Two changes—one proposed, one approved—in the NYSE Manual: first, the NYSE is proposing to modify its requirements with respect to delivery to the NYSE of hard copies of proxy materials. Second, the SEC has approved the NYSE’s proposal, as amended, related to a limitation on the issuance of material news in the period immediately after the NYSE close.
Proxy materials. Currently, listed companies are required to provide hard copies of proxy materials to the NYSE under Section 204.00(B) and Section 402.01 of the NYSE Manual. Notwithstanding the requirements of Rule 14a-6(b) to deliver hard copies to the applicable exchange (from which the NYSE has obtained no-action relief), the NYSE proposes to amend Section 402.01 to provide that listed companies would not be required to provide hard copies of proxy materials to the NYSE, so long as they were included in an SEC filing available on EDGAR. If the proxy materials were available on EDGAR but not filed under Schedule 14A (such as proxy statements of foreign private issuers), they may be more difficult for the NYSE to spot, so the company would be required to provide the NYSE with information sufficient to identify the filing not later than the date on which the proxy materials were sent or given to any security holders. If proxy materials were not included in their entirety (together with proxy card) in an SEC filing available on EDGAR, the company would then still need to send three hard copies to the NYSE not later than the date on which the proxy materials were sent or given to any security holders. The NYSE also proposes to modify Section 204.00(B) to require companies to send hard copies of proxy materials to the NYSE only (i) in the circumstances specified by Section 402.01, as proposed to be amended, and (ii) one hard copy of any filing that is not required to be filed through EDGAR, including under a hardship exemption granted by the SEC.
Disclosure of material news. In addition, the SEC has approved, on an accelerated basis, the NYSE’s proposed amendment to Section 202.06 of the NYSE Manual restricting the timeframe when companies can issue material news after the official closing time for the NYSE’s trading session. The proposed change was originally filed in August (see this PubCo post), but was amended in November to “clarify that the proposed restriction on issuing material news will not apply where a listed company was publicly disclosing material information following a non-intentional disclosure in order to comply with Regulation FD.”
What is the purpose of this amendment to the Manual? 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 market disruption and, according to the release, “reduce investor confidence in trading on the Exchange given that once the official closing time occurs on the Exchange, orders cannot be cancelled or modified (including orders designated for the closing price) to take into account the material news even though the Exchange closing price may not yet have been established by the closing auction process.” 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. As a result, the NYSE proposed to make a delay mandatory. The amendment will prohibit listed companies from issuing material news after the NYSE’s official closing time until the earlier of publication of the company’s official closing price on the NYSE or five minutes after the official closing time, except when publicly disclosing material information following a non-intentional disclosure to comply with Reg FD. The NYSE believes that DMMs are able to complete the closing auctions for the securities assigned to them in almost all cases within five minutes of the official closing time, so the amendment uses the five-minute timeframe. To address the possibility that the closing auction could be delayed more than five minutes, however, the amended requirement will 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.
In the proposal, the NYSE contended that the “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 acknowledged 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….” The SEC concurred that “the maximum five minute delay mandated by the proposal is consistent with investor protection in that it will reduce the likelihood of investor confusion that could result if material news is issued prior to the completion of the Exchange’s closing auction but while trading is continuing on away markets.”