[Federal Register Volume 87, Number 144 (Thursday, July 28, 2022)]
[Notices]
[Pages 45382-45387]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-16149]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95354; File No. SR-NYSE-2022-32]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change to Amend Rule 7.35B Relating 
to the Closing Auction and Make Certain Conforming and Non-Substantive 
Changes to Rule 7.31, Rule 7.35, Rule 7.35B and Rule 104

July 22, 2022.
    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 July 13, 2022, 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.
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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 (1) amend Rule 7.35B (DMM-Facilitated 
Closing Auctions) relating to the Closing Auction, and (2) make certain 
conforming and non-substantive changes to Rule 7.31 (Orders and 
Modifiers), Rule 7.35, Rule 7.35B and Rule 104 (Dealings and 
Responsibilities of DMMs). 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 (1) amend Rule 7.35B (DMM-Facilitated 
Closing Auctions) relating to the Closing Auction,\4\ and (2) make 
certain conforming and non-substantive changes to Rule 7.31 (Orders and 
Modifiers), Rule 7.35, Rule 7.35B and Rule 104 (Dealings and 
Responsibilities of DMMs).
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    \4\ Capitalized terms used in connection with Auctions on the 
Exchange are defined in Rule 7.35(a).
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    Overview of Current Closing Auction Process
    The following current rules describe the Closing Auction process on 
the Exchange:
     Rule 7.31 (identifying the order types eligible to 
participate in an Auction);
     Rule 7.35 (general rules and definitions applicable to 
Auctions);
     Rule 7.35B (describing the process for DMM-facilitated 
Closing Auctions);
     Rule 7.35C (describing the process for Exchange-
facilitated Auctions); and
     Rule 104 (establishing DMM obligations with respect to 
Closing Auctions and trading leading into the Closing Auction).
    The following interest is eligible to participate in a Closing 
Auction:
     unexecuted buy and sell orders resting on the Exchange 
Book at the end of Core Trading Hours (including DMM Orders); \5\
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    \5\ Rule 7.35(a)(9) defines ``DMM Interest'' for purposes of 
Auctions to mean all buy and sell interest entered by a DMM unit in 
its assigned securities and includes the following: (i) ``DMM 
Auction Liquidity,'' which is non-displayed buy and sell interest 
that is designated for an Auction only (see Rule 7.35(a)(9)(A)); 
(ii) ``DMM Orders,'' which are orders, as defined under Rule 7.31, 
entered by a DMM unit (see Rule 7.35(a)(9)(B)); and (iii) ``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)(9)(C)).
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     Auction-Only Orders; \6\ and
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    \6\ Auction-Only Orders available for the Closing Auction are 
defined in Rule 7.31(c)(2)(A)-(D) as the Limit-on-Close Order (``LOC 
Order''), Market-on-Close Order (``MOC Order''), Closing D Order, 
and Closing Imbalance Offset Order (``Closing IO Order'').

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[[Page 45383]]

     DMM Auction Liquidity entered by the DMM in connection 
with facilitating the Closing Auction.\7\
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    \7\ In 2021, the Commission approved changes to Rule 7.35B 
providing that Floor Broker Interest is no longer eligible to 
participate in the Closing Auction. See Securities Exchange Act 
Release No. 92480 (July 23, 2021), 86 FR 40886 (July 29, 2021) (SR-
NYSE-2020-95) (``Floor Broker Interest Approval Order''). The term 
``Floor Broker Interest'' is defined in Rule 7.35(a)(10) to mean 
orders represented orally by a Floor broker at the point of sale. In 
light of the Floor Broker Interest Approval Order, the Exchange 
proposes conforming changes to Rules 7.35B(c)(1)(B), Rule 
7.35B(j)(2) and Rule 7.35B(j)(2)(A)(iii). Specifically, Rule 
7.35B(c)(1)(B) provides that a DMM may not effect a Closing Auction 
electronically if, among other things, Floor Broker Interest for the 
Closing Auction that has been electronically entered or requested to 
be cancelled has not yet been accepted by the DMM. Rule 7.35B(j)(2) 
provides that, to avoid closing price dislocation that may result 
from an order entered into Exchange systems or represented to a DMM 
orally at or near the end of Core Trading Hours, the Exchange may 
temporarily suspend the requirement to enter all order instructions 
by the end of Core Trading Hours. Because the Exchange has 
eliminated Floor Broker Interest at the close, the Exchange proposes 
to delete Rule 7.35B(c)(1)(B) in its entirety. The remaining 
subsections of Rule 7.35B(c)(1) would be renumbered accordingly and 
the Exchange proposes conforming changes to Rule 7.35B(j)(1)(A) and 
(B) to update the cross references from Rule 7.35B(c)(1)(G) to Rule 
7.35B(c)(1)(F). For the same reasons, the Exchange proposes to 
delete the phrase ``or represented to a DMM orally'' in Rule 
7.35B(j)(2) and the phrase ``and Floor Broker Interest'' in Rule 
7.35B(j)(2)(A)(iii).
