The New York Stock Exchange (NYSE) and Nasdaq announced a proposal on Wednesday to introduce an additional layer of redundancy for the closing auction of U.S. equities in the event of a systems failure.
If NYSE, NYSE Arca or NYSE MKT are unable to run a closing auction in NYSE-listed securities, they will use the price of the Nasdaq Closing Cross in those securities as the official NYSE closing price, the exchanges say.
Similarly, if Nasdaq is unable to run its closing cross in any Nasdaq-listed securities, it will use the price of the NYSE Arca closing auction in those Nasdaq listings as the official Nasdaq closing price.
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 if there’s a systems failure at either of the major exchanges, the exchanges say.
They plan to file the proposal with the U.S. Securities and Exchange Commission (SEC), and it will then go out for public comment.
“The role the closing auction plays in establishing reliable closing prices and facilitating liquidity is recognized by market participants and regulators alike,” says Tom Farley, NYSE president, in a statement. “We look forward to working with the industry and the SEC to implement this resiliency plan for the public markets on behalf of investors.”
“Operating our markets to benefit and protect investors is paramount,” adds 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 U.S. equity markets.”
The U.S. Securities Industry and Financial Markets Association (SIFMA) has applauded the exchanges’ move, saying that it supports the proposal. “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 U.S. equities,” says Randy Snook, executive vice president, business policies and practices at SIFMA, in a statement.
“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,” he adds. “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.”
Looking ahead, he called on the exchanges to work directly with SIFMA to hammer out the details of the proposals. “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,” he concludes.