
[Federal Register Volume 84, Number 58 (Tuesday, March 26, 2019)]
[Notices]
[Pages 11382-11385]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05698]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85367; File No. SR-NYSE-2019-09]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change To Amend Rules 104 and 36 To 
Require and Facilitate Routine Communications Between Designated Market 
Makers (``DMMs'') and Designated Representatives of Listed Issuers

March 20, 2019.
    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 8, 2019, 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 amend Rules 104 and 36 to require and 
facilitate routine communications between Designated Market Makers 
(``DMMs'') and designated representatives of listed issuers. 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 amend [sic] 104 (Dealings and 
Responsibilities of DMMs) and Rule 36 (Communication Between Exchange 
and Members' Offices) to require and facilitate routine DMM 
communication with designated representatives of listed issuers.
Proposed Rule Change
    As described below, the Exchange proposes to amend Rule 104 to 
require DMM units to communicate with designated individuals at each 
issuer of listed securities in whose securities DMMs associated with 
the DMM unit are registered and would describe how the communication 
requirement can be met. The Exchange also proposes to amend Rule 36 to 
facilitate written electronic communications with issuers from the 
Floor of the Exchange (the ``Floor'') \4\ pursuant to proposed Rule 
104(l) during specified time periods and subject to certain 
restrictions.
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    \4\ Rule 6 defines the Floor as the trading Floor of the 
Exchange and the premises immediately adjacent thereto, such as the 
various entrances and lobbies of the 11 Wall Street, 18 New Street, 
8 Broad Street, 12 Broad Street and 18 Broad Street Buildings, and 
also means the telephone facilities available in these locations.
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Rule 104
    Rule 104 sets forth the obligations of Exchange DMMs. The Exchange 
proposes to add a new paragraph (l) to Rule 104 titled ``Communication 
with Issuers of Listed Securities'' that would set forth the obligation 
of DMMs to communicate with their listed issuers.
    Proposed Rule 104(1)(1) would provide that, on at least a quarterly 
basis, each DMM unit must communicate with one or more senior officials 
of each issuer of listed securities in whose securities DMMs associated 
with the DMM unit are registered, with the exception of American 
Depositary Receipts (``ADR'').\5\ The proposed rule would also provide 
that the senior official designated by the listed issuer for the 
proposed contacts must be of the rank of Corporate Secretary or higher 
and must not be involved in market or trading operations for or on 
behalf of the listed issuer or with respect to the listed security. The 
Exchange proposes to provide the senior officials at the issuer with 
the option to designate an individual to communicate with the DMMs on 
their behalf by including the clause ``or a designee thereof'' 
following ``Corporate Secretary or above,'' which the Exchange believes 
would enable issuers to more efficiently manage the communication 
process. As proposed, the designee would also have to be a person at 
the issuer who is not be involved in market or trading operations for 
or on behalf of the listed issuer or with respect to the listed 
security.
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    \5\ ADRs are certificates representing a specified number of 
shares in non-U.S. issuers that are deposited and issued through 
U.S. banks. The shares underlying ADRs are primarily listed and 
traded on non-U.S. markets. The Exchange believes that the purpose 
for the proposed change is not furthered by requiring DMMs to 
contact foreign issuers whose ordinary listing is not on the 
Exchange and therefore proposes to exclude ADRs from the periodic 
communication requirement.
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    This proposed obligation would be on the DMM units only. DMM units 
would be required to communicate with the listed issuer contact, but 
the listed issuer contact would not be required to reciprocate. For 
example, a DMM unit could meet its obligation by sending an email 
communication to the listed issuer contact. However, the listed issuer 
contact would not be obligated to respond to that communication in 
writing or otherwise.
    To address the possibility that a DMM unit may not have contact 
information for any individuals at a listed issuer, proposed Rule 
104(1)(A) would provide that if a DMM unit does not have contact 
information for a listed issuer, the DMM unit can seek to communicate 
with the Corporate Secretary most recently named on a public filing by 
such issuer.
    Proposed Rule 104(l)(2) would describe the ways in which the 
periodic communication requirement set forth in proposed subparagraph 
(l)(1) can be met. Specifically, proposed subparagraph (l)(2) would 
provide that the communication requirement may be met by either in-
person meetings, telephone calls, or written communications.
    The required communications would be explicitly subject to existing 
restrictions on DMMs. First, as set forth in proposed Rule 
104(l)(2)(A), during the required communications, employees of the DMM 
unit would have to comply with the requirements of Rule 98 \6\ with 
respect to the information that may be shared with the listed issuer

