Notice2021-21750
Self-Regulatory Organizations; New York Stock Exchange LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Adopt on a Permanent Basis the Pilot Program for Market-Wide Circuit Breakers in Rule 7.12
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 5, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 190 (Tuesday, October 5, 2021)</title>
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[Federal Register Volume 86, Number 190 (Tuesday, October 5, 2021)]
[Notices]
[Pages 55066-55067]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-21750]
[[Page 55066]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93212; File No. SR-NYSE-2021-40]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To Adopt on a Permanent Basis the Pilot Program
for Market-Wide Circuit Breakers in Rule 7.12
September 30, 2021.
I. Introduction
On July 2, 2021, New York Stock Exchange LLC (``NYSE'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposal to make its rules governing the operation of the Market-Wide
Circuit Breakers (``MWCB'') mechanism permanent. The proposed rule
change was published for comment in the Federal Register on July 22,
2021.\3\ On August 27, 2021, pursuant to Section 19(b)(2) of the
Act,\4\ the Commission designated a longer period within which to
either approve the proposed rule changes, disapprove the proposed rule
changes, or institute proceedings to determine whether to disapprove
the proposed changes.\5\ The Commission has received no comments on the
proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 92428 (July 16,
2021), 86 FR 38776 (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 92785A, 86 FR 50202
(September 7, 2021).
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This order institutes proceedings under Section 19(b)(2)(B) of the
Exchange Act \6\ to determine whether to approve or disapprove the
proposed rule changes.
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\6\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Changes
MWCBs are coordinated, cross-market trading halts designed to
operate during extreme market-wide declines to provide opportunities
for markets and market participants to assess market conditions and
systemic stress.\7\ Each cash equity exchange and options exchange has
rules that govern the operation of these MWCBs. These rules operate on
a pilot basis. The current pilot period was recently extended from
October 18, 2021 to March 18, 2022.\8\
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\7\ See Notice, supra note 3 at 38777.
\8\ See Securities Exchange Act Release No. 93203 (September 30,
2021).
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The MWCB Pilot Rules provide for trading halts in all cash equity
securities during a severe market decline as measured by a single-day
decline in the S&P 500 Index (``SPX'').\9\ Under the Pilot Rules, a
market-wide trading halt will be triggered if SPX declines in price by
specified percentages from the prior day's closing price of that
index.\10\ The triggers are set at three circuit breaker thresholds: 7%
(Level 1), 13% (Level 2), and 20% (Level 3).\11\ A market decline that
triggers a Level 1 or Level 2 halt after 9:30 a.m. and before 3:25 p.m.
would halt market-wide trading for 15 minutes, while a similar market
decline at or after 3:25 p.m. would not halt market-wide trading.\12\
Level 1 and Level 2 halts may occur only once a day. A market decline
that triggers a Level 3 halt at any time during the trading day would
halt market-wide trading for the remainder of the trading day.\13\
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\9\ See Notice, supra note 3 at 38777.
\10\ See id.
\11\ See id.
\12\ See id.
\13\ See id.
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The NYSE's MWCB Pilot Rules also require all designated Regulation
SCI firms to participate in at least one MWCB test each year.\14\
Specifically, Regulation SCI Firms must attest that they are able to or
have attempted to: (A) Receive and process MWCB halt messages from the
securities information processors (``SIPs''); (B) receive and process
resume messages from the SIPs following a MWCB halt; (C) receive and
process market data from the SIPs relevant to MWCB halts; and (D) send
orders following a Level 1 or Level 2 MWCB halt in a manner consistent
with their usual trading behavior.\15\
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\14\ See id. at 38786.
\15\ See id.
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The triggers provided for in the MWCB Pilot Rules were triggered
for the first time in March 2020 when MWCB Level 1 halts occurred on
March 9, 12, 16, and 18, 2020. In response to these events, a task
force comprised of the SROs reviewed the events and concluded that the
MWCBs had performed as expected and recommended that no changes be made
to the MWCB rules.\16\ Subsequently, at the request of the Director of
the Commission's Division of Trading and Markets, the SROs and a
``Working Group'' composed of SRO representatives and industry advisers
that included members of the advisory committees to both the LULD Plan
and the NMS Plans prepared a study, which includes a timeline of the
MWCB events in March 2020; a summary of the analysis and
recommendations of the MWCB Task Force; an evaluation of the operation
of the Pilot Rules during the March 2020 events; an evaluation of the
design of the current MWCB system; and the Working Group's conclusions
and recommendations.\17\
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\16\ See id. at 38778.
\17\ See id.
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Based on the conclusions and recommendations reached by the Working
Group after analyzing how the MWCBs performed in March 2020, the
Exchange proposed to transition the Pilot Rules to operate on a
permanent basis without substantive change.\18\
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\18\ See id.
