[Federal Register Volume 86, Number 244 (Thursday, December 23, 2021)]
[Notices]
[Pages 73060-73069]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27814]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93809; File No. SR-NYSE-2021-44]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To Amend NYSE Rules 7.31, 7.35, 7.35B, 7.35C, 98, 
and 104 Relating to the Closing Auction

December 17, 2021.

I. Introduction

    On September 3, 2021, 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 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Rules 7.31 (Orders and Modifiers), 7.35 
(General), 7.35B (DMM-Facilitated Closing Auctions), 7.35C (Exchange-
Facilitated Auctions), 98 (Operation of a DMM Unit), and 104 (Dealings 
and Responsibilities of DMMs) relating to the Closing Auction. The 
proposed rule change was published for comment in the Federal Register 
on September 22, 2021.\3\ The Commission has received one comment 
letter on the proposal.\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. 93037 (Sept. 16, 
2021), 86 FR 52719 (Sept. 22, 2021) (SR-NYSE-2021-44) (``Notice'').
    \4\ See Anonymous Letter (Sept. 27, 2021).
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    On November 1, 2021, the Commission extended the time period within 
which to either approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
approve or disapprove the proposed rule change, to December 21, 
2021.\5\ This order institutes proceedings under Section 19(b)(2)(B) of 
the Act to determine whether to approve or disapprove the proposal.
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    \5\ See Securities Exchange Act Release No. 93488 (Nov. 1, 
2021), 86 FR 61352 (Nov. 5, 2021).
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II. Description of the Proposal 6
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    \6\ For further details about the proposal, see the Notice, 
supra note 3.
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    The Exchange has proposed to amend NYSE Rules 7.31 (Orders and 
Modifiers), 7.35 (General), 7.35B (DMM-Facilitated Closing Auctions), 
7.35C (Exchange-Facilitated Auctions), 98 (Operation of a DMM Unit), 
and 104 (Dealings and Responsibilities of DMMs) relating to the Closing 
Auction.\7\
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    \7\ Capitalized terms used in connection with Auctions on the 
Exchange are defined in NYSE Rule 7.35(a). See Notice, supra note 3, 
86 FR 52719 n.4.
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Proposed Amendments to NYSE Rules 7.31, 7.35, 7.35B, and 7.35C

    The Exchange proposes to amend NYSE Rules 7.31, 7.35, and 7.35B to 
revise the DMM-facilitated Closing Auction process. According to the 
Exchange, the proposed changes would modify how the Closing Auction 
Price would be determined and how DMMs would be able to participate in 
the Closing Auction, but would not change DMMs' NYSE Rule 104 
obligation to facilitate the Closing Auction, including to supply 
liquidity as needed. The Exchange asserts that the proposed changes 
would make the Closing Auction more transparent and deterministic, 
while still retaining the DMMs' unique obligation to facilitate the 
Closing Auction.\8\
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    \8\ See id. at 52720.
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    The Exchange also proposes to make conforming changes to NYSE Rule 
7.35C to revise the orders eligible to participate in Exchange-
facilitated Closing Auctions.\9\
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    \9\ See id.
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    Proposed Changes to Closing Auction Price. The Exchange proposes to 
amend NYSE Rule 7.35B(g) to add explicit price parameters to the 
Closing Auction Price. Under current Exchange rules, the DMM is 
responsible for determining a Closing Auction Price that is able to 
satisfy all better-priced orders on the Side of the Imbalance. This 
requirement would not change. The Exchange proposes to add that the 
Closing Auction Price determined by the DMM must also be at a price 
that is at or between the last-published Imbalance Reference Price and 
Continuous Book Clearing Price. The Exchange asserts that adding this 
proposed Closing Auction Price parameter is consistent with how the 
Closing Auction Price has been determined for the vast majority of 
Closing Auctions and that, in the period January 1, 2021 to July 23, 
2021, 96.5% of all Closing Auctions were priced at or between the last-
published Imbalance Reference Price and Continuous Book Clearing Price, 
and, during this same period, 94.9% of closing auction volume priced 
within these parameters.\10\ The Exchange further asserts that this 
proposed change would eliminate any potential for a Closing Auction 
Price to be lower (higher) than the last-published Imbalance Reference 
Price in the case of a Buy (Sell) Imbalance. The Exchange further 
asserts that this proposed change would also promote transparency and 
determinism with respect to the Closing Auction because the Closing 
Auction Price would be required to be within a pre-determined range of 
prices that have been disseminated via the Closing Auction Imbalance 
Information and that cannot be changed after the end of Core Trading 
Hours.\11\
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    \10\ See id. at 52720.
    \11\ According to the Exchange, the only circumstance in which 
the Continuous Book Clearing Price could change after the end of 
Core Trading Hours would be if NYSE Rule 7.35B(j)(2)(A), described 
below, were invoked and the requirement to enter all order 
instructions by the end of Core Trading Hours were temporarily 
suspended for a security. See id. at 52721.
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    Proposed Changes to How DMMs Would Participate in the Closing 
Auction. The Exchange proposes to change how DMMs would be able to 
enter buy and sell interest to participate in the Closing Auction by 
limiting the circumstances of when a DMM could enter or cancel interest 
after the end of Core Trading Hours.\12\
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    \12\ See id.
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    Currently, NYSE Rule 7.35B(a)(2) provides that a DMM may enter or

[[Page 73061]]

