[Federal Register Volume 85, Number 57 (Tuesday, March 24, 2020)]
[Notices]
[Pages 16720-16723]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06118]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88421; File No. SR-IEX-2020-04]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
IEX Rule 11.280 Concerning the Resumption of Trading Following a Level 
3 Market-Wide Circuit Breaker Halt

March 18, 2020.
    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 18, 2020, 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 concerning the resumption 
of trading following a Level 3 market-wide circuit breaker halt. 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 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
    The Exchange proposes to amend IEX Rule 11.280(b) \8\ concerning 
the resumption of trading following a Level 3 market-wide circuit 
breaker halt. The Exchange is proposing this rule change in conjunction 
with other national securities exchanges and the Financial Industry 
Regulatory Authority (``FINRA'').
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    \8\ See IEX Rule 11.280(b).
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    IEX Rule 11.280 provides a methodology for determining when to halt 
trading in all stocks due to extraordinary market volatility (i.e., 
market-wide circuit breakers).\9\ The market-wide circuit breaker 
mechanism (``MWCB'') under IEX 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''), including any extensions to the pilot period for the LULD 
Plan.\10\ The Commission recently approved an amendment to the LULD 
Plan for it to operate on a permanent, rather than pilot, basis.\11\ In 
light of the proposal to make the LULD Plan permanent, the Exchange 
amended IEX 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

[[Page 16721]]

