[Federal Register Volume 84, Number 206 (Thursday, October 24, 2019)]
[Notices]
[Pages 57081-57083]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23176]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87341; File No. SR-CBOE-2019-100]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change Relating 
To Extend the Pilot Period Related to the Market-Wide Circuit Breaker 
in Rule 5.22

October 18, 2019.
    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 October 16, 2019, Cboe Exchange, Inc. (the ``Exchange'' or 
``Cboe Options'') 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 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 Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to extend the pilot period related to the market-wide circuit breaker 
in Rule 5.22. The text of the proposed rule change is provided in 
Exhibit 5.
    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to extend the pilot period related to the market-wide circuit breaker 
in Rule 5.22. The text of the proposed rule change is provided in 
Exhibit 5.[sic]
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), 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
    Exchange Rule 5.22 describes the methodology for determining when 
to halt trading in all stock options due to extraordinary market 
volatility, i.e., market-wide circuit breakers (``MWCB''). The MWCB 
mechanism was approved by the Securities and Exchange Commission (the 
``Commission'') to operate on a pilot basis, the term of which was to 
coincide with the pilot period for the Plan to

[[Page 57082]]

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. Though the LULD Plan was primarily 
designed for equity markets, the Exchange believed it would, 
indirectly, potentially impact the options markets as well. Thus, the 
Exchange has previously adopted and amended Rule 5.22 \6\ (as well as 
other options pilot rules) to ensure the option markets were not harmed 
as a result of the Plan's implementation and implemented such rule on a 
pilot basis that has coincided with the pilot period for the Plan.\7\ 
The Commission recently approved an amendment to the LULD Plan for it 
to operate on a permanent, rather than pilot, basis.\8\ In light of the 
proposal to make the LULD Plan permanent, the Exchange amended Rule 
5.22 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.\9\
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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\ The Exchange recently restructured its Rulebook and 
relocated previous Rule 6.3B, governing the MWCB mechanism, to 
current Rule 5.22. No substantive changes were made to the rule. See 
Securities Exchange Act Release No. 87224 (October 4, 2019), 84 FR 
54652 (October 10, 2019) (SR-CBOE-2019-081).
    \7\ See Securities Exchange Act Release Nos. 65438 (September 
28, 2011), 76 FR 61447 (October 4, 2011) (SR-CBOE-2011-087) 
(amending Rule 5.22, prior Rule 6.3B, for determining when to halt 
trading in all stocks and stock options due to extraordinary market 
volatility); 68770 (January 30, 2013), 78 FR 8211 (February 5, 2013) 
(SR-CBOE-2013-011) (amending Rule 5.22, prior Rule 6.3B, to delay 
the operative date of the pilot to coincide with the initial date of 
operations of the Plan); and 85616 (April 11, 2019), 84 FR 16093 
(April 17, 2019) (SR-CBOE-2019-020) (proposal to extend the pilot 
for certain options pilots, including Rule 5.22, prior Rule 6.3B).
    \8\ See Securities Exchange Act Release No. 85623 (April 11, 
2019), 84 FR 16086 (April 17, 2019) (Order Approving Amendment No. 
18).
    \9\ See Securities Exchange Act Release No. 85616 (April 11, 
2019), 84 FR 16093 (April 17, 2019) (SR-CBOE-2019-020) (proposal to 
extend the pilot for certain options pilots, including Rule 5.22, 
prior Rule 6.3B).
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    The Exchange now proposes to amend Rule 5.22 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 5.22. The Exchange will 
use the extension period to develop with the other 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 exchanges to consider 
enhancements to the MWCB processes such as modifications to the Level 3 
process.
    The market-wide circuit breaker under Rule 5.22 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. As stated 
above, because 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, the Exchange, too, adopted a MWCB mechanism on a pilot basis 
pursuant to Rule 5.22[sic] 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.
    Pursuant to Rule 5.22, 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.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\10\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \11\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, 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. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \12\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ Id.
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    The MWCB mechanism under Rule 5.22 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 MWCB pilot for 
an additional year would ensure the continued, uninterrupted operation 
of a consistent mechanism to halt trading across the U.S. markets while 
the Exchange, with the other SROs, consider and develop 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 
exchanges to consider enhancements to the MWCB processes such as 
modifications to the Level 3 process.
    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 5.22 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, in 
conjunction with the other SROs, consider and develop rules and 
procedures that would allow for the periodic testing of the performance 
of the MWCB mechanism. In addition, as noted above, the extension will 
permit the exchanges to consider enhancements to the MWCB processes 
such as modifications to the Level 3

[[Page 57083]]

process. 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. 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

    The Exchange neither solicited nor received comments 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: (1) 
Significantly affect the protection of investors or the public 
interest; (2) impose any significant burden on competition; and (3) 
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 \13\ and Rule 19b-
4(f)(6) \14\ thereunder.
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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 Commission has waived the pre-filing requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \15\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\16\ 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.\17\
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    \15\ Id.
    \16\ 17 CFR 240.19b-4(f)(6)(iii).
    \17\ 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 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

     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-Cboe-2019-100 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-Cboe-2019-100. 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 10:00 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-Cboe-2019-100 and 
should be submitted on or before November 14, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-23176 Filed 10-23-19; 8:45 am]
 BILLING CODE 8011-01-P