Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Extend the Pilot Related to the Market-Wide Circuit Breaker in Rule 7.12, 55893-55896 [2021-21870]
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Federal Register / Vol. 86, No. 192 / Thursday, October 7, 2021 / Notices
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amount in a manner that fully manages
FICC’s applicable credit exposures
should help ensure that, in the event of
a member default, FICC’s operations
would not be disrupted and nondefaulting members would not be
exposed to losses that they cannot
anticipate or control. Accordingly, the
Commission finds that NSCC’s Proposed
Rule Change is designed to help
promote the prompt and accurate
clearance and settlement of securities
transactions, consistent with Section
17A(b)(3)(F) of the Act.27 Moreover,
FICC’s collection of margin amounts
that better limit FICC’s credit exposure
to members would help ensure that
FICC maintains adequate funds
necessary to manage the risks associated
with performing its clearance and
settlement functions, which could, in
turn, help reduce the amount of credit
losses that would be distributed to nondefaulting members in the event of a
default. Accordingly, the Commission
finds that FICC’s Proposed Rule Change
is designed to help promote the prompt
and accurate clearance and settlement of
securities transactions and assure the
safeguarding or securities and funds that
are in FICC’s custody or control.
Therefore, the Commission believes that
the Proposed Rule Change is consistent
with Section 17A(b)(3)(F) of the Act.28
B. Consistency With Rule 17Ad–
22(e)(4)(i)
Rule 17Ad–22(e)(4)(i) under the Act 29
requires a covered clearing agency to
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to effectively
identify, measure, monitor, and manage
its credit exposures to participants and
those exposures arising from its
payment, clearing, and settlement
processes by maintaining sufficient
financial resources to cover its credit
exposure to each participant fully with
a high degree of confidence.
The proposed change to eliminate the
EUIC is designed to more accurately
address the potential under-margining
situations described above. The EUIC is
charged once a day, while FICC may
charge an Intraday Supplemental Fund
Deposit amount, if necessary,
throughout the day, based on the hourly
information that FICC receives regarding
GCF Repo Members’ positions. As such,
because FICC can continuously assess
its exposure and charge additional
margin throughout the day with the
Intraday Supplemental Fund Deposit
rather than at one point in time, the
proposed changes would help FICC
better measure and monitor its credit
exposures to members.
The proposed changes to the QRM
Methodology Document are designed to
allow FICC to use the haircut
methodology to determine the margin
for all Short-Term Treasuries and not
just for the Short-Term Treasuries
without sensitivity analytics data, as is
the current case. In addition, FICC
would differentiate Short-Term
Treasuries based on the time to
maturity, and apply two haircuts. This
proposed approach would address the
deficienties with the current approach
when it is applied to portfolios with a
high concentration of Short-Term
Treasuries as described above and
thereby better enable FICC to limit its
credit exposures to members.
Therefore, for the reasons discussed
above, the Commission believes that the
Proposed Rule Change is consistent
with the requirements of Rule 17Ad–
22(e)(4)(i) under the Act.30
C. Consistency With Rule 17Ad–
22(e)(6)(i)
Rule 17Ad–22(e)(6)(i) under the Act 31
requires a covered clearing agency to
establish, implement, maintain and
enforce written policies and procedures
reasonably designed to cover, if the
covered clearing agency provides
central counterparty services, its credit
exposures to its participants by
establishing a risk-based margin system
that, at a minimum, considers, and
produces margin levels commensurate
with, the risks and particular attributes
of each relevant product, portfolio, and
market.
The proposed change to eliminate the
EUIC and thus relying on Intraday
Supplemental Fund Deposit to calculate
and collect margins is designed to cover
FICC’s credit exposures to its members.
As described above, Intraday
Supplemental Fund Deposit would
better enable FICC to consider and
produce margin levels commensurate
with the risk and particular attributes of
a GCF Repo Member’s portfolio and is
able to be more precisely tailored to the
risks presented by a particular portfolio
because it allows for more frequent
consideration of the appropriate charge,
as opposed to at one point during the
day under the EUIC.
