Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Granting Accelerated Approval to Proposed Rule Change To Amend FINRA Rule 6121 (Trading Halts Due to Extraordinary Market Volatility) To Permit FINRA To Halt Trading by FINRA Members Otherwise Than on an Exchange Where a Primary Listing Market Has Issued a Trading Pause Due to Extraordinary Market Conditions, 34183-34186 [2010-14434]
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Federal Register / Vol. 75, No. 115 / Wednesday, June 16, 2010 / Notices
Proposed Action. The Postal Service
proposes to utilize mobile fueling
contractors to fuel vehicles on site at
selected postal facilities located
throughout the United States. The
program would focus on, but not be
limited to, city and rural delivery units
with 30 or more routes using vehicles
owned by the Postal Service. Based on
these criteria, it is anticipated that up to
1,100 sites may be eligible to convert to
mobile fueling. Mobile fueling, also
known as fleet fueling, wet fueling, or
wet hosing, is the practice of filling fuel
tanks of vehicles directly from tank
trucks. In this scenario, mobile refueling
contractors drive tank trucks onto Postal
Service property to fuel parked delivery
vehicles and drive the tank trucks off
site when fueling is completed. At this
time, the only alternative identified is
the ‘‘no action’’ alternative of continuing
to fuel delivery vehicles off-site at
commercial gas stations.
provisions of the securities laws,
whether Amico and Goldstein failed
reasonably to supervise Kantrowitz,
and, if so, whether and to what extent
sanctions should be imposed on Amico
and Goldstein.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
For further information and to
ascertain what, if any, matters have been
added, deleted or postponed, please
contact:
The Office of the Secretary at (202)
551–5400.
Dated: June 11, 2010.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–14576 Filed 6–14–10; 11:15 am]
BILLING CODE 8010–01–P
[FR Doc. 2010–14491 Filed 6–11–10; 4:15 pm]
[File No. 500–1]
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Micro Laboratories, Inc.; Order of
Suspension of Trading
SECURITIES AND EXCHANGE
COMMISSION
June 11, 2010.
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Sunshine Act Meeting
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
Commission will hold an Open Meeting
on June 18, 2010 at 10 a.m. in the
Auditorium, Room L–002, to hear oral
argument in an appeal by Guy S. Amico
and Scott H. Goldstein from the
decision of an administrative law judge.
The law judge found that Amico and
Goldstein, the president and chief
executive officer, respectively, of
registered broker-dealer Newbridge
Securities Corporation, failed
reasonably to supervise Daniel M.
Kantrowitz, a former trader at
Newbridge, within the meaning of
Sections 15(b)(4)(E) and 15(b)(6) of the
Securities Exchange Act of 1934, with a
view to detecting and preventing
Kantrowitz’s violations of the
registration and antifraud provisions of
the federal securities laws. For these
failures, the law judge barred Amico
and Goldstein from associating with a
broker-dealer in a supervisory capacity
with a right to apply for reinstatement
after two years and imposed on each a
civil money penalty of $79,000.
Among the issues likely to be argued
are whether Kantrowitz’s conduct
violated the registration and antifraud
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–62251; File No. SR–FINRA–
2010–025]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Granting
Accelerated Approval to Proposed
Rule Change To Amend FINRA Rule
6121 (Trading Halts Due to
Extraordinary Market Volatility) To
Permit FINRA To Halt Trading by
FINRA Members Otherwise Than on an
Exchange Where a Primary Listing
Market Has Issued a Trading Pause
Due to Extraordinary Market
Conditions
June 10, 2010.
SECURITIES AND EXCHANGE
COMMISSION
Stanley F. Mires,
Chief Counsel, Legislative.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Micro
Laboratories, Inc. (‘‘Micro Laboratories’’)
because it has not filed any periodic
reports since the period ended June 30,
2005. Micro Laboratories is quoted on
the Pink Sheets operated by Pink OTC
Markets, Inc. under the ticker symbol
MLAR.
The Commission is of the opinion that
the public interest and the protection of
investors require a suspension of trading
in the securities of the above-listed
company, and any equity securities of
any entity purporting to succeed to this
issuer.
Therefore, it is ordered, pursuant to
Section 12(k) of the Securities Exchange
Act of 1934, that trading in the
securities of the above-listed company,
and any equity securities of any entity
purporting to succeed to this issuer, is
suspended for the period from 9:30 a.m.
EDT on June 11, 2010, through 11:59
p.m. EDT on June 24, 2010.
By the Commission.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–14574 Filed 6–14–10; 11:15 am]
I. Introduction
On May 18, 2010, the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’),2 and Rule 19b–4 thereunder,3 a
proposed rule change to amend FINRA
Rule 6121 (Trading Halts Due to
Extraordinary Market Volatility) to
permit FINRA to halt trading by FINRA
members otherwise than on an exchange
where a primary listing market has
issued a trading pause due to
extraordinary market conditions.4
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
4 Also on May 18, 2010, each of BATS Exchange,
Inc. (‘‘BATS’’), EDGX Exchange, Inc. (‘‘EDGX’’),
NASDAQ OMX BX, Inc. (‘‘BX’’), International
Securities Exchange LLC (‘‘ISE’’), New York Stock
Exchange LLC (‘‘NYSE’’), NYSE Amex LLC
(‘‘NYSEAmex’’), NYSE Arca, Inc. (‘‘NYSEArca’’), The
NASDAQ Stock Market LLC (‘‘NASDAQ’’), National
Stock Exchange, Inc. (‘‘NSX’’) and Chicago Board
Options Exchange, Incorporated (‘‘CBOE’’) filed
proposed rule changes. On May 19, 2010, EDGA
Exchange, Inc (‘‘EDGA’’) and Chicago Stock
Exchange, Inc. (‘‘CHX’’) filed proposed rule changes
to provide for similar trading pauses. See Securities
Exchange Act Release Nos. 62121 (May 19, 2010),
75 FR 28834 (May 24, 2010); 62123 (May 19, 2010),
75 FR 28844 (May 24, 2010); 62124 (May 19, 2010),
75 FR 28828 (May 24, 2010); 62125 (May 19, 2010),
75 FR 28836 (May 24, 2010); 62126 (May 19, 2010),
75 FR 28831 (May 24, 2010); 62127 (May 19, 2010),
75 FR 28837 (May 24, 2010); 62128 (May 19, 2010),
75 FR 28830 (May 24, 2010); 62129 (May 19, 2010),
75 FR 28839 (May 24, 2010); 62131 (May 19, 2010),
75 FR 28845 (May 24, 2010); 62132 (May 19, 2010),
75 FR 28847 (May 24, 2010); 62122 (May 19, 2010),
75 FR 28833 (May 24, 2010); and 62130 (May 19,
2010), 75 FR 28842 (May 24, 2010). These filings
are being approved today by the Commission. See
Securities Exchange Act Release No. 62252 (June
10, 2010). In this order, the term ‘‘Exchanges’’ refers
collectively to all of the exchanges. The term
‘‘Listing Markets’’ refers collectively to NYSE,
NYSEAmex and NASDAQ. The term ‘‘Nonlisting
Markets’’ refers collectively to the remaining nine
national securities exchanges. The term ‘‘SROs’’
2 15
Continued
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Federal Register / Vol. 75, No. 115 / Wednesday, June 16, 2010 / Notices
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The proposed rule change was
published for comment in the Federal
Register on May 24, 2010.5 The
Commission received 26 comments on
the proposals and on the broader
concept of circuit breakers on
individual securities.6 This order grants
accelerated approval to the proposed
rule change.
refers to the Exchanges and the Financial Industry
Regulatory Authority (‘‘FINRA’’).
