Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Extend Rule 4121, 65462-65464 [2020-22868]
Download as PDF
<![CDATA[
jbell on DSKJLSW7X2PROD with NOTICES
65462
Federal Register / Vol. 85, No. 200 / Thursday, October 15, 2020 / Notices
of investors and the public interest. The
Exchange has asked the Commission to
waive the 30-day operative delay so that
the proposal may become operative
upon filing. Extending the pilot for an
additional year will allow the
uninterrupted operation of the existing
pilot while the Exchange, FINRA, and
the other exchanges conduct a study of
the MWCB mechanism in consultation
with market participants and determine
if any additional changes to the MWCB
mechanism should be made, including
consideration of rules and procedures
for the periodic testing of the MWCB
mechanism with industry participants.
Therefore, the Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest. The
Commission hereby designates the
proposed rule change to be operative
upon filing.18
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (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 website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549–1090, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly.
All submissions should refer to File
Number SR–NASDAQ–2020–068 and
should be submitted on or before
November 5, 2020.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
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
J. Matthew DeLesDernier,
Assistant Secretary.
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2020–068 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2020–068. This
file number should be included on the
subject line if email is used. To help the
18 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
VerDate Sep<11>2014
17:41 Oct 14, 2020
Jkt 253001
[FR Doc. 2020–22867 Filed 10–14–20; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–90145; File No. SR–BX–
2020–029]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Extend Rule 4121
October 9, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
7, 2020, Nasdaq BX, Inc. (‘‘BX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
19 17
CFR 200.30–3(a)(12).
15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1
PO 00000
Frm 00124
Fmt 4703
Sfmt 4703
change as described in Items I and II,
below, which Items have been prepared
by the Exchange. 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 extend the
pilot related to the market-wide circuit
breaker in Rule 4121.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/bx/rules, at the principal office
of the Exchange, and at the
Commission’s Public Reference Room.
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
Exchange 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 these
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 aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Rule 4121 provides a methodology for
determining when to halt trading in all
stocks due to extraordinary market
volatility (i.e., market-wide circuit
breakers). The market-wide circuit
breaker (‘‘MWCB’’) mechanism under
Rule 4121 was approved by the
Commission to operate on a pilot basis,3
the term of which was to coincide with
the pilot period for the Plan to Address
Extraordinary Market Volatility
Pursuant to Rule 608 of Regulation NMS
(the ‘‘LULD Plan’’),4 including any
extensions to the pilot period for the
LULD Plan.5 In April 2019, the
3 See Securities Exchange Act Release No. 67090
(May 31, 2012), 77 FR 33531 (June 6, 2012) (SR–
BX–2011–068).
4 See Securities Exchange Act Release No. 67091
(May 31, 2012), 77 FR 33498 (June 6, 2012). The
LULD Plan provides a mechanism to address
extraordinary market volatility in individual
securities.
5 See Securities Exchange Act Release Nos. 67090
(May 31, 2012), 77 FR 33531 (June 6, 2012) (SR–
BX–2011–068) (Approval Order); and 68815
(February 1, 2013), 78 FR 9752 (February 11, 2013)
(SR–BX–2013–009) (Notice of Filing and Immediate
E:\FR\FM\15OCN1.SGM
15OCN1
Federal Register / Vol. 85, No. 200 / Thursday, October 15, 2020 / Notices
jbell on DSKJLSW7X2PROD with NOTICES
Commission approved an amendment to
the LULD Plan for it to operate on a
permanent, rather than pilot, basis.6 In
light of the proposal to make the LULD
Plan permanent, the Exchange amended
Rule 4121 to untie the pilot’s
effectiveness from that of the LULD Plan
and to extend the pilot’s effectiveness to
the close of business on October 18,
2019.7 The Exchange subsequently filed
to extend the pilot for an additional year
to the close of business on October 18,
2020.8
The Exchange now proposes to amend
Rule 4121 to extend the pilot to the
close of business on October 18, 2021.
This filing does not propose any
substantive or additional changes to
Rule 4121.
