Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend IEX Rule 11.270 (Cleary Erroneous Executions), 59478-59484 [2022-21194]
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Federal Register / Vol. 87, No. 189 / Friday, September 30, 2022 / Notices
hours × $455 per hour of attorney
time).6
These burden hour estimates are
based upon the Commission staff’s
experience and discussions with the
fund industry. The estimates of average
burden hours are made solely for the
purposes of the Paperwork Reduction
Act. These estimates are not derived
from a comprehensive or even a
representative survey or study of the
costs of Commission rules.
Compliance with the collection of
information requirements of the rule is
mandatory and is necessary to comply
with the requirements of the rule in
general. Responses will not be kept
confidential. 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 control number.
The public may view background
documentation for this information
collection at the following website:
www.reginfo.gov. Find this particular
information collection by selecting
‘‘Currently under 30-day Review—Open
for Public Comments’’ or by using the
search function. Written comments and
recommendations for the proposed
information collection should be sent
within 30 days of publication of this
notice by October 31, 2022 to (i)
MBX.OMB.OIRA.SEC_desk_officer@
omb.eop.gov and (ii) David Bottom,
Director/Chief Information Officer,
Securities and Exchange Commission, c/
o John Pezzullo, 100 F Street NE,
Washington, DC 20549, or by sending an
email to: PRA_Mailbox@sec.gov.
Dated: September 26, 2022.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–21201 Filed 9–29–22; 8:45 am]
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BILLING CODE 8011–01–P
6 The Commission’s estimate concerning the wage
rate for attorney time is based on salary information
for the securities industry compiled by the
Securities Industry and Financial Markets
Association (‘‘SIFMA’’). The $455 per hour figure
for an Attorney is based on SIFMA’s Management
& Professional Earnings in the Securities Industry
2013, updated for 2022, modified by Commission
staff to account for an 1800-hour work-year and
inflation, and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead.
As discussed in footnote 5, since the last renewal,
we understand that the Investment Company
Institute has changed its methodology to enhance
the accuracy of how it estimates the number of
Canadian funds. The estimate used for this renewal
reflects this change in methodology and the hourly
burden has increased from the last renewal.
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–95909; File No. SR–IEX–
2022–07]
Self-Regulatory Organizations;
Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend IEX
Rule 11.270 (Cleary Erroneous
Executions)
September 26, 2022.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on
September 21, 2022, the Investors
Exchange LLC (‘‘IEX’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Pursuant to the provisions of Section
19(b)(1) under the Act,4 and Rule 19b–
4 thereunder,5 the Exchange is filing
with the Commission a proposed rule
change to amend IEX Rule 11.270
(Clearly Erroneous Executions). IEX has
designated this rule change as ‘‘noncontroversial’’ under Section 19(b)(3)(A)
of the Act 6 and provided the
Commission with the notice required by
Rule 19b–4(f)(6) thereunder.7
The text of the proposed rule change
is available at the Exchange’s website at
www.iextrading.com, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of
and basis for the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of these statement may be examined at
the places specified in Item IV below.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
4 15 U.S.C. 78s(b)(1).
5 17 CFR 240.19b–4.
6 15 U.S.C. 78s(b)(3)(A).
7 17 CFR 240.19b–4.
2 15
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The self-regulatory organization 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 purpose of the proposed rule
change is to amend IEX Rule 11.270
(Clearly Erroneous Executions). On
September 1, 2022, the Commission
approved the proposal of Cboe BZX
Exchange, Inc. (‘‘BZX’’), to adopt on a
permanent basis its pilot program for
Clearly Erroneous Executions in BZX
Rule 11.17.8 Based on the BZX
approval, the Exchange proposes
substantially identical amendments to
IEX Rule 11.270 to: (1) limit the
circumstances where clearly erroneous
review would continue to be available
during Regular Market Hours,9 when the
National Market System Plan to Address
Extraordinary Market Volatility (the
‘‘LULD Plan’’) 10 already provides
similar protections for trades occurring
at prices that may be deemed erroneous.
The Exchange believes that these
changes are appropriate as the LULD
Plan has been approved by the
Commission on a permanent basis,11
and in light of amendments to the LULD
Plan, including changes to the
applicable Price Bands 12 around the
open and close of trading. Further, the
proposed rule change is based on and
substantively identical to the recentlyapproved changes to BZX Rule 11.17.
The only differences between this
proposed rule change and the BZX rule
change are: (i) IEX’s Clearly Erroneous
Execution rule is not a pilot program,13
and therefore does not need to be made
permanent; (ii) IEX and BZX use
different terms to define trading
sessions (i.e., the Exchange uses the
terms Regular Market Hours, Pre-Market
8 See Securities Exchange Act Release No. 95658
(September 1, 2022) (SRCboeBZX–2022–037) (‘‘BZX
approval’’).
9 The term ‘‘Regular Market Hours’’ or ‘‘Regular
Market Session’’ means the time between 9:30 a.m.
and 4:00 p.m. Eastern Time. See IEX Rule 1.160(gg).
10 See Securities Exchange Act Release No. 67091
(May 31, 2012), 77 FR 33498 (June 6, 2012).
11 See Securities Exchange Act Release No. 85623
(April 11, 2019), 84 FR 16086 (April 17, 2019). (File
No. 4–631) (‘‘Amendment Eighteen’’).
12 ‘‘Price Bands’’ refers to the term provided in
Section V of the LULD Plan.
13 IEX’s Clearly Erroneous Execution rule has
been effective, and not a pilot, since IEX’s approval
for registration as a national securities exchange in
2016. See Securities Exchange Act Release No.
78101 (June 17, 2016), 81 FR 41142 (June 23, 2016)
(File No. 10–222).
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Session,14 and Post-Market Session 15
whereas BZX uses the terms Early
Trading Session, Pre-Opening Session,
Regular Trading Hours and After Hours
Trading Session); and (iii) BZX’s clearly
erroneous rule proposal included the
deletion of different procedures for
conducting a clearly erroneous review
in initial public offering securities
traded pursuant to unlisted trading
privileges, while IEX’s Clearly
Erroneous Execution rule never
contained this now-deleted paragraph.
Current Clearly Erroneous Execution
Rule
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IEX Rule 11.270 currently provides
for uniform treatment of clearly
erroneous execution reviews in multistock events involving twenty or more
securities; and (ii) reduces the ability of
the Exchange to deviate from objective
standards set forth in the rule.16 The
rule further provides 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
the Exchange, another SRO, or
responsible single plan processor in
connection with the transmittal or
receipt of a trading halt, an Officer of
the Exchange or senior level employee
designee, 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 before such a trading
halt has officially ended according to
the primary listing market.17
When it originally approved the
clearly erroneous pilot of BZX and other
exchanges, the Commission explained
that the changes were ‘‘being
implemented on a pilot basis so that the
Commission and the Exchanges can
monitor the effects of the pilot on the
markets and investors, and consider
appropriate adjustments, as
necessary.’’ 18 The clearly erroneous
pilot was implemented following a
14 The term ‘‘Pre-Market Hours’’ or ‘‘Pre-Market
Session’’ shall mean the time between 8:00 a.m. and
9:30 a.m. Eastern Time. See IEX Rule 1.160(z).
15 The term ‘‘Post-Market Hours’’ or ‘‘Post-Market
Session’’ shall mean the time between 4:00 p.m.
and 5:00 p.m. Eastern Time. See IEX Rule 1.160(aa).
16 See IEX Rule 11.270.
17 See IEX Rule 11.270.
18 See e.g., Securities Exchange Act Release No.
62886 (September 10, 2010), 75 FR 56613
(September 16, 2010) (SR–BATS–2010–016).
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severe disruption in the U.S. equities
markets on May 6, 2010 (‘‘Flash Crash’’)
to ‘‘provide greater transparency and
certainty to the process of breaking
trades.’’ 19 IEX’s Clearly Erroneous
Execution rule limits the discretion of
the Exchange, other national securities
exchanges, and Financial Industry
Regulatory Authority (‘‘FINRA’’) to
deviate from the objective standards in
their respective rules when dealing with
potentially erroneous transactions.
Amendments to the Clearly Erroneous
Execution Rules
When the Participants to the LULD
Plan filed to introduce the Limit UpLimit Down (‘‘LULD’’) mechanism, itself
a response to the Flash Crash, a handful
of commenters noted the potential
discordance between the clearly
erroneous rules and the Price Bands
used to limit the price at which trades
would be permitted to be executed
pursuant to the LULD Plan. For
example, two commenters requested
that the clearly erroneous rules be
amended so the presumption would be
that trades executed within the Price
Bands would not be subject to review.20
While the Participants acknowledged
that the potential to prevent clearly
erroneous executions would be a ‘‘key
benefit’’ of the LULD Plan, the
Participants decided not to amend the
clearly erroneous rules at that time.21 In
the years since, industry feedback has
continued to reflect a desire to eliminate
the discordance between the LULD
mechanism and the clearly erroneous
rules so that market participants would
have more certainty that trades executed
with the Price Bands would stand. For
example, the Equity Market Structure
Advisory Committee (‘‘EMSAC’’) Market
Quality Subcommittee included in its
April 19, 2016, status report a
preliminary recommendation that
clearly erroneous rules be amended to
conform to the Price Bands—i.e., ‘‘any
trade that takes place within the band
would stand and not be broken and
trades outside the LU/LD bands would
be eligible for the consideration of the
Clearly Erroneous rules.’’ 22
19 Id.
20 See Securities Exchange Act Release No. 67091
(May 31, 2012), 77 FR 33498 (June 6, 2012) (File
No. 4–631) (n. 33505). An amendment to the LULD
Plan adding IEX as a Participant was filed with the
Commission on August 11, 2016, and became
effective upon filing pursuant to Rule 608(b)(3)(iii)
of the Act. See Securities Exchange Act Release No.
