[Federal Register Volume 85, Number 57 (Tuesday, March 24, 2020)]
[Notices]
[Pages 16702-16705]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06119]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88417; File No. SR-CboeBZX-2020-025]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 11.18(b)(2) Concerning the Resumption of Trading Following a Level 
3 Market-Wide Circuit Breaker Halt and Make Corresponding Changes to 
Rules 11.23(d) and 11.24(e)

March 18, 2020.
    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 March 17, 2020, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') 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

    The Exchange proposes a rule change to amend Rule 11.18(b)(2) 
concerning the resumption of trading following a Level 3 market-wide 
circuit breaker halt and make corresponding changes to Rules 11.23(d) 
and 11.24(e).
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), 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
    The Exchange proposes to amend Rule 11.18(b)(2) concerning the 
resumption of trading following a Level 3 market-wide circuit breaker 
halt and to amend Rules 11.23(d) and 11.24(e) to make corresponding 
changes to the halt auction and halt re-opening process after such a 
halt. The Exchange is proposing this rule change in conjunction with 
other national securities exchanges and the Financial Industry 
Regulatory Authority (``FINRA'').
    Rule 11.18 provides a 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 
mechanism (``MWCB'') under Rule 11.18 was approved by the Commission to 
operate on a pilot basis,\5\ 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''),\6\ 
including any extensions to the pilot period for the LULD Plan.\7\ The 
Commission recently

[[Page 16703]]

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 11.18 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\ 
The Exchange then filed to extend the pilot for an additional year to 
the close of business on October 18, 2020.\10\ The market-wide circuit 
breaker under Rule 11.18 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.\11\ 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 11.18, 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. Eastern Time and 
before 3:25 p.m. Eastern Time would halt market-wide trading for 15 
minutes, while a similar market decline at or after 3:25 p.m. Eastern 
Time 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.
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    \5\ See Securities Exchange Act Release No. 67090 (May 31, 
2012), 77 FR 33531 (June 6, 2012) (SR-BATS-2011-038).
    \6\ 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.
    \7\ See Securities Exchange Act Release Nos. 67090 (May 31, 
2012), 77 FR 33531 (June 6, 2012) (SR-BATS-2011-038) (Approval 
Order); and 68851 (February 6, 2013), 78 FR 9955 (February 12, 2013) 
(SR-BATS-2013-009) (Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Extend the Pilot Program Related to Trading 
Pauses Due to Extraordinary Market Volatility).
    \8\ See Securities Exchange Act Release No. 85623 (April 11, 
2019), 84 FR 16086 (April 17, 2019).
    \9\ See Securities Exchange Act Release No. 85689 (April 18, 
2019), 84 FR 17217 (April 24, 2019) (SR-CboeBZX-2019-028).
    \10\ See Securities Exchange Act Release No. 87336 (October 17, 
2019), 84 FR 56868 (October 23, 2019) (SR-CboeBZX-2019-088).
    \11\ 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; SRCBOE-2011-087; SR-C2-2011-024; SR-CHX-2011-
30; SR-EDGA-2011-31; SREDGX-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; SRNYSEArca-2011-68; SR-Phlx-2011-129) (``MWCB 
Approval Order'').
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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, which time may currently vary depending on the primary 
listing market. For example, if the primary listing market is the New 
York Stock Exchange (``NYSE''), NYSE would resume trading in its listed 
securities at 9:30 a.m. Eastern Time on the next trading day, and the 
Exchange would not be able to resume trading during the Exchange's 
Early Trading Session \12\ or Pre-Opening Session.\13\ Alternatively, 
if the primary listing market is the Nasdaq Stock Market LLC 
(``Nasdaq''), Nasdaq would resume trading in its listed securities at 
4:00 a.m. Eastern Time on the next trading day, and therefore, the 
Exchange would resume trading at the commencement of the Early Trading 
Session.
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    \12\ See Exchange Rule 1.5(ee).
    \13\ See Exchange Rule 1.5(r).
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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.\14\ 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.\15\ Accordingly, under the proposal, the Exchange could begin 
trading all securities at the beginning of the Exchange's Early Trading 
Session.
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    \14\ 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. Eastern Time (for CFE and CME) or at 
8:00 p.m. Eastern Time (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. Eastern Time (CFE and CME) or 
8:00 p.m. Eastern Time (ICE) the same day as the Level 3 halt.
    \15\ The Exchange notes that Nasdaq has recently filed a similar 
proposal to amend its 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. Further, the 
Exchange anticipates that other national securities exchanges and 
FINRA will also file similar proposals.
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    To effect this change, the Exchange proposes to delete the language 
in Rule 11.18(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 trading day.\16\ 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 the 
Exchange would be at the beginning of the Early Trading Session at 7:00 
a.m. Eastern Time under its current rules. 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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    \16\ Presently, the Exchange's equities trading day ends at 8:00 
p.m. ET. See Exchange Rule 1.5(c).
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    As discussed above, the Exchange's proposed rule change to Rule 
11.18 would allow each exchange to resume trading in all securities on 
the day following the Level 3 Market Decline pursuant to its regular 
process for trading on any other trading day. Currently, the Exchange 
would re-open trading following a Level 3 Market Decline using a Halt 
Auction for its listed securities, and using a halt re-opening process 
for securities listed on other national securities exchanges.\17\ With 
the proposed changes to the MWCB mechanism, it would no longer be 
necessary for the Exchange to have special procedures in place to 
resume trading after a Level 3 Market Decline, as the proposed changes 
are designed to allow trading to commence using normal operating 
procedures. Accordingly, the Exchange proposes to make corresponding 
changes to Exchange Rule 11.23(d), which governs initial public 
offering (``IPO'') and halt