The market-wide circuit breaker
under Rule 4121 provides an important,
automatic mechanism that is invoked to
promote stability and investor
confidence during a period of
significant stress when securities
markets experience extreme broad-based
declines. All U.S. equity exchanges and
FINRA adopted uniform rules on a pilot
basis relating to market-wide circuit
breakers in 2012 (‘‘MWCB Rules’’),
which are designed to slow the effects
of extreme price movement through
coordinated trading halts across
securities markets when severe price
declines reach levels that may exhaust
market liquidity.9 Market-wide circuit
breakers provide for trading halts in all
equities and options markets during a
severe market decline as measured by a
single-day decline in the S&P 500 Index.
Pursuant to Rule 4121, a market-wide
trading halt will be triggered if the S&P
500 Index declines in price by specified
percentages from the prior day’s closing
price of that index. Currently, the
triggers are set at three circuit breaker
thresholds: 7% (Level 1), 13% (Level 2),
and 20% (Level 3). A market decline
that triggers a Level 1 or Level 2 halt
after 9:30 a.m. ET and before 3:25 p.m.
ET would halt market-wide trading for
Effectiveness of Proposed Rule Change to Delay the
Operative Date).
6 See Securities Exchange Act Release No. 85623
(April 11, 2019), 84 FR 16086 (April 17, 2019).
7 See Securities Exchange Act Release No. 85585
(April 10, 2019), 84 FR 15643 (April 16, 2019) (SR–
BX–2019–008).
8 See Securities Exchange Act Release No. 87208
(October 3, 2019), 84 FR 54213 (October 9, 2019)
(SR–BX–2019–034).
9 See Securities Exchange Act Release No. 67090
(May 31, 2012), 77 FR 33531 (June 6, 2012) (SR–
BATS–2011–038; SR–BYX–2011–025; SR–BX–
2011–068; SR–CBOE–2011–087; SR–C2–2011–024;
SR–CHX–2011–30; SR–EDGA–2011–31; SR–EDGX–
2011–30; SR–FINRA–2011–054; SR–ISE–2011–61;
SR–NASDAQ–2011–131; SR–NSX–2011–11; SR–
NYSE–2011–48; SR–NYSEAmex–2011–73; SR–
NYSEArca–2011–68; SR–Phlx–2011–129) (‘‘MWCB
Approval Order’’).
VerDate Sep<11>2014
17:41 Oct 14, 2020
Jkt 253001
15 minutes, while a similar market
decline at or after 3:25 p.m. ET would
not halt market-wide trading. A market
decline that triggers a Level 3 halt, at
any time during the trading day, would
halt market-wide trading for the
remainder of the trading day.
Since the MWCB pilot was last
extended in October 2019, the MWCB
mechanism has proven itself to be an
effective tool for protecting markets
through turbulent times. In the Spring of
2020, at the outset of the worldwide
COVID–19 pandemic, U.S. equities
markets experienced four MWCB Level
1 halts, on March 9, 12, 16, and 18,
2020. In each instance, the markets
halted as intended upon a 7% drop in
the S&P 500 Index, and resumed as
intended 15 minutes later.
In response to these events, the
previously-convened MWCB Taskforce
(‘‘Taskforce’’) reviewed the March 2020
halts and considered whether any
immediate changes to the MWCB
mechanism should be made. The
Taskforce, consisting of representatives
from equities exchanges, futures
exchanges, FINRA, broker-dealers, and
other market participants, had been
assembled in early 2020 to consider
more generally potential changes to the
MWCB mechanism. The Taskforce held
ten meetings in the Spring and Summer
of 2020 that were attended by
Commission staff to consider, among
other things: (1) Whether to retain the
S&P 500 Index as the standard for
measuring market declines; (2) whether
halts that occur shortly after the 9:30
a.m. market open cause more harm than
good; and (3) what additional testing of
the MWCB mechanism should be done.
After considering data and anecdotal
reports of market participants’
experiences during the March 2020
MWCB events, the Taskforce did not
recommend immediate changes be made
to the use of the S&P 500 Index as the
reference price against which market
declines are measured, or to the current
MWCB mechanism which permits halts
even shortly after the 9:30 a.m. market
open. The Taskforce recommended
creating a process for a backup reference
price in the event that the S&P 500
Index becomes unavailable, and
enhancing functional MWCB testing.
The Taskforce also asked CME to
consider modifying its rules to enter
into a limit-down state in the futures
pre-market after a 7% decline instead of
5%.