78703 (August 26, 2016), 81 FR 60397 (September
1, 2016) (File No. 4–631).
21 Id.
22 See EMSAC Market Quality Subcommittee,
Recommendations for Rulemaking on Issues of
Market Quality (November 29, 2016), available at
https://www.sec.gov/spotlight/emsac/emsacrecommendations-rulemakingmarket-quality.pdf.
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The Exchange believes that it is
important for there to be some
mechanism to ensure that investors’
orders are either not executed at clearly
erroneous prices or are subsequently
busted as needed to maintain a fair and
orderly market. At the same time, the
Exchange believes that the LULD Plan,
as amended, would provide sufficient
protection for trades executed during
Regular Market Hours. Indeed, the
LULD mechanism could be considered
to offer superior protection as it
prevents potentially erroneous trades
from being executed in the first
instance. After gaining experience with
the LULD Plan, the Exchange now
believes that it is appropriate to largely
eliminate clearly erroneous review
during Regular Market Hours when
Price Bands are in effect. Thus, as
proposed, trades executed within the
Price Bands would stand, barring one of
a handful of identified scenarios where
such review may still be necessary for
the protection of investors. The
Exchange believes that this change
would be beneficial for the U.S. equities
markets as it would ensure that trades
executed within the Price Bands are
subject to clearly erroneous review in
only rare circumstances, resulting in
greater certainty for Members and
investors.
The current LULD mechanism for
addressing extraordinary market
volatility is available solely during
Regular Market Hours. Thus, trades
during the Exchange’s Pre-Market
Session or Post-Market Session would
not benefit from this protection and
could ultimately be executed at prices
that may be considered erroneous. For
this reason, the Exchange proposes that
transactions executed during the PreMarket Session or Post-Market Session
would continue to be reviewable as
clearly erroneous. Continued
availability of the clearly erroneous rule
during pre- and post-market trading
sessions would therefore ensure that
investors have appropriate recourse
when erroneous trades are executed
outside of the hours where similar
protection can be provided by the LULD
Plan. Further, the proposal is designed
to eliminate the potential discordance
between clearly erroneous review and
LULD Price Bands, which does not exist
outside of Regular Trading Hours
because the LULD Plan is not in effect.
Thus, the Exchange believes that it is
appropriate to continue to allow
transactions to be eligible for clearly
erroneous review if executed outside of
Regular Market Hours.
On the other hand, there would be
much more limited potential to request
that a transaction be reviewed as
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potentially erroneous during Regular
Market Hours. With the introduction of
the LULD mechanism in 2013, clearly
erroneous trades are largely prevented
by the requirement that trades be
executed within the Price Bands. In
addition, in 2019, Amendment Eighteen
to the LULD Plan eliminated doublewide Price Bands: (1) at the Open, and
(2) at the Close for Tier 2 NMS Stocks
2 with a Reference Price above $3.00.23
Due to these changes, the Exchange
believes that the Price Bands would
provide sufficient protection to investor
orders such that clearly erroneous
review would no longer be necessary
during Regular Market Hours. As the
Participants to the LULD Plan explained
in Amendment Eighteen: ‘‘Broadly, the
Limit Up-Limit Down mechanism
prevents trades from happening at
prices where one party to the trade
would be considered ‘aggrieved,’ and
thus could be viewed as an appropriate
mechanism to supplant clearly
erroneous rules.’’ While the Participants
also expressed concern that the Price
Bands might be too wide to afford
meaningful protection around the open
and close of trading, amendments to the
LULD Plan adopted in Amendment
Eighteen narrowed Price Bands at these
times in a manner that the Exchange
believes is sufficient to ensure that
investors’ orders would be appropriately
protected in the absence of clearly
erroneous review. The Exchange
therefore believes that it is appropriate
to rely on the LULD mechanism as the
primary means of preventing clearly
erroneous trades during Regular Market
Hours.
At the same time, the Exchange is
cognizant that there may be limited
circumstances where clearly erroneous
review may continue to be appropriate,
even during Regular Market Hours.
Thus, the Exchange proposes to amend
its clearly erroneous rules to enumerate
the specific circumstances where such
review would remain available during
the course of Regular Market Hours, as
follows. All transactions that fall
outside of these specific enumerated
exceptions would be ineligible for
clearly erroneous review.
First, pursuant to proposed paragraph
(c)(1)(A), a transaction executed during
Regular Market Hours would continue
to be eligible for clearly erroneous
review if the transaction is not subject
to the LULD Plan. In such case, the
Numerical Guidelines set forth in
paragraph (c)(2) of Rule 11.270 will be
applicable to such NMS Stock. While
the majority of securities traded on the
Exchange would be subject to the LULD
23 See
Amendment Eighteen, supra, note 11.
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Plan, certain equity securities, such as
rights and warrants, are explicitly
excluded from the provisions of the
LULD Plan and would therefore be
eligible for clearly erroneous review
instead.24 Similarly, there are instances,
such as the opening auction on the
primary listing market,25 where
transactions are not ordinarily subject to
the LULD Plan, or circumstances where
a transaction that ordinarily would have
been subject to the LULD Plan is not—
due, for example, to some issue with
processing the Price Bands. These
transactions would continue to be
eligible for clearly erroneous review,
effectively ensuring that such review
remains available as a backstop when
the LULD Plan would not prevent
executions from occurring at erroneous
prices in the first instance.
Second, investors would also
continue to be able to request review of
transactions that resulted from certain
systems issues pursuant to proposed
paragraph (c)(1)(B). This limited
exception would help to ensure that
trades that should not have been
executed would continue to be subject
to clearly erroneous review.
Specifically, as proposed, transactions
executed during Regular Market Hours
would be eligible for clearly erroneous
review pursuant to proposed paragraph
(c)(1)(B) if the transaction is the result
of an Exchange technology or systems
issue that results in the transaction
occurring outside of the applicable
LULD Price Bands pursuant to Rule
11.270(g). A transaction subject to
review pursuant to this paragraph shall
be found to be clearly erroneous if the
price of the transaction to buy (sell) that
is the subject of the complaint is greater
than (less than) the Reference Price,
described in paragraph (d) of this Rule,
by an amount that equals or exceeds the
applicable Percentage Parameter defined
in Appendix A to the LULD Plan
(‘‘Percentage Parameters’’).
Third, the Exchange proposes to
narrowly allow for the review of
transactions during Regular Market
Hours when the Reference Price,
described in proposed paragraph (d), is
determined to be erroneous by an
Officer of the Exchange. Specifically, a
transaction executed during Regular
Market Hours would be eligible for
clearly erroneous review pursuant to
proposed paragraph (c)(1)(C) if the
transaction involved, in the case of (1)
a corporate action or new issue or (2) a
24 See
Appendix A of the LULD Plan.
initial Reference Price used to calculate
Price Bands is typically set by the Opening Price
on the primary listing market. See Section V(B) of
the LULD Plan.
25 The
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security that enters a Trading Pause
pursuant to the LULD Plan and resumes
trading without an auction,26 a
Reference Price that is determined to be
erroneous by an Officer of the Exchange
because it clearly deviated from the
theoretical value of the security. In such
circumstances, the Exchange may use a
different Reference Price pursuant to
proposed paragraph (d)(2) of this Rule.
A transaction subject to review pursuant
to this paragraph shall be found to be
clearly erroneous if the price of the
transaction to buy (sell) that is the
subject of the complaint is greater than
(less than) the new Reference Price,
described in paragraph (d)(2) below, by
an amount that equals or exceeds the
applicable Numerical Guidelines or
Percentage Parameters, as applicable
depending on whether the security is
subject to the LULD Plan. Specifically,
the Percentage Parameters would apply
to all transactions except those in an
NMS Stock that is not subject to the
LULD Plan, as described in paragraph
(c)(1)(A).
In the context of a corporate action or
a new issue, there may be instances
where the security’s Reference Price is
later determined by the Exchange to be
erroneous (e.g., because of a bad first
trade for a new issue), and subsequent
LULD Price Bands are calculated from
that incorrect Reference Price. In
determining whether the Reference
Price is erroneous in such instances, the
Exchange would generally look to see if
such Reference Price clearly deviated
from the theoretical value of the
security. In such cases, the Exchange
would consider a number of factors to
determine a new Reference Price that is
based on the theoretical value of the
security, including but not limited to,
the offering price of the new issue, the
ratio of the stock split applied to the
prior day’s closing price, the theoretical
price derived from the numerical terms
of the corporate action transaction such
as the exchange ratio and spin-off terms,
and the prior day’s closing price on the
OTC market for an OTC up-listing.27 In
the foregoing instances, the theoretical
value of the security would be used as
the new Reference Price when applying
the Percentage Parameters under the
LULD Plan (or Numerical Guidelines if
the transaction is in an NMS Stock that
26 The Exchange notes that the ‘‘resumption of
trading without an auction’’ provision of the
proposed rule text applies only to securities that
enter a Trading Pause pursuant to LULD and does
not apply to a corporate action or new issue.
