[Federal Register Volume 89, Number 119 (Thursday, June 20, 2024)]
[Notices]
[Pages 51918-51921]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-13418]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100327; File No. SR-NYSE-2024-13]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving a Proposed Rule Change Amending Rule 7.35 and Rule 7.35B

June 13, 2024.

I. Introduction

    On March 1, 2024, New York Stock Exchange LLC (the ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
amend NYSE Rules 7.35 and 7.35B. The proposed rule change was published 
for comment in the Federal Register on March 18, 2024.\3\ On April 4, 
2024, the Commission designated a longer period within which to approve 
the proposed rule change, disapprove the proposed rule change, or 
institute proceedings to determine whether to approve or disapprove the 
proposed rule change.\4\ The Commission received no comment letters on 
the proposed rule change. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 99719 (Mar. 12, 
2024), 89 FR 19370 (Mar. 18, 2024) (``Notice'').
    \4\ See Securities Exchange Act Release No. 100027, 89 FR 35288 
(May 1, 2024).
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II. Description of the Proposal

    As described more fully below, the Exchange proposes to amend NYSE 
Rule 7.35 (General) and NYSE Rule 7.35B (DMM-Facilitated Closing

[[Page 51919]]

Auctions) to: (i) align the definition of Imbalance Reference Price for 
a Closing Imbalance; (ii) replace the Regulatory Closing Imbalance with 
an enhanced Significant Closing Imbalance; and (iii) include Closing D 
Orders in the Total Imbalance calculation ten minutes before the 
scheduled end of Core Trading Hours.

A. Background

    According to the Exchange, Imbalance information on the Exchange 
means better-priced orders on one side of the market compared to both 
better-priced and at-price orders on the other side of the market. The 
Exchange disseminates two types of Imbalance publications: Total 
Imbalance and Closing Imbalance. Total Imbalance information is 
disseminated for all Auctions, and Closing Imbalance information is 
disseminated for the Closing Auction only.
    The Exchange states that, beginning ten 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.\5\ 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.\6\ The Closing Auction Imbalance 
Information also includes an Imbalance Reference Price, which is the 
Exchange Last Sale Price bound by the Exchange BBO.\7\
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    \5\ See NYSE Rule 7.35B(e)(1)(A). DMM Orders, as defined in NYSE 
Rule 7.35(a)(9)(B), that have been entered by the DMM in advance of 
a Closing Auction are currently included in the Closing Auction 
Imbalance Information.
    \6\ See NYSE 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.
    \7\ See NYSE Rule 7.35B(e)(3).
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    Currently, according to the Exchange, 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.\8\ 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.\9\ 
In addition, if at the Closing Auction Imbalance Freeze Time (e.g., 
3:50 p.m. Eastern Time) \10\ the Closing Imbalance \11\ is 500 round 
lots or more, the Exchange will disseminate a Regulatory Closing 
Imbalance to both the securities information processor and proprietary 
data feeds.\12\
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    \8\ See NYSE Rule 7.35(b)(1)(C)(ii).
    \9\ See NYSE Rule 7.35(c)(1) and (2).
    \10\ See NYSE Rule 7.35(a)(8) (defining the ``Closing Auction 
Imbalance Freeze Time'' to be 10 minutes before the scheduled end of 
Core Trading Hours).
    \11\ As defined in NYSE 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. NYSE Rule 7.35(a)(4)(A)(ii) further defines 
a ``Regulatory Closing Imbalance'' as a Closing Imbalance 
disseminated at or after the Closing Auction Imbalance Freeze Time.
    \12\ See NYSE Rule 7.35B(d)(1).
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B. Proposed Rule Change