5 See Securities Exchange Act Release No. 62133
(May 19, 2010), 75 FR 28841 (May 24, 2010).
6 The Commission considered letters received
prior to May 18 discussing the concept of
individual stock circuit breakers as well as formal
letters citing the rule filings. See Letter from
Senator Charles E. Schumer to Chairman Schapiro,
Commission, et. al., dated May 10, 2010; Letter
from Congressman Edward J. Markey to Chairman
Schapiro, Commission, dated May 11, 2010; Letter
from Cliff Pereira to Elizabeth M. Murphy,
Secretary, Commission, dated May 13, 2010; Letter
from Thomas Hofler to Elizabeth M. Murphy,
Secretary, Commission, dated May 13, 2010 (‘‘Hofler
Letter’’); Letter from James K. Rutledge to RuleComments, Commission, dated May 13, 2010; Letter
from John Meredith to Elizabeth M. Murphy,
Secretary, dated May 19, 2010; Letter from Peter
Skopp, Molinete Trading Inc. to Elizabeth M.
Murphy, Secretary, Commission, dated May 20,
2010 (‘‘Molinete Letter’’); letter from Paul Rogers to
Rule-Comments, Commission, dated May 20, 2010;
Letter from Congressman Eric Cantor to Chairman
Schapiro, Commission, dated May 21, 2010; Letter
from T.P. Tursick to Elizabeth M. Murphy,
Secretary, Commission, dated May 25, 2010; Letter
from James J. Angel to the Commission, dated May
25, 2010 (‘‘Angel Letter’’); Letter from Larry Harris,
USC Marshall School of Business, to Elizabeth M.
Murphy, Secretary, Commission, dated May 26,
2010 (‘‘Harris Letter’’); Letter from Judith Kittinger
to WebMaster, Commission, dated May 27, 2010;
Letter from Congresswoman Melissa L. Bean to
Chairman Schapiro, Commission, dated May 28,
2010 (‘‘Bean Letter’’); Letter from Patrick J. Healy,
Issuer Advisory Group, LLC, to Elizabeth M.
Murphy, Secretary, Commission, dated May 31,
2010 (‘‘IAG Letter’’); Letter from Hal McIntyre, The
Summit Group, to Elizabeth M. Murphy,
Commission, undated ‘‘Summit Group Letter’’);
Letter from Ira Shapiro, BlackRock Inc. to Elizabeth
M. Murphy, Secretary, Commission, dated June 2,
2010 (‘‘BlackRock Letter’’); Letter from Christopher
Nagy, TD Ameritrade to Elizabeth M. Murphy,
Secretary, Commission, dated June 3, 2010 (‘‘TD
Ameritrade Letter’’); Letter from Alexander M.
Cutler, Business Roundtable to Elizabeth M.
Murphy, Secretary, Commission, dated June 3, 2010
(‘‘Business Roundtable Letter’’); Letter from George
U. Sauter, The Vanguard Group, Inc. to Elizabeth
M. Murphy, Secretary, Commission, dated June 3,
2010 (‘‘Vanguard Letter’’); Letter from Julie Sweet,
Accenture plc to Elizabeth M. Murphy, Secretary,
Commission, dated June 3, 2010 (‘‘Accenture
Letter’’); Letter from Tom Quaadman, Center for
Capital Markets Competitiveness to Elizabeth M.
Murphy, Secretary, Commission, dated June 3, 2010
(CCMC Letter’’); Letter from Jeffrey W. Rubin,
American Bar Association Business Law Section to
Elizabeth M. Murphy, Secretary, Commission, dated
June 3, 2010 (‘‘ABA Letter’’); Letter from Karrie
McMillan, Investment Company Institute to
Elizabeth M. Murphy, Secretary, Commission, dated
June 3, 2010 (‘‘ICI Letter’’); Letter from Daniel
Mathisson, Credit Suisse Securities (USA) LLC to
Elizabeth M. Murphy, Secretary, Commission, dated
June 3, 2010 (‘‘Credit Suisse Letter’’); Letter from
Leonard J. Amoruso, Knight Capital Group, Inc. to
Elizabeth M. Murphy, Secretary, Commission, dated
June 4, 2010 (‘‘Knight Letter’’).
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II. Description of the Proposals
On May 6, 2010, the U.S. equity
markets experienced a severe
disruption.7 Among other things, the
prices of a large number of individual
securities suddenly declined by
significant amounts in a very short time
period, before suddenly reversing to
prices consistent with their pre-decline
levels. This severe price volatility led to
a large number of trades being executed
at temporarily depressed prices,
including many that were more than
60% away from pre-decline prices and
were broken by the SROs. The
Commission is concerned that events
such as those that occurred on May 6
can seriously undermine the integrity of
the U.S. securities markets.
Accordingly, it is working on a variety
of fronts to assess the causes and
contributing factors of the May 6 market
disruption and to fashion policy
responses that will help prevent a
recurrence.
The Commission also recognizes the
importance of moving quickly to
implement appropriate steps that could
help limit potential harm from extreme
price volatility. In this regard, it is
pleased that FINRA began consulting
with the Exchanges soon after May 6 in
an effort to develop consistent circuit
breaker rules that could be implemented
on an expedited basis. FINRA and the
Exchanges were able to reach agreement
on a consensus approach, and, on May
18 and 19, 2010, all of the SROs filed
proposed rule changes with the
Commission.
These rules would require the Listing
Markets to issue five-minute trading
pauses for individual securities for
which they are the primary Listing
Market if the transaction price of the
security moves ten percent or more from
a price in the preceding five-minute
period. The Listing Markets would
notify the other Exchanges and market
participants of the imposition of a
trading pause by immediately
disseminating a special indicator over
the consolidated tape.8 Under the rules,
once a Listing Market issues a trading
pause, the other Exchanges would be
required to pause trading in that
security on their markets. FINRA’s rule
provides that it will similarly pause
trading in the over-the-counter market
by FINRA members, including
alternative trading systems and market
makers, when a Listing Market has
issued a trading pause. In order to avoid
interfering with existing procedures
designed to facilitate orderly openings
and closings, the trading pause
requirements would apply only from
9:45 a.m. until 3:35 p.m.
At the end of the five-minute pause,
the primary Listing Market would
reopen trading in the security in
accordance with its procedures for
doing so. Trading would resume on the
other Exchanges and in the over-thecounter market once trading has
resumed on the primary Listing Market.