27 Using transaction data reported to the FINRA
OTC Reporting Facility, FINRA disseminates via the
Trade Data Dissemination Service a final closing
report for OTC equity securities for each business
day that includes, among other things, each
security’s closing last sale price.
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is not subject to the LULD Plan) to
determine whether executions would be
cancelled as clearly erroneous.
The following illustrate the proposed
application of the rule in the context of
a corporate action or new issue:
Example 1
1. ABCD is subject to a corporate action,
1 for 10 reverse split, and the
previous day close was $5, but the
new theoretical price based on the
terms of the corporate action is $50.
2. The security opens at $5, with LULD
bands at $4.50 × $5.50
3. The bands will be calculated correctly
but the security is trading at an
erroneous price based on the
valuation of the remaining
outstanding shares
4. The theoretical price of $50 would be
used as the new Reference Price
when applying LULD bands to
determine if executions would be
cancelled as clearly erroneous
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Example 2
1. ABCD is subject to a corporate action,
the company is doing a spin off
where a new issue will be listed,
BCDE. ABCD trades at $50, and the
spinoff company is worth 1⁄5 of
ABCD
2. BCDE opens at $50 in the belief it is
the same company as ABCD
3. The theoretical values of the two
companies are ABCD $40 and BCDE
$10
4. BCDE would be deemed to have had
an incorrect Reference Price and the
theoretical value of $10 would be
used as the new Reference Price
when applying the LULD Bands to
determine if executions would be
cancelled as clearly erroneous
Example 3
1. ABCD is an uplift from the OTC
market, the prior days close on the
OTC market was $20
2. ABCD opens trading on the new
listing exchange at $0.20 due to an
erroneous order entry
3. The new Reference Price to determine
clearly erroneous executions would
be $20, the theoretical value of the
stock from where it was last traded
In the context of the rare situation in
which a security that enters a LULD
Trading Pause and resumes trading
without an auction (i.e., reopens with
quotations), the LULD Plan requires that
the new Reference Price in this instance
be established by using the mid-point of
the best bid and offer (‘‘BBO’’) on the
primary listing exchange at the
reopening time.28 This can result in a
28 See
LULD Plan, Section I(U) and V(C)(1).
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Reference Price and subsequent LULD
Price Band calculation that is
significantly away from the security’s
last traded or more relevant price,
especially in less liquid names. In such
rare instances, the Exchange is
proposing to use a different Reference
Price that is based on the prior LULD
Band that triggered the Trading Pause,
rather than the midpoint of the BBO.
The following example illustrates the
proposed application of the rule in the
context of a security that reopens
without an auction:
Example 4
1. ABCD stock is trading at $20, with
LULD Bands at $18 × $22
2. An incoming buy order causes the
stock to enter a Limit State Trading
Pause and then a Trading Pause at
$22
3. During the Trading Pause, the buy
order causing the Trading Pause is
cancelled
4. At the end of the 5-minute halt, there
is no crossed interest for an auction
to occur, thus trading would resume
on a quote
5. Upon resumption, a quote that was
available prior to the Trading Pause
(e.g., a quote was resting on the
book prior to the Trading Pause), is
widely set at $10 × $90
6. The Reference Price upon resumption
is $50 (mid-point of BBO)
7. The SIP will use this Reference Price
and publish LULD Bands of $45 ×
$55 (i.e., far away from BBO prior
to the halt)
8. The bands will be calculated
correctly, but the $50 Reference
Price is subsequently determined to
be incorrect as the price clearly
deviated from where it previously
traded prior to the Trading Pause
9. The new Reference Price would be
$22 (i.e., the last effective Price
Band that was in a limit state before
the Trading Pause), and the LULD
Bands would be applied to
determine if the executions should
be cancelled as clearly erroneous
In all of the foregoing situations,
investors would be left with no remedy
to request clearly erroneous review
without the proposed carveouts in
paragraph (c)(1)(C) because the trades
occurred within the LULD Price Bands
(albeit LULD Price Bands that were
calculated from an erroneous Reference
Price). The Exchange believes that
removing the current ability for the
Exchange to review in these narrow
circumstances would lessen investor
protections.
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Numerical Guidelines
Today, paragraph (c)(1) defines the
Numerical Guidelines that are used to
determine if a transaction is deemed
clearly erroneous during Regular Market
Hours, or during the Pre-Market Session
and Post-Market Session. With respect
to Regular Trading Hours, trades are
generally deemed clearly erroneous if
the execution price differs from the
Reference Price (i.e., last sale) by 10%
if the Reference Price is greater than
$0.00 up to and including $25.00; 5% if
the Reference Price is greater than
$25.00 up to and including $50.00; and
3% if the Reference Price is greater than
$50.00. Wider parameters are also used
for reviews for Multi-Stock Events, as
described in paragraph (c)(2). With
respect to transactions in Leveraged
ETF/ETN securities executed during
Regular Market Hours, Pre-Market
Session and Post-Market Session, trades
are deemed clearly erroneous if the
execution price exceeds the Regular
Market Hours Numerical Guidelines
multiplied by the leverage multiplier.
Given the changes described in this
proposed rule change, the Exchange
proposes to amend the way that the
Numerical Guidelines are calculated
during Regular Trading Hours in the
handful of instances where clearly
erroneous review would continue to be
available. Specifically, the Exchange
would base these Numerical Guidelines,
as applied to the circumstances
described in paragraph (c)(1)(A), on the
Percentage Parameters used to calculate
Price Bands, as set forth in Appendix A
to the LULD Plan. Without this change,
a transaction that would otherwise
stand if Price Bands were properly
applied to the transaction may end up
being subject to review and deemed
clearly erroneous solely due to the fact
that the Price Bands were not available
due to a systems or other issue. The
Exchange believes that it makes more
sense to instead base the Price Bands on
the same parameters as would otherwise
determine whether the trade would
have been allowed to execute within the
Price Bands. The Exchange also
proposes to modify the Numerical
Guidelines applicable to leveraged ETF/
ETN securities during Regular Trading
Hours. As noted above, the Numerical
Guidelines will only be applicable to
transactions eligible for review pursuant
paragraph (c)(1)(A) (i.e., to NMS Stocks
that are not subject to the LULD Plan).
As leveraged ETF/ETN securities are
subject to LULD and thus the Percentage
Parameters will be applicable during
Regular Market Hours, the Exchange
proposes to eliminate the Numerical
Guidelines for leveraged ETF/ETN
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securities traded during Regular Market
Hours. However, as no Price Bands are
available outside of Regular Market
Hours, the Exchange proposes to keep
the existing Numerical Guidelines in
place for transactions in leveraged ETF/
ETN securities that occur during the
Pre-Market Session and Post-Market
Session. The Exchange also proposes to
move existing paragraphs (c)(2), (c)(3),
and (d) to proposed paragraph (c)(2)(B),
(c)(2)(C), and (c)(2)(D), respectively, as
Multi-Stock Events, Additional Factors,
and Outlier Transactions will only be
subject to review if those NMS Stocks
are not subject to the LULD Plan or
occur during the Pre-Market Session
and Post-Market Session. Proposed
paragraph (c)(2)(B) is substantially
similar to existing paragraph (c)(2)
except for a change in rule reference to
paragraph (c)(1) has been updated to
paragraph (c)(1)(A). Further, given the
proposal to move existing paragraph
(c)(2) to paragraph (c)(2)(B), the
Exchange also proposes to amend
applicable rule references throughout
paragraph (c)(2)(A). Finally, the
Exchange proposes to update applicable
rule references in paragraph (c)(2)(D)
based on the above-described structural
changes to Rule 11.270.
Reference Price
As proposed, the Reference Price used
would continue to be based on last sale
and would be memorialized in proposed
paragraph (d). Continuing to use the last
sale as the Reference Price is necessary
for operational efficiency as it may not
be possible to perform a timely clearly
erroneous review if doing so required
computing the arithmetic mean price of
eligible reported transactions over the
past five minutes, as contemplated by
the LULD Plan. While this means that
there would still be some differences
between the Price Bands and the clearly
erroneous parameters, the Exchange
believes that this difference is
reasonable in light of the need to ensure
timely review if clearly erroneous rules
are invoked. The Exchange also
proposes to allow for an alternate
Reference Price to be used as prescribed
in proposed paragraphs (d)(1), (2), and
(3). Specifically, the Reference Price
may be a value other than the
consolidated last sale immediately prior
to the execution(s) under review (1) in
the case of Multi-Stock Events involving
twenty or more securities, as described
in paragraph (c)(2)(B) above, (2) in the
case of an erroneous Reference Price, as
described in paragraph (c)(1)(C) above,29
29 As discussed above, in the case of (c)(1)(C)(1),
the Exchange would consider a number of factors
to determine a new Reference Price that is based on
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or (3) in other circumstances, such as,
for example, relevant news impacting a
security or securities, periods of extreme
market volatility, sustained illiquidity,
or widespread system issues, where use
of a different Reference Price is
necessary for the maintenance of a fair
and orderly market and the protection of
investors and the public interest,
provided that such circumstances
occurred during Pre-Market Session or
Post-Market Session or the execution(s)
are eligible for review pursuant to
paragraph (c)(1)(A).
Appeals
As described more fully below, the
Exchange proposes to eliminate
paragraph (f), System Disruption or
Malfunction. Accordingly, the Exchange
proposes to remove from paragraph
(e)(2), Appeals, each reference to
paragraph (f), and include language
referencing proposed paragraph (g),
Transactions Occurring Outside of the
LULD Bands.