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    Beginning 10 minutes before the scheduled end of Core Trading 
Hours, the Exchange begins disseminating through its proprietary data 
feed Closing Auction Imbalance Information that is calculated based on 
the interest eligible to participate in the Closing Auction.\8\ The 
Closing Auction Imbalance Information includes the Continuous Book 
Clearing Price, which is the price at which all better-priced orders 
eligible to trade in the Closing Auction on the Side of the Imbalance 
can be traded.\9\ The Closing Auction Imbalance Information also 
includes an Imbalance Reference Price, which is the Exchange Last Sale 
Price bound by the Exchange BBO.\10\ Beginning five minutes before the 
end of Core Trading Hours, Closing D Orders are included in the Closing 
Auction Imbalance Information at their undisplayed discretionary 
price.\11\ The Closing Auction Imbalance Information is updated at 
least every second, unless there is no change to the information, and 
is disseminated until the Closing Auction begins.\12\ In addition, if 
at the Closing Auction Imbalance Freeze Time \13\ the Closing Imbalance 
\14\ is 500 round lots or more, the Exchange will disseminate a 
Regulatory Closing Imbalance to both the securities information 
processor and proprietary data feeds.\15\
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    \8\ See Rule 7.35B(e)(1)(A). DMM Orders, as defined in Rule 
7.35(d)(9)(B), that have been entered by the DMM in advance of a 
Closing Auction are currently included in the Closing Auction 
Imbalance Information.
    \9\ See Rule 7.35(a)(4)(C). In the case of a buy Imbalance, the 
Continuous Book Clearing Price would be the highest potential 
Closing Auction Price and in the case of a sell Imbalance, the 
Continuous Book Clearing Price would be the lowest potential Closing 
Auction Price.
    \10\ See Rule 7.35B(e)(3).
    \11\ See Rule 7.35(b)(1)(C)(ii).
    \12\ See Rule 7.35(c)(1) and (2).
    \13\ See Rule 7.35(a)(8) (defining the ``Closing Auction 
Imbalance Freeze Time'' to be 10 minutes before the scheduled end of 
Core Trading Hours).
    \14\ As defined in Rule 7.35(a)(4)(A)(ii), a ``Closing 
Imbalance'' means the Imbalance of MOC and LOC Orders to buy and MOC 
and LOC Orders to sell. That Rule further defines a ``Regulatory 
Closing Imbalance'' as a Closing Imbalance disseminated at or after 
the Closing Auction Imbalance Freeze Time.
    \15\ See Rule 7.35B(d)(1).
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    Pursuant to Rule 104(a)(3), Designated Market Makers (``DMM'') have 
the responsibility to facilitate the close of trading for each of the 
securities in which the DMM is registered as required by Exchange 
rules, which may include supplying liquidity as needed. Rule 104(a)(3) 
further provides that DMMs and DMM unit algorithms have access to 
aggregate order information in order to comply with their requirement 
to facilitate the close of trading for each of the securities in which 
the DMM is registered. Accordingly, aggregate order information about 
all orders eligible to participate in the Closing Auction, including 
the full quantity of Reserve Orders \16\ and MOC and LOC Order 
quantities, are available to DMMs at each price point. This information 
is available at the point of sale to DMMs. In addition, it is made 
available to DMM unit algorithms in connection with the electronic 
message sent to a DMM unit algorithm to close an assigned security 
electronically, which is sent shortly after the end of Core Trading 
Hours.
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    \16\ Reserve Orders, including the non-displayed reserve 
interest of such orders, are eligible to participate in the Closing 
Auction. See, e.g., Rule 7.35B(h)(2)(B) (describing the allocation 
ranking of at-priced orders ranked Priority 3--Non-Displayed Orders, 
which refers to the reserve interest of Reserve Orders).