cancel DMM Interest after the end of Core Trading Hours in order to 
supply liquidity as needed to meet the DMM's obligation to facilitate 
the Closing Auction in a fair and orderly manner. The Exchange states 
that, consistent with this current NYSE Rule, it does not block a DMM 
from entering or canceling DMM Interest after the end of Core Trading 
Hours. Instead, according to the Exchange, the DMM's determination of 
whether to enter or cancel DMM Interest after the end or Core Trading 
Hours is subject to the DMM's obligation to maintain a fair and orderly 
market, as specified in Rule 104.\13\
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    \13\ See id.
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    The Exchange proposes to amend NYSE Rule 7.35B(a)(2) to provide 
that after the end of Core Trading Hours, a DMM may enter only DMM 
Auction Liquidity and only if such interest would offset any Unpaired 
Quantity at the Closing Auction Price. With this change, the Exchange 
states, DMMs would be systematically restricted with respect to the 
side, price, and quantity of the DMM Auction Liquidity that they may 
enter after the end of Core Trading Hours. According to the Exchange, 
because DMM Auction Liquidity would have priority over at-priced 
Yielding Orders (described in more detail below), the Exchange further 
proposes that offsetting at-priced Yielding Orders would not be 
included in the calculation of the Unpaired Quantity that a DMM may 
offset with DMM Auction Liquidity. With these proposed changes, the 
Exchange states, a DMM could enter DMM Auction Liquidity after the end 
of Core Trading Hours only to close a security at a price that is at or 
closer to the Imbalance Reference Price than the published Continuous 
Book Clearing Price.\14\ The Exchange proposes to systematically 
enforce this new requirement and block any DMM buy and sell interest 
that does not meet these new requirements.\15\
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    \14\ The Exchange has provided the following example. If there 
is an Imbalance to buy, the Imbalance Reference Price is $10.00, and 
the Continuous Book Clearing Price is $10.10, the DMM could enter 
DMM Auction Liquidity to sell only at prices ranging from $10.10 to 
$10.00 and only if there is Unpaired Quantity at such prices. If the 
DMM determines to close that security at $10.03 and there is 
Unpaired Quantity to buy of 1,000 shares at that price (excluding 
at-priced offsetting Yielding Orders to sell), the DMM could enter 
DMM Auction Liquidity to sell up to only 1,000 shares. See id.
    \15\ See id.
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    The Exchange states that it proposes to cancel DMM Orders (i.e., 
DMM buy and sell orders resting on the Exchange Book) at the end of 
Core Trading Hours because it also proposes that DMM Orders would not 
be eligible to participate in the Closing Auction.\16\ Therefore, 
according to the Exchange, DMM Orders would not be included in the 
Auction Imbalance Information for the Closing Auction. The Exchange 
also proposes to eliminate the ability of a DMM to cancel any DMM 
Interest after the end of Core Trading Hours.\17\
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    \16\ The Exchange also proposes to amend NYSE Rule 
7.35B(j)(2)(A)(iii) to provide that DMM Orders would be rejected if 
entered after the end of Core Trading Hours (i.e., during the 
``Solicitation Period'') to offset an extreme order imbalance at or 
near the close. See id.
    \17\ See id.
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    The Exchange states that with this proposed change to NYSE Rule 
7.35B(a)(2), DMMs would have fewer tools available to manage the risk 
of the DMM leading into the Closing Auction, particularly since their 
DMM Orders would automatically be canceled before the Closing Auction 
and they would be systematically restricted with respect to the side, 
price, and quantity of DMM Auction Liquidity that they may enter after 
the end of Core Trading Hours. The Exchange also states that, as 
required by their obligations in Rule 104, in connection with the 
Closing Auction, DMMs would still be required to contribute their own 
capital to supply liquidity as needed to assist in the maintenance of a 
fair and orderly market. In addition, according to the Exchange DMMs 
would continue to have an obligation with respect to determining a 
Closing Auction Price that satisfies all better-priced orders on the 
Side of the Imbalance.\18\
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    \18\ See id.
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    The Exchange states that, in recognition of both the continued 
obligations of DMMs with respect to the Closing Auction and their 
ongoing need to manage the risk of the DMM leading into the Closing 
Auction, it proposes to provide DMMs with different tools to 
participate in the Closing Auction. Specifically, the Exchange proposes 
to make the existing Closing D Order type available to DMMs. Currently, 
according to the Exchange, only Floor brokers may enter Closing D 
Orders. The Exchange states that, to enable DMMs to enter Closing D 
Orders, it proposes to amend NYSE Rule 7.31(c)(2)(C)(i) to provide that 
a Closing D Order may be entered only by a Floor broker or DMM. The 
Exchange proposes that Closing D Orders would function for DMMs in a 
similar manner as they currently function for Floor brokers, with the 
following differences:
    First, the Exchange would not offer the Yielding Modifier to DMMs, 
and therefore a Closing D Order entered by the DMM could not include a 
Yielding Modifier.\19\ The Exchange proposes to amend NYSE Rule 
7.31(c)(2)(C)(iii) to add the clause ``entered by a Floor broker'' to 
make clear that adding a Yielding Modifier to a Closing D Order would 
be available only to Floor brokers.\20\
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    \19\ According to the Exchange, the Yielding Modifier is not 
necessary for DMMs because their transactions on the Exchange are as 
a dealer acting in the capacity as a market maker, and they are 
therefore not subject to the trading prohibitions specified in 
Section 11(a) of the Act. 15 U.S.C. 78k(a)(1) and 15 U.S.C. 
78k(a)(1)(i). See id.
    \20\ See id.
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    Second, the Exchange proposes that, unlike Closing D Orders in 
NYSE-listed securities entered by a Floor broker, Closing D Orders 
entered by a DMM in NYSE-listed securities would not be able to 
participate in a Core Open Auction or Trading Halt Auction.\21\ The 
Exchange states that, as currently set forth in NYSE Rule 
7.31(c)(2)(C)(ii), on arrival, a Closing D Order is processed as a 
Limit Order and may trade or route prior to the Closing Auction, which, 
according to the Exchange, means that such orders are eligible to trade 
both in continuous trading and in Auctions prior to the Closing 
Auction. The Exchange states that, because the purpose of providing 
Closing D Orders to DMMs is to provide them with a tool to participate 
in Closing Auctions, the Exchange does not believe that Closing D 
Orders entered by DMMs in NYSE-listed securities would need to 
participate in a Core Open Auction or Trading Halt Auction on the 
Exchange.\22\
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    \21\ The Exchange states that it does not propose this 
difference for Closing D Orders entered by DMMs in UTP Securities as 
such orders would be routed for participation in an opening or 
reopening auction on the primary listing market and DMMs would not 
have a unique role in those auctions. The Exchange states that, by 
contrast, because DMMs have a parity allocation in Core Open 
Auctions and Trading Halt Auctions, the Exchange believes it would 
simplify Exchange rules to provide that such orders would not 
participate in Exchange Core Open and Trading Halt Auctions. See id. 
at 52722.
    \22\ See id.
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    The Exchange states that the reason it would accept, or not cancel, 
a Closing D Order entered by a DMM in the last ten minutes of trading 
is that, as provided for in NYSE Rule 7.35(d), the Exchange will not 
open or reopen a security that has not yet opened or is halted or 
paused and will not transition to continuous trading if such opening or 
reopening would be in the last ten minutes of trading before the end of 
Core Trading Hours. The Exchange states that it will remain unopened, 
halted, or paused and will close the security as provided for in the 
NYSE Rule 7.35 Series. Because in these circumstances, the Exchange 
would

[[Page 73062]]

proceed to a Closing Auction, the Exchange proposes to accept (or not 
cancel) Closing D Orders entered by DMMs in NYSE-listed securities 
during this ten-minute period, even if the security is in a halt state 
during that period.\23\
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    \23\ See id.
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    According to the Exchange, except for these differences, Closing D 
Orders entered by DMMs would function the same as they do for Floor 
brokers, including that:
     Entry of such orders can begin at 6:30 a.m. (NYSE Rule 
7.34(a)(1)).
     Such orders can be entered in any securities trading on 
the Exchange, including a UTP Security,\24\ and the DMM can provide 
instruction of whether a Closing D Order in a UTP Security would be 
routed to the primary listing market as either a MOC or LOC Order (NYSE 
Rule 7.31(c)(2)(iv)).
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    \24\ The term ``UTP Security'' is defined in NYSE Rule 1.1 to 
mean a security that is listed on a national securities exchange 
other than the Exchange and that trades on the Exchange pursuant to 
unlisted trading privileges. See id.
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     Such orders would be included in the Closing Auction 
Imbalance Information at their undisplayed discretionary price 
beginning five minutes before the end of Core Trading Hours (NYSE Rule 
7.35(b)(1)(C)(ii)).
     Beginning 10 seconds before the scheduled close of 
trading, a request to enter a Closing D Order in any security or to 
cancel, cancel and replace, or modify such order in an Auction-Eligible 
Security would be rejected (NYSE Rule 7.35B(f)(3)).\25\
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    \25\ See id.
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    The Exchange further proposes to exclude Closing D Orders entered 
by a DMM from the definition of ``DMM Orders'' in NYSE Rule 
7.35(a)(9)(B). The Exchange states that, with this change, the proposed 
reference to DMM Orders in the amendment to NYSE Rule 7.35B(a)(2) would 
not include Closing D Orders, and therefore, Closing D Orders entered 
by a DMM would not be canceled at the end of Core Trading Hours. The 
Exchange also proposes a clarifying change to NYSE Rule 7.35(a)(9)(C) 
to provide that DMM After-Auction Orders means ``DMM Orders,'' and not 
just ``orders.'' With this change, according to the Exchange, the 
definition of DMM After-Auction Orders would similarly not include 
Closing D Orders entered by a DMM. The Exchange also proposes to delete 
the phrase ``as defined under Rule 7.31'' in NYSE Rule 7.35(a)(9)(C) as 
unnecessary because the defined term ``DMM Orders'' already references 
NYSE Rule 7.31.\26\
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    \26\ See id.
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    The Exchange asserts that providing DMMs with the ability to enter 
Closing D Orders in their assigned securities would provide them with a 
replacement mechanism both to supply liquidity as needed for the 
Closing Auction, as required by Rule 104(a)(3), and to manage the risk 
of the DMM leading into the Closing Auction, in a manner that is more 
transparent and deterministic than the current process. The Exchange 
proposes that Closing D Orders entered by a DMM would be included in 
the Closing Auction Imbalance Information at their undisplayed 
discretionary price beginning five minutes before the end of Core 
Trading Hours, which is when Closing D Orders entered by Floor brokers 
are included in the Closing Auction Imbalance Information.\27\ With 
this change, according to the Exchange, Closing D Orders entered by 
DMMs would be reflected in the Closing Auction Imbalance Information, 
which is not the case for DMM Interest currently entered or canceled 
after the end of Core Trading Hours. The Exchange states that market 
participants would be able to respond to any changes in the Closing 
Auction Imbalance Information that may result from Closing D Orders 
entered by DMMs by entering interest into the continuous order book or 
retaining the services of a Floor broker to enter Closing D Orders on 
their behalf.\28\
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    \27\ See id. (citing NYSE Rule 7.35(b)(1)(C)(ii)).
    \28\ The Exchange states that, as today, the Closing Auction 
Imbalance Information would not identify the source of orders 
included in the Continuous Book Clearing Price, including whether an 
order is entered by a DMM, Floor broker, or other member 
organization. See id.
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    According to the Exchange, because Closing D Orders entered by DMMs 
would function similarly to Closing D Orders entered by Floor brokers, 
and would not be permitted to be entered or canceled in the last ten 
seconds of trading, the manner by which the Continuous Book Clearing 
Price would be determined would be the same as today and would not 
change in the last ten seconds due to the entry of a Closing D Order. 
The Exchange also states that, because DMMs could not enter or cancel 
any new interest after the end of Core Trading Hours (other than 
offsetting interest), the potential range of Closing Auction Prices 
would no longer be able to be changed by a DMM after the end of Core 
Trading Hours.\29\
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    \29\ See id.
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    The Exchange further asserts that providing DMMs with the ability 
to enter Closing D Orders in all securities that trade on the Exchange, 
including UTP Securities, would generally support the maintenance of a 
fair and orderly market in securities traded on the Exchange by 
providing for a mechanism for DMMs to enter such orders directly. 
Currently, according to the Exchange, a DMM may choose to use a Floor 
broker to enter Closing D Orders in securities that have not been 
assigned to that DMM. The Exchange asserts that allowing DMMs to enter 
Closing D Orders directly would reduce operational complexity and cost 
for DMMs, thereby creating an incentive for additional firms to 
register as a DMM. The Exchange asserts that this proposed change would 
also make it easier for regulatory staff to monitor DMM trading 
activity on the Exchange.\30\
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    \30\ See id.
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    The Exchange also asserts that providing DMMs with the ability to 
enter Closing D Orders in all securities that trade on the Exchange 
would serve as an incentive for additional broker-dealers to register 
as a DMM on the Exchange. The Exchange states that, currently, there 
are numerous costs associated with becoming a DMM. For example, 
according to the Exchange, before being approved to operate as a DMM, 
among other things, a firm must develop and implement DMM-specific 
technology designed to interface with Exchange systems consistent with 
the obligations under NYSE Rule 104 (e.g., to maintain depth and 
continuity in assigned securities and to facilitate Auctions both 
manually and electronically); hire, train, and maintain staff on the 
Trading Floor; and develop and implement policies and procedures and 
surveillances designed to comply with DMM-specific rules (e.g., NYSE 
Rules 36, 98, and 104).\31\ The Exchange states that it understands 
that in the past, to justify incurring such upfront costs, firms would 
not register as a DMM firm unless they had certainty that once they 
started operations as a DMM, they would have had a roster of listed 
securities allocated to the firm. The Exchange states that, in the 
past, this has been achieved by a new entrant acquiring an existing DMM 
firm, with the new firm being allocated the listed securities 
previously allocated to the acquired firm. The Exchange asserts that, 
the absence of such opportunities, which would arise only if an 
existing firm seeks to exit the DMM business,

