[Federal Register Volume 86, Number 134 (Friday, July 16, 2021)]
[Notices]
[Pages 37779-37782]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15103]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 92373; File No. SR-NYSE-2020-93]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Partial Amendment No. 2 and Order Granting 
Accelerated Approval To Proposed Rule Change, as Modified by Partial 
Amendment No. 2, To Amend NYSE Rules 7.35 and 7.35A

July 12, 2021.

I. Introduction

    On November 3, 2020, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend Rule 7.35 regarding 
dissemination of Auction Imbalance Information if a security is an IPO 
or Direct Listing and has not had its IPO Auction or Direct Listing 
Auction, and Rule 7.35A regarding DMM consultations in connection with 
an IPO or Direct Listing. The proposed rule change was published for 
comment in the Federal Register on November 17, 2020.\3\ On December 
18, 2020, the Commission extended to February 15, 2020, the time 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\
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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. 90387 (Nov. 10, 
2020), 85 FR 73322 (Nov. 17, 2020) (``Notice'').
    \4\ See Securities Exchange Act Release No. 90723 (Dec. 18, 
2020), 85 FR 84446 (Dec. 28, 2020).
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    On February 12, 2021, the Commission instituted proceedings under 
Section 19(b)(2)(B) of the Act \5\ to determine whether to approve or 
disapprove the proposal.\6\ On April 9, 2021, the Exchange filed 
Amendment No. 1 to the proposed rule change. On May 7, 2021, the 
Commission extended the time period for approving or disapproving the 
proposal for an additional 60 days until July 15, 2021.\7\ On May 11, 
2021, the Exchange withdrew Partial Amendment No. 1 and filed Partial 
Amendment No. 2 to the proposal for inclusion in the public comment 
file.\8\ The Commission has not received comments on the proposed rule 
change, as modified by Partial Amendment No. 2.
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    \5\ 15 U.S.C. 78s(b)(2)(B).
    \6\ See Securities Exchange Act Release No. 91121, (Feb. 12, 
2021), 86 FR 10386 (Feb. 19, 2021) (``Order Instituting 
Proceedings'').
    \7\ See Securities Exchange Act Release No. 91791 (May 7, 2021), 
86 FR 26110 (May 12, 2021).
    \8\ In Partial Amendment No. 2, the Exchange proposes to (1) 
update NYSE Rule 7.35A(g)(1) in Exhibit 5 of the proposal to 
incorporate the term ``Selling Shareholder Direct Floor Listing'' to 
reflect the text of NYSE Rule 7.35A(g)(1) as recently amended, and 
(2) provide additional background for the proposal in response to 
the Commission's request for comment in the Order Instituting 
Proceedings. See Letter from Martha Redding, Associate General 
Counsel, NYSE LLC to Secretary, Commission (May 11, 2021). Partial 
Amendment No. 2 is available at https://www.sec.gov/comments/sr-nyse-2020-93/srnyse202093-8785691-237727.pdf.
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    The Commission is publishing this notice to solicit comment on 
Partial Amendment No. 2 to the proposed rule change from interested 
persons, and is approving the proposed rule change, as modified by 
Partial Amendment No. 2, on an accelerated basis.

[[Page 37780]]

II. Description of the Proposal, As Modified by Partial Amendment No. 2 
\9\ and Order Instituting Proceedings
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    \9\ See Notice, supra note 3, for a complete description of the 
proposal as originally filed.
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A. Description of the Proposal As Modified by Partial Amendment No. 2