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    Rule 7.35B specifies the process for DMM-facilitated Closing 
Auctions. Pursuant to Rule 7.35B(a), it is the responsibility of each 
DMM to ensure that registered securities close as soon after the end of 
Core Trading Hours as possible, while at the same time not unduly 
hasty, particularly when at a price disparity from the Exchange Last 
Sale Price.\17\ As provided for in Rule 7.35B(a)(2), a DMM may enter or 
cancel DMM Interest after the end of Core Trading Hours in order to 
supply liquidity as needed to meet the DMM's obligation to facilitate 
the Closing Auction in a fair and orderly manner, and entry of DMM 
Interest after the end of Core Trading Hours is not subject to Limit 
Order Price Protection. Pursuant to Rule 7.35B(c), the DMM may 
effectuate a Closing Auction manually or electronically. Rule 7.35B(g) 
provides that the DMM is responsible for determining the Auction Price 
for a Closing Auction and that if there is an Imbalance of any size, 
the DMM must select an Auction Price at which all better-priced orders 
on the Side of the Imbalance can be satisfied.
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    \17\ The term ``Exchange Last Sale Price'' is defined in Rule 
7.35(a)(12)(B) to mean the most recent trade on the Exchange of a 
round lot or more in a security during Core Trading Hours on that 
trading day, and if none, the Official Closing Price from the prior 
trading day for that security.
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    Rule 7.35C specifies the process for Exchange-facilitated Auctions 
if a DMM cannot facilitate an Auction in one or more securities in 
which the DMM is registered. DMM Interest does not participate in an 
Exchange-facilitated Closing Auction trade.\18\
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    \18\ See Rule 7.35C(a)(1) (``If the Exchange facilitates an 
Auction, DMM Interest 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.'').
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Proposed Amendments to Rule 7.35B
    The Exchange proposes to amend Rule 7.35B to modify how the Closing 
Auction Price would be determined by adding price parameters within 
which the DMM must select a Closing Auction Price. As described in more 
detail below, the proposed pricing parameters would be based on non-DMM 
interest eligible to participate in the Closing Auction that was 
included in the last-published Auction Imbalance Information. The 
Exchange also proposes to modify how the DMM would participate in the 
Closing Auction by cancelling any resting DMM Orders at the end of Core 
Trading Hours. The Exchange does not propose to change the DMMs' Rule 
104 obligation to facilitate the Closing Auction, including the 
obligation to supply liquidity as needed. The Exchange believes that 
the proposed changes would make the Closing Auction more transparent 
and deterministic while retaining the DMMs' unique obligation to 
facilitate the Closing Auction.
Proposed Changes to Closing Auction Price
    The Exchange proposes to amend Rule 7.35B(g) to add explicit price 
parameters to the Closing Auction Price. As noted above, the DMM is 
responsible for determining a Closing Auction Price that is able to 
satisfy all better-priced orders on the Side of the Imbalance. This 
requirement would not change.

[[Page 45384]]

The Exchange proposes to add that the Closing Auction Price determined 
by the DMM must also be at a price that is at or between the last-
published Imbalance Reference Price and the last-published Continuous 
Book Clearing Price. Specifically, the Exchange proposes to amend Rule 
7.35B(g) as follows (proposed changes italicized):
    (g) Determining an Auction Price. The DMM is responsible for 
determining the Auction Price for a Closing Auction under this Rule.
    (1) If there is an Imbalance of any size, the DMM must select an 
Auction Price at which all better-priced orders on the Side of the 
Imbalance can be satisfied.
    (2) The Auction Price must be at or between the last-published 
Imbalance Reference Price and the last-published non-zero Continuous 
Book Clearing Price.\19\
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    \19\ Rule 7.35(a)(4)(C) provides that if there is no Imbalance 
of all orders eligible to trade in the Auction, the Continuous Book 
Clearing Price will be the Imbalance Reference Price. The Exchange 
proposes to amend this provision to clarify that if the Imbalance 
Reference Price is in an increment smaller than the minimum price 
variation (``MPV'') for the security (e.g., Exchange Last Sale Price 
was a midpoint execution in a penny-spread security), it will be 
rounded to the MPV for the specific security. The Exchange would 
also make a conforming change to Rule 7.35B(c)(1)(G) (to be 
renumbered F, see note 6, supra), which provides that a DMM may not 
effect a Closing Auction electronically if the Closing Auction Price 
will be more than 10% away from Exchange Last Sale Price. The 
Exchange would replace Exchange Last Sale Price with last-published 
Imbalance Reference Price.