[[Page 73063]]

providing potential new DMM entrants with additional opportunities to 
provide liquidity across all securities that trade on the Exchange may 
serve as an incentive for new entrants to undertake the costs to 
register as a DMM unit without a significant roster of allocated 
securities. The Exchange asserts that additional DMMs would promote 
diversity of DMMs on the Exchange, providing greater choice to issuers 
when selecting the DMM that would be assigned to their securities.\32\
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    \31\ Pursuant to NYSE Rule 98(c)(1), to operate a DMM unit, a 
member organization must obtain approval from the Exchange. To 
obtain approval, among other things, the DMM unit must maintain and 
enforce written policies and procedures consistent with NYSE Rule 98 
requirements relating both to protecting material non-public 
information generally, and more specifically to protecting against 
the misuse of Floor-based non-public order information.
    \32\ See id. at 52723.
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    DMM Interest Allocation in the Closing Auction. The Exchange states 
that, because of the changes to what type of DMM interest would be 
eligible to participate in a Closing Auction, it proposes to change how 
much such DMM Interest would be allocated in a Closing Auction, as 
described in NYSE Rule 7.35B(h), as follows:
    First, the Exchange proposes to amend NYSE Rule 7.35B(h)(1) to 
provide that better-priced Closing D Orders--whether entered by a Floor 
broker or a DMM--would be guaranteed to participate in the Closing 
Auction (subject to DMM allocation self-trade prevention, described 
below). The Exchange asserts that because DMMs would be entering 
Closing D Orders before the end of Core Trading Hours and such interest 
would be included in the Closing Auction Imbalance Information, if they 
are better-priced orders, they should be included in the Closing 
Auction in the same manner that all other better-priced orders entered 
by other member organizations are allocated in the Closing Auction. The 
Exchange states that it does not consider this a benefit for DMMs 
because all better-priced interest is guaranteed to participate in the 
Closing Auction.\33\ Therefore, according to the Exchange, DMMs would 
not receive a different allocation opportunity from other participants 
for such better-priced Closing D Orders.
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    \33\ See id.
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    Second, the Exchange proposes to amend NYSE Rule 7.35B(h)(2)(A) to 
provide that at-priced Closing D Orders entered by a DMM in securities 
that are assigned to that DMM would be included in the DMM Participant 
\34\ for purposes of a parity allocation. NYSE Rule 7.35B(h)(2) 
currently provides that at-priced orders and DMM Interest of any price 
are not guaranteed to participate in the Closing Auction. The Exchange 
proposes that at-priced Closing D Orders would also not be guaranteed 
to participate in the Closing Auction. In addition, current NYSE Rule 
7.35B(h)(2)(A) further provides that orders ranked Priority 2--Display 
Orders, which include DMM Interest, are ranked on parity by Participant 
pursuant to NYSE Rule 7.37(b)(2)-(7). Accordingly, currently, at-priced 
DMM Interest is allocated on parity by DMM Participant in the Closing 
Auction. The Exchange states that it therefore believes that ranking 
at-priced Closing D Orders entered by a DMM in its assigned securities 
on parity by DMM Participant would not be novel. The Exchange states 
that the distinction from current rules, however, would be that Closing 
D Orders would be required to be entered before the end of Core Trading 
Hours. The Exchange states that by contrast, under the current rules, 
DMMs could receive a parity allocation of at-priced DMM Interest 
entered after the end of Core Trading Hours.\35\
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    \34\ Under NYSE Rule 7.36(a)(5), the term ``DMM Participant'' 
means the DMM assigned to the security. Accordingly, a DMM is 
eligible for a DMM Participant parity allocation only in securities 
assigned to that DMM. See id.
    \35\ See id.
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    In addition, proposed NYSE Rule 7.35B(h)(2)(A) would provide that 
at-priced Closing D Orders entered by a DMM in securities not assigned 
to that DMM would be included in the Book Participant. The Exchange 
states that this allocation methodology would be new because, 
currently, a member organization acting in its capacity as a DMM is not 
permitted to enter orders in securities that are not assigned to it. 
The Exchange states that, because a member organization entering orders 
in NYSE-listed securities not assigned to it in its capacity as a DMM 
would not be functioning as a DMM, the Exchange proposes that such at-
priced Closing D Orders be included in the Book Participant \36\ for 
purposes of parity allocations in the Closing Auction.\37\
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    \36\ Under NYSE Rule 7.36(a)(5), the term ``Book Participant'' 
means orders collectively represented in the Exchange Book that have 
not been entered by a Floor broker or DMM. Pursuant to NYSE Rule 
7.37(b)(5), an allocation to the Book Participant will be allocated 
to orders that comprise the Book Participant by working time. See 
id.
    \37\ See id.
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    Third, the Exchange proposes to amend Rule 7.35B(h)(2) to add new 
subparagraph (E) providing that DMM Auction Liquidity, i.e., the 
offsetting interest that a DMM would be permitted to enter after the 
end of Core Trading Hours in connection with facilitating the Closing 
Auction and that would always be at-priced interest, would be allocated 
after both LOC Orders and Closing IO Orders.\38\ The Exchange states 
that this would be new because currently, all at-priced DMM Interest, 
including that entered after the end of Core Trading Hours, would be 
allocated before at-priced LOC Orders and Closing IO Orders. As 
described above, the Exchange proposes that only at-priced interest 
entered by a DMM before the end of Core Trading Hours, i.e., Closing D 
Orders, would be allocated before LOC Orders and Closing IO Orders. 
According to the Exchange, that would not be a unique benefit because 
currently, all displayed and non-displayed orders, including Closing D 
Orders entered by Floor brokers, are allocated before LOC Orders and 
Closing IO Orders. The Exchange states that, accordingly, DMMs would 
not receive a unique benefit with this allocation sequence.\39\
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    \38\ The Exchange proposes a non-substantive amendment to re-
number current NYSE Rules 7.35B(h)(2)(E) and (F) as proposed NYSE 
Rules 7.35B(h)(2)(F) and (G). See id.
    \39\ See id.
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    As proposed, DMM Auction Liquidity, which can be entered only after 
the end of Core Trading Hours, would be allocated after the following 
at-priced orders have any opportunity to participate in the Closing 
Auction: Orders ranked Priority 2--Displayed Orders and Closing D 
Orders; orders ranked Priority 3--Non-Display Orders; LOC Orders; and 
Closing IO Orders. As further proposed, among at-priced orders, DMM 
Auction Liquidity would receive an allocation opportunity before orders 
ranked Priority 4--Yielding Orders and Closing D Orders with a Yielding 
Modifier. The Exchange asserts that this allocation would be consistent 
with a fair and orderly market because orders with a Yielding Modifier 
are, by their terms, conditional, intended to yield to other available 
interest, and not guaranteed an execution in the Closing Auction.\40\
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    \40\ See id. at 52723-24.
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    The Exchange states that, because DMM Auction Liquidity would be 
allocated ahead of Yielding Orders, the Exchange would not include 
offsetting at-priced Yielding Orders in the calculation of the Unpaired 
Quantity that would be provided to DMMs to let them know the full 
quantity of DMM Auction Liquidity that they would be eligible to trade 
at a price point. The Exchange further states that, because it proposes 
to change how DMM Auction Liquidity would be ranked and allocated in a 
Closing Auction, it proposes to amend the second sentence of NYSE Rule 
7.35(a)(9)(A) \41\ to specify that the ranking and allocation of DMM 
Auction Liquidity, as described in that Rule, would be applicable only 
for a