System Disruption or Malfunction
To conform with the structural
changes described above, the Exchange
now proposes to remove paragraph
11.270(f), System Disruption or
Malfunction, and proposes new
paragraph (c)(1)(B). Specifically, as
described in paragraph (c)(1)(B),
transactions occurring during Regular
Market Hours that are executed outside
of the LULD Price Bands due to an
Exchange technology or system issue,
may be subject to clearly erroneous
review pursuant to proposed paragraph
11.270(g). Proposed paragraph
11.270(c)(1)(B) further provides that a
transaction subject to review pursuant
to this paragraph shall be found to be
clearly erroneous if the price of the
transaction to buy (sell) that is the
subject of the complaint is greater than
(less than) the Reference Price,
described in paragraph (d), by an
amount that equals or exceeds the
applicable Percentage Parameter defined
in Appendix A to the LULD Plan.
The Exchange also proposes to
renumber paragraph (g) to paragraph (f)
based on the proposal to eliminate
existing paragraph (f).
the theoretical value of the security, including but
not limited to, the offering price of the new issue,
the ratio of the stock split applied to the prior day’s
closing price, the theoretical price derived from the
numerical terms of the corporate action transaction
such as the exchange ratio and spin-off terms, and
the prior day’s closing price on the OTC market for
an OTC up-listing. In the case of (c)(1)(C)(2), the
Reference Price will be the last effective Price Band
that was in a limit state before the Trading Pause.
PO 00000
Frm 00094
Fmt 4703
Sfmt 4703
Securities Subject to Limit Up-Limit
Down Plan
The Exchange proposes to renumber
paragraph (h) to paragraph (g) based on
the proposal to eliminate existing
paragraph (f), and to rename the
paragraph to provide for transactions
occurring outside of LULD Price Bands.
Given that proposed paragraph (c)(1)
defines the LULD Plan, the Exchange
also proposes to eliminate redundant
language from proposed paragraph (h).
Finally, the Exchange also proposes to
update references to the LULD Plan and
Price Bands so that they are uniform
throughout the Rule and to update rule
references throughout the paragraph to
conform to the structural changes to the
Rule described above.
Multi-Day Event and Trading Halts
The Exchange proposes to renumber
paragraphs (i) and (j) to paragraphs (h)
and (i), respectively, based on the
proposal to eliminate existing paragraph
(f). Additionally, the Exchange proposes
to modify the text of both paragraphs to
reference the Percentage Parameters as
well as the Numerical Guidelines.
Specifically, the existing text of
proposed paragraphs (h) and (i)
provides that any action taken in
connection with this paragraph will be
taken without regard to the Numerical
Guidelines set forth in this Rule. The
Exchange proposes to amend the rule
text to provide that any action taken in
connection with this paragraph will be
taken without regard to the Percentage
Parameters or Numerical Guidelines set
forth in this Rule, with the Percentage
Parameters being applicable to an NMS
Stock subject to the LULD Plan and the
Numerical Guidelines being applicable
to an NMS Stock not subject to the
LULD Plan.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
requirements of Section 6(b) of the
Act,30 in general, and Section 6(b)(5) of
the Act,31 in particular, in that it is
designed to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, to promote just and equitable
principles of trade, and, in general, to
protect investors and the public interest
and not to permit unfair discrimination
between customers, issuers, brokers, or
dealers.
As explained in the Purpose section,
the SROs that are part of the clearly
erroneous execution pilot believe that
the pilot has successfully ensured that
30 15
31 15
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U.S.C. 78f(b)(5).
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such reviews are conducted based on
objective and consistent standards
across SROs and has therefore afforded
greater certainty to Members and
investors. IEX agrees with such beliefs
with respect to IEX Rule 11.270. IEX
understands that the SROs that are part
of the clearly erroneous execution pilot
will file largely identical proposals to
make their respective clearly erroneous
pilots permanent. The Exchange
therefore believes that the proposed rule
change would promote transparency
and uniformity across markets
concerning review of transactions as
clearly erroneous and would also help
assure consistent results in handling
erroneous trades across the U.S. equities
markets, thus furthering fair and orderly
markets, the protection of investors, and
the public interest.
Similarly, the Exchange believes that
it is consistent with just and equitable
principles of trade to limit the
availability of clearly erroneous review
during Regular Market Hours. The
LULD Plan was approved by the
Commission to operate on a permanent
rather than pilot basis. As a number of
market participants have noted, the
LULD Plan provides protections that
ensure that investors’ orders are not
executed at prices that may be
considered clearly erroneous. Further,
amendments to the LULD Plan
approved in Amendment Eighteen serve
to ensure that the Price Bands
established by the LULD Plan are
‘‘appropriately tailored to prevent trades
that are so far from current market
prices that they would be viewed as
having been executed in error.’’ 32 Thus,
the Exchange believes that clearly
erroneous review should only be
necessary in very limited circumstances
during Regular Market Hours.
Specifically, such review would only be
necessary in instances where a
transaction was not subject to the LULD
Plan, or was the result of some form of
systems issue, as detailed in the purpose
section of this proposed rule change.
Additionally, in narrow circumstances
where the transaction was subject to the
LULD Plan, a clearly erroneous review
would be available in the case of (1) a
corporate action or new issue or (2) a
security that enters a Trading Pause
pursuant to LULD and resumes trading
without an auction, where the Reference
Price is determined to be erroneous by
an Officer of the Exchange because it
clearly deviated from the theoretical
value of the security. Thus, eliminating
clearly erroneous review in all other
instances will serve to increase certainty
for Members and investors that trades
32 See
Amendment Eighteen, supra note 11.
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18:52 Sep 29, 2022
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executed during Regular Market Hours
would typically stand and would not be
subject to review.
Given the fact that clearly erroneous
review would largely be limited to
transactions that were not subject to the
LULD Plan, the Exchange also believes
that it is necessary to change the
parameters used to determine whether a
trade is clearly erroneous. Specifically,
due to the different parameters currently
used for clearly erroneous review and
for determining Price Bands, it is
possible that a trade that would have
been permitted to execute within the
Price Bands would later be deemed
clearly erroneous, if, for example, a
systems issue prevented the
dissemination of the Price Bands. The
Exchange believes that this result is
contrary to the principle that trades
within the Price Bands should stand,
and has the potential to cause investor
confusion if trades that are properly
executed within the applicable
parameters described in the LULD Plan
are later deemed erroneous. By using
consistent parameters for clearly
erroneous reviews conducted during
Regular Market Hours and the
calculation of the Price Bands, the
Exchange believes that this change
would also serve to promote greater
certainty with regards to when trades
may be deemed erroneous.
Finally, the proposed rule changes
make organizational updates to the
Exchange’s Clearly Erroneous Execution
Rule as well as minor updates and
corrections to the Rule to improve
readability and clarity.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change would impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The proposal
would ensure the continued,
uninterrupted operation of harmonized
clearly erroneous execution rules across
the U.S. equities markets while also
amending those rules to provide greater
certainty to Members and investors that
trades will stand if executed during
Regular Market Hours where the LULD
Plan provides adequate protection
against trading at erroneous prices. The
Exchange understands that the SROs
that are part of the clearly erroneous
execution pilot will also file similar
proposals, the substance of which are
identical to this proposal. Thus, the
proposed rule change will help to
ensure consistency across SROs without
implicating any competitive issues.
PO 00000
Frm 00095
Fmt 4703
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59483
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
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 33 and Rule
19b–4(f)(6) thereunder.34 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 35 and
subparagraph (f)(6) of Rule 19b–4
thereunder.36
A proposed rule change filed under
Rule 19b–4(f)(6) 37 normally does not
become operative prior to 30 days after
the date of the filing. However, Rule
19b–4(f)(6)(iii) 38 permits the
Commission to designate a shorter time
if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
Commission to waive the 30-day
operative delay so that the proposed
rule change may become operative on
October 1, 2022. The Commission
believes that waiving the 30-day
operative delay is consistent with the
protection of investors and the public
interest, as it will allow the Exchange to
coordinate its implementation of the
revised clearly erroneous execution
rules with the other national securities
exchanges and FINRA, and will help
ensure consistency across the SROs.39
For this reason, the Commission hereby
waives the 30-day operative delay and
designates the proposed rule change as
operative upon filing.40
33 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
35 15 U.S.C. 78s(b)(3)(A)(iii).
36 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
37 17 CFR 240.19b–4(f)(6).
38 17 CFR 240.19b–4(f)(6)(iii).
39 See SR–CboeBZX–2022–37 (July 8, 2022).
40 For purposes only of waiving the 30-day
operative delay, the Commission has also
34 17
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At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
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 NOTICES
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–
IEX–2022–07 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–IEX–2022–07. 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 such
filing also will be available for
inspection and copying at the principal
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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18:52 Sep 29, 2022
Jkt 256001
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–IEX–2022–07 and should
be submitted on or before October 21,
2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.41
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–21194 Filed 9–29–22; 8:45 am]
by the Act of October 19, 1965 (79 Stat.
985; 22 U.S.C. 2459), E.O. 12047 of
March 27, 1978, the Foreign Affairs
Reform and Restructuring Act of 1998
(112 Stat. 2681, et seq.; 22 U.S.C. 6501
note, et seq.), Delegation of Authority
No. 234 of October 1, 1999, Delegation
of Authority No. 236–3 of August 28,
2000, and Delegation of Authority No.