The proposed changes to the QRM
Methodology Document are designed to
cover FICC’s credit exposures to its
members, especially those members
who have a high concentration of ShortTerm Treasuries in their portfolios
27 Id.
28 Id.
29 17
30 Id.
CFR 240.17Ad–22(e)(4)(i).
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55893
because, as described above, this
proposed approach would address two
vulnerabilities associated with the
current approach when it is applied to
portfolios with a high concentration of
Short-Term Treasuries. By providing
targeted margin methodologies for
Short-Term Treasuries and addressing
two vulnerabilities, the proposed
changes would enhance NSCC’s ability
to cover its credit exposures to its
members and produce margin levels
commensurate with the risks and
particular attributes of Short-Term
Treasuries.
Therefore, for the reasons discussed
above, the Commission believes that the
Proposed Rule Change is consistent
with the requiremens of Rule 17Ad–
22(e)(6)(i) under the Act.32
III. Conclusion
On the basis of the foregoing, the
Commission finds that the Proposed
Rule Change is consistent with the
requirements of the Act and in
particular with the requirements of
Section17A of the Act 33 and the rules
and regulations promulgated
thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act 34 that
Proposed Rule Change SR–FICC–2021–
007, be, and hereby is, approved.35
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.36
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–21863 Filed 10–6–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93231; File No. SR–
NYSECHX–2021–14]
Self-Regulatory Organizations; NYSE
Chicago, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Extend the Pilot
Related to the Market-Wide Circuit
Breaker in Rule 7.12
October 1, 2021.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
32 Id.
33 15
U.S.C. 78q–1.
U.S.C. 78s(b)(2).
35 In approving the Proposed Rule Change, the
Commission considered the proposals’ impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
36 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
34 15
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Federal Register / Vol. 86, No. 192 / Thursday, October 7, 2021 / Notices
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on
September 30, 2021, the NYSE Chicago,
Inc. (‘‘NYSE Chicago’’ or the
‘‘Exchange’’) 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 extend the
pilot related to the market-wide circuit
breaker in Rule 7.12 to the close of
business on March 18, 2022. The
proposed rule change is available on the
Exchange’s website at www.nyse.com, 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
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 the
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The Exchange proposes to extend the
pilot related to the market-wide circuit
breaker in Rule 7.12 to the close of
business on March 18, 2022.
Background
The Market-Wide Circuit Breaker
(‘‘MWCB’’) rules, including the
Exchange’s Rule 7.12, provide an
important, automatic mechanism that is
invoked to promote stability and
investor confidence during periods of
significant stress when cash equities
securities experience extreme marketwide declines. The MWCB rules are
designed to slow the effects of extreme
price declines through coordinated
2 15
3 17
U.S.C. 78a.
CFR 240.19b–4.
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trading halts across both cash equity
and equity options securities markets.
The cash equities rules governing
MWCBs were first adopted in 1988 and,
in 2012, all U.S. cash equity exchanges
and FINRA amended their cash equities
uniform rules on a pilot basis (the ‘‘Pilot
Rules,’’ i.e., Rule 7.12 (a)–(d)).4 The
Pilot Rules currently provide for trading
halts in all cash equity securities during
a severe market decline as measured by
a single-day decline in the S&P 500
Index (‘‘SPX’’).5 Under the Pilot Rules,
a market-wide trading halt will be
triggered if SPX declines in price by
specified percentages from the prior
day’s closing price of that index. 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. and before 3:25 p.m.
would halt market-wide trading for 15
minutes, while a similar market decline
at or after 3:25 p.m. would not halt
market-wide trading. (Level 1 and Level
2 halts may occur only once a day.) 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.
The Commission approved the Pilot
Rules, 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’’),6
including any extensions to the pilot
period for the LULD Plan.7 In April
2019, the Commission approved an
amendment to the LULD Plan for it to
operate on a permanent, rather than
pilot, basis.8 In light of the proposal to
make the LULD Plan permanent, the
4 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) (‘‘Pilot
Rules Approval Order’’).