[[Page 73064]]

Core Open Auction or Trading Halt Auction.\42\
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    \41\ The second sentence of NYSE Rule 7.35(a)(9)(A) currently 
provides that ``[f]or purposes of ranking and allocation in an 
Auction, DMM Auction Liquidity is ranked Priority 2--Display 
Orders.'' See id. at 52724.
    \42\ See id.
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    Finally, the Exchange proposes to amend NYSE Rule 7.35B(h)(3)(A) 
relating to DMM Participant allocation. The current rule addresses how 
DMM Orders would be allocated within the DMM Participant.\43\ The 
Exchange states that, because DMM Orders would no longer participate in 
the Closing Auction, it proposes to delete the current rule text. The 
Exchange proposes that Rule 7.35B(h)(3)(A) would instead address how 
the Exchange would apply self-trade prevention within the DMM 
Participant Allocation.\44\
---------------------------------------------------------------------------

    \43\ Current NYSE Rule 7.35B(h)(3)(A) provides: ``At-priced DMM 
Orders will be placed on the allocation wheel for the Closing 
Auction based on the time of entry and any other orders or interest 
from such DMM will join that position on the allocation wheel. If 
the only DMM Interest available to participate in a Closing Auction 
is DMM Auction Liquidity or better priced DMM Orders or both, such 
DMM Interest will be placed last on the allocation wheel.'' See id.
    \44\ See id.
---------------------------------------------------------------------------

    The Exchange states that a DMM would not be able to enter or cancel 
Closing D Orders in the last ten seconds of Core Trading Hours. In 
addition, according to the Exchange DMMs would be permitted to enter 
DMM Auction Liquidity only after the end of Core Trading Hours, and 
only to offset Unpaired Quantity at the Closing Auction Price. 
Accordingly, the Exchange states, it could be possible that a DMM has a 
Closing D Order to buy (sell) that is eligible to participate in the 
Closing Auction when there is a buy (sell) Unpaired Quantity, and 
therefore the DMM may be entering offsetting DMM Auction Liquidity to 
sell (buy). If the prices of two such contra-side orders either lock or 
cross, the Exchange proposes to apply STP Decrement and Cancel 
(``STPD''), as described in NYSE Rule 7.31(i)(2)(C)(i), to such 
locking/crossing interest.\45\ The Exchange asserts that by applying 
STPD, the Exchange would systematically ensure that DMM Auction 
Liquidity would not trade in a Closing Auction where there are also 
contra-side Closing D Orders entered by the DMM.\46\ According to the 
Exchange, this would also ensure that only the equivalent size of the 
two orders would be canceled. Therefore, the Exchange asserts, such 
cancellation would have minimal impact on how the Closing Auction Price 
would be determined. The Exchange further proposes that if there is 
more than one Closing D order to sell (buy) to be canceled, such orders 
would be canceled in price/time sequence, from lowest (highest) price 
first, and then at each price, from oldest to newest.\47\
---------------------------------------------------------------------------

    \45\ Under NYSE Rule 7.31(i)(2)(C)(i), STPD works as follows: 
``if both orders are equivalent in size, both orders will be 
cancelled back to the originating member organization. If the orders 
are not equivalent in size, the equivalent size will be cancelled 
back to the originating Client ID and the larger order will be 
decremented by the size of the smaller order with the balance 
remaining on the Exchange Book.'' See id.
    \46\ According to the Exchange, the STPD functionality would be 
implemented for DMMs as a tool to help enable them to meet their 
obligations to facilitate the Closing Auction in a fair and orderly 
manner while systematically preventing the DMM from engaging in 
certain trading activity such as ``wash sales.'' The Exchange states 
that it does not propose to implement self-trade prevention for all 
market participants in the Closing Auction, rather only for the 
limited case of DMM Auction Liquidity entered after the end of Core 
Trading Hours. According to the Exchange, because the Closing 
Auction is a single transaction involving many different 
participants at a single clearing price, it would be difficult to 
implement this functionality from a technological and operational 
perspective across multiple parties and all other types of auction 
interest because it would require the Exchange to continually 
provisionally cancel and recalculate the prospective auction. See 
id.
    \47\ See id.
---------------------------------------------------------------------------

    Exchange-Facilitated Auctions. NYSE Rule 7.35C(a)(1) currently 
provides that if the Exchange facilitates an Auction, DMM Interest will 
not be eligible to participate if such Auction results in a trade and 
will be eligible to participate if such Auction results in a quote. The 
Exchange proposes that because, as described above, Closing D Orders 
entered by DMMs would be processed similarly to Floor broker Closing D 
Orders, including that they would be included in Closing Auction 
Imbalance Information, Closing D Orders entered by a DMM be processed 
similarly to Closing D Orders entered by Floor brokers in an Exchange-
facilitated Auction. The Exchange states that it accordingly proposes 
to amend Rule 7.35C(a)(1) to provide that Closing D Orders entered by a 
DMM would be eligible to participate in an Exchange-facilitated Closing 
Auction.\48\
---------------------------------------------------------------------------

    \48\ See id.
---------------------------------------------------------------------------

Proposed Amendments to Rules 104 and 98

    Prohibited Transactions. The Exchange states that, in connection 
with the above-described changes to the process for DMM-facilitated 
Closing Auctions, it proposes to amend Rule 104 to eliminate the 
current restriction on DMMs engaging in ``Prohibited Transactions'' 
during the last ten minutes of trading prior to the scheduled close of 
trading. The Exchange asserts that the proposed changes to the Closing 
Auction process obviate the need for this current restriction and the 
Exchange proposes to delete the text currently set forth in Rule 
104(g)(1)(B) and subparagraph (i) thereto in its entirety.\49\
---------------------------------------------------------------------------

    \49\ See id.
---------------------------------------------------------------------------

    NYSE Rule 104(g)(1)(A) currently defines an ``Aggressing 
Transaction'' as a DMM unit transaction that: ``(i) is a purchase 
(sale) that reaches across the market to trade as the contra-side to 
the Exchange published offer (bid); and (ii) is priced above (below) 
the last differently-priced trade on the Exchange and above (below) the 
last differently-priced published offer (bid) on the Exchange.'' NYSE 
Rule 104(g)(1)(B) further provides that:

    Aggressing Transactions during the last ten minutes prior to the 
scheduled close of trading that would result in a new high (low) 
price for a security on the Exchange for the day at the time of the 
DMM's transaction are prohibited, unless such transaction would 
match another market's better bid or offer price, bring the price of 
that security into parity with an underlying or related security or 
asset, or would liquidate or decrease the position of the DMM 
unit.\50\
---------------------------------------------------------------------------

    \50\ NYSE Rule 104(g)(1)(B) defines the ``position of the DMM 
unit'' for purposes of NYSE Rule 104(g)(1)(B) as ``the DMM unit's 
inventory of securities exclusive of pending, unexecuted orders and 
has the same meaning as `net position information in DMM securities' 
in Rule 98(c)(5).'' See id.