In the event of a significant imbalance
on the primary Listing Market at the end
of a trading pause, the primary Listing
Market may delay reopening. If the
primary Listing Market has not
reopened within ten minutes from the
initiation of the trading pause, however,
the other Exchanges may resume
trading.9 In addition, FINRA’s proposed
rule permits over-the-counter market
participants to resume trading only if
trading has resumed on at least one
Exchange.
FINRA has proposed that this rule
change be implemented as a pilot that
would end on December 10, 2010. The
pilot period would enable the SROs and
the Commission to assess the effect of
the new rules on the marketplace. To
initiate this pilot promptly, the
proposed rules would be in effect only
with respect to securities included in
the S&P 500 Index. The Commission
understands that FINRA expects to file
an additional rule proposal in the near
future to expand the scope of the pilot
(for example, to include ETFs) within
the pilot period.10
FINRA has requested that the
Commission approve the proposed rule
change on an accelerated basis, so that
it may become operative as soon as
practicable.
7 The events of May 6 are described more fully
in the report of the staffs of the Commodity Futures
Trading Commission (‘‘CFTC’’) and the Commission,
titled Report of the CFTC and SEC to the Joint
Advisory Committee on Emerging Regulatory Issues,
‘‘Preliminary Findings Regarding the Market Events
of May 6, 2010,’’ dated May 18, 2010.
8 When a trading pause is issued, the Listing
Market will immediately notify the single plan
processor responsible for consolidation of
information for the security pursuant to Rule 603
of Regulation NMS under the Exchange Act. The
single plan processor for all listed securities other
than Nasdaq-listed securities is the Securities
Industry Automation Corporation (‘‘SIAC’’). The
single plan processor for Nasdaq-listed securities is
Nasdaq.
III. Discussion of Comments and
Commission Findings
As of June 7, the Commission
received 26 comment letters regarding
the proposed rule changes, a substantial
number of which were generally
supportive. For example, an
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9 Some of the Nonlisting Markets, such as ISE,
may not begin trading under their proposed rules
until the Listing Market begins.
10 Any such rule proposals would be published
for public comment in accordance with Section
19(b) of the Act.
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Federal Register / Vol. 75, No. 115 / Wednesday, June 16, 2010 / Notices
institutional investor stated that ‘‘on
very rare occasions like May 6 a pause
in trading is necessary to give market
participants a chance to ‘reset’ and react
appropriately to periods of dislocation.
A reasonable trading halt will provide
investors time to rationally assess the
market events and commit liquidity at
appropriate price levels.’’ 11 Another
institutional investor strongly supported
single stock circuit breakers, noting that
‘‘trading pauses may reduce market
volatility resulting from temporary
supply-demand imbalances without
unduly interrupting price discovery.’’ 12
The commenters also raised a variety
of significant issues regarding the scope
and operation of the circuit breakers.
These include: (1) Whether the circuit
breakers should be expanded beyond
S&P 500 stocks, particularly to exchange
traded funds (‘‘ETFs’’) and the securities
of other companies that were most
severely affected on May 6; 13 (2) the
need for revised market-wide circuit
breakers; 14 and (3) operational issues
regarding the circuit breakers, including
the times when they should apply,15 the
threshold events that should trigger
them and the length of the pause,16 the
11 See
Vanguard Letter, supra note 6.
e.g., BlackRock Letter, supra note 6.
13 See, e.g., ABA Letter, Accenture Letter, Angel
Letter, Bean Letter, CCMP Letter, Credit Suisse
Letter, IAG Letter, ICI Letter (expressing particular
concern that if circuit breakers exist for individual
securities contained in ETFs’ baskets, but not for
the ETFs themselves, ETFs could again suffer
disproportionately during a market event such as
that of May 6), Summit Group Letter, TD
Ameritrade Letter, and Vanguard Letter, supra note
6. One commenter also raised concerns about the
potential consequences of circuit breakers being
triggered simultaneously in many securities. See
Angel Letter.
14 See, e.g., Angel Letter, supra note 6.
15 Suggestions included applying the circuit
breakers for the entire trading day (i.e., including
during the opening and closing periods). See, e.g.,
Angel Letter (noting the considerable trading
activity and volatility that occurs during the first
and last minutes of the trading day), Credit Suisse
Letter (noting that in S&P 500 stocks 6% of the
daily volume typically occurs from 9:30 a.m. to 9:45
a.m., and 18% occurs from 3:35 p.m. to 4 p.m., and
that intra-day volatility tends to be highest during
these time periods), IAG Letter, and TD Ameritrade
Letter (arguing that the many retail investor orders
executed at market open should not be deprived of
the protections of the circuit breaker rules), supra
note 6.
16 Suggestions included using a trigger threshold
other than 10% or a pause period other than five
minutes. See, e.g., Angel Letter (suggesting
securities outside the S&P 500 may need a trigger
threshold greater than 10%, and that the pause
period may need to be longer than five or ten
minutes), BlackRock Letter (arguing that the 10%
circuit breaker level is too narrow, with their data
showing it would have halted trading on only 58
of S&P 500 stocks on May 6, 2010, as opposed to
309 S&P 500 stocks on that day with a 5% circuit
breaker), Credit Suisse Letter (suggesting a tenminute halt period), Hofler Letter (suggesting that
trigger thresholds vary commensurate with the
stock’s volatility, perhaps 5% for low beta stocks,
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12 See,
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procedures for resuming trading after a
pause,17 and alternatives to the circuit
breaker mechanism.18
The Commission believes that most if
not all of these suggestions regarding
potential ways to improve or perfect the
scope and operation of the circuit
breaker, or variations on them, were
generally considered by FINRA and the
Exchanges in developing consistent
proposals that could be implemented in
a reasonably short period of time and
yet provide important benefits to the
markets. The Commission recognizes
that all of these issues warrant
continued close consideration in the
coming days and months, and it expects
that FINRA will continue to consult
with the Exchanges, the Commission
and market participants on both the
scope and operation of the circuit
breakers.
With respect to the specific proposals
under consideration here, however, the
Commission has evaluated them based
on whether they are consistent with the
Act and whether they represent a useful
first step that should improve the
existing procedures for protecting
investors and maintaining fair and
orderly markets. It finds that the
proposal meets these standards and
therefore is approving it on an
expedited basis.