On September 17, 2020, the Director
of the Division of Trading and Markets
requested that the equities exchanges
and FINRA prepare a more complete
study of the design and operation of the
MWCB mechanism and the LULD Plan
PO 00000
Frm 00125
Fmt 4703
Sfmt 4703
65463
during the period of volatility in the
Spring of 2020. Based on the results of
that study, the Exchange expects to
work with the Commission, FINRA, the
other exchanges, and market
participants to determine if any
additional changes to the MWCB
mechanism should be made, including
consideration of rules and procedures
for the periodic testing of the MWCB
mechanism with industry participants.
In addition to the work of the
Taskforce, the equities exchanges also
moved forward in 2019 and 2020 with
a plan to normalize their Day 2 opening
procedures after a Level 3 MWCB halt,
such that all exchanges would reopen
on Day 2 with a standard opening
auction. The Exchange and its affiliated
exchanges filed rule changes to that
effect in March 2020,10 and successfully
tested the implementation of those
changes on September 12, 2020.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,11 in general, and furthers the
objectives of Section 6(b)(5) of the Act,12
in particular, in that it is 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. The
market-wide circuit breaker mechanism
under Rule 4121 is an important,
automatic mechanism that is invoked to
promote stability and investor
confidence during a period of
significant stress when securities
markets experience extreme broad-based
declines. Extending the market-wide
circuit breaker pilot for an additional
year would ensure the continued,
uninterrupted operation of a consistent
mechanism to halt trading across the
U.S. markets while the Exchange and
the other SROs study the design and
operation of the MWCB mechanism and
the LULD Plan during the period of
volatility in the Spring of 2020. Based
on the results of that study, the
Exchange expects to work with the
Commission, FINRA, the other
exchanges, and market participants to
determine if any additional changes to
the MWCB mechanism should be made,
including consideration of rules and
procedures for the periodic testing of
10 See Securities Exchange Act Release Nos.
88360 (March 11, 2020), 85 FR 15240 (March 17,
2020) (SR–NASDAQ–2020–003); 88428 (March 19,
2020), 85 FR 16965 (March 25, 2020) (SR–BX–
2020–004); 88431 (March 19, 2020), 85 FR 16968
(March 25, 2020) (SR–Phlx–2020–11).
11 15 U.S.C. 78f(b).
12 15 U.S.C. 78f(b)(5).
E:\FR\FM\15OCN1.SGM
15OCN1
65464
Federal Register / Vol. 85, No. 200 / Thursday, October 15, 2020 / Notices
the MWCB mechanism with industry
participants.
The Exchange also believes that the
proposed rule change promotes just and
equitable principles of trade in that it
promotes transparency and uniformity
across markets concerning when and
how to halt trading in all stocks as a
result of extraordinary market volatility.
Based on the foregoing, the Exchange
believes the benefits to market
participants from the MWCB under Rule
4121 should continue on a pilot basis
because the MWCB will promote fair
and orderly markets, and protect
investors and the public interest.
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 not
necessary or appropriate in furtherance
of the purposes of the Act because the
proposal would ensure the continued,
uninterrupted operation of a consistent
mechanism to halt trading across the
U.S. markets while the Exchange and
the other SROs study the design and
operation of the MWCB mechanism and
the LULD Plan during the period of
volatility in the Spring of 2020.
Further, the Exchange understands
that FINRA and other national securities
exchanges will file proposals to extend
their rules regarding the market-wide
circuit breaker pilot. Thus, the proposed
rule change will help to ensure
consistency across market centers
without implicating any competitive
issues.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
jbell on DSKJLSW7X2PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has designated this rule
filing as non-controversial under
Section 19(b)(3)(A) 13 of the Act and
Rule 19b–4(f)(6) 14 thereunder. Because
the proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
for 30 days from the date on which it
was filed, or such shorter time as the
Commission may designate, it has
become effective pursuant to Section
15 U.S.C. 78s(b)(3)(A).
14 17 CFR 240.19b–4(f)(6).