523 of December 22, 2021.
Stacy E. White,
Deputy Assistant Secretary for Professional
and Cultural Exchanges, Bureau of
Educational and Cultural Affairs, Department
of State.
[FR Doc. 2022–21241 Filed 9–29–22; 8:45 am]
BILLING CODE 4710–05–P
BILLING CODE 8011–01–P
DEPARTMENT OF STATE
DEPARTMENT OF STATE
[Delegation of Authority No. 533]
[Public Notice 11875 ]
Notice of Determinations; 43
Additional Culturally Significant
Objects Being Imported for
Exhibition—Determinations: ‘‘Lives of
the Gods: Divinity in Maya Art’’
Exhibition
On July 27, 2021, notice was
published on page 40225 of the Federal
Register (volume 86, number 141) of
determinations pertaining to certain
objects to be included in an exhibition
entitled ‘‘Lives of the Gods: Divinity in
Maya Art.’’ Notice is hereby given of the
following determinations: I hereby
determine that 43 additional objects
being imported from abroad pursuant to
agreements with their foreign owners or
custodians for temporary display in the
aforesaid exhibition at The Metropolitan
Museum of Art, New York, New York;
the Kimbell Art Museum, Fort Worth,
Texas; and at possible additional
exhibitions or venues yet to be
determined, are of cultural significance,
and, further, that their temporary
exhibition or display within the United
States as aforementioned is in the
national interest. I have ordered that
Public Notice of these determinations be
published in the Federal Register.
FOR FURTHER INFORMATION CONTACT:
Elliot Chiu, Attorney-Adviser, Office of
the Legal Adviser, U.S. Department of
State (telephone: 202–632–6471; email:
section2459@state.gov). The mailing
address is U.S. Department of State, L/
PD, 2200 C Street NW (SA–5), Suite
5H03, Washington, DC 20522–0505.
SUPPLEMENTARY INFORMATION: The
foregoing determinations were made
pursuant to the authority vested in me
SUMMARY:
Delegation of Authority; Designation of
Other Incidents for Definition of
Qualifying Injury
By virtue of the authority vested in
the Secretary of State by the laws of the
United States, including the State
Department Basic Authorities Act, as
amended (22 U.S.C. 2651a), and § 901 of
the Further Consolidated
Appropriations Act, 2020 (Div. J, Title
IX, Pub. L. 116–94), as amended (the
Act), and codified in 22 U.S.C. 2680b,
I hereby delegate to the Under Secretary
of State for Management, to the extent
authorized by law, the authority to
designate ‘‘other incidents’’ for purposes
of the definition of ‘‘qualifying injury’’,
as provided in subsections (e)(4)(A)(ii)
and (B)(ii) and (i)(1)(d) of § 901, as
amended (22 U.S.C. 2680b(e)(4); 22
U.S.C. 2680b(i)(1)).
Any act, regulation, or procedure
subject to, or affected by, this delegation
shall be deemed to be such act,
regulation, or procedure as amended
from time to time.
The Secretary, the Deputy Secretary,
and the Deputy Secretary for
Management and Resources, may also
exercise the authorities delegated
herein. Nothing in this delegation shall
be deemed to supersede or otherwise
affect any other delegation of authority.
This document shall be published in
the Federal Register.
Dated: September 20, 2022.
Antony J. Blinken,
Secretary of State.
[FR Doc. 2022–21211 Filed 9–29–22; 8:45 am]
41 17
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]]>Agencies
[Federal Register Volume 87, Number 189 (Friday, September 30, 2022)]
[Notices]
[Pages 59478-59484]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-21194]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95909; File No. SR-IEX-2022-07]
Self-Regulatory Organizations; Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend IEX
Rule 11.270 (Cleary Erroneous Executions)
September 26, 2022.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on September 21, 2022, the Investors Exchange LLC (``IEX''
or the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Pursuant to the provisions of Section 19(b)(1) under the Act,\4\
and Rule 19b-4 thereunder,\5\ the Exchange is filing with the
Commission a proposed rule change to amend IEX Rule 11.270 (Clearly
Erroneous Executions). IEX has designated this rule change as ``non-
controversial'' under Section 19(b)(3)(A) of the Act \6\ and provided
the Commission with the notice required by Rule 19b-4(f)(6)
thereunder.\7\
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78s(b)(1).
\5\ 17 CFR 240.19b-4.
\6\ 15 U.S.C. 78s(b)(3)(A).
\7\ 17 CFR 240.19b-4.
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The text of the proposed rule change is available at the Exchange's
website at www.iextrading.com, at the principal office of the Exchange,
and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of and basis for the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statement may be examined at
the places specified in Item IV below. The self-regulatory organization
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 purpose of the proposed rule change is to amend IEX Rule 11.270
(Clearly Erroneous Executions). On September 1, 2022, the Commission
approved the proposal of Cboe BZX Exchange, Inc. (``BZX''), to adopt on
a permanent basis its pilot program for Clearly Erroneous Executions in
BZX Rule 11.17.\8\ Based on the BZX approval, the Exchange proposes
substantially identical amendments to IEX Rule 11.270 to: (1) limit the
circumstances where clearly erroneous review would continue to be
available during Regular Market Hours,\9\ when the National Market
System Plan to Address Extraordinary Market Volatility (the ``LULD
Plan'') \10\ already provides similar protections for trades occurring
at prices that may be deemed erroneous. The Exchange believes that
these changes are appropriate as the LULD Plan has been approved by the
Commission on a permanent basis,\11\ and in light of amendments to the
LULD Plan, including changes to the applicable Price Bands \12\ around
the open and close of trading. Further, the proposed rule change is
based on and substantively identical to the recently-approved changes
to BZX Rule 11.17. The only differences between this proposed rule
change and the BZX rule change are: (i) IEX's Clearly Erroneous
Execution rule is not a pilot program,\13\ and therefore does not need
to be made permanent; (ii) IEX and BZX use different terms to define
trading sessions (i.e., the Exchange uses the terms Regular Market
Hours, Pre-Market
[[Page 59479]]
Session,\14\ and Post-Market Session \15\ whereas BZX uses the terms
Early Trading Session, Pre-Opening Session, Regular Trading Hours and
After Hours Trading Session); and (iii) BZX's clearly erroneous rule
proposal included the deletion of different procedures for conducting a
clearly erroneous review in initial public offering securities traded
pursuant to unlisted trading privileges, while IEX's Clearly Erroneous
Execution rule never contained this now-deleted paragraph.
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 95658 (September 1,
2022) (SRCboeBZX-2022-037) (``BZX approval'').
\9\ The term ``Regular Market Hours'' or ``Regular Market
Session'' means the time between 9:30 a.m. and 4:00 p.m. Eastern
Time. See IEX Rule 1.160(gg).
\10\ See Securities Exchange Act Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012).
\11\ See Securities Exchange Act Release No. 85623 (April 11,
2019), 84 FR 16086 (April 17, 2019). (File No. 4-631) (``Amendment
Eighteen'').
\12\ ``Price Bands'' refers to the term provided in Section V of
the LULD Plan.
\13\ IEX's Clearly Erroneous Execution rule has been effective,
and not a pilot, since IEX's approval for registration as a national
securities exchange in 2016. See Securities Exchange Act Release No.
78101 (June 17, 2016), 81 FR 41142 (June 23, 2016) (File No. 10-
222).
\14\ The term ``Pre-Market Hours'' or ``Pre-Market Session''
shall mean the time between 8:00 a.m. and 9:30 a.m. Eastern Time.
See IEX Rule 1.160(z).
\15\ The term ``Post-Market Hours'' or ``Post-Market Session''
shall mean the time between 4:00 p.m. and 5:00 p.m. Eastern Time.
See IEX Rule 1.160(aa).
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Current Clearly Erroneous Execution Rule
IEX Rule 11.270 currently provides for uniform treatment of clearly
erroneous execution reviews in multi-stock events involving twenty or
more securities; and (ii) reduces the ability of the Exchange to
deviate from objective standards set forth in the rule.\16\ The rule
further provides 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 the Exchange, another SRO, or
responsible single plan processor in connection with the transmittal or
receipt of a trading halt, an Officer of the Exchange or senior level
employee designee, 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 before such a trading halt
has officially ended according to the primary listing market.\17\
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\16\ See IEX Rule 11.270.
\17\ See IEX Rule 11.270.
---------------------------------------------------------------------------
When it originally approved the clearly erroneous pilot of BZX and
other exchanges, the Commission explained that the changes were ``being
implemented on a pilot basis so that the Commission and the Exchanges
can monitor the effects of the pilot on the markets and investors, and
consider appropriate adjustments, as necessary.'' \18\ The clearly
erroneous pilot was implemented following a severe disruption in the
U.S. equities markets on May 6, 2010 (``Flash Crash'') to ``provide
greater transparency and certainty to the process of breaking trades.''
\19\ IEX's Clearly Erroneous Execution rule limits the discretion of
the Exchange, other national securities exchanges, and Financial
Industry Regulatory Authority (``FINRA'') to deviate from the objective
standards in their respective rules when dealing with potentially
erroneous transactions.
---------------------------------------------------------------------------
\18\ See e.g., Securities Exchange Act Release No. 62886
(September 10, 2010), 75 FR 56613 (September 16, 2010) (SR-BATS-
2010-016).
\19\ Id.