The Commission agrees that
consideration should be given by FINRA
to whether the circuit breakers should
be expanded to additional securities,
but does not believe that there is a
reason to delay the implementation of
circuit breakers for S&P 500 stocks as a
reasonable first step.19 Similarly, it
agrees that the existing market-wide
circuit breakers should be re-examined
in light of current market conditions,
but again does not believe that the
initial stage of the circuit breaker pilot
for individual stocks should be delayed
pending that re-examination. With
respect to operational issues regarding
the circuit breakers, the Commission
anticipates that FINRA will continue to
evaluate these issues during the pilot
period, and will propose any
modifications to the circuit breakers that
may be necessary or appropriate before
that period has ended, but does not
believe that the first stage of the circuit
breaker pilot should be delayed pending
such consideration.20
A few commenters expressed concern
that the proposed circuit breakers could
cause more harm than good. One, for
example, suggested that the timeframe
for implementation of the proposed rule
change could be overly aggressive and
lead to systems problems.21 The
Commission understands that FINRA
has been working closely with market
participants to address implementation
issues and facilitate a prompt yet
workable roll-out of the circuit breaker
pilot. No other comments were received
indicating that exchanges, other trading
venues or broker-dealers would not be
able to fully implement the proposed
circuit breakers within the timeframes
established in the FINRA filing.
Other commenters questioned
whether trading halts may exacerbate
price volatility, and one stated that a
trading halt on May 6 might have
increased the order imbalance,
preventing an intraday recovery.22
10% for medium beta stocks, and 30% for high beta
stocks), Knight Letter (recommending a minimum
trigger threshold of 15%, and the use of more
sophisticated variables such as dollar price, average
daily volume, and market capitalization), and
Summit Group Letter (suggesting a longer pause
period may be required to allow small investors to
respond), supra note 6. Other commenters
suggested using a trigger based on the national best
bid or offer rather than a trade price. See, e.g.,
Molinete Letter, supra note 6.
17 Suggestions included precluding resumption of
trading until the primary listing market has
resolved any imbalances. See, e.g., BlackRock
Letter, Credit Suisse Letter, Knight Letter and TD
Ameritrade Letter, supra note 6. But see Harris
Letter, supra note 6 (arguing that trade halt rules are
anti-competitive because they encourage traders to
submit their orders to the dominant exchanges so
that they can participate in the call auctions that
restart trading).
18 Suggestions included using a futures-style
‘‘limit down’’ mechanism rather than a full trading
pause. See, e.g., Accenture Letter, Credit Suisse
Letter, and Harris Letter (arguing that trading at
prices that reverse the triggering price change
should be permitted), supra note 6.
19 In particular, the Commission acknowledges
the concerns raised by the ICI, BlackRock, and
others regarding the potential adverse consequences
for ETFs if the circuit breakers cover individual
securities that are held by an ETF but not the ETF
itself. Those comment letters do not explicitly
recommend delaying the launch of the pilot
program with respect to the S&P 500, but they do
urge that ETFs be added to the pilot as soon as
possible. As noted below, the Commission
anticipates that FINRA will be proposing
amendments to the pilot to include ETFs.
20 Commenters also raised a number of issues not
directly related to the scope or operation of the
trading pauses. One, for example, was the operation
of the SROs’ erroneous trade rules. See TD
Ameritrade Letter, supra note 6. The Commission
expects that FINRA and the Exchanges will
continue to consult on these rules and anticipates
they will submit proposals to clarify their operation
in the near future.
21 See Molinete Letter, supra note 6.
22 See Harris Letter, supra note 6 (arguing that
trading halts will attenuate volatility if liquidity or
rationality arrives before markets return to normal
operation, and positing that on May 6 many traders
would have thought the price drop was due to
fundamental valuation issues, in which case the
order imbalance could have grown larger during the
halt as traders drew incorrect inferences from the
event). See also Molinete Letter, supra note 6
(suggesting the proposed rules may exacerbate
market volatility rather than reduce it due to the
interplay of stock circuit breaker rules, erroneous
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Many other commenters, however,
believed that the events of May 6
demonstrate the need for trading pauses
in individual stocks as a means to
reduce excessive market volatility.23
The Commission agrees that the
proposed trading pauses are prudent
measures that are appropriately being
introduced on a pilot basis to address
extraordinarily severe and harmful price
volatility of the kind that occurred on
May 6.
In sum, the Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to FINRA. In particular, the
Commission finds that the proposal is
consistent with Section 15A(b)(6) of the
Act,24 which among other things
requires that the rules of FINRA be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and in general, to protect
investors and the public interest.25
The Commission believes the
proposed rule change, among other
things, will establish consistent, marketwide trading pauses as a means to
prevent potentially destabilizing price
volatility and will thereby help promote
the goals of investor protection and fair
and orderly markets.
The Commission also finds good
cause for approving the proposal before
the 30th day after the publication of
notice thereof in the Federal Register.
FINRA has worked quickly and
cooperatively with the Exchanges to
devise a response to the events of May
6, 2010. The Commission received a
number of comments on the proposal,
the great majority of which were
supportive of the proposed trading
pause. The proposed rule change is
being implemented on a pilot basis so
that the Commission and FINRA can
monitor the effects of the pilot on the
marketplace and consider adjustments,
trade rules, and market participants’ reactions to
securities nearing the threshold). Another
commenter urged the Commission to proceed
cautiously in this area, expressing the view that
‘‘unencumbered market forces are preferable to the
implementation of artificial trade frictions wherever
possible.’’ See Knight Letter, supra note 6. The
Commission will continue to consider these
comments in evaluating the impact of the pilot.
23 See, e.g., Accenture Letter, BlackRock Letter,
Business Roundtable Letter, CCMP Letter, Credit
Suisse Letter, ICI Letter, TD Ameritrade Letter,
Vanguard Letter, supra note 6.
24 15 U.S.C. 78f(b)(5), 15 U.S.C. 78o–3(b)(6).
25 In approving the proposed rule change, the
Commission notes that it has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
VerDate Mar<15>2010
16:19 Jun 15, 2010
Jkt 220001
as necessary. The Commission believes
that accelerating approval of this
proposal is appropriate as it will enable
FINRA nearly immediately to begin
coordinating trading pauses with the
Exchanges in the event of sudden
changes in the value of the S&P 500
Index stocks. In particular, the
Commission believes that this proposed
rule change should further the goals of
investor protection and fair and orderly
markets.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,26 that the
proposed rule change (SR–FINRA–
2010–025) be, and hereby is, approved
on an accelerated basis.
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010–14434 Filed 6–15–10; 8:45 am]
BILLING CODE 8010–01–P
and Chicago Board Options Exchange,
Incorporated (‘‘CBOE’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) 2 of the Securities Exchange Act
of 1934 (‘‘Act’’),3 and Rule 19b-4
thereunder,4 proposed rule changes to
amend certain of their respective rules,
or adopt new rules, to provide for
trading pauses in individual stocks
when the price moves ten percent or
more in the preceding five minute
period. On May 19, 2010, EDGA
Exchange, Inc. (‘‘EDGA’’) and Chicago
Stock Exchange, Inc. (‘‘CHX’’) filed
proposed rule changes to provide for
similar trading pauses.5 The proposed
rule changes were published for
comment in the Federal Register on
May 24, 2010.6 The Commission
received 26 comments on the proposals
and on the broader concept of circuit
breakers on individual securities.7 The
2 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
4 17 CFR 240.19b-4.