    The Exchange proposes to (1) amend NYSE Rule 7.35 to make permanent 
that the Exchange would disseminate Auction Imbalance Information if a 
security is an IPO or Direct Listing and has not had its IPO Auction or 
Direct Listing Auction, and (2) amend NYSE Rule 7.35A regarding DMM 
consultations in connection with an IPO Auction or Direct Listing 
Auction.\10\
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    \10\ In Partial Amendment No. 2, the Exchange also proposes to 
update the text to NYSE Rule 7.35A(g)(1) in the Exhibit 5 to 
correctly reflect the text of that rule as recently amended. See 
supra note 8 and accompanying text.
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NYSE Rule 7.35--Auction Imbalance Information
    The Exchange proposes to make permanent that the Exchange would 
disseminate Auction Imbalance Information if a security is an IPO or 
Direct Listing \11\ and has not had its IPO Auction or Direct Listing 
Auction.\12\ The Exchange states that disseminating Auction Imbalance 
Information in advance of an IPO Auction or Direct Listing Auction 
would promote transparency in advance of these Auctions, which would 
benefit investors and other market participants.\13\
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    \11\ As used in Exchange Rules, the term ``Direct Listing'' 
means a security that is listed under Footnote (E) to Section 
102.01B of the Listed Company Manual, which can be either a 
``Selling Shareholder Direct Floor Listing'' or a ``Primary Direct 
Floor Listing.'' See NYSE Rule 1.1(f).
    \12\ See Notice, supra note 3, 85 FR at 73323. Commentaries .01 
and .02 to Rule 7.35, currently in effect on a temporary basis 
through August 31, 2021, provide for the dissemination of Auction 
Imbalance Information if a security is an IPO or Direct Listing and 
has not had its IPO Auction or Direct Listing Auction. See 
Securities Exchange Act Release No. 91778 (May 5, 2021), 86 FR 25902 
(May 11, 2021) (SR-NYSE-2021-29).
    \13\ See Notice, supra note 3, 85 FR at 73323.
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    As part of the proposed change, the Exchange proposes that the 
Imbalance Reference Price for determining the Auction Imbalance 
Information for either an IPO Auction or a Direct Listing Auction would 
be determined in the same manner as currently provided for under the 
temporary Commentaries .01 and .02 to NYSE Rule 7.35, respectively.\14\ 
Specifically, the Imbalance Reference Price for determining the Auction 
Imbalance Information for a Core Open Auction under NYSE Rule 
7.35A(e)(3) is the Consolidated Last Sale Price, bound by the bid and 
offer of any published pre-opening indication.\15\ Because the 
definition of Imbalance Reference Price does not currently specify what 
the Consolidated Last Sale Price would be for an IPO Auction or Direct 
Listing Auction (which does not exist because the security has not been 
previously listed on an exchange), the Exchange proposes to amend the 
definition of Consolidated Last Sale Price in NYSE Rule 7.35(a)(11)(A) 
to provide that: (i) For an IPO that has not had its IPO Auction, the 
Consolidated Last Sale Price would mean the security's offering price; 
and (ii) for a Direct Listing that has not had its Direct Listing 
Auction, the Consolidated Last Sale Price would mean the Indication 
Reference Price for such security.\16\
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    \14\ See id.
    \15\ See Notice, supra note 3, 85 FR at 73323.
    \16\ See id.
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NYSE Rule 7.35A--DMM Consultations
    The Exchange proposes to amend NYSE Rule 7.35A(g)(1) to provide 
that a DMM may consult with an underwriter or financial advisor for 
initial listings or follow-on offerings for the issuer of such 
security.\17\ The Exchange represents that the proposed rule text 
reflects long-standing practice relating to the type of consultations 
that a Designated Market Maker (``DMM'') may have with an underwriter 
or financial advisor.\18\ The Exchange further proposes to specify that 
any such consultations will be conducted by an underwriter or financial 
advisor relaying information to the DMM via either a Floor broker or 
Exchange staff.\19\ The Exchange represents that, as with current 
practice, the only consultations that would be required in Exchange 
rules would be in connection with a Selling Shareholder Direct Floor 
Listing that has not had recent sustained history of trading in a 
Private Placement Market prior to listing.\20\ The Exchange states that 
it believes that this proposed rule would promote transparency and 
clarity in Exchange rules by specifying the existing process whereby a 
DMM may consult with an underwriter or financial advisor in connection 
with a security having its initial listing on the Exchange or for a 
follow-on offering.\21\
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    \17\ See Notice, supra note 3, 85 FR at 73324.
    \18\ See id.
    \19\ See id.
    \20\ See id.
    \21\ See id.
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B. Order Instituting Proceedings