[[Page 16704]]

auctions in BZX listed securities. Specifically, the Exchange proposes 
to clarify that no halt auction will be conducted by the Exchange 
following a Level 3 Market Decline. Similarly, the Exchange proposes to 
make corresponding changes to Exchange Rule 11.24(e), which sets forth 
the re-opening process after a halt in non-BZX-listed securities. 
Specifically, the Exchange proposes to clarify that no halt re-opening 
process will be conducted by the Exchange following a Level 3 Market 
Decline. With these changes, trading would be allowed to commence 
normally on the trading day following a Level 3 Market Decline, similar 
to the resumption of trading on certain other national securities 
exchanges that would currently open with continuous trading.\18\
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    \17\ See Exchange Rules 11.23(d), 11.24(e); See also SIP Market-
Wide Circuit Breaker Overview, available at http://www.utpplan.com/DOC/MWCB_SIP_Overview.pdf.
    \18\ See Nasdaq Rule 4121(c)(i). See also Id.
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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 
will be 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 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 Early Trading 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 Early Trading 
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 Early Trading 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 Section 
6(b) of the Act,\19\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\20\ 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 Rule 11.18 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., with 
continuous trading on the Exchange at the beginning of the Early 
Trading Session at 7 a.m. Eastern Time) 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 
changes would provide greater certainty to the marketplace by ensuring 
a familiar experience for all market participants that trade NMS 
Stocks. Based on the foregoing, the Exchange believes the benefits to 
market participants from the MWCB under Rule 11.18 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.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
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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 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 other national 
securities exchanges will file similar proposals to adopt the proposed 
Level 3 rule change.\21\
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    \21\ See, e.g., Securities Exchange Act Release No. 88342 (March 
6, 2020), 85 FR 14513 (March 12, 2020) (SR-NASDAQ-2020-003).
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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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \22\ and Rule 19b-4(f)(6) thereunder.\23\ 
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.\24\
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    \22\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \23\ 17 CFR 240.19b-4(f)(6).
    \24\ 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) \25\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\26\ 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

[[Page 16705]]

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.\27\ 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.\28\
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    \25\ 17 CFR 240.19b-4(f)(6).
    \26\ 17 CFR 240.19b-4(f)(6)(iii).
    \27\ See Securities Exchange Act Release No. 88360 (March 11, 
2020) (SR-NASDAQ-2020-003).
    \28\ 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) \29\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \29\ 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, 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-CboeBZX-2020-025 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--CboeBZX-2020-025. 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-CboeBZX-2020-025 and 
should be submitted on or before April 14, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06119 Filed 3-23-20; 8:45 am]
BILLING CODE 8011-01-P