TheCorporateCounsel.net

One of the things that needs to be addressed as trading hours expand is how to handle corporate actions that have to be processed during a nontrading window. Over on Cooley’s CapitalXchange blog, Liz recently shared that Nasdaq was addressing this by expanding the mandatory trading halt framework that already exists for reverse stock splits – extending it to eight specified categories (changes to symbol/ticker or CUSIP, large dividends, splits, de-SPACs, spinoffs, security-type changes and mergers/similar share exchanges). She also noted that “[o]ther primary listing exchanges will implement substantially identical trading halt rules.” NYSE is now also out with a proposed rule change to address this, and the notice of filing and immediate effectiveness has been posted on the SEC’s website. 

In the context of 23/5 Trading, the Exchange has determined—based on discussions both internal and with industry participants, including the other Primary Listing Markets—that, similar to reverse stock splits, certain other corporate actions require a clearly defined and transparent pause in trading to facilitate their coordinated processing by the Exchange and other market participants before orderly trading may resume in the affected security [. . .] Although the Exchange does not currently plan to extend its own trading hours, the Exchange is a Primary Listing Market whose listed securities may trade on any venue, including NYSE Arca and other exchanges that opt to offer 23/5 Trading. Under the current market structure, the Exchange processes corporate action-related changes and updates for its listed securities during overnight hours. Other market participants, including broker-dealers, likewise use that overnight period to process corporate action-related information and adjust quotes, orders, and related instructions accordingly.

Under 23/5 Trading, however, trading in the Exchange’s listed securities will resume on other markets at 9:00 p.m., only one hour after the close of trading at 8:00 p.m. Consequently, there will no longer be a substantial non-trading window during which the Exchange and market participants can process such corporate actions without potentially impacting overnight trading on other markets. These corporate actions require coordinated updates across Exchange and market-participant systems—including adjustments to orders, quotes, and related instructions—to ensure orderly trading and accurate pricing and execution in the affected security. With only a one-hour pause between trading days, neither the Exchange nor other market participants would have sufficient time to process and incorporate corporate action-related information—such as adjustments to systems, orders, quotes, and related instructions—without the risk that trading could occur in the affected security based on incomplete or inconsistent information [. . .]

The Exchange proposes to build on the framework established under Rule 7.18 for reverse stock splits by extending that rule’s mandatory regulatory halt requirement to additional corporate actions [. . .] As proposed, under 23/5 Trading, if a security is affected by any of the corporate actions enumerated in the proposal, the Exchange would implement a mandatory regulatory halt in that security before the start of overnight trading on other markets at 9:00 p.m. ET, and trading would resume with a Trading Halt Auction after 9:30 a.m. ET.

Similar notices of filing and immediate effectiveness have been posted for NYSE American, NYSE Arca and NYSE Texas. All would become operative at the commencement of 23/5 Trading. As John and Liz have noted, these changes will impact timelines, checklists and existing processes for corporate actions.

Reminder: The SEC’s roundtable on preparations for 24-hour trading is happening tomorrow from 10 am to 4 pm ET at the SEC’s headquarters and streaming live on SEC.gov.

– Meredith Ervine