5 The term ‘‘Exchanges’’ shall refer collectively to
all of the exchanges in this order. The term ‘‘Listing
Markets’’ refers collectively to NYSE, NYSEAmex
and NASDAQ. The term ‘‘Nonlisting Markets’’ refers
collectively to the remaining nine national
securities exchanges. The term SROs refers
collectively to the Exchanges and the Financial
Industry Regulatory Aythority (‘‘FINRA’’).
6 See Securities Exchange Act Release Nos. 62121
(May 19, 2010), 75 FR 28834 (May 24, 2010); 62123
(May 19, 2010), 75 FR 28844 (May 24, 2010); 62124
(May 19, 2010), 75 FR 28828 (May 24, 2010); 62125
(May 19, 2010), 75 FR 28836 (May 24, 2010); 62126
(May 19, 2010), 75 FR 28831 (May 24, 2010); 62127
(May 19, 2010), 75 FR 28837 (May 24, 2010); 62128
(May 19, 2010), 75 FR 28830 (May 24, 2010); 62129
(May 19, 2010), 75 FR 28839 (May 24, 2010); 62131
(May 19, 2010), 75 FR 28845 (May 24, 2010); 62132
(May 19, 2010), 75 FR 28847 (May 24, 2010); 62122
(May 19, 2010), 75 FR 28833 (May 24, 2010); and
62130 (May 19, 2010), 75 FR 28842 (May 24, 2010).
On May 18, 2010, FINRA filed a proposed rule
change, which was approved today. See Securities
Exchange Act Release No. 62133 (May 19, 2010), 75
FR 28841 (May 24, 2010); Securities Exchange Act
Release No. 62251 (June 10, 2010)(SR-FINRA-2010025).
7 The Commission considered letters received
prior to May 18 discussing the concept of
individual stock circuit breakers as well as formal
letters citing the rule filings. See Letter from
Senator Charles E. Schumer to Chairman Schapiro,
Commission, et. al., dated May 10, 2010; Letter
from Congressman Edward J. Markey to Chairman
Schapiro, Commission, dated May 11, 2010; Letter
from Cliff Pereira to Elizabeth M. Murphy,
Secretary, Commission, dated May 13, 2010; Letter
from Thomas Hofler to Elizabeth M. Murphy,
Secretary, Commission, dated May 13, 2010 (‘‘Hofler
Letter’’); Letter from James K. Rutledge to RuleComments, Commission, dated May 13, 2010; Letter
from John Meredith to Elizabeth M. Murphy,
Secretary, dated May 19, 2010; Letter from Peter
Skopp, Molinete Trading Inc. to Elizabeth M.
Murphy, Secretary, Commission, dated May 20,
2010 (‘‘Molinete Letter’’); letter from Paul Rogers to
Rule-Comments, Commission, dated May 20, 2010;
Letter from Congressman Eric Cantor to Chairman
Schapiro, Commission, dated May 21, 2010; Letter
from T.P. Tursick to Elizabeth M. Murphy,
Secretary, Commission, dated May 25, 2010; Letter
from James J. Angel to the Commission, dated May
3 15
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–62252; File Nos. SR–BATS–
2010–014; SR–EDGA–2010–01; SR–EDGX–
2010–01; SR–BX–2010–037; SR–ISE–2010–
48; SR–NYSE–2010–39; SR–NYSEAmex–
2010–46; SR–NYSEArca–2010–41; SR–
NASDAQ–2010–061; SR–CHX–2010–10; SR–
NSX–2010–05; SR–CBOE–2010–047]
Self-Regulatory Organizations; BATS
Exchange, Inc.; EDGA Exchange, Inc.;
EDGX Exchange, Inc.; NASDAQ OMX
BX, Inc.; International Securities
Exchange LLC; New York Stock
Exchange LLC; NYSE Amex LLC;
NYSE Arca, Inc.; The NASDAQ Stock
Market LLC; Chicago Stock Exchange,
Inc.; National Stock Exchange, Inc.;
Chicago Board Options Exchange,
Incorporated; Order Granting
Accelerated Approval to Proposed
Rule Changes Relating to Trading
Pauses Due to Extraordinary Market
Volatility
June 10, 2010.
I. Introduction
On May 18, 2010, each of BATS
Exchange, Inc. (‘‘BATS’’), EDGX
Exchange, Inc. (‘‘EDGX’’), NASDAQ
OMX BX, Inc. (‘‘BX’’), International
Securities Exchange LLC (‘‘ISE’’),1 New
York Stock Exchange LLC (‘‘NYSE’’),
NYSE Amex LLC (‘‘NYSEAmex’’), NYSE
Arca, Inc. (‘‘NYSEArca’’), The NASDAQ
Stock Market LLC (‘‘NASDAQ’’),
National Stock Exchange, Inc. (‘‘NSX’’)
26 15
U.S.C. 78s(b)(2).
filed a technical amendment to the proposed
rule change on June 4, 2010.
1 ISE
PO 00000
Frm 00094
Fmt 4703
Sfmt 4703
E:\FR\FM\16JNN1.SGM
16JNN1
]]>Agencies
[Federal Register Volume 75, Number 115 (Wednesday, June 16, 2010)]
[Notices]
[Pages 34183-34186]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-14434]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62251; File No. SR-FINRA-2010-025]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Granting Accelerated Approval to Proposed Rule
Change To Amend FINRA Rule 6121 (Trading Halts Due to Extraordinary
Market Volatility) To Permit FINRA To Halt Trading by FINRA Members
Otherwise Than on an Exchange Where a Primary Listing Market Has Issued
a Trading Pause Due to Extraordinary Market Conditions
June 10, 2010.
I. Introduction
On May 18, 2010, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities
Exchange Act of 1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ a
proposed rule change to amend FINRA Rule 6121 (Trading Halts Due to
Extraordinary Market Volatility) to permit FINRA to halt trading by
FINRA members otherwise than on an exchange where a primary listing
market has issued a trading pause due to extraordinary market
conditions.\4\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ Also on May 18, 2010, each of BATS Exchange, Inc.
(``BATS''), EDGX Exchange, Inc. (``EDGX''), NASDAQ OMX BX, Inc.
(``BX''), International Securities Exchange LLC (``ISE''), New York
Stock Exchange LLC (``NYSE''), NYSE Amex LLC (``NYSEAmex''), NYSE
Arca, Inc. (``NYSEArca''), The NASDAQ Stock Market LLC (``NASDAQ''),
National Stock Exchange, Inc. (``NSX'') and Chicago Board Options
Exchange, Incorporated (``CBOE'') filed proposed rule changes. On
May 19, 2010, EDGA Exchange, Inc (``EDGA'') and Chicago Stock
Exchange, Inc. (``CHX'') filed proposed rule changes to provide for
similar trading pauses. See Securities Exchange Act Release Nos.