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III. Proceedings To Determine Whether To Disapprove SR-NYSE-2021-40 and
Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act to determine whether the proposal should be
approved or disapproved. Institution of such proceedings is appropriate
at this time in view of the legal and policy issues raised by the
proposed rule change, as discussed below. Institution of disapproval
proceedings does not indicate that the Commission has reached any
conclusions with respect to any of the issues involved.
Pursuant to Section 19(b)(2)(B) of the Act, the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis and input concerning the proposed rule change's consistency
with the Act \19\ and, in particular, with Section 6(b)(5) of the Act,
which requires, among other things, that the rules of a national
securities exchanges be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to remove impediments to, and perfect the mechanism of a free and open
market and a national market system and, in general, to protect
investors and the public interest.\20\
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\19\ 15 U.S.C. 78s(b)(2)(B).
\20\ 15 U.S.C. 78f(b)(5).
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Under the Commission's Rule of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the Exchange
Act and the rules and regulations issued thereunder . . . is on the
self-regulatory organization [`SRO'] that proposed the
[[Page 55067]]
rule change.'' \21\ The description of a proposed rule change, its
purpose and operation, its effect, and a legal analysis of its
consistency with applicable requirements must all be sufficiently
detailed and specific to support an affirmative Commission finding.\22\
Any failure of the SRO to provide this information may result in the
Commission not having a sufficient basis to make an affirmative finding
that a proposed rule change is consistent with the Act and applicable
rules and regulations.\23\
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\21\ 17 CFR 201.700(b)(3).
\22\ See id.
\23\ See id.
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As discussed above, the Exchange is proposing to make the current
MWCB Pilot Rules permanent, substantively without change, including the
provision requiring systems testing by certain market participants.
Specifically, the Exchange proposes to require Designated Market Makers
and Supplemental Liquidity Providers that have been determined by the
Exchange to contribute a meaningful percentage of the Exchange's
overall volume, measured on a quarterly or monthly basis, to
participate in MWCB testing, though the Exchange may consider other
factors in determining the member organizations that will be required
to participate in testing. These market participants would be required
to participate in at least one MWCB test each year and attest that they
can send and receive MWCB halt and resume messages, as well as receive
and process market data from the SIPs relevant to MWCBs and send orders
following a MWCB Level 1 or Level 2 event. The proposed testing
requirement, however, does not contemplate an ongoing assessment of
whether the MWCB design (e.g., trigger thresholds, measurement
criteria, and time of day application) remains appropriate over time,
as the market structure evolves, and under various threat scenarios,
nor does it require the Exchange to participate in testing. The
Commission seeks comment on the following questions and asks commenters
to submit data where appropriate to support their views:
1. Do commenters believe that an ongoing assessment of the MWCB
design should be conducted as market structure evolves and under
various threat scenarios? If so, how could such an assessment
meaningfully be conducted, understanding that it is difficult to
replicate or forecast how market participants would behave during an
actual MWCB event? How frequently should such an assessment be done?
2. Are commenters aware of ongoing assessment methods in other
contexts (e.g., cybersecurity) that could inform how an ongoing
assessment of the MWCB could be structured?
3. Should the Exchange be required to participate in a coordinated
fashion in the operational test with the other SROs, report the results
of their operational tests and periodic assessment of the MWCB design
to the Commission and inform the Commission of any concerns or proposed
modifications concerning the MWCBs?
For the reasons discussed above, the Commission believes it is
appropriate to institute proceedings pursuant to Section 19(b)(2)(B) of
the Act to determine whether the proposal should be approved or
disapproved.
IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
concerns identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposed rule change
is inconsistent with Section 6(b)(5) or any other provision of the Act,
or the rules and regulation thereunder. Although there do not appear to
be any issues relevant to approval or disapproval which would be
facilitated by an oral presentation of views, data, and arguments, the
Commission will consider, pursuant to Rule 19b-4, any request or an
opportunity to make an oral presentation.\24\
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\24\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing and Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal should be approved or
disapproved by October 26, 2021. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
November 9, 2021. The Commission asks that commenters address the
sufficiency of the Exchange's statements in support of the proposal
which are set forth in the Notice, in addition to any other comments
they may wish to submit about the proposed change.
Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#d5a7a0b9b0f8b6bab8b8b0bba1a695a6b0b6fbb2baa3"><span class="__cf_email__" data-cfemail="deacabb2bbf3bdb1b3b3bbb0aaad9eadbbbdf0b9b1a8">[email protected]</span></a>. Please include
File Number SR-NYSE-2021-40 on the subject line.
Paper Comments
<bullet> 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-NYSE-2021-40. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly.
All submissions should refer to File Number SR-NYSE-2021-40 and
should be submitted on or before October 26, 2021. Rebuttal comments
should be submitted by November 9, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-21750 Filed 10-4-21; 8:45 am]
BILLING CODE 8011-01-P
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