[Federal Register Volume 87, Number 184 (Friday, September 23, 2022)]
[Notices]
[Pages 58159-58166]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-20596]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95829; File No. SR-NYSENAT-2022-21]


Self-Regulatory Organizations; NYSE National, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule To Amend Rule 7.10

September 19, 2022.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on September 16, 2022, NYSE National, Inc. (``NYSE National'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 7.10 (Clearly Erroneous 
Executions). The proposed rule change is available on the Exchange's 
website at www.nyse.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

[[Page 58160]]

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend Rule 7.10 
(Clearly Erroneous Executions). Specifically, the Exchange proposes to: 
(1) make the current clearly erroneous pilot program permanent; and (2) 
limit the circumstances where clearly erroneous review would continue 
to be available during the Core Trading Session,\4\ when the LULD Plan 
to Address Extraordinary Market Volatility (the ``LULD Plan'') \5\ 
already provides similar protections for trades occurring at prices 
that may be deemed erroneous. The Exchange believes that these changes 
are appropriate as the LULD Plan has been approved by the Commission on 
a permanent basis,\6\ and in light of amendments to the LULD Plan, 
including changes to the applicable Price Bands \7\ around the open and 
close of trading.
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    \4\ The term ``Core Trading Session'' is defined in Rule 
7.34(a)(2).
    \5\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012).
    \6\ See Securities Exchange Act Release No. 84843 (December 18, 
2018), 83 FR 66464 (December 26, 2018) (``Notice''); 85623 (April 
11, 2019), 84 FR 16086 (April 17, 2019) (File No. 4-631) 
(``Amendment 18'').
    \7\ ``Price Bands'' refers to the term provided in Section V of 
the LULD Plan.
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    This proposed rule change is substantively identical to the rule 
change recently proposed by Cboe BZX, which the Commission approved on 
September 1, 2022.\8\
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    \8\ See Securities Exchange Act Release No. 95658 (September 1, 
2022) (SR-CboeBZX-2022-037).
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Proposal To Make the Clearly Erroneous Pilot Permanent
    On September 10, 2010, the Commission approved, on a pilot basis, 
changes to Rule 11.19 (Clearly Erroneous Executions) that, among other 
things: (i) provided for uniform treatment of clearly erroneous 
execution reviews in multi-stock events involving twenty or more 
securities; and (ii) reduced the ability of the Exchange to deviate 
from the objective standards set forth in the rule.\9\ In 2013, the 
Exchange adopted a provision designed to address the operation of the 
Plan.\10\ Finally, in 2014, the Exchange adopted two additional 
provisions providing that: (i) a series of transactions in a particular 
security on one or more trading days may be viewed as one event if all 
such transactions were effected based on the same fundamentally 
incorrect or grossly misinterpreted issuance information resulting in a 
severe valuation error for all such transactions; and (ii) in the event 
of any disruption or malfunction in the operation of the electronic 
communications and trading facilities of an Exchange, another SRO, or 
responsible single plan processor in connection with the transmittal or 
receipt of a trading halt, an Officer, acting on his or her own motion, 
shall nullify any transaction that occurs after a trading halt has been 
declared by the primary listing market for a security and before such 
trading halt has officially ended according to the primary listing 
market.\11\ Rule 11.19 is no longer applicable to any securities that 
trade on the Exchange and has been replaced with Rule 7.10, which is 