---------------------------------------------------------------------------
Amendments to the Clearly Erroneous Execution Rules
When the Participants to the LULD Plan filed to introduce the Limit
Up-Limit Down (``LULD'') mechanism, itself a response to the Flash
Crash, a handful of commenters noted the potential discordance between
the clearly erroneous rules and the Price Bands used to limit the price
at which trades would be permitted to be executed pursuant to the LULD
Plan. For example, two commenters requested that the clearly erroneous
rules be amended so the presumption would be that trades executed
within the Price Bands would not be subject to review.\20\ While the
Participants acknowledged that the potential to prevent clearly
erroneous executions would be a ``key benefit'' of the LULD Plan, the
Participants decided not to amend the clearly erroneous rules at that
time.\21\ In the years since, industry feedback has continued to
reflect a desire to eliminate the discordance between the LULD
mechanism and the clearly erroneous rules so that market participants
would have more certainty that trades executed with the Price Bands
would stand. For example, the Equity Market Structure Advisory
Committee (``EMSAC'') Market Quality Subcommittee included in its April
19, 2016, status report a preliminary recommendation that clearly
erroneous rules be amended to conform to the Price Bands--i.e., ``any
trade that takes place within the band would stand and not be broken
and trades outside the LU/LD bands would be eligible for the
consideration of the Clearly Erroneous rules.'' \22\
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\20\ See Securities Exchange Act Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (n. 33505). An
amendment to the LULD Plan adding IEX as a Participant was filed
with the Commission on August 11, 2016, and became effective upon
filing pursuant to Rule 608(b)(3)(iii) of the Act. See Securities
Exchange Act Release No. 78703 (August 26, 2016), 81 FR 60397
(September 1, 2016) (File No. 4-631).
\21\ Id.
\22\ See EMSAC Market Quality Subcommittee, Recommendations for
Rulemaking on Issues of Market Quality (November 29, 2016),
available at https://www.sec.gov/spotlight/emsac/emsac-recommendations-rulemakingmarket-quality.pdf.
---------------------------------------------------------------------------
The Exchange believes that it is important for there to be some
mechanism to ensure that investors' orders are either not executed at
clearly erroneous prices or are subsequently busted as needed to
maintain a fair and orderly market. At the same time, the Exchange
believes that the LULD Plan, as amended, would provide sufficient
protection for trades executed during Regular Market Hours. Indeed, the
LULD mechanism could be considered to offer superior protection as it
prevents potentially erroneous trades from being executed in the first
instance. After gaining experience with the LULD Plan, the Exchange now
believes that it is appropriate to largely eliminate clearly erroneous
review during Regular Market Hours when Price Bands are in effect.
Thus, as proposed, trades executed within the Price Bands would stand,
barring one of a handful of identified scenarios where such review may
still be necessary for the protection of investors. The Exchange
believes that this change would be beneficial for the U.S. equities
markets as it would ensure that trades executed within the Price Bands
are subject to clearly erroneous review in only rare circumstances,
resulting in greater certainty for Members and investors.
The current LULD mechanism for addressing extraordinary market
volatility is available solely during Regular Market Hours. Thus,
trades during the Exchange's Pre-Market Session or Post-Market Session
would not benefit from this protection and could ultimately be executed
at prices that may be considered erroneous. For this reason, the
Exchange proposes that transactions executed during the Pre-Market
Session or Post-Market Session would continue to be reviewable as
clearly erroneous. Continued availability of the clearly erroneous rule
during pre- and post-market trading sessions would therefore ensure
that investors have appropriate recourse when erroneous trades are
executed outside of the hours where similar protection can be provided
by the LULD Plan. Further, the proposal is designed to eliminate the
potential discordance between clearly erroneous review and LULD Price
Bands, which does not exist outside of Regular Trading Hours because
the LULD Plan is not in effect. Thus, the Exchange believes that it is
appropriate to continue to allow transactions to be eligible for
clearly erroneous review if executed outside of Regular Market Hours.
On the other hand, there would be much more limited potential to
request that a transaction be reviewed as
[[Page 59480]]
potentially erroneous during Regular Market Hours. With the
introduction of the LULD mechanism in 2013, clearly erroneous trades
are largely prevented by the requirement that trades be executed within
the Price Bands. In addition, in 2019, Amendment Eighteen to the LULD
Plan eliminated double-wide Price Bands: (1) at the Open, and (2) at
the Close for Tier 2 NMS Stocks 2 with a Reference Price above
$3.00.\23\ Due to these changes, the Exchange believes that the Price
Bands would provide sufficient protection to investor orders such that
clearly erroneous review would no longer be necessary during Regular
Market Hours. As the Participants to the LULD Plan explained in
Amendment Eighteen: ``Broadly, the Limit Up-Limit Down mechanism
prevents trades from happening at prices where one party to the trade
would be considered `aggrieved,' and thus could be viewed as an
appropriate mechanism to supplant clearly erroneous rules.'' While the
Participants also expressed concern that the Price Bands might be too
wide to afford meaningful protection around the open and close of
trading, amendments to the LULD Plan adopted in Amendment Eighteen
narrowed Price Bands at these times in a manner that the Exchange
believes is sufficient to ensure that investors' orders would be
appropriately protected in the absence of clearly erroneous review. The
Exchange therefore believes that it is appropriate to rely on the LULD
mechanism as the primary means of preventing clearly erroneous trades
during Regular Market Hours.
---------------------------------------------------------------------------
\23\ See Amendment Eighteen, supra, note 11.
---------------------------------------------------------------------------
At the same time, the Exchange is cognizant that there may be
limited circumstances where clearly erroneous review may continue to be
appropriate, even during Regular Market Hours. Thus, the Exchange
proposes to amend its clearly erroneous rules to enumerate the specific
circumstances where such review would remain available during the
course of Regular Market Hours, as follows. All transactions that fall
outside of these specific enumerated exceptions would be ineligible for
clearly erroneous review.
First, pursuant to proposed paragraph (c)(1)(A), a transaction
executed during Regular Market Hours would continue to be eligible for
clearly erroneous review if the transaction is not subject to the LULD
Plan. In such case, the Numerical Guidelines set forth in paragraph
(c)(2) of Rule 11.270 will be applicable to such NMS Stock. While the
majority of securities traded on the Exchange would be subject to the
LULD Plan, certain equity securities, such as rights and warrants, are
explicitly excluded from the provisions of the LULD Plan and would
therefore be eligible for clearly erroneous review instead.\24\
Similarly, there are instances, such as the opening auction on the
primary listing market,\25\ where transactions are not ordinarily
subject to the LULD Plan, or circumstances where a transaction that
ordinarily would have been subject to the LULD Plan is not--due, for
example, to some issue with processing the Price Bands. These
transactions would continue to be eligible for clearly erroneous
review, effectively ensuring that such review remains available as a
backstop when the LULD Plan would not prevent executions from occurring
at erroneous prices in the first instance.
---------------------------------------------------------------------------
\24\ See Appendix A of the LULD Plan.
\25\ The initial Reference Price used to calculate Price Bands
is typically set by the Opening Price on the primary listing market.
See Section V(B) of the LULD Plan.
---------------------------------------------------------------------------
Second, investors would also continue to be able to request review
of transactions that resulted from certain systems issues pursuant to
proposed paragraph (c)(1)(B). This limited exception would help to
ensure that trades that should not have been executed would continue to
be subject to clearly erroneous review. Specifically, as proposed,
transactions executed during Regular Market Hours would be eligible for
clearly erroneous review pursuant to proposed paragraph (c)(1)(B) if
the transaction is the result of an Exchange technology or systems
issue that results in the transaction occurring outside of the
applicable LULD Price Bands pursuant to Rule 11.270(g). A transaction
subject to review pursuant to this paragraph shall be found to be
clearly erroneous if the price of the transaction to buy (sell) that is
the subject of the complaint is greater than (less than) the Reference
Price, described in paragraph (d) of this Rule, by an amount that
equals or exceeds the applicable Percentage Parameter defined in
Appendix A to the LULD Plan (``Percentage Parameters'').
Third, the Exchange proposes to narrowly allow for the review of
transactions during Regular Market Hours when the Reference Price,
described in proposed paragraph (d), is determined to be erroneous by
an Officer of the Exchange. Specifically, a transaction executed during
Regular Market Hours would be eligible for clearly erroneous review
pursuant to proposed paragraph (c)(1)(C) if the transaction involved,
in the case of (1) a corporate action or new issue or (2) a security
that enters a Trading Pause pursuant to the LULD Plan and resumes
trading without an auction,\26\ a Reference Price that is determined to
be erroneous by an Officer of the Exchange because it clearly deviated
from the theoretical value of the security. In such circumstances, the
Exchange may use a different Reference Price pursuant to proposed
paragraph (d)(2) of this Rule. A transaction subject to review pursuant
to this paragraph shall be found to be clearly erroneous if the price
of the transaction to buy (sell) that is the subject of the complaint
is greater than (less than) the new Reference Price, described in
paragraph (d)(2) below, by an amount that equals or exceeds the
applicable Numerical Guidelines or Percentage Parameters, as applicable
depending on whether the security is subject to the LULD Plan.
Specifically, the Percentage Parameters would apply to all transactions
except those in an NMS Stock that is not subject to the LULD Plan, as
described in paragraph (c)(1)(A).
---------------------------------------------------------------------------
\26\ The Exchange notes that the ``resumption of trading without
an auction'' provision of the proposed rule text applies only to
securities that enter a Trading Pause pursuant to LULD and does not
apply to a corporate action or new issue.
