The New York Stock Exchange (NYSE) and NASDAQ have announced a framework that will create a more resilient market by providing an additional layer of redundancy for the closing auction of US equities. The exchanges will file the proposals with the Securities and Exchange Commission (SEC).
The new framework is being proposed in response to input from industry participants and regulators so that investors and market participants can be confident in closing prices. Therefore, as a tertiary back-up to its own systems, in the event the NYSE, NYSE Arca or NYSE MKT are unable to run a closing auction in some or all NYSE-listed securities, NYSE will use the resulting price of the NASDAQ Closing Cross in those securities as the official NYSE closing price.
“The role the closing auction plays in establishing reliable closing prices and facilitating liquidity is recognized by market participants and regulators alike,” said Tom Farley, NYSE President. “We look forward to working with the industry and the SEC to implement this resiliency plan for the public markets on behalf of investors.”
Likewise, as a tertiary back-up of its own systems, if NASDAQ is unable to run its Closing Cross in some or all of the NASDAQ-listed securities, NASDAQ will use the resulting price of the NYSE Arca closing auction in those NASDAQ-listed securities as the official NASDAQ closing price.
“Operating our markets to benefit and protect investors is paramount,” said Tom Wittman, global head of Equities and president and CEO of The NASDAQ Stock Market, LLC. “We devote significant resources to ensure redundancy, and this is a way to further enhance that. We welcome the opportunity to work with The NYSE to continually strengthen the quality of our US equity markets.”
Consistent with standard industry practice, and upon SEC approval of the filings, additional information, including testing dates, will be announced for the exchanges and market participants. As with all rule filings submitted by either exchange, a comment period will allow market participants to provide input during the rule making process.
SIFMA responded to the NYSE and NASDAQ announcement with the following statement:
“SIFMA supports the framework announced by NYSE and NASDAQ. We appreciate that NYSE and NASDAQ have considered the industry’s input in taking this important step to improve the resiliency of the closing auction process for US equities. The exchanges’ closing auctions are essential to market efficiency and investor confidence as they establish consistent closing prices for listed equities. SIFMA commends NYSE and NASDAQ for collaborating with each other in developing a framework designed to benefit the entire market. By backstopping each other’s closing auctions, the exchanges will help provide needed certainty that official closing prices can be established in the event that one of the exchanges cannot operate its closing auction.
“Moving forward, SIFMA urges the exchanges to work directly with SIFMA and its members in developing the details of the proposal. This valuable insight from market participants will be vital to help the exchanges develop a plan that is effective and can be implemented as soon as possible. We look forward to considering the details of the proposal with our members and working with the exchanges and the SEC to finalize this plan to support the resiliency of a critical equity markets function.”