13
VerDate Sep<11>2014
17:41 Oct 14, 2020
Jkt 253001
19(b)(3)(A) of the Act and Rule 19b–
4(f)(6) thereunder.15
A proposed rule change filed under
Rule 19b–4(f)(6) 16 normally does not
become operative for 30 days after the
date of filing. However, pursuant to
Rule 19b–4(f)(6)(iii),17 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest. The
Exchange has asked the Commission to
waive the 30-day operative delay so that
the proposal may become operative
upon filing. Extending the pilot for an
additional year will allow the
uninterrupted operation of the existing
pilot while the Exchange, FINRA, and
the other exchanges conduct a study of
the MWCB mechanism in consultation
with market participants and determine
if any additional changes to the MWCB
mechanism should be made, including
consideration of rules and procedures
for the periodic testing of the MWCB
mechanism with industry participants.
Therefore, the Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest. The
Commission hereby designates the
proposed rule change to be operative
upon filing.18
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
15 In addition, Rule 19b–4(f)(6)(iii) requires the
Exchange to give the Commission written notice of
its intent to file the proposed rule change, along
with a brief description and text of the proposed
rule change, at least five business days prior to the
filing of the proposed rule change, or such shorter
time as designated by the Commission. The
Commission has waived this requirement.
16 Id.
17 17 CFR 240.19b–4(f)(6)(iii).
18 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
PO 00000
Frm 00126
Fmt 4703
Sfmt 9990
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BX–2020–029 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–BX–2020–029. This file
number should be included on the
subject line if email 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 website (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 website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549–1090, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly.
All submissions should refer to File
Number SR–BX–2020–029 and should
be submitted on or before November 5,
2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–22868 Filed 10–14–20; 8:45 am]
BILLING CODE 8011–01–P
19
17 CFR 200.30–3(a)(12).
E:\FR\FM\15OCN1.SGM
15OCN1
]]>Agencies
[Federal Register Volume 85, Number 200 (Thursday, October 15, 2020)]
[Notices]
[Pages 65462-65464]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-22868]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90145; File No. SR-BX-2020-029]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Extend Rule 4121
October 9, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 7, 2020, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed with
the Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change as described in Items I and II, below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to extend the pilot related to the market-
wide circuit breaker in Rule 4121.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/bx/rules, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
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 Exchange 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 these 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 aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Rule 4121 provides a methodology for determining when to halt
trading in all stocks due to extraordinary market volatility (i.e.,
market-wide circuit breakers). The market-wide circuit breaker
(``MWCB'') mechanism under Rule 4121 was approved by the Commission to
operate on a pilot basis,\3\ the term of which was to coincide with the
pilot period for the Plan to Address Extraordinary Market Volatility
Pursuant to Rule 608 of Regulation NMS (the ``LULD Plan''),\4\
including any extensions to the pilot period for the LULD Plan.\5\ In
April 2019, the
[[Page 65463]]
Commission approved an amendment to the LULD Plan for it to operate on
a permanent, rather than pilot, basis.\6\ In light of the proposal to
make the LULD Plan permanent, the Exchange amended Rule 4121 to untie
the pilot's effectiveness from that of the LULD Plan and to extend the
pilot's effectiveness to the close of business on October 18, 2019.\7\
The Exchange subsequently filed to extend the pilot for an additional
year to the close of business on October 18, 2020.\8\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 67090 (May 31,
2012), 77 FR 33531 (June 6, 2012) (SR-BX-2011-068).
\4\ See Securities Exchange Act Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012). The LULD Plan provides a
mechanism to address extraordinary market volatility in individual
securities.
\5\ See Securities Exchange Act Release Nos. 67090 (May 31,
2012), 77 FR 33531 (June 6, 2012) (SR-BX-2011-068) (Approval Order);
and 68815 (February 1, 2013), 78 FR 9752 (February 11, 2013) (SR-BX-
2013-009) (Notice of Filing and Immediate Effectiveness of Proposed
Rule Change to Delay the Operative Date).
\6\ See Securities Exchange Act Release No. 85623 (April 11,
2019), 84 FR 16086 (April 17, 2019).
\7\ See Securities Exchange Act Release No. 85585 (April 10,
2019), 84 FR 15643 (April 16, 2019) (SR-BX-2019-008).
\8\ See Securities Exchange Act Release No. 87208 (October 3,
2019), 84 FR 54213 (October 9, 2019) (SR-BX-2019-034).
---------------------------------------------------------------------------
The Exchange now proposes to amend Rule 4121 to extend the pilot to
the close of business on October 18, 2021. This filing does not propose
any substantive or additional changes to Rule 4121.
