[Federal Register Volume 89, Number 64 (Tuesday, April 2, 2024)]
[Notices]
[Pages 22760-22763]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06887]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99862; File No. SR-NYSEARCA-2024-29]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Rule 7.18-
E

March 27, 2024.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on March 22, 2024, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II 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 amend Rule 7.18-E (Halts) to set forth 
specific requirements for halting and resuming trading in a security 
that is subject to a reverse stock split. 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
    In conjunction with the increase in overall reverse stock splits in 
recent years, the Exchange proposes to amend

[[Page 22761]]

Rule 7.18-E (Halts) to set forth specific requirements for halting and 
resuming trading in a security that is subject to a reverse stock 
split.
Background
    The Commission recently approved a proposal filed by The Nasdaq 
Stock Exchange (``Nasdaq'') providing for a regulatory halt at the end 
of trading on the day immediately before the market effective date of a 
reverse stock split and a delayed opening of the security on the market 
effective date of the reverse stock split.\4\ In its filing, Nasdaq 
noted that it had observed a recent increase in reverse stock split 
activity in the current market environment.
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    \4\ See Securities Exchange Act Release No. 98878 (November 7, 
2023) (SR-NASDAQ-2023-036) (approving halt provisions with respect 
to reverse stock splits).
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    The Exchange has not itself experienced the increase in the number 
of reverse stock splits that Nasdaq described in its filings. 
Nevertheless, the Exchange proposes to adopt similar changes at the 
request of market participants who say that they would benefit from a 
consistent approach across exchanges with respect to regulatory halt 
rules around reverse stock splits. The Exchange believes that 
harmonizing its rules with Nasdaq's in this area would enhance investor 
protection and maintain fair and orderly markets by minimizing the 
chance that market participants might make erroneous trades in a 
security because they were unaware that it had undergone a reverse 
stock split.
    Accordingly, the Exchange proposes to adopt amendments to its 
trading halt rules to require the Exchange to declare a regulatory halt 
in trading before the end of after-hours trading on the day immediately 
before the market effective date of a reverse stock split, and to open 
the security on the market effective date of a reverse stock split with 
a Trading Halt Auction \5\ at 9:00 a.m. This proposed change is modeled 
on the recently-approved Nasdaq rule.
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    \5\ The term ``Trading Halt Auction'' is defined in Rule 7.35-
E(e) as an auction ``to re-open trading in an Auction-Eligible 
Security following a halt or pause of trading in that security in 
either the Early Trading Session, Core Trading Session, or Late 
Trading Session, as applicable.''
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    This change would help reduce the potential for market 
participants' misunderstanding of the impact on the value of the 
issuer' securities resulting from investors' lack of advance knowledge 
of the reverse stock split, as well as errors resulting in a material 
effect on the market resulting from market participants' processing of 
the reverse stock split, including incorrect adjustment or entry of 
orders.
Proposed Amendment to Rule 7.18-E
    The Exchange currently processes reverse stock splits overnight, 
with the security available for trading on other markets and in the 
Exchange's Early Trading Session \6\ at 4:00 a.m.\7\ on a split-
adjusted basis. Market participants have recently expressed concerns 
with allowing trading on an adjusted basis during those early trading 
sessions, noting that it is not optimal because system errors or 
problems with orders may go unnoticed for a period of time when a 
security that has undergone a reverse stock split opens for trading 
with the other thousands of securities. These errors have the potential 
to adversely affect investors, market participants, and the issuer. For 
example, problems in connection with the processing of a reverse stock 
split could result in a broker executing trades selling more shares 
than customers held in their accounts, resulting in a temporary short 
position.
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    \6\ The term ``Early Trading Session'' is defined in Rule 7.34-
E(a)(1) as the period of time beginning at 4:00 a.m. and concluding 
with the commencement of the Core Trading Session.
    \7\ All times referred to in this filing are Eastern Time.
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    As such, the Exchange believes it is appropriate to impose a 
regulatory halt, which would prohibit pre-market trading immediately 
after a reverse stock split, and to re-open trading in such securities 
using a Trading Halt Auction. These changes would allow the Exchange 
and market participants to better detect any errors or problems with 
orders for the security resulting from the reverse stock split before 
trading in the security begins and thereby avoid any material effect on 
the market.
    The Exchange proposes to add new subparagraph (e) to Rule 7.18-E, 
which would provide that the Exchange would halt trading in a security 
for which the Exchange is the Primary Listing Market \8\ before the end 
of the Late Trading Session \9\ on the day immediately before the 
market effective date of the reverse stock split. Such a trading halt 
due to a reverse stock split would be mandatory pursuant to proposed 
Rule 7.18-E(e). In general, the Exchange expects to initiate the halt 
at 7:50 p.m., prior to the end of the Late Trading Session at 8:00 p.m. 
on the day immediately before the split is effective.\10\
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    \8\ The term ``Primary Listing Market'' is defined in Section 
XI(a)(i)(H) of the CTA Plan as ``the national securities exchange on 
which an Eligible Security is listed. If an Eligible Security is 
listed on more than one national securities exchanges, Primary 
Listing Market means the exchange on which the security has been 
listed the longest.''
    \9\ The term ``Late Trading Session'' is defined in Rule 7.34-
E(a)(3) as the period of time following the conclusion of the Core 
Trading Session and concluding at 8:00 p.m.
    \10\ Initiating the halt at approximately 7:50 p.m. would 
provide the Exchange with a limited buffer to ensure that trading in 
a security that is undergoing a reverse stock split would not 
continue after the close of the Late Trading Session. While the 
Exchange does not anticipate halting a security that undergoes a 
reverse stock split sooner than 7:50 p.m., the Exchange may halt 
trading earlier than 7:50 p.m. for other reasons as described 
elsewhere in Rule 7.18-E. The Exchange would provide notice of the 
halt through the SIP and on the Exchange's trading halt web page at 
https://www.nyse.com/trade-halt.
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    Proposed Rule 7.18-E(e) would further provide that trading in the 
security would resume with a Trading Halt Auction at 9:00 a.m. on the 
day the reverse stock split is effective.\11\ The Exchange believes 
that re-opening the security with a Trading Halt Auction at 9:00 a.m.--
which is after the start of early trading on away markets and the 
Exchange but before the opening of the Exchange's Core Trading Session 
\12\ at 9:30 a.m.--would allow market participants and the Exchange a 
better opportunity to notice errors or problems with orders for the 
security because it would be opening for trading at a unique time, and 
not at a time when thousands of other securities open for trading.\13\ 
The Exchange believes that this halt and delayed opening \14\ would 
give sufficient time for investors to review their orders and the 
quotes for the security and allow market participants to ensure that 
their systems

