81 FR 44907 - Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Partial Amendment No. 3 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendments No. 2 and 3, Relating to Pre-Opening Indications and Opening Procedures

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 132 (July 11, 2016)

[Federal Register Volume 81, Number 132 (Monday, July 11, 2016)]
[Notices]
[Pages 44907-44910]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-16272]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78228; File No. SR-NYSE-2016-24]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Partial Amendment No. 3 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendments No. 2 and 3, Relating to Pre-Opening Indications and Opening 
Procedures

July 5, 2016.

I. Introduction

    On March 17, 2016, New York Stock Exchange LLC (``Exchange'' or 
``NYSE'') 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 its rules relating to pre-opening 
indications and opening procedures. On March 30, 2016, the Exchange 
filed Amendment No. 1 to the proposed rule change.\3\ On March 31, 
2016, the Exchange filed Amendment No. 2 to the proposed rule 
change.\4\ The proposed rule change, as modified by Amendment No. 2, 
was published for comment in the Federal Register on April 6, 2016.\5\ 
On May 13, 2016, the Commission designated a longer period for action 
on the proposed rule change.\6\ The Commission has received no comments 
on the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 superseded the original filing in its 
entirety.
    \4\ Amendment No. 2 superseded the original filing, as modified 
by Amendment No. 1, in its entirety.
    \5\ See Securities Exchange Act Release No. 77491 (Mar. 31, 
2016), 81 FR 20030 (``Notice'').
    \6\ See Securities Exchange Act Release No. 77829, 81 FR 31670 
(May 19, 2016).
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    On June 23, 2016, the Exchange filed Partial Amendment No. 3 to the 
proposed rule change.\7\ The Commission

[[Page 44908]]

is publishing this notice to solicit comments on Partial Amendment No. 
3 from interested persons, and is approving the proposal, as modified 
by Amendments No. 2 and 3, on an accelerated basis.
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    \7\ In Partial Amendment No. 3, the Exchange: (1) Stated its 
belief that securities with an average daily volume of over 500,000 
shares at the open warrant manual openings because such a high 
volume is likely to involve block-sized trades, and a manual opening 
allows the Exchange's Floor brokers to solicit block-sized interest 
to participate in the opening; (2) replaced the term ``order'' with 
``orderly'' in proposed Rules 15(d)(2) and 123D(a)(1)(B)(ii); (3) 
replaced the term ``consult with'' with the term ``notify'' in 
proposed Rules 15(f)(2)(B) and 123D(c)(2)(B) to describe the action 
the Exchange CEO must take if a determination is made to suspend the 
requirements under those rules; and (4) clarified that the filing's 
previous reference to ``consult with'' the Chief Regulatory Officer 
(``CRO'') of the Exchange did not intend to create a requirement for 
the Exchange CEO to obtain the CRO's approval to make a 
determination under proposed Rules 15(f)(2)(B) and 123D(c)(2)(B). 
Partial Amendment No. 3 is available at: https://www.sec.gov/comments/sr-nyse-2016-24/nyse201624-2.pdf.
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II. Description of the Proposal, As Modified by Amendment Nos. 2 and 3

    The Exchange proposes to amend its rules relating to pre-opening 
indications and other opening procedures. With respect to pre-opening 
indications, the Exchange proposes to consolidate requirements for 
publication of pre-opening indications in a single rule and to modify 
the circumstances under which a Designated Market Maker (``DMM'') is 
required to publish pre-opening indications in a security. The Exchange 
also proposes to allow the Exchange CEO, under certain circumstances, 
to temporarily suspend the requirement for DMMs to publish pre-opening 
indications.
    With respect to the opening process, the Exchange proposes to 
specify in its rules that a DMM may open a security electronically only 
within specified price and volume parameters, which would be doubled 
during periods of extreme market-wide volatility. The Exchange also 
proposes to allow the Exchange CEO, under certain circumstances, to 
temporarily suspend these price and volume parameters, as well as the 
existing requirement to obtain Floor official approval before opening 
or reopening a security.
    Finally, the Exchange proposes to delete NYSE Rule 48, and to make 
conforming and technical amendments to several of its rules.

