On September 28, 2015, the revised New York Stock Exchange (NYSE) requirements relating to the circulation of material non-public information by listed companies, and updated procedures relating to trading halts, became effective. These rules and procedures on the dissemination of material news by listed companies, and whether the NYSE should halt trading in connection with such material news, is referred to as the “Timely Alert Policy.” These rules and procedures are set forth in Section 202.06 of the NYSE Listed Company Manual (Section 202.06). This Legal Alert addresses the significant aspects of the revised Timely Alert Policy.
As discussed more fully below, the amendment to Section 202.06 (the Amendment) revises the Timely Alert Policy by:
- Expanding the requirement to notify the NYSE before disseminating material news to pre-market hours, which before today only required notification in the event that the listed company released information shortly before or during market hours;
- Allowing the NYSE to halt trading pending dissemination of a news announcement that is issued during pre-market hours, provided that the announcement is material, and the request to halt trading comes from the listed company;
- Allowing the NYSE, under certain circumstances and notwithstanding (ii) above, to halt trading in a listed company’s stock on the basis of a news announcement that is issued during pre-market hours;
- Adding advisory language to Section 202.06 requesting that NYSE listed companies that intend to release material news immediately after the close of trading delay the release until the earlier of the publication of an official closing price or 15 minutes after the close of trading; and
- Affirming the NYSE’s policy position relating to its ability to impose a trading halt on an NYSE listed security that is also listed on another exchange, when the other exchange halts trading in that security.
Pre-Market Hour Alerts to the NYSE and Trading Halts
The most significant aspect of the Amendment is the expansion of the requirement to notify the NYSE before disseminating material news during the pre-market hours. This new rule requires an NYSE listed company to call the NYSE Market Watch Group at least 10 minutes before disclosing the material non-public information if the disclosure will occur between 7:00 a.m. and 4:00 p.m. EST.1Moreover, to the extent the disclosure includes any written materials, companies are required to provide the Market Watch Group with a copy of the disclosure via email concurrently with its call to the Market Watch Group.2
Prior to the Amendment, under Section 202.06, NYSE listed companies were only required to comply with the 10-minute notice requirement when they were announcing news of a material event shortly before or during NYSE trading hours, which are generally between the hours of 9:30 a.m. and 4:00 p.m. EST. Therefore, the principal change that listed companies must account for is with respect to any disclosure of material news between the hours of 7:00 a.m. EST and the commencement of trading on the NYSE at 9:30 a.m. EST.
The primary purpose of amending the notification requirements is to help listed companies and the NYSE determine if a trading halt is required. Prior to the Amendment, the NYSE could only impose a trading halt in the event that a company announced material news shortly before the market opened or during market hours. The amended Timely Alert Policy allows listed companies, after consultation with the Market Watch Group, to determine at their own discretion whether or not a trading halt is necessary. The NYSE believes that based upon a listed company’s conversation with the Market Watch Group, a listed company can better assess whether a halt in trading of the company’s securities would be warranted to allow additional time for the market to absorb the information being disclosed.
The key consideration of this aspect of the Amendment is whether the proposed disclosure is material. As with most determinations of materiality, the analysis is based upon the facts and circumstances surrounding the information being disclosed. Not all news releases will be material for purposes of the amended rule. For example, an earnings release in the ordinary course of a listed company’s business that is substantially consistent with prior quarters and/or market expectations probably would not be considered material for this purpose. Therefore, a call to the Market Watch Group would not be required. Conversely, greater consideration would be given to information that is less routine in nature. A company should discuss any proposed dissemination with counsel in order to assess the likelihood that the information would be considered material and, therefore, require compliance with the revised Timely Alert Policy.
Regulatory Trading Halts by the NYSE
As noted above, the amended Timely Alert Policy allows listed companies to determine whether or not a trading halt is necessary in connection with their pre-market hour news disseminations. However, the NYSE will maintain the right to impose a trading halt in the event that a company announces material newsshortly before or during NYSE trading hours. Trading halts that are imposed at the discretion of the NYSE are referred to as “Regulatory Trading Halts.”
The amended Timely Alert Policy also allows the NYSE, under some circumstances, to institute a Regulatory Trading Halt even with respect to material news announcements that are made during pre-market hours and in compliance with all of the notice requirements noted above. Specifically, under the amended Section 202.06, the NYSE may impose a Regulatory Trading Halt with respect to pre-market hour material news releases if the NYSE believes it is necessary to request information from the listed company relating to: (i) the material news; (ii) the listed company’s compliance with NYSE’s continued listing requirements; or (iii) any other information which the NYSE believes is necessary to protect investors and the public interest. The NYSE will have the authority to impose the Regulatory Trading Halt until it has received and evaluated the requested information.
The language relating to the NYSE’s authority to implement Regulatory Trading Halts in the amended Section 202.06 is broad. Therefore, listed companies should seek to proactively provide the Market Watch Group with any materials that may be helpful to understand any news that the company seeks to disclose. Moreover, for particularly complex news, listed companies should consider reaching out to the Market Watch Group in advance of the 10-minute notice requirement imposed by the Timely Alert Policy. In some cases, it may be advisable to start the dialogue with the Market Watch Group a day before the news release date to ensure that the NYSE receives all of the information it may seek. In those circumstances, counsel should be consulted to ensure that the information is being conveyed in the most prudent way possible and that the information remains confidential until the desired release date.
Release of Material News Immediately After the Market Closes
The Amendment also includes an NYSE advisory notice to listed companies relating to the dissemination of material news after the market closes. In that regard, the NYSE has noted that while trading generally stops at 4:00 p.m. EST, the order book for each listed security is manually closed by the security’s Designated Market Maker (DMM), which can take several minutes. Since trading continues on other exchanges after the NYSE closes, if a listed company disseminates material news shortly after the NYSE market closes, the listed company’s security may trade on an after-market exchange at a price that can be significantly different than the last sale price on the NYSE.
The NYSE has expressed its view that any such discrepancy in price can cause confusion to investors. In an effort to mitigate any discrepancy between the last sale price on the NYSE and an after-market exchange sale price, the advisory notice in the amended Section 202.06 asks listed companies that intend to issue material news after the NYSE closes to delay the release of the material news until the earlier of the NYSE’s official publication of its closing price, or 15 minutes after the close of trading on the NYSE.
Regulatory Trading Halts of Dual Listed Companies
In connection with the Amendment, the NYSE also memorialized its authority to impose a Regulatory Trading Halt on an NYSE listed security that is also listed on another exchange based upon a regulatory action by the other exchange. Under this authority, the NYSE can impose a trading halt on a dual listed security, such as is typically the case with American Depositary Receipts that trade on the NYSE, based solely on relying on the other exchange’s action.