supports their ability to maintain continuity with reasonable 
depth immediately following an Auction. If DMM Interest is not 
automatically cancelled following an Exchange-facilitated Auction, the 
DMM would be better able to timely meet these obligations by ensuring 
that passive liquidity remains on the Exchange Book immediately 
following an Auction.
    The Exchange believes that there remain circumstances when DMM 
Interest should be cancelled following an Exchange-facilitated Auction. 
As proposed, the Exchange would cancel unexecuted DMM Interest under 
the same circumstances that unexecuted orders of other member 
organizations would be cancelled following such Auctions.
    To effect this change, the Exchange proposes to amend Rule 
7.35C(g)(1), which currently describes which unexecuted orders would be 
cancelled if a security opens or reopens on a trade via an Exchange-
facilitated Auction, and Rule 7.35C(g)(2), which currently describes 
which unexecuted orders would be cancelled if a security opens or 
reopens on a quote that is above (below) the upper (lower) Auction 
Collar via an Exchange-facilitated Auction. The Exchange proposes that 
these two subparagraphs would be replaced with the following text to 
incorporate that under the same circumstances, DMM Interest would 
similarly be cancelled (proposed new text italicized):

    (1) If a security opens or reopens on a trade, Market Orders 
(including sell short Market Orders during a Short Sale Period) and 
Limit Orders, including DMM Interest, with a limit price that is 
better-priced than the Auction Price and were not executed in the 
applicable Auction will be cancelled.
    (2) If a security opens or reopens on a quote that is above 
(below) the upper (lower) Auction Collar, Market Orders (including 
sell short Market Orders during a Short Sale Period) and Limit 
Orders, including DMM Interest, with a limit price that is better-
priced than the upper (lower) Auction Collar will be cancelled 
before such quote is published.

    These proposed rule changes would make permanent the temporary 
functionality set forth in paragraphs (b)(1) and (2) to Commentary .03.
    The Exchange further believes that if previously-entered DMM 
Interest would be marketable against either other DMM Interest or 
contra-side unexecuted orders, such DMM Interest should be cancelled. 
For example, if for a security, the Auction Reference Price is $10.00, 
the lower Auction Collar is $9.00 and the upper Auction Collar is 
$11.00, and the orders on the Exchange Book in advance of the Auction 
are as follows:

[[Page 9982]]