    In the Order Instituting Proceedings, the Commission requested 
comment on, among other things: (1) Whether the proposed rule should 
specify what is a permitted consultation provided for in the proposed 
amendments to NYSE Rule 7.35A; (2) whether there any types of 
information that the underwriter or financial advisor should be 
prohibited from conveying to the DMM in these consultations; (3) 
whether a DMM should be permitted to communicate directly with the 
underwriter or financial advisor with respect to these consultations, 
rather than through a Floor broker or a member of the Exchange's staff; 
and (4) whether the Exchange's rules should distinguish between DMM 
consultations with underwriters or financial advisors with respect to 
follow-on offerings for securities that have a market value reflected 
in trading prices as opposed to initial offerings.\22\
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    \22\ See Order Instituting Proceedings, supra note 6, 86 FR at 
10387.
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    In response to the questions raised in the Order Instituting 
Proceedings, the Exchange states that there is a long-standing practice 
on the Trading Floor for DMMs to communicate with underwriters via 
Floor brokers in connection with IPO Auctions and Core Open Auctions 
for follow-on offerings.\23\ According to the Exchange, this practice 
is consistent with Exchange rules, which permit Floor brokers to use 
cellular phones at the point of sale, including to relay market look 
information off the Trading Floor.\24\ The Exchange states its belief 
that this practice also promotes a fair and orderly and transparent 
auction process because any information that is relayed from the 
underwriter to the DMM or from the DMM to the underwriter is announced 
on the Trading Floor, and is thereby available to anyone at the point 
of sale.\25\ The Exchange also states that, to the extent the DMM 
receives information that would affect the opening price, that 
information would be incorporated into the pre-opening indication 
published by the DMM, which is disseminated via both proprietary data 
feeds and the Consolidated Tape. The Exchange states that when the 
Exchange introduced Direct Listing Auctions, DMMs met their obligation 
to consult with financial advisors using the same process.\26\
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    \23\ See Partial Amendment No. 2, supra note 8, at 7.
    \24\ See id.
    \25\ See id.
    \26\ See Partial Amendment No. 2, supra note 8, at 7-8.
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    The Exchange states that the proposal would specify in Exchange 
rules this long-standing practice with only one proposed difference--
specifically, that the Exchange proposes to provide an underwriter or 
financial advisor the choice to use either a Floor broker or

[[Page 37781]]

Exchange staff to relay information to and from the DMM.\27\ The 
Exchange states that it has been operating in this manner on a 
temporary basis during the period when there have been reduced DMM and 
Floor broker staff on the Trading Floor to reduce the spread of COVID-
19.\28\ The Exchange states its belief that if an underwriter or 
financial advisor chooses to use Exchange staff to relay information, 
it would still be an open and transparent process, because any 
information that Exchange staff request of a DMM would be relayed to 
anyone at the point of sale, and any information that an underwriter or 
financial advisor provides to Exchange staff would be relayed to the 
DMM at the point of sale, again, available to anyone else standing in 
the crowd.\29\
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    \27\ See Partial Amendment No. 2, supra note 8, at 8.
    \28\ See id.
    \29\ See id.
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    The Exchange states its belief that it is not necessary for 
Exchange rules to impose any restrictions on the type of information 
that is relayed from an underwriter or financial advisor to the DMM and 
vice versa because, in the Exchange's view, the manner of such 
communications makes them available to all Floor brokers that choose to 
be at the point of sale, and if the communications impact pricing, that 
information would be incorporated into the pre-opening indication 
published by the DMM and disseminated via both proprietary data feeds 
and the Consolidated Tape.\30\ The Exchange also states its belief 
that, because any such communications are available to any Floor 
brokers at the point of sale, and could be shared with customers of 
those Floor brokers, Exchange rules do not need to limit the 
information an underwriter or financial advisor may ask to be relayed 
to the DMM by a Floor broker or Exchange staff.\31\ The Exchange 
further states that having a Floor-based intermediary between an 
underwriter or financial advisor and the DMM ensures an open and 
transparent process on the Trading Floor, and that, therefore, in the 
Exchange's view, Exchange rules do not need to be modified at this time 
to permit direct communications between the DMM and underwriter or 
financial advisor.\32\ Finally, the Exchange states that, for similar 
reasons, the Exchange does not believe that the permissible method of 
communication needs to be distinguished among an IPO Auction, Direct 
Listing Auction, or Core Open Auction in connection with a follow-on 
offering.\33\
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    \30\ See id.
    \31\ See id.
    \32\ See id.
    \33\ See id.
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III. Discussion and Commission Findings