The market-wide circuit breaker under Rule 4121 provides an
important, automatic mechanism that is invoked to promote stability and
investor confidence during a period of significant stress when
securities markets experience extreme broad-based declines. All U.S.
equity exchanges and FINRA adopted uniform rules on a pilot basis
relating to market-wide circuit breakers in 2012 (``MWCB Rules''),
which are designed to slow the effects of extreme price movement
through coordinated trading halts across securities markets when severe
price declines reach levels that may exhaust market liquidity.\9\
Market-wide circuit breakers provide for trading halts in all equities
and options markets during a severe market decline as measured by a
single-day decline in the S&P 500 Index.
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 67090 (May 31,
2012), 77 FR 33531 (June 6, 2012) (SR-BATS-2011-038; SR-BYX-2011-
025; SR-BX-2011-068; SR-CBOE-2011-087; SR-C2-2011-024; SR-CHX-2011-
30; SR-EDGA-2011-31; SR-EDGX-2011-30; SR-FINRA-2011-054; SR-ISE-
2011-61; SR-NASDAQ-2011-131; SR-NSX-2011-11; SR-NYSE-2011-48; SR-
NYSEAmex-2011-73; SR-NYSEArca-2011-68; SR-Phlx-2011-129) (``MWCB
Approval Order'').
---------------------------------------------------------------------------
Pursuant to Rule 4121, a market-wide trading halt will be triggered
if the S&P 500 Index declines in price by specified percentages from
the prior day's closing price of that index. Currently, the triggers
are set at three circuit breaker thresholds: 7% (Level 1), 13% (Level
2), and 20% (Level 3). A market decline that triggers a Level 1 or
Level 2 halt after 9:30 a.m. ET and before 3:25 p.m. ET would halt
market-wide trading for 15 minutes, while a similar market decline at
or after 3:25 p.m. ET would not halt market-wide trading. A market
decline that triggers a Level 3 halt, at any time during the trading
day, would halt market-wide trading for the remainder of the trading
day.
Since the MWCB pilot was last extended in October 2019, the MWCB
mechanism has proven itself to be an effective tool for protecting
markets through turbulent times. In the Spring of 2020, at the outset
of the worldwide COVID-19 pandemic, U.S. equities markets experienced
four MWCB Level 1 halts, on March 9, 12, 16, and 18, 2020. In each
instance, the markets halted as intended upon a 7% drop in the S&P 500
Index, and resumed as intended 15 minutes later.
In response to these events, the previously-convened MWCB Taskforce
(``Taskforce'') reviewed the March 2020 halts and considered whether
any immediate changes to the MWCB mechanism should be made. The
Taskforce, consisting of representatives from equities exchanges,
futures exchanges, FINRA, broker-dealers, and other market
participants, had been assembled in early 2020 to consider more
generally potential changes to the MWCB mechanism. The Taskforce held
ten meetings in the Spring and Summer of 2020 that were attended by
Commission staff to consider, among other things: (1) Whether to retain
the S&P 500 Index as the standard for measuring market declines; (2)
whether halts that occur shortly after the 9:30 a.m. market open cause
more harm than good; and (3) what additional testing of the MWCB
mechanism should be done.
After considering data and anecdotal reports of market
participants' experiences during the March 2020 MWCB events, the
Taskforce did not recommend immediate changes be made to the use of the
S&P 500 Index as the reference price against which market declines are
measured, or to the current MWCB mechanism which permits halts even
shortly after the 9:30 a.m. market open. The Taskforce recommended
creating a process for a backup reference price in the event that the
S&P 500 Index becomes unavailable, and enhancing functional MWCB
testing. The Taskforce also asked CME to consider modifying its rules
to enter into a limit-down state in the futures pre-market after a 7%
decline instead of 5%.
On September 17, 2020, the Director of the Division of Trading and
Markets requested that the equities exchanges and FINRA prepare a more
complete study of the design and operation of the MWCB mechanism and
the LULD Plan during the period of volatility in the Spring of 2020.
Based on the results of that study, the Exchange expects to work with
the Commission, FINRA, the other exchanges, and market participants to
determine if any additional changes to the MWCB mechanism should be
made, including consideration of rules and procedures for the periodic
testing of the MWCB mechanism with industry participants.