These are referred to as ``Prohibited Transactions.'' \51\
---------------------------------------------------------------------------

    \51\ See id.
---------------------------------------------------------------------------

    The Exchange states that, since 2017, it has implemented changes 
relating to trading functions on the Exchange leading into the Closing 
Auction that have altered the balance of DMM obligations against the 
benefits provided to DMMs. The Exchange states that, first, in 2019, in 
connection with the transition to the Pillar trading platform, it 
amended its rules to provide that Floor Broker Interest (i.e., interest 
verbalized in the trading crowd by a Floor Broker) would be included in 
Closing Auction Imbalance Information.\52\ The Exchange states that, 
accordingly, from August 2019, when Pillar was implemented, until March 
2020, when the Trading Floor was temporarily closed as a precaution to 
prevent the spread of COVID-19, the information available to DMMs 
regarding Floor Broker Interest became available to subscribers of the 
Closing Auction Imbalance Feed.
---------------------------------------------------------------------------

    \52\ See id. at 52725 (citing NYSE Rule 7.35B(a)(1)(B)).
---------------------------------------------------------------------------

    Second, according to the Exchange, beginning in 2020, it 
temporarily suspended the availability of Floor Broker Interest to be 
eligible to participate in the Closing Auction.\53\

[[Page 73065]]

The Exchange recently amended its rules to permanently exclude Floor 
Broker Interest from the Closing Auction.\54\ Because of the absence of 
Floor Broker Interest in the Closing Auction, any remaining information 
advantage that DMMs might have had with respect to orders from Floor 
brokers--even after such interest was included in the Closing Auction 
Imbalance Information--has since been eliminated. The Exchange asserts 
that, accordingly, one of the information advantages of DMMs that the 
Commission cited to in the Disapproval Order no longer exists.\55\
---------------------------------------------------------------------------

    \53\ See Securities Exchange Act Release No. 89086 (June 17, 
2020), (SR-NYSE-202-52) (Commentary .03 to Rule 7.35B was in effect 
on a temporary basis from June 17, 2020 until July 23, 2021, when 
the Commission approved proposed changes to Rule 7.35B that provide 
that Floor Broker Interest is no longer eligible to participate in 
the Closing Auction. The term ``Floor Broker Interest'' is defined 
in Rule 7.35(a)(10) to mean orders represented orally by a Floor 
broker at the point of sale. See Securities Exchange Act Release No. 
92480 (July 23, 2021), 86 FR 40886 (July 29, 2021) (SR-NYSE-2020-95) 
(``Floor Broker Interest Approval Order''). See also Notice, supra 
note 3, 86 FR 52725.
    \54\ See Floor Broker Interest Approval Order, supra note 55.
    \55\ See Notice, supra note 3, 86 FR 52725.
---------------------------------------------------------------------------

    The Exchange asserts that this proposed rule change further alters 
the balance of DMM obligations compared to the benefits provided to 
DMMs with respect to the Closing Auction. The Exchange further asserts 
that in the aggregate, these changes (including the elimination of 
Floor Broker Interest) result in a shift that decreases the benefits 
available to DMMs without a commensurate decrease in obligations. 
Specifically, according to the Exchange, with this proposed rule 
change:
     DMMs must still meet their NYSE Rule 104 obligation to 
facilitate the Closing Auction and supply liquidity as needed. They 
must also select an Auction Price that satisfies all better-priced 
orders on the Side of the Imbalance. However, they would now be 
systematically restricted as to the price range at which the Closing 
Auction Price could be determined. As proposed, if the Side of the 
Imbalance is to buy (sell), the Auction Price must be at or above 
(below) the last-published Imbalance Reference Price and not above 
(below) the last-published non-zero Continuous Book Clearing Price. 
Accordingly, with this proposed change, DMMs will be subject to a 
further limitation on how they may select the Closing Auction Price. By 
contrast, under current rules, there is no express requirement for a 
DMM to close a stock within the Continuous Book Clearing Price, 
although DMMs are obligated to, among other things, supply liquidity as 
needed to facilitate the Closing Auction in a fair and orderly manner. 
This proposed change promotes transparency and determinism of the 
Closing Auction Price and systematically constrains how a DMM selects a 
Closing Auction Price. The Exchange therefore believes that this 
proposed change decreases the unique benefits granted to the DMMs 
without decreasing the obligations on the DMMs with respect to the 
Closing Auction.\56\
---------------------------------------------------------------------------

    \56\ See id.
---------------------------------------------------------------------------

     The only interest that a DMM may enter after the end of 
Core Trading Hours to participate in the Closing Auction would be DMM 
Auction Liquidity, and such interest could be entered only to offset 
Unpaired Quantity at the Auction Price. Such interest is thus 
restricted by side, price, and quantity. By contrast, under current 
rules, DMMs have no systematic restrictions on entering or canceling 
DMM Interest after the end of Core Trading Hours. This change ensures 
that DMM Auction Liquidity could be used only to dampen significant 
price movements at the close. The Exchange believes this proposed 
change significantly decreases unique benefits to the DMMs because they 
would still be required to supply liquidity as needed to support a fair 
and orderly Closing Auction, but would have limited tools to enter any 
such interest after the end of Core Trading Hours. The Exchange 
proposes to make the Closing D Order available to DMMs in part to 
offset this reduction of unique benefits with respect to entering or 
canceling DMM Interest after the end of Core Trading Hours. However, 
unlike how DMMs currently may enter and cancel DMM Interest, DMMs would 
not receive any unique treatment with respect to the availability of 
this order type. To the contrary, Closing D Orders for DMMs would 
function similarly to Closing D Orders available to Floor brokers, 
including that they may not be entered or canceled in the last ten 
seconds of trading and the interest would be included in the Closing 
Auction Imbalance Information. Accordingly, the Exchange is not 
providing a bespoke tool for DMMs to supply liquidity for the Closing 
Auction. In addition, the Exchange proposes to make Closing D Orders 
available for a wholly independent reason to provide an incentive for 
more broker-dealers to seek to register as a DMM, which would increase 
DMM diversity on the Exchange to increase issuer choice.\57\
---------------------------------------------------------------------------

    \57\ See id.
---------------------------------------------------------------------------

     DMM Auction Liquidity entered in connection with 
facilitating the Closing Auction would, by its terms, be at-priced 
interest and would be allocated after at-priced displayed orders, non-
displayed orders, LOC Orders, and Closing IO Orders. Accordingly, 
unlike at-priced DMM Interest under current Rules, it would not have 
priority over LOC Orders and Closing IO Orders. While such DMM Auction 
Liquidity would have priority over orders with a Yielding Modifier, the 
Exchange notes that such orders are, by their terms, conditional in 
nature and designed to yield to other orders. Accordingly, DMMs would 
have a reduced benefit in connection with Closing Auction allocations 
for their at-priced DMM Auction Liquidity. The Exchange notes that the 
proposed allocation of Closing D Orders entered by the DMM would not 
provide them with a unique benefit because they would function 
similarly to Closing D Orders entered by Floor brokers. Accordingly, if 
a Closing D Order is better-priced, it would be guaranteed to 
participate in the Closing Auction (subject to DMM-specific self-trade 
prevention), just as any other better-priced interest would be 
guaranteed an allocation. In addition, that information would be 
transparent because such Closing D Orders would be included in Closing 
Auction Imbalance Information. DMMs would therefore not be receiving a 
unique benefit in this allocation. The Exchange further believes it is 
appropriate that at-priced DMM-entered Closing D Orders in their 
assigned securities would be allocated on parity as part of the DMM 
Participant because DMMs would continue to have a significant 
obligation with respect to the Closing Auction, and the benefit 
associated with a parity allocation for such orders is designed to 
offset that obligation, in part. The Exchange would not propose the 
same benefit for Closing D Orders entered by a DMM in securities that 
are not assigned to the DMM; in such case, such orders would be 
included in the Book Participant, and therefore would not receive any 
allocation priority over other market participants.\58\
---------------------------------------------------------------------------