5 The rules of the equity options exchanges
similarly provide for a halt in trading if the cash
equity exchanges invoke a MWCB Halt. See, e.g.,
NYSE Arca Rule 6.65–O(d)(4).
6 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.
7 See Securities Exchange Act Release Nos. 67090
(May 31, 2012), 77 FR 33531 (June 6, 2012) (SR–
CHX–2011–30) (Approval Order); and 68777
(January 31, 2013), 78 FR 8673 (February 6, 2013)
(SR–CHX–2013) (Notice of Filing of Immediate
Effectiveness of Proposed Rule Change Delaying the
Operative Date of a Rule Change to CHX Article 20,
Rule 2).
8 See Securities Exchange Act Release No. 85623
(April 11, 2019), 84 FR 16086 (April 17, 2019).
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Exchange amended Article 20, Rule 2 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, 2019.9 After the
Commission approved the Exchange’s
proposal to transition to trading on
Pillar,10 the Exchange subsequently
amended the corresponding Pillar
rule—Rule 7.12—to extend the pilot’s
effectiveness for an additional year to
the close of business on October 18,
2020,11 and later, on October 18, 2021.12
The Exchange now proposes to amend
Rule 7.12 to extend the pilot to the close
of business on March 18, 2022. This
filing does not propose any substantive
or additional changes to Rule 7.12.
The MWCB Task Force and the March
2020 MWCB Events
In late 2019, Commission staff
requested the formation of a MWCB
Task Force (‘‘Task Force’’) to evaluate
the operation and design of the MWCB
mechanism. The Task Force included
representatives from the SROs, the
Commission, CME, the Commodity
Futures Trading Commission (‘‘CFTC’’),
and the securities industry and
conducted several organizational
meetings in December 2019 and January
2020.
In Spring 2020, the MWCB
mechanism proved itself to be an
effective tool for protecting markets
through turbulent times. In March 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, in the
Spring and Summer of 2020, the Task
Force held ten meetings that were
attended by Commission staff, with the
goal of performing an expedited review
of the March 2020 halts and identifying
any areas where the MWCB mechanism
had not worked properly. Given the risk
of unintended consequences, the Task
Force did not recommend changes that
were not rooted in a noted deficiency.
The Task Force recommended creating
a process for a backup reference price in
9 See Securities Exchange Act Release No. 85565
(April 9, 2019), 84 FR 15239 (April 15, 2019) (SR–
NYSECHX–2019–05).
10 See Securities Exchange Act Release No. 87264
(October 9, 2019), 84 FR 55345 (October 16, 2019)
(SR–NYSECHX–2019–08).
11 See Securities Exchange Act Release No. 87027
(September 19, 2019), 84 FR 50484 (September 25,
2019) (SR–NYSECHX–2019–09).
12 See Securities Exchange Act Release No. 90140
(October 8, 2020), 85 FR 65888 (October 16, 2020)
(SR–NYSECHX–2020–30).
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the event that SPX were to become
unavailable, and enhancing functional
MWCB testing. The Task Force 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%. CME made the
requested change, which became
effective on October 12, 2020.13
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The MWCB Working Group’s Study
On September 17, 2020, the Director
of the Commission’s Division of Trading
and Markets asked the SROs to conduct
a more complete study of the design and
operation of the Pilot Rules and the
LULD Plan during the period of
volatility in the Spring of 2020.
In response to the request, the SROs
created a MWCB ‘‘Working Group’’
composed of SRO representatives and
industry advisers that included
members of the advisory committees to
both the LULD Plan and the NMS Plans
governing the collection, consolidation,
and dissemination of last-sale
transaction reports and quotations in
NMS Stocks. The Working Group met
regularly from September 2020 through
March 2021 to consider the
Commission’s request, review data, and
compile its study. The Working Group’s
efforts in this respect incorporated and
built on the work of an MWCB Task
Force.
The Working Group submitted its
study to the Commission on March 31,
2021 (the ‘‘Study’’).14 In addition to a
timeline of the MWCB events in March
2020, the Study includes a summary of
the analysis and recommendations of
the MWCB Task Force; an evaluation of
the operation of the Pilot Rules during
the March 2020 events; an evaluation of
the design of the current MWCB system;
and the Working Group’s conclusions
and recommendations.
