[Federal Register Volume 89, Number 79 (Tuesday, April 23, 2024)]
[Notices]
[Pages 30415-30418]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08569]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99974; File No. SR-NYSE-2024-22]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 123D

April 17, 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 April 11, 2024, 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 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 123D (Halts in Trading) 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 Rule 123D (Halts in 
Trading) 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\ starting at 9:30 a.m., at the start of the 
Exchange's Core Trading Session.\6\ 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(a)(1)(B) as an auction ``that reopens trading following a 
trading halt or pause.'' The Trading Halt Auction would be 
effectuated by the security's designated market maker (``DMM'') 
pursuant to Rule 7.35A (DMM-Facilitated Core Open and Trading Halt 
Auctions). An Exchange-listed security that opens trading for the 
day with a Trading Halt Auction would not undergo a Core Open 
Auction (defined in Rule 7.35(a)(1)(A)).
    \6\ The term ``Core Trading Session'' is defined in Rule 
7.34(a)(2).
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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 123D
    The Exchange currently processes reverse stock splits overnight, 
with the security available for trading on other markets 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

[[Page 30416]]

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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    \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 (f) to Rule 123D, 
which would provide that the Exchange will halt trading in a security 
for which the Exchange is the Primary Listing Market \8\ before the end 
of post-market trading on other markets on the day immediately before 
the market effective date of a reverse stock split. Such a trading halt 
due to a reverse stock split would be mandatory pursuant to proposed 
Rule 123D(f). In general, the Exchange expects to initiate the halt at 
7:50 p.m., prior to the end of post-market trading on other markets at 
8:00 p.m. on the day immediately before the split is effective.\9\
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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\ It is the Exchange's policy not to halt a security after 
4:00 p.m. in advance of a material news disclosure by a listed 
company, but the Exchange does implement regulatory halts after 4:00 
p.m. when necessary for other reasons. In the case of a security 
undergoing a reverse stock split, 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 end of post-market 
trading. 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 123D or Rule 7.18. 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 123D(f) would further provide that trading in the 
security will resume with a Trading Halt Auction starting at 9:30 
a.m.\10\ on the day the reverse stock split is effective.\11\ The 
Exchange believes that this halt and delayed opening \12\ 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 
have properly adjusted for the reverse stock split.
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    \10\ The Exchange's affiliates NYSE American LLC (``NYSE 
American'') and NYSE Arca, Inc. (``NYSE Arca'') have each filed 
similar rule changes proposing to re-open a security subject to a 
reverse stock split trading halt with a Trading Halt Auction that 
would take place at 9:00 a.m., thirty minutes before the Core 
Trading Session would start. See SR-NYSEAMER-2024-24 and SR-
NYSEARCA-2024-29. Both NYSE American and NYSE Arca have Early 
Trading Sessions, and thus the 9:00 a.m. Trading Halt Auction would 
take place while trading on those exchanges is already in progress. 
See NYSE American Rule 7.34E(a)(1) and NYSE Arca Rule 7.34-E(a)(1) 
(defining ``Early Trading Session''). Because the Exchange does not 
have an early trading session for securities for which it is the 
Primary Listing Market, the Exchange instead proposes that a 
security subject to a reverse stock split trading halt would re-open 
with a Trading Halt Auction starting at 9:30 a.m., at the start of 
the Exchange's Core Trading Session. The Exchange believes that re-
opening the security with a Trading Halt Auction starting at 9:30 
a.m. would promote fair and orderly trading because it would provide 
market participants and the Exchange ample opportunity to notice 
errors or problems with orders for the security due to the reverse 
stock split. In addition, the Exchange believes that re-opening the 
security with a Trading Halt Auction starting at 9:30 a.m. (instead 
of at 9:00 a.m. as on NYSE American and NYSE Arca) would promote 
fair and orderly trading because it would follow the Exchange's 
usual opening process for securities that are re-opening at the 
start of the Core Trading Session after a regulatory halt. The 
Exchange believes that this approach is preferable to creating an 
entirely new trading session commencing at 9:00 a.m. solely for the 
re-opening of securities listed on the Exchange subject to a 
regulatory halt in advance of a reverse stock split, which the 
Exchange believes would cause confusion among market participants.
    \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 will 
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\ 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 away markets, but would instead re-open with 
a Trading Halt Auction at the start of the Core Trading Session. 
Orders that have been entered for execution prior to the Trading 
Halt Auction and not canceled would be eligible to execute in the 
Trading Halt Auction.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\13\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\14\ 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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    \13\ 15 U.S.C. 78f(b).
    \14\ 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 
post-market trading session on other markets on the day immediately 
before the market effective date of the reverse stock split. The 
Exchange also believes it is appropriate

[[Page 30417]]

to re-open the security with a Trading Halt Auction on the effective 
date of the reverse stock split 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 starting at 9:30 a.m. 
would promote fair and orderly trading because it would provide market 
participants and the Exchange ample opportunity to notice errors or 
problems with orders for the security due to the reverse stock split. 
In addition, the Exchange believes that re-opening the security with a 
Trading Halt Auction starting at 9:30 a.m. (instead of at 9:00 a.m. as 
on NYSE American and NYSE Arca) \15\ would promote fair and orderly 
trading because it would follow the Exchange's usual opening process 
for securities that are re-opening at the start of the Core Trading 
Session after a regulatory halt. The Exchange believes that this 
approach is preferable to creating an entirely new trading session 
commencing at 9:00 a.m. solely for the re-opening of securities listed 
on the Exchange subject to a regulatory halt in advance of a reverse 
stock split, which the Exchange believes would cause confusion among 
market participants.
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    \15\ See supra note 10.
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    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.\16\
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    \16\ 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, 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 \17\ and Rule 19b-4(f)(6) thereunder.\18\ 
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.\19\
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    \17\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 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) \20\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \20\ 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:

[[Page 30418]]

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-NYSE-2024-22 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-2024-22. 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-NYSE-2024-22 and should be 
submitted on or before May 14, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-08569 Filed 4-22-24; 8:45 am]
BILLING CODE 8011-01-P