A. Current Pre-Opening Indications and Opening Process on the Exchange

1. Pre-Opening Indications and Mandatory Indications
    Exchange rules currently provide for two types of published 
indications before the open: pre-opening indications and mandatory 
indications.
    First, ``pre-opening indications'' pursuant to Exchange Rule 15 \8\ 
indicate the security and the price range for the anticipated opening 
transaction and are published by the Exchange or by the DMM \9\ if the 
opening transaction on the Exchange is anticipated to be more than a 
specified price range away from the reference price.\10\ The pre-
opening indications are published on the Exchange's proprietary data 
feeds rather than through the securities information processor 
(``SIP'').\11\
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    \8\ See NYSE Rule 15(a).
    \9\ If a DMM issues a pre-opening indication or a mandatory 
indication (as discussed below), the Exchange shall not publish a 
pre-opening indication in that security. See NYSE Rule 15(a).
    \10\ Generally, the reference price is the security's last 
reported sale price on the Exchange. In the case of an initial 
public offering (``IPO''), the reference price would be the offering 
price. In the case of a transferred listing, the reference price 
would be the last reported sale price on the prior listing market. 
See NYSE Rule 15(a).
    \11\ See Notice, supra note 5, at 20031. The Exchange may also 
publish order imbalance information on its proprietary data feeds. 
The order imbalance information contains the price at which opening 
interest may be executed in full. See NYSE Rule 15(c).
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    The current price ranges for pre-opening indications under Rule 15 
are:

------------------------------------------------------------------------
                                                            Applicable
                 Exchange closing price                    price change
                                                            (more than)
------------------------------------------------------------------------
Under $20.00............................................           $0.50
$20-$49.99..............................................           $1.00
$50.00-$99.99...........................................           $2.00
$100-$500...............................................           $5.00
Above $500..............................................            1.5%
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    Second, under Exchange Rule 123D, the Exchange also requires that a 
``mandatory indication'' be published if the opening price would result 
in a significant price change from the previous close or if the opening 
is delayed past 10:00 a.m.\12\ The applicable price parameters for the 
Rule 123D mandatory indication are:
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    \12\ See NYSE Rule 123D(b). When mandatory indications under 
Rule 123D are published, pre-opening indications under Rule 15 are 
not required.

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                                             Price change (equal to or
       Previous NYSE closing price                 greater than)
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Under $10.00............................  1 dollar.
$10--$99.99.............................  lesser of 10% or 3 dollars.
$100 and Over...........................  5 dollars.
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    Exchange Rule 123D provides that all mandatory indications require 
the supervision and approval of a Floor official and that subsequent 
indications are required if a security will open outside the range of 
the previous indication or if the previous indication had a wide 
spread. Exchange Rule 123D also requires that a minimum period of time 
elapse between the publication of the last indication and the 
commencement of trading. Mandatory Indications are published to the SIP 
and the Exchange's proprietary data feeds.\13\
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    \13\ See Notice, supra note 5, at 20032.
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    During extreme market volatility, NYSE Rule 48 provides that the 
Exchange may suspend the requirements to publish pre-opening or 
mandatory indications.\14\
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    \14\ See NYSE Rule 48.
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2. Opening Process
    Currently, the Exchange's rules provide that a DMM has the 
responsibility to open its assigned securities as close to the opening 
bell as possible, but that, when there is a price disparity from the 
prior close, the DMM should not open trading in an ``unduly hasty'' 
manner. Openings on the Exchange may be done manually or 
electronically, and securities may open on a quote or on a trade. 
Currently, Exchange systems prevent a DMM from opening a security 
electronically if the price parameters of Exchange Rule 15 (discussed 
above) are exceeded or if the volume in the opening cross will exceed 
100,000 shares.\15\
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    \15\ In the Notice, the Exchange represented that DMM generally 
opens manually when there is a pre-opening indication or a mandatory 
indication. Further, the Exchange represented that its systems 
prevents a DMM electronic open if a pre-opening indication is 
required or if the size of the opening transaction would exceed 
100,000 shares.
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B. Proposed Changes

1. Pre-Opening Indications
    The Exchange proposes to consolidate pre-opening indications under 
Rule 15 and mandatory indications under Rule 123D into a single type of 
pre-opening indication under amended Rule 15.\16\ The Exchange also 
proposes to make changes to the applicable price parameters that would 
trigger a pre-opening indication, to provide for wider price parameters 
on volatile trading days, and to prescribe detailed procedures for 
publication of pre-opening indications. The Exchange further proposes 
to authorize its CEO, in certain Floor-wide events, to temporarily 
suspend the publication of pre-opening indications. The proposed pre-
opening indications would be published via both the SIP and the 
Exchange's proprietary data feeds.
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    \16\ See Notice, supra note 5.
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    While the Exchange would retain the current definition of the 
reference price used for determining when a pre-opening indication is 
required, the Exchange would use different parameters for the price 
movement that

