[Federal Register Volume 87, Number 176 (Tuesday, September 13, 2022)]
[Notices]
[Pages 56099-56103]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-19682]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95691; File No. SR-NYSE-2022-32]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving a Proposed Rule Change To Amend NYSE Rule 7.35B Relating to 
the Closing Auction and Make Certain Conforming and Non-Substantive 
Changes to NYSE Rules 7.31, 7.35, 7.35B and 104

September 7, 2022.

I. Introduction

    On July 13, 2022, 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 NYSE Rule 7.35B (DMM-Facilitated Closing 
Auctions) relating to the Closing Auction, and make certain conforming 
and non-substantive changes to NYSE Rules 7.31 (Orders and Modifiers), 
7.35 (General), 7.35B, and NYSE Rule 104 (Dealings and Responsibilities 
of DMMs). The proposed rule change was published for comment in the 
Federal Register on July 28, 2022.\3\ The Commission has received no 
comment letters on the proposed rule change. This order approves the 
proposal.
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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. 95354 (July 22, 
2022), 87 FR 45382 (July 28, 2022) (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to amend NYSE Rule 7.35B to add price 
parameters within which Designated Market Makers (``DMMs'') must select 
a Closing Auction Price when facilitation the Closing Auctions in their 
assigned securities. As described below, the Closing Auction Price 
determined by the DMM must be at a price that is at or between the 
last-published Imbalance Reference Price and the last-published 
Continuous Book Clearing Price. Further, the Exchange proposes to 
modify how the DMM would participate in the Closing Auction by 
canceling any resting DMM Orders at the end of Core Trading Hours. The 
Exchange also proposes to make conforming changes to other affected 
rules.
    The Exchange states that the proposed changes would make the 
Closing Auction more transparent and deterministic while retaining the

[[Page 56100]]

DMMs' unique obligation to facilitate the Closing Auction.