In the Study, the Working Group
concluded: (1) The MWCB mechanism
set out in the Pilot Rules worked as
intended during the March 2020 events;
(2) the MWCB halts triggered in March
2020 appear to have had the intended
effect of calming volatility in the
market, without causing harm; (3) the
design of the MWCB mechanism with
respect to reference value (SPX), trigger
levels (7%/13%/20%), and halt times
(15 minutes) is appropriate; (4) the
13 See https://www.cmegroup.com/content/dam/
cmegroup/market-regulation/rule-filings/2020/9/20392_1.pdf; https://www.cmegroup.com/content/
dam/cmegroup/marketregulation/rule-filings/2020/9/20-392_2.pdf.
14 See Report of the Market-Wide Circuit Breaker
(‘‘MWCB’’) Working Group Regarding the March
2020 MWCB Events, submitted March 31, 2021 (the
‘‘Study’’), available at https://www.nyse.com/
publicdocs/nyse/markets/nyse/Report_of_the_
Market-Wide_Circuit_Breaker_Working_Group.pdf.
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change implemented in Amendment 10
to the Plan to Address Extraordinary
Market Volatility (the ‘‘Limit Up/Limit
Down Plan’’ or ‘‘LULD Plan’’) did not
likely have any negative impact on
MWCB functionality; and (5) no changes
should be made to the mechanism to
prevent the market from halting shortly
after the opening of regular trading
hours at 9:30 a.m.
In light of the foregoing conclusions,
the Working Group also made several
recommendations, including that the
Pilot Rules should be permanent
without any changes.15
Proposal To Extend the Operation of the
Pilot Rules Pending the Commission’s
Consideration of the New York Stock
Exchange LLC’s Filing To Make the
Pilot Rules Permanent
On July 16, 2021, the Exchange’s
affiliate, the New York Stock Exchange
(‘‘NYSE’’), proposed a rule change to
make the Pilot Rules permanent,
consistent with the Working Group’s
recommendations.16 On August 27,
2021, the Commission extended its time
to consider the proposed rule change to
October 20, 2021.17 The Exchange now
proposes to extend the expiration date
of the Pilot Rules to the end of business
on March 18, 2022.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,18 in general, and furthers the
objectives of Section 6(b)(5) of the Act,19
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 7.12 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
five months would ensure the
continued, uninterrupted operation of a
consistent mechanism to halt trading
across the U.S. markets while the
Commission reviews the Exchange’s
15 See
id. at 46.
Securities Exchange Act Release No. 92428
(July 16, 2021), 86 FR 38776 (July 22, 2021) (SR–
NYSE–2021–40).
17 See Securities Exchange Act Release No.
92785A (August 27, 2021), 86 FR 50202 (September
7, 2021) (SR–NYSE–2021–40).
18 15 U.S.C. 78f(b).
19 15 U.S.C. 78f(b)(5).
16 See
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55895
proposed rule change to make the Pilot
Rules permanent.
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 Pilot Rules should
continue on a pilot basis because they
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 Commission
reviews the Exchange’s proposed rule
change to make the Pilot Rules
permanent.
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 solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 20 and Rule
19b–4(f)(6) thereunder.21 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
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
20 15
21 17
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U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
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Federal Register / Vol. 86, No. 192 / Thursday, October 7, 2021 / Notices
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) 22 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),23 the
Commission may designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. The Exchange asked that the
Commission waive the 30-day operative
delay so that the proposal may become
operative immediately upon filing.
Extending the pilot Rules’ effectiveness
to the close of business on March 18,
2022 will extend the protections
provided by the Pilot Rules, which
would otherwise expire in less than 30
days. Waiver of the operative delay
would therefore permit uninterrupted
continuation of the MWCB pilot while
the Commission reviews the Exchange’s
proposed rule change to make the Pilot
Rules permanent. Therefore, the
Commission hereby waives the 30-day
operative delay and designates the
proposed rule change as operative upon
filing.24
At any time within 60 days of the
filing of such 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
under Section 19(b)(2)(B) 25 of the Act 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
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• 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–
NYSECHX–2021–14 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
Paper Comments
[Release No. 34–93237; File No. SR–Phlx–
2021–56]
• 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–NYSECHX–2021–14. 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 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–NYSECHX–2021–14 and
should be submitted on or before
October 28, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–21870 Filed 10–6–21; 8:45 am]
BILLING CODE 8011–01–P
22 17
CFR 240.19b–4(f)(6).
