Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing of Proposed Rule Change Amending NYSE Amex Equities Rule 80B To Revise the Current Methodology for Determining When To Halt Trading in All Stocks Due to Extraordinary Market Volatility, 61422-61425 [2011-25513]
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61422
Federal Register / Vol. 76, No. 192 / Tuesday, October 4, 2011 / Notices
or should the cancellation policies
apply only to a Level 3 Market Decline?
• Should some provision be made to
end the regular trading session if a
market decline suddenly occurs after
3:25 p.m. but does not reach the 20%
level?
• In the event of a Level 3 Market
Decline, should some provision be made
for the markets to hold a closing
auction?
• Should the primary market have a
longer period (e.g., 30 minutes) to
reopen trading following a Level 2
Market Decline before trading resumes
in other venues?
• In the event of a Level 3 Market
Decline, should the markets wait for the
primary market to reopen trading in a
particular security on the next trading
day before trading in that security
resumes?
Comments may be submitted by any
of the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–Phlx–2011–129 on the
subject line.
pmangrum on DSK3VPTVN1PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–Phlx–2011–129. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of such filing
also will be available for inspection and
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15:03 Oct 03, 2011
Jkt 226001
copying at the principal office of the
Exchange. All comments received will
be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
publicly available. All submissions
should refer to File Number SR–Phlx–
2011–129 and should be submitted on
or before October 25, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–25515 Filed 10–3–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65432; File No. SR–
NYSEAMEX–2011–73]
Self-Regulatory Organizations; NYSE
Amex LLC; Notice of Filing of
Proposed Rule Change Amending
NYSE Amex Equities Rule 80B To
Revise the Current Methodology for
Determining When To Halt Trading in
All Stocks Due to Extraordinary Market
Volatility
September 28, 2011.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on
September 27, 2011, NYSE Amex LLC
(the ‘‘Exchange’’ or ‘‘NYSE Amex’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to NYSE
Amex Equities Rule 80B to revise the
current methodology for determining
when to halt trading in all stocks due to
extraordinary market volatility. The text
of the proposed rule change is available
at the Exchange, the Commission’s
Public Reference Room, and https://
www.nyse.com.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
NYSE Amex Equities Rule 80B to revise
the current methodology for
determining when to halt trading in all
stocks due to extraordinary market
volatility. The Exchange is proposing
this rule change in consultation with
other equity, options, and futures
markets, the Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’),
and staffs of the Commission and the
Commodity Futures Trading
Commission.
Since May 6, 2010, when the markets
experienced excessive volatility in an
abbreviated time period, i.e., the ‘‘flash
crash,’’ the exchanges and FINRA have
implemented market-wide measures
designed to restore investor confidence
by reducing the potential for excessive
market volatility. Among the measures
adopted include pilot plans for stockby-stock trading pauses 4 and related
changes to the clearly erroneous
execution rules 5 and more stringent
market maker quoting requirements.6 In
addition, on April 5, 2011, the equities
exchanges and FINRA filed a plan
pursuant to Rule 608 of Regulation NMS
to address extraordinary market
volatility (the ‘‘Limit Up-Limit Down
Plan’’).7 As proposed, the Limit UpLimit Down Plan is designed to prevent
trades in individual NMS stocks from
occurring outside specified price bands.
The Joint CFTC–SEC Advisory
Committee on Emerging Regulatory
Issues (‘‘Committee’’) has recommended
that, in addition to the initiatives
already adopted or proposed, the
4 NYSE
16 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
PO 00000
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Amex Equities Rule 80C.
Amex Equities Rule 128.
6 NYSE Amex Equities Rule 104(a)(1)(B).
7 See Securities Exchange Act Release No. 64547
(May 25, 2011), 76 FR 31647 (June 1, 2011).
5 NYSE
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Federal Register / Vol. 76, No. 192 / Tuesday, October 4, 2011 / Notices
markets should consider reforming the
existing market-wide circuit breakers.
Among other things, the Committee
noted that the interrelatedness of
today’s highly electronic markets
warrants the need to review the present
operation of the system-wide circuit
breakers now in place. Specifically, the
Committee recommended that the
markets consider replacing the Dow
Jones Industrial Average (‘‘DJIA’’) with
the S&P 500® Index (‘‘S&P 500’’),
revising the 10%, 20%, and 30%
decline percentages, reducing the length
of trading halts, and allowing halts to be
triggered up to 3:30 p.m.8
The exchanges and FINRA have taken
into consideration the Committee’s
recommendations, and with some
modifications, have proposed changes
to market-wide circuit breakers that the
Exchange believes will provide for a
more meaningful measure in today’s
faster, more electronic markets, of when
to halt stocks on a market-wide basis as
a result of rapid market declines.