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    The Exchange believes that adding this proposed Closing Auction 
Price parameter is consistent with how the Closing Auction Price has 
been determined for the vast majority of Closing Auctions. For example, 
in the period January 1, 2021 to June 17, 2022, 95.6% of all Closing 
Auctions were priced at or between the last-published Imbalance 
Reference Price and Continuous Book Clearing Price. Similarly, during 
this same period, 94.6% of closing auction volume priced within these 
parameters. Moreover, 73.6% of the 4.4% of Closing Auctions that did 
not price within those parameters closed at prices only one or two 
cents away from those boundaries.\20\ More recent Closing Auction data 
also shows that auctions executing within the proposed range resulted 
in more representative prices for market participants.\21\ The Exchange 
further believes that this proposed change would eliminate any 
potential for a Closing Auction Price to be lower (higher) than the 
last-published Imbalance Reference Price in the case of a Buy (Sell) 
Imbalance. This proposed change would also promote transparency and 
determinism with respect to the Closing Auction because the Closing 
Auction Price would be required to be within a pre-determined range of 
prices that have been disseminated via the Closing Auction Imbalance 
Information and that cannot be changed after the end of Core Trading 
Hours.\22\
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    \20\ More specifically, 59.6% were one cent away and 14.0% were 
two cents away.
    \21\ During the last quarter of 2021 and year to date, 95.0% of 
Closing Auctions occurred within the proposed pricing parameters. 
These numbers did not materially change for volatile trading days. 
For example, in the December 2021 quarterly rebalance, 96.5% of 
Closing Auctions occurred within this range; in the March 2022 
quarterly rebalance, 95.6% of Closing Auctions occurred within the 
range. Closing Auctions pricing outside the range were mostly within 
2 cents of the range; only 1% of all auctions occurred more than 2 
cents outside the range. For instance, in the December 2021 
quarterly rebalance, just 0.6% of all Closing Auctions occurred more 
than 2 cents outside the range; in the more volatile March 2022 
rebalance, just 1.2% of Closing Auctions occurred more than 2 cents 
outside the range. More significantly, Closing Auctions executing 
within the proposed range during the same period (excluding 
rebalance days) were 11.3% closer to the consolidated two-minute 
VWAP price benchmark than Closing Auctions that priced outside of 
the proposed range, i.e., Closing Auctions executing within the 
proposed range were more in-line with the range of continuous 
trading leading into the close. And this was true for rebalance days 
as well: during the December 2021 rebalance, Closing Auctions 
executing within the proposed range were 14% closer to the VWAP 
benchmark; during the March 2022 rebalance, Closing Auctions 
executing within the proposed range were 40% closer to the VWAP 
benchmark.
    \22\ The only circumstance when the Continuous Book Clearing 
Price could change after the end of Core Trading Hours would be if 
Rule 7.35B(j)(2)(A), described below, were invoked and the 
requirement to enter all order instructions by the end of Core 
Trading Hours were temporarily suspended for a security.
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Proposed Changes to How DMMs Would Participate in the Closing Auction
    The Exchange proposes to change how DMMs would be able to enter buy 
and sell interest to participate in the Closing Auction by modifying 
how a DMM could enter or cancel interest after the end of Core Trading 
Hours.
    Currently, Rule 7.35B(a)(2) provides that a DMM may enter or cancel 
DMM Interest after the end of Core Trading Hours in order to supply 
liquidity as needed to meet the DMM's obligation to facilitate the 
Closing Auction in a fair and orderly manner. Consistent with this 
current Rule, the Exchange does not systematically block a DMM from 
entering or cancelling DMM Interest after the end of Core Trading 
Hours. Instead, the DMM's determination of whether to enter or cancel 
DMM Interest after the end of Core Trading Hours is subject to the 
DMM's obligation to maintain a fair and orderly market, as specified in 
Rule 104.