CFR 240.19b–4(f)(6)(iii).
24 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).
25 15 U.S.C. 78s(b)(2)(B).
23 17
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Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing of
Proposed Rule Change To Amend
Options 4A, Section 12 Regarding the
Closing Volume Weighted Average
Price (‘‘Closing VWAP’’) for Listing and
Trading of Options on the Nasdaq100® Volatility Index
October 1, 2021.
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
September 23, 2021, Nasdaq PHLX LLC
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III 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 amend its
rule regarding options on the Nasdaq100® Volatility Index within Options
4A, Section 12, Terms of Index Options
Contracts.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/phlx/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.
1 15
26 17
PO 00000
CFR 200.30–3(a)(12).
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U.S.C. 78s(b)(1).
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]]>Agencies
[Federal Register Volume 86, Number 192 (Thursday, October 7, 2021)]
[Notices]
[Pages 55893-55896]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21870]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93231; File No. SR-NYSECHX-2021-14]
Self-Regulatory Organizations; NYSE Chicago, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Extend
the Pilot Related to the Market-Wide Circuit Breaker in Rule 7.12
October 1, 2021.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the
[[Page 55894]]
``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given that,
on September 30, 2021, the NYSE Chicago, Inc. (``NYSE Chicago'' or the
``Exchange'') 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 extend the pilot related to the market-
wide circuit breaker in Rule 7.12 to the close of business on March 18,
2022. The proposed rule change is available on the Exchange's website
at www.nyse.com, 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 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to extend the pilot related to the market-
wide circuit breaker in Rule 7.12 to the close of business on March 18,
2022.
Background
The Market-Wide Circuit Breaker (``MWCB'') rules, including the
Exchange's Rule 7.12, provide an important, automatic mechanism that is
invoked to promote stability and investor confidence during periods of
significant stress when cash equities securities experience extreme
market-wide declines. The MWCB rules are designed to slow the effects
of extreme price declines through coordinated trading halts across both
cash equity and equity options securities markets.
The cash equities rules governing MWCBs were first adopted in 1988
and, in 2012, all U.S. cash equity exchanges and FINRA amended their
cash equities uniform rules on a pilot basis (the ``Pilot Rules,''
i.e., Rule 7.12 (a)-(d)).\4\ The Pilot Rules currently provide for
trading halts in all cash equity securities during a severe market
decline as measured by a single-day decline in the S&P 500 Index
(``SPX'').\5\ Under the Pilot Rules, a market-wide trading halt will be
triggered if SPX declines in price by specified percentages from the
prior day's closing price of that index. 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. and before 3:25 p.m. would halt market-wide trading for 15
minutes, while a similar market decline at or after 3:25 p.m. would not
halt market-wide trading. (Level 1 and Level 2 halts may occur only
once a day.) 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.
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\4\ 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) (``Pilot
Rules Approval Order'').
\5\ The rules of the equity options exchanges similarly provide
for a halt in trading if the cash equity exchanges invoke a MWCB
Halt. See, e.g., NYSE Arca Rule 6.65-O(d)(4).
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The Commission approved the Pilot Rules, 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''),\6\ including any extensions to the pilot period for the LULD
Plan.\7\ In April 2019, the Commission approved an amendment to the
LULD Plan for it to operate on a permanent, rather than pilot,
basis.\8\ In light of the proposal to make the LULD Plan permanent, the
Exchange amended Article 20, Rule 2 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.\9\ After the Commission
approved the Exchange's proposal to transition to trading on
Pillar,\10\ the Exchange subsequently amended the corresponding Pillar
rule--Rule 7.12--to extend the pilot's effectiveness for an additional
year to the close of business on October 18, 2020,\11\ and later, on
October 18, 2021.\12\
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\6\ 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.