Overview of Current Closing Auction Process \4\
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    \4\ The following NYSE rules describe the Closing Auction 
process on the Exchange: NYSE Rule 7.31 (identifying the order types 
eligible to participate in an Auction); NYSE Rule 7.35 (general 
rules and definitions applicable to Auctions); NYSE Rule 7.35B 
(describing the process for DMM-facilitated Closing Auctions); NYSE 
Rule 7.35C (describing the process for Exchange-facilitated 
Auctions); and NYSE Rule 104 (establishing DMM obligations with 
respect to Closing Auctions and trading leading into the Closing 
Auction).
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    Pursuant to NYSE Rule 104(a)(3), DMMs have the responsibility to 
facilitate the close of trading for each of the securities in which the 
DMM is registered, which may include supplying liquidity as needed.\5\ 
NYSE Rule 104(a)(3) further provides that DMMs and DMM unit algorithms 
will have access to aggregate order information in order to comply with 
their requirement to facilitate the close of trading for each of the 
securities in which the DMM is registered. Accordingly, aggregate order 
information about all orders eligible to participate in the Closing 
Auction, including the full quantity of Reserve Orders \6\ and Market-
on-Close and Limit-on-Close Order quantities, is available to DMMs at 
each price point. This information is available at the point of sale to 
DMMs, and is also made available to DMM unit algorithms in connection 
with the electronic message sent to a DMM unit algorithm to close an 
assigned security electronically, which is sent shortly after the end 
of Core Trading Hours.
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    \5\ The Exchange does not propose to change the DMMs' NYSE Rule 
104 obligation to facilitate the Closing Auction, including the 
obligation to supply liquidity as needed.
    \6\ Reserve Orders, including the non-displayed reserve interest 
of such orders, are eligible to participate in the Closing Auction. 
See NYSE Rule 7.35B(h)(2)(B) (describing the allocation ranking of 
at-priced orders ranked Priority 3--Non-Displayed Orders, which 
refers to the reserve interest of Reserve Orders).
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    NYSE Rule 7.35B specifies the process for DMM-facilitated Closing 
Auctions. Pursuant to NYSE Rule 7.35B(a), it is the responsibility of 
each DMM to ensure that registered securities close as soon after the 
end of Core Trading Hours as possible, while at the same time not 
unduly hasty, particularly when at a price disparity from the Exchange 
Last Sale Price.\7\ As provided for in NYSE Rule 7.35B(a)(2), a DMM may 
enter or 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, and entry 
of DMM Interest after the end of Core Trading Hours is not subject to 
Limit Order Price Protection. Pursuant to NYSE Rule 7.35B(c), the DMM 
may effectuate a Closing Auction manually or electronically. NYSE Rule 
7.35B(g) provides that the DMM is responsible for determining the 
Auction Price for a Closing Auction and that if there is an Imbalance 
of any size, the DMM must select an Auction Price at which all better-
priced orders on the Side of the Imbalance can be satisfied.\8\
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    \7\ The term ``Exchange Last Sale Price'' is defined in NYSE 
Rule 7.35(a)(12)(B) to mean the most recent trade on the Exchange of 
a round lot or more in a security during Core Trading Hours on that 
trading day, and if none, the Official Closing Price from the prior 
trading day for that security.
    \8\ NYSE Rule 7.35C specifies the process for Exchange-
facilitated Auctions if a DMM cannot facilitate an Auction in one or 
more securities in which the DMM is registered. DMM Interest does 
not participate in an Exchange-facilitated Closing Auction trade. 
See NYSE Rule 7.35C(a)(1) (``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.'').
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    The following interest is eligible to participate in a Closing 
Auction: unexecuted buy and sell orders resting on the Exchange Book at 
the end of Core Trading Hours (including DMM Orders); \9\ Auction-Only 
Orders; \10\ and DMM Auction Liquidity entered by the DMM in connection 
with facilitating the Closing Auction.\11\
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    \9\ NYSE Rule 7.35(a)(9) defines ``DMM Interest'' for purposes 
of Auctions to mean all buy and sell interest entered by a DMM unit 
in its assigned securities and includes the following: (i) ``DMM 
Auction Liquidity,'' which is non-displayed buy and sell interest 
that is designated for an Auction only (see NYSE Rule 
7.35(a)(9)(A)); (ii) ``DMM Orders,'' which are orders, as defined 
under NYSE Rule 7.31, entered by a DMM unit (see NYSE Rule 
7.35(a)(9)(B)); and (iii) ``DMM After-Auction Orders,'' which are 
orders entered by a DMM unit before either the Core Open Auction or 
Trading Halt Auction that do not participate in an Auction and are 
intended instead to maintain price continuity with reasonable depth 
following an Auction (see NYSE Rule 7.35(a)(9)(C)).
    \10\ Auction-Only Orders available for the Closing Auction are 
defined in NYSE Rule 7.31(c)(2)(A)-(D) as the Limit-on-Close Order 
(``LOC Order''), Market-on-Close Order (``MOC Order''), Closing D 
Order, and Closing Imbalance Offset Order (``Closing IO Order'').
    \11\ In 2021, NYSE Rule 7.35B was amended to provide that Floor 
Broker Interest is no longer eligible to participate in the Closing 
Auction. 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''). The term ``Floor Broker Interest'' is 
defined in NYSE Rule 7.35(a)(10) to mean orders represented orally 
by a Floor broker at the point of sale. The Exchange states that, in 
light of the Floor Broker Interest Approval Order, it proposes 
conforming changes to Rules 7.35B(c)(1)(B), NYSE Rule 7.35B(j)(2), 
and NYSE Rule 7.35B(j)(2)(A)(iii). NYSE Rule 7.35B(c)(1)(B) provides 
that a DMM may not effect a Closing Auction electronically if, among 
other things, Floor Broker Interest for the Closing Auction that has 
been electronically entered or requested to be canceled has not yet 
been accepted by the DMM. NYSE Rule 7.35B(j)(2) provides that, to 
avoid closing price dislocation that may result from an order 
entered into Exchange systems or represented to a DMM orally at or 
near the end of Core Trading Hours, the Exchange may temporarily 
suspend the requirement to enter all order instructions by the end 
of Core Trading Hours. The Exchange states that, because it has 
eliminated Floor Broker Interest at the close, it proposes to delete 
NYSE Rule 7.35B(c)(1)(B) in its entirety. The remaining subsections 
of NYSE Rule 7.35B(c)(1) would be renumbered accordingly, and the 
Exchange proposes conforming changes to NYSE Rule 7.35B(j)(1)(A) and 
(B) to update the cross references from NYSE Rule 7.35B(c)(1)(G) to 
NYSE Rule 7.35B(c)(1)(F). The Exchange also proposes, for the same 
reasons, to delete the phrase ``or represented to a DMM orally'' in 
NYSE Rule 7.35B(j)(2) and the phrase ``and Floor Broker Interest'' 
in NYSE Rule 7.35B(j)(2)(A)(iii).
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    Beginning 10 minutes before the scheduled end of Core Trading 
Hours, the Exchange begins disseminating through its proprietary data 
feed Closing Auction Imbalance Information that is calculated based on 
the interest eligible to participate in the Closing Auction.\12\ The 
Closing Auction Imbalance Information includes the Continuous Book 
Clearing Price, which is the price at which all better-priced orders 
eligible to trade in the Closing Auction on the Side of the Imbalance 
can be traded.\13\ The Closing Auction Imbalance Information also 
includes an Imbalance Reference Price, which is the Exchange Last Sale 
Price bounded by the Exchange Best Bid and Offer.\14\ Beginning five 
minutes before the end of Core Trading Hours, Closing D Orders are 
included in the Closing Auction Imbalance Information at their 
undisplayed discretionary price.\15\ The Closing Auction Imbalance 
Information is updated at least every second (unless there is no change 
to the information) and is disseminated until the Closing Auction 
begins.\16\ In addition, if at the Closing Auction Imbalance Freeze 
Time \17\ the Closing Imbalance \18\ is 500 round lots or more, the 
Exchange will

