[Federal Register Volume 83, Number 25 (Tuesday, February 6, 2018)]
[Notices]
[Pages 5284-5286]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-02270]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82608; File No. SR-NYSEArca-2018-08]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To Amend NYSE Arca Rule 1.1(ll) To Establish 
How the Official Closing Price Would Be Determined for an Exchange-
Listed Security That Is a Derivative Securities Product if the Exchange 
Does Not Conduct a Closing Auction or if a Closing Auction Trade Is 
Less Than a Round Lot

January 31, 2018.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on January 19, 2018, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``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 amend NYSE Arca Rule 1.1(ll) to establish 
how the Official Closing Price would be determined for an Exchange-
listed security that is a Derivative Securities Product if the Exchange 
does not conduct a Closing Auction or if a Closing Auction trade is 
less than a round lot. The proposed 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 amend NYSE Arca Rule 1.1(ll) to establish 
how the Official Closing Price would be determined for an Exchange-
listed security that is a Derivative Securities Product \4\ if the 
Exchange does not conduct a Closing Auction or if a Closing Auction 
trade is less than a round lot. The Exchange also proposes to modify 
the structure of current Rule 1.1(ll)(1) by adding new rule text under 
subparagraphs (A), (B) and (C) and renumbering current subparagraphs 
(A) through (C) as subparagraphs (D) through (F).
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    \4\ With respect to equities traded on the Exchange, the term 
``Derivative Securities Product'' means a security that meets the 
definition of ``derivative securities product'' in Rule 19b-4(e) 
under the Securities Exchange Act of 1934. See NYSE Arca Rule 
1.1(k). For purposes of Rule 19b-4(e), a ``derivative securities 
product'' means any type of option, warrant, hybrid securities 
product or any other security, other than a single equity option or 
a security futures product, whose value is based, in whole or in 
part, upon the performance of, or interest, in, an underlying 
instrument. 17 CFR 240.19b-4(e).
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    Current Rule 1.1(ll)(1) provides how the Exchange establishes the 
``Official Closing Price'' for Auction-Eligible Securities \5\ which is 
used for purposes of Rule 7-E.\6\
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    \5\ For purposes of the Closing Auction, an ``Auction-Eligible 
Security'' is defined in Rule 7.35-E(a)(1) to mean all securities 
for which the Exchange is the primary listing market and UTP 
Securities designated by the Exchange.
    \6\ In Rule 7-E, the Exchange uses the Official Closing Price 
for three purposes: (1) To determine the Auction Reference Price for 
a security, as provided for in Rule 7.35-E(a)(8)(A); (2) to 
determine the Trading Collar for a security if there is no 
consolidated last-sale price on the same trading day, as provided 
for in Rule 7.31-E(a)(1)(B)(i); and (3) for securities listed on the 
Exchange only, for purposes of determining whether to trigger a 
Short Sale Price Test, as defined under Rule 7.16-E(f)(2).
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    Rule 1.1(ll)(1) provides that the Official Closing Price for 
Auction-Eligible Securities is the price established in a Closing 
Auction of one round lot or more on a trading day. If there is no 
Closing Auction or if a Closing Auction trade is less than a round lot 
on a trading day, the Official Closing Price is the most recent

[[Page 5285]]