[[Page 11383]]

contact. Second, as described in proposed Rule 104(l)(2)(B), an 
employee of a DMM unit may not communicate with a listed issuer contact 
from the Floor via telephone. However, the Exchange proposes that an 
employee of a DMM unit would be able to communicate with a listed 
issuer contact from the Floor using electronic written communications, 
subject to the requirements and safeguards set forth in proposed Rule 
36.31, described below. Finally, proposed Rule 104(l)(2)(C) would 
provide that DMM units must establish written policies and procedures 
reasonably designed to ensure that DMMs are in compliance with the 
requirements of the proposed rule.
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    \6\ Rule 98 governs the operation of DMM units and imposes 
certain restrictions on DMM trading including, among other things, 
requiring that DMM units to protect against the misuse of Floor-
based non-public order information. See, e.g., Rule 98(c)(3).
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    Proposed Rule 104(l)(3) would describe the non-regulatory penalties 
to be imposed if DMMs fail to initiate the required contacts with 
listed issuers. Specifically, if a DMM unit fails to initiate the 
required communication with the listed issuer for a single quarter, the 
Exchange would issue an initial warning letter to the DMM unit. If a 
DMM unit fails to initiate the required communication with the listed 
issuer for a two or more quarters, that DMM unit would be ineligible to 
participate in the allocation process for a minimum of one month 
following the second quarter of its failure to meet its contact 
requirement.
    The proposed rule is substantively similar to former NYSE Rule 
106(a), which provided that ``[d]uring each quarter, each Exchange 
specialist unit shall contact one or more senior officials, of the rank 
of Corporate Secretary or above, of each company in whose stock 
specialists associated with the specialist unit are registered.'' NYSE 
Rule 106 was deleted in 2008.\7\ At the time, the Exchange determined 
that the requirement in former Rule 106 that specialist units make 
themselves available for contact with their listing companies 
periodically throughout the year was unnecessary to ensure that listed 
issuers were informed about trading in their listed securities given 
the availability of public information and the fact that specialist 
units had internal departments responsible for communicating with 
issuers during the trading day.\8\ Following the deletion of Rule 106, 
the internal departments responsible for communicating with issuers 
were largely dismantled, and DMM communications with issuers have 
become less regular.
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    \7\ See Securities Exchange Act Release No. 83540 (October 24, 
2008), 73 FR 65435 (November 3, 2008) (SR-NYSE-2008-52).
    \8\ See id., 73 FR at 65437.
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    Because each listed security is assigned to a single DMM, the 
Exchange believes that one of the core functions of the DMM units is to 
maintain regular communications with listed issuers about trading 
activity in their securities. While DMM firms may no longer be 
structured as they were when former Rule 106 was in place, DMM units 
still regularly communicate with their listed issuers. The Exchange 
proposes to reinstate the mandated interaction between DMMs and listed 
issuers \9\ because the Exchange believes that this would ensure that a 
minimum level of communication is occurring between DMM units and all 
listed issuers. The proposed rule would therefore establish a minimum 
level of required contacts. The Exchange understands that most DMM 
units have more frequent communications with their listed issuers.
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    \9\ Former Rule 106 also required, for instance, that the 
specialist unit makes itself available to the Exchange's fifteen 
(15) largest member organizations through required semiannual ``off 
the Exchange Floor'' contact. See id.
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Rule 36
    Rule 36 governs the establishment of telephone or electronic 
communications connections between the Floor and other locations, which 
requires Exchange approval. Supplementary Material .31 to Rule 36 
(``DMM Electronically Transmitted Written Communications'') permits DMM 
units to install and maintain certain written electronic communications 
applications. Specifically, Rule 36.31(a) permits a DMM unit, subject 
to Exchange approval and the conditions set forth in Rule 36.31, to 
install and maintain a wired or wireless device capable of sending and 
receiving written communications electronically through an Exchange-
approved connection (a ``Permitted Communications Device'').\10\ Under 
Rule 36.31(b), DMM units can connect Floor-based personnel via a 
Permitted Communications Device to persons with whom they are otherwise 
permitted to communicate pursuant to Rules 36.30 and 98, i.e., certain 
personnel in the off-Floor offices of the DMM unit, the DMM unit's 
clearing operations, and persons who are permitted to provide non-
trading related services to the DMM unit under Rule 98. Once connected, 
on-Floor and off-Floor personnel are permitted to use the Permitted 
Communications Device for two-way written electronic communications as 
permitted by Rules 36.30 and 98.
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    \10\ Examples of Permitted Communications Devices include email 
and instant messaging via a desktop or laptop computer.
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    To facilitate the DMM unit's proposed obligation to maintain 
regular communications with listed issuers, the Exchange proposes to 
amend Rule 36.31(b) to permit Floor-based DMM personnel to utilize 
Permitted Communications Devices for written electronic communications 
with the listed issuer representative designated under Rule 104(l)(1).
    To effectuate this change, the Exchange would replace ``shall only 
permit written electronic communications'' before ``Permitted 
Communications Device'' in Rule 36.31(b) with ``may be used while on 
the Trading Floor for written electronic communications'' and add new 
subparagraphs (1) and (2).
    Proposed Rule 36(b)(1) would reflect the current rule that 
Permitted Communications Devices may be used for electronic written 
communications between individuals located at the DMM unit's post on 
the Floor and persons with whom they are otherwise permitted to 
communicate pursuant to Rules 36.30 and 98.
    Proposed Rule 36(b)(2) would reflect the proposed rule that 
Permitted Communications Devices may be used for written electronic 
communications with the listed issuer representative designated under 
proposed Rule 104(l)(1), subject to the content restrictions set forth 
in that rule as described above and provided that a DMM unit may not 
use a Permitted Communications Device for this purpose for the periods 
9:15 a.m. Eastern Time (``E.T.'') until the security is opened, and 
again beginning 15 minutes before the scheduled close of trading until 
the security is closed.
    The proposed time restrictions are designed to limit communications 
between the DMM and listed issuer during the period when a DMM would 
need to access non-public trading information to facilitate the opening 
or closing transactions, i.e., the fifteen minutes prior to a security 
being opened and closed by the DMM.\11\ The Exchange believes that this 
proposed bright-line restriction on communications would eliminate any 
potential for non-public information to be shared by the DMM with a 
listed