business on October 18, 2019.\12\ The Exchange then filed to extend the 
pilot for an additional year to the close of business on October 18, 
2020.\13\
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    \9\ See IEX Rule 11.280(a)-(d) and (f).
    \10\ 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).
    \11\ See Securities Exchange Act Release No. 85623 (April 11, 
2019), 84 FR 16086 (April 17, 2019).
    \12\ See Securities Exchange Act Release No. 85576 (April 9, 
2019), 84 FR 15237 (April 15, 2019) (SR-IEX-2019-04).
    \13\ See Securities Exchange Act Release No. 87298 (October 15, 
2019), 84 FR 56255 (October 21, 2019) (SR-IEX-2019-11).
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    The market-wide circuit breaker under IEX Rule 11.280 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.\14\ 
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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    \14\ See supra note 10.
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    Pursuant to IEX Rule 11.280, 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).\15\ 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.\16\ 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.\17\
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    \15\ See IEX Rule 11.280(a).
    \16\ See IEX Rule 11.280(b)(1).
    \17\ See IEX Rule 11.280(b)(2).
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    Today, in the event that a Level 3 market decline occurs, the 
Exchange would halt trading for the remainder of the trading day and 
would not resume until the primary listing market opens the next 
trading day. Thus, if the primary listing market is the New York Stock 
Exchange, Inc. (``NYSE''), IEX would not resume trading in NYSE-listed 
securities until NYSE opens at 9:30 a.m. ET on the next trading 
day.\18\ But if the primary listing market is the Nasdaq Stock Market 
LLC (``Nasdaq''), IEX would resume trading in Nasdaq-listed securities 
at 8:00 a.m. ET on the next trading day, when IEX commences its Pre-
Market Session.\19\ Effectively, Nasdaq would open its listed 
securities for trading following a Level 3 halt the same as a regular 
trading day under the current MWCB Level 3 re-opening procedures.\20\ 
For non-Nasdaq listed securities, however, IEX would resume trading 
once the primary listing market has re-opened the security for trading, 
which time may currently vary depending on the primary listing 
market.\21\
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    \18\ See NYSE Rule 1.1.
    \19\ Nasdaq's pre-market session begins at 4:00 a.m. ET and 
continues until 9:30 a.m. ET. See Nasdaq Rule 4120(b)(4). IEX's Pre-
Market Session begins at 8:00 a.m. ET and continues until 9:30 a.m. 
ET. See IEX Rule 1.160(aa).
    \20\ The Nasdaq system begins accepting and processing eligible 
orders in time priority at 4:00 a.m. ET. See Nasdaq Rule 4752(b) for 
further description of trading in the Pre-Market Session.
    \21\ Furthermore, there may be cross-market differences in how 
each exchange currently opens the next day after a Level 3 MWCB 
halt. As discussed above, while Nasdaq currently resumes trading in 
its listed securities no differently from a regular trading day, 
other exchanges may, for instance, conduct a halt auction process 
instead of opening in the normal course under their respective 
rules. As discussed later in this filing, the proposed changes will 
allow each exchange to resume trading in all securities the next 
trading day following a Level 3 halt no differently from a regular 
trading day.
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    Upon feedback from industry participants, the Exchange has been 
working with other national securities exchanges and FINRA to establish 
a standardized approach for resuming trading in all NMS Stocks 
following a Level 3 halt. The proposed approach would allow for the 
opening of all securities the next trading day after a Level 3 halt as 
a regular trading day and is designed to ensure that Level 3 MWCB 
events are handled in a more consistent manner that is transparent for 
market participants.\22\
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    \22\ Of note, the U.S. futures markets, which have similar rules 
for coordinated MWCB halts, normally begin their ``next day'' 
trading session at 6:00 p.m. ET (for CFE and CME) or at 8:00 p.m. ET 
(for ICE). If the U.S. futures markets amend their MWCB rules, as 
needed, to allow for normal course trading following a Level 3 halt, 
the futures markets would resume trading in their normal course at 
6:00 p.m. ET (CFE and CME) or 8:00 p.m. ET (ICE) the same day as the 
Level 3 halt.
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    As proposed, a Level 3 halt would end at the end of the trading day 
on which it is declared. This proposed change would allow for next-day 
trading to resume in all NMS Stocks no differently from any other 
trading day. In other words, an exchange could resume trading in any 
security when it first begins trading under its rules and would not 
need to wait for the primary listing market to re-open trading in a 
security before it could start trading such security.\23\ Accordingly, 
under the proposal, the Exchange could begin trading all securities at 
the beginning of the Exchange's Pre-Market Session, just as it 
currently does for Nasdaq-listed securities.
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    \23\ The Exchange anticipates that the other national securities 
exchanges and FINRA will also file similar proposals to amend their 
MWCB rules on the resumption of trading following Level 3 halts, and 
amend their rules, where required, to have their Level 3 next-day 
openings happen normally. See e.g., Securities Exchange Act Release 
No. 88004 (January 17, 2020), 85 FR 3992 (January 23, 2020) (SR-
NASDAQ-2020-003).
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    To effect this change, the Exchange proposes to delete the language 
in IEX Rule 11.280(b)(2) requiring the Exchange to wait until the 
primary listing exchange opens the next trading day following a Level 3 
market decline, and specify that the Exchange will halt trading for the 
remainder of the same trading day.\24\ The proposed rule change would 
therefore allow each exchange to resume trading in all securities the 
next trading day following a Level 3 halt at whatever time such 
exchange normally begins trading under its rules, which for IEX would 
be at the beginning of the Pre-Market Session at 8:00 a.m. ET under its 
current rules.\25\ The Exchange also expects that the primary listing 
exchanges will facilitate this change by sending resume messages to the 
applicable securities information processor (``SIP'') to lift the Level 
3 trading halt message in all securities. The resumption messages will 
be disseminated after the SIP has started on the next trading day and 
before the start of the earliest pre-market trading session of all 
exchanges. If a security is separately subject to a regulatory halt 
that has not ended, the primary listing exchange would replace the 
Level 3 halt message with the applicable regulatory halt message.
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    \24\ Presently, the Exchange's equities trading day ends at 5:00 
p.m. ET. See IEX Rule 1.160(aa).
    \25\ See supra note 19.
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    Having a consistent approach for all securities will make the 
opening process the day after a Level 3 halt more uniform and reduce 
complexity, which the Exchange believes is important after a 
significant market event. Based on industry feedback, the Exchange 
believes that opening in the normal course in all equity securities as 
opposed to, for instance, having a normal opening for Nasdaq-listed 
securities only or waiting for the primary listing exchange to conduct 
a halt auction prior to resuming trading, will be more beneficial to 
the marketplace. By allowing trading to resume after a Level 3 halt in 
all securities no differently from any normal trading day under the 
respective