[[Page 44909]]

would trigger a pre-opening indication. Instead of the current 
parameters, which vary depending on a security's previous closing price 
and use both dollar figures and percentages, the Exchange proposes to 
require a pre-opening indication whenever a security is anticipated to 
open 5% away from its reference price, except on volatile trading days.
    On volatile trading days, the Exchange proposal would double the 
applicable price range from 5% to 10%. The Exchange proposes to use 
this wider range under three circumstances: first, if as of 9:00 a.m. 
Eastern Time, the E-mini S&P 500 Futures price is more than 2% away 
from its prior day's closing price; second, when there is a reopening 
following a market-wide trading halt due to extraordinary market 
volatility; and third, if the Exchange determines that it is necessary 
or appropriate for the maintenance of a fair and orderly market.
    The Exchange proposes procedures for the DMMs to follow when 
required to publish the pre-opening indications, including the 
requirement to obtain supervision and approval of a Floor governor, the 
requirement to update pre-opening indication under certain 
circumstances, the need to use best efforts to narrow the width of the 
spread, the need for a delay between publishing a pre-opening 
indication and opening trading, guidelines on trading halts, and the 
process for reopening after a trading pause due to the Limit-Up-Limit-
Down mechanism.
    The Exchange also proposes to allow the Exchange's CEO to 
temporarily suspend the requirement to publish pre-opening indications 
if the CEO determines that a Floor wide event is likely to impair the 
DMM's ability to arrange for a fair and orderly opening. When invoking 
this provision, the CEO must notify the Exchange's Chief Regulatory 
Officer (``CRO'') and must inform Commission staff as promptly as 
possible. Even when relieved of the obligation to publish pre-opening 
indications, a DMM or the Exchange may publish a pre-opening indication 
for one or more securities.\17\
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    \17\ The Exchange also proposes to increase the frequency with 
which the Exchange disseminates Order Imbalance Information between 
9:20 a.m. ET and the opening of trading for that security from every 
15 seconds to every 5 seconds. Additionally, the Exchange's proposal 
would provide that, unless otherwise specified, all references in 
Rule 15 to an opening transaction would also include a reopening 
transaction following a trading halt or pause in a security.
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2. Opening Process
    The Exchange proposes to codify in its rulebook the circumstances 
under which a DMM may not open a security electronically. Under the 
proposed amendments, a DMM would not be able to open a security 
electronically: (1) If there is manually entered Floor interest; or (2) 
if the opening transaction would be at a price more than 4% away from 
the reference price or the opening transaction volume would be more 
than: (a) 150,000 shares (for securities with average opening volume of 
100,000 shares or less in the previous calendar quarter) or (b) 500,000 
shares (for securities with average opening volume of over 100,000 
shares in the previous calendar quarter). However, if the 9:00 a.m. E-
mini S&P 500 Futures price is 2% away from the prior day's closing 
price, or if the Exchanges determines that it is necessary or 
appropriate for the maintenance of a fair and orderly market, then a 
DMM may open electronically at a price up to 8% away from the reference 
price, and no volume limitation would apply to the opening transaction.
    The Exchange also proposes to allow the Exchange CEO to temporarily 
suspend (a) the price limits within which DMMs may open electronically 
and (b) the need to for a DMM to obtain prior Floor official approval 
to reopen trading electronically following a market-wide trading halt. 
As with the suspension of the requirement to publish a pre-opening 
indication, the CEO would need to consider the relevant facts and 
circumstances, to notify the Exchange's CRO, and to inform Commission 
staff.
3. Conforming Changes
    In addition to the changes described above, the Exchange proposes 
conforming changes to Exchange Rules 80C, 124, and 9217.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendments No. 2 and 3, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\18\ In particular, the 
Commission finds that the proposed rule change is consistent with 
section 6(b)(5) of the Act,\19\ 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 foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, 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.
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    \18\ 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).
    \19\ 15 U.S.C. 78f(b)(5).
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    In support of its proposal, the Exchange has provided statistics 
describing how the proposed modified rules for pre-opening indication 
and opening procedures would have affected market openings on selected 
periods in the past. In particular, the Exchange provided statistics 
describing how the modified rules would have affected the Exchange's 
opening on August 24, 2015, a day that featured unusual volatility in 
the equities markets surrounding the 9:30 a.m. opening.\20\ According 
to the Exchange, on August 24, 2015, 638 stocks listed on the NYSE (or 
19.37% of all NYSE-listed stocks) were subject to NYSE Rule 123D 
mandatory indication requirements, but, under the new proposed 
parameters of NYSE Rule 15 applicable on a volatile trading day (i.e., 
the proposed 10% parameter) only 278 NYSE-listed stocks (or 8.44% of 
all NYSE-listed stocks) would have required the publication of pre-
opening indications.\21\ Additionally, the Exchange's statistical 
analysis shows that, while 1,682 NYSE-listed stocks on August 24, 2015, 
exceeded the parameters within which Exchange systems would permit DMMs 
to conduct an electronic open, the new proposed parameters of NYSE Rule 
123D would have permitted DMMs to open all but 573 NYSE-listed stocks 
electronically.\22\
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    \20\ See Research Note: Equity Market Volatility on August 24, 
2015, prepared by the Staff of the Office of Analytics and Research, 
Division of Trading and Markets, Commission (available at https://www.sec.gov/marketstructure/research/equity_market_volatility.pdf).
    \21\ See Table 2, Notice, supra note 5.
    \22\ See Table 5, Notice, supra note 5.
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    The Commission believes that the Exchange's proposed modifications 
to its opening procedures are consistent with the requirements of the 
Act, because the proposed modifications should provide greater clarity 
to all market participants about the circumstances in which DMMs have 
the discretion to open trading electronically and because they are 
reasonably designed to enhance the ability of DMMs to open (and reopen) 
trading on the Exchange in a timely fashion, particularly on days with 
high market volatility, which should help to remove impediments to and 
perfect the