consolidated last-sale eligible trade during Core Trading Hours \7\ on 
that trading day. Rule 1.1(ll)(1)(A)-(C) further provides that if there 
were no consolidated last-sale eligible trades during Core Trading 
Hours on that trading day, the Official Closing Price will be the prior 
trading day's Official Closing Price.\8\ For a security that has 
transferred its listing to NYSE Arca and does not have any consolidated 
last-sale eligible trades on its first trading day, the Official 
Closing Price will be the prior day's closing price disseminated by the 
primary listing market that previously listed such security.\9\ For a 
security that is a new listing and does not have any consolidated last-
sale eligible trades on its first trading day, the Official Closing 
Price will be based on a derived last-sale associated with the price of 
such security before it begins trading on the Exchange.\10\
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    \7\ The term ``Core Trading Hours'' is defined in Rule 1.1(j) to 
mean the hours of 9:30 a.m. Eastern Time through 4:00 p.m. Eastern 
Time or such other hours as may be determined by the Exchange from 
time to time.
    \8\ See NYSE Arca Rule 1.1(ll)(1)(A).
    \9\ See NYSE Arca Rule 1.1(ll)(1)(B).
    \10\ See NYSE Arca Rule 1.1(ll)(1)(C).
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    The Exchange proposes to amend how the Official Closing Price for 
an Exchange-listed security that is a Derivative Securities Product 
would be determined if the Exchange does not conduct a Closing Auction 
or if a Closing Auction trade is less than a round lot. The proposed 
rule change is intended to allow the Exchange to provide what would be 
a more indicative value of such securities. Specifically, if a security 
is thinly traded or generally illiquid, the Official Closing Price for 
such security will be based on a last-sale trade that may be hours, 
days, or even months old and therefore not necessarily indicative of 
the true and current value of the security.
    In the case of a stale last-sale price, the Exchange believes that 
a value based on the midpoint of the NBBO leading into the close may be 
more indicative of the true and current value of the security. To take 
into consideration potentially aberrant quotes, the Exchange proposes 
to use a time-weighted average price (``TWAP'') of the midpoint of the 
NBBO \11\ over the last five minutes of trading before the end of Core 
Trading Hours. To further take into consideration the value of trades 
that may occur during the last five minutes of trading, the Exchange 
proposes that the Official Closing Price would be comprised of both the 
TWAP value and any last-sale eligible trades during that period. Last-
sale eligible trades that occur closer to the close of trading would be 
assigned more weight in the determination of the Official Closing 
Price.
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    \11\ The term ``NBBO'' is defined in Rule 1.1(dd) to mean the 
national best bid or offer.
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    To effect this change, the Exchange proposes to move the first 
sentence of current Rule 1.1(ll)(1) to new subparagraph (A) to Rule 
1.1(ll)(1) without any changes.
    Proposed new subparagraph (B) to Rule 1.1(ll)(1) would provide that 
if the Official Closing Price for an Exchange-listed security that is a 
Derivative Securities Product cannot be determined under proposed new 
Rule 1.1(ll)(1)(A), the Official Closing Price for such security would 
be derived by adding a percentage of the TWAP of the NBBO midpoint 
measured over the last 5 minutes before the end of Core Trading Hours 
and a percentage of the last consolidated last-sale eligible trade 
before the end of Core Trading Hours on that trading day and that the 
percentages assigned to each would depend on when the last consolidated 
last-sale eligible trade occurred.
    As proposed, if the last consolidated last-sale eligible trade 
occurred:
    (i) Prior to 5 minutes before the end of Core Trading Hours, the 
TWAP would be given 100% weighting;
    (ii) between 5 minutes and 4 minutes before the end of Core Trading 
Hours, the TWAP will be given 40% weighting and the consolidated last-
sale eligible trade would be given 60% weighting;
    (iii) between 4 minutes and 3 minutes before the end of Core 
Trading Hours, the TWAP will be given 30% weighting and the 
consolidated last-sale eligible trade would be given 70% weighting;
    (iv) between 3 minutes and 2 minutes before the end of Core Trading 
Hours, the TWAP will be given 20% weighting and the consolidated last-
sale eligible trade would be given 80% weighting;
    (v) between 2 minutes and 1 minute before the end of Core Trading 
Hours, the TWAP will be given 10% weighting and the consolidated last-
sale eligible trade would be given 90% weighting;
    (vi) during the last 1 minute before the end of Core Trading Hours, 
the TWAP will be given 0% weighting and the consolidated last-sale 
eligible trade would be given 100% weighting.
    Proposed new subparagraph (C) to Rule 1.1(ll)(1) further provides 
that if the Official Closing Price cannot be determined under proposed 
new subparagraphs (A) or (B) to Rule 1.1(ll)(1), the most recent 
consolidated last-sale eligible trade during Core Trading Hours on that 
trading day would be the Official Closing Price. This proposed rule 
text is based on the current second sentence of Rule 1.1(ll)(1), but 
revised to specify that the Exchange would use the most recent 
consolidated last-sale eligible trade if it cannot determine an 
Official Closing Price under either subparagraphs (A) or (B) of Rule 
1.1(ll)(1).
    The Exchange is not proposing any substantive changes to current 
Rule 1.1(ll)(1)(A)-(C) other than to renumber current subparagraphs (A) 
through (C) as (D) through (F), or to any aspect of current Rule 
1.1(ll)(2)-(5).
    Because of the technology changes associated with this proposed 
rule change, the Exchange will implement the proposed rule change for 
determining an Official Closing Price no later than 120 days after the 
operative date of this proposed rule change and will announce the 
implementation date via Trader Update.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\12\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\13\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to and perfect 
the mechanism of a free and open market and a national market system.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it would provide for a method of 
determining the Official Closing Price in an Exchange-listed security 
that is a Derivative Securities Product if there is no Closing Auction 
or if a Closing Auction trade is less than a round lot on a trading 
day. More specifically, the Exchange believes the proposed methodology 
for determining the Official Closing Price would remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system because it would provide for a more up-to-date indication 
of the value of such a security if there have not been any last-sale 
eligible trades leading in to the close of trading. The Exchange 
believes the proposed Official Closing Price calculation would also 
provide a closing price that more accurately reflects the

[[Page 5286]]

most recent and reliable market information possible.
    The Exchange further believes that the proposed TWAP calculation 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system because it would provide for a 
more robust mechanism to determine the value of an affected security 
for purposes of determining an Official Closing Price. By using a time-
weighted calculation based on the midpoint of the NBBO over the last 
five minutes of trading and then assigning a weight to that TWAP 
calculation as compared to any last-sale eligible trades leading into 
the close, the Exchange believes that the proposed calculation would 
result in the price of a security that is reflective of the true and 
current value of such security on that trading day. Additionally, by 
adding a TWAP calculation rather than just the last consolidated last-
sale eligible price as of the end of regular trading hours, the 
Exchange would reduce the potential for an anomalous trade that may not 
reflect the true and current price of a security from being set as the 
Exchange's Official Closing Price for that security.
    Finally, the Exchange believes that the proposed methodology for 
determining an Official Closing Price would be appropriate for 
Derivative Securities Products because if such securities are thinly 
traded, a last-sale price from earlier in a trading day or even from a 
prior trading day or days may no longer be reflective of the value of 
such product, which should be priced relative to the value of the 
components of such security. In such case, recent quoting may be more 
reflective of the value of the security. However, to take into 
consideration a stale quote or an aberrant trade that may occur leading 
into the close, the Exchange believes a time-weighted average price 
derived from the midpoint of the NBBO would provide a greater 
indication of the value of such securities.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed rule change is 
not designed to address any competitive issues, but rather to provide 
for how the Exchange would determine an Official Closing Price for 
Exchange-listed securities that are Derivative Securities Products if 
there is no Closing Auction or if a Closing Auction trade is less than 
a round lot on a trading day.

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 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-NYSEArca-2018-08 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2018-08. 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-NYSEArca-2018-08 and should be submitted 
on or before February 27, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-02270 Filed 2-5-18; 8:45 am]
 BILLING CODE 8011-01-P