    After careful review, the Commission is approving the proposed rule 
change, as modified by Amendment No. 2, for the reasons discussed 
below.\34\ The Commission finds that the proposed rule change, as 
modified, is consistent with the requirements of the Act and the rules 
and regulations thereunder applicable to a national securities 
exchange, including Section 6(b)(5) of the Exchange Act,\35\ 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 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 are not designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
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    \34\ In approving this proposed rule change, the Commission has 
considered the proposed rule change's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \35\ 15 U.S.C. 78f(b)(5).
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    The proposed change to make permanent that the Exchange would 
disseminate Auction Imbalance Information if a security is an IPO or 
Direct Listing and has not had its IPO Auction or Direct Listing 
Auction is reasonably designed to promote fair and orderly IPO Auctions 
and Direct Listing Auctions, because including this information in the 
Auction Imbalance Information on the same terms that it is disseminated 
for other Core Open Auctions would promote transparency in advance of 
an IPO Auction or Direct Listing Auction. The Exchange initially 
excluded IPOs and Direct Listings from Order Imbalance Information 
because Exchange systems at the time did not have access to interest 
represented in the crowd by Floor brokers.\36\ Since the Exchange 
transitioned to its Pillar trading platform in August 2019, all Floor 
broker interest intended for a Core Open Auction, IPO Auction, or 
Direct Listing Auction must be entered electronically,\37\ and Exchange 
systems will include such orders in the Auction Imbalance 
Information.\38\ Because Floor broker interest is now entered 
electronically and can be included in Auction Imbalance Information for 
all Core Open Auctions, the original rationale for excluding such 
information has become moot.
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    \36\ See Securities Exchange Act Release Nos. 74837 (April 29, 
2015), 80 FR 25741 (May 5, 2015) (SR-NYSE-2015-19) (Notice of filing 
and immediate effectiveness of proposed rule change); and 82627 
(Feb. 2, 2018), 83 FR 5650 (Feb. 8, 2018) (SR-NYSE-2017-30) 
(Approval Order).
    \37\ See Securities Exchange Act Release No. 85962 (May 29, 
2019), 84 FR 26188, 26208 at n.73 (June 5, 2019) (SR-NYSE-2019-05) 
(Approval Order). As part of the transition to Pillar, the Exchange 
replaced the term ``Order Imbalance Information'' with ``Auction 
Imbalance Information.''
    \38\ See Notice, supra note 3, 85 FR at 73323.
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    The Commission also finds that the proposal to make permanent the 
ability of an underwriter or financial advisor to convey information to 
the DMM in connection with initial listings and follow-on offerings via 
either a Floor broker or Exchange staff is consistent with the Act. 
Whether an underwriter or financial advisor relays information to the 
DMM via Exchange staff or a Floor broker, the process would remain open 
and transparent because all such communications would occur on the 
Exchange floor in the presence of all persons present in the trading 
crowd and because, if those communications impact the anticipated 
pricing of the auction, that information would be incorporated into the 
pre-opening indication published by the DMM and disseminated via both 
proprietary data feeds and the Consolidated Tape, which provides 
additional transparency.\39\ The Commission, however, reminds market 
participants that the federal securities laws, including Regulation M 
and other antifraud and anti-manipulation provisions, will continue to 
apply and that the proposed amendments to NYSE Rule 7.35A(g)(1) do not 
modify or provide any relief from--or create an exception to--these 
provisions of the federal securities laws and regulations, including 
Regulation M.\40\ Further, reliance on NYSE Rule 7.35A(g)(1) or any 
amendments thereto would not create a safe harbor with respect to 
violations of Regulation M.
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    \39\ See id.
    \40\ See, e.g., Securities Exchange Act Release No. 90758 (Dec. 
22, 2020), 85 FR 85807, 85813 (Dec. 29, 2020) (SR-NYSE-2019-67) 
(stating, in approving the Exchange's proposed modification to its 
direct listing rules, that the Exchange had added language to its 
rule proposal ``reminding financial advisers to an issuer and the 
DMM that any consultations with the financial advisor must be 
conducted in a manner consistent with the federal securities laws, 
including Regulation M and other anti-manipulation requirements,'' 
and further stating that the Exchange had represented that it had 
retained FINRA to monitor such compliance and that it planned to 
issue regulatory guidance in this area).
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    The proposed change to NYSE Rule 7.35A(g)(1) is reasonably designed 
to protect investors and the public interest and provide greater 
clarity and transparency in Exchange rules by