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Background
The Exchange adopted Amex Rule
117 in October 1988 as part of an effort
by the securities and futures markets to
implement a coordinated means to
address potentially destabilizing market
volatility.9 At the same time, the New
York Stock Exchange LLC (‘‘NYSE’’)
adopted NYSE Rule 80B. NYSE Rule
80B provides for market-wide halts in
trading at specified levels in order to
promote stability and investor
confidence during a period of
significant stress. As the Commission
noted in its approval order, NYSE Rule
80B and Amex Rule 117 were intended
to enable market participants to
establish an equilibrium between
buying and selling interest and to
ensure that market participants have an
opportunity to become aware of and
8 See Summary Report of the Committee,
‘‘Recommendations Regarding Regulatory
Responses to the Market Events of May 6, 2010’’
(Feb, 18, 2011). The Exchange notes that NYSE
Euronext submitted a comment letter to the
Committee that recommended, among other things,
reform of the market-wide circuit breaker rules. See
Letter to Elizabeth Murphy, Secretary, Commission,
from Janet M. Kissane, SVP and Corporate
Secretary, NYSE Euronext (July 19, 2010). The
proposed reforms set forth in this rule proposal
differ slightly from the changes recommended in
that comment letter, and represent consensus
among the markets of how to address reform of the
market-wide circuit breakers.
9 See Securities Exchange Act Release No. 26198
(Oct. 19, 1988) (SR–CBOE–88–14, SR–NASD–88–
46, SR–NYSE–88–22, SR–NYSE–88–23, SR–NYSE–
88–24, and SR–Amex–88–24). In December 2008,
pursuant to NYSE Amex Rule 0(b), all NYSE Amex
Equities Trading Systems transactions, including
trading halts due to extraordinary volatility, are
governed by NYSE Amex Equities rules.
Accordingly, NYSE Amex Equities Rule 80B, which
is identical to NYSE Rule 80B, is now the operative
rule in place of NYSE Amex Rule 117.
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18:21 Oct 03, 2011
Jkt 223001
respond to significant price movements.
Importantly, the market-wide circuit
breakers were not intended to prevent
markets from adjusting to new price
levels; rather, they provide for a speed
bump for extremely rapid market
declines.10
In its current form,11 NYSE Amex
Equities Rule 80B provides for Level 1,
2, and 3 declines and specified trading
halts following such declines. The
values of Levels 1, 2 and 3 are
calculated at the beginning of each
calendar quarter, using 10%, 20% and
30%, respectively, of the average closing
value of the DJIA for the month prior to
the beginning of the quarter. Each
percentage calculation is rounded to the
nearest fifty points to create the Levels’
trigger points. The Exchange
disseminates the new trigger levels
quarterly to the media and via an
Information Memo and is available on
the Exchange’s Web site.12 The values
then remain in effect until the next
quarterly calculation, notwithstanding
whether the DJIA has moved and a
Level 1, 2, or 3 decline is no longer
equal to an actual 10%, 20%, or 30%
decline in the most recent closing value
of the DJIA.
Once a Rule 80B circuit breaker is in
effect, trading in all stocks halt for the
time periods specified below:
Level 1 Halt
Anytime before 2 p.m.—one hour;
At or after 2 p.m. but before 2:30 p.m.—
30 minutes;
At or after 2:30 p.m.—trading shall
continue, unless there is a Level 2
Halt.
Level 2 Halt
Any time before 1 p.m.—two hours;
At or after 1 p.m. but before 2 p.m.—one
hour;
At or after 2 p.m.—trading shall halt and
not resume for the rest of the day.
Level 3 Halt
At any time—trading shall halt and not
resume for the rest of the day.
Unless stocks are halted for the
remainder of the trading day, price
indications are disseminated during a
Rule 80B trading halt for stocks that
comprise the DJIA.
10 Id.
11 The rule was last amended in 1998, when
declines based on specified point drops in the DJIA
were replaced with the current methodology of
using a percentage decline that is recalculated
quarterly. See Securities Exchange Act Release No.
39846 (April 9, 1998), 63 FR 18477 (April 15, 1998)
(SR–NYSE–98–06, SR–Amex–98–09, SR–BSE–98–
06, SR–CHX–98–08, SR–NASD–98–27, and SR–
Phlx–98–15).
12 See e.g., NYSE Regulation Information Memos
11–19 (June 30, 2011) and 11–10 (March 31, 2011).
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61423
Proposed Amendments
As noted above, the Exchange, other
equities, options, and futures markets,
and FINRA propose to amend the
market-wide circuit breakers to take into
consideration the recommendations of
the Committee, and to provide for more
meaningful measures in today’s markets
of when to halt trading in all stocks.
Accordingly, the Exchange proposes to
amend NYSE Amex Equities Rule 80B
as follows: (i) Replace the DJIA with the
S&P 500; (ii) replace the quarterly
calendar recalculation of Rule 80B
triggers with daily recalculations; (iii)
replace the 10%, 20%, and 30% market
decline percentages with 7%, 13%, and
20% market decline percentages; (iv)
modify the length of the trading halts
associated with each market decline
level; and (v) modify the times when a
trading halt may be triggered. The
Exchange believes that these proposed
amendments update the rule to reflect
today’s high-speed, highly electronic
trading market while still meeting the
original purpose of Rule 80B: to ensure
that market participants have an
opportunity to become aware of and
respond to significant price movements.