62121 (May 19, 2010), 75 FR 28834 (May 24, 2010); 62123 (May 19,
2010), 75 FR 28844 (May 24, 2010); 62124 (May 19, 2010), 75 FR 28828
(May 24, 2010); 62125 (May 19, 2010), 75 FR 28836 (May 24, 2010);
62126 (May 19, 2010), 75 FR 28831 (May 24, 2010); 62127 (May 19,
2010), 75 FR 28837 (May 24, 2010); 62128 (May 19, 2010), 75 FR 28830
(May 24, 2010); 62129 (May 19, 2010), 75 FR 28839 (May 24, 2010);
62131 (May 19, 2010), 75 FR 28845 (May 24, 2010); 62132 (May 19,
2010), 75 FR 28847 (May 24, 2010); 62122 (May 19, 2010), 75 FR 28833
(May 24, 2010); and 62130 (May 19, 2010), 75 FR 28842 (May 24,
2010). These filings are being approved today by the Commission. See
Securities Exchange Act Release No. 62252 (June 10, 2010). In this
order, the term ``Exchanges'' refers collectively to all of the
exchanges. The term ``Listing Markets'' refers collectively to NYSE,
NYSEAmex and NASDAQ. The term ``Nonlisting Markets'' refers
collectively to the remaining nine national securities exchanges.
The term ``SROs'' refers to the Exchanges and the Financial Industry
Regulatory Authority (``FINRA'').
---------------------------------------------------------------------------
[[Page 34184]]
The proposed rule change was published for comment in the Federal
Register on May 24, 2010.\5\ The Commission received 26 comments on the
proposals and on the broader concept of circuit breakers on individual
securities.\6\ This order grants accelerated approval to the proposed
rule change.
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 62133 (May 19,
2010), 75 FR 28841 (May 24, 2010).
\6\ The Commission considered letters received prior to May 18
discussing the concept of individual stock circuit breakers as well
as formal letters citing the rule filings. See Letter from Senator
Charles E. Schumer to Chairman Schapiro, Commission, et. al., dated
May 10, 2010; Letter from Congressman Edward J. Markey to Chairman
Schapiro, Commission, dated May 11, 2010; Letter from Cliff Pereira
to Elizabeth M. Murphy, Secretary, Commission, dated May 13, 2010;
Letter from Thomas Hofler to Elizabeth M. Murphy, Secretary,
Commission, dated May 13, 2010 (``Hofler Letter''); Letter from
James K. Rutledge to Rule-Comments, Commission, dated May 13, 2010;
Letter from John Meredith to Elizabeth M. Murphy, Secretary, dated
May 19, 2010; Letter from Peter Skopp, Molinete Trading Inc. to
Elizabeth M. Murphy, Secretary, Commission, dated May 20, 2010
(``Molinete Letter''); letter from Paul Rogers to Rule-Comments,
Commission, dated May 20, 2010; Letter from Congressman Eric Cantor
to Chairman Schapiro, Commission, dated May 21, 2010; Letter from
T.P. Tursick to Elizabeth M. Murphy, Secretary, Commission, dated
May 25, 2010; Letter from James J. Angel to the Commission, dated
May 25, 2010 (``Angel Letter''); Letter from Larry Harris, USC
Marshall School of Business, to Elizabeth M. Murphy, Secretary,
Commission, dated May 26, 2010 (``Harris Letter''); Letter from
Judith Kittinger to WebMaster, Commission, dated May 27, 2010;
Letter from Congresswoman Melissa L. Bean to Chairman Schapiro,
Commission, dated May 28, 2010 (``Bean Letter''); Letter from
Patrick J. Healy, Issuer Advisory Group, LLC, to Elizabeth M.
Murphy, Secretary, Commission, dated May 31, 2010 (``IAG Letter'');
Letter from Hal McIntyre, The Summit Group, to Elizabeth M. Murphy,
Commission, undated ``Summit Group Letter''); Letter from Ira
Shapiro, BlackRock Inc. to Elizabeth M. Murphy, Secretary,
Commission, dated June 2, 2010 (``BlackRock Letter''); Letter from
Christopher Nagy, TD Ameritrade to Elizabeth M. Murphy, Secretary,
Commission, dated June 3, 2010 (``TD Ameritrade Letter''); Letter
from Alexander M. Cutler, Business Roundtable to Elizabeth M.
Murphy, Secretary, Commission, dated June 3, 2010 (``Business
Roundtable Letter''); Letter from George U. Sauter, The Vanguard
Group, Inc. to Elizabeth M. Murphy, Secretary, Commission, dated
June 3, 2010 (``Vanguard Letter''); Letter from Julie Sweet,
Accenture plc to Elizabeth M. Murphy, Secretary, Commission, dated
June 3, 2010 (``Accenture Letter''); Letter from Tom Quaadman,
Center for Capital Markets Competitiveness to Elizabeth M. Murphy,
Secretary, Commission, dated June 3, 2010 (CCMC Letter''); Letter
from Jeffrey W. Rubin, American Bar Association Business Law Section
to Elizabeth M. Murphy, Secretary, Commission, dated June 3, 2010
(``ABA Letter''); Letter from Karrie McMillan, Investment Company
Institute to Elizabeth M. Murphy, Secretary, Commission, dated June
3, 2010 (``ICI Letter''); Letter from Daniel Mathisson, Credit
Suisse Securities (USA) LLC to Elizabeth M. Murphy, Secretary,
Commission, dated June 3, 2010 (``Credit Suisse Letter''); Letter
from Leonard J. Amoruso, Knight Capital Group, Inc. to Elizabeth M.
Murphy, Secretary, Commission, dated June 4, 2010 (``Knight
Letter'').
---------------------------------------------------------------------------
II. Description of the Proposals
On May 6, 2010, the U.S. equity markets experienced a severe
disruption.\7\ Among other things, the prices of a large number of
individual securities suddenly declined by significant amounts in a
very short time period, before suddenly reversing to prices consistent
with their pre-decline levels. This severe price volatility led to a
large number of trades being executed at temporarily depressed prices,
including many that were more than 60% away from pre-decline prices and
were broken by the SROs. The Commission is concerned that events such
as those that occurred on May 6 can seriously undermine the integrity
of the U.S. securities markets. Accordingly, it is working on a variety
of fronts to assess the causes and contributing factors of the May 6
market disruption and to fashion policy responses that will help
prevent a recurrence.
---------------------------------------------------------------------------
\7\ The events of May 6 are described more fully in the report
of the staffs of the Commodity Futures Trading Commission (``CFTC'')
and the Commission, titled Report of the CFTC and SEC to the Joint
Advisory Committee on Emerging Regulatory Issues, ``Preliminary
Findings Regarding the Market Events of May 6, 2010,'' dated May 18,
2010.
---------------------------------------------------------------------------
The Commission also recognizes the importance of moving quickly to
implement appropriate steps that could help limit potential harm from
extreme price volatility. In this regard, it is pleased that FINRA
began consulting with the Exchanges soon after May 6 in an effort to
develop consistent circuit breaker rules that could be implemented on
an expedited basis. FINRA and the Exchanges were able to reach
agreement on a consensus approach, and, on May 18 and 19, 2010, all of
the SROs filed proposed rule changes with the Commission.