substantively identical to Rule 11.19.\12\ These changes are currently 
scheduled to operate for a pilot period that would end at the close of 
business on October 20, 2022.\13\
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    \9\ See Securities Exchange Act Release No. 62886 (Sept. 10, 
2010), 75 FR 56613 (Sept. 16, 2010) (SR-NSX-2010-07).
    \10\ See Securities Exchange Act Release No. 68803 (Feb. 1, 
2013), 78 FR 9078 (Feb. 7, 2013) (SR-NSX-2013-06).
    \11\ See Securities Exchange Act Release No. 72434 (June 19, 
2014), 79 FR 36110 (June 25, 2014) (SR-NSX-2014-08).
    \12\ See Securities Exchange Act Release No. 83289 (May 17, 
2018), 83 FR 23968 (May 23, 2018) (SR-NYSENAT-2018-02).
    \13\ See Securities Exchange Act Release No. 95306 (July 18, 
2022), 87 FR 43924 (July 22, 2022) (SR-NYSENAT-2022-13).
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    When it originally approved the clearly erroneous pilot, the 
Commission explained that the changes were ``being implemented on a 
pilot basis so that the Commission and the Exchanges can monitor the 
effects of the pilot on the markets and investors, and consider 
appropriate adjustments, as necessary.'' \14\ In the 12 years since 
that time, the Exchange and other national securities exchanges have 
gained considerable experience in the operation of the rule, as amended 
on a pilot basis. Based on that experience, the Exchange believes that 
the program should be allowed to continue on a permanent basis so that 
equities market participants and investors can benefit from the 
increased certainty provided by the amended rule.
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    \14\ See Securities Exchange Act Release No. 62886 (Sept. 10, 
2010), 75 FR 56613 (Sept. 16, 2010) (SR-NSX-2010-07).
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    The clearly erroneous pilot was implemented following a severe 
disruption in the U.S. equities markets on May 6, 2010 (``Flash 
Crash'') to ``provide greater transparency and certainty to the process 
of breaking trades.'' \15\ Largely, the pilot reduced the discretion of 
the Exchange, other national securities exchanges, and Financial 
Industry Regulatory Authority (``FINRA'') to deviate from the objective 
standards in their respective rules when dealing with potentially 
erroneous transactions. The pilot has thus helped afford greater 
certainty to ETP Holders and investors about when trades will be deemed 
erroneous pursuant to self-regulatory organization (``SRO'') rules and 
has provided a more transparent process for conducting such reviews. 
The Exchange proposes to make the current pilot permanent so that 
market participants can continue to benefit from the increased 
certainty afforded by the current rule.
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    \15\ Id.
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Amendments to the Clearly Erroneous Rules
    When the Participants to the LULD Plan filed to introduce the Limit 
Up-Limit Down (``LULD'') mechanism, itself a response to the Flash 
Crash, a handful of commenters noted the potential discordance between 
the clearly erroneous rules and the Price Bands used to limit the price 
at which trades would be permitted to be executed pursuant to the LULD 
Plan. For example, two commenters requested that the clearly erroneous 
rules be amended so the presumption would be that trades executed 
within the Price Bands would not be not subject to review.\16\ While 
the Participants acknowledged that the potential to prevent clearly 
erroneous executions would be a ``key benefit'' of the LULD Plan, the 
Participants decided not to amend the clearly erroneous rules at that 
time.\17\ In the years since, industry feedback has continued to 
reflect a desire to eliminate the discordance between the LULD 
mechanism and the clearly erroneous rules so that market participants 
would have more certainty that trades executed with the Price

