Notice2022-05594
Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Extend the Date of the Pilot Related to the Market-Wide Circuit Breaker in Rule 11.280
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
March 17, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 52 (Thursday, March 17, 2022)</title>
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[Federal Register Volume 87, Number 52 (Thursday, March 17, 2022)]
[Notices]
[Pages 15279-15282]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-05594]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94403; File No. SR-LTSE-2022-01]
Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Extend the Date of the Pilot Related to the Market-Wide Circuit
Breaker in Rule 11.280
March 11, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on March 4, 2022, Long-Term Stock Exchange, Inc. (``LTSE'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
LTSE proposes a rule change to extend the pilot related to the
market-wide circuit breaker in Rule 11.280.
The text of the proposed rule change is available at the Exchange's
website at <a href="https://longtermstockexchange.com/">https://longtermstockexchange.com/</a>, at the principal office
of the Exchange, and at the Commission's Public Reference Room.
[[Page 15280]]
II. Self-Regulatory Organization's Statement on 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 statements 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 Exchange proposes to extend the pilot related to the market-
wide circuit breaker in Rule 11.280 to the close of business on April
18, 2022.
Background
The Market-Wide Circuit Breaker (``MWCB'') rules, including the
Exchange's Rule 11.280, provide an important, automatic mechanism that
is invoked to promote stability and investor confidence during periods
of significant stress when cash equities securities experience extreme
market-wide declines. The MWCB rules are designed to slow the effects
of extreme price declines through coordinated trading halts across both
cash equity and equity options securities markets.
The cash equities rules governing MWCBs were first adopted in 1988
and, in 2012, all U.S. cash equity exchanges and FINRA amended their
cash equities uniform rules on a pilot basis (the ``Pilot Rules'').\3\
The Pilot Rules currently provide for trading halts in all cash equity
securities during a severe market decline as measured by a single-day
decline in the S&P 500 Index (``SPX'').\4\ Under the Pilot Rules, a
market-wide trading halt will be triggered if SPX declines in price by
specified percentages from the prior day's closing price of that index.
The triggers are set at three circuit breaker thresholds: 7% (Level 1),
13% (Level 2), and 20% (Level 3). A market decline that triggers a
Level 1 or Level 2 halt after 9:30 a.m. and before 3:25 p.m. would halt
market-wide trading for 15 minutes, while a similar market decline at
or after 3:25 p.m. would not halt market-wide trading. (Level 1 and
Level 2 halts may occur only once a day.) A market decline that
triggers a Level 3 halt at any time during the trading day would halt
market-wide trading for the remainder of the trading day.
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\3\ See Securities Exchange Act Release No. 67090 (May 31,
2012), 77 FR 33531 (June 6, 2012) (SR-BATS-2011-038; SR-BYX-2011-
025; SR-BX-2011-068; SR-CBOE-2011-087; SR-C2-2011-024; SR-CHX-2011-
30; SR-EDGA-2011-31; SR-EDGX-2011-30; SR-FINRA-2011-054; SR-ISE-
2011-61; SR-NASDAQ-2011-131; SR-NSX-2011-11; SR-NYSE-2011-48; SR-
NYSEAmex-2011-73; SR-NYSEArca-2011-68; SR-Phlx-2011-129) (``Pilot
Rules Approval Order''). LTSE adopted Pilot Rules as part of its
approval as a national securities exchange. See generally [cite to
Form 1 approval][sic]
\4\ The rules of the equity options exchanges similarly provide
for a halt in trading if the cash equity exchanges invoke a MWCB
Halt. See, e.g., NYSE Arca Rule 6.65-O(d)(4).
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The Commission approved the Pilot Rules, the term of which was to
coincide with the pilot period for the Plan to Address Extraordinary
Market Volatility Pursuant to Rule 608 of Regulation NMS (the ``LULD
Plan''),\5\ including any extensions to the pilot period for the LULD
Plan.\6\ In April 2019, the Commission approved an amendment to the
LULD Plan for it to operate on a permanent, rather than pilot,
basis.\7\ In conjunction with the proposal to make the LULD Plan
permanent, the Exchange amended Rule 11.280 to untie the Pilot Rules'
effectiveness from that of the LULD Plan and to extend the Pilot Rules'
effectiveness to the close of business on October 18, 2020.\8\ The
Exchange subsequently amended Rule 11.280, to extend the Pilot Rules'
effectiveness for an additional year to the close of business on
October 18, 2021.\9\ The Exchange then further amended Rule 11.280, to
extend the Pilot Rules' effectiveness for another year to the close of
business on March 18, 2022.\10\
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\5\ See Securities Exchange Act Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012). The LULD Plan provides a
mechanism to address extraordinary market volatility in individual
securities.
\6\ See e.g., Securities Exchange Act Release Nos. 67090 (May
31, 2012), 77 FR 33531 (June 6, 2012) (SR-NYSE-2011-48) (Approval
Order); and 68784 (January 31, 2013), 78 FR 8662 (February 6, 2013)
(SR-NYSE-2013-10).
