[Federal Register Volume 84, Number 203 (Monday, October 21, 2019)]
[Notices]
[Pages 56255-56258]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22837]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87298; File No. SR-IEX-2019-11]
Self-Regulatory Organizations; Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of 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 October 18, 2020 and To Clarify
That the Remaining Parts of Rule 11.280 Are Not Subject to Any Pilot
Period
October 15, 2019.
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 October 11, 2019, 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\ IEX 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
October 18, 2020 and to clarify that the remaining parts of Rule 11.280
are not subject to any pilot period. IEX has designated this rule
change as ``non-controversial'' under Section 19(b)(3)(A) of the Act
\6\ and provided the
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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 www.iextrading.com, 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
Paragraphs (a) through (d) and (f) of Rule 11.280 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 under Rule 11.280
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''),\8\ including any extensions to the pilot period
for the LULD Plan. The Commission recently approved an amendment to the
LULD Plan for it to operate on a permanent, rather than pilot,
basis.\9\ In light of the proposal to make the LULD Plan permanent, the
Exchange amended Rule 11.280 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.\10\
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\8\ 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).
\9\ See Securities Exchange Act Release No. 85623 (April 11,
2019), 84 FR 16086 (April 17, 2019) (``LULD Plan Amendment 18
Approval Order'').
\10\ See Securities Exchange Act Release No. 85576 (April 9,
2019), 84 FR 15237 (April 15, 2019) (SR-IEX-2019-04).
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The purpose of this proposed rule change is to amend Rule 11.280(a)
to extend the pilot period for the MWCB, set forth in paragraphs (a)
through (d) and (f),\11\ to the close of business on October 18, 2020.
In addition, this proposed rule change will clarify that the remaining
paragraphs of Rule 11.280 are not subject to any pilot period. This
filing does not propose any substantive or additional changes to Rule
11.280. The Exchange will use the MWCB pilot extension period to
develop with the other self-regulatory organizations (``SROs'') rules
and procedures that would allow for the periodic testing of the
performance of the MWCB mechanism, with industry member participation
in such testing. The extension will also permit the SROs to consider
enhancements to the MWCB processes such as modifications to the Level 3
process.
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\11\ Rule 11.280(f) also relates to the MWCB because it
specifies the time zone for all times referenced in Rule 11.280(a)
and (b).
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MWCBs under Rule 11.280 provide 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. All SROs have rules relating to MWCBs,
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.\12\
MWCBs 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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\12\ 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).
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Pursuant to Rule 11.280(a) through (d) and (f), 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: A 7% market decline (Level 1), a 13% market decline (Level
2), and a 20% market decline (Level 3). A market decline that triggers
a Level 1 or Level 2 circuit breaker 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 circuit breaker, at
any time during the trading day, would halt market-wide trading for the
remainder of the trading day.
The Exchange also proposes to amend Rule 11.280(a) to clarify that
the pilot period set forth in Rule 11.280(a) only applies to paragraphs
(a) through (d) and (f) of Rule 11.280 (i.e., the MWCB mechanism).
Paragraph (e) of Rule 11.280, which relates to IEX's LULD Mechanism
\13\ was subject to the pilot period specified in paragraph (a) of Rule
11.280, as described above.\14\ With the Commission's LULD Plan
Amendment 18 Approval Order providing that the LULD Plan now operates
on a permanent basis,\15\ the Exchange is proposing to update Rule
11.280(a) to reflect that IEX's LULD Mechanism no longer operates on a
pilot basis, thus ensuring continued compliance with the LULD Plan.
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\13\ The Exchange is required by the LULD Plan to establish,
maintain, and enforce written policies and procedures that are
reasonably designed to comply with the LULD and trading pause
requirements specified in the LULD Plan. Rule 11.280(e) sets forth
the Exchange's LULD mechanism, including provisions stating that the
Exchange is a Participant in the LULD Plan and that IEX Members are
required to comply with the provisions of the LULD Plan.
Furthermore, Rule 11.280(e) describes order handling performed by
the Exchange to maintain compliance with the LULD Plan.