First, the Exchange proposes to
replace the DJIA with the S&P 500. The
Exchange believes that because the S&P
500 is based on the trading prices of 500
stocks, as compared to the 30 stocks that
comprise the DJIA, the S&P 500
represents a broader base of securities
against which to measure whether
extraordinary market-wide volatility is
occurring. In addition, as noted by the
Committee, using an index that
correlates closely with derivative
products, such as the E-Mini and SPY,
will allow for a better cross-market
measure of market volatility.
Second, the Exchange proposes to
change the recalculation of the trigger
values from once every calendar quarter
to daily. The Exchange believes that
updating the trigger values daily will
better reflect current market conditions.
In particular, a daily recalculation will
ensure that the percentage drop triggers
relate to current market conditions, and
are not compared to what may be stale
market conditions. As noted in the
proposed rule, the daily calculations of
the trigger values will be published
before the trading day begins.13
Third, the Exchange proposes to
decrease the current Level 1, 2, and 3
declines of 10%, 20%, and 30% to a
13 The Exchange and other markets will advise via
Trader Update the specific methodology for
publishing the daily calculations, as well as the
manner by which the markets will halt trading in
all stocks should a Rule 80B trading halt be
triggered.
E:\FR\FM\04OCN1.SGM
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61424
Federal Register / Vol. 76, No. 192 / Tuesday, October 4, 2011 / Notices
Level 1 Market Decline of 7%, a Level
2 Market Decline of 13%, and Level 3
Market Decline of 20%. In particular, as
demonstrated by the May 6, 2010 flash
crash, the current Level 1 10% decline
may be too high a threshold before
determining whether to halt trading
across all securities. In fact, since
adoption, the markets have halted only
once, on October 27, 1997.14
Accordingly, to reflect the potential that
a lower, yet still significant decline may
warrant a market-wide trading halt, the
Exchange proposes to lower the market
decline percentage thresholds.
As further proposed, the Exchange
would halt trading based on a Level 1
or Level 2 Market Decline only once per
day. For example, if a Level 1 Market
Decline were to occur and trading were
halted, following the reopening of
trading, the Exchange would not halt
the market again unless a Level 2
Market Decline were to occur. Likewise,
following the reopening of trading after
a Level 2 Market Decline, the Exchange
would not halt trading again unless a
Level 3 Market Decline were to occur,
at which point, trading in all stocks
would be halted until the primary
market reopens the next trading day.
Fourth, to correspond with the lower
percentages associated with triggering a
trading halt, the Exchange also proposes
to shorten the length of the market-wide
trading halts associated with each Level.
As proposed, a Level 1 or 2 Market
Decline occurring after 9:30 a.m. Eastern
and up to and including 3:25 p.m.
Eastern, or in the case of an early
scheduled close, 12:25 p.m. Eastern,
would result in a trading halt in all
stocks for 15 minutes.
The Exchange believes that by
reducing the percentage threshold,
coupled with the reduced length of a
trading halt, the proposed rule would
allow for trading halts for serious
market declines, while at the same time,
would minimize disruption to the
market by allowing for trading to
continue after the proposed moreabbreviated trading halt. The Exchange
believes that in today’s markets, where
trading information travels in microsecond speed, a 15-minute trading halt
strikes the appropriate balance between
the need to halt trading for market
participants to assess the market, while
at the same time reducing the time that
the market is halted.
Finally, because the proposed Level 1
and Level 2 trading halts will now be 15
minutes, the Exchange proposes
14 At that time, the triggers were based on
absolute declines in the DJIA (350 point decrease
for a Level 1 halt and 550 point decrease for a Level
2 halt).
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amending the rule to allow for a Level
1 or 2 Market Decline to trigger a trading
halt up to 3:25 p.m. Under the current
rule, a trading halt cannot be triggered
after 2:30 p.m., and this time
corresponds to the need for the markets
both to reopen following a 30-minute
halt and to engage in a fair and orderly
closing process. However, as the
markets experienced on May 6, 2010,
even if the Level 1 decline had occurred
that day, because the market decline
occurred after 2:30 p.m., it would not
have triggered a halt under the current
rule. The Committee recommended that
trading halts be triggered up to 3:30 p.m.
The Exchange agrees that the proposed
amendments must strike the appropriate
balance between permitting trading
halts as late in the day as feasible
without interrupting the closing
process.
Accordingly, to accommodate existing
Exchange rules concerning closing
procedures, including the publication of
imbalance information beginning at 3:45
p.m. and the restrictions on entry and
cancellation of market on close
(‘‘MOC’’) and limit on close (‘‘LOC’’)
orders after 3:45 p.m.,15 the Exchange
proposes that the last Level 1 or Level
2 Market Decline trading halt should be
3:25 p.m. The Exchange proposes 3:25
p.m. as the cut-off time so that there is
time following the 15-minute trading
halt for the markets to reopen before the
3:45 cut-off for entry and cancellation of
MOC and LOC orders under Exchange
rules.
As with current Level 3 declines,
under the proposed rule, a Level 3
Market Decline would halt trading for
the remainder of the trading day,
including any trading that may take
place after 4 p.m., Eastern, and would
not resume until the next trading day.