     Order 1--Buy DMM Order 1000 shares at $10.05,
     Order 2--Sell DMM Order 1000 shares at $10.00,
     Order 3--Buy DMM Order 1000 shares at $10.02,
     Order 4--Sell Limit Order at $10.03,
    the orders in this example would be processed as follows in an 
Exchange-facilitated Auction:
     Order 1 would be cancelled (because DMM Interest would not 
be eligible to participate in an Auction trade, and here, Order 1 is 
marketable with Orders 2 and 4),
     Order 2 would be cancelled (because DMM Interest would not 
be eligible to participate in an Auction trade, and here Order 2 is 
marketable with Order 3), and
     Order 3 would not be cancelled because it is no longer 
marketable with any other interest, i.e., it no longer locks or crosses 
the price of any other contra-side interest in the Exchange Book. Order 
3 would therefore be included in the opening quote.
    This Exchange-facilitated Auction would result in the following 
quote: $10.02 (Order 3--DMM Order) x $10.03 (Order 4--Limit Order).
    To effect this change, the Exchange proposes new subparagraph 
(g)(3) to Rule 7.35C to specify the additional circumstances when DMM 
Interest would be cancelled, as follows:
    The Exchange will cancel DMM Interest that is marketable against 
contra-side unexecuted orders. If the contra-side unexecuted order 
against which such DMM Interest is marketable is DMM Interest, the DMM 
Interest with the earlier working time will be canceled.
    This proposed rule change would make permanent the temporary 
functionality set forth in paragraph (b)(3) to Commentary .03.
    The Exchange believes that these proposed rule changes would 
promote fair and orderly markets whenever the Exchange facilitates an 
Auction under Rule 7.35C--under any circumstance--by supporting DMMs in 
maintaining continuity with reasonable depth in their assigned 
securities immediately following an Exchange-facilitated Core Open 
Auction or Trading Halt Auction that was facilitated by the Exchange.
    The Exchange proposes that, with these proposed changes to Rules 
7.35C(a)(1) and (g), Commentary .03 to Rule 7.35C would be deleted in 
its entirety.
    In further support of making the functionality set forth in 
Commentary .03 to Rule 7.35C permanent, the Exchange notes that after 
the Exchange implemented that Commentary, the Exchange observed 
improved performance relating to Exchange-facilitated Auctions.
     For the period March 23, 2020 to April 3, 2020, 4.9% of 
all Core Open Auctions were facilitated by the Exchange. For the period 
April 6, 2020 through June 16, 2020, the Exchange facilitated only 2% 
of all Core Open Auctions. In addition, the percentage of Exchange-
facilitated Core Open Auctions that were bound by an Auction Collar 
decreased from 1.3% from the pre-April 6, 2020 period, to 0.58% in the 
April 6, 2020-June 16, 2020 period.
     In addition, the Exchange observed that after April 6, 
2020, Exchange-listed securities experienced reduced volatility in the 
first half hour of trading. The Exchange uses a quote-based metric to 
measure volatility in securities,\21\ and based on that metric, 
volatility in Exchange-listed securities between the period of April 6, 
2020 and June 16, 2020 was 28.4% lower than the same measure between 
March 23, 2020 and April 3, 2020. In addition, the Exchange further 
observed that between these two periods, the difference between the 
Core Open Auction Price and the subsequent five-minute VWAP dropped by 
31.3%.
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    \21\ As described in an Exchange blog post, this metric is 
calculated using second-to-second ``quote returns,'' which is 
calculated by averaging the midpoints of all NBBO updates for a 
security within each second of the day from 9:35 a.m. to 4:00 p.m., 
and then calculating the percentage rate of return of these average 
quote midpoints from one second to the next. The variance of returns 
are then calculated in aggregated time periods (e.g., 5-minute 
buckets) and annualized from seconds to 6.5 hour trading days to 252 
trading days in the years. Finally, the Exchange takes the square 
root of the annualized variance in the aggregated periods, which 
creates the Exchange's quote volatility metric. See NYSE Data 
Insights, Introducing Quote Volatility (QV)--a new metric to measure 
price volatility, available here: https://www.nyse.com/data-insights/introducing-quote-volatility-qv-a-new-metric-to-measure-price-volatility.
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    For DMM firms that have already returned staff to the Trading 
Floor, this proposed change has limited application because the 
Exchange has not facilitated any Auctions on behalf of those firms 
since June 16, 2020. In addition, the Exchange anticipates that once 
the Trading Floor facilities open in full to DMMs, and all DMM firms 
have staffing on the Trading Floor, the need for Exchange-facilitated 
Auctions would be obviated, and the Exchange will revert to pre-
pandemic rates of Exchange-facilitated Auctions, which were none. 
Accordingly, the proposed changes to Rule 7.35C will likely have 
limited application and would be available as a business continuity 
functionality should DMMs be unable to facilitate an Auction in one or 
more securities, for any reason.
    There are no technology changes associated with this proposed rule 
change and the Exchange would be able to implement it immediately upon 
approval of this proposed rule change.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\22\ in general, and furthers the objectives of Section 6(b)(5) of 
the Act,\23\ 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.
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    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the rules that it added on a temporary 
basis to Rule 7.35C have supported the fair and orderly operation of 
the Exchange during both the market volatility associated with COVID-19 
and the temporary period that the Trading Floor facilities have been 
closed either in full or in part due to COVID-19. The Exchange further 
believes the functionality that has been operating on a temporary basis 
would continue to support the fair and orderly operation of the 
Exchange under any circumstances where there may be either market-wide 
volatility or the need for the Exchange to facilitate one or more 
Auctions.
Exchange Authority To Facilitate a Trading Halt Auction Following a 
MWCB Halt
    The Exchange believes that it would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system to provide the Exchange with authority to facilitate a Trading 
Halt Auction following a MWCB Halt. The Exchange continues to believe 
that DMM-facilitated Trading Halt Auctions following a MWCB Halt 
provide the greatest opportunity for fair and orderly reopenings of 
securities, and would therefore continue to provide DMMs an opportunity 
to reopen securities before effectuating an Exchange-facilitated 
Trading Halt Auction. The proposal would provide the Exchange with 
another tool during volatile markets to reopen securities before 3:50 
p.m. so that continuous trading may resume before leading into the 
close. The Exchange further believes

[[Page 9983]]

