Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Extend the Pilot Related to the Market-Wide Circuit Breaker in Rule 11.18, 58342-58345 [2021-22938]
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58342
Federal Register / Vol. 86, No. 201 / Thursday, October 21, 2021 / Notices
permits householding of all
prospectuses by an issuer, underwriter,
or dealer relying on the rule if, in
addition to the other conditions set forth
in the rule, the issuer, underwriter, or
dealer has obtained from each investor
written or implied consent to
householding.2 The rule requires
issuers, underwriters, or dealers that
wish to household prospectuses with
implied consent to send a notice to each
investor stating that the investors in the
household will receive one prospectus
in the future unless the investors
provide contrary instructions. In
addition, at least once a year, issuers,
underwriters, or dealers relying on rule
154 for the householding of
prospectuses relating to open-end
management investment companies that
are registered under the Investment
Company Act of 1940 (‘‘mutual funds’’)
and each series thereof must explain to
investors who have provided written or
implied consent how they can revoke
their consent.3 Preparing and sending
the notice and the annual explanation of
the right to revoke are collections of
information.
The rule allows issuers, underwriters,
or dealers to household prospectuses if
certain conditions are met. Among the
conditions with which a person relying
on the rule must comply are providing
notice to each investor that only one
prospectus will be sent to the household
and, in the case of issuers that are
mutual funds and any series thereof,
providing to each investor who consents
to householding an annual explanation
of the right to revoke consent to the
delivery of a single prospectus to
multiple investors sharing an address.
The purpose of the notice and annual
explanation requirements of the rule is
to ensure that investors who wish to
receive individual copies of
prospectuses are able to do so.
Although rule 154 is not limited to
mutual funds, the Commission believes
that it is used mainly by mutual funds
and by broker-dealers that deliver
prospectuses for mutual funds. The
Commission is unable to estimate the
number of issuers other than mutual
funds that rely on the rule.
The Commission estimates that, as of
June 30, 2021, there are approximately
13,182 mutual fund series registered on
Form N–1A, approximately 1,279 of
which are directly sold and therefore
deliver their own prospectuses. Of
2 Rule 154 permits the householding of
prospectuses that are delivered electronically to
investors only if delivery is made to a shared
electronic address and the investors give written
consent to householding. Implied consent is not
permitted in such a situation. See rule 154(b)(4).
3 See Rule 154(c).
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these, the Commission estimates that
approximately half (640 mutual fund
series): (i) Do not send the implied
consent notice requirement because
they obtain affirmative written consent
to household prospectuses in the fund’s
account opening documentation; or (ii)
do not take advantage of the
householding provision because of
electronic delivery options which lessen
the economic and operational benefits
of rule 154 when compared with the
costs of compliance. Therefore, the
Commission estimates that each of the
640 directly sold mutual fund series
will spend an average of 20 hours per
year complying with the notice
requirement of the rule, for a total of
12,800 burden hours. In addition, of the
approximately 1,279 mutual fund series
that are directly sold, the Commission
estimates that approximately 75% (or
960) will each spend 1 hour complying
with the annual explanation of the right
to revoke requirement of the rule, for a
total of 960 hours.
The Commission estimates that, as of
December 31, 2020, there were
approximately 462 broker-dealers that
have customer accounts with mutual
funds, and therefore may be required to
deliver mutual fund prospectuses. The
Commission estimates that each affected
broker-dealer will spend, on average, 20
hours complying with the notice
requirement of the rule, for a total of
9,240 hours. In addition, each brokerdealer will also spend one hour
complying with the annual explanation
of the right to revoke requirement, for a
total of 462 hours. Therefore, the total
number of respondents for rule 154 is
1,422 (960 4 mutual fund series plus 462
broker-dealers), and the estimated total
hour burden is approximately 23,462
hours (13,760 hours for mutual fund
series, plus 9,702 hours for brokerdealers).
The estimate of average burden hours
is made solely for the purposes of the
Paperwork Reduction Act, and is not
derived from a comprehensive or even
a representative survey or study of the
costs of Commission rules and forms.
An agency may not conduct or sponsor,
and a person is not required to respond
to a collection of information unless it
displays a currently valid OMB control
number.
Written comments are invited on: (a)
Whether the collections of information
are necessary for the proper
performance of the functions of the
Commission, including whether the
4 The Commission estimates that 640 mutual
funds prepare both the implied consent notice and
the annual explanation of the right to revoke
consent + 320 mutual funds that prepare only the
annual explanation of the right to revoke.
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information has practical utility; (b) the
accuracy of the Commission’s estimate
of the burden of the collections of
information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collections
of information on respondents,
including through the use of automated
collection techniques or other forms of
information technology. Consideration
will be given to comments and
suggestions submitted in writing within
60 days of this publication.
Please direct your written comments
to David Bottom, Director/Chief
Information Officer, Securities and
Exchange Commission, C/O Cynthia
Roscoe 100 F Street NE, Washington, DC
20549; or send an email to: PRA_
Mailbox@sec.gov.