In addition to these proposed
changes, the Exchange proposes to add
to Rule 80B how the markets will
reopen following a 15-minute trading
halt. In particular, similar to the
reopening procedures set forth in Rule
80C, the Exchange proposes that if the
primary market halts trading in all
stocks, all markets will halt trading in
those stocks until the primary market
has resumed trading or notice has been
provided by the primary market that
trading may resume. As further
proposed, if the primary market does
not re-open a security within 15
minutes following the end of the trading
halt, other markets may resume trading
in that security.
Finally, because NYSE Amex Equities
Rule 80B governs market-wide trading
15 See
PO 00000
NYSE Amex Equities Rule 123C.
Frm 00085
Fmt 4703
Sfmt 4703
halts, the Exchange proposes to delete
NYSE Amex Rule 117 as moot.
The Exchange proposes to implement
the changes to Rule 80B at the same
time that the Limit Up-Limit Down
Plan, if approved, is implemented.
2. Statutory Basis
The basis under the Act for these
proposed rule changes are [sic] the
requirement under Section 6(b)(5)16 that
an Exchange have rules that are
designed 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. Specifically, this rule
proposal supports the objectives of
perfecting the mechanism of a free and
open market and the national market
system because it promotes uniformity
across markets concerning when and
how to halt trading in all stocks as a
result of extraordinary market volatility.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
As the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) by order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed
16 15
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U.S.C. 78f(b)(5).
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Federal Register / Vol. 76, No. 192 / Tuesday, October 4, 2011 / Notices
pmangrum on DSK3VPTVN1PROD with NOTICES
changes to the market-wide circuit
breaker regime are consistent with the
Act. The Commission specifically
requests comment on the following:
• As discussed above, the proposed
rule change would narrow the
percentage market declines that would
trigger a market-wide halt in trading.
How would the proposed changes
interact with the existing single-stock
circuit breaker pilot program 17 or, if
approved, the proposed NMS Plan to
establish a limit-up/limit-down
mechanism for individual securities? 18
• To what extent could the
concurrent triggering of single stock
circuit breakers in many S&P 500 Index
stocks lead to difficulties in calculating
the index? Would the triggering of many
single stock circuit breakers in a general
market downturn cause the index
calculation to become stale and thereby
delay the triggering of the market-wide
circuit breaker?
• Should the market-wide circuit
breaker be triggered if a sufficient
number of single-stock circuit breakers
or price limits are triggered, and
materially affect calculations of the S&P
500 Index?
• Should market centers implement
rules that mandate cancellation of
pending orders in the event a marketwide circuit breaker is triggered? If so,
should such a rule require cancellation
of all orders or only certain order types
(e.g., limit orders)? Should all trading
halts trigger such cancellation policies
or should the cancellation policies
apply only to a Level 3 Market Decline?
• Should some provision be made to
end the regular trading session if a
market decline suddenly occurs after
3:25 p.m. but does not reach the 20%
level?
• In the event of a Level 3 Market
Decline, should some provision be made
for the markets to hold a closing
auction?
• Should the primary market have a
longer period (e.g., 30 minutes) to
reopen trading following a Level 2
Market Decline before trading resumes
in other venues?
17 See Securities Exchange Act Release No. 64735
(June 23, 2011), 76 FR 38243 (June 29, 2011) (SR–
BATS–2011–016; SR–BYX–2011–011; SR–BX–
2011–025; SR–CBOE–2011–049; SR–CHX–2011–09;
SR–EDGA–2011–15; SR–EDGX–2011–14; SR–
FINRA–2011–023; SR–ISE–2011–028; SR–
NASDAQ–2011–067; SR–NYSE–2011–21; SR–
NYSEAmex–2011–32; SR–NYSEArca-2011–26; SR–
NSX–2011–06; SR–Phlx–2011–64) (approving the
‘‘Phase III Pilot Program’’). The Phase III Pilot
Program has been extended through January 2012.
See, e.g., Securities Exchange Act Release 65094
(August 10, 2011), 76 FR 50779 (August 16, 2011)
(SR–NASDAQ–2011–011).
18 See Securities Exchange Act Release No. 64547
(May 25, 2011), 76 FR 31647 (June 1, 2011).
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61425
• In the event of a Level 3 Market
Decline, should the markets wait for the
primary market to reopen trading in a
particular security on the next trading
day before trading in that security
resumes?
Comments may be submitted by any
of the following methods:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Elizabeth M. Murphy,
Secretary.