[[Page 37782]]

codifying the current practice for DMM consultations with the 
underwriter or financial advisor of an issuer of a security in 
connection with initial listings and follow-on offerings. The Exchange 
represents that this proposed rule change would not result in any 
changes to how a DMM would determine the Auction Price for Core Open 
Auctions under NYSE Rule 7.35A(g).\41\
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    \41\ See Notice, supra note 3, 85 FR at 73325.
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    For the reasons discussed above, the Commission finds that the 
proposed rule change, as modified by Amendment No. 2, is consistent 
with the requirements of the Act and in particular Section 6(b)(5) 
because it is reasonably 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, and is not designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers.

IV. Solicitation of Comments on Partial Amendment No. 2 to the Proposed 
Rule Change

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether Partial Amendment 
No. 2 to 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-2020-93 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-2020-93. 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 and on the 
Exchange's website https://www.nyse.com/regulation/rule-filings?market=NYSE. 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-2020-93 
and should be submitted on or before August 6, 2021.

V. Accelerated Approval of the Proposed Rule Change, as Modified as 
Partial Amendment No. 2

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\42\ to approve the proposed rule change, as modified by 
Partial Amendment No. 2, prior to the 30th day after the date of 
publication of Partial Amendment No. 2 in the Federal Register. As 
noted above, Partial Amendment No. 2 does not amend the substance of 
the proposal as initially filed but instead corrects reference in the 
rule text in the Exhibit 5 and provides additional background on the 
proposal. Because Partial Amendment No. 2 does not materially alter the 
substance of the proposed rule change or raise unique or novel 
regulatory issues, the Commission finds that accelerated approval of 
Partial Amendment No. 2 is consistent with the Act.
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    \42\ 15 U.S.C. 78s(b)(2).
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    For the reasons discussed above, the Commission finds that Partial 
Amendment No. 2 is reasonably designed to protect investors and the 
public interest, and consistent with the requirements of the Act. 
Accordingly, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Act,\43\ to approve the proposed rule change, as 
modified by Partial Amendment No. 2, on an accelerated basis.
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    \43\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\44\ that the proposed rule change (SR-NYSE-2020-93), as 
modified by Partial Amendment No. 2, be, and it hereby is, approved on 
an accelerated basis.
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    \44\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\45\
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    \45\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15103 Filed 7-15-21; 8:45 am]
BILLING CODE 8011-01-P


