The NYSE is proposing two changes with regard to material news: the first relates to a limitation on the issuance of material news in the period immediately after the NYSE close, and the second relates to a delay in the effective date of the NYSE’s recent rule change regarding notice to the NYSE of dividends and stock distributions.
First, the NYSE is proposing to amend Section 202.06 of the NYSE Manual to prohibit listed companies from issuing material news after the official closing time for the NYSE’s trading session (typically 4:00 p.m., except sometimes it’s 1:00 p.m.) until the earlier of publication of the company’s official closing price on the NYSE or five minutes after the official closing time.
Why the change? The designated market maker for any security facilitates the closing process for that security when order entry acceptance ends after the close at 4:00 p.m. However, trading in that security can continue after 4:00 p.m. on other venues. Because the closing auction on the NYSE is based on an order imbalance that was established before 4:00 p.m. and on orders entered with information available before 4:00 p.m., if a listed company releases material news immediately after 4:00 p.m., but before the closing auction on the NYSE, there can be a big difference in the prices of nearly contemporaneous trades on other markets and the closing price on the NYSE. This price difference can lead to investor confusion. To address this issue, currently, the NYSE just requests, in advisory text in Section 202.06, that a listed company intending to release material news after the close of trading delay the release until the earlier of the publication of the official closing price of its security on the NYSE or 15 minutes after the NYSE’s scheduled closing time. Notwithstanding this advisory text, the problem has persisted.
Apparently, it’s now time to get tough. Under the proposed rule change, listed companies would be prohibited from issuing material news after the NYSE’s official closing time “until the earlier of publication of such company’s official closing price on the Exchange or five minutes after the official closing time. In the Exchange’s experience, DMMs are able to complete the closing auctions for the securities assigned to a DMM in almost all cases within five minutes of the Exchange’s official closing time, so the proposed amendment utilizes that timeframe as it would make it unlikely that a listed company would ever issue material news between the official closing time and the completion of the closing auction.” (To address the possibility that the closing auction could be delayed more than five minutes, the amended rule would continue to include the advisory text asking companies to avoid issuing material news until the earlier of publication of the official closing price or 15 minutes after the NYSE’s official closing time.) The NYSE believes that including a “prohibition would mitigate the risk of market disruption and investor confusion associated with the occurrence of significant news-related price volatility on other markets during the brief period between the NYSE’s official closing time and the completion of the closing auction.” Although the NYSE acknowledges that it remains critical to release material news as quickly as possible, it “believes that the brief delay mandated by the proposed amendment is desirable in light of the benefit of the reduced likelihood of the occurrence investor confusion….”
Second, on August 14, the SEC approved a rule change that amended the NYSE Manual to require listed companies to provide notice to the NYSE at least ten minutes before making any public announcement with respect to a dividend or stock distribution, irrespective of the time of day, even when the notice is outside of NYSE trading hours (rather than limited to the hours of 7:00 A.M. and 4:00 P.M. as in the prior rule). (See this PubCo post.) The rule change was reflected in the NYSE Manual and appeared to be effective upon approval. Just over a week later, the NYSE decided to revisit the timing of effectiveness. As noted in thecorporatecounsel.net blog, the NYSE has now proposed to amend that rule to delay its implementation to be “no later than February 1, 2018.”
According to the NYSE’s proposal, the delay is necessary because “listed companies may need to change their internal procedures to comply with the new policy and because the Exchange has implemented new technology changes and processes to effectively perform this function…. This delay would provide listed companies with additional time to prepare to comply with the new requirements and for the Exchange’s systems to provide the necessary support to Exchange staff in reviewing notifications. The Exchange will provide reasonable advance notice of the new implementation date to its listed companies by emailing a notice to them that will also be posted on nyse.com.” Until the new rule becomes effective, the current rule remains in effect.
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