FR 2021-03338

General Summary

The document in question outlines a proposal from the New York Stock Exchange (NYSE) that is under review by the Securities and Exchange Commission (SEC). The proposal seeks to amend certain rules—specifically, Rules 7.35 and 7.35A—related to the dissemination of Auction Imbalance Information for securities undergoing Initial Public Offerings (IPOs) or Direct Listings. This information would be shared before their respective auctions take place. Additionally, the amendments address how Designated Market Makers (DMMs) can consult with underwriters and financial advisors during this process. The SEC is requesting public feedback to assess the consistency of these changes with existing legal standards that aim to maintain fair and transparent market practices.

Significant Issues and Concerns

The document raises several issues that may require further clarification and consideration:

1. Lack of Context on Current Practices: The proposal does not provide a clear contrast between current practices and the proposed changes. This could make it difficult for stakeholders to fully understand the implications of the amendments, leading to confusion during the comment period.

2. Unclear Roles and Responsibilities: The language concerning the manner in which consultations are conveyed—either via a Floor broker or Exchange staff—lacks detail about the specific roles and responsibilities of each party involved. This ambiguity could result in misunderstandings about procedural responsibilities.

3. Undefined Permitted Consultations: One of the key issues is the lack of specificity regarding what constitutes a "permitted consultation." Without clear definitions, there is a risk of varied interpretations, which could undermine compliance and enforcement efforts.

4. Information Restrictions: The proposal does not detail the types of information that should not be conveyed during consultations between DMMs and financial advisors or underwriters. This gap potentially leaves room for non-compliance with regulations.

5. Limited Feedback Scope: While the SEC seeks comments on communications between DMMs and underwriters or financial advisors, the document does not offer alternative suggestions. This may limit the scope and depth of public feedback.

Impact on the Public

The proposed rule changes could have broad implications for the public by potentially enhancing transparency in the securities market. Access to Auction Imbalance Information prior to IPOs or Direct Listings may enable investors to make more informed decisions, theoretically leading to a fairer market environment.

Impact on Specific Stakeholders

For investors, increased access to imbalance information could be beneficial, as it provides valuable insights into market dynamics. This transparency might level the playing field, especially for retail investors who typically have less access to market information.

DMMs, underwriters, and financial advisors could be impacted by the rules governing consultations, as they may affect how these parties interact during the IPO or Direct Listing process. Without clear guidelines, stakeholders may face challenges related to compliance and operational complexity.

Finally, the NYSE itself may either benefit or encounter difficulties depending on how well these changes are implemented and perceived by market participants. If successful, the amendments could reinforce the Exchange's commitment to transparent and equitable processes. However, if issues arise due to ambiguities or compliance challenges, the Exchange could face reputational risks.

In summary, while the proposal aims to enhance market transparency and fairness, it faces hurdles that need to be addressed. Clear definitions, roles, and limitations will be crucial in facilitating an effective implementation that aligns with the overall market interests and regulatory standards.