[[Page 58161]]

Bands would stand. For example, the Equity Market Structure Advisory 
Committee (``EMSAC'') Market Quality Subcommittee included in its April 
19, 2016 status report a preliminary recommendation that clearly 
erroneous rules be amended to conform to the Price Bands--i.e., ``any 
trade that takes place within the band would stand and not be broken 
and trades outside the LU/LD bands would be eligible for the 
consideration of the Clearly Erroneous rules.'' \18\
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    \16\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (n. 33505).
    \17\ Id.
    \18\ See EMSAC Market Quality Subcommittee, Recommendations for 
Rulemaking on Issues of Market Quality (November 29, 2016), 
available at https://www.sec.gov/spotlight/emsac/recommendations-rulemaking-market-quality.pdf.
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    The Exchange believes that it is important for there to be some 
mechanism to ensure that investors' orders are either not executed at 
clearly erroneous prices or are subsequently busted as needed to 
maintain a fair and orderly market. At the same time, the Exchange 
believes that the LULD Plan, as amended, would provide sufficient 
protection for trades executed during the Core Trading Session. Indeed, 
the LULD mechanism could be considered to offer superior protection as 
it prevents potentially erroneous trades from being executed in the 
first instance. After gaining experience with the LULD Plan, the 
Exchange now believes that it is appropriate to largely eliminate 
clearly erroneous review during Core Trading Hours when Price Bands are 
in effect. Thus, as proposed, trades executed within the Price Bands 
would stand, barring one of a handful of identified scenarios where 
such review may still be necessary for the protection of investors. The 
Exchange believes that this change would be beneficial for the U.S. 
equities markets as it would ensure that trades executed within the 
Price Bands are subject to clearly erroneous review in only rare 
circumstances, resulting in greater certainty for ETP Holders and 
investors.
    The current LULD mechanism for addressing extraordinary market 
volatility is available solely during the Core Trading Session. Thus, 
trades during the Exchange's Early Trading Session \19\ and Late 
Trading Session \20\ would not benefit from this protection and could 
ultimately be executed at prices that may be considered erroneous. For 
this reason, the Exchange proposes that transactions executed during 
the Early and Late Trading Sessions would continue to be reviewable as 
clearly erroneous. Continued availability of the clearly erroneous rule 
during the Early and Late Trading Sessions would therefore ensure that 
investors have appropriate recourse when erroneous trades are executed 
outside of the hours where similar protection can be provided by the 
LULD Plan. Further, the proposal is designed to eliminate the potential 
discordance between clearly erroneous review and LULD Price Bands, 
which does not exist outside of the Core Trading Session because the 
LULD Plan is not in effect. Thus, the Exchange believes that it is 
appropriate to continue to allow transactions to be eligible for 
clearly erroneous review if executed outside of the Core Trading 
Session.
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    \19\ The term ``Early Trading Session'' is defined in Rule 
7.34(a)(1).
    \20\ The term ``Late Trading Session'' is defined in Rule 
7.34(a)(3).
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    On the other hand, there would be much more limited potential to 
request that a transaction be reviewed as potentially erroneous during 
the Core Trading Session. With the introduction of the LULD mechanism 
in 2013, clearly erroneous trades are largely prevented by the 
requirement that trades be executed within the Price Bands. In 
addition, in 2019, Amendment 18 to the LULD Plan eliminated double-wide 
Price Bands: (1) at the Open, and (2) at the Close for Tier 2 NMS 
Stocks 2 with a Reference Price above $3.00.\21\ Due to these changes, 
the Exchange believes that the Price Bands would provide sufficient 
protection to investor orders such that clearly erroneous review would 
no longer be necessary during the Core Trading Session. As the 
Participants to the LULD Plan explained in Amendment 18: ``Broadly, the 
Limit Up-Limit Down mechanism prevents trades from happening at prices 
where one party to the trade would be considered `aggrieved,' and thus 
could be viewed as an appropriate mechanism to supplant clearly 
erroneous rules.'' While the Participants also expressed concern that 
the Price Bands might be too wide to afford meaningful protection 
around the open and close of trading, amendments to the LULD Plan 
adopted in Amendment 18 narrowed Price Bands at these times in a manner 
that the Exchange believes is sufficient to ensure that investors' 
orders would be appropriately protected in the absence of clearly 
erroneous review. The Exchange therefore believes that it is 
appropriate to rely on the LULD mechanism as the primary means of 
preventing clearly erroneous trades during the Core Trading Session.
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    \21\ See Amendment 18, supra note 6.
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    At the same time, the Exchange is cognizant that there may be 
limited circumstances where clearly erroneous review may continue to be 
appropriate, even during the Core Trading Session. Thus, the Exchange 
proposes to amend its clearly erroneous rules to enumerate the specific 
circumstances where such review would remain available during the 
course of the Core Trading Session, as follows. All transactions that 
fall outside of these specific enumerated exceptions would be 
ineligible for clearly erroneous review.
    First, pursuant to proposed paragraph (c)(1)(A), a transaction 
executed during the Core Trading Session would continue to be eligible 
for clearly erroneous review if the transaction is not subject to the 
LULD Plan. In such case, the Numerical Guidelines set forth in 
paragraph (c)(2) will be applicable to such NMS Stock. While the 
majority of securities traded on the Exchange would be subject to the 
LULD Plan, certain equity securities, such as rights and warrants, are 
explicitly excluded from the provisions of the LULD Plan and would 
therefore be eligible for clearly erroneous review instead.\22\ 
Similarly, there are instances, such as the opening auction on the 
primary listing market,\23\ where transactions are not ordinarily 
subject to the LULD Plan, or circumstances where a transaction that 
ordinarily would have been subject to the LULD Plan is not--due, for 
example, to some issue with processing the Price Bands. These 
transactions would continue to be eligible for clearly erroneous 
review, effectively ensuring that such review remains available as a 
backstop when the LULD Plan would not prevent executions from occurring 
at erroneous prices in the first instance.
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    \22\ See Appendix A of the LULD Plan.
    \23\ The initial Reference Price used to calculate Price Bands 
is typically set by the Opening Price on the primary listing market. 
See Section V(B) of the LULD Plan.
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    Second, investors would also continue to be able to request review 
of transactions that resulted from certain systems issues pursuant to 
proposed paragraph (c)(1)(B). This limited exception would help to 
ensure that trades that should not have been executed would continue to 
be subject to clearly erroneous review. Specifically, as proposed, 
transactions executed during the Core Trading Session would be eligible 
for clearly erroneous review pursuant to proposed paragraph (c)(1)(B) 
if the transaction is the result of an Exchange technology or systems 
issue that results in the transaction occurring outside of the 
applicable LULD Price Bands pursuant to paragraph (g). A transaction 
subject to review pursuant to this paragraph shall be found to be 
clearly erroneous if the price of the transaction to buy (sell) that