[[Page 11384]]

issuer in advance of the opening or closing of trading. The Exchange 
further believes that the Rule 98 requirements for the DMM to have 
policies and procedures reasonably designed to protect against the 
misuse of Floor-based non-public order information would restrict the 
DMMs from being able to share any non-public information the rest of 
the trading day.\12\
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    \11\ In connection with opening and closing a security, DMMs 
have access to non-public order information, specifically, the 
aggregate amount of specified Reserve Orders that are eligible to 
participate in the opening and closing transactions. See Rule 
104(a)(2) and (3) (specifying that DMMs and DMM unit algorithms have 
access to aggregate order information in order to comply with their 
requirement to facilitate openings and closings).
    \12\ See Rule 98(c)(3)(A).
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    Finally, the requirements in current Rule 36.31(c) that a DMM unit 
must maintain records of all written communications sent from or to the 
DMM via the Permitted Communications Device in accordance with Rule 440 
and SEC Rule 17a-4(b)(4) \13\ and in such format as may be prescribed 
by the Exchange, and the requirement in current Rule 36.31(d) that a 
DMM's member organization must establish policies and procedures 
reasonably designed to ensure that use of the Permitted Communications 
Device is consistent with all SEC rules and Exchange rules, policies 
and procedures, would remain unchanged.
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    \13\ See Rule 440 (Books and Records) & 17 CFR 240.17a-4(b)(4).
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    The Exchange believes that allowing DMM units to use a Permitted 
Communications Device to communicate with issuers from the Floor is 
appropriate because the DMM units would continue to be subject to the 
requirements of Rule 98 and existing restrictions on the use of 
Permitted Communications Devices.
    The proposed rule change would in no way alter the obligations of a 
DMM unit to meet existing requirements under Rule 98 to, among other 
things, protect non-public order information and maintain appropriate 
information barriers in accordance with Rule 98. Because DMM units 
would continue to be subject to Rule 98, while on the Floor, DMM unit 
personnel could not use the Permitted Communications Device to 
communicate with issuers in violation of Rule 98. For example, DMM 
units would continue to be subject to the provisions of Rule 98 
governing restrictions on communications with off-Floor individuals or 
systems responsible for making trading decisions in related products. 
The Exchange also believes that prohibiting written electronic 
communications from the Floor before the open and going into the close 
further assists DMM units in protecting non-public order information 
when communicating with issuers from the Floor.
    DMM units would also continue to be obligated to program its 
communications system so that a Permitted Communications Device would 
not operate in a manner enabling written electronic communications to 
or from any location or individual other than as described in proposed 
amended Supplementary Material .31. Among other things, the DMM unit 
would be required to program its communications system to ensure that 
messages cannot be forwarded by DMM Floor personnel to anyone at the 
issuer with whom Floor personnel are not permitted to communicate.
    Finally, the Exchange believes that use of auditable written 
electronic communications as the only permitted method for DMM units to 
communicate with issuers from the Floor and the related retention 
requirements would facilitate and enhance the Exchange's existing 
regulatory program. In particular, the Exchange would be able to review 
the email system operating the connections between the Floor and the 
issuer, the related written supervisory procedures, and both the 
content of, and participants in, any written communications.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\14\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\15\ 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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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes that the proposed requirement 
