Notice2022-06089
Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Extend the Pilot Period for the Market Wide Circuit Breaker to April 18, 2022
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Published
March 23, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 56 (Wednesday, March 23, 2022)</title>
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[Federal Register Volume 87, Number 56 (Wednesday, March 23, 2022)]
[Notices]
[Pages 16515-16518]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-06089]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94448; File No. SR-IEX-2022-01]
Self-Regulatory Organizations; Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Extend
the Pilot Period for the Market Wide Circuit Breaker to April 18, 2022
March 17, 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 March 16, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 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
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 11.280 to extend
the pilot period for the market-wide circuit breaker to the close of
business on April 18, 2022. 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\
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\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 <a href="http://www.iextrading.com">www.iextrading.com</a>, 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 Market-Wide Circuit Breaker (``MWCB'') rules, including
paragraphs (a) through (d) and (f) of IEX 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
[[Page 16516]]
uniform rules on a pilot basis \8\ (the ``Pilot Rules,'' i.e., for IEX,
Rule 11.280(a)-(d) and (f) \9\). 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'').\10\ 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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\8\ 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).
\9\ IEX's Pilot Rule has been effective since its 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).
\10\ 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''),\11\ including any extensions to the pilot period for the LULD
Plan.\12\ In April 2019, the Commission approved an amendment to the
LULD Plan for it to operate on a permanent, rather than pilot,
basis.\13\ In conjunction with the proposal to make the LULD Plan
permanent, the Exchange amended IEX Rule 11.280 to extend the Pilot
Rules' effectiveness to the close of business on October 18, 2019.\14\
The Exchange subsequently amended IEX Rule 11.280 to untie the Pilot
Rules' effectiveness from that of the LULD Plan and extended the Pilot
Rules' effectiveness several times: (i) From October 18, 2019 to
October 18, 2020; \15\ from October 18, 2020 to October 18, 2021; \16\
and from October 18, 2021 to March 18, 2022.\17\
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\11\ See Securities Exchange Act Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012). 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). The LULD Plan provides a mechanism to address extraordinary
market volatility in individual securities.
\12\ See, e.g., Securities Exchange Act Release No. 78703
(August 26, 2016), 81 FR 60397 (September 1, 2016) (File No. 4-631)
(describing the several extensions of the LULD Plan pilot period).
\13\ See Securities Exchange Act Release No. 85623 (April 11,
2019), 84 FR 16086 (April 17, 2019).
\14\ See Securities Exchange Act Release No. 85576 (April 9,
2019), 84 FR 15237 (April 15, 2019) (SR-IEX-2019-04).
\15\ See Securities Exchange Act Release No. 87298 (October 15,
2019), 84 FR 56255 (October 21, 2019) (SR-IEX-2019-11).
\16\ See Securities Exchange Act Release No. 90128 (October 8,
2020), 85 FR 65127 (October 14, 2020) (SR-IEX-2020-17).
\17\ See Securities Exchange Act Release No. 93323 (October 14,
2021), 86 FR 58125 (October 20, 2021) (SR-IEX-2021-12).
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The Exchange now proposes to amend IEX Rule 11.280 to extend the
pilot one more month, to the close of business on April 18, 2022. This
filing does not propose any substantive or additional changes to IEX
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.\18\
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\18\ 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/market-regulation/rule-filings/2020/9/20-392_2.pdf">https://www.cmegroup.com/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 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'').\19\ 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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\19\ 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
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to the Plan to Address Extraordinary Market Volatility (the ``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.\20\
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\20\ 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 New York Stock Exchange (``NYSE'') proposed a
rule change to make the Pilot Rules permanent, consistent with the
Working Group's recommendations.\21\ On August 27, 2021, the Commission
extended its time to consider the proposed rule change to October 20,
2021; \22\ on September 30, 2021, the Commission initiated proceedings
to determine whether to approve or disapprove of the filing; \23\ and
on January 7, 2022, the Commission again extended the review period for
the NYSE filing to make the Pilot Rules permanent, designating March
19, 2022, as the date by which the Commission will either approve or
disapprove of the filing.\24\
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\21\ See Securities Exchange Act Release No. 92428 (July 16,
2021), 86 FR 38776 (July 22, 2021) (SR-NYSE-2021-40).
\22\ See Securities Exchange Act Release No. 92785A (August 27,
2021), 86 FR 50202 (September 7, 2021) (SR-NYSE-2021-40).
\23\ See Securities Exchange Act Release No. 93212 (September
30, 2021), 86 FR 55066 (October 5, 2021) (SR-NYSE-2021-40).
\24\ See Securities Exchange Act Release No. 93933 (January 7,
2022), 87 FR 2189 (January 13, 2022) (SR-NYSE-2021-40).
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To allow time for the Commission to make its final decision on the
NYSE MWCB filing, the Exchange proposes to extend the expiration date
of the Pilot Rules to the end of business on April 18, 2022.
2. Statutory Basis
The Exchange believes that its proposal is consistent with the
requirements of Sections 6(b) \25\ and 6(b)(5) of the Act,\26\ 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 MWCB mechanism under
Rule 11.280 is an important, automatic mechanism that is invoked to
promote stability and investor confidence during periods of significant
stress when securities markets experience extreme broad-based declines.
Extending the MWCB pilot for an additional month would ensure the
continued, uninterrupted operation of a consistent mechanism to halt
trading across the U.S. equity markets while the Commission reviews
NYSE's proposed rule change to make the Pilot Rules permanent.
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\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(5).
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The Exchange also believes that the proposed rule change promotes
just and equitable principles of trade in that it promotes transparency
and uniformity across markets concerning when and how to halt trading
in all stocks as a result of extraordinary market volatility. Based on
the foregoing, the Exchange believes the benefits to market
participants from the MWCB under Rule 11.280(a) through (d) and (f)
should continue on a pilot basis because the MWCB will promote fair and
orderly markets, and protect investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
IEX does not believe that the proposed rule change implicates any
competitive issues 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 NYSE's proposed
rule change to make the Pilot Rules permanent.
Further, IEX understands that the other SROs will file proposals to
extend their rules regarding the MWCB 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
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 \27\ and Rule 19b-4(f)(6) thereunder.\28\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \29\ and Rule 19b-
4(f)(6)(iii) thereunder.\30\
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\27\ 15 U.S.C. 78s(b)(3)(A)(iii).
\28\ 17 CFR 240.19b-4(f)(6).
\29\ 15 U.S.C. 78s(b)(3)(A)(iii).
\30\ 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 Exchange has
satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \31\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\32\ 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 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.\33\
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\31\ 17 CFR 240.19b-4(f)(6).
\32\ 17 CFR 240.19b-4(f)(6)(iii).
\33\ 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 such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \34\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\34\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<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#b0c2c5dcd59dd3dfddddd5dec4c3f0c3d5d39ed7dfc6"><span class="__cf_email__" data-cfemail="b0c2c5dcd59dd3dfddddd5dec4c3f0c3d5d39ed7dfc6">[email protected]</span></a>. Please include
File Number SR-IEX-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-IEX-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 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-2022-01 and
should be submitted on or before April 13, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-06089 Filed 3-22-22; 8:45 am]
BILLING CODE 8011-01-P
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