that it is not appropriate to provide that the Exchange would 
automatically facilitate reopening auctions at 3:30 p.m. There may be 
facts and circumstances where DMMs would be able to reopen all 
securities before 3:50 p.m., but that the DMM-facilitated process may 
not have completed by 3:30 p.m. The Exchange would take those facts and 
circumstances into account before invoking the proposed relief.
Wider Auction Collars for a Trading Halt Auction Following a MWCB Halt
    The Exchange believes that it would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system to widen the Auction Collars for an Exchange-facilitated Trading 
Halt Auction following a MWCB Halt. Such widened Auction Collars would 
provide the Exchange with more flexibility to respond to any market-
wide declines that may continue following a MWCB Halt if the Exchange 
were to facilitate a Trading Halt Auction following such halt. The 
Exchange cannot predict if and when the U.S. equities market will 
experience market-wide declines that would trigger a MWCB Halt again. 
However, if such market-wide volatility were to occur, the Exchange 
believes that the widened Auction Collars would promote fair and 
orderly reopenings following a MWCB Halt by providing a wider price 
range at which the Exchange could facilitate such a reopening, thereby 
allowing more buy and sell interest to participate in such Auction.
DMM Interest and Exchange-Facilitated Auctions
    As noted above, beginning March 19, 2020, the Exchange began 
facilitating auctions as provided for under Rule 7.35C for the first 
time, and then, beginning March 23, 2020, when the Trading Floor was 
temporarily closed to reduce the spread of COVID-19, began facilitating 
Auctions on behalf of all DMM firms. Based on that experience, the 
Exchange added Commentary .03 to Rule 7.35C, which is in effect only 
for a temporary period while the Trading Floor is closed. The Exchange 
believes that it would remove impediments to and perfect the mechanism 
of a free and open market and a national market system to make the 
changes described in Commentary .03 to Rule 7.35C permanent because it 
would allow DMMs to maintain continuity with reasonable depth in their 
assigned securities immediately following an Exchange-facilitated 
Auction.
    As described above, the Exchange is proposing that DMM Interest 
would continue to not participate in an Exchange-facilitated Auction 
that results in a trade. As noted above, under both the current Rule 
and temporary Commentary .03, DMM Interest does not participate in an 
Exchange-facilitated Auction that results in a trade in part to prevent 
wash-trade sales of previously-entered DMM buy and sell interest and 
therefore reduces DMM units' risk. It also protects the fair and 
orderly operation of such Auctions because such DMM Interest may be at 
stale prices, and therefore could impact pricing of the Auction in a 
manner that does not reflect up-to-date trading interest. For this 
reason, the Exchange believes it would continue to promote fair and 
orderly Auctions for DMM Interest not to participate in an Exchange-
facilitated Auction that results in a trade.
    By contrast, the Exchange believes that the proposed change that 
DMM Interest would be included in an Exchange-facilitated Auction that 
results in a quote would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because it would promote fair and orderly resumption of trading by 
allowing DMM Interest to be considered as part of the opening quote. A 
security only opens on a quote when there are no buy and sell orders 
that can be crossed at a single price. Accordingly, when a security 
opens on a quote, the DMM has an immediate obligation to maintain a 
two-sided quote and to provide continuity and depth. Including DMM 
interest in an Exchange-facilitated Auction that results in a quote 
would assist DMMs in meeting those obligations.
    The Exchange believes it would remove impediments to and perfect 
the mechanism of a free and open market and a national market system 
not to automatically cancel DMM Interest following an Exchange-
facilitated Auction because it would provide DMMs with the opportunity 
to provide passive liquidity immediately following an Exchange-
facilitated Auction, thereby reducing volatility while still limiting 
DMM risk. Similarly, the Exchange believes that because DMM Interest 
would not be participating in an Exchange-facilitated Auction that 
results in a trade, it would remove impediments to and perfect the 
mechanism of a free and open market and a national market system to 
cancel DMM Interest that would be marketable against unexecuted orders 
because, if not cancelled, such interest could trade at a price that 
would not be consistent with the Auction Price or opening or reopening 
quote determined in the Exchange-facilitated Auction. The proposed 
changes would also remove impediments to and perfect the mechanism of a 
free and open market because DMM Interest that, following an Exchange-
facilitated Auction, would be priced through the Auction Price or 
Auction Collars, as applicable, would be cancelled in the same manner 
that other unexecuted orders would be cancelled.
    The Exchange further believes that the proposed changes to Rules 
7.35C(a) and (g) would remove impediments to and perfect the mechanism 
of a free and open market and a national market system because the 
Exchange observed improved performance following Exchange-facilitated 
Auctions after the Exchange implemented Commentary .03 to Rule 7.35C. 
Accordingly, should circumstances ever arise again that would require 
the Exchange to facilitate any Auctions, which, based on pre-pandemic 
experience, would likely be rare, the Exchange believes that these 
proposed changes would improve the performance of Exchange-facilitated 
Auctions by enabling better engagement by the DMMs in both the Auction 
and the immediate after-market while still limiting DMM risk.

