[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