[[Page 22762]]

have properly adjusted for the reverse stock split.\15\
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    \11\ The Exchange may change the resumption time if, for 
example, there was ``Extraordinary Market Activity,'' as defined in 
the CTA Plan, that could interfere with a fair and orderly 
resumption at the start of Core Trading Hours. The Exchange would 
provide notice of the re-opening of the security through the SIP and 
on the Exchange's trading halt web page at https://www.nyse.com/trade-halt.
    \12\ The term ``Core Trading Session'' is defined in Rule 7.34-
E(a)(2) as ``begin[ning] for each security at 9:30 a.m. Eastern Time 
and end[ing] at the conclusion of Core Trading Hours or the Core 
Closing Auction, whichever comes later. The Core Open Auction will 
begin the Core Trading Session.''
    \13\ The Exchange's proposal to re-open trading in a security 
that has undergone a reverse stock split with a Trading Halt Auction 
at 9:00 a.m. is substantively similar to the Commission-approved 
Nasdaq rule to reopen such securities with a Nasdaq Halt Cross at 
9:00 a.m., after the start of early-market trading but before the 
start of Nasdaq's Regular Market Session at 9:30 a.m. See Nasdaq 
Rule 4120(b)(4)(D).
    \14\ Trading in a security that has undergone a reverse stock 
split would have a delayed opening because following the reverse 
stock split, the security would not be available for early-session 
trading at 4:00 a.m. on the Exchange, but would instead re-open with 
a Trading Halt Auction at 9:00 a.m. Orders eligible for execution in 
the Early Trading Session (as defined in Rule 7.34-E(a)(1)) that are 
entered before the 9:00 a.m. Trading Halt Auction and not canceled 
would be eligible to execute in the Trading Halt Auction.
    \15\ After resuming trading with a Trading Halt Auction at 9:00 
a.m., the security would be eligible to trade for the remainder of 
the Early Trading Session and would then participate in a Core Open 
Auction at the start of the Core Trading Session.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\16\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\17\ 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 mechanism 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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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposal removes impediments to and 
perfects the mechanism of a free and open market and a national market 
system and protects investors and the public interest. The Exchange is 
proposing these changes at the request of market participants who say 
that they would benefit from a consistent approach across exchanges 
with respect to regulatory halt rules around reverse stock splits. As 
such, the Exchange believes that harmonizing its rules with Nasdaq's in 
this area would enhance investor protection and maintain fair and 
orderly markets by minimizing the chance that market participants might 
make erroneous trades in a security because they were unaware that it 
had undergone a reverse stock split.
    The Exchange believes that its proposed rule change establishing a 
reverse stock split trading halt rule would protect investors by giving 
the Exchange non-discretionary authority to act in situations where it 
is necessary to maintain fair and orderly markets, such as when a 
security is subject to a reverse stock split and companies have not 
updated their systems to account for the new stock price. It would also 
ensure that the process for resuming trading following a reverse stock 
split halt is consistent with other types of halts initiated by the 
Exchange. Currently, none of the Exchange's rules provide authority to 
pre-emptively halt the trading in a security undergoing a significant 
corporate action that could lead to investor or market confusion.
    The Exchange believes that the proposed amendments would provide 
greater transparency and clarity with respect to the manner in which 
trading would be halted due to a reverse stock split, and the process 
through which that halt would be implemented and terminated. 
Particularly, the Exchange would not have discretion in determining 
whether to declare a trading halt in a security following the 
declaration of a reverse stock split. Rather, following the reverse 
stock split of a security for which the Exchange is the Primary Listing 
Market, trading in the security would halt prior to the close of the 
Late Trading Session on the day immediately before the market effective 
date of the reverse stock split. The Exchange also believes it is 
appropriate to re-open the security with a Trading Halt Auction at 9:00 
a.m. on the effective date of the reverse stock split instead of at 
4:00 a.m. on the Exchange and away markets because doing so would give 
the Exchange and market participants an opportunity to identify any 
orders in a security that has undergone a reverse stock split that have 
not correctly adjusted to the security's new stock price. The proposed 
changes seek to achieve consistency with respect to the initiation and 
termination of a trading halt with respect to securities that have 