---------------------------------------------------------------------------
In the context of a corporate action or a new issue, there may be
instances where the security's Reference Price is later determined by
the Exchange to be erroneous (e.g., because of a bad first trade for a
new issue), and subsequent LULD Price Bands are calculated from that
incorrect Reference Price. In determining whether the Reference Price
is erroneous in such instances, the Exchange would generally look to
see if such Reference Price clearly deviated from the theoretical value
of the security. In such cases, the Exchange would consider a number of
factors to determine a new Reference Price that is based on the
theoretical value of the security, including but not limited to, the
offering price of the new issue, the ratio of the stock split applied
to the prior day's closing price, the theoretical price derived from
the numerical terms of the corporate action transaction such as the
exchange ratio and spin-off terms, and the prior day's closing price on
the OTC market for an OTC up-listing.\27\ In the foregoing instances,
the theoretical value of the security would be used as the new
Reference Price when applying the Percentage Parameters under the LULD
Plan (or Numerical Guidelines if the transaction is in an NMS Stock
that
[[Page 59481]]
is not subject to the LULD Plan) to determine whether executions would
be cancelled as clearly erroneous.
---------------------------------------------------------------------------
\27\ Using transaction data reported to the FINRA OTC Reporting
Facility, FINRA disseminates via the Trade Data Dissemination
Service a final closing report for OTC equity securities for each
business day that includes, among other things, each security's
closing last sale price.
---------------------------------------------------------------------------
The following illustrate the proposed application of the rule in
the context of a corporate action or new issue:
Example 1
1. ABCD is subject to a corporate action, 1 for 10 reverse split, and
the previous day close was $5, but the new theoretical price based on
the terms of the corporate action is $50.
2. The security opens at $5, with LULD bands at $4.50 x $5.50
3. The bands will be calculated correctly but the security is trading
at an erroneous price based on the valuation of the remaining
outstanding shares
4. The theoretical price of $50 would be used as the new Reference
Price when applying LULD bands to determine if executions would be
cancelled as clearly erroneous
Example 2
1. ABCD is subject to a corporate action, the company is doing a spin
off where a new issue will be listed, BCDE. ABCD trades at $50, and the
spinoff company is worth \1/5\ of ABCD
2. BCDE opens at $50 in the belief it is the same company as ABCD
3. The theoretical values of the two companies are ABCD $40 and BCDE
$10
4. BCDE would be deemed to have had an incorrect Reference Price and
the theoretical value of $10 would be used as the new Reference Price
when applying the LULD Bands to determine if executions would be
cancelled as clearly erroneous
Example 3
1. ABCD is an uplift from the OTC market, the prior days close on the
OTC market was $20
2. ABCD opens trading on the new listing exchange at $0.20 due to an
erroneous order entry
3. The new Reference Price to determine clearly erroneous executions
would be $20, the theoretical value of the stock from where it was last
traded
In the context of the rare situation in which a security that
enters a LULD Trading Pause and resumes trading without an auction
(i.e., reopens with quotations), the LULD Plan requires that the new
Reference Price in this instance be established by using the mid-point
of the best bid and offer (``BBO'') on the primary listing exchange at
the reopening time.\28\ This can result in a Reference Price and
subsequent LULD Price Band calculation that is significantly away from
the security's last traded or more relevant price, especially in less
liquid names. In such rare instances, the Exchange is proposing to use
a different Reference Price that is based on the prior LULD Band that
triggered the Trading Pause, rather than the midpoint of the BBO.
---------------------------------------------------------------------------
\28\ See LULD Plan, Section I(U) and V(C)(1).
---------------------------------------------------------------------------
The following example illustrates the proposed application of the
rule in the context of a security that reopens without an auction:
Example 4
1. ABCD stock is trading at $20, with LULD Bands at $18 x $22
2. An incoming buy order causes the stock to enter a Limit State
Trading Pause and then a Trading Pause at $22
3. During the Trading Pause, the buy order causing the Trading Pause is
cancelled
4. At the end of the 5-minute halt, there is no crossed interest for an
auction to occur, thus trading would resume on a quote
5. Upon resumption, a quote that was available prior to the Trading
Pause (e.g., a quote was resting on the book prior to the Trading
Pause), is widely set at $10 x $90
6. The Reference Price upon resumption is $50 (mid-point of BBO)
7. The SIP will use this Reference Price and publish LULD Bands of $45
x $55 (i.e., far away from BBO prior to the halt)
8. The bands will be calculated correctly, but the $50 Reference Price
is subsequently determined to be incorrect as the price clearly
deviated from where it previously traded prior to the Trading Pause
9. The new Reference Price would be $22 (i.e., the last effective Price
Band that was in a limit state before the Trading Pause), and the LULD
Bands would be applied to determine if the executions should be
cancelled as clearly erroneous
In all of the foregoing situations, investors would be left with no
remedy to request clearly erroneous review without the proposed
carveouts in paragraph (c)(1)(C) because the trades occurred within the
LULD Price Bands (albeit LULD Price Bands that were calculated from an
erroneous Reference Price). The Exchange believes that removing the
current ability for the Exchange to review in these narrow
circumstances would lessen investor protections.
Numerical Guidelines
Today, paragraph (c)(1) defines the Numerical Guidelines that are
used to determine if a transaction is deemed clearly erroneous during
Regular Market Hours, or during the Pre-Market Session and Post-Market
Session. With respect to Regular Trading Hours, trades are generally
deemed clearly erroneous if the execution price differs from the
Reference Price (i.e., last sale) by 10% if the Reference Price is
greater than $0.00 up to and including $25.00; 5% if the Reference
Price is greater than $25.00 up to and including $50.00; and 3% if the
Reference Price is greater than $50.00. Wider parameters are also used
for reviews for Multi-Stock Events, as described in paragraph (c)(2).
With respect to transactions in Leveraged ETF/ETN securities executed
during Regular Market Hours, Pre-Market Session and Post-Market
Session, trades are deemed clearly erroneous if the execution price
exceeds the Regular Market Hours Numerical Guidelines multiplied by the
leverage multiplier.
Given the changes described in this proposed rule change, the
Exchange proposes to amend the way that the Numerical Guidelines are
calculated during Regular Trading Hours in the handful of instances
where clearly erroneous review would continue to be available.
Specifically, the Exchange would base these Numerical Guidelines, as
applied to the circumstances described in paragraph (c)(1)(A), on the
Percentage Parameters used to calculate Price Bands, as set forth in
Appendix A to the LULD Plan. Without this change, a transaction that
would otherwise stand if Price Bands were properly applied to the
transaction may end up being subject to review and deemed clearly
erroneous solely due to the fact that the Price Bands were not
available due to a systems or other issue. The Exchange believes that
it makes more sense to instead base the Price Bands on the same
parameters as would otherwise determine whether the trade would have
been allowed to execute within the Price Bands. The Exchange also
proposes to modify the Numerical Guidelines applicable to leveraged
ETF/ETN securities during Regular Trading Hours. As noted above, the
Numerical Guidelines will only be applicable to transactions eligible
for review pursuant paragraph (c)(1)(A) (i.e., to NMS Stocks that are
not subject to the LULD Plan). As leveraged ETF/ETN securities are
subject to LULD and thus the Percentage Parameters will be applicable
during Regular Market Hours, the Exchange proposes to eliminate the
Numerical Guidelines for leveraged ETF/ETN
[[Page 59482]]
securities traded during Regular Market Hours. However, as no Price
Bands are available outside of Regular Market Hours, the Exchange
proposes to keep the existing Numerical Guidelines in place for
transactions in leveraged ETF/ETN securities that occur during the Pre-
Market Session and Post-Market Session. The Exchange also proposes to
move existing paragraphs (c)(2), (c)(3), and (d) to proposed paragraph
(c)(2)(B), (c)(2)(C), and (c)(2)(D), respectively, as Multi-Stock
Events, Additional Factors, and Outlier Transactions will only be
subject to review if those NMS Stocks are not subject to the LULD Plan
or occur during the Pre-Market Session and Post-Market Session.
Proposed paragraph (c)(2)(B) is substantially similar to existing
paragraph (c)(2) except for a change in rule reference to paragraph
(c)(1) has been updated to paragraph (c)(1)(A). Further, given the
proposal to move existing paragraph (c)(2) to paragraph (c)(2)(B), the
Exchange also proposes to amend applicable rule references throughout
paragraph (c)(2)(A). Finally, the Exchange proposes to update
applicable rule references in paragraph (c)(2)(D) based on the above-
described structural changes to Rule 11.270.
Reference Price
As proposed, the Reference Price used would continue to be based on
last sale and would be memorialized in proposed paragraph (d).
Continuing to use the last sale as the Reference Price is necessary for
operational efficiency as it may not be possible to perform a timely
clearly erroneous review if doing so required computing the arithmetic
mean price of eligible reported transactions over the past five
minutes, as contemplated by the LULD Plan. While this means that there
would still be some differences between the Price Bands and the clearly
erroneous parameters, the Exchange believes that this difference is
reasonable in light of the need to ensure timely review if clearly
erroneous rules are invoked. The Exchange also proposes to allow for an
alternate Reference Price to be used as prescribed in proposed
paragraphs (d)(1), (2), and (3). Specifically, the Reference Price may
be a value other than the consolidated last sale immediately prior to
the execution(s) under review (1) in the case of Multi-Stock Events
involving twenty or more securities, as described in paragraph
(c)(2)(B) above, (2) in the case of an erroneous Reference Price, as
described in paragraph (c)(1)(C) above,\29\ or (3) in other
circumstances, such as, for example, relevant news impacting a security
or securities, periods of extreme market volatility, sustained
illiquidity, or widespread system issues, where use of a different
Reference Price is necessary for the maintenance of a fair and orderly
market and the protection of investors and the public interest,
provided that such circumstances occurred during Pre-Market Session or
Post-Market Session or the execution(s) are eligible for review
pursuant to paragraph (c)(1)(A).