Electronic Comments
SECURITIES AND EXCHANGE
COMMISSION
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NYSEAMEX–2011–73 on
the subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
[FR Doc. 2011–25513 Filed 10–3–11; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–65431; File No. SR–EDGA–
2011–31]
Self-Regulatory Organizations; EDGA
Exchange, Inc.; Notice of Filing of
Proposed Rule Change by EDGA
Exchange, Inc. To Amend EDGA Rule
11.14 To Revise the Current
Methodology for Determining When To
Halt Trading in All Stocks Due to
Extraordinary Market Volatility
September 28, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
All submissions should refer to File
notice is hereby given that on
Number SR–NYSEAMEX–2011–73. This September 27, 2011 EDGA Exchange,
Inc. (the ‘‘Exchange’’ or ‘‘EDGA’’) filed
file number should be included on the
subject line if e-mail is used. To help the with the Securities and Exchange
Commission (‘‘Commission’’) the
Commission process and review your
proposed rule change as described in
comments more efficiently, please use
only one method. The Commission will Items I and II below, which items have
post all comments on the Commission’s been prepared by the Exchange. The
Commission is publishing this notice to
Internet Web site (https://www.sec.gov/
solicit comments on the proposed rule
rules/sro.shtml). Copies of the
change from interested persons.
submission, all subsequent
I. Self-Regulatory Organization’s
amendments, all written statements
Statement of the Terms of Substance of
with respect to the proposed rule
the Proposed Rule Change
change that are filed with the
Commission, and all written
The Exchange proposes to amend
communications relating to the
Exchange Rule 11.14 to revise the
proposed rule change between the
current methodology for determining
Commission and any person, other than when trading in all stocks will be halted
due to extraordinary market volatility.
those that may be withheld from the
The text of the proposed rule change is
public in accordance with the
attached as Exhibit 5 3 and is available
provisions of 5 U.S.C. 552, will be
on the Exchange’s Web site at https://
available for Web site viewing and
www.directedge.com, at the Exchange’s
printing in the Commission’s Public
principal office, and at the Public
Reference Room, 100 F Street, NE.,
Reference Room of the Commission.
Washington, DC 20549, on official
business days between the hours of 10
II. Self-Regulatory Organization’s
a.m. and 3 p.m. Copies of such filing
Statement of the Purpose of, and
also will be available for inspection and Statutory Basis for, the Proposed Rule
Change
copying at the principal office of the
Exchange. All comments received will
In its filing with the Commission, the
be posted without change; the
Exchange included statements
Commission does not edit personal
concerning the purpose of, and basis for,
identifying information from
the proposed rule change and discussed
submissions. You should submit only
any comments it received on the
information that you wish to make
proposed rule change. The text of these
publicly available. All submissions
19 17 CFR 200.30–3(a)(12).
should refer to File Number SR–
1 15 U.S.C. 78s(b)(1).
NYSEAMEX–2011–73 and should be
2 17 CFR 240.19b–4.
submitted on or before October 25,
3 The Commission notes that Exhibit 5 is attached
2011.
to the filing, not to this Notice.
PO 00000
Frm 00086
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Agencies
[Federal Register Volume 76, Number 192 (Tuesday, October 4, 2011)]
[Notices]
[Pages 61422-61425]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-25513]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65432; File No. SR-NYSEAMEX-2011-73]
Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing of
Proposed Rule Change Amending NYSE Amex Equities Rule 80B To Revise the
Current Methodology for Determining When To Halt Trading in All Stocks
Due to Extraordinary Market Volatility
September 28, 2011.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on September 27, 2011, NYSE Amex LLC (the ``Exchange'' or
``NYSE Amex'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to NYSE Amex Equities Rule 80B to revise the
current methodology for determining when to halt trading in all stocks
due to extraordinary market volatility. The text of the proposed rule
change is available at the Exchange, the Commission's Public Reference
Room, and https://www.nyse.com.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend NYSE Amex Equities Rule 80B to
revise the current methodology for determining when to halt trading in
all stocks due to extraordinary market volatility. The Exchange is
proposing this rule change in consultation with other equity, options,
and futures markets, the Financial Industry Regulatory Authority, Inc.
(``FINRA''), and staffs of the Commission and the Commodity Futures
Trading Commission.
Since May 6, 2010, when the markets experienced excessive
volatility in an abbreviated time period, i.e., the ``flash crash,''
the exchanges and FINRA have implemented market-wide measures designed
to restore investor confidence by reducing the potential for excessive
market volatility. Among the measures adopted include pilot plans for
stock-by-stock trading pauses \4\ and related changes to the clearly
erroneous execution rules \5\ and more stringent market maker quoting
requirements.\6\ In addition, on April 5, 2011, the equities exchanges
and FINRA filed a plan pursuant to Rule 608 of Regulation NMS to
address extraordinary market volatility (the ``Limit Up-Limit Down
Plan'').\7\ As proposed, the Limit Up-Limit Down Plan is designed to
prevent trades in individual NMS stocks from occurring outside
specified price bands.
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\4\ NYSE Amex Equities Rule 80C.
\5\ NYSE Amex Equities Rule 128.
\6\ NYSE Amex Equities Rule 104(a)(1)(B).
\7\ See Securities Exchange Act Release No. 64547 (May 25,
2011), 76 FR 31647 (June 1, 2011).