    \58\ See id. at 52725-26.
---------------------------------------------------------------------------

    According to the Exchange, DMMs would continue to have benefits in 
connection with their unique role. For example, states the Exchange, at 
the point of sale, DMMs have access to aggregated buying and selling 
interest that is eligible to participate in the Closing Auction.\59\ 
The Exchange states that, however, pursuant to current Rule 104(h)(ii), 
a DMM may not use any

[[Page 73066]]

information provided by Exchange systems in a manner that would violate 
Exchange rules or federal securities laws or regulations. In addition, 
according to the Exchange, pursuant to current Rule 104(h)(iii), Floor 
brokers may request that a DMM provide them with the information that 
is available to the DMM at the post, including such aggregated buying 
and selling interest for the Closing Auction. The Exchange states that 
it continues to believe that it benefits the trading community as a 
whole to continue to make such information available to DMMs because 
Floor brokers who request such market looks can use that information to 
provide their customers with information necessary for them to make 
trading decisions leading into the close.\60\
---------------------------------------------------------------------------

    \59\ The Exchange states that DMM unit algorithms are not 
provided aggregated buying and selling interest for the Closing 
Auction until after the end of Core Trading Hours. See id. at 52726.
    \60\ See id.
---------------------------------------------------------------------------

    The Exchange asserts that providing Closing D Orders to DMMs would 
also provide them with a benefit, but that this benefit would not be 
unique to DMMs, as this order type is also available to Floor brokers. 
According to the Exchange, because all Floor brokers operate on an 
agency-only basis, any market participant can avail themselves of Floor 
broker services and use Closing D Orders. The Exchange also asserts 
that providing Closing D Orders to DMMs is designed to offset the 
current significant barriers to entry for new DMM firms on the 
Exchange, which is an obligation independent of the obligations related 
to the Closing Auction.\61\
---------------------------------------------------------------------------

    \61\ See id.
---------------------------------------------------------------------------

    The Exchange asserts that, in the aggregate, the above-described 
changes have altered the balance of benefits and obligations for DMMs 
and the resulting scope of obligations would no longer be commensurate 
with DMM benefits. For example, according to the Exchange, DMMs no 
longer have an informational advantage relating to Floor broker verbal 
interest at the close and their at-priced DMM Auction Liquidity would 
no longer have priority over LOC or Closing IO Orders.\62\
---------------------------------------------------------------------------

    \62\ See id.
---------------------------------------------------------------------------

    The Exchange asserts that as a result of these significant 
alterations to DMM obligations and benefits, any current need for 
Prohibited Transactions as a DMM obligation has been obviated. The 
Exchange asserts that Prohibited Transactions make sense when a DMM has 
discretion over the Closing Auction Price and when a DMM can enter and 
cancel interest after the end of Core Trading Hours, but that, with the 
proposed changes described in this filing, DMM discretion is explicitly 
limited; the Closing Auction Price must be within a defined and 
transparent parameter that cannot be changed after the end of Core 
Trading Hours and DMMs would be limited in what offsetting interest 
they can enter after the end of Core Trading Hours. The Exchange 
asserts that while the DMM would still have an obligation to facilitate 
the Closing Auction and supply liquidity as needed, DMMs would no 
longer have the same discretion in how they fulfill this obligation. As 
a result, according to the Exchange, any trading activity that a DMM 
would engage in the last ten minutes of trading would be no different 
than how other market participants trade leading into the close.\63\
---------------------------------------------------------------------------

    \63\ See id.
---------------------------------------------------------------------------

    Because the Exchange proposes to eliminate Prohibited Transactions, 
the Exchange proposes to make a conforming amendment to NYSE Rule 98 to 
delete subparagraphs (c)(5) and (c)(5)(A) and renumber subparagraphs 
(c)(6) and (c)(7) as (c)(5) and (c)(6). The Exchange states that it 
added NYSE Rule 98(c)(5) for the sole purpose of requiring DMMs to 
provide net position information in connection with monitoring their 
compliance with Prohibited Transactions.\64\ Accordingly, the Exchange 
asserts, if Prohibited Transactions are eliminated, that reporting 
requirement becomes obsolete.\65\
---------------------------------------------------------------------------

    \64\ See id. See also Securities Exchange Act Release No. 86131 
(June 18, 2019), 84 FR 29565 (June 23, 2019) (SR-NYSE-2019-25) 
(Notice of filing and immediate effectiveness of proposed rule 
change).
    \65\ See Notice, supra note 3, 86 FR 52726.
---------------------------------------------------------------------------

    Proposed Non-Substantive Amendments to NYSE Rule 104. In addition 
to eliminating prohibited transactions, the Exchange proposes to amend 
NYSE Rule 104 to eliminate rule text it describes as obsolete, to 
update rule references, and to make other conforming changes, as 
follows:
     The Exchange proposes to amend NYSE Rule 104(a)(2) to 
update the cross reference from NYSE Rule 123D to NYSE Rule 7.35A and 
to use the Pillar terms of ``Core Open Auctions and Trading Halt 
Auctions'' instead of referring to ``openings.'' The Exchange also 
proposes to delete the reference to NYSE Rule 13 and Reserve Order 
interest procedures at the opening as obsolete. Finally, the Exchange 
proposes to delete the reference to Supplementary Material .05 to NYSE 
Rule 104 with respect to odd-lot order information to the DMM unit 
algorithm, stating that this is also obsolete now that the Exchange 
trades on Pillar.\66\
---------------------------------------------------------------------------

    \66\ See id.
---------------------------------------------------------------------------

     The Exchange proposes to amend NYSE Rule 104(a)(3) to 
update the cross reference from NYSE Rule 123C to NYSE Rule 7.35B and 
to use the Pillar term of ``Closing Auctions'' instead of ``closes.'' 
The Exchange also proposes to delete the reference to NYSE Rule 13 and 
Reserve Order interest procedures at the close as obsolete.\67\
---------------------------------------------------------------------------

    \67\ See id.
---------------------------------------------------------------------------

     The Exchange proposes to amend NYSE Rule 104(b) by 
deleting subparagraphs (2) and (6) and replacing the text for NYSE Rule 
104(b)(2) with the following: ``Unless otherwise specified in Rule 
7.31, DMM unit algorithms may use the orders and modifiers set forth in 
Rule 7.31.''NYSE Rule 104(b)(2) currently provides that ``Exchange 
systems shall enforce the proper sequencing of incoming orders and 
algorithmically-generated messages and will prevent incoming DMM 
interest from trading with resting DMM interest. If the incoming DMM 
interest would trade with resting DMM interest only, the incoming DMM 
interest will be cancelled. If the incoming DMM interest would trade 
with interest other than DMM interest, the resting DMM interest will be 
cancelled.'' The Exchange states that, since it transitioned to Pillar, 
it no longer enforces self-trade prevention on behalf of DMMs. Instead, 
according to the Exchange, DMMs may use one of the Self-Trade 
Prevention Modifiers (``STP'') described in NYSE Rule 7.31(i)(2).\68\ 
NYSE Rule 104(b)(6) currently provides that ``DMM Units may not enter 
the following orders and modifiers: Market Orders, MOO Orders, CO 
Orders, MOC Orders, LOC Orders, or Buy Minus Zero Plus Instructions.'' 
In the Pillar rules, NYSE Rule 7.31 sets forth which orders and 
modifiers are not available to DMMs, and the Exchange states that 
therefore NYSE Rule 104(b)(6) is obsolete. The Exchange asserts that 
the proposed new text for NYSE Rule 104(b)(2) would provide 
transparency and that NYSE Rule 7.31 would describe which orders and 
modifiers would be available to DMMs, including STP modifiers.
---------------------------------------------------------------------------

