Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Extend the Pilot Related to the Market Wide Circuit Breaker Until April 18, 2022, 16535-16538 [2022-06090]

Download as PDF Federal Register / Vol. 87, No. 56 / Wednesday, March 23, 2022 / Notices Section 1030, which governs the days the Exchange will be open for business.17 The Exchange believes that market participants would benefit from the increased clarity, thereby reducing potential confusion, and ensuring that market participants and investors can more easily navigate and understand the Exchange’s rules. For these reasons, the Exchange believes that the proposal is consistent with the Act. 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. The changes are designed to provide greater harmonization among similar rules and processes across the Exchange’s affiliated options exchanges, resulting in more efficient regulatory compliance for common members. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing 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)(iii) of the Act 18 and subparagraph (f)(6) of Rule 19b–4 thereunder.19 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings See supra note 12. 15 U.S.C. 78s(b)(3)(A)(iii). 19 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 Exchange has satisfied this requirement. jspears on DSK121TN23PROD with NOTICES1 17 18 VerDate Sep<11>2014 20:07 Mar 22, 2022 Jkt 256001 to determine whether the proposed rule 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: 16535 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2022–06098 Filed 3–22–22; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–94449; File No. SR–MEMX– 2022–04] 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– MRX–2022–03 on the subject line. Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Extend the Pilot Related to the Market Wide Circuit Breaker Until April 18, 2022 Paper Comments March 17, 2022. • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. 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 March 9, 2022, MEMX LLC (‘‘MEMX’’ 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 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. All submissions should refer to File Number SR–MRX–2022–03. 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–MRX–2022–03 and should be submitted on or before April 13, 2022. PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing with the Commission a proposed rule change to extend the pilot related to the marketwide circuit breaker in Rule 11.16 to the close of business on April 18, 2022. The text of the proposed rule change is provided in Exhibit 5. 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 17 CFR 200.30–3(a)(12). 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). 20 1 15 E:\FR\FM\23MRN1.SGM 23MRN1 16536 Federal Register / Vol. 87, No. 56 / Wednesday, March 23, 2022 / Notices 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 The Exchange proposes to extend the pilot related to the market-wide circuit breaker in Rule 11.16 to the close of business on April 18, 2022. jspears on DSK121TN23PROD with NOTICES1 Background The Market-Wide Circuit Breaker (‘‘MWCB’’) rules, which for the Exchange are contained in Exchange Rule 11.16, 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 11.16 (a)–(d)).5 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’’).6 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 5 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’’). 6 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). VerDate Sep<11>2014 20:07 Mar 22, 2022 Jkt 256001 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’’),7 including any extensions to the pilot period for the LULD Plan.8 In April 2019, the Commission approved an amendment to the LULD Plan for it to operate on a permanent, rather than pilot, basis.9 In conjunction with the proposal to make the LULD Plan permanent, all U.S. cash equity exchanges and FINRA filed to to untie the Pilot Rules’ effectiveness from that of the LULD Plan and to extend the Pilot Rules’ effectiveness to the close of business on October 18, 2019.10 On May 4, 2020, the Commission approved MEMX’s Form 1 Application to register as a national securities exchange with rules including, on a pilot basis expiring on October 18, 2020, the Pilot Rules.11 The Exchange subsequently amended Rule 11.16 to extend the Pilot Rules’ effectiveness for an additional year to the close of business on October 18, 2021,12 and once again to extend effectiveness until March 18, 2022.13 The Exchange now proposes to amend Rule 11.16 to extend the pilot to the close of business on April 18, 2022. This filing does not propose any substantive or additional changes to Rule 11.16. 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 7 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. 8 See, e.g., Securities Exchange Act Release Nos. 67090 (May 31, 2012), 77 FR 33531 (June 6, 2012) (SR–NYSE–2011–48) (Approval Order); and 68784 (January 31, 2013), 78 FR 8662 (February 6, 2013) (SR–NYSE–2013–10). 9 See Securities Exchange Act Release No. 85623 (April 11, 2019), 84 FR 16086 (April 17, 2019). 10 See, e.g., Securities Exchange Act Release No. 85560 (April 9, 2019), 84 FR 15247 (April 15, 2019) (SR–NYSE–2019–19). 11 See Securities Exchange Release No. 88806 (May 4, 2020), 85 FR 27451 (May 8, 2020). 12 See Securities Exchange Act Release No. 90159 (October 13, 2020), 85 FR 66373 (October 19, 2020) (SR–MEMX–2020–12). 13 See Securities Exchange Act Release No. 93362 (October 15, 2021), 86 FR 58364 (October 21, 2021) (SR–MEMX–2021–14). PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 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 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, 2020.14 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 14 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. E:\FR\FM\23MRN1.SGM 23MRN1 Federal Register / Vol. 87, No. 56 / Wednesday, March 23, 2022 / Notices built on the work of an MWCB Task Force. The Working Group submitted its study to the Commission on March 31, 2021 (the ‘‘Study’’).15 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.16 jspears on DSK121TN23PROD with NOTICES1 Proposal To Extend the Operation of the Pilot Rules Pending the Commission’s Consideration of the Exchange’s Filing To Make the Pilot Rules Permanent On July 16, 2021, NYSE proposed a rule change to make the Pilot Rules permanent, consistent with the Working Group’s recommendations.17 On August 27, 2021, the Commission extended its time to consider the proposed rule change to October 20, 2021.18 On September 30, 2021, the Commission initiated proceedings to determine 15 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. 16 See id. at 46. 