Specifically, Rule 11.280(e): (1) Provides that the System shall not
display or execute buy (sell) interest above (below) the Upper
(Lower) Price Bands, unless such interest is specifically exempted
under the Plan; (2) describes how the System re-prices and/or
cancels buy (sell) interest that is priced or could be executed
above (below) the Upper (Lower) Price Band; (3) confirms that the
Exchange may declare a Trading Pause during a Straddle State; and
(4) addresses how the Exchange would re-open a security following a
Trading Pause.
\14\ See supra note 10.
\15\ See supra note 9.
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Similarly, the Exchange proposes to amend Rule 11.280(a) to clarify
that paragraphs (g) and (h) of Rule 11.280 are not subject to any pilot
period. Rule 11.280(g) provides the authority under which the Exchange
can initiate a trading halt ``in circumstances in which IEX deems it
necessary to protect investors and the public interest,'' and Rule
11.280(h) provides the procedures by which IEX can both initiate and
terminate a trading halt. Neither of these paragraphs are related to
either the MWCB or LULD Plans, but Rule 11.280(a) may inadvertently
connote that these two paragraphs were subject to a pilot period. The
proposed changes to paragraph (a) will clarify that the trading halt
procedures contained in
[[Page 56257]]
paragraphs (g) and (h) of Rule 11.280 are not subject to a pilot
period.
2. Statutory Basis
The Exchange believes that its proposal is consistent with the
requirements of Sections 6(b) \16\ and 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 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 year would ensure the
continued, uninterrupted operation of a consistent mechanism to halt
trading across the U.S. equity markets while the Exchange, with the
other SROs, considers and develops rules and procedures that would
allow for the periodic testing of the performance of the MWCB
mechanism, which would include industry member participation in such
testing. The extension will also permit the SROs to consider
enhancements to the MWCB processes such as modifications to the Level 3
process.
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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 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.
Additionally, the Exchange believes that it is consistent with the
public interest and the protection of investors to modify the language
in Rule 11.280(a) to indicate that the LULD Plan Amendment 18 Approval
Order made permanent the Exchange's LULD Mechanism contained in
paragraph (e) of Rule 11.280. Furthermore, the Exchange believes it is
consistent with the public interest and the protection of investors to
clarify that paragraphs (g) and (h) of Rule 11.280, which set forth the
Exchange's authority and process for initiating and terminating trading
halts, are not subject to any pilot period. These clarifying changes
are designed to ensure continued compliance by the Exchange and its
Members with the requirements of the LULD Plan and remove any ambiguity
on the ongoing applicability of the trading halt provisions.
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 Exchange, in conjunction with the
other SROs, considers and develops rules and procedures that would
allow for the periodic testing of the performance of the MWCB
mechanism. Furthermore, as noted above, the extension will permit the
SROs to consider enhancements to the MWCB processes such as
modifications to the Level 3 process.
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.
Additionally, clarifying that paragraph (e) of Rule 11.280 was made
permanent by the LULD Plan Amendment 18 Approval Order is designed to
ensure continued compliance with the requirements of the LULD Plan. And
the Exchange believes that clarifying that the trading halt provisions
of paragraphs (g) and (h) of Rule 11.280 are not subject to any pilot
period, removes any ambiguity on the ongoing applicability of the
trading halt provisions, which the Exchange believes would not have an
impact on competition.
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)(iii) of the Act \18\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\19\
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\18\ 15 U.S.C. 78s(b)(3)(A)(iii).
\19\ 17 CFR 240.19b-4(f)(6). 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.
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A proposed rule change filed under Rule 19b-4(f)(6) \20\ normally
does not become operative for 30 days after the date of filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\21\ the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange 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.\22\
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\20\ Id.
\21\ 17 CFR 240.19b-4(f)(6)(iii).
\22\ 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
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Send an email to [email protected]. Please include
File Number SR-IEX-2019-11 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-IEX-2019-11. This file
number should be included in 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 Section, 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 will also be available for inspection
and copying at the IEX's principal office and on its internet website
at www.iextrading.com. 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-2019-11
and should be submitted on or before November 12, 2019.
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\23\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22837 Filed 10-18-19; 8:45 am]
BILLING CODE 8011-01-P