[Federal Register Volume 84, Number 189 (Monday, September 30, 2019)]
[Notices]
[Pages 51669-51671]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21102]



[[Page 51669]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87078; File No. SR-FINRA-2019-023]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Extend the Pilot Period Related to FINRA Rule 
6121.02 (Market-Wide Circuit Breakers in NMS Stocks)

September 24, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 19, 2019, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by FINRA. FINRA has designated 
the proposed rule change as constituting a ``non-controversial'' rule 
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which 
renders the proposal effective upon receipt of this filing by the 
Commission. 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\ 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

    FINRA is proposing to extend the pilot period related to FINRA Rule 
6121.02 (Market-wide Circuit Breakers in NMS Stocks).
    The text of the proposed rule change is available on FINRA's 
website at http://www.finra.org, at the principal office of FINRA 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, FINRA 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. FINRA 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
    Rule 6121.02 addresses the circumstances under which FINRA shall 
halt trading in all NMS Stocks due to extraordinary market volatility 
(i.e., market-wide circuit breakers). The market-wide circuit breaker 
(``MWCB'') mechanism under Rule 6121.02 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''),\4\ 
including any extensions to the pilot period for the LULD Plan.\5\ The 
Commission recently 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, FINRA amended Rule 6121.02 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\
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    \4\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down 
Release''). The LULD Plan provides a mechanism to address 
extraordinary market volatility in individual securities.
    \5\ See Securities Exchange Act Release Nos. 67090 (May 31, 
2012), 77 FR 33531 (June 6, 2012) (Order Approving File No. SR-
FINRA-2011-054); and 68778 (January 31, 2013), 78 FR 8668 (February 
6, 2013) (Notice of Filing and Immediate Effectiveness of File No. 
SR-FINRA-2013-011) (Proposed Rule Change to Delay the Operative Date 
of FINRA Rule 6121.02).
    \6\ See Securities Exchange Act Release No. 85623 (April 11, 
2019), 84 FR 16086 (April 17, 2019) (Order Approving the Eighteenth 
Amendment to the National Market System Plan To Address 
Extraordinary Market Volatility).
    \7\ See Securities Exchange Act Release No. 85547 (April 8, 
2019), 84 FR 14981 (April 12, 2019) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2019-010).
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    FINRA now proposes to amend Rule 6121.02 to extend the pilot to the 
close of business on October 18, 2020. This filing does not propose any 
substantive or additional changes to Rule 6121.02. FINRA will use the 
extension period to develop with the other self-regulatory 
organizations (SROs) rules or procedures that would allow for the 
periodic testing of the performance of the MWCB mechanism. The 
extension also will permit FINRA to consider enhancements to the MWCB 
processes, such as modifications to the Level 3 process.
    The market-wide circuit breaker under Rule 6121.02 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. FINRA and 
the U.S. equity exchanges 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.\8\ 
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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    \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) (Notice of 
Filing of Amendments No. 1 and Order Granting Accelerated Approval 
of Proposed Rule Changes as Modified by Amendments No. 1, Relating 
to Trading Halts Due to Extraordinary Market Volatility).
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    Pursuant to Rule 6121.02, 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 until the 
primary listing market opens the next trading day.
    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the SEC waive the requirement that 
the proposed rule change not become operative for 30 days from the date 
of filing, so that FINRA can implement the proposed rule change 
immediately.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\9\ which requires, among 
other things, that FINRA rules must 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

[[Page 51670]]

and a national market system, and, in general, to protect investors and 
the public interest. The market-wide circuit breaker mechanism under 
Rule 6121.02 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 under 
Rule 6121.02 for an additional year would ensure the continued, 
uninterrupted operation of a consistent mechanism to halt trading 
across the U.S. markets while FINRA, with the other SROs, consider and 
develop rules or procedures that would allow for the periodic testing 
of the performance of the MWCB mechanism. The extension also will 
permit FINRA to consider enhancements to the MWCB processes, such as 
modifications to the Level 3 process.
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    \9\ 15 U.S.C. 78o-3(b)(6).
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    FINRA 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, FINRA believes the benefits to market participants from the 
MWCB under Rule 6121.02 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

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is 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 FINRA, in conjunction 
with the other SROs, consider and develop rules or procedures that 
would allow for the periodic testing of the performance of the MWCB 
mechanism. Furthermore, as noted above, the extension will permit FINRA 
to consider enhancements to the MWCB processes, such as modifications 
to the Level 3 process.
    Further, FINRA understands that other SROs 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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    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) of the Act \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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.
    \11\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \12\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\13\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. FINRA has asked the 
Commission to waive the 30-day operative delay so that the proposal may 
become operative upon filing. Extending the pilot for an additional 
year will allow the uninterrupted operation of the existing pilot to 
halt trading across the U.S. markets. Therefore, the Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. The Commission hereby 
designates the proposed rule change to be operative upon filing.\14\
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    \12\ Id.
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ 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

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-FINRA-2019-023 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-FINRA-2019-023. 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 (http://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 a.m. and 3 
p.m. Copies of such filing also will be available for inspection and 
copying at the principal office of FINRA. 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-
FINRA-2019-023 and should be submitted on or before October 21, 2019.


[[Page 51671]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-21102 Filed 9-27-19; 8:45 am]
BILLING CODE 8011-01-P