    \68\ See id. at 52726-27.
---------------------------------------------------------------------------

    [ssquf] The Exchange states that it proposes to amend NYSE Rule 
104(b)(3) to delete references to ``Floor broker agency interest files 
or reserve interest'' as such references are now obsolete. The Exchange 
states that it no longer uses ``Floor broker agency interest files'' 
and no longer provides Floor brokers with reserve interest 
functionality that differs from the Reserve Orders available to all

[[Page 73067]]

member organizations, as described in NYSE Rule 7.31.\69\
---------------------------------------------------------------------------

    \69\ See id. at 52727.
---------------------------------------------------------------------------

    [ssquf] The Exchange proposes to amend NYSE Rule 104(b) by deleting 
subparagraph (4), which provides that ``[t]he DMM unit's algorithm may 
place within Exchange systems trading interest to be known as a 
``Capital Commitment Schedule.'' (See Rule 1000 concerning the 
operation of the Capital Commitment Schedule).'' With the transition to 
Pillar, the Exchange states that it has replaced the ``Capital 
Commitment Schedule'' with Capital Commitment Orders, as described in 
NYSE Rule 7.31(d)(5), and has deleted NYSE Rule 1000. Accordingly, the 
Exchange states, this current rule is obsolete. The Exchange proposes a 
non-substantive amendment to renumber Rule 104(b)(5) as Rule 
104(b)(4).\70\
---------------------------------------------------------------------------

    \70\ See id.
---------------------------------------------------------------------------

    [ssquf] The Exchange proposes to delete the text accompanying 
current NYSE Rules 104(c), (d), and (e) as obsolete now that the 
Exchange trades on Pillar.
    NYSE Rule 104(c) currently provides: ``A DMM unit may maintain 
reserve interest consistent with Exchange rules governing Reserve 
Orders. Such reserve interest is eligible for execution in manual 
transactions.'' The Exchange states that NYSE Rule 7.31 now describes 
how Reserve Orders function.\71\
---------------------------------------------------------------------------

    \71\ See id.
---------------------------------------------------------------------------

    NYSE Rule 104(d) currently provides: ``A DMM unit may provide 
algorithmically-generated price improvement to all or part of an 
incoming order that can be executed at or within the Exchange BBO 
through the use of Capital Commitment Schedule interest (see Rule 
1000). Any orders eligible for execution in Exchange systems at the 
price of the DMM unit's interest will trade on parity with such 
interest, as will any displayed interest representing a d-Quote 
enabling such interest to trade at the same price as the DMM unit's 
interest.'' The Exchange states that, with Pillar, the Exchange has 
deleted Rule 1000 and no longer offers the Capital Commitment Schedule 
to DMMs.\72\
---------------------------------------------------------------------------

    \72\ See id.
---------------------------------------------------------------------------

    NYSE Rule 104(e) currently provides: ``DMM units shall provide 
contra side liquidity as needed for the execution of odd-lot quantities 
that are eligible to be executed as part of the opening, re-opening and 
closing transactions but remain unpaired after the DMM has paired all 
other eligible round lot sized interest.'' According to the Exchange, 
this requirement is obsolete.\73\
---------------------------------------------------------------------------

    \73\ See id.
---------------------------------------------------------------------------

    With these proposed deletions, the Exchange proposes non-
substantive amendments to renumber NYSE Rules 104(f), (g), (h), (i), 
and (j) as Rules 104(c), (d), (e), (f), and (g) and to update cross-
references in proposed NYSE Rule 104(e)(iii) from subparagraph (h)(ii) 
and (iii) to (e)(ii) and (iii).\74\
---------------------------------------------------------------------------

    \74\ See id.
---------------------------------------------------------------------------

    [ssquf] The Exchange proposes to amend current NYSE Rule 104(h)(ii) 
(proposed NYSE Rule 104(e)(ii)) to delete reference to information that 
is no longer available to a DMM at the post. Specifically, the Exchange 
states, it no longer provides DMMs at the post with the following 
information: ``the price and size of any individual order or Floor 
broker agency interest file and the entering and clearing firm 
information for such order, except that the display shall exclude any 
order or portion thereof that a market participant has elected not to 
display to a DMM.'' Accordingly, the Exchange proposes to amend Rule 
104(e)(ii) to delete that rule text.\75\
---------------------------------------------------------------------------

    \75\ See id.
---------------------------------------------------------------------------

III. Comments Received

    The commenter generally agrees with the proposal.\76\ The commenter 
supports efforts to address what the commenter describes as the ability 
of DMMs to manipulate ``with impunity,'' arguing that DMMs are allowed 
to alter closing prices and utilize aggressing transactions ``solely 
for their own benefit,'' which, according to the commenter, not only 
destabilizes the market, but also harms retail traders, pension funds, 
and small companies alike.\77\
---------------------------------------------------------------------------

    \76\ See Anonymous Letter, supra note 4.
    \77\ Id.
---------------------------------------------------------------------------

    The commenter, however, believes that the proposal contains a 
loophole, which is the Exchange's proposal to accept and not cancel 
Closing D Orders entered by DMMs beginning ten minutes before the 
scheduled end of Core Trading Hours even if the security remains halted 
or pause or never opened, arguing that, if the objective is to reduce 
the power of DMM's and eliminate the possibilities for fraud and 
manipulation, such a blatant opportunity should not be left in 
place.\78\
---------------------------------------------------------------------------

    \78\ See id.
---------------------------------------------------------------------------

IV. Proceedings To Determine Whether To Approve or Disapprove SR-NYSE-
2021-44 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \79\ to determine whether the proposal should be 
approved or disapproved. Institution of such proceedings is appropriate 
at this time in view of the legal and policy issues raised by the 
proposal, as discussed below. Institution of disapproval proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described in greater 
detail below, the Commission encourages interested persons to provide 
additional comment on the proposal.
---------------------------------------------------------------------------

    \79\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act, the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act,\80\ which requires that the rules of an exchange be 
designed, among other things, 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. In addition, Section 6(b)(5) of the 
Act prohibits the rules of an exchange from being designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers. 
Further, Section 6(b)(9) of the Act requires that the rules of an 
exchange not impose any burden on competition that is not necessary or 
appropriate under the Act.\81\
---------------------------------------------------------------------------

    \80\ 15 U.S.C. 78f(b)(5).
    \81\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    The Exchange proposes, among other things, to: (1) Require that the 
Closing Auction Price selected by a DMM when facilitating an auction 
must be between the Imbalance Reference Price and the Continuous Book 
Clearing Price; (2) allow DMMs to use Closing D Orders in assigned as 
well as non-assigned securities; (3) change various types of DMM 
trading interest would participate in the Closing Auction in assigned 
securities; and (4) eliminate the current NYSE rule provision that 
forbids DMMs from engaging in ``Prohibited Transactions'' during the 
last ten minutes of trading prior to the scheduled close of trading. 
Accordingly, the Commission seeks additional public comment on the 
following topics:
    1. The Exchange argues that the proposed Closing Auction Price 
constraints would promote transparency and determinism with respect to 
the Closing Auction because the Closing Auction Price would be required 
to be