that DMMs maintain regular contact with listed issuers would foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and would remove impediments to and perfect 
the mechanism of a free and open market and a national market system by 
promoting a better understanding of the needs of listed issuers and 
fostering communications among DMMs and listed issuers. The Exchange 
believes that routine and regular contacts between DMMs and listed 
issuers should be encouraged and will help to foster an understanding 
of the DMM function, the operations of the Exchange market, and the 
markets that are maintained in the listed issuers' securities, as well 
as assisting DMMs to better perform their functions, thereby removing 
impediments to and perfecting the mechanism of a free and open market 
and a national market system. Moreover, the Exchange believes that 
excluding ADRs from the proposed requirement is not inconsistent with 
this goal because the shares underlying ADRs are not primarily listed 
and traded on the Exchange. The Exchange also believes that the 
proposed amendments to Rule 36 support the mechanism of free and open 
markets by facilitating DMM communications with issuers from the Floor 
during the trading day, subject to the safeguards described above.
    Further, the proposed rule change is designed to prevent fraudulent 
and manipulative acts and practices and would be consistent with the 
public interest and the protection of investors because of the numerous 
safeguards surrounding the manner and form in which DMMs can 
communicate with listed issuers proposed for inclusion in Rules 104 and 
36. The proposed safeguards would include:
     Requiring communications to occur with a very senior 
official designated by the listed issuer;
     requiring that the official designated by the listed 
issuer not be involved in market or trading operations for or on behalf 
of the listed issuer or with respect to the listed security;
     requiring employees of the DMM unit to comply with the 
requirements of Rule 98 with respect to the information that may be 
shared with the listed issuer contact during the required 
communications, including written electronic communications from the 
Floor;
     preventing employees of the DMM unit from communicating 
with a listed issuer contact from the Floor via telephone;
     requiring that, while on the Floor, employees of the DMM 
unit only communicate with a listed issuer contact in written 
electronic form using a monitored Permitted Communications Device; and
     prohibiting written electronic communications from the 
Floor with the listed issuer contact during the busiest part of the 
trading day from 9:15 a.m. E.T. until the security is opened and 
beginning fifteen minutes before the scheduled close of trading until 
the security is closed.
    The Exchange believes that these proposed safeguards establish an 
appropriate regulatory framework for supervising and monitoring 
mandated DMM communications with listed

[[Page 11385]]

issuers consistent with the objectives of Section 6(b)(5) of the 
Act.\16\
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    \16\ 15 U.S.C. 78f(b)(5).
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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 Exchange does not 
believe that the proposed rule change will impose any burden on 
competition because the proposed change relates to how DMMs communicate 
with their listed issuers and proposes no change for other market 
participants. In addition, the Exchange does not believe that the 
proposed changes will impose any competitive burden because DMMs will 
operate in the same manner, including from the Floor, when 
communicating with issuers.

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 rule-comments@sec.gov. Please include 
File Number SR-NYSE-2019-09 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-2019-09. 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-2019-09 and should be submitted on 
or before April 16, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-05698 Filed 3-25-19; 8:45 am]
BILLING CODE 8011-01-P