    The Exchange proposes to amend Rule 7.35B(a)(2) to provide that 
after the end of Core Trading Hours, a DMM may enter only DMM Auction 
Liquidity in order to supply liquidity as needed to meet the DMM's 
obligation to facilitate the Closing Auction in a fair and orderly 
manner. With this proposed change, a DMM could enter DMM Auction 
Liquidity after the end of Core Trading Hours only to close a security 
within the proposed new price parameters, described above.\23\ Because 
only DMM Auction Liquidity could be entered after the end of Core 
Trading Hours, such interest could be entered either electronically in 
response to the electronic message sent to a DMM unit algorithm to 
close an assigned security or manually.
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    \23\ For example, if there is an Imbalance to buy, the Imbalance 
Reference Price is $10.00, and the Continuous Book Clearing Price is 
$10.10, the DMM could enter DMM Auction Liquidity to sell only at 
prices ranging from $10.00 to $10.10. The Exchange does not propose 
to systematically prescribe whether such interest must be offsetting 
to the last-published Imbalance because DMM same-side interest could 
result in more orders participating in the Closing Auction. For 
example, DMM Auction Liquidity entered on the same side of the 
Imbalance could result in greater liquidity being supplied by the 
DMM to trade with at-priced orders, which are not included in the 
calculation of the Imbalance. In such a scenario, even though the 
DMM may be participating on the same-side of the imbalance, such 
interest would not move the Closing Price outside the Continuous 
Book Clearing Price.
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    The Exchange proposes that DMM Orders (i.e., DMM buy and sell 
orders resting on the Exchange Book) would not be eligible to 
participate in the Closing Auction.\24\ Because DMM Orders would not 
participate in the Closing Auction, the Exchange further proposes that 
such interest would not be included in the calculation of the 
Continuous Book Clearing Price. With this change, the Continuous Book 
Clearing Price would be based on non-DMM interest eligible to 
participate in the Closing Auction. Finally, because resting DMM Orders 
would not participate in the Closing Auction, the Exchange also 
proposes to cancel DMM Orders at the end of Core Trading Hours.\25\ The 
Exchange proposes a related amendment to delete the phrase ``or 
cancel'' in the first sentence of Rule 7.35B(a)(2) as moot.
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    \24\ The Exchange also proposes to amend Rule 
7.35B(j)(2)(A)(iii) to provide that DMM Orders would be rejected if 
entered after the end of Core Trading Hours (i.e., during the 
``Solicitation Period'') to offset an extreme order imbalance at or 
near the close.
    \25\ The Exchange understands that it is current practice for 
DMMs to cancel their DMM Orders at the end of Core Trading Hours.
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    To effect these changes, the Exchange proposes to amend Rule 
7.35B(a)(2) as

[[Page 45385]]

follows (proposed additions italicized, proposed deletions bracketed):
    (2) DMM Interest: A DMM may enter [or cancel] DMM Auction 
Liquidity[Interest] after the end of Core Trading Hours in order to 
supply liquidity as needed to meet the DMM's obligation to facilitate 
the Closing Auction in a fair and orderly manner. The entry of DMM 
Auction Liquidity[Interest] after the end of Core Trading Hours will 
not be subject to Limit Order Price Protection. DMM Orders will not be 
eligible to participate in the Closing Auction, will not be included in 
the calculation of the Continuous Book Clearing Price for the Closing 
Auction, and will be cancelled at the end of Core Trading Hours.
    With this proposed change to Rule 7.35B(a)(2), in connection with 
the Closing Auction, DMMs would still be required consistent with their 
obligations under Rule 104 to contribute their own capital to supply 
liquidity as needed to assist in the maintenance of a fair and orderly 
market. In addition, DMMs would continue to have an obligation with 
respect to determining a Closing Auction Price that satisfies all 
better-priced orders on the Side of the Imbalance.
Proposed Conforming and Non-Substantive Amendments
    The Exchange proposes to amend Rule 104 to eliminate obsolete rule 
text and update rule references, and make other conforming changes to 
Rule 7.31 and Rule 104. The following proposed changes would not result 
in any substantive changes to DMM obligations:
     The Exchange proposes to amend Rule 104(a)(2) to update 
the cross reference from Rule 123D to Rule 7.35A and to use the Pillar 
terms of ``Core Open Auctions and Trading Halt Auctions'' instead of 
referring to ``openings.'' The Exchange also proposes to delete the 
reference to Rule 13 and Reserve Order interest procedures at the 
opening as obsolete. Finally, the Exchange proposes to delete the 
reference to Supplementary Material .05 to Rule 104 with respect to 
odd-lot order information to the DMM unit algorithm, as this is also 
obsolete now that the Exchange trades on Pillar.