[[Page 58162]]

is the subject of the complaint is greater than (less than) the 
Reference Price, described in paragraph (d) of this Rule, by an amount 
that equals or exceeds the applicable Percentage Parameter defined in 
Appendix A to the LULD Plan (``Percentage Parameters'').
    Third, the Exchange proposes to narrowly allow for the review of 
transactions during the Core Trading Session when the Reference Price, 
described in proposed paragraph (d), is determined to be erroneous by 
an Officer of the Exchange. Specifically, a transaction executed during 
the Core Trading Session would be eligible for clearly erroneous review 
pursuant to proposed paragraph (c)(1)(C) if the transaction involved, 
in the case of (1) a corporate action or new issue, or (2) a security 
that enters a Trading Pause pursuant to the LULD Plan and resumes 
trading without an auction,\24\ a Reference Price that is determined to 
be erroneous by an Officer of the Exchange because it clearly deviated 
from the theoretical value of the security. In such circumstances, the 
Exchange may use a different Reference Price pursuant to proposed 
paragraph (d)(2) of this Rule. A transaction subject to review pursuant 
to this paragraph shall be found to be clearly erroneous if the price 
of the transaction to buy (sell) that is the subject of the complaint 
is greater than (less than) the new Reference Price, described in 
paragraph (d)(2), by an amount that equals or exceeds the applicable 
Numerical Guidelines or Percentage Parameters, as applicable depending 
on whether the security is subject to the LULD Plan. Specifically, the 
Percentage Parameters would apply to all transactions except those in 
an NMS Stock that is not subject to the LULD Plan, as described in 
paragraph (c)(1)(A).
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    \24\ The Exchange notes that the ``resumption of trading without 
an auction'' provision of the proposed rule text applies only to 
securities that enter a Trading Pause pursuant to LULD and does not 
apply to a corporate action or new issue.
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    In the context of a corporate action or a new issue, there may be 
instances where the security's Reference Price is later determined by 
the Exchange to be erroneous (e.g., because of a bad first trade for a 
new issue), and subsequent LULD Price Bands are calculated from that 
incorrect Reference Price. In determining whether the Reference Price 
is erroneous in such instances, the Exchange would generally look to 
see if such Reference Price clearly deviated from the theoretical value 
of the security. In such cases, the Exchange would consider a number of 
factors to determine a new Reference Price that is based on the 
theoretical value of the security, including but not limited to, the 
offering price of the new issue, the ratio of the stock split applied 
to the prior day's closing price, the theoretical price derived from 
the numerical terms of the corporate action transaction such as the 
exchange ratio and spin-off terms, and the prior day's closing price on 
the OTC market for an OTC up-listing.\25\ In the foregoing instances, 
the theoretical value of the security would be used as the new 
Reference Price when applying the Percentage Parameters under the LULD 
Plan (or Numerical Guidelines if the transaction is in an NMS Stock 
that is not subject to the LULD Plan) to determine whether executions 
would be cancelled as clearly erroneous.
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    \25\ Using transaction data reported to the FINRA OTC Reporting 
Facility, FINRA disseminates via the Trade Data Dissemination 
Service a final closing report for OTC equity securities for each 
business day that includes, among other things, each security's 
closing last sale price.
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    The following examples illustrate the proposed application of the 
rule in the context of a corporate action or new issue:
    Example 1:
    1. ABCD is subject to a corporate action, 1 for 10 reverse split, 
and the previous day close was $5, but the new theoretical price based 
on the terms of the corporate action is $50.
    2. The security opens at $5, with LULD bands at $4.50 x $5.50.
    3. The bands will be calculated correctly but the security is 
trading at an erroneous price based on the valuation of the remaining 
outstanding shares.
    4. The theoretical price of $50 would be used as the new Reference 
Price when applying LULD bands to determine if executions would be 
cancelled as clearly erroneous.
    Example 2:
    1. ABCD is subject to a corporate action, the company is doing a 
spin off where a new issue will be listed, BCDE. ABCD trades at $50, 
and the spinoff company is worth \1/5\ of ABCD.
    2. BCDE opens at $50 in the belief it is the same company as ABCD.
    3. The theoretical values of the two companies are ABCD $40 and 
BCDE $10.
    4. BCDE would be deemed to have had an incorrect Reference Price 
and the theoretical value of $10 would be used as the new Reference 
Price when applying the LULD Bands to determine if executions would be 
cancelled as clearly erroneous.
    Example 3:
    1. ABCD is an uplift from the OTC market, the prior days close on 
the OTC market was $20.
    2. ABCD opens trading on the new listing exchange at $0.20 due to 
an erroneous order entry.
    3. The new Reference Price to determine clearly erroneous 
executions would be $20, the theoretical value of the stock from where 
it was last traded.
    In the context of the rare situation in which a security that 
enters a LULD Trading Pause and resumes trading without an auction 
(i.e., reopens with quotations), the LULD Plan requires that the new 
Reference Price in this instance be established by using the mid-point 
of the best bid and offer (``BBO'') on the primary listing exchange at 
the reopening time.\26\ This can result in a Reference Price and 
subsequent LULD Price Band calculation that is significantly away from 
the security's last traded or more relevant price, especially in less 
liquid names. In such rare instances, the Exchange is proposing to use 
a different Reference Price that is based on the prior LULD Band that 
triggered the Trading Pause, rather than the midpoint of the BBO.
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    \26\ See LULD Plan, Section I(U) and V(C)(1).
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    The following example illustrates the proposed application of the 
rule in the context of a security that reopens without an auction:
    Example 4:
    1. ABCD stock is trading at $20, with LULD Bands at $18 x $22.
    2. An incoming buy order causes the stock to enter a Limit State 
Trading Pause and then a Trading Pause at $22.
    3. During the Trading Pause, the buy order causing the Trading 
Pause is cancelled.
    4. At the end of the 5-minute halt, there is no crossed interest 
for an auction to occur, thus trading would resume on a quote.
    5. Upon resumption, a quote that was available prior to the Trading 
Pause (e.g. a quote was resting on the book prior to the Trading 
Pause), is widely set at $10 x $90.
    6. The Reference Price upon resumption is $50 (mid-point of BBO).
    7. The SIP will use this Reference Price and publish LULD Bands of 
$45 x $55 (i.e., far away from BBO prior to the halt).
    8. The bands will be calculated correctly, but the $50 Reference 
Price is subsequently determined to be incorrect as the price clearly 
deviated from where it previously traded prior to the Trading Pause.
    9. The new Reference Price would be $22 (i.e., the last effective 
Price Band that was in a limit state before the Trading Pause), and the 
LULD Bands would be applied to determine if the executions should be 
cancelled as clearly erroneous.
    In all of the foregoing situations, investors would be left with no 
remedy