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The Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues
(``Committee'') has recommended that, in addition to the initiatives
already adopted or proposed, the
[[Page 61423]]
markets should consider reforming the existing market-wide circuit
breakers. Among other things, the Committee noted that the
interrelatedness of today's highly electronic markets warrants the need
to review the present operation of the system-wide circuit breakers now
in place. Specifically, the Committee recommended that the markets
consider replacing the Dow Jones Industrial Average (``DJIA'') with the
S&P 500[supreg] Index (``S&P 500''), revising the 10%, 20%, and 30%
decline percentages, reducing the length of trading halts, and allowing
halts to be triggered up to 3:30 p.m.\8\
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\8\ See Summary Report of the Committee, ``Recommendations
Regarding Regulatory Responses to the Market Events of May 6, 2010''
(Feb, 18, 2011). The Exchange notes that NYSE Euronext submitted a
comment letter to the Committee that recommended, among other
things, reform of the market-wide circuit breaker rules. See Letter
to Elizabeth Murphy, Secretary, Commission, from Janet M. Kissane,
SVP and Corporate Secretary, NYSE Euronext (July 19, 2010). The
proposed reforms set forth in this rule proposal differ slightly
from the changes recommended in that comment letter, and represent
consensus among the markets of how to address reform of the market-
wide circuit breakers.
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The exchanges and FINRA have taken into consideration the
Committee's recommendations, and with some modifications, have proposed
changes to market-wide circuit breakers that the Exchange believes will
provide for a more meaningful measure in today's faster, more
electronic markets, of when to halt stocks on a market-wide basis as a
result of rapid market declines.
Background
The Exchange adopted Amex Rule 117 in October 1988 as part of an
effort by the securities and futures markets to implement a coordinated
means to address potentially destabilizing market volatility.\9\ At the
same time, the New York Stock Exchange LLC (``NYSE'') adopted NYSE Rule
80B. NYSE Rule 80B provides for market-wide halts in trading at
specified levels in order to promote stability and investor confidence
during a period of significant stress. As the Commission noted in its
approval order, NYSE Rule 80B and Amex Rule 117 were intended to enable
market participants to establish an equilibrium between buying and
selling interest and to ensure that market participants have an
opportunity to become aware of and respond to significant price
movements. Importantly, the market-wide circuit breakers were not
intended to prevent markets from adjusting to new price levels; rather,
they provide for a speed bump for extremely rapid market declines.\10\
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\9\ See Securities Exchange Act Release No. 26198 (Oct. 19,
1988) (SR-CBOE-88-14, SR-NASD-88-46, SR-NYSE-88-22, SR-NYSE-88-23,
SR-NYSE-88-24, and SR-Amex-88-24). In December 2008, pursuant to
NYSE Amex Rule 0(b), all NYSE Amex Equities Trading Systems
transactions, including trading halts due to extraordinary
volatility, are governed by NYSE Amex Equities rules. Accordingly,
NYSE Amex Equities Rule 80B, which is identical to NYSE Rule 80B, is
now the operative rule in place of NYSE Amex Rule 117.
\10\ Id.
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In its current form,\11\ NYSE Amex Equities Rule 80B provides for
Level 1, 2, and 3 declines and specified trading halts following such
declines. The values of Levels 1, 2 and 3 are calculated at the
beginning of each calendar quarter, using 10%, 20% and 30%,
respectively, of the average closing value of the DJIA for the month
prior to the beginning of the quarter. Each percentage calculation is
rounded to the nearest fifty points to create the Levels' trigger
points. The Exchange disseminates the new trigger levels quarterly to
the media and via an Information Memo and is available on the
Exchange's Web site.\12\ The values then remain in effect until the
next quarterly calculation, notwithstanding whether the DJIA has moved
and a Level 1, 2, or 3 decline is no longer equal to an actual 10%,
20%, or 30% decline in the most recent closing value of the DJIA.
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\11\ The rule was last amended in 1998, when declines based on
specified point drops in the DJIA were replaced with the current
methodology of using a percentage decline that is recalculated
quarterly. See Securities Exchange Act Release No. 39846 (April 9,
1998), 63 FR 18477 (April 15, 1998) (SR-NYSE-98-06, SR-Amex-98-09,
SR-BSE-98-06, SR-CHX-98-08, SR-NASD-98-27, and SR-Phlx-98-15).
\12\ See e.g., NYSE Regulation Information Memos 11-19 (June 30,
2011) and 11-10 (March 31, 2011).
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Once a Rule 80B circuit breaker is in effect, trading in all stocks
halt for the time periods specified below:
Level 1 Halt
Anytime before 2 p.m.--one hour;
At or after 2 p.m. but before 2:30 p.m.--30 minutes;
At or after 2:30 p.m.--trading shall continue, unless there is a Level
2 Halt.
Level 2 Halt
Any time before 1 p.m.--two hours;
At or after 1 p.m. but before 2 p.m.--one hour;
At or after 2 p.m.--trading shall halt and not resume for the rest of
the day.
Level 3 Halt
At any time--trading shall halt and not resume for the rest of the day.
Unless stocks are halted for the remainder of the trading day,
price indications are disseminated during a Rule 80B trading halt for
stocks that comprise the DJIA.