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\29\ As discussed above, in the case of (c)(1)(C)(1), the
Exchange would consider a number of factors to determine a new
Reference Price that is based on the theoretical value of the
security, including but not limited to, the offering price of the
new issue, the ratio of the stock split applied to the prior day's
closing price, the theoretical price derived from the numerical
terms of the corporate action transaction such as the exchange ratio
and spin-off terms, and the prior day's closing price on the OTC
market for an OTC up-listing. In the case of (c)(1)(C)(2), the
Reference Price will be the last effective Price Band that was in a
limit state before the Trading Pause.
---------------------------------------------------------------------------
Appeals
As described more fully below, the Exchange proposes to eliminate
paragraph (f), System Disruption or Malfunction. Accordingly, the
Exchange proposes to remove from paragraph (e)(2), Appeals, each
reference to paragraph (f), and include language referencing proposed
paragraph (g), Transactions Occurring Outside of the LULD Bands.
System Disruption or Malfunction
To conform with the structural changes described above, the
Exchange now proposes to remove paragraph 11.270(f), System Disruption
or Malfunction, and proposes new paragraph (c)(1)(B). Specifically, as
described in paragraph (c)(1)(B), transactions occurring during Regular
Market Hours that are executed outside of the LULD Price Bands due to
an Exchange technology or system issue, may be subject to clearly
erroneous review pursuant to proposed paragraph 11.270(g). Proposed
paragraph 11.270(c)(1)(B) further provides that a transaction subject
to review pursuant to this paragraph shall be found to be clearly
erroneous if the price of the transaction to buy (sell) that is the
subject of the complaint is greater than (less than) the Reference
Price, described in paragraph (d), by an amount that equals or exceeds
the applicable Percentage Parameter defined in Appendix A to the LULD
Plan.
The Exchange also proposes to renumber paragraph (g) to paragraph
(f) based on the proposal to eliminate existing paragraph (f).
Securities Subject to Limit Up-Limit Down Plan
The Exchange proposes to renumber paragraph (h) to paragraph (g)
based on the proposal to eliminate existing paragraph (f), and to
rename the paragraph to provide for transactions occurring outside of
LULD Price Bands. Given that proposed paragraph (c)(1) defines the LULD
Plan, the Exchange also proposes to eliminate redundant language from
proposed paragraph (h). Finally, the Exchange also proposes to update
references to the LULD Plan and Price Bands so that they are uniform
throughout the Rule and to update rule references throughout the
paragraph to conform to the structural changes to the Rule described
above.
Multi-Day Event and Trading Halts
The Exchange proposes to renumber paragraphs (i) and (j) to
paragraphs (h) and (i), respectively, based on the proposal to
eliminate existing paragraph (f). Additionally, the Exchange proposes
to modify the text of both paragraphs to reference the Percentage
Parameters as well as the Numerical Guidelines. Specifically, the
existing text of proposed paragraphs (h) and (i) provides that any
action taken in connection with this paragraph will be taken without
regard to the Numerical Guidelines set forth in this Rule. The Exchange
proposes to amend the rule text to provide that any action taken in
connection with this paragraph will be taken without regard to the
Percentage Parameters or Numerical Guidelines set forth in this Rule,
with the Percentage Parameters being applicable to an NMS Stock subject
to the LULD Plan and the Numerical Guidelines being applicable to an
NMS Stock not subject to the LULD Plan.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the requirements of Section 6(b) of the Act,\30\ in general, and
Section 6(b)(5) of the Act,\31\ in particular, in that it is designed
to remove impediments to and perfect the mechanism of a free and open
market and a national market system, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest and not to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\30\ 15 U.S.C. 78f(b).
\31\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
As explained in the Purpose section, the SROs that are part of the
clearly erroneous execution pilot believe that the pilot has
successfully ensured that
[[Page 59483]]
such reviews are conducted based on objective and consistent standards
across SROs and has therefore afforded greater certainty to Members and
investors. IEX agrees with such beliefs with respect to IEX Rule
11.270. IEX understands that the SROs that are part of the clearly
erroneous execution pilot will file largely identical proposals to make
their respective clearly erroneous pilots permanent. The Exchange
therefore believes that the proposed rule change would promote
transparency and uniformity across markets concerning review of
transactions as clearly erroneous and would also help assure consistent
results in handling erroneous trades across the U.S. equities markets,
thus furthering fair and orderly markets, the protection of investors,
and the public interest.
Similarly, the Exchange believes that it is consistent with just
and equitable principles of trade to limit the availability of clearly
erroneous review during Regular Market Hours. The LULD Plan was
approved by the Commission to operate on a permanent rather than pilot
basis. As a number of market participants have noted, the LULD Plan
provides protections that ensure that investors' orders are not
executed at prices that may be considered clearly erroneous. Further,
amendments to the LULD Plan approved in Amendment Eighteen serve to
ensure that the Price Bands established by the LULD Plan are
``appropriately tailored to prevent trades that are so far from current
market prices that they would be viewed as having been executed in
error.'' \32\ Thus, the Exchange believes that clearly erroneous review
should only be necessary in very limited circumstances during Regular
Market Hours. Specifically, such review would only be necessary in
instances where a transaction was not subject to the LULD Plan, or was
the result of some form of systems issue, as detailed in the purpose
section of this proposed rule change. Additionally, in narrow
circumstances where the transaction was subject to the LULD Plan, a
clearly erroneous review would be available in the case of (1) a
corporate action or new issue or (2) a security that enters a Trading
Pause pursuant to LULD and resumes trading without an auction, where
the Reference Price is determined to be erroneous by an Officer of the
Exchange because it clearly deviated from the theoretical value of the
security. Thus, eliminating clearly erroneous review in all other
instances will serve to increase certainty for Members and investors
that trades executed during Regular Market Hours would typically stand
and would not be subject to review.
---------------------------------------------------------------------------
\32\ See Amendment Eighteen, supra note 11.
---------------------------------------------------------------------------
Given the fact that clearly erroneous review would largely be
limited to transactions that were not subject to the LULD Plan, the
Exchange also believes that it is necessary to change the parameters
used to determine whether a trade is clearly erroneous. Specifically,
due to the different parameters currently used for clearly erroneous
review and for determining Price Bands, it is possible that a trade
that would have been permitted to execute within the Price Bands would
later be deemed clearly erroneous, if, for example, a systems issue
prevented the dissemination of the Price Bands. The Exchange believes
that this result is contrary to the principle that trades within the
Price Bands should stand, and has the potential to cause investor
confusion if trades that are properly executed within the applicable
parameters described in the LULD Plan are later deemed erroneous. By
using consistent parameters for clearly erroneous reviews conducted
during Regular Market Hours and the calculation of the Price Bands, the
Exchange believes that this change would also serve to promote greater
certainty with regards to when trades may be deemed erroneous.
Finally, the proposed rule changes make organizational updates to
the Exchange's Clearly Erroneous Execution Rule as well as minor
updates and corrections to the Rule to improve readability and clarity.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposal would ensure
the continued, uninterrupted operation of harmonized clearly erroneous
execution rules across the U.S. equities markets while also amending
those rules to provide greater certainty to Members and investors that
trades will stand if executed during Regular Market Hours where the
LULD Plan provides adequate protection against trading at erroneous
prices. The Exchange understands that the SROs that are part of the
clearly erroneous execution pilot will also file similar proposals, the
substance of which are identical to this proposal. Thus, the proposed
rule change will help to ensure consistency across SROs without
implicating any competitive issues.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
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 \33\ and Rule 19b-4(f)(6) thereunder.\34\
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 \35\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\36\
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\33\ 15 U.S.C. 78s(b)(3)(A)(iii).
\34\ 17 CFR 240.19b-4(f)(6).
\35\ 15 U.S.C. 78s(b)(3)(A)(iii).
\36\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \37\ normally
does not become operative prior to 30 days after the date of the
filing. However, Rule 19b-4(f)(6)(iii) \38\ permits the Commission to
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposed
rule change may become operative on October 1, 2022. The Commission
believes that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest, as it will allow the
Exchange to coordinate its implementation of the revised clearly
erroneous execution rules with the other national securities exchanges
and FINRA, and will help ensure consistency across the SROs.\39\ For
this reason, the Commission hereby waives the 30-day operative delay
and designates the proposed rule change as operative upon filing.\40\
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\37\ 17 CFR 240.19b-4(f)(6).
\38\ 17 CFR 240.19b-4(f)(6)(iii).
\39\ See SR-CboeBZX-2022-37 (July 8, 2022).
\40\ 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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[[Page 59484]]
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-IEX-2022-07 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-IEX-2022-07. 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 such filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. 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-IEX-2022-07 and should be submitted on
or before October 21, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\41\
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\41\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-21194 Filed 9-29-22; 8:45 am]
BILLING CODE 8011-01-P
