The SEC recently approved a proposal by NYSE to amend NYSE Listed Company Manual Rule 202.06 to prohibit NYSE-listed companies from issuing material news after the NYSE close of trading until the earlier of the publication of the company’s official closing price on the NYSE or five minutes after the NYSE’s official closing time (which is 4:00PM ET) for the placement of orders.
Immediately after the official Exchange closing time of 4:00PM, the Designated Market Maker (“DMM”) registered in a security facilitates the close of trading. While that closing auction process occurs (which typically takes no longer than five minutes), there can be a significant price difference in nearly contemporaneous trades on other markets and the closing price on the Exchange. If news is released before that process is completed, the news can cause a company’s stock to trade on other markets at materially different prices than the price of the NYSE’s closing auction run by the DMM. Previously, Rule 202.06 had advisory language providing that “the Exchange asks companies that intend to issue material news after the closing of trading on the Exchange to delay doing so until the earlier of publication of such company’s official closing price on the Exchange or fifteen minutes after the close of trading on the Exchange in order to facilitate an orderly closing process to trading on the Exchange.”
The SEC noted in the rule proposal, however, that this advisory has not been consistently followed. The 5-minute prohibition is intended to 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. The one exception to this revised requirement is to permit companies to publicly disclose material information, if needed to comply with Regulation FD, following a nonintentional disclosure.