[[Page 58163]]

to request clearly erroneous review without the proposed carveouts in 
paragraph (c)(1)(C) because the trades occurred within the LULD Price 
Bands (albeit LULD Price Bands that were calculated from an erroneous 
Reference Price). The Exchange believes that removing the current 
ability for the Exchange to review in these narrow circumstances would 
lessen investor protections.
Numerical Guidelines
    Currently, paragraph (c)(1) defines the Numerical Guidelines that 
are used to determine if a transaction is deemed clearly erroneous 
during the Core Trading Session and during the Early and Late Trading 
Sessions. With respect to the Core Trading Session, trades are 
generally deemed clearly erroneous if the execution price differs from 
the Reference Price (i.e., last sale) by 10% if the Reference Price is 
greater than $0.00 up to and including $25.00; 5% if the Reference 
Price is greater than $25.00 up to and including $50.00; and 3% if the 
Reference Price is greater than $50.00. Wider parameters are also used 
for reviews for Multi-Stock Events, as described in paragraph (c)(2). 
With respect to transactions in Leveraged ETF/ETN securities executed 
during the Core Trading Session or Early or Late Trading Session, 
trades are deemed clearly erroneous if the execution price exceeds the 
Core Trading Session Numerical Guidelines multiplied by the leverage 
multiplier.
    The Exchange proposes to amend the way that the Numerical 
Guidelines are calculated during the Core Trading Session in the 
handful of instances where clearly erroneous review would continue to 
be available. Specifically, the Exchange would base these Numerical 
Guidelines, as applied to the circumstances described in paragraph 
(c)(1)(A), on the Percentage Parameters used to calculate Price Bands, 
as set forth in Appendix A to the LULD Plan. Without this change, a 
transaction that would otherwise stand if Price Bands were properly 
applied to the transaction may end up being subject to review and 
deemed clearly erroneous solely due to the fact that the Price Bands 
were not available due to a systems or other issue. The Exchange 
believes that it makes more sense to instead base the Price Bands on 
the same parameters as would otherwise determine whether the trade 
would have been allowed to execute within the Price Bands. The Exchange 
also proposes to modify the Numerical Guidelines applicable to 
leveraged ETF/ETN securities during the Core Trading Session. As noted 
above, the Numerical Guidelines will only be applicable to transactions 
eligible for review pursuant paragraph (c)(1)(A) (i.e., to NMS Stocks 
that are not subject to the LULD Plan). As leveraged ETF/ETN securities 
are subject to LULD and thus the Percentage Parameters will be 
applicable during the Core Trading Session, the Exchange proposes to 
eliminate the Numerical Guidelines for leveraged ETF/ETN securities 
traded during the Core Trading Session. However, as no Price Bands are 
available outside of the Core Trading Session, the Exchange proposes to 
keep the existing Numerical Guidelines in place for transactions in 
leveraged ETF/ETN securities that occur during the Early and Late 
Trading Sessions.
    The Exchange also proposes to move existing paragraphs (c)(2), 
(c)(3), and (d) to proposed paragraph (c)(2)(B), (c)(2)(C), and 
(C)(2)(D), respectively, as Multi-Stock Events, Additional Factors, and 
Outlier Transactions will only be subject to review if those NMS Stocks 
are not subject to the LULD Plan or occur during the Early or Late 
Trading Session. Proposed paragraph (c)(2)(B) is substantially similar 
to existing paragraph (c)(2) except for a change in rule reference to 
paragraph (c)(1) has been updated to paragraph (c)(1)(A). Further, 
given the proposal to move existing paragraph (c)(2) to paragraph 
(c)(2)(B), the Exchange also proposes to amend applicable rule 
references throughout paragraph (c)(2)(A). Finally, the Exchange 