[[Page 44910]]

mechanism of a free and open market and a national market system.\23\
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    \23\ The Commission also believes that providing for more 
frequent dissemination of the Order Imbalance Information to market 
participants during the period immediately before the open should 
assist the Exchange in conducting an orderly opening auction.
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    The Exchange has also proposed procedures for publication of the 
pre-opening indications and proposed to provide the Exchange CEO with 
the power to temporarily suspend the publication of pre-opening 
indications. The Commission believes that the Exchange's proposed 
procedures for the publication of pre-opening publications are 
reasonably designed to ensure that pre-opening procedures are more 
expeditious. The Commission further believes that providing the 
Exchange CEO under certain circumstances with the ability to 
temporarily suspend the requirement for pre-opening indications, as 
well as the price and volume parameters surrounding electronic openings 
by DMMs, is reasonably designed to enhance the ability of the Exchange 
to conduct orderly openings (and reopenings) under conditions of 
extreme market-wide volatility.
    For the above reasons, the Commission finds that the proposal, as 
modified by Amendment Nos. 2 and 3, is consistent with the requirements 
of the Act.

IV. Solicitation of Comments on Partial Amendment No. 3

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Partial Amendment 
No. 3 to the proposed rule change is consistent with the Act. Comments 
may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSE-2016-24 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2016-24. 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 Web site (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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSE-2016-24 and should be 
submitted on or before August 1, 2016.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendments No. 2 and 3

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendments No. 2 and 3, prior to the 30th day 
after the date of publication of notice of Partial Amendment No. 3 in 
the Federal Register. In Partial Amendment No. 3, the Exchange: (1) 
Stated its belief that securities with an average daily volume of over 
500,000 shares at the open warrant manual openings because such high 
volume is likely to involve block-sized trades and a manual opening 
allows the Exchange's Floor brokers to solicit block-sized interest to 
participate in the opening; (2) replaced the term ``order'' with 
``orderly'' in proposed NYSE Rules 15(d)(2) and 123D(1)(a)(B)(ii); (3) 
replaced the term ``consult with'' with the term ``notify'' in proposed 
NYSE Rules 15(f)(2)(B) and 123D(c)(2)(B) to describe the action the CEO 
of the Exchange must take if a determination is made to suspend the 
requirements under those rules; and (4) clarified that the filing's 
previous reference to ``consult with'' the Chief Regulatory Officer 
(``CRO'') of the Exchange did not intend to create a requirement for 
the CEO of the Exchange to obtain the CRO's approval to make a 
determination under proposed NYSE Rules 15(f)(2)(B) and 123D(c)(2)(B).
    The Commission believes that the revisions proposed in Partial 
Amendment No. 3 are designed to clarify the meaning of the proposed 
rules and do not raise any new novel regulatory issues. Therefore, the 
Commission finds that Partial Amendment No. 3 is consistent with the 
protection of investors and the public interest. Accordingly, the 
Commission finds good cause, pursuant to section 19(b)(2) of the 
Act,\24\ to approve the proposed rule change, as modified by Amendments 
No. 2 and 3, on an accelerated basis.
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    \24\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\25\ that the proposed rule change (SR-NYSE-2016-24), as modified 
by Amendments No. 2 and 3, be, and hereby is, approved on an 
accelerated basis.
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    \25\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-16272 Filed 7-8-16; 8:45 am]
BILLING CODE 8011-01-P