Notice2022-06183
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Extend the Pilot Related to the Market-Wide Circuit Breaker in Rule 11.16 to April 18, 2022
Primary source
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Published
March 24, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 57 (Thursday, March 24, 2022)</title>
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[Federal Register Volume 87, Number 57 (Thursday, March 24, 2022)]
[Notices]
[Pages 16805-16808]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-06183]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94462; File No. SR-CboeEDGX-2022-019]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change To
Extend the Pilot Related to the Market-Wide Circuit Breaker in Rule
11.16 to April 18, 2022
March 18, 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 17, 2022, Cboe EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') 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
[[Page 16806]]
by the Exchange. The Exchange filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe EDGX Exchange, Inc. (``EDGX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (the ``Commission'') a
proposal to extend the pilot related to the market-wide circuit breaker
in Rule 11.16 to April 18, 2022. The text of the proposed rule change
is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (<a href="http://markets.cboe.com/us/options/regulation/rule_filings/edgx/">http://markets.cboe.com/us/options/regulation/rule_filings/edgx/</a>), at the Exchange's Office of the Secretary, 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 Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
EDGX Rules 11.16(a) through (d), (f) and (g) describe the
methodology for determining when to halt trading in all stocks due to
extraordinary market volatility, i.e., market-wide circuit breakers.
The market-wide circuit breaker (``MWCB'') mechanism was approved by
the Commission to operate on a pilot basis, 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. In April 2019, the Commission approved an amendment to the LULD
Plan for it to operate on a permanent, rather than pilot, basis.\6\ In
light of the proposal to make the LULD Plan permanent, the Exchange
amended Rule 11.16 to untie the pilot's effectiveness from that of the
LULD Plan and to extend the pilot's effectiveness to the close of
business on October 18, 2019.\7\ The Exchange subsequently amended Rule
11.16 to extend the pilot's effectiveness to October 18, 2020,\8\
October 18, 2021,\9\ and March 18, 2022.\10\ The Exchange now proposes
to amend Rule 11.16 to extend the pilot to the close of business on
April 18, 2022. This filing does not propose any substantive or
additional changes to Rule 11.16.
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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 Securities Exchange Act Release No. 85623 (April 11,
2019), 84 FR 16086 (April 17, 2019).
\7\ See Securities Exchange Act Release No. 85667 (April 16,
2019), 84 FR 16736 (April 22, 2019) (SR-CboeEDGX-2019-023).
\8\ See Securities Exchange Act Release No. 87339 (October 17,
2019), 84 FR 56882 (October 23, 2019) (SR-CboeEDGX-2019-061).
\9\ See Securities Exchange Act Release No. 90147 (October 9,
2020), 85 FR 65453 (October 15, 2020) (SR-CboeEDGX-2020-047).
\10\ See Securities Exchange Act Release No. 93353 (October 15,
2021), 86 FR 58349 (October 21, 2021) (SR-CboeEDGX-2021-046).
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The market-wide circuit breaker under Rule 11.16 provides 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. All U.S.
equity exchanges and FINRA adopted uniform rules on a pilot basis
relating to market-wide circuit breakers in 2012 (``MWCB Rules''),
which are designed to slow the effects of extreme price movement
through coordinated trading halts across securities markets when severe
price declines reach levels that may exhaust market liquidity.\11\
Market-wide circuit breakers provide for trading halts in all equities
and options markets during a severe market decline as measured by a
single-day decline in the S&P 500 Index.
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\11\ 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) (``MWCB
Approval Order'').
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Pursuant to Rule 11.16, a market-wide trading halt will be
triggered if the S&P 500 Index declines in price by specified
percentages from the prior day's closing price of that index.
Currently, 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. ET and before 3:25
p.m. ET would halt market-wide trading for 15 minutes, while a similar
market decline at or after 3:25 p.m. ET would not halt market-wide
trading. 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.