These rules would require the Listing Markets to issue five-minute
trading pauses for individual securities for which they are the primary
Listing Market if the transaction price of the security moves ten
percent or more from a price in the preceding five-minute period. The
Listing Markets would notify the other Exchanges and market
participants of the imposition of a trading pause by immediately
disseminating a special indicator over the consolidated tape.\8\ Under
the rules, once a Listing Market issues a trading pause, the other
Exchanges would be required to pause trading in that security on their
markets. FINRA's rule provides that it will similarly pause trading in
the over-the-counter market by FINRA members, including alternative
trading systems and market makers, when a Listing Market has issued a
trading pause. In order to avoid interfering with existing procedures
designed to facilitate orderly openings and closings, the trading pause
requirements would apply only from 9:45 a.m. until 3:35 p.m.
---------------------------------------------------------------------------
\8\ When a trading pause is issued, the Listing Market will
immediately notify the single plan processor responsible for
consolidation of information for the security pursuant to Rule 603
of Regulation NMS under the Exchange Act. The single plan processor
for all listed securities other than Nasdaq-listed securities is the
Securities Industry Automation Corporation (``SIAC''). The single
plan processor for Nasdaq-listed securities is Nasdaq.
---------------------------------------------------------------------------
At the end of the five-minute pause, the primary Listing Market
would reopen trading in the security in accordance with its procedures
for doing so. Trading would resume on the other Exchanges and in the
over-the-counter market once trading has resumed on the primary Listing
Market. In the event of a significant imbalance on the primary Listing
Market at the end of a trading pause, the primary Listing Market may
delay reopening. If the primary Listing Market has not reopened within
ten minutes from the initiation of the trading pause, however, the
other Exchanges may resume trading.\9\ In addition, FINRA's proposed
rule permits over-the-counter market participants to resume trading
only if trading has resumed on at least one Exchange.
---------------------------------------------------------------------------
\9\ Some of the Nonlisting Markets, such as ISE, may not begin
trading under their proposed rules until the Listing Market begins.
---------------------------------------------------------------------------
FINRA has proposed that this rule change be implemented as a pilot
that would end on December 10, 2010. The pilot period would enable the
SROs and the Commission to assess the effect of the new rules on the
marketplace. To initiate this pilot promptly, the proposed rules would
be in effect only with respect to securities included in the S&P 500
Index. The Commission understands that FINRA expects to file an
additional rule proposal in the near future to expand the scope of the
pilot (for example, to include ETFs) within the pilot period.\10\
---------------------------------------------------------------------------
\10\ Any such rule proposals would be published for public
comment in accordance with Section 19(b) of the Act.
---------------------------------------------------------------------------
FINRA has requested that the Commission approve the proposed rule
change on an accelerated basis, so that it may become operative as soon
as practicable.
III. Discussion of Comments and Commission Findings
As of June 7, the Commission received 26 comment letters regarding
the proposed rule changes, a substantial number of which were generally
supportive. For example, an
[[Page 34185]]
institutional investor stated that ``on very rare occasions like May 6
a pause in trading is necessary to give market participants a chance to
`reset' and react appropriately to periods of dislocation. A reasonable
trading halt will provide investors time to rationally assess the
market events and commit liquidity at appropriate price levels.'' \11\
Another institutional investor strongly supported single stock circuit
breakers, noting that ``trading pauses may reduce market volatility
resulting from temporary supply-demand imbalances without unduly
interrupting price discovery.'' \12\
---------------------------------------------------------------------------
\11\ See Vanguard Letter, supra note 6.
\12\ See, e.g., BlackRock Letter, supra note 6.
---------------------------------------------------------------------------
The commenters also raised a variety of significant issues
regarding the scope and operation of the circuit breakers. These
include: (1) Whether the circuit breakers should be expanded beyond S&P
500 stocks, particularly to exchange traded funds (``ETFs'') and the
securities of other companies that were most severely affected on May
6; \13\ (2) the need for revised market-wide circuit breakers; \14\ and
(3) operational issues regarding the circuit breakers, including the
times when they should apply,\15\ the threshold events that should
trigger them and the length of the pause,\16\ the procedures for
resuming trading after a pause,\17\ and alternatives to the circuit
breaker mechanism.\18\
---------------------------------------------------------------------------
\13\ See, e.g., ABA Letter, Accenture Letter, Angel Letter, Bean
Letter, CCMP Letter, Credit Suisse Letter, IAG Letter, ICI Letter
(expressing particular concern that if circuit breakers exist for
individual securities contained in ETFs' baskets, but not for the
ETFs themselves, ETFs could again suffer disproportionately during a
market event such as that of May 6), Summit Group Letter, TD
Ameritrade Letter, and Vanguard Letter, supra note 6. One commenter
also raised concerns about the potential consequences of circuit
breakers being triggered simultaneously in many securities. See
Angel Letter.
\14\ See, e.g., Angel Letter, supra note 6.
\15\ Suggestions included applying the circuit breakers for the
entire trading day (i.e., including during the opening and closing
periods). See, e.g., Angel Letter (noting the considerable trading
activity and volatility that occurs during the first and last
minutes of the trading day), Credit Suisse Letter (noting that in
S&P 500 stocks 6% of the daily volume typically occurs from 9:30
a.m. to 9:45 a.m., and 18% occurs from 3:35 p.m. to 4 p.m., and that
intra-day volatility tends to be highest during these time periods),
IAG Letter, and TD Ameritrade Letter (arguing that the many retail
investor orders executed at market open should not be deprived of
the protections of the circuit breaker rules), supra note 6.
\16\ Suggestions included using a trigger threshold other than
10% or a pause period other than five minutes. See, e.g., Angel
Letter (suggesting securities outside the S&P 500 may need a trigger
threshold greater than 10%, and that the pause period may need to be
longer than five or ten minutes), BlackRock Letter (arguing that the
10% circuit breaker level is too narrow, with their data showing it
would have halted trading on only 58 of S&P 500 stocks on May 6,
2010, as opposed to 309 S&P 500 stocks on that day with a 5% circuit
breaker), Credit Suisse Letter (suggesting a ten-minute halt
period), Hofler Letter (suggesting that trigger thresholds vary
commensurate with the stock's volatility, perhaps 5% for low beta
stocks, 10% for medium beta stocks, and 30% for high beta stocks),
Knight Letter (recommending a minimum trigger threshold of 15%, and
the use of more sophisticated variables such as dollar price,
average daily volume, and market capitalization), and Summit Group
Letter (suggesting a longer pause period may be required to allow
small investors to respond), supra note 6. Other commenters
suggested using a trigger based on the national best bid or offer
rather than a trade price. See, e.g., Molinete Letter, supra note 6.
\17\ Suggestions included precluding resumption of trading until
the primary listing market has resolved any imbalances. See, e.g.,
BlackRock Letter, Credit Suisse Letter, Knight Letter and TD
Ameritrade Letter, supra note 6. But see Harris Letter, supra note 6
(arguing that trade halt rules are anti-competitive because they
encourage traders to submit their orders to the dominant exchanges
so that they can participate in the call auctions that restart
trading).