\7\ See Securities Exchange Act Release Nos. 67090 (May 31,
2012), 77 FR 33531 (June 6, 2012) (SR-CHX-2011-30) (Approval Order);
and 68777 (January 31, 2013), 78 FR 8673 (February 6, 2013) (SR-CHX-
2013) (Notice of Filing of Immediate Effectiveness of Proposed Rule
Change Delaying the Operative Date of a Rule Change to CHX Article
20, Rule 2).
\8\ See Securities Exchange Act Release No. 85623 (April 11,
2019), 84 FR 16086 (April 17, 2019).
\9\ See Securities Exchange Act Release No. 85565 (April 9,
2019), 84 FR 15239 (April 15, 2019) (SR-NYSECHX-2019-05).
\10\ See Securities Exchange Act Release No. 87264 (October 9,
2019), 84 FR 55345 (October 16, 2019) (SR-NYSECHX-2019-08).
\11\ See Securities Exchange Act Release No. 87027 (September
19, 2019), 84 FR 50484 (September 25, 2019) (SR-NYSECHX-2019-09).
\12\ See Securities Exchange Act Release No. 90140 (October 8,
2020), 85 FR 65888 (October 16, 2020) (SR-NYSECHX-2020-30).
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The Exchange now proposes to amend Rule 7.12 to extend the pilot to
the close of business on March 18, 2022. This filing does not propose
any substantive or additional changes to Rule 7.12.
The MWCB Task Force and the March 2020 MWCB Events
In late 2019, Commission staff requested the formation of a MWCB
Task Force (``Task Force'') to evaluate the operation and design of the
MWCB mechanism. The Task Force included representatives from the SROs,
the Commission, CME, the Commodity Futures Trading Commission
(``CFTC''), and the securities industry and conducted several
organizational meetings in December 2019 and January 2020.
In Spring 2020, the MWCB mechanism proved itself to be an effective
tool for protecting markets through turbulent times. In March 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, in the Spring and Summer of 2020, the
Task Force held ten meetings that were attended by Commission staff,
with the goal of performing an expedited review of the March 2020 halts
and identifying any areas where the MWCB mechanism had not worked
properly. Given the risk of unintended consequences, the Task Force did
not recommend changes that were not rooted in a noted deficiency. The
Task Force recommended creating a process for a backup reference price
in
[[Page 55895]]
the event that SPX were to become unavailable, and enhancing functional
MWCB testing. The Task Force 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%. CME made the requested change, which became
effective on October 12, 2020.\13\
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\13\ See https://www.cmegroup.com/content/dam/cmegroup/market-regulation/rule-filings/2020/9/20-392_1.pdf; https://www.cmegroup.com/content/dam/cmegroup/market-regulation/rule-filings/2020/9/20-392_2.pdf.
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The MWCB Working Group's Study
On September 17, 2020, the Director of the Commission's Division of
Trading and Markets asked the SROs to conduct a more complete study of
the design and operation of the Pilot Rules and the LULD Plan during
the period of volatility in the Spring of 2020.
In response to the request, the SROs created a MWCB ``Working
Group'' composed of SRO representatives and industry advisers that
included members of the advisory committees to both the LULD Plan and
the NMS Plans governing the collection, consolidation, and
dissemination of last-sale transaction reports and quotations in NMS
Stocks. The Working Group met regularly from September 2020 through
March 2021 to consider the Commission's request, review data, and
compile its study. The Working Group's efforts in this respect
incorporated and built on the work of an MWCB Task Force.
The Working Group submitted its study to the Commission on March
31, 2021 (the ``Study'').\14\ In addition to a timeline of the MWCB
events in March 2020, the Study includes a summary of the analysis and
recommendations of the MWCB Task Force; an evaluation of the operation
of the Pilot Rules during the March 2020 events; an evaluation of the
design of the current MWCB system; and the Working Group's conclusions
and recommendations.