     The Exchange proposes to amend Rule 104(a)(3) to update 
the cross reference from Rule 123C to Rule 7.35B and to use the Pillar 
term of ``Closing Auctions'' instead of ``closes.'' The Exchange also 
proposes to delete the reference to Rule 13 and Reserve Order interest 
procedures at the close as obsolete.
     The Exchange proposes to amend Rule 104(b) by deleting 
subparagraphs (2) and (6) and replacing the text for Rule 104(b)(2) 
with the following: ``Unless otherwise specified in Rule 7.31, DMM unit 
algorithms may use the orders and modifiers set forth in Rule 7.31.''
    Rule 104(b)(2) currently provides that ``Exchange systems shall 
enforce the proper sequencing of incoming orders and algorithmically-
generated messages and will prevent incoming DMM interest from trading 
with resting DMM interest. If the incoming DMM interest would trade 
with resting DMM interest only, the incoming DMM interest will be 
cancelled. If the incoming DMM interest would trade with interest other 
than DMM interest, the resting DMM interest will be cancelled.'' Since 
the Exchange transitioned to Pillar, the Exchange no longer enforces 
self-trade prevention on behalf of DMMs. Instead, DMMs may use one of 
the Self-Trade Prevention Modifiers (``STP'') described in Rule 
7.31(i)(2).
    Rule 104(b)(6) currently provides that ``DMM Units may not enter 
the following orders and modifiers: Market Orders, Inside Limit Orders, 
MOO Orders, CO Orders, MOC Orders, LOC Orders, or Last Sale Peg 
Orders.'' In the Pillar rules, Rule 7.31 sets forth which orders and 
modifiers are not available to DMMs, and therefore Rule 104(b)(6) is 
obsolete. All of the orders and modifiers set forth in Rule 104(b)(6) 
that are unavailable to DMMs are reflected in Rule 7.31 except for 
Inside Limit Orders, which limitation was only added to Rule 
104(b)(6).\26\ The Exchange accordingly proposes to amend Rule 
7.31(a)(3) to reflect that Inside Limit Orders are not available to 
DMMs. The Exchange believes that the proposed new text for Rule 
104(b)(2) would provide transparency that Rule 7.31 would describe 
which orders and modifiers would be available to DMMs, including STP 
modifiers.
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    \26\ See Securities Exchange Act Release No. 94030 (January 24, 
2022), 87 FR 4695, 4696 (January 28, 2022) (SR-NYSE-2022-05) (Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify Rule 7.31 To Provide for Inside Limit Orders and Make Other 
Conforming Changes).
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     The Exchange proposes to amend Rule 104(b)(3) to delete 
references to ``Floor broker agency interest files or reserve 
interest'' as such references are now obsolete. The Exchange no longer 
uses ``Floor broker agency interest files'' and no longer provides 
Floor brokers with reserve interest functionality that differs from the 
Reserve Orders available to all member organizations, as described in 
Rule 7.31.
     The Exchange proposes to amend Rule 104(b) by deleting 
subparagraph (4), which provides that ``[t]he DMM unit's algorithm may 
place within Exchange systems trading interest to be known as a 
``Capital Commitment Schedule''. (See Rule 1000 concerning the 
operation of the Capital Commitment Schedule).'' With the transition to 
Pillar, the Exchange has replaced the ``Capital Commitment Schedule'' 
with Capital Commitment Orders, as described in Rule 7.31(d)(5), and 
has deleted Rule 1000. Accordingly, this current rule is obsolete. The 
Exchange proposes a non-substantive amendment to renumber Rule 
104(b)(5) as Rule 104(b)(4).
     The Exchange proposes to delete the text accompanying 
current Rules 104(c), (d), and (e) as obsolete now that the Exchange 
trades on Pillar. Rule 104(c) currently provides: ``A DMM unit may 
maintain reserve interest consistent with Exchange rules governing 
Reserve Orders. Such reserve interest is eligible for execution in 
manual transactions.'' Rule 7.31 now describes how Reserve Orders 
function.