Proposed Amendments
As noted above, the Exchange, other equities, options, and futures
markets, and FINRA propose to amend the market-wide circuit breakers to
take into consideration the recommendations of the Committee, and to
provide for more meaningful measures in today's markets of when to halt
trading in all stocks. Accordingly, the Exchange proposes to amend NYSE
Amex Equities Rule 80B as follows: (i) Replace the DJIA with the S&P
500; (ii) replace the quarterly calendar recalculation of Rule 80B
triggers with daily recalculations; (iii) replace the 10%, 20%, and 30%
market decline percentages with 7%, 13%, and 20% market decline
percentages; (iv) modify the length of the trading halts associated
with each market decline level; and (v) modify the times when a trading
halt may be triggered. The Exchange believes that these proposed
amendments update the rule to reflect today's high-speed, highly
electronic trading market while still meeting the original purpose of
Rule 80B: to ensure that market participants have an opportunity to
become aware of and respond to significant price movements.
First, the Exchange proposes to replace the DJIA with the S&P 500.
The Exchange believes that because the S&P 500 is based on the trading
prices of 500 stocks, as compared to the 30 stocks that comprise the
DJIA, the S&P 500 represents a broader base of securities against which
to measure whether extraordinary market-wide volatility is occurring.
In addition, as noted by the Committee, using an index that correlates
closely with derivative products, such as the E-Mini and SPY, will
allow for a better cross-market measure of market volatility.
Second, the Exchange proposes to change the recalculation of the
trigger values from once every calendar quarter to daily. The Exchange
believes that updating the trigger values daily will better reflect
current market conditions. In particular, a daily recalculation will
ensure that the percentage drop triggers relate to current market
conditions, and are not compared to what may be stale market
conditions. As noted in the proposed rule, the daily calculations of
the trigger values will be published before the trading day begins.\13\
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\13\ The Exchange and other markets will advise via Trader
Update the specific methodology for publishing the daily
calculations, as well as the manner by which the markets will halt
trading in all stocks should a Rule 80B trading halt be triggered.
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Third, the Exchange proposes to decrease the current Level 1, 2,
and 3 declines of 10%, 20%, and 30% to a
[[Page 61424]]
Level 1 Market Decline of 7%, a Level 2 Market Decline of 13%, and
Level 3 Market Decline of 20%. In particular, as demonstrated by the
May 6, 2010 flash crash, the current Level 1 10% decline may be too
high a threshold before determining whether to halt trading across all
securities. In fact, since adoption, the markets have halted only once,
on October 27, 1997.\14\ Accordingly, to reflect the potential that a
lower, yet still significant decline may warrant a market-wide trading
halt, the Exchange proposes to lower the market decline percentage
thresholds.
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\14\ At that time, the triggers were based on absolute declines
in the DJIA (350 point decrease for a Level 1 halt and 550 point
decrease for a Level 2 halt).
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As further proposed, the Exchange would halt trading based on a
Level 1 or Level 2 Market Decline only once per day. For example, if a
Level 1 Market Decline were to occur and trading were halted, following
the reopening of trading, the Exchange would not halt the market again
unless a Level 2 Market Decline were to occur. Likewise, following the
reopening of trading after a Level 2 Market Decline, the Exchange would
not halt trading again unless a Level 3 Market Decline were to occur,
at which point, trading in all stocks would be halted until the primary
market reopens the next trading day.
Fourth, to correspond with the lower percentages associated with
triggering a trading halt, the Exchange also proposes to shorten the
length of the market-wide trading halts associated with each Level. As
proposed, a Level 1 or 2 Market Decline occurring after 9:30 a.m.
Eastern and up to and including 3:25 p.m. Eastern, or in the case of an
early scheduled close, 12:25 p.m. Eastern, would result in a trading
halt in all stocks for 15 minutes.
The Exchange believes that by reducing the percentage threshold,
coupled with the reduced length of a trading halt, the proposed rule
would allow for trading halts for serious market declines, while at the
same time, would minimize disruption to the market by allowing for
trading to continue after the proposed more-abbreviated trading halt.
The Exchange believes that in today's markets, where trading
information travels in micro-second speed, a 15-minute trading halt
strikes the appropriate balance between the need to halt trading for
market participants to assess the market, while at the same time
reducing the time that the market is halted.
Finally, because the proposed Level 1 and Level 2 trading halts
will now be 15 minutes, the Exchange proposes amending the rule to
allow for a Level 1 or 2 Market Decline to trigger a trading halt up to
3:25 p.m. Under the current rule, a trading halt cannot be triggered
after 2:30 p.m., and this time corresponds to the need for the markets
both to reopen following a 30-minute halt and to engage in a fair and
orderly closing process. However, as the markets experienced on May 6,
2010, even if the Level 1 decline had occurred that day, because the
market decline occurred after 2:30 p.m., it would not have triggered a
halt under the current rule. The Committee recommended that trading
halts be triggered up to 3:30 p.m. The Exchange agrees that the
proposed amendments must strike the appropriate balance between
permitting trading halts as late in the day as feasible without
interrupting the closing process.