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\14\ See Report of the Market-Wide Circuit Breaker (``MWCB'')
Working Group Regarding the March 2020 MWCB Events, submitted March
31, 2021 (the ``Study''), available at https://www.nyse.com/publicdocs/nyse/markets/nyse/Report_of_the_Market-Wide_Circuit_Breaker_Working_Group.pdf.
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In the Study, the Working Group concluded: (1) The MWCB mechanism
set out in the Pilot Rules worked as intended during the March 2020
events; (2) the MWCB halts triggered in March 2020 appear to have had
the intended effect of calming volatility in the market, without
causing harm; (3) the design of the MWCB mechanism with respect to
reference value (SPX), trigger levels (7%/13%/20%), and halt times (15
minutes) is appropriate; (4) the change implemented in Amendment 10 to
the Plan to Address Extraordinary Market Volatility (the ``Limit Up/
Limit Down Plan'' or ``LULD Plan'') did not likely have any negative
impact on MWCB functionality; and (5) no changes should be made to the
mechanism to prevent the market from halting shortly after the opening
of regular trading hours at 9:30 a.m.
In light of the foregoing conclusions, the Working Group also made
several recommendations, including that the Pilot Rules should be
permanent without any changes.\15\
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\15\ See id. at 46.
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Proposal To Extend the Operation of the Pilot Rules Pending the
Commission's Consideration of the New York Stock Exchange LLC's Filing
To Make the Pilot Rules Permanent
On July 16, 2021, the Exchange's affiliate, the New York Stock
Exchange (``NYSE''), proposed a rule change to make the Pilot Rules
permanent, consistent with the Working Group's recommendations.\16\ On
August 27, 2021, the Commission extended its time to consider the
proposed rule change to October 20, 2021.\17\ The Exchange now proposes
to extend the expiration date of the Pilot Rules to the end of business
on March 18, 2022.
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\16\ See Securities Exchange Act Release No. 92428 (July 16,
2021), 86 FR 38776 (July 22, 2021) (SR-NYSE-2021-40).
\17\ See Securities Exchange Act Release No. 92785A (August 27,
2021), 86 FR 50202 (September 7, 2021) (SR-NYSE-2021-40).
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\18\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\19\ 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 7.12 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 five months
would ensure the continued, uninterrupted operation of a consistent
mechanism to halt trading across the U.S. markets while the Commission
reviews the Exchange's proposed rule change to make the Pilot Rules
permanent.
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\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78f(b)(5).
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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 Pilot Rules should continue on a pilot basis because
they 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 Commission reviews
the Exchange's proposed rule change to make the Pilot Rules permanent.
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 solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \20\ and Rule 19b-4(f)(6) thereunder.\21\
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 prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the
[[Page 55896]]
proposed rule change has become effective pursuant to Section
19(b)(3)(A) of the Act and Rule 19b-4(f)(6)(iii) thereunder.
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\20\ 15 U.S.C. 78s(b)(3)(A)(iii).
\21\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \22\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\23\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange asked
that the Commission waive the 30-day operative delay so that the
proposal may become operative immediately upon filing. Extending the
pilot Rules' effectiveness to the close of business on March 18, 2022
will extend the protections provided by the Pilot Rules, which would
otherwise expire in less than 30 days. Waiver of the operative delay
would therefore permit uninterrupted continuation of the MWCB pilot
while the Commission reviews the Exchange's proposed rule change to
make the Pilot Rules permanent. Therefore, the Commission hereby waives
the 30-day operative delay and designates the proposed rule change as
operative upon filing.\24\
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\22\ 17 CFR 240.19b-4(f)(6).
\23\ 17 CFR 240.19b-4(f)(6)(iii).
\24\ 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).
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At any time within 60 days of the filing of such 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 under
Section 19(b)(2)(B) \25\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\25\ 15 U.S.C. 78s(b)(2)(B).
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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-NYSECHX-2021-14 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-NYSECHX-2021-14. 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 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-NYSECHX-2021-14 and should be submitted
on or before October 28, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-21870 Filed 10-6-21; 8:45 am]
BILLING CODE 8011-01-P