proposes to update applicable rule references in paragraph (c)(2)(D) 
based on the above-described structural changes to the Rule.
Reference Price
    As proposed, the Reference Price used would continue to be based on 
last sale and would be memorialized in proposed paragraph (d). 
Continuing to use the last sale as the Reference Price is necessary for 
operational efficiency as it may not be possible to perform a timely 
clearly erroneous review if doing so required computing the arithmetic 
mean price of eligible reported transactions over the past five 
minutes, as contemplated by the LULD Plan. While this means that there 
would still be some differences between the Price Bands and the clearly 
erroneous parameters, the Exchange believes that this difference is 
reasonable in light of the need to ensure timely review if clearly 
erroneous rules are invoked. The Exchange also proposes to allow for an 
alternate Reference Price to be used as prescribed in proposed 
paragraphs (d)(1), (2), and (3). Specifically, the Reference Price may 
be a value other than the consolidated last sale immediately prior to 
the execution(s) under review (1) in the case of Multi-Stock Events 
involving twenty or more securities, as described in paragraph 
(c)(2)(B) above, (2) in the case of an erroneous Reference Price, as 
described in paragraph (c)(1)(C) above,\27\ or (3) in other 
circumstances, such as, for example, relevant news impacting a security 
or securities, periods of extreme market volatility, sustained 
illiquidity, or widespread system issues, where use of a different 
Reference Price is necessary for the maintenance of a fair and orderly 
market and the protection of investors and the public interest, 
provided that such circumstances occurred during Early or Late Trading 
Session or are eligible for review pursuant to paragraph (c)(1)(A).
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    \27\ As discussed above, in the case of (c)(1)(C)(1), the 
Exchange would consider a number of factors to determine a new 
Reference Price that is based on the theoretical value of the 
security, including but not limited to, the offering price of the 
new issue, the ratio of the stock split applied to the prior day's 
closing price, the theoretical price derived from the numerical 
terms of the corporate action transaction such as the exchange ratio 
and spin-off terms, and the prior day's closing price on the OTC 
market for an OTC up-listing. In the case of (c)(1)(C)(2), the 
Reference Price will be the last effective Price Band that was in a 
limit state before the Trading Pause.
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Appeals
    As described more fully below, the Exchange proposes to eliminate 
paragraph (f), System Disruption or Malfunction. Accordingly, the 
Exchange proposes to remove from paragraph (e)(2), Appeals, each 
reference to paragraph (f), and include language referencing proposed 
paragraph (g), Transactions Occurring Outside of the LULD Bands.
System Disruption or Malfunction
    To conform with the structural changes described above, the 
Exchange now proposes to remove paragraph (f), System Disruption or 
Malfunction, and proposes new paragraph (c)(1)(B). Specifically, as 
described in proposed paragraph (c)(1)(B), transactions occurring 
during the Core Trading Session that are executed outside of the LULD 
Price Bands due to an Exchange technology or system issue may be 
subject to clearly erroneous review pursuant to proposed paragraph (g). 
Proposed paragraph (c)(1)(B) further provides that a transaction 
subject to review pursuant to this paragraph shall be found to be 
clearly erroneous if the price of the transaction to buy (sell) that is 
the subject of the complaint is greater than (less than) the Reference 
Price, described in paragraph (d), by an amount that equals or exceeds 
the applicable Percentage Parameter defined in Appendix A to the LULD 
Plan.