Accordingly, to accommodate existing Exchange rules concerning
closing procedures, including the publication of imbalance information
beginning at 3:45 p.m. and the restrictions on entry and cancellation
of market on close (``MOC'') and limit on close (``LOC'') orders after
3:45 p.m.,\15\ the Exchange proposes that the last Level 1 or Level 2
Market Decline trading halt should be 3:25 p.m. The Exchange proposes
3:25 p.m. as the cut-off time so that there is time following the 15-
minute trading halt for the markets to reopen before the 3:45 cut-off
for entry and cancellation of MOC and LOC orders under Exchange rules.
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\15\ See NYSE Amex Equities Rule 123C.
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As with current Level 3 declines, under the proposed rule, a Level
3 Market Decline would halt trading for the remainder of the trading
day, including any trading that may take place after 4 p.m., Eastern,
and would not resume until the next trading day.
In addition to these proposed changes, the Exchange proposes to add
to Rule 80B how the markets will reopen following a 15-minute trading
halt. In particular, similar to the reopening procedures set forth in
Rule 80C, the Exchange proposes that if the primary market halts
trading in all stocks, all markets will halt trading in those stocks
until the primary market has resumed trading or notice has been
provided by the primary market that trading may resume. As further
proposed, if the primary market does not re-open a security within 15
minutes following the end of the trading halt, other markets may resume
trading in that security.
Finally, because NYSE Amex Equities Rule 80B governs market-wide
trading halts, the Exchange proposes to delete NYSE Amex Rule 117 as
moot.
The Exchange proposes to implement the changes to Rule 80B at the
same time that the Limit Up-Limit Down Plan, if approved, is
implemented.
2. Statutory Basis
The basis under the Act for these proposed rule changes are [sic]
the requirement under Section 6(b)(5)\16\ that an Exchange have rules
that are designed 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. Specifically, this rule proposal
supports the objectives of perfecting the mechanism of a free and open
market and the national market system because it promotes uniformity
across markets concerning when and how to halt trading in all stocks as
a result of extraordinary market volatility.
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\16\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) As the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed
[[Page 61425]]
changes to the market-wide circuit breaker regime are consistent with
the Act. The Commission specifically requests comment on the following:
As discussed above, the proposed rule change would narrow
the percentage market declines that would trigger a market-wide halt in
trading. How would the proposed changes interact with the existing
single-stock circuit breaker pilot program \17\ or, if approved, the
proposed NMS Plan to establish a limit-up/limit-down mechanism for
individual securities? \18\
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\17\ See Securities Exchange Act Release No. 64735 (June 23,
2011), 76 FR 38243 (June 29, 2011) (SR-BATS-2011-016; SR-BYX-2011-
011; SR-BX-2011-025; SR-CBOE-2011-049; SR-CHX-2011-09; SR-EDGA-2011-
15; SR-EDGX-2011-14; SR-FINRA-2011-023; SR-ISE-2011-028; SR-NASDAQ-
2011-067; SR-NYSE-2011-21; SR-NYSEAmex-2011-32; SR-NYSEArca-2011-26;
SR-NSX-2011-06; SR-Phlx-2011-64) (approving the ``Phase III Pilot
Program''). The Phase III Pilot Program has been extended through
January 2012. See, e.g., Securities Exchange Act Release 65094
(August 10, 2011), 76 FR 50779 (August 16, 2011) (SR-NASDAQ-2011-
011).
\18\ See Securities Exchange Act Release No. 64547 (May 25,
2011), 76 FR 31647 (June 1, 2011).
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To what extent could the concurrent triggering of single
stock circuit breakers in many S&P 500 Index stocks lead to
difficulties in calculating the index? Would the triggering of many
single stock circuit breakers in a general market downturn cause the
index calculation to become stale and thereby delay the triggering of
the market-wide circuit breaker?
Should the market-wide circuit breaker be triggered if a
sufficient number of single-stock circuit breakers or price limits are
triggered, and materially affect calculations of the S&P 500 Index?
Should market centers implement rules that mandate
cancellation of pending orders in the event a market-wide circuit
breaker is triggered? If so, should such a rule require cancellation of
all orders or only certain order types (e.g., limit orders)? Should all
trading halts trigger such cancellation policies or should the
cancellation policies apply only to a Level 3 Market Decline?
Should some provision be made to end the regular trading
session if a market decline suddenly occurs after 3:25 p.m. but does
not reach the 20% level?
In the event of a Level 3 Market Decline, should some
provision be made for the markets to hold a closing auction?
Should the primary market have a longer period (e.g., 30
minutes) to reopen trading following a Level 2 Market Decline before
trading resumes in other venues?
In the event of a Level 3 Market Decline, should the
markets wait for the primary market to reopen trading in a particular
security on the next trading day before trading in that security
resumes?
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NYSEAMEX-2011-73 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEAMEX-2011-73. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for Web site
viewing and printing in the Commission's Public Reference Room, 100 F
Street, NE., Washington, DC 20549, on official business days between
the hours of 10 a.m. and 3 p.m. Copies of such filing also will be
available for inspection and copying at the principal office of the
Exchange. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
publicly available. All submissions should refer to File Number SR-
NYSEAMEX-2011-73 and should be submitted on or before October 25, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-25513 Filed 10-3-11; 8:45 am]
BILLING CODE 8011-01-P