In addition to the work of the Taskforce, the equities exchanges
also moved forward in 2019 and 2020 with a plan to normalize their Day
2 opening procedures after a Level 3 MWCB halt, such that all exchanges
would reopen on Day 2 with a standard opening auction. The Exchange and
its affiliated exchanges filed rule changes to that effect in March
2020,\10\ and successfully tested the implementation of those changes
on September 12, 2020.
---------------------------------------------------------------------------
\10\ See Securities Exchange Act Release Nos. 88360 (March 11,
2020), 85 FR 15240 (March 17, 2020) (SR-NASDAQ-2020-003); 88428
(March 19, 2020), 85 FR 16965 (March 25, 2020) (SR-BX-2020-004);
88431 (March 19, 2020), 85 FR 16968 (March 25, 2020) (SR-Phlx-2020-
11).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\11\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\12\ in particular, in that it is 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. The market-wide circuit breaker mechanism under Rule 4121 is
an important, automatic mechanism that is invoked to promote stability
and investor confidence during a period of significant stress when
securities markets experience extreme broad-based declines. Extending
the market-wide circuit breaker pilot for an additional year would
ensure the continued, uninterrupted operation of a consistent mechanism
to halt trading across the U.S. markets while the Exchange and the
other SROs study the design and operation of the MWCB mechanism and the
LULD Plan during the period of volatility in the Spring of 2020. Based
on the results of that study, the Exchange expects to work with the
Commission, FINRA, the other exchanges, and market participants to
determine if any additional changes to the MWCB mechanism should be
made, including consideration of rules and procedures for the periodic
testing of
[[Page 65464]]
the MWCB mechanism with industry participants.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange also believes that the proposed rule change promotes
just and equitable principles of trade in that it promotes transparency
and uniformity across markets concerning when and how to halt trading
in all stocks as a result of extraordinary market volatility. Based on
the foregoing, the Exchange believes the benefits to market
participants from the MWCB under Rule 4121 should continue on a pilot
basis because the MWCB will promote fair and orderly markets, and
protect investors and the public interest.
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 not necessary or appropriate in
furtherance of the purposes of the Act because the proposal would
ensure the continued, uninterrupted operation of a consistent mechanism
to halt trading across the U.S. markets while the Exchange and the
other SROs study the design and operation of the MWCB mechanism and the
LULD Plan during the period of volatility in the Spring of 2020.
Further, the Exchange understands that FINRA and other national
securities exchanges will file proposals to extend their rules
regarding the market-wide circuit breaker pilot. Thus, the proposed
rule change will help to ensure consistency across market centers
without implicating any competitive issues.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has designated this rule filing as non-controversial
under Section 19(b)(3)(A) \13\ of the Act and Rule 19b-4(f)(6) \14\
thereunder. Because the proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6) thereunder.\15\
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6).
\15\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to
give the Commission written notice of its intent to file the
proposed rule change, along with a brief description and text of the
proposed rule change, at least five business days prior to the
filing of the proposed rule change, or such shorter time as
designated by the Commission. The Commission has waived this
requirement.
---------------------------------------------------------------------------
A proposed rule change filed under Rule 19b-4(f)(6) \16\ normally
does not become operative for 30 days after the date of filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\17\ the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative upon filing. Extending the pilot for an additional
year will allow the uninterrupted operation of the existing pilot while
the Exchange, FINRA, and the other exchanges conduct a study of the
MWCB mechanism in consultation with market participants and determine
if any additional changes to the MWCB mechanism should be made,
including consideration of rules and procedures for the periodic
testing of the MWCB mechanism with industry participants. Therefore,
the Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
The Commission hereby designates the proposed rule change to be
operative upon filing.\18\
---------------------------------------------------------------------------
\16\ Id.
\17\ 17 CFR 240.19b-4(f)(6)(iii).
\18\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. 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 email to [email protected]. Please include
File Number SR-BX-2020-029 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-BX-2020-029. This file
number should be included on the subject line if email 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 website (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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549-1090, on official business days between the hours of 10:00 a.m.
and 3:00 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly.
All submissions should refer to File Number SR-BX-2020-029 and
should be submitted on or before November 5, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
---------------------------------------------------------------------------
\19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-22868 Filed 10-14-20; 8:45 am]
BILLING CODE 8011-01-P