Dated: October 15, 2021.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–22898 Filed 10–20–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93365; File No. SR–
CboeBZX–2021–071]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Extend the
Pilot Related to the Market-Wide
Circuit Breaker in Rule 11.18
October 15, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
14, 2021, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) 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 Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 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).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17
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Federal Register / Vol. 86, No. 201 / Thursday, October 21, 2021 / Notices
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe BZX Exchange, Inc. (‘‘BZX’’ or
the ‘‘Exchange’’) is filing with the
Securities and Exchange Commission
(the ‘‘Commission’’) a proposal to
extend the pilot related to the marketwide circuit breaker in Rule 11.18. The
text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
equities/regulation/rule_filings/bzx/), at
the Exchange’s Office of the Secretary,
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.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
BZX Rules 11.18(a) through (d), (f)
and (g) describe the 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 was
approved by the Commission to operate
on a pilot basis, 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’’),5
including any extensions to the pilot
period for the LULD Plan. In April 2019,
the 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
5 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.
6 See Securities Exchange Act Release No. 85623
(April 11, 2019), 84 FR 16086 (April 17, 2019).
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Exchange amended Rule 11.18 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 amended Rule 11.18 to
extend the pilot’s effectiveness for an
additional year to the close of business
on October 18, 2020,8 and again to the
close of business on October 18, 2021.9
The Exchange now proposes to amend
Rule 11.18 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 11.18.
The market-wide circuit breaker
under Rule 11.18 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.10 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 11.18, 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
7 See Securities Exchange Act Release No. 85689
(April 18, 2019), 84 FR 17217 (April 24, 2019) (SR–
CboeBZX–2019–028).
8 See Securities Exchange Act Release No. 87336
(October 17, 2019), 84 FR 56868 (October 23, 2019)
(SR–CboeBZX–2019–088).
9 See Securities Exchange Act Release No. 90126
(October 8, 2020), 85 FR 65119 (October 14, 2020)
(SR–CboeBZX–2020–074).
10 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’’).
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58343
any time during the trading day, would
halt market-wide trading for the
remainder of the trading day.
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. 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
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Federal Register / Vol. 86, No. 201 / Thursday, October 21, 2021 / Notices
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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’’).11 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 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.12
The SROs have since worked on a
proposed a rule change to make the
Pilot Rules permanent, consistent with
the Working Group’s recommendations.
New York Stock Exchange (‘‘NYSE’’)
filed such proposed rule change on July
16, 2021.13 On August 27, 2021, the
Commission extended its time to
consider the proposed rule change to
October 20, 2021.14 The Exchange now
11 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_
MarketWide_Circuit_Breaker_Working_Group.pdf.
12 See id. at 46.
13 See Securities Exchange Act Release No. 92428
(July 16, 2021), 86 FR 38776 (July 22, 2021) (SR–
NYSE–2021–40).
14 See Securities Exchange Act Release No.
92785A (August 27, 2021), 86 FR 50202 (September
7, 2021) (SR–NYSE–2021–40).
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proposes to extend the expiration date
of the Pilot Rules to the end of business
on March 18, 2022.
change will help to ensure consistency
across market centers without
implicating any competitive issues.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,15 in general, and furthers the
objectives of Section 6(b)(5) of the Act,16
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 11.18 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
Exchange and the other SROs work 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 the MWCB under Rule
11.18 should continue on a pilot basis
because the MWCB will promote fair
and orderly markets, and protect
investors and the public interest.
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 on the proposed
rule change.
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 finalize their proposals
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 following
Commission approval of the NYSE
proposal. Thus, the proposed rule
15 15
16 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
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 17 and Rule 19b–
4(f)(6) 18 thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) 19 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),20 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 NYSE’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.21
At any time within 60 days of the
filing of the proposed rule change, the
17 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Commission has waived this
requirement.
19 17 CFR 240.19b–4(f)(6).
20 17 CFR 240.19b–4(f)(6)(iii).
21 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).
18 17
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Federal Register / Vol. 86, No. 201 / Thursday, October 21, 2021 / Notices
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) 22 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:
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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–
CboeBZX–2021–071 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–CboeBZX–2021–071. 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;
22 15
U.S.C. 78s(b)(2)(B).
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17:35 Oct 20, 2021
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the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
CboeBZX–2021–071 and should be
submitted on or before November 12,
2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–22938 Filed 10–20–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93356; File No. SR–
NYSEAMER–2021–41]
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Extend the Current
Pilot Program Related to Rule 7.10E
October 15, 2021.
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 October
5, 2021, NYSE American LLC (‘‘NYSE
American’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘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
current pilot program related to Rule
7.10E (Clearly Erroneous Executions) to
the close of business on April 20, 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.
23 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.
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58345
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 purpose of the proposed rule
change is to extend the current pilot
program related to Rule 7.10E (Clearly
Erroneous Executions) to the close of
business on April 20, 2022. The pilot
program is currently due to expire on
October 20, 2021.