In the Spring of 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, the previously-convened MWCB Taskforce
(``Taskforce'') reviewed the March 2020 halts and considered whether
any immediate changes to the MWCB mechanism should be made. The
Taskforce, consisting of representatives from equities exchanges,
futures exchanges, FINRA, broker-dealers, and other market
participants, had been assembled in early 2020 to consider more
generally potential changes to the MWCB mechanism. The Taskforce held
ten meetings in the Spring and Summer of 2020 that were attended by
Commission staff to consider, among other things: (1) Whether to retain
the S&P 500 Index as the standard for measuring market declines; (2)
whether halts that occur shortly after the 9:30 a.m. market open cause
more harm than good; and (3) what additional testing of the MWCB
mechanism should be done.
After considering data and anecdotal reports of market
participants' experiences during the March 2020 MWCB events, the
Taskforce did not recommend immediate changes be made to the use of the
S&P 500 Index as the reference price against which market declines are
measured, or to the current MWCB mechanism which permits halts even
shortly after the 9:30 a.m. market open. The Taskforce recommended
creating a process for a backup reference price in the event that the
S&P 500 Index becomes unavailable, and enhancing functional MWCB
testing. The Taskforce 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%.
On September 17, 2020, the Director of the Division of Trading and
Markets requested that the equities exchanges and FINRA prepare a more
complete
[[Page 16807]]
study of the design and operation of the MWCB mechanism 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'').\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. 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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\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_MarketWide_Circuit_Breaker_Working_Group.pdf">https://www.nyse.com/publicdocs/nyse/markets/nyse/Report_of_the_MarketWide_Circuit_Breaker_Working_Group.pdf</a>.
\13\ See id. at 46.
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The SROs have since worked on a proposed a rule change to make the
Pilot Rules permanent, consistent with the Working Group's
recommendations. New York Stock Exchange (``NYSE'') filed such proposed
rule change on July 16, 2021.\14\ On August 27, 2021, the Commission
extended its time to consider the proposed rule change to October 20,
2021.\15\ On September 30, 2021, the Commission initiated proceedings
to determine whether to approve or disapprove the proposed rule
change.\16\ On January 7, 2022, the Commission extended its time to
approve or disapprove the proposed rule change by an additional 60
days, to March 19, 2022.\17\ The Exchange now proposes to extend the
expiration date of the Pilot Rules to the end 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) (the ``NYSE
Proposal'').
\15\ See Securities Exchange Act Release No. 92785A (August 27,
2021), 86 FR 50202 (September 7, 2021) (SR-NYSE-2021-40).
\16\ See Securities Exchange Act Release No. 93212 (September
30, 2021), 86 FR 55066 (October 5, 2021) (SR-NYSE-2021-40).
\17\ See Securities Exchange Act Release No. 93933 (January 7,
2022), 87 FR 2189 (January 13, 2022) (SR-NYSE-2021-40).
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\18\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\19\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest. The market-wide circuit breaker mechanism under Rule 11.16 is
an important, automatic mechanism that is invoked to promote stability
and investor confidence during a period of significant stress when
securities markets experience extreme broad-based declines. Extending
the market-wide circuit breaker pilot for an additional month would
ensure the continued, uninterrupted operation of a consistent mechanism
to halt trading across the U.S. markets while the Exchange and the
other SROs work to make the Pilot Rules permanent.
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\18\ 15 U.S.C. 78f(b).
\19\ 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 11.16 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
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 Exchange and the
other SROs finalize their proposals to make the Pilot Rules permanent.
Further, the Exchange understands that FINRA and other national
securities exchanges will file proposals to extend their rules
regarding the market-wide circuit breaker pilot following Commission
approval of the NYSE proposal. 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 on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not:
A. Significantly affect the protection of investors or the public
interest;
B. impose any significant burden on competition; and
C. 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) of the Act \20\ and
Rule 19b-4(f)(6) \21\ thereunder.
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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 17 CFR 240.19b-4(f)(6).
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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.
[[Page 16808]]
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.\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 will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
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#c8babda4ade5aba7a5a5ada6bcbb88bbadabe6afa7be"><span class="__cf_email__" data-cfemail="85f7f0e9e0a8e6eae8e8e0ebf1f6c5f6e0e6abe2eaf3">[email protected]</span></a>. Please include
File Number SR-CboeEDGX-2022-019 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-CboeEDGX-2022-019. 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-CboeEDGX-2022-
019 and should be submitted on or before April 14, 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\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-06183 Filed 3-23-22; 8:45 am]
BILLING CODE 8011-01-P
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