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Exchanges Plan Better Backup for Closing Auction Outages

NASDAQ and NYSE announced a plan to “create a more resilient market by providing an additional layer of redundancy for the closing auction of U.S. equities.” The plan would call for stocks listed on NYSE and related markets to use the price of NASDAQ’s closing cross for the security as the official closing price in the event that the listing exchange is unable to conduct the closing auction. Similarly, NYSE would serve the same role in the event that NASDAQ was unable to conduct its closing cross. The exchanges will soon submit the plan to the SEC for approval and public comment.

The change comes after a bug on the NYSE platform that caused the exchange to suspend trading for several hours on July 8. A report from Bloomberg noted that closing prices were particularly important on the day of the outage due to changes in the composition of the S&P 500 that day. Concerns over market resiliency have been long-brewing, and SEC Chair Mary Jo White initially expressed concern about the lack of a backup process in 2013 after a three hour shutdown of trading on NASDAQ. Shortly after the outage, White called the heads of the exchange to a meeting in Washington and gave them 60 days to issue proposals to improve market resiliency. The exchanges responded with a plan which included “a pathway to identify contingencies related to critical infrastructure items such as . . . the open/close of the markets.” However, after the most recent issue at NYSE, calls for action had intensified, leading to the current backup plan.