[[Page 73068]]

within a pre-determined range of prices that have been disseminated via 
the Closing Auction Imbalance Information. The Exchange also represents 
that, from January 1, 2021, to July 23, 2021, 96.5% of all Closing 
Auctions, and 94.9% of all Closing Auction volume, occurred within the 
proposed parameters for the Closing Auction Price.\82\ Considering 
these statements by the Exchange, what are commenters' views on whether 
this proposal represents a significant constraint on how the Closing 
Auction Price is currently determined? Do commenters believe that an 
efficient Closing Auction Price is more likely to be identified through 
the use of the proposed Closing Auction Price constraints, and that the 
Exchange has sufficiently demonstrated this to be the case? Do 
commenters believe that the proposal might under some market conditions 
impede the efficient determination of an appropriate Closing Auction 
Price? What are commenters' views on whether the proposed Closing 
Auction Price constraints would support a fair and orderly market in 
securities listed on the Exchange? Do commenters believe that the 
statistics offered by the Exchange reflect a representative sample 
period?
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    \82\ See Notice, supra note 3, 86 FR 52720.
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    2. Do commenters believe that any other aspect of the proposal 
represents a meaningful change from how Closing Auction Prices are 
currently determined by the DMM? Do commenters agree with the 
Exchange's assertion that the proposed mechanism for determining the 
Closing Auction Price ``systematically constrains how a DMM selects a 
Closing Auction Price and thereby decreases the unique benefits granted 
to the DMMs,'' as the Exchange argues? Do commenters believe that the 
proposed Closing Auction Price parameters would impose an obligation on 
DMMs that is material? Do commenters believe that the proposed Closing 
Auction Price parameters would materially affect the balance of 
benefits and obligations of DMMs on the Exchange?
    3. What are commenters' views on the proposal to permit DMMs to use 
the Closing D Order type, which is currently available exclusively to 
NYSE Floor brokers, who trade as agent on behalf of their customers? Do 
commenters believe that permitting DMMs to use Closing D Orders in 
their assigned securities represents a material change to the balance 
of benefits and obligations of DMMs? What are commenters' views of the 
arguments the Exchange has advanced in favor of extending the use of 
Closing D Orders to DMMs in their assigned securities? Do commenters 
believe that permitting DMMs to use Closing D Orders in their assigned 
securities is necessary in order for DMMs to be able to manage their 
risk while fulfilling their obligations under Exchange rules to 
facilitate the Closing Auction in their assigned securities? Do 
commenters believe that permitting DMMs to use Closing D Orders in 
their assigned securities is necessary in order for DMMs to be able to 
facilitate the Closing Auction within the proposed Closing Auction 
Price parameters? To what extent, if any, do commenters think that 
permitting DMMs to use Closing D Orders in assigned securities would 
give DMMs a competitive advantage over other market participants?
    4. Do commenters believe that permitting DMMs to use Closing D 
Orders in NYSE listed securities other than their assigned securities 
and in UTP securities represents a material change to the balance of 
benefits and obligations of DMMs? To what extent, if any, do commenters 
think that permitting DMMs to use Closing D Orders in securities they 
have not been assigned would give DMMs a competitive advantage over 
other market participants? To what extent do DMMs currently make 
indirect use of Closing D Orders by routing those orders through NYSE 
Floor brokers? Would permitting DMMs to directly enter Closing D Orders 
in non-assigned securities meaningfully change the access that DMMs 
have to Closing D Orders or the cost to DMMs of using Closing D Orders? 
Would it have other effects on Exchange surveillance or on other 
Exchange participants? Do commenters believe that extending the use of 
Closing D Orders to DMMs outside their assigned securities would create 
a meaningful incentive for market participants to seek to become DMMs, 
and, if so, do commenters believe that this incentive would create any 
competitive effects that are not necessary or appropriate?
    5. What are commenters' views on the proposed changes to the ways 
in which DMM trading interest would participate in the Closing Auction? 
Specifically, what are commenters' views on the proposed rule that all 
DMM interest, except for Closing D Orders, would no longer participate 
in the Closing Auction? What are commenters' view on the proposed rule 
that DMMs would be able to enter additional trading interest, in the 
form of DMM Auction Liquidity, after the end of Core Trading Hours only 
to offset unpaired interest at the Closing Auction Price? What are 
commenters' views on the way in which Closing D Orders entered by DMMs 
would be allocated executions in assigned securities and in other 
securities? Do commenters believe that this proposed rule would impose 
an obligation on DMMs that is material?
    6. What are commenters' views on the proposed changes to the 
interest that will be reflected in the Exchange's disseminated Auction 
Imbalance Information? What are commenters' views on the way in which 
DMM Closing D Orders would be reflected in the Auction Imbalance 
Information, which would be different at different times leading into 
the Closing Auction?
    7. What are commenters' views regarding the Exchange's proposal to 
eliminate the Prohibited Transactions provision of Rule 104? Do 
commenters believe that the current prohibition is necessary to 
maintain fair and orderly trading on the Exchange? Do commenters 
believe that the current prohibition impedes fair and orderly trading 
on the Exchange? Do commenters believe that past developments in the 
equities markets or changes to NYSE rules--or the other changes that 
the Exchange now proposes to make (for example, placing a constraint on 
the Closing Auction Price, or changing how DMM interest can participate 
in the Closing Auction)--are sufficient to address any concerns arising 
from permitting a DMM to trade aggressively in its assigned securities 
and set a new high or low for the day on the Exchange in the last ten 
minutes of the Core Trading Session?\83\ To what extent, if any, do 
commenters believe that the DMM's current re-entry obligations 
represent a meaningful constraint on DMMs that engage in Aggressing 
Transactions, as part of their obligation to maintain a fair and 
orderly market? Do commenters agree with the statement by the Exchange 
that, if Prohibited Transactions were eliminated as proposed, the DMM's 
re-entry obligations would suffice to effectively dampen any potential 
destabilizing impact of Aggressing Transactions made by DMMs during the 
last ten minutes of the trading day?
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    \83\ See, e.g., Securities Exchange Act Release No. 81150 (July 
1, 2017), 82 FR 33534, 33536-37 (July 20, 2017) (SR-NYSE-2016-71, 
SR-NYSEMKT-2016-99) (order disapproving proposal to remove 
Prohibited Transactions provisions of NYSE Rule 104).
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    8. To what extent, if any, do commenters agree with the Exchange's 
statements that various changes that the Exchange has implemented since 
2017, such as the public dissemination of floor broker interest from 
2019 through 2020 and the exclusion of Floor broker

[[Page 73069]]

interest from the Closing Auction beginning in 2020, have altered the 
balance of DMM obligations compared to the benefits provided to DMMs? 
To what extent do commenters agree with the Exchange's statement that, 
in the aggregate, this proposed rule change further alters the balance 
of DMM obligations compared to the benefits provided to DMMs with 
respect to the Closing Auction?
    9. What effect, if any, do commenters believe the proposed rule 
changes, individually or collectively, might have on the ability or the 
motive of any market participants, including DMMs, to engage in 
manipulative behavior, either individually or in concert with other 
parties? What effect, if any, do commenters believe the proposed rule 
changes, individually or collectively, might have on the ability of the 
Exchange to detect and deter manipulative activity?
    10. What are commenters' views on whether any aspect of the 
proposal would permit unfair discrimination between customers, issuers, 
brokers, or dealers? What are commenters' views on whether any aspect 
of the proposal would impose any burden on competition that is not 
necessary or appropriate under the Act?
    11. The Exchange states it proposes to make Closing D Orders 
available to DMMs to, among other things, provide an incentive for more 
broker-dealers to seek to register as a DMM. To what extent, if any, do 
commenters believe that increasing the number of new DMM entrants will 
be beneficial for execution quality or market quality?
    12. Do commenters have any views on other aspects of the proposal?

V. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5) \84\ of the Act or any other provision 
of the Act, or the rules and regulations thereunder. Although there do 
not appear to be any issues relevant to approval or disapproval that 
would be facilitated by an oral presentation of views, data, and 
arguments, the Commission will consider, pursuant to Rule 19b-4 under 
the Act,\85\ any request for an opportunity to make an oral 
presentation.\86\
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    \84\ 15 U.S.C. 78f(b)(5).
    \85\ 17 CFR 240.19b-4.
    \86\ Rule 700(c)(2) of the Commission's Rules of Practice 
provides that ``[t]he Commission, in its sole discretion, may 
determine whether any issues relevant to approval or disapproval 
would be facilitated by the opportunity for an oral presentation of 
views.'' 17 CFR 201.700(c)(2).
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    Interested persons are invited to submit written data, views and 
arguments regarding whether the proposal should be disapproved by 
January 13, 2022. Any person who wishes to file a rebuttal to any other 
person's submission must file that rebuttal by January 27, 2022.
    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-NYSE-2021-44 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 Numbers SR-NYSE-2021-44. The 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 proposal that are filed with the 
Commission, and all written communications relating to the proposal 
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 such filings also will be available for inspection 
and copying at the principal office of the Exchanges. 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-2021-44 and should be submitted on 
or before January 13, 2022. Rebuttal comments should be submitted by 
January 27, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\87\
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    \87\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27814 Filed 12-22-21; 8:45 am]
BILLING CODE 8011-01-P