17 See Securities Exchange Act Release No. 92428 (July 16, 2021), 86 FR 38776 (July 22, 2021) (SR– NYSE–2021–40). 18 See Securities Exchange Act Release No. 92785A (August 27, 2021), 86 FR 50202 (September 7, 2021) (SR–NYSE–2021–40). VerDate Sep<11>2014 20:07 Mar 22, 2022 Jkt 256001 whether to approve or disapprove the proposed rule changes.19 The Exchange now proposes to extend the expiration date of the Pilot Rules one month from the current expiration date, to the end of business on April 18, 2022. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,20 in general, and furthers the objectives of Section 6(b)(5) of the Act,21 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 11.16 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 month would ensure the continued, uninterrupted operation of a consistent mechanism to halt trading across the U.S. markets while the Commission reviews the 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 proposed rule change to make the Pilot Rules permanent. Further, the Exchange understands that FINRA and other national securities 19 See Securities Exchange Act Release No. 93212 (September 30, 2021), 86 FR 55066 (October 5, 2021) (SR–NYSE–2021–40). 20 15 U.S.C. 78f(b). 21 15 U.S.C. 78f(b)(5). PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 16537 exchanges have already filed or 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 The Exchange neither solicited nor received comments on 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 22 and Rule 19b–4(f)(6) thereunder.23 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 proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 24 and Rule 19b–4(f)(6)(iii) thereunder.25 A proposed rule change filed under Rule 19b–4(f)(6) 26 normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii),27 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 April 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 22 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). 24 15 U.S.C. 78s(b)(3)(A)(iii). 25 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4 requires a self-regulatory organization to give the Commission written notice of its intent to file a proposed rule change under that subsection at least five business days prior to the date of filing, or such shorter time as designated by the Commission. The Commission has waived this requirement. 26 17 CFR 240.19b–4(f)(6). 27 17 CFR 240.19b–4(f)(6)(iii). 23 17 E:\FR\FM\23MRN1.SGM 23MRN1 16538 Federal Register / Vol. 87, No. 56 / Wednesday, March 23, 2022 / Notices 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.28 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) 29 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: jspears on DSK121TN23PROD with NOTICES1 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– MEMX–2022–04 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–MEMX–2022–04. 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 28 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). 29 15 U.S.C. 78s(b)(2)(B). VerDate Sep<11>2014 20:07 Mar 22, 2022 Jkt 256001 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–MEMX–2022–04 and should be submitted on or before April 13, 2022. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.30 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2022–06090 Filed 3–22–22; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270–441, OMB Control No. 3235–0497] Submission for OMB Review; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736 Extension: Rule 15c3–4 Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (‘‘PRA’’), the Securities and Exchange Commission (‘‘Commission’’) has submitted to the Office of Management and Budget (‘‘OMB’’) a request for approval of extension of the previously approved collection of information provided for in Rule 15c3–4 (17 CFR. 240.15c3–4) (the ‘‘Rule’’) under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.). Rule 15c3–4 requires certain brokerdealers that are registered with the Commission as OTC derivatives dealers, or who compute their net capital charges under Appendix E to Rule 15c3–1 (17 CFR 240.15c3–1) (‘‘ANC firms’’), to establish, document, and maintain a system of internal risk management controls. In addition, security-based swap dealers (‘‘SBSDs’’) that are subject to Rule 18a–1 (17 CFR 240.18a–1) must comply with Rule 15c3–4 as if they were OTC derivatives dealers. The Rule sets forth the basic elements for an OTC derivatives dealer, an ANC firm, or an SBSD to consider and include when establishing, documenting, and reviewing its internal risk management control system, which is designed to, among other things, ensure the integrity of an OTC derivatives dealer’s, an ANC firm’s or an SBSD’s risk measurement, monitoring, and management process, to clarify accountability at the appropriate organizational level, and to define the permitted scope of the firm’s activities and level of risk. The Rule also requires that management of an OTC derivatives dealer, an ANC firm, or an SBSD must periodically review, in accordance with written procedures, the firm’s business activities for consistency with its risk management guidelines. The staff estimates that the average amount of time a new firm subject to Rule 15c3–4 will spend establishing and documenting its risk management control system is approximately 2,000 hours (666.666667 hours per year when annualized over three years) and that, on average, an existing firm subject to Rule 15c3–4 will spend approximately 200 hours each year to maintain (e.g., reviewing and updating) its risk management control system. Currently, five firms are registered with the Commission as OTC derivatives dealers, five as ANC firms, and one as an SBSD. The staff estimates that approximately two new additional entities may register as OTC derivatives dealers, one new entity may register as an ANC firm, and two new entities may register as SBSDs subject to the requirements of Rule 15c3–4 within the next three years. Thus, the estimated annual burden would be 2,200 hours for the eleven existing firms (five OTC derivatives dealers, five ANC firms, and one SBSD) currently required to comply with Rule 15c3–4 to maintain their risk management control systems,1 3,333 hours for the five new firms (two new OTC derivatives dealers, one new ANC firm, and two new SBSDs) to establish and document their risk management control systems,2 and 1,000 hours for the five new firms (two new OTC derivatives dealers, one new ANC firm, and two new SBSDs) to maintain their risk management control systems.3 Accordingly, the staff estimates the total hours × 11 firms) = 2200. hours/3 years) × 5 firms) = 3,333. 3 (200 hours × 5 firms) = 1000. 1 (200 2 ((2,000 30 17 PO 00000 CFR 200.30–3(a)(12). Frm 00086 Fmt 4703 Sfmt 4703 E:\FR\FM\23MRN1.SGM 23MRN1

