On February 6, 2026, NYSE Arca, Inc. filed a proposed rule change with the Securities and Exchange Commission to amend Rule 7.35-E, which governs auctions on the exchange. The filing, effective immediately under Section 19(b)(3)(A) of the Securities Exchange Act of 1934, seeks to refine the calculation of the Auction Reference Price for the Core Open Auction, Closing Auction, and Trading Halt Auction. This adjustment aims to better capture recent market activity, promoting transparency and orderly operations in a fast-paced trading environment. Published in the Federal Register on February 20, 2026, the notice invites public comments and reflects ongoing efforts to align exchange practices with evolving market dynamics.
Background on NYSE Arca Auctions and Reference Prices
NYSE Arca operates as an electronic exchange, conducting various auctions to open, close, or resume trading in securities. Rule 7.35-E outlines procedures for these auctions, including the Core Open Auction, which occurs at the start of core trading hours, the Closing Auction at the end of the day, and Trading Halt Auctions to reopen trading after halts. Central to these processes is the Auction Reference Price, defined in Rule 7.35-E(a)(8)(A), which helps determine the Indicative Match Price—the optimal price for maximizing tradable volume during an auction.
Currently, the Auction Reference Price for the Core Open Auction uses the midpoint of the Auction NBBO (National Best Bid and Offer) or the locked price if applicable. Without an Auction NBBO, it falls back to the prior day's Official Closing Price. For Closing and Trading Halt Auctions, it relies on the last consolidated round-lot price of the day or the prior day's closing price. These benchmarks ensure auctions reflect market conditions, but NYSE Arca identifies opportunities for enhancement amid increasing pre-market and dynamic trading activity.
The proposal draws from the Securities Exchange Act of 1934, particularly Section 19(b)(1) and Rule 19b-4, which require self-regulatory organizations like NYSE Arca to file changes for SEC review. Similar rule adjustments have occurred at other exchanges, such as Nasdaq and Cboe BZX, which incorporate recent sale prices or NBBO midpoints to refine auction references. For instance, Nasdaq's rules use the previous day's official closing price or last sale as fallbacks, promoting consistency across markets.
Details of the Proposed Rule Changes
The core amendment targets the Auction Reference Price calculation for the Core Open Auction, introducing a cascading method that prioritizes the price of the last consolidated trade of at least one round lot from that trading day. If no such trade exists, it reverts to the Auction NBBO midpoint or locked price. Absent an Auction NBBO, the initial calculation uses the prior day's Official Closing Price, while subsequent ones rely on the most recent Auction Reference Price. Each calculation evaluates the period since the last one, ensuring responsiveness to new data.
NYSE Arca also proposes uniform language for Closing and Trading Halt Auctions, replacing 'last consolidated round-lot price' with 'price of the last consolidated trade of at least one round lot' for consistency. A key exclusion applies across all three auction types: trades reported on Trade Reporting Facilities during the Early Trading Session or Late Trading Session will not factor into calculations. This aims to focus on core market activity, avoiding potential distortions from extended hours.
As stated in the filing, 'the proposed change would reflect an augmented calculation of the Auction Reference Price... that more accurately reflects price movements in a dynamic market environment, thereby promoting greater transparency in the auction process and the Exchange's marketplace.' The exchange notes that these changes align with approaches at Nasdaq, which uses last sale prices or official closings, and Cboe BZX, which employs reference prices based on NBBO or final last sale eligible trades.
Non-substantive edits clarify definitions for Early Open, Closing, Trading Halt, and IPO Auctions, enhancing rule readability without altering substance.
Statutory Basis and Rationale
NYSE Arca justifies the proposal under Section 6(b)(5) of the Securities Exchange Act, arguing it prevents fraudulent practices, promotes just and equitable trade principles, and protects investors by refining auction mechanisms. The exchange emphasizes that incorporating recent consolidated trades provides a 'more recent valuation for a security,' potentially drawing more liquidity and enabling broader participation in auctions.
On competition, the filing asserts no undue burden, as the changes focus solely on NYSE Arca's internal processes for listed securities and do not affect intermarket dynamics. No comments were received prior to filing, but the SEC's notice solicits input, reflecting standard regulatory oversight.
Perspectives vary: investor advocates might view the updates as bolstering market integrity by emphasizing timely data, while some traders could prefer the status quo for predictability. Regulators, including the SEC, likely see alignment with national market system goals, given parallels to other exchanges' rules. However, critics might question whether excluding extended-hours trades fully captures all relevant activity, though the proposal frames this as a safeguard against less liquid periods.
Implications and Broader Context
Short-term, the changes could lead to more accurate Indicative Match Prices, reducing volatility in auction outcomes and enhancing confidence in NYSE Arca's platform. Over the longer term, they may influence how other exchanges refine their rules, fostering standardization in auction methodologies across the U.S. equities landscape.
The proposal highlights ongoing tensions between innovation and regulation in financial markets. Precedents like Nasdaq's Rule 4752 and Cboe BZX's Rule 11.23 demonstrate a trend toward data-driven reference prices, supported by SEC approvals that prioritize fair and orderly markets. Potential challenges include technological implementation, with NYSE Arca planning rollout by the third quarter of 2026 via Trader Update.
In summary, NYSE Arca's amendments to Rule 7.35-E represent a targeted effort to modernize auction processes, drawing on established legal frameworks and peer practices to benefit market participants.