\18\ Suggestions included using a futures-style ``limit down''
mechanism rather than a full trading pause. See, e.g., Accenture
Letter, Credit Suisse Letter, and Harris Letter (arguing that
trading at prices that reverse the triggering price change should be
permitted), supra note 6.
---------------------------------------------------------------------------
The Commission believes that most if not all of these suggestions
regarding potential ways to improve or perfect the scope and operation
of the circuit breaker, or variations on them, were generally
considered by FINRA and the Exchanges in developing consistent
proposals that could be implemented in a reasonably short period of
time and yet provide important benefits to the markets. The Commission
recognizes that all of these issues warrant continued close
consideration in the coming days and months, and it expects that FINRA
will continue to consult with the Exchanges, the Commission and market
participants on both the scope and operation of the circuit breakers.
With respect to the specific proposals under consideration here,
however, the Commission has evaluated them based on whether they are
consistent with the Act and whether they represent a useful first step
that should improve the existing procedures for protecting investors
and maintaining fair and orderly markets. It finds that the proposal
meets these standards and therefore is approving it on an expedited
basis.
The Commission agrees that consideration should be given by FINRA
to whether the circuit breakers should be expanded to additional
securities, but does not believe that there is a reason to delay the
implementation of circuit breakers for S&P 500 stocks as a reasonable
first step.\19\ Similarly, it agrees that the existing market-wide
circuit breakers should be re-examined in light of current market
conditions, but again does not believe that the initial stage of the
circuit breaker pilot for individual stocks should be delayed pending
that re-examination. With respect to operational issues regarding the
circuit breakers, the Commission anticipates that FINRA will continue
to evaluate these issues during the pilot period, and will propose any
modifications to the circuit breakers that may be necessary or
appropriate before that period has ended, but does not believe that the
first stage of the circuit breaker pilot should be delayed pending such
consideration.\20\
---------------------------------------------------------------------------
\19\ In particular, the Commission acknowledges the concerns
raised by the ICI, BlackRock, and others regarding the potential
adverse consequences for ETFs if the circuit breakers cover
individual securities that are held by an ETF but not the ETF
itself. Those comment letters do not explicitly recommend delaying
the launch of the pilot program with respect to the S&P 500, but
they do urge that ETFs be added to the pilot as soon as possible. As
noted below, the Commission anticipates that FINRA will be proposing
amendments to the pilot to include ETFs.
\20\ Commenters also raised a number of issues not directly
related to the scope or operation of the trading pauses. One, for
example, was the operation of the SROs' erroneous trade rules. See
TD Ameritrade Letter, supra note 6. The Commission expects that
FINRA and the Exchanges will continue to consult on these rules and
anticipates they will submit proposals to clarify their operation in
the near future.
---------------------------------------------------------------------------
A few commenters expressed concern that the proposed circuit
breakers could cause more harm than good. One, for example, suggested
that the timeframe for implementation of the proposed rule change could
be overly aggressive and lead to systems problems.\21\ The Commission
understands that FINRA has been working closely with market
participants to address implementation issues and facilitate a prompt
yet workable roll-out of the circuit breaker pilot. No other comments
were received indicating that exchanges, other trading venues or
broker-dealers would not be able to fully implement the proposed
circuit breakers within the timeframes established in the FINRA filing.
---------------------------------------------------------------------------
\21\ See Molinete Letter, supra note 6.
---------------------------------------------------------------------------
Other commenters questioned whether trading halts may exacerbate
price volatility, and one stated that a trading halt on May 6 might
have increased the order imbalance, preventing an intraday
recovery.\22\
[[Page 34186]]
Many other commenters, however, believed that the events of May 6
demonstrate the need for trading pauses in individual stocks as a means
to reduce excessive market volatility.\23\ The Commission agrees that
the proposed trading pauses are prudent measures that are appropriately
being introduced on a pilot basis to address extraordinarily severe and
harmful price volatility of the kind that occurred on May 6.
---------------------------------------------------------------------------
\22\ See Harris Letter, supra note 6 (arguing that trading halts
will attenuate volatility if liquidity or rationality arrives before
markets return to normal operation, and positing that on May 6 many
traders would have thought the price drop was due to fundamental
valuation issues, in which case the order imbalance could have grown
larger during the halt as traders drew incorrect inferences from the
event). See also Molinete Letter, supra note 6 (suggesting the
proposed rules may exacerbate market volatility rather than reduce
it due to the interplay of stock circuit breaker rules, erroneous
trade rules, and market participants' reactions to securities
nearing the threshold). Another commenter urged the Commission to
proceed cautiously in this area, expressing the view that
``unencumbered market forces are preferable to the implementation of
artificial trade frictions wherever possible.'' See Knight Letter,
supra note 6. The Commission will continue to consider these
comments in evaluating the impact of the pilot.
\23\ See, e.g., Accenture Letter, BlackRock Letter, Business
Roundtable Letter, CCMP Letter, Credit Suisse Letter, ICI Letter, TD
Ameritrade Letter, Vanguard Letter, supra note 6.
---------------------------------------------------------------------------
In sum, the Commission finds that the proposed rule change is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to FINRA. In particular, the
Commission finds that the proposal is consistent with Section 15A(b)(6)
of the Act,\24\ which among other things requires that the rules of
FINRA be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and in general, to protect investors and the
public interest.\25\
---------------------------------------------------------------------------
\24\ 15 U.S.C. 78f(b)(5), 15 U.S.C. 78o-3(b)(6).
\25\ In approving the proposed rule change, the Commission notes
that it has considered the proposed rule's impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------
The Commission believes the proposed rule change, among other
things, will establish consistent, market-wide trading pauses as a
means to prevent potentially destabilizing price volatility and will
thereby help promote the goals of investor protection and fair and
orderly markets.
The Commission also finds good cause for approving the proposal
before the 30th day after the publication of notice thereof in the
Federal Register. FINRA has worked quickly and cooperatively with the
Exchanges to devise a response to the events of May 6, 2010. The
Commission received a number of comments on the proposal, the great
majority of which were supportive of the proposed trading pause. The
proposed rule change is being implemented on a pilot basis so that the
Commission and FINRA can monitor the effects of the pilot on the
marketplace and consider adjustments, as necessary. The Commission
believes that accelerating approval of this proposal is appropriate as
it will enable FINRA nearly immediately to begin coordinating trading
pauses with the Exchanges in the event of sudden changes in the value
of the S&P 500 Index stocks. In particular, the Commission believes
that this proposed rule change should further the goals of investor
protection and fair and orderly markets.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\26\ that the proposed rule change (SR-FINRA-2010-025) be, and
hereby is, approved on an accelerated basis.
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\26\ 15 U.S.C. 78s(b)(2).
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-14434 Filed 6-15-10; 8:45 am]
BILLING CODE 8010-01-P