undergone a reverse stock split, while maintaining a fair and orderly 
market, protecting investors, and protecting the public interest.
    Additionally, the Exchange believes that establishing a mandatory 
trading halt for securities that have undergone a reverse stock split 
and resuming trading thereafter promotes fair and orderly markets and 
the protection of investors because it allows the Exchange to protect 
the broader interests of the national market system and addresses 
potential concerns that system errors may affect immediate trading in 
those securities. The Exchange believes that given the increase in 
companies effecting reverse stock splits, the proposal would help the 
Exchange reduce the potential for errors resulting in a material effect 
on the market resulting from market participants' processing of the 
reverse stock split, including incorrect adjustment or entry of orders.
    The Exchange further believes that re-opening a security subject to 
a reverse stock split with a Trading Halt Auction at 9:00 a.m.--which 
is after the start of early trading on away markets and the Exchange 
but before the opening of the Exchange's Core Trading Session at 9:30 
a.m.--would promote fair and orderly trading, protect investors, and 
promote the public interest by allowing market participants and the 
Exchange a better opportunity to notice errors or problems with orders 
for the security because it would be opening for trading at a unique 
time, and not at a time when thousands of other securities open for 
trading.
    Based on the foregoing, the Exchange believes that the proposal is 
consistent with the Act because it would promote just and equitable 
principles of trade and would remove any impediments to a free and open 
market and a national market system by allowing sufficient time for 
investors to review their orders and the quotes for a security that has 
undergone a reverse stock split, and allow market participants to 
ensure that their systems have properly accounted for the reverse stock 
split. As discussed previously, the Exchange believes that the proposed 
amendments establishing the authority and process for reverse stock 
split trading halts and the resumption of trading is consistent with 
the Act, which itself imposes obligations on exchanges with respect to 
issuers that are listed.

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

    The Exchange believes that the proposal will not impose any burden 
on competition that is not necessary or appropriate in furtherance of 
the purposes of Section 6(b)(8) of the Act.\18\
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    \18\ 15 U.S.C. 78f(b)(8).
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    The Exchange believes that the proposal will not impose a burden on 
intermarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because the proposed rule change 
is designed to protect investors and facilitate a fair and orderly 
market, which are both important purposes of the Act. To the extent 
that there is any impact on intermarket competition, it is incidental 
to these objectives. In addition, at least one other exchange (Nasdaq) 
has already adopted a substantially similar rule. The Exchange believes 
that harmonizing its rules with Nasdaq's in this area would minimize 
the chance that market participants might make erroneous trades in a 
security because they were unaware that it had undergone a reverse 
stock split.
    The Exchange does not believe that the proposed rule change imposes 
a burden on intra-market competition because the provisions apply to 
all market participants and issuers on the Exchange equally. In 
addition,

[[Page 22763]]

information regarding the timing of reverse stock splits and the 
halting and resumption of trading in connection with the effecting of 
reverse splits would be disseminated using several freely-accessible 
sources to ensure the broad availability of this information.
    In addition, the proposal includes provisions related to the 
declaration and timing of trading halts and the resumption of trading 
that are designed to prevent any advantage to those who can react more 
quickly than other market participants.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \19\ and Rule 19b-4(f)(6) thereunder.\20\ 
Because the proposed rule change does not: (i) significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\21\
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    \19\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of its 
intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \22\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \22\ 15 U.S.C. 78s(b)(2)(B).
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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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NYSEARCA-2024-29 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-NYSEARCA-2024-29. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NYSEARCA-2024-29 and should 
be submitted on or before April 23, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-06887 Filed 4-1-24; 8:45 am]
BILLING CODE 8011-01-P