[[Page 58164]]

Trade Nullification for UTP Securities That Are the Subject of Initial 
Public Offerings
    Current paragraph (h) of Rule 7.10 provides different procedures 
for conducting clearly erroneous review in initial public offering 
(``IPO'') securities that are traded pursuant to unlisted trading 
privileges (``UTP'') after the initial opening of such IPO securities 
on the listing market. Specifically, this paragraph provides that a 
clearly erroneous error may be deemed to have occurred in the opening 
transaction of the subject security if the execution price of the 
opening transaction on the Exchange is the lesser of $1.00 or 10% away 
from the opening price on the listing exchange or association. The 
Exchange believes that this provision is no longer necessary as opening 
transactions on the Exchange following an IPO are subject to Price 
Bands pursuant to the LULD Plan. The Exchange therefore proposes to 
eliminate this provision in connection with the broader changes to 
clearly erroneous review during the Core Trading Session.
Securities Subject to Limit Up-Limit Down Plan
    The Exchange proposes to renumber paragraph (i) to paragraph (h) 
based on the proposal to eliminate existing paragraph (h), and to 
rename the paragraph to provide for transactions occurring outside of 
LULD Price Bands. Given that proposed paragraph (c)(1) defines the LULD 
Plan, the Exchange also proposes to eliminate redundant language from 
proposed paragraph (h). Finally, the Exchange also proposes to update 
references to the LULD Plan and Price Bands so that they are uniform 
throughout the Rule and to update rule references throughout the 
paragraph to conform to the structural changes to the Rule described 
above.
Multi-Day Event and Trading Halts
    The Exchange proposes to renumber paragraphs (j) and (k) to 
paragraphs (h) and (i), respectively, based on the proposal to 
eliminate existing paragraph (h). Additionally, the Exchange proposes 
to modify the text of both paragraphs to reference the Percentage 
Parameters as well as the Numerical Guidelines. Specifically, the 
existing text of proposed paragraphs (h) and (i) provides that any 
action taken in connection with this paragraph will be taken without 
regard to the Numerical Guidelines set forth in this Rule. The Exchange 
proposes to amend the rule text to provide that any action taken in 
connection with this paragraph will be taken without regard to the 
Percentage Parameters or Numerical Guidelines set forth in this Rule, 
with the Percentage Parameters being applicable to an NMS Stock subject 
to the LULD Plan and the Numerical Guidelines being applicable to an 
NMS Stock not subject to the LULD Plan.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of Section 6(b) of the Act,\28\ in general, and 
Section 6(b)(5) of the Act,\29\ in particular, in that it is designed 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest and not to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \28\ 15 U.S.C. 78f(b).
    \29\ 15 U.S.C. 78f(b)(5).
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    As explained in the purpose section of this proposed rule change, 
the current pilot was implemented following the Flash Crash to bring 
greater transparency to the process for conducting clearly erroneous 
reviews, and to help assure that the review process is based on clear, 
objective, and consistent rules across the U.S. equities markets. The 
Exchange believes that the amended clearly erroneous rules have been 
successful in that regard and have thus furthered fair and orderly 
markets. Specifically, the Exchange believes that the pilot has 
successfully ensured that such reviews are conducted based on objective 
and consistent standards across SROs and has therefore afforded greater 
certainty to ETP Holders and investors. The Exchange therefore believes 
that making the current pilot a permanent program is appropriate so 
that equities market participants can continue to reap the benefits of 
a clear, objective, and transparent process for conducting clearly 
erroneous reviews. In addition, the Exchange understands that the other 
U.S. equities exchanges and FINRA will also file largely identical 
proposals to make their respective clearly erroneous pilots permanent. 
The Exchange therefore believes that the proposed rule change would 
promote transparency and uniformity across markets concerning review of 
transactions as clearly erroneous and would also help assure consistent 
results in handling erroneous trades across the U.S. equities markets, 
thus furthering fair and orderly markets, the protection of investors, 
and the public interest.
    Similarly, the Exchange believes that it is consistent with just 
and equitable principles of trade to limit the availability of clearly 
erroneous review during the Core Trading Session. The Plan was approved 
by the Commission to operate on a permanent rather than pilot basis. As 
a number of market participants have noted, the LULD Plan provides 
protections that ensure that investors' orders are not executed at 
prices that may be considered clearly erroneous. Further, amendments to 
the LULD Plan approved in Amendment 18 serve to ensure that the Price 
Bands established by the LULD Plan are ``appropriately tailored to 
prevent trades that are so far from current market prices that they 
would be viewed as having been executed in error.'' \30\ Thus, the 
Exchange believes that clearly erroneous review should only be 
necessary in very limited circumstances during the Core Trading 
Session. Specifically, such review would only be necessary in instances 
where a transaction was not subject to the LULD Plan, or was the result 
of some form of systems issue, as detailed in the purpose section of 
this proposed rule change. Additionally, in narrow circumstances where 
the transaction was subject to the LULD Plan, a clearly erroneous 
review would be available in the case of (1) a corporate action or new 
issue or (2) a security that enters a Trading Pause pursuant to LULD 
and resumes trading without an auction, where the Reference Price is 
determined to be erroneous by an Officer of the Exchange because it 
clearly deviated from the theoretical value of the security. Thus, 
eliminating clearly erroneous review in all other instances will serve 
to increase certainty for ETP Holders and investors that trades 
executed during the Core Trading Session would typically stand and 
would not be subject to review.
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    \30\ See Amendment 18, supra note 6.
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    Given the fact that clearly erroneous review would largely be 
limited to transactions that were not subject to the LULD Plan, the 
Exchange also believes that it is necessary to change the parameters 
used to determine whether a trade is clearly erroneous. Specifically, 
due to the different parameters currently used for clearly erroneous 
review and for determining Price Bands, it is possible that a trade 
that would have been permitted to execute within the Price Bands would 
later be deemed clearly erroneous, if, for example, a systems issue 
prevented the dissemination of the Price Bands. The Exchange believes 
that this result is contrary to the principle that trades within the 
Price Bands should stand,