[[Page 16722]]

rules of each exchange, the proposed rule change would provide greater 
certainty to the marketplace by ensuring a familiar experience for all 
market participants that trade NMS Stocks and balances out potential 
concerns around volatility. While the Exchange recognizes that the 
impact of this proposal is to permit all securities to be traded in the 
Pre-Market Session, which does not have certain price protections for 
volatility such as LULD Bands or MWCB protections, the Exchange 
nonetheless believes that this outcome is outweighed by the benefits 
provided by opening in the Pre-Market Session in a manner that is more 
familiar to the marketplace. Moreover, allowing the resumption of 
trading to occur on the Exchange at the beginning of the Pre-Market 
Session in all NMS Stocks will allow for price formation to occur 
earlier in the trading day, which in turn allows market participants to 
react to news that has developed. As such, trading at the beginning of 
regular hours may be more orderly.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of Sections 6(b) \26\ and 6(b)(5) of the Act,\27\ 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 IEX Rule 11.280 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. The Exchange 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, and how the markets will resume trading following a 
Level 3 market decline. As described above, the Exchange, together with 
other national securities exchanges and FINRA, is seeking to adopt a 
standardized approach related to resuming trading in NMS Stocks after a 
Level 3 MWCB halt. In this regard, the Exchange believes that the 
proposal to resume trading in all securities following a Level 3 halt 
in the same manner that securities would open trading on a regular 
trading day (i.e., the beginning of the Pre-Market Session at 8 a.m. ET 
on IEX) will benefit investors, the national market system, Exchange 
Members, and the Exchange market by promoting a fair and orderly market 
and reducing confusion during a significant cross-market event. By 
allowing trading to resume after a Level 3 halt in all securities no 
differently from any normal trading day under the respective rules of 
each exchange, the proposed rule change would provide greater certainty 
to the marketplace by ensuring a familiar experience for all market 
participants that trade NMS Stocks.
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    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(5).
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    Based on the foregoing, the Exchange believes the benefits to 
market participants from the MWCB under IEX Rule 11.280 with the 
proposed standardized process for resuming trading in all securities 
following a Level 3 halt 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 will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act because the proposed Level 3 rule change 
described above would standardize the opening process for all 
securities on the Exchange, which would make the opening process the 
day after a Level 3 halt more uniform and reduce complexity. Further 
the Exchange understands that FINRA and the other national securities 
exchanges will file similar proposals to adopt the proposed Level 3 
rule change.

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 \28\ and Rule 19b-4(f)(6) thereunder.\29\ 
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 and Rule 19b-
4(f)(6)(iii) thereunder.\30\
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    \28\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \29\ 17 CFR 240.19b-4(f)(6).
    \30\ 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) \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 has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. The Commission notes 
that it approved a substantively similarly proposed rule change 
submitted by Nasdaq.\33\ Waiver of the operative delay will ensure 
consistency across the market centers and the timely implementation of 
the proposed rule change. Accordingly, the Commission waives the 30-day 
operative delay and designates the proposed rule change operative upon 
filing.\34\
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    \31\ 17 CFR 240.19b-4(f)(6).
    \32\ 17 CFR 240.19b-4(f)(6)(iii).
    \33\ See Securities Exchange Act Release No. 88360 (March 11, 
2020) (SR-NASDAQ-2020-003).
    \34\ For purposes only of waiving the 30-day operative delay, 
the Commission has 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) \35\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \35\ 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,

[[Page 16723]]

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-IEX-2020-04 on the subject line.

Paper Comments

     Send paper comments in triplicate to Vanessa Countryman, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.
All submissions should refer to File Number SR-IEX-2020-04. 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-2020-04 
and should be submitted on or before April 14, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
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    \36\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06118 Filed 3-23-20; 8:45 am]
BILLING CODE 8011-01-P