1. Significant Closing Imbalance
    The Exchange currently publishes a Regulatory Closing Imbalance at 
the Closing Auction Imbalance Freeze Time if the Closing Imbalance is 
500 round lots or more. The Exchange proposes to retire the Regulatory 
Closing Imbalance based on a static round-lot trigger and instead 
publish a Significant Closing Imbalance based on a dynamic formula that 
would consider the notional size of the imbalance and the recent 
closing activity of the relevant security. As proposed, unless 
determined otherwise by the Exchange and announced by Trader Update, a 
Closing Imbalance would be considered ``Significant'' if:
     the Closing Imbalance is equal to or greater than 30 
percent of the 20-day Average Closing Size for NYSE-listed securities 
in the S&P 500[supreg] Index; 50 percent of the 20-day Average Closing 
Size for securities in the S&P 400[supreg] Index and the S&P 
600[supreg] Index; or 70 percent of the 20-day Average Closing Size for 
all other securities,\13\ and
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    \13\ See Proposed NYSE Rule 7.35B(d)(1)(A).
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     the notional value of the Closing Imbalance, calculated as 
the product of the imbalance quantity and the reference price, is equal 
to or greater than $200,000 for S&P and all other securities.\14\
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    \14\ See id. at (B).
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    For purposes of calculating the proposed Significant Closing 
Imbalance, Average Closing Size would be calculated for each symbol 
based on the most recent 20 trading days where the security closed on a 
last sale eligible trade. For securities with less than the specified 
trading data, including but not limited to IPOs, direct listings, and 
transfers, the Closing Imbalance would be considered Significant if the 
notional value of the Closing Imbalance, calculated as the product of 
the imbalance quantity and the reference price, is equal to or greater 
than $200,000 for S&P and all other securities or an alternative 
specified dollar amount as determined by the Exchange and announced by 
Trader Update. Only trading days with an NYSE close would be considered 
for purposes of the Significant Closing Imbalance calculation.\15\
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    \15\ See id. at (C).
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    The Exchange states that it believes that publishing imbalance 
information where the imbalance is of a size that equals or exceeds a 
large percentage of a security's average closing size over the most 
recent 20 trading days and is of a high notional value imparts more 
valuable information to the marketplace about potential trading 
anomalies or opportunities than an imbalance publication based solely 
on an imbalance size of 500 round lots or more.\16\ As a result, the 
Exchange states, it believes that publication of Significant Closing 
Imbalance information as proposed could facilitate entry of offsetting 
orders and the price discovery process on the Exchange, to the benefit 
of the marketplace and public investors.\17\ In addition, the Exchange 
states that it believes that it would be appropriate to retain 
flexibility to determine the percentage amounts and notional value in 
the formula for what constitutes a Significant Closing Imbalance so 
that the Exchange may timely take into consideration market movements 
and the changing trading characteristics of different securities.\18\
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    \16\ See Notice, supra note 3, 89 FR at 19372.
    \17\ See id.
    \18\ See id. The Exchange notes that the options markets 
operated by the Exchange's affiliates have similar flexibility in 
their rules to specify different parameters based on a Trader 
Update. See, e.g., NYSE Arca, Inc., Rules 6.62P-O(a)(3)(C) 
(specifying the thresholds applicable to limit order price 
protection) & 6.64P-O(c) (specifying interval when Auction Imbalance 
Information is updated).
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2. Imbalance Reference Price
    Currently, 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.\19\ The Closing Auction Imbalance 
Information also includes an Imbalance Reference Price, which is the 
Exchange Last Sale Price bound by the Exchange BBO.\20\ The Imbalance 
Reference Price for a Closing Imbalance

[[Page 51920]]