[[Page 58165]]

and has the potential to cause investor confusion if trades that are 
properly executed within the applicable parameters described in the 
LULD Plan are later deemed erroneous. By using consistent parameters 
for clearly erroneous reviews conducted during the Core Trading Session 
and the calculation of the Price Bands, the Exchange believes that this 
change would also serve to promote greater certainty with regards to 
when trades may be deemed erroneous.
    The Exchange believes that it is consistent with the protection of 
investors and the public interest to remove the current provision of 
the clearly erroneous rule dealing with UTP securities that are the 
subject of IPOs. This provision applies specifically to opening 
transactions on a non-listing market following an IPO on the listing 
market. As such, review under this paragraph is limited to trades 
conducted during the Core Trading Session. As previously addressed, 
trades executed during the Core Trading Session would generally not be 
subject to clearly erroneous review but would instead be protected by 
the Price Bands. The Exchange therefore no longer believes that this 
paragraph is necessary, as all trades subject to this provision today 
would either be subject to the LULD Plan, or, in the event of some 
systems or other issue, would be subject to the provisions that apply 
to transactions that are not adequately protected by the LULD Plan.
    Finally, the proposed rule changes make organizational updates to 
the Exchange's Clearly Erroneous Execution Rule as well as minor 
updates and corrections to the Rule to improve readability and clarity.

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

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposal would ensure 
the continued, uninterrupted operation of harmonized clearly erroneous 
execution rules across the U.S. equities markets while also amending 
those rules to provide greater certainty to ETP Holders and investors 
that trades will stand if executed during the Core Trading Session 
where the LULD Plan provides adequate protection against trading at 
erroneous prices. The Exchange understands that the other national 
securities exchanges and FINRA will also file similar proposals, the 
substance of which are identical to this proposal and to the Cboe BZX 
proposal that the Commission recently approved.\31\ Thus, the proposed 
rule change will help to ensure consistency across SROs without 
implicating any competitive issues.
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    \31\ See supra note 8.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \32\ and Rule 19b-4(f)(6) thereunder.\33\ 
Because the proposed rule change does not: (i) significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \32\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \33\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \34\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, Rule 19b-4(f)(6)(iii) \35\ permits the Commission to 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative on October 1, 2022. The Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest, as it will allow the 
Exchange to coordinate its implementation of the revised clearly 
erroneous execution rules with the other national securities exchanges 
and FINRA, and will help ensure consistency across the SROs.\36\ For 
this reason, the Commission hereby waives the 30-day operative delay 
and designates the proposed rule change as operative upon filing.\37\
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    \34\ 17 CFR 240.19b-4(f)(6).
    \35\ 17 CFR 240.19b-4(f)(6)(iii).
    \36\ See SR-CboeBZX-2022-37 (July 8, 2022).
    \37\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \38\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \38\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File SR-NYSENAT-2022-21 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSENAT-2022-21. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the

[[Page 58166]]

filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change. Persons submitting comments are cautioned that we do 
not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NYSENAT-2022-21 and should be submitted on or before October 14, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\39\
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    \39\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-20596 Filed 9-22-22; 8:45 am]
BILLING CODE 8011-01-P