Agencies

[Federal Register Volume 87, Number 56 (Wednesday, March 23, 2022)]
[Notices]
[Pages 16535-16538]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06090]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94449; File No. SR-MEMX-2022-04]


Self-Regulatory Organizations; MEMX LLC; Notice of Filing and 
Immediate Effectiveness of a Proposed Rule Change To Extend the Pilot 
Related to the Market Wide Circuit Breaker Until April 18, 2022

March 17, 2022.
    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 March 9, 2022, MEMX LLC (``MEMX'' 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 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).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing with the Commission a proposed rule change 
to extend the pilot related to the market-wide circuit breaker in Rule 
11.16 to the close of business on April 18, 2022. The text of the 
proposed rule change is provided in Exhibit 5.

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

[[Page 16536]]

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
    The Exchange proposes to extend the pilot related to the market-
wide circuit breaker in Rule 11.16 to the close of business on April 
18, 2022.
Background
    The Market-Wide Circuit Breaker (``MWCB'') rules, which for the 
Exchange are contained in Exchange Rule 11.16, 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 11.16 (a)-(d)).\5\ 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'').\6\ 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.
---------------------------------------------------------------------------

    \5\ 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'').
    \6\ 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).
---------------------------------------------------------------------------

    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''),\7\ including any extensions to the pilot period for the LULD 
Plan.\8\ In April 2019, the Commission approved an amendment to the 
LULD Plan for it to operate on a permanent, rather than pilot, 
basis.\9\ In conjunction with the proposal to make the LULD Plan 
permanent, all U.S. cash equity exchanges and FINRA filed to to untie 
the Pilot Rules' effectiveness from that of the LULD Plan and to extend 
the Pilot Rules' effectiveness to the close of business on October 18, 
2019.\10\ On May 4, 2020, the Commission approved MEMX's Form 1 
Application to register as a national securities exchange with rules 
including, on a pilot basis expiring on October 18, 2020, the Pilot 
Rules.\11\ The Exchange subsequently amended Rule 11.16 to extend the 
Pilot Rules' effectiveness for an additional year to the close of 
business on October 18, 2021,\12\ and once again to extend 
effectiveness until March 18, 2022.\13\
---------------------------------------------------------------------------