is currently the Exchange Last Sale Price.\21\
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    \19\ See NYSE 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.
    \20\ See NYSE Rule 7.35B(e)(3).
    \21\ See NYSE Rule 7.35B(d). See NYSE Rule 
7.35(a)(12)(B)(defining ``Exchange Last Sale Price'' 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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    The Exchange proposes to align the definition of Imbalance 
Reference Price for a Closing Imbalance in NYSE Rule 7.35B(d) with the 
current definition of Imbalance Reference Price for the Closing Auction 
Imbalance Information in NYSE Rule 7.35B(e)(3). As proposed, the 
Imbalance Reference Price for a Closing Imbalance would be equal to
     the BB if the Exchange Last Sale Price is lower than the 
BB;
     the BO if the Exchange Last Sale Price is higher than the 
BO; or
     the Exchange Last Sale Price if it is at or between the 
BBO or if the security was halted or not opened by the Closing Auction 
Imbalance Freeze Time.\22\
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    \22\ See Proposed NYSE Rule 7.35B(d).
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    The Exchange states that it believes that the proposal will enhance 
the value of the imbalance publication by providing a more accurate 
depiction of the market interest available in a security because 
bounding the Imbalance Reference Price by the BBO keeps the price in 
line with actual trading in that security.\23\
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    \23\ See Notice, supra note 3, 89 FR at 19372.
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3. Closing D Orders
    Finally, the Exchange proposes to include Closing D Orders earlier 
in the imbalance information provided to the marketplace. The Exchange 
disseminates two types of Imbalance publications: Total Imbalance and 
Closing Imbalance. Total Imbalance information is disseminated for all 
Auctions, and Closing Imbalance information is disseminated for the 
Closing Auction only.
    NYSE Rule 7.35(a)(4)(A)(i) provides that ``Total Imbalance'' means 
for the Core Open and Trading Halt Auctions, the Imbalance of all 
orders eligible to participate in an Auction and for the Closing 
Auction, the Imbalance of MOC, LOC, and Closing IO Orders, and 
beginning five minutes before the scheduled end of Core Trading Hours, 
Closing D Orders.
    In addition, for the Closing Auction, the Exchange provides 
information on the ``Paired Quantity,'' which is the volume of better-
priced and at-priced buy shares that can be paired with better-priced 
and at-priced sell shares at the Imbalance Reference Price, and 
``Unpaired Quantity,'' meaning the volume of better-priced and at-
priced buy shares that cannot be paired with both at-priced and better-
priced sell shares at the Imbalance Reference Price. Paired and 
Unpaired Quantity as defined in NYSE Rule 7.35(a)(4)(B)(ii) to include 
MOC, LOC, and Closing IO Orders, and beginning five minutes before the 
scheduled end of Core Trading Hours, Closing D Orders.
    Further, NYSE Rule 7.35(b) sets forth general rules for how 
different types of orders are ranked for purposes of how they are 
included in Auction Imbalance Information or for an Auction allocation. 
NYSE Rule 7.35(b)(1) provides that orders are ranked based on the price 
at which they would participate in an Auction. The price at which an 
order would be ranked would be used to determine whether it is a 
better-priced or an at-priced order. In this regard, beginning five 
minutes before the end of Core Trading Hours, the ranked price of a 
Closing D Order is the order's undisplayed discretionary price. In 
addition, under NYSE Rule 7.35(b)(2), the working time of a Closing D 
Order would be the later of its entry time or five minutes before the 
end of Core Trading Hours.
    The Exchange proposes to amend these rules. The Exchange states 
that it believes that earlier inclusion of this order type in the 
imbalance information published by the Exchange would enhance the 
information available to the marketplace leading into the Closing 
Auction.\24\ The Exchange also states that it believes that including 
Closing D Orders in its publicly disseminated imbalance information 
earlier would provide more information to the marketplace about the 
volume and type of orders going into the Closing Auction as well as 
additional time for the market to respond to any auction 
imbalances.\25\
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    \24\ See id.
    \25\ See id., at 19372-73.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\26\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\27\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to 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.
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    \26\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \27\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposed rule change to include 
Closing D Orders in the Closing Auction Imbalance Information published 
by the Exchange beginning ten minutes before the scheduled end of Core 
Trading Hours, rather than the current five minutes, is reasonably 
designed to enhance the information available to the marketplace 
leading into the Closing Auction and to provide additional time for the 
market to respond to auction imbalances. The Commission also believes 
that the proposal to publish a Significant Closing Imbalance based on a 
dynamic formula--rather than the current Regulatory Closing Imbalance 
at the Closing Auction Imbalance Freeze Time if the Closing Imbalance 
is 500 round lots or more--is reasonably designed to provide meaningful 
information to market participants about interest in a security and to 
assist market participants in trading in the Closing Auction in that 
security. Moreover, allowing the Exchange the flexibility to determine 
the percentage amounts and notional value in the formula for what would 
constitute a Significant Closing Imbalance is reasonably designed to 
enable the Exchange to take market movements and the characteristics of 
different securities into consideration and to update the metrics if 
needed. Finally, the Commission believes that it is reasonable for the 
Exchange to determine the Imbalance Reference Price for the Closing 
Auction in a security in the same way the Exchange currently determines 
the Imbalance Reference Price for the Closing Auction Imbalance 
Information, because this change would enhance consistency in the 
Exchange's rulebook and because bounding the Imbalance Reference Price 
by the BBO is reasonably designed to keep the Imbalance Reference Price 
in line with actual trading in that security.
    Based on the foregoing, the Commission finds that the proposed rule 
change is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\28\ that the

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proposed rule change (SR-NYSE-2024-13) be, and hereby is, approved.
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    \28\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-13418 Filed 6-18-24; 8:45 am]
BILLING CODE 8011-01-P