[[Page 56101]]

disseminate a Regulatory Closing Imbalance to both the securities 
information processor and proprietary data feeds.\19\
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    \12\ See NYSE Rule 7.35B(e)(1)(A). DMM Orders, as defined in 
NYSE Rule 7.35(d)(9)(B), that have been entered by the DMM in 
advance of a Closing Auction are currently included in the Closing 
Auction Imbalance Information.
    \13\ See NYSE Rule 7.35(a)(4)(C). In the case of a buy 
Imbalance, the Continuous Book Clearing Price would be the highest 
potential Closing Auction Price and in the case of a sell Imbalance, 
the Continuous Book Clearing Price would be the lowest potential 
Closing Auction Price.
    \14\ See NYSE Rule 7.35B(e)(3).
    \15\ See NYSE Rule 7.35(b)(1)(C)(ii).
    \16\ See NYSE Rule 7.35(c)(1) and (2).
    \17\ See NYSE Rule 7.35(a)(8) (defining the ``Closing Auction 
Imbalance Freeze Time'' to be 10 minutes before the scheduled end of 
Core Trading Hours).
    \18\ As defined in NYSE Rule 7.35(a)(4)(A)(ii), a ``Closing 
Imbalance'' means the Imbalance of MOC and LOC Orders to buy and MOC 
and LOC Orders to sell. That Rule further defines a ``Regulatory 
Closing Imbalance'' as a Closing Imbalance disseminated at or after 
the Closing Auction Imbalance Freeze Time.
    \19\ See NYSE Rule 7.35B(d)(1).
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Proposed Changes to the Closing Auction Price