\7\ See Securities Exchange Act Release No. 85623 (April 11,
2019), 84 FR 16086 (April 17, 2019).
\8\ See <a href="https://www.sec.gov/rules/sro/ltse/2019/34-87357.pdf">https://www.sec.gov/rules/sro/ltse/2019/34-87357.pdf</a>.
\9\ See Securities Exchange Act Release No. 90125 (October 8,
2020), 85 FR 65114 (October 14, 2020) (SR-LTSE-2020-18).
\10\ See Securities Exchange Act Release No. 93376 (October 18,
2021), 86 FR 58713 (October 22, 2021) (SR-LTSE-2021-06).
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The Exchange now proposes to amend Rule 11.280 to extend the pilot
to the close of business on April 18, 2022. This filing does not
propose any substantive or additional changes to Rule 11.280.
The MWCB Task Force and the March 2020 MWCB Events
In late 2019, Commission staff requested the formation of a MWCB
Task Force (``Task Force'') to evaluate the operation and design of the
MWCB mechanism. The Task Force included representatives from the SROs,
the Commission, CME, the Commodity Futures Trading Commission
(``CFTC''), and the securities industry and conducted several
organizational meetings in December 2019 and January 2020.
In Spring 2020, the MWCB mechanism proved itself to be an effective
tool for protecting markets through turbulent times. In March 2020, at
the outset of the worldwide COVID-19 pandemic, U.S. equities markets
experienced four MWCB Level 1 halts, on March 9, 12, 16, and 18, 2020.
In each instance, the markets halted as intended upon a 7% drop in the
S&P 500 Index, and resumed as intended 15 minutes later.
In response to these events, in the Spring and Summer of 2020, the
Task Force held ten meetings that were attended by Commission staff,
with the goal of performing an expedited review of the March 2020 halts
and identifying any areas where the MWCB mechanism had not worked
properly. Given the risk of unintended consequences, the Task Force did
not recommend changes that were not rooted in a noted deficiency. The
Task Force recommended creating a process for a backup reference price
in the event that SPX were to become unavailable, and enhancing
functional MWCB testing. The Task Force also asked CME to consider
modifying its rules to enter into a limit-down state in the futures
pre-market after a 7% decline instead of 5%. CME made the requested
change, which became effective on October 12, 2020.\11\
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\11\ See <a href="https://www.cmegroup.com/content/dam/cmegroup/market-regulation/rule-filings/2020/9/20-392_1.pdf">https://www.cmegroup.com/content/dam/cmegroup/market-regulation/rule-filings/2020/9/20-392_1.pdf</a>; <a href="https://www.cmegroup.com/content/dam/cmegroup/market-regulation/rule-filings/2020/9/20-392_2.pdf">https://www.cmegroup.com/content/dam/cmegroup/market-regulation/rule-filings/2020/9/20-392_2.pdf</a>.
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The MWCB Working Group's Study
On September 17, 2020, the Director of the Commission's Division of
Trading and Markets asked the SROs to conduct a more complete study of
the design and operation of the Pilot Rules and the LULD Plan during
the period of volatility in the Spring of 2020.
In response to the request, the SROs created a MWCB ``Working
Group'' composed of SRO representatives and industry advisers that
included members of the advisory committees to both the LULD Plan and
the NMS Plans
[[Page 15281]]
governing the collection, consolidation, and dissemination of last-sale
transaction reports and quotations in NMS Stocks. The Working Group met
regularly from September 2020 through March 2021 to consider the
Commission's request, review data, and compile its study. The Working
Group's efforts in this respect incorporated and built on the work of
an MWCB Task Force.
The Working Group submitted its study to the Commission on March
31, 2021 (the ``Study'').\12\ In addition to a timeline of the MWCB
events in March 2020, the Study includes a summary of the analysis and
recommendations of the MWCB Task Force; an evaluation of the operation
of the Pilot Rules during the March 2020 events; an evaluation of the
design of the current MWCB system; and the Working Group's conclusions
and recommendations.
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\12\ See Report of the Market-Wide Circuit Breaker (``MWCB'')
Working Group Regarding the March 2020 MWCB Events, submitted March
31, 2021 (the ``Study''), available at <a href="https://www.nyse.com/publicdocs/nyse/markets/nyse/Report_of_the_Market-Wide_Circuit_Breaker_Working_Group.pdf">https://www.nyse.com/publicdocs/nyse/markets/nyse/Report_of_the_Market-Wide_Circuit_Breaker_Working_Group.pdf</a>.
