By John Filar Atwood
The NYSE closed its trading floor starting today as a precautionary measure during the COVID-19 outbreak and received temporary relief from the SEC to facilitate electronic auctions during the shutdown. The relief came in the form of the approval of an NYSE rule change that relaxes certain restrictions placed on NYSE designated market makers (DMMs) for the conduct of electronic actions. The changes will remain in place until May 15, or until the trading floor reopens.
NYSE rules currently set price and volume limits beyond which DMMs cannot electronically facilitate an auction, according to an SEC news release. However, NYSE rules allow for these restrictions to be waived or modified on an as-needed basis. The approved rule filing provides for temporary modifications that clarify when DMMs can electronically facilitate auctions, and that align the price and volume parameters with the price collars that would apply during an auction facilitated by the exchange’s own systems.
Modifications. The SEC agreed to suspend the existing price and volume parameters restricting DMMs from effecting a core open auction, trading halt auction, or closing auction. It also approved the NYSE’s plan to widen to ten percent the percentage price parameters for when a DMM may electronically effect a core open auction, trading halt auction, or closing auction.
Under existing NYSE rules, the price parameters are four percent for opening auctions under normal market conditions, and eight percent under volatile conditions. The limits are from two percent to five percent for closing auctions, depending on a security’s price.
The SEC approved a third modification that suspends the requirement for DMMs to publish pre-opening indications before a core open or trading halt auction, which is a floor-based manual action. A fourth adjustment to current rules establishes the auction collars for an exchange-facilitated trading halt auction following a Level 1 or Level 2 market-wide circuit breaker halt at the greater of ten percent or $0.15.
Testing. The SEC noted that the NYSE conducted a full test of the modifications on March 21, as well as tests earlier in the month. On March 7, the NYSE tested a scenario where the trading floor was unavailable and DMMs electronically facilitated auctions in their assigned securities. The NYSE facilitated any auctions that were not facilitated electronically by the DMM.
On March 19, two DMM firms implemented their own business continuity plans and removed staff from the trading floor. For auctions on March 19 and March 20 in the securities assigned to those DMMs, the NYSE provided the DMMs with the opportunity to electronically facilitate both the core open and closing auctions before an exchange-facilitated auction. For the 16 core open auctions and 19 closing auctions that the NYSE facilitated on March 19, all interest was able to participate within the auction collars and no orders were cancelled after the auctions.