    The Exchange proposes to amend NYSE Rule 7.35B(g) to add explicit 
price parameters to the Closing Auction Price.\20\ The Exchange 
proposes that the Closing Auction Price determined by the DMM must be 
at a price that is at or between the last-published Imbalance Reference 
Price and the last-published Continuous Book Clearing Price.\21\ The 
Exchange also proposes related clarifying and conforming changes.\22\
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    \20\ 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.
    \21\ See Proposed NYSE Rule 7.35B(g).
    \22\ Specifically, the Exchange proposes to amend NYSE Rule 
7.35(a)(4) (which provides that if there is no Imbalance of all 
orders eligible to trade in the Auction, the Continuous Book 
Clearing Price will be the Imbalance Reference Price) to clarify 
that if the Imbalance Reference Price is in an increment smaller 
than the minimum price variation (``MPV'') for the security (e.g., 
the Exchange Last Sale Price reflects a midpoint execution in a 
penny-spread security), it will be rounded to the MPV for the 
security. The Exchange would also make a conforming change to NYSE 
Rule 7.35B(c)(1)(G) (to be renumbered F), which provides that a DMM 
may not effect a Closing Auction electronically if the Closing 
Auction Price will be more than 10% away from Exchange Last Sale 
Price. The Exchange would replace Exchange Last Sale Price with 
last-published Imbalance Reference Price.
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    The Exchange states that the proposed Closing Auction Price 
parameter would be consistent with how the Closing Auction Price has 
been determined for the vast majority of Closing Auctions. For example, 
the Exchange states, during the period of January 1, 2021, to June 17, 
2022, 95.6% of all Closing Auctions were priced at or between the last-
published Imbalance Reference Price and the Continuous Book Clearing 
Price. Similarly, the Exchange states that, during the same period, 
94.6% of closing auction volume priced within these parameters. 
Moreover, according to the Exchange, of the 4.4% of Closing Auctions 
that did not price within those parameters, 73.6% closed at prices that 
were only one or two cents away from those boundaries.\23\ The Exchange 
states that more recent Closing Auction data also shows that auctions 
executing within the proposed range resulted in more representative 
prices for market participants.\24\ The Exchange states that 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 believes this 
this proposed change would 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.\25\
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    \23\ More specifically, the Exchanges states that 59.6% were one 
cent away and 14.0% were two cents away.
    \24\ The Exchange states that, during the last quarter of 2021 
and year to date, 95.0% of Closing Auctions occurred within the 
proposed pricing parameters and that these numbers did not 
materially change for volatile trading days. For example, the 
Exchange states that in the December 2021 quarterly rebalance, 96.5% 
of Closing Auctions occurred within this range, and in the March 
2022 quarterly rebalance, 95.6% of Closing Auctions occurred within 
the range. According to the Exchange, Closing Auctions pricing 
outside the range were mostly within 2 cents of the range; only 1% 
of all auctions occurred more than 2 cents outside the range. The 
Exchange states that, for instance, in the December 2021 quarterly 
rebalance, just 0.6% of all Closing Auctions occurred more than 2 
cents outside the range, and in the more volatile March 2022 
rebalance, just 1.2% of Closing Auctions occurred more than 2 cents 
outside the range. The Exchange states that Closing Auctions 
executing within the proposed range during the same period 
(excluding rebalance days) were 11.3% closer to the consolidated 
two-minute VWAP price benchmark than Closing Auctions that priced 
outside of the proposed range, i.e., Closing Auctions executing 
within the proposed range were more in line with the range of 
continuous trading leading into the close. The Exchange states that 
this was true for rebalance days as well: During the December 2021 
rebalance, Closing Auctions executing within the proposed range were 
14% closer to the VWAP benchmark, and during the March 2022 
rebalance, Closing Auctions executing within the proposed range were 
40% closer to the VWAP benchmark.
    \25\ The only circumstance when 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.
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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 modifying 
how a DMM could enter or cancel interest after the end of Core Trading 
Hours.\26\ Specifically, 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 DMM Auction Liquidity only in order to supply liquidity as 
needed to meet the DMM's obligation to facilitate the Closing Auction 
in a fair and orderly manner.\27\ As proposed, a DMM could enter DMM 
Auction Liquidity after the end of Core Trading Hours only to close a 
security within the proposed new price parameters, described above.\28\ 
The Exchanges states that, because only DMM Auction Liquidity could be 
entered after the end of Core Trading Hours, such interest could be 
either entered electronically in response to the electronic message 
sent to a DMM unit algorithm to close an assigned security or entered 
manually.
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    \26\ Currently, NYSE Rule 7.35B(a)(2) provides that a DMM may 
enter or 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 Rule, the 
Exchange does not systematically block a DMM from entering or 
canceling DMM Interest after the end of Core Trading Hours. Instead, 
the Exchange states that the DMM's determination of whether to enter 
or cancel DMM Interest after the end of Core Trading Hours is 
subject to the DMM's obligation to maintain a fair and orderly 
market, as specified in NYSE Rule 104.
    \27\ See Proposed NYSE Rule 7.35B(a)(2).
    \28\ For example, the Exchange states that, 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 $10.00 to 
$10.10. The Exchange states it does not propose to systematically 
prescribe whether such interest must be offsetting to the last-
published Imbalance because DMM same-side interest could result in 
more orders participating in the Closing Auction. For example, the 
Exchange states that DMM Auction Liquidity entered on the same side 
of the Imbalance could result in greater liquidity being supplied by 
the DMM to trade with at-priced orders, which are not included in 
the calculation of the Imbalance. The Exchange states that, in such 
a scenario, even though the DMM may be participating on the same-
side of the imbalance, such interest would not move the Closing 
Price outside the Continuous Book Clearing Price.
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    The Exchange proposes that DMM Orders (i.e., DMM buy and sell 
orders resting on the Exchange Book) would not be eligible to 
participate in the Closing Auction.\29\ Because DMM Orders would not 
participate in the Closing Auction, the Exchange further proposes that 
this interest would not be included in the calculation of the 
Continuous Book Clearing Price.\30\ The Exchange states that, with this 
proposed change, the Continuous Book Clearing Price would be based on 
non-DMM interest eligible to participate in the Closing Auction. 
Finally, the Exchange states that because, as proposed, resting DMM 
Orders would not participate in the Closing Auction, the Exchange also 
proposes to cancel DMM Orders at the end of Core Trading Hours.\31\
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    \29\ See Proposed NYSE Rule 7.35B(a)(2). 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.
    \30\ See Proposed NYSE Rule 7.35B(a)(2).
    \31\ See Proposed NYSE Rule 7.35B(a)(2).The Exchange states 
that, as it understands, it is current practice for DMMs to cancel 
their DMM Orders at the end of Core Trading Hours. The Exchange also 
proposes a related amendment to delete as moot the phrase ``or 
cancel'' in the first sentence of NYSE Rule 7.35B(a)(2).