    Rule 104(d) currently provides: ``A DMM unit may provide 
algorithmically-generated price improvement to all or part of an 
incoming order that can be executed at or within the Exchange BBO 
through the use of Capital Commitment Schedule interest (see Rule 
1000). Any orders eligible for execution in Exchange systems at the 
price of the DMM unit's interest will trade on parity with such 
interest, as will any displayed interest representing a d-Quote 
enabling such interest to trade at the same price as the DMM unit's 
interest.'' As noted above, with Pillar, the Exchange has deleted Rule 
1000 and no longer offers the Capital Commitment Schedule to DMMs.
    Rule 104(e) currently provides: ``DMM units shall provide contra 
side liquidity as needed for the execution of odd-lot quantities that 
are eligible to be executed as part of the opening, re-opening and 
closing transactions but remain unpaired after the DMM has paired all 
other eligible round lot sized interest.'' This requirement is 
obsolete.
    With these proposed deletions, the Exchange proposes non-
substantive amendments to renumber Rules 104(f), (g), (h), (i), and (j) 
as Rules 104(c), (d), (e), (f), and (g) and update cross-references in 
proposed Rule 104(e)(iii) from subparagraph (h)(ii) and (iii) to 
(e)(ii) and (iii).
     The Exchange proposes to amend current Rule 104(h)(ii) 
(proposed Rule 104(e)(ii)) to delete reference to information that is 
no longer available to a DMM at the post. Specifically, the

[[Page 45386]]

Exchange no longer provides DMMs at the post with the following 
information: ``the price and size of any individual order or Floor 
broker agency interest file and the entering and clearing firm 
information for such order, except that the display shall exclude any 
order or portion thereof that a market participant has elected not to 
display to a DMM.'' Accordingly, the Exchange proposes to amend Rule 
104(e)(ii) to delete that rule text.
* * * * *
    The Exchange proposes that the non-substantive amendments to Rule 
104 would be operative immediately upon approval of this proposed rule 
change. Because of the technology changes associated with the proposed 
changes to Rule 7.35B, the Exchange proposes that, subject to approval 
of the proposed rule change, the Exchange will announce the 
implementation date of the remaining proposed rule changes by Trader 
Update. Subject to approval of this proposed rule change, the Exchange 
anticipates that such changes will be implemented in the fourth quarter 
of 2022.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act,\27\ in general, and furthers the objectives of 
Sections 6(b)(5) of the Act,\28\ 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 regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to, and perfect the mechanisms of, 
a free and open market and a national market system and, in general, to 
protect investors and the public interest and because it is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \27\ 15 U.S.C. 78f(b).
    \28\ 15 U.S.C. 78f(b)(5).
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    Proposed Changes to Closing Auction Price. The Exchange believes 
that the proposed amendment to Rule 7.35B(g) regarding how the Closing 
Auction Price would be determined would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because it would promote a more transparent and deterministic 
Closing Auction process and support the maintenance of a fair and 
orderly market. Specifically, the proposed change would require that 
the DMM determine a Closing Auction Price that is at or between the 
last-published Imbalance Reference Price and Continuous Book Clearing 
Price.\29\ Accordingly, the Closing Auction Price must be within a pre-
determined range of prices that would have been disseminated via the 
Closing Auction Imbalance Information and that cannot be changed by the 
DMM after the end of Core Trading Hours. The Exchange further believes 
that this proposed parameter is consistent with how Closing Auction 
Prices have been determined for the vast majority of Closing Auctions. 
For example, as noted above, in the period January 1, 2021 to December 
31, 2021, 95.8% of all Closing Auctions were priced at or between the 
last-published Imbalance Reference Price and Continuous Book Clearing 
Price. Similarly, during this same period, 94.6% of closing auction 
volume priced within these parameters. Moreover, 74% of the 4.2% of 
Closing Auctions that did not price within those parameters closed at 
prices only one or two cents away from those boundaries.\30\ More 
recent Closing Auction data also shows that Closing Auctions executing 
within the proposed range resulted in more representative prices for 
market participants.\31\
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    \29\ The DMM's determination of the precise Closing Auction 
Price within the proposed range would remain subject to the DMM's 
obligation to maintain a fair and orderly market as specified in 
Rule 104.
    \30\ More specifically, as noted, 55.9% were one cent away and 
14.2% were two cents away.
    \31\ See note 21, supra.