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In the Study, the Working Group concluded: (1) The MWCB mechanism
set out in the Pilot Rules worked as intended during the March 2020
events; (2) the MWCB halts triggered in March 2020 appear to have had
the intended effect of calming volatility in the market, without
causing harm; (3) the design of the MWCB mechanism with respect to
reference value (SPX), trigger levels (7%/13%/20%), and halt times (15
minutes) is appropriate; (4) the change implemented in Amendment 10 to
the Plan to Address Extraordinary Market Volatility (the ``Limit Up/
Limit Down Plan'' or ``LULD Plan'') did not likely have any negative
impact on MWCB functionality; and (5) no changes should be made to the
mechanism to prevent the market from halting shortly after the opening
of regular trading hours at 9:30 a.m.
In light of the foregoing conclusions, the Working Group also made
several recommendations, including that the Pilot Rules should be
permanent without any changes.\13\
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\13\ See id. at 46.
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Proposal to Extend the Operation of the Pilot Rules Pending the
Commission's Consideration of the Exchange's Filing To Make the Pilot
Rules Permanent
On July 16, 2021, the NYSE proposed a rule change to make the Pilot
Rules permanent, consistent with the Working Group's
recommendations.\14\ On September 30, 2021, the Commission extended its
time to consider the proposed rule change to March 18, 2022.\15\ The
Exchange now proposes to extend the expiration date of the Pilot Rules
to the close of business on April 18, 2022.
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\14\ See Securities Exchange Act Release No. 92428 (July 16,
2021), 86 FR 38776 (July 22, 2021) (SR-NYSE-2021-40).
\15\ See Securities Exchange Act Release No. 93203 (September
30, 2021), 86 FR 55049 (October 5, 2021) (SR-NYSE-2021-57).
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b. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\16\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\17\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest. The market-wide circuit breaker mechanism under Rule 11.280
is an important, automatic mechanism that is invoked to promote
stability and investor confidence during a period of significant stress
when securities markets experience extreme broad-based declines.
Extending the market-wide circuit breaker pilot for an additional five
[sic] months would ensure the continued, uninterrupted operation of a
consistent mechanism to halt trading across the U.S. markets while the
Commission reviews the Exchange's proposed rule change to make the
Pilot Rules permanent.
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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
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The Exchange also believes that the proposed rule change promotes
just and equitable principles of trade in that it promotes transparency
and uniformity across markets concerning when and how to halt trading
in all stocks as a result of extraordinary market volatility. Based on
the foregoing, the Exchange believes the benefits to market
participants from Pilot Rules should continue on a pilot basis because
they will promote fair and orderly markets and protect investors and
the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act because the proposal would
ensure the continued, uninterrupted operation of a consistent mechanism
to halt trading across the U.S. markets while the Commission reviews
the Exchange's proposed rule change to make the Pilot Rules permanent.
Further, the Exchange understands that FINRA and other national
securities exchanges have filed or will file proposals to extend their
rules regarding the market-wide circuit breaker pilot. Thus, the
proposed rule change will help to ensure consistency across market
centers without implicating any competitive issues.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or 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 \18\ and Rule 19b-4(f)(6) thereunder.\19\
Because the proposed rule change does not (i) significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate if consistent with the protection of investors
and the public interest, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act \20\ and Rule 19b-
4(f)(6)(iii) thereunder.\21\
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\18\ 15 U.S.C. 78s(b)(3)(A)(iii).
\19\ 17 CFR 240.19b-4(f)(6).
\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4 requires a
self-regulatory organization to give the Commission written notice
of its intent to file a proposed rule change under that subsection
at least five business days prior to the date of filing, or such
shorter time as designated by the Commission. The Commission has
waived this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \22\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\23\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange asked
that the Commission waive the 30 day operative delay so that the
proposal may become operative immediately upon filing. Extending the
Pilot Rules' effectiveness to the close of business on April 18, 2022
will extend the protections provided by the Pilot Rules, which would
otherwise expire in less than 30 days. Waiver of the operative delay
would therefore permit uninterrupted continuation of the MWCB pilot
while the Commission reviews the NYSE's
[[Page 15282]]
proposed rule change to make the Pilot Rules permanent. Therefore, the
Commission hereby waives the 30-day operative delay and designates the
proposed rule change as operative upon filing.\24\
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\22\ 17 CFR 240.19b-4(f)(6).
\23\ 17 CFR 240.19b-4(f)(6)(iii).
\24\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of 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
<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#3341465f561e505c5e5e565d4740734056501d545c45"><span class="__cf_email__" data-cfemail="b8cacdd4dd95dbd7d5d5ddd6cccbf8cbdddb96dfd7ce">[email protected]</span></a>. Please include
File Number SR-LTSE-2022-01 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-LTSE-2022-01. 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 LTSE and on its internet website
at <a href="https://longtermstockexchange.com/">https://longtermstockexchange.com/</a>.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-LTSE-2022-01
and should be submitted on or before April 7, 2022.
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\25\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
Eduardo Aleman,
Assistant Secretary.
[FR Doc. 2022-05594 Filed 3-16-22; 8:45 am]
BILLING CODE 8011-01-P
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