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[[Page 56102]]

    The Exchange states that, in connection with the Closing Auction, 
with this proposed change to NYSE Rule 7.35B(a)(2), DMMs would still be 
required, consistent with their obligations under NYSE Rule 104, to 
contribute their own capital to supply liquidity as needed to assist in 
the maintenance of a fair and orderly market. DMMs would also 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.

Proposed Conforming and Non-Substantive Amendments

    The Exchange proposes to amend NYSE Rule 104 to eliminate obsolete 
rule text and update rule references, and to make other conforming 
changes to NYSE Rules 7.31 and 104 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, as obsolete, the reference to NYSE Rule 13 and 
Reserve Order interest procedures at the opening. 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, as the Exchange states this is also obsolete now that the 
Exchange trades on Pillar.
     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, as obsolete, the reference to 
NYSE Rule 13 and Reserve Order interest procedures at the close.
     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 NYSE Rule 
7.31, DMM unit algorithms may use the orders and modifiers set forth in 
NYSE Rule 7.31.'' \32\
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    \32\ 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 the 
Exchange transitioned to Pillar, the Exchange no longer enforces 
self-trade prevention on behalf of DMMs. Instead, DMMs may use one 
of the Self-Trade Prevention Modifiers (``STP'') described in NYSE 
Rule 7.31(i)(2). In addition, NYSE Rule 104(b)(6) currently provides 
that ``DMM Units may not enter the following orders and modifiers: 
Market Orders, Inside Limit Orders, MOO Orders, CO Orders, MOC 
Orders, LOC Orders, or Last Sale Peg Orders.'' The Exchange states 
that because in the Pillar rules NYSE Rule 7.31 sets forth which 
orders and modifiers are not available to DMMs, NYSE Rule 104(b)(6) 
is therefore obsolete.
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     The Exchange proposes to amend NYSE Rule 7.31(a)(3) to 
reflect that Inside Limit Orders are not available to DMMs,\33\ because 
all of the orders and modifiers set forth in NYSE Rule 104(b)(6) that 
are unavailable to DMMs are reflected in NYSE Rule 7.31 except for 
Inside Limit Orders, which limitation was added only to NYSE Rule 
104(b)(6).\34\
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    \33\ The Exchange states that the proposed new text for NYSE 
Rule 104(b)(2) would provide transparency that NYSE Rule 7.31 would 
describe which orders and modifiers would be available to DMMs, 
including STP modifiers.
    \34\ See Securities Exchange Act Release No. 94030 (January 24, 
2022), 87 FR 4695, 4696 (Jan. 28, 2022) (SR-NYSE-2022-05) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Modify 
NYSE Rule 7.31 To Provide for Inside Limit Orders and Make Other 
Conforming Changes).
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     The Exchange proposes to amend NYSE Rule 104(b)(3) to 
delete references to ``Floor broker agency interest files or reserve 
interest,'' as the Exchange states that these references are now 
obsolete.\35\
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    \35\ 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 member organizations, as described in NYSE Rule 
7.31.
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     The Exchange proposes to amend NYSE Rule 104(b) by 
deleting subparagraph (4).\36\ The Exchanges states that, with the 
transition to Pillar, the Exchange 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. The Exchange 
states that, accordingly, this current rule is obsolete. The Exchange 
proposes a non-substantive amendment to renumber NYSE Rule 104(b)(5) as 
NYSE Rule 104(b)(4).
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    \36\ NYSE Rule 104(b)(4) currently provides that ``[t]he DMM 
unit's algorithm may place within Exchange systems trading interest 
to be known as a `Capital Commitment Schedule'. (See NYSE Rule 1000 
concerning the operation of the Capital Commitment Schedule).''
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     The Exchange proposes to delete the text accompanying 
current Rules 104(c), (d), and (e) as obsolete now that the Exchange 
trades on Pillar.\37\ With these proposed deletions, the Exchange 
proposes non-substantive amendments to renumber 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).
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    \37\ 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. 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 [NYSE] Rule 1000).'' The Exchange states that 
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, as described above, with Pillar, the Exchange 
has deleted NYSE Rule 1000 and no longer offers the Capital 
Commitment Schedule to DMMs. 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.'' The Exchange states that this requirement is obsolete.
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     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.\38\
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    \38\ Specifically, the Exchange states that 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 NYSE Rule 
104(e)(ii) to delete this rule text.
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    The Exchange proposes that the non-substantive amendments to NYSE 
Rule 104 would be operative immediately upon approval of this proposed 
rule change. The Exchange states, that, because of the technology 
changes associated with the proposed changes to NYSE Rule 7.35B, it 
proposes that, subject to approval of the proposed rule change, the 
Exchange will announce the implementation date of the remaining 
proposed rule changes by Trader Update.\39\
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    \39\ Subject to approval of this proposed rule change, the 
Exchange states that it anticipates that these changes will be 
implemented in the fourth quarter of 2022. See Notice, supra note 3, 
87 FR at 45386.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national