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    Proposed Changes to How DMMs Would Participate in the Closing 
Auction. The Exchange believes that the proposed amendments to Rule 
7.35B(a)(2) relating to how DMMs would participate in the Closing 
Auction would remove impediments to and perfect the mechanism of a free 
and open market and a national market system because with these 
changes, the price range at which a security could close would be based 
on non-DMM interest eligible to participate in the Closing Auction. The 
proposed change would continue to provide DMMs with tools to comply 
with their Rule 104(a)(3) obligation to supply liquidity as needed to 
facilitate a fair and orderly Closing Auction. Specifically, in order 
to supply liquidity as needed to facilitate the Closing Auction, DMMs 
could enter DMM Auction Liquidity after the end of Core Trading Hours 
either in response to the electronic message sent by the Exchange to 
close a security or manually. In addition, by cancelling resting DMM 
Orders, only non-DMM interest eligible to participate in the Closing 
Auction would be considered in the calculation of the Continuous Book 
Clearing Price. The Exchange believes that these changes, together with 
the proposed pricing parameters for determining the Closing Auction 
Price, would eliminate the potential for a Closing Auction to be priced 
outside of the last-published imbalance information, and therefore 
promote transparency and determinism in the Closing Auction process and 
support the maintenance of a fair and orderly market.
    Proposed Non-Substantive Amendments. The Exchange believes that the 
proposed non-substantive amendments to Rules 7.31, 7.35, 7.35B and 104 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system because the proposed changes 
are designed to eliminate obsolete rule text, update rule references to 
reflect Pillar functionality, and make other conforming changes. 
Specifically, the Exchange proposes to eliminate references to pre-
Pillar Rules and trading functionality, including references to Rules 
123D, 123C, Rule 1000, the Capital Commitment Schedule, Floor broker 
agency interest files, odd-lot orders in the close, and self-trade 
prevention. The Exchange also proposes to update Rule 104(b) to cross 
reference Rule 7.31 to determine which orders and modifiers are 
available to DMMs, rather than separately (and duplicatively) including 
this description in Rule 104. The Exchange also proposes to update 
current Rule 104(h)(ii) (proposed Rule 104(e)(ii)) to delete reference 
to information that is no longer available to DMMs at the post. The 
Exchange believes that these proposed amendments will promote 
transparency and clarity in Exchange rules regarding how DMMs function 
on the Exchange, including what information is available to them at the 
post. The Exchange also proposes to modify Rule 7.35(a)(4)(C), which 
provides that the Continuous Book Clearing Price will be the Imbalance 
Reference Price if there is no Imbalance of all orders eligible to 
trade in the Auction, to clarify that the Imbalance Reference Price 
would be rounded to the MPV for the specific security if it is in an 
increment smaller than the MPV for such security. The Exchange believes 
this proposed change would add clarity to Exchange rules regarding the 
determination of the Continuous Book Clearing Price, in connection with 
the proposed changes to Rule 7.35B(g) regarding how the Closing Auction 
Price would be determined.
    Finally, the Exchange believes that the proposed non-substantive

[[Page 45387]]

amendments to Rules 7.35B(c)(1)(D), 7.35B(j)(2) and 7.35B(j)(2)(A)(iii) 
to eliminate references to Floor broker interest and oral interest 
entered by Floor brokers at the close would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because these proposed changes are designed to conform Exchange 
rules to the changes described in the Floor Broker Interest Approval 
Order.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\32\ the Exchange 
believes that the proposed rule change would not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The proposed change is designed to revise the 
Closing Auction process on the Exchange to make it more transparent and 
deterministic, while still retaining the DMM market model. The Exchange 
believes that the proposed rule change would promote intermarket 
competition, particularly for issuers in connection with their 
determination of which exchange to select as a primary listing 
exchange. The Exchange does not believe that the proposed rule change 
would impose any burden on intra-market competition that is not 
necessary or appropriate in furtherance of the purposes of the Act 
because they are designed to address the DMM's unique role at the 
Exchange, including the DMM's Rule 104(a)(3) obligation to facilitate 
the Closing Auction by supplying liquidity as needed for a fair and 
orderly Closing Auction. The proposed changes are designed to make the 
process more transparent and deterministic.
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    \32\ 15 U.S.C. 78f(b)(8).
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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 within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     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-2022-32 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-2022-32. 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-2022-32 and should 
be submitted on or before August 18, 2022.
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    \33\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-16149 Filed 7-27-22; 8:45 am]
BILLING CODE 8011-01-P