III. Proceedings To Determine Whether To Disapprove SR-NYSE-2020-89 and 
Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act to determine whether the proposal, as modified 
by Amendment No. 1, should be approved or disapproved.\24\ Institution 
of such proceedings is appropriate at this time in view of the legal 
and policy issues raised by the proposed rule change, as discussed 
below. Institution of disapproval proceedings does not indicate that 
the Commission has reached any conclusions with respect to any of the 
issues involved.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act, the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis and input concerning the proposed rule change's consistency 
with the Act \25\ and, in particular, with Section 6(b)(5) of the Act, 
which requires, among other things, that the rules of a national 
securities exchange be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to remove impediments to and perfect the

[[Page 9984]]

mechanism of a free and open market and a national market system and, 
in general, to protect investors and the public interest.\26\
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    \25\ 15 U.S.C. 78f(b)(5).
    \26\ Id.
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    For the reasons discussed above, the Commission believes it is 
appropriate to institute proceedings pursuant to Section 19(b)(2)(B) of 
the Act to determine whether the proposal should be approved or 
disapproved.

IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
concerns identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposed rule change 
is inconsistent with Section 6(b)(5) or any other provision of the Act, 
or the rules and regulation thereunder. Although there do not appear to 
be any issues relevant to approval or disapproval which would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request for an 
opportunity to make an oral presentation.\27\
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    \27\ Rule 700(c)(2) of the Commission's Rules of Practice 
provides that ``[t]he Commission, in its sole discretion, may 
determine whether any issues relevant to approval or disapproval 
would be facilitated by the opportunity for an oral presentation of 
views.'' 17 CFR 201.700(c)(2).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by March 10, 2021. Any person who wishes to file a rebuttal 
to any other person's submission must file that rebuttal by March 24, 
2021. The Commission asks that commenters address the sufficiency of 
the Exchange's statements in support of the proposal which are set 
forth in the Notice,\28\ in addition to any other comments they may 
wish to submit about the proposed rule change. In particular, the 
Commission seeks comment, including where relevant, any specific data, 
statistics, or studies, on the following:
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    \28\ See Notice, supra note 3.
---------------------------------------------------------------------------

    1. The NYSE proposal for its exchange-facilitated auctions would 
differ from other primary listing markets' MWCB re-opening processes in 
that it would establish price collars of the greater of $0.15 or 10% 
away from the Auction Reference Price, with interest that cannot be 
satisfied within the collars being canceled, whereas Nasdaq, NYSE Arca, 
and Cboe BZX establish 5% price bands for re-opening and then widen 
those price bands in increments of 5% until market interest can be 
satisfied. Should the primary listing exchanges harmonize their 
respective processes for reopening trading by electronic auction after 
a halt pursuant to the market-wide circuit breaker mechanism following 
a Level 1 or Level 2 market decline, and if so, why? If so, which 
aspects of the re-opening processes following MWCB Halts should be 
harmonized (e.g., auction reference price, determination of auction 
match price, width of auction collars, or expansions of auction 
collars) and what are the appropriate parameters? Should NYSE further 
harmonize its proposed MWCB reopening process for exchange-facilitated 
auctions to align with Nasdaq, NYSE Arca, and Cboe BZX on the 
establishment of auction reference prices, auction collars levels, and/
or the limit (or lack thereof) on auction collar adjustments?
    2. Is it appropriate for the Exchange to derive and expand the 
lower/upper MWCB Auction Collar by subtracting from or adding to the 
Auction Reference Price the greater of $0.15 or 10% of the Auction 
Reference Price, which are currently wider than the parameters that 
Nasdaq, NYSE Arca, and Cboe BZX use to derive and expand their 
respective MWCB auction collars? Are there any specific data, 
statistics, or studies to support the Exchange's belief that the wider 
parameters proposed for MWCB Auction Collars are set at appropriate 
levels that would allow the Exchange to re-open trading in securities 
more quickly while still reducing the potential to re-open at a price 
that is significantly away from the last traded price of the security? 
Are there any considerations regarding why the NYSE exchange-
facilitated MWCB re-openings should be handled differently from other 
primary listing markets that list equities?
    3. Are the other aspects of the proposal appropriate for auctions 
following a Trading Halt? Is it appropriate for the Exchange to have 
the authority to facilitate a Trading Halt Auction if a security has 
not re-opened by 3:30 p.m., following a MWCB Halt? Or should the 
Exchange afford the DMM additional time to open the security?
    4. Should DMM Interest be eligible to participate in an Exchange-
facilitated Auction, if that Auction results in a quote? Should DMM 
Interest be canceled when a security opens or reopens on a trade? When 
a security opens or reopens, should DMM Interest be canceled when the 
limit price of that DMM Interest prices through the Auction Price or 
the Auction Collars? Should DMM Interest be canceled when it is 
marketable against contra-side unexecuted orders?
    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-2020-89 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-2020-89. 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-2020-89 and should be submitted on 
or before March 10, 2021. Rebuttal comments should be submitted by 
March 24, 2021.


[[Page 9985]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-03088 Filed 2-16-21; 8:45 am]
BILLING CODE 8011-01-P