[[Page 56103]]

securities exchange.\40\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\41\ 
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 that the rules of a national 
securities exchange are not designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
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    \40\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \41\ 15 U.S.C. 78f(b)(5).
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    As described above, the DMM is responsible for determining the 
Auction Price for the Closing Auctions in its assigned securities, and 
if there is an Imbalance of any size, the DMM must select an Auction 
Price that is able to satisfy all better-priced orders on the Side of 
the Imbalance. 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 the last-
published Continuous Book Clearing Price. The Exchange has included 
statistics in its proposal showing that the proposed Closing Auction 
Price parameters are, for the vast majority of Closing Auctions, 
consistent with how the Closing Auction Price has been determined under 
the current rules.\42\ The Exchange has also included statistics in its 
proposal showing that, as to more recent Closing Auction data, auctions 
executing within the proposed range resulted in more representative 
prices for market participants.\43\
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    \42\ See Section II supra.
    \43\ The Exchange also included statistics in its proposal 
showing that during the last quarter of 2021 and year to date, 95.0% 
of Closing Auctions occurred within the proposed pricing parameters, 
and that these numbers did not materially change for volatile 
trading days.
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    The Exchange also proposes that DMM Orders would not participate in 
the Closing Auction or factor into the calculation of the Continuous 
Book Clearing Price and that, after the end of Core Trading Hours, a 
DMM would be able to enter DMM Auction Liquidity only in order to 
supply liquidity as needed to meet the DMM's obligation to facilitate 
the Closing Auction in a fair and orderly manner within the proposed 
pricing parameters.
    The Commission finds that the proposed pricing parameters for 
determining the Closing Auction Price, as well as the proposed 
limitation on the entry of DMM interest (specifically, DMM Auction 
Liquidity) after the close of regular trading, are reasonably designed 
to (1) limit the price range within which a DMM can facilitate the 
Closing Auction in its assigned securities to a price range that 
reflects the natural forces of supply and demand for a security in the 
Closing Auction; and (2) enhance transparency and certainty for market 
participants with respect to the Closing Auction. The proposed price 
parameters and limitation on DMM Auction Liquidity are therefore 
reasonably designed to remove impediments to and perfect the mechanism 
of a free and open market and a national market system. Moreover, by 
providing that DMM Orders will neither participate in the Closing 
Auction nor figure into the calculation of the Continuous Book Clearing 
Price--one of the proposed pricing parameters for the Closing Auction--
the Exchange's proposal would limit the extent to which a DMM could 
influence the price parameters for the Closing Auction Price, which is 
reasonably designed to prevent fraudulent and manipulative acts and 
practices. The Commission further finds that the other conforming and 
non-substantive changes proposed by the Exchange are consistent with 
the substantive changes discussed above and do not raise any regulatory 
issues.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\44\ that the proposed rule change (SR-NYSE-2022-32) be, and it 
hereby is, approved.
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    \44\ Id.
    \45\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\45\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19682 Filed 9-12-22; 8:45 am]
BILLING CODE 8011-01-P