On September 10, 2010, the
Commission approved, on a pilot basis,
changes to Rule 7.10E that, among other
things: (i) Provided for uniform
treatment of clearly erroneous execution
reviews in multi-stock events involving
twenty or more securities; and (ii)
reduced the ability of the Exchange to
deviate from the objective standards set
forth in the rule.4 In 2013, the Exchange
adopted a provision designed to address
the operation of the Plan.5 Finally, in
2014, the Exchange adopted two
additional provisions providing that: (i)
A series of transactions in a particular
security on one or more trading days
may be viewed as one event if all such
transactions were effected based on the
same fundamentally incorrect or grossly
misinterpreted issuance information
resulting in a severe valuation error for
all such transactions; and (ii) in the
event of any disruption or malfunction
in the operation of the electronic
communications and trading facilities of
an Exchange, another SRO, or
responsible single plan processor in
connection with the transmittal or
receipt of a trading halt, an Officer,
acting on his or her own motion, shall
nullify any transaction that occurs after
a trading halt has been declared by the
primary listing market for a security and
4 See Securities Exchange Act Release No. 62886
(Sept. 10, 2010), 75 FR 56613 (Sept. 16, 2010) (SR–
NYSEAmer–2010–60).
5 See Securities Exchange Act Release No. 68801
(Feb. 1, 2013), 78 FR 8630 (Feb. 6, 2013) (SR–
NYSEMKT–2013–11).
E:\FR\FM\21OCN1.SGM
21OCN1
]]>Agencies
[Federal Register Volume 86, Number 201 (Thursday, October 21, 2021)]
[Notices]
[Pages 58342-58345]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-22938]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93365; File No. SR-CboeBZX-2021-071]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Extend
the Pilot Related to the Market-Wide Circuit Breaker in Rule 11.18
October 15, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on October 14, 2021, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') 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 Exchange. The Exchange
filed the proposal as a ``non-controversial'' proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ 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\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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[[Page 58343]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (the ``Commission'') a
proposal to extend the pilot related to the market-wide circuit breaker
in Rule 11.18. The text of the proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (https://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, 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
BZX Rules 11.18(a) through (d), (f) and (g) describe the
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 was approved by
the Commission to operate on a pilot basis, 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''),\5\ including any extensions to the pilot period for the LULD
Plan. In April 2019, the 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 11.18 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 amended Rule
11.18 to extend the pilot's effectiveness for an additional year to the
close of business on October 18, 2020,\8\ and again to the close of
business on October 18, 2021.\9\ The Exchange now proposes to amend
Rule 11.18 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 11.18.
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\5\ 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.
\6\ See Securities Exchange Act Release No. 85623 (April 11,
2019), 84 FR 16086 (April 17, 2019).
\7\ See Securities Exchange Act Release No. 85689 (April 18,
2019), 84 FR 17217 (April 24, 2019) (SR-CboeBZX-2019-028).
\8\ See Securities Exchange Act Release No. 87336 (October 17,
2019), 84 FR 56868 (October 23, 2019) (SR-CboeBZX-2019-088).
\9\ See Securities Exchange Act Release No. 90126 (October 8,
2020), 85 FR 65119 (October 14, 2020) (SR-CboeBZX-2020-074).
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The market-wide circuit breaker under Rule 11.18 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.\10\
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.
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\10\ 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'').
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Pursuant to Rule 11.18, 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.
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. 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
[[Page 58344]]
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'').\11\ 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 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.\12\
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\11\ 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_MarketWide_Circuit_Breaker_Working_Group.pdf.
\12\ See id. at 46.
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The SROs have since worked on a proposed a rule change to make the
Pilot Rules permanent, consistent with the Working Group's
recommendations. New York Stock Exchange (``NYSE'') filed such proposed
rule change on July 16, 2021.\13\ On August 27, 2021, the Commission
extended its time to consider the proposed rule change to October 20,
2021.\14\ 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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\13\ See Securities Exchange Act Release No. 92428 (July 16,
2021), 86 FR 38776 (July 22, 2021) (SR-NYSE-2021-40).
\14\ 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,\15\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\16\ 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 11.18 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 Exchange
and the other SROs work to make the Pilot Rules permanent.
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\15\ 15 U.S.C. 78f(b).
\16\ 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 the MWCB under Rule 11.18 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 finalize their proposals 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 following Commission
approval of the NYSE proposal. 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 on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
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 \17\ and Rule 19b-4(f)(6) \18\ thereunder.
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Commission has waived this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\20\ 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 NYSE'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.\21\
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\19\ 17 CFR 240.19b-4(f)(6).
\20\ 17 CFR 240.19b-4(f)(6)(iii).
\21\ 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 the proposed rule
change, the
[[Page 58345]]
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) \22\ of the Act to determine whether the proposed rule
change should be approved or disapproved.
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\22\ 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-CboeBZX-2021-071 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-CboeBZX-2021-071. 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; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-CboeBZX-2021-071 and should
be submitted on or before November 12, 2021.
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\23\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-22938 Filed 10-20-21; 8:45 am]
BILLING CODE 8011-01-P