    \7\ 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.
    \8\ See, e.g., Securities Exchange Act Release Nos. 67090 (May 
31, 2012), 77 FR 33531 (June 6, 2012) (SR-NYSE-2011-48) (Approval 
Order); and 68784 (January 31, 2013), 78 FR 8662 (February 6, 2013) 
(SR-NYSE-2013-10).
    \9\ See Securities Exchange Act Release No. 85623 (April 11, 
2019), 84 FR 16086 (April 17, 2019).
    \10\ See, e.g., Securities Exchange Act Release No. 85560 (April 
9, 2019), 84 FR 15247 (April 15, 2019) (SR-NYSE-2019-19).
    \11\ See Securities Exchange Release No. 88806 (May 4, 2020), 85 
FR 27451 (May 8, 2020).
    \12\ See Securities Exchange Act Release No. 90159 (October 13, 
2020), 85 FR 66373 (October 19, 2020) (SR-MEMX-2020-12).
    \13\ See Securities Exchange Act Release No. 93362 (October 15, 
2021), 86 FR 58364 (October 21, 2021) (SR-MEMX-2021-14).
---------------------------------------------------------------------------

    The Exchange now proposes to amend Rule 11.16 to extend the pilot 
to the close of business on April 18, 2022. This filing does not 
propose any substantive or additional changes to Rule 11.16.
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 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.\14\
---------------------------------------------------------------------------

    \14\ 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.
---------------------------------------------------------------------------

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

[[Page 16537]]

built on the work of an MWCB Task Force.
    The Working Group submitted its study to the Commission on March 
31, 2021 (the ``Study'').\15\ 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.
---------------------------------------------------------------------------

    \15\ 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.
---------------------------------------------------------------------------

    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.\16\
---------------------------------------------------------------------------

    \16\ See id. at 46.
---------------------------------------------------------------------------

Proposal To Extend the Operation of the Pilot Rules Pending the 
Commission's Consideration of the Exchange's Filing To Make the Pilot 
Rules Permanent

    On July 16, 2021, NYSE proposed a rule change to make the Pilot 
Rules permanent, consistent with the Working Group's 
recommendations.\17\ On August 27, 2021, the Commission extended its 
time to consider the proposed rule change to October 20, 2021.\18\ On 
September 30, 2021, the Commission initiated proceedings to determine 
whether to approve or disapprove the proposed rule changes.\19\ The 
Exchange now proposes to extend the expiration date of the Pilot Rules 
one month from the current expiration date, to the end of business on 
April 18, 2022.
---------------------------------------------------------------------------

    \17\ See Securities Exchange Act Release No. 92428 (July 16, 
2021), 86 FR 38776 (July 22, 2021) (SR-NYSE-2021-40).
    \18\ See Securities Exchange Act Release No. 92785A (August 27, 
2021), 86 FR 50202 (September 7, 2021) (SR-NYSE-2021-40).
    \19\ See Securities Exchange Act Release No. 93212 (September 
30, 2021), 86 FR 55066 (October 5, 2021) (SR-NYSE-2021-40).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\20\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\21\ 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 11.16 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 month would 
ensure the continued, uninterrupted operation of a consistent mechanism 
to halt trading across the U.S. markets while the Commission reviews 
the proposed rule change to make the Pilot Rules permanent.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange also believes that the proposed rule change promotes 
just and equitable principles of trade in that it promotes transparency 
and uniformity across markets concerning when and how to halt trading 
in all stocks as a result of extraordinary market volatility. Based on 
the foregoing, the Exchange believes the benefits to market 
participants from 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 proposed rule change to make the Pilot Rules permanent.
    Further, the Exchange understands that FINRA and other national 
securities exchanges have already filed or 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

    The Exchange neither solicited nor received comments on 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 \22\ and Rule 19b-4(f)(6) thereunder.\23\ 
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 proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \24\ and Rule 19b-
4(f)(6)(iii) thereunder.\25\
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \23\ 17 CFR 240.19b-4(f)(6).
    \24\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \25\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4 requires a 
self-regulatory organization to give the Commission written notice 
of its intent to file a proposed rule change under that subsection 
at least five business days prior to the date of filing, or such 
shorter time as designated by the Commission. The Commission has 
waived this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \26\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\27\ 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 April 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

[[Page 16538]]

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.\28\
---------------------------------------------------------------------------

    \26\ 17 CFR 240.19b-4(f)(6).
    \27\ 17 CFR 240.19b-4(f)(6)(iii).
    \28\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of 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) \29\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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-MEMX-2022-04 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-MEMX-2022-04. 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-MEMX-2022-04 and should be submitted on 
or before April 13, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
---------------------------------------------------------------------------

    \30\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-06090 Filed 3-22-22; 8:45 am]
BILLING CODE 8011-01-P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.