[Federal Register Volume 85, Number 58 (Wednesday, March 25, 2020)]
[Notices]
[Pages 16965-16968]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06192]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88428; File No. SR-BX-2020-004]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend Rule
4121(b)
March 19, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 19, 2020, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed with
the Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 4121(b) concerning the
resumption of trading following a Level 3 market-wide circuit breaker
halt.
The text of the proposed rule change is available on the Exchange's
website at http://nasdaqbx.cchwallstreet.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 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 4121(b) 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'').
Rule 4121 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
(``MWCB'') mechanism under Rule 4121 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''),\3\
including any extensions to the pilot period for the LULD Plan.\4\ The
Commission recently approved an amendment to the LULD Plan for it to
operate on a permanent, rather than pilot, basis.\5\ In light of the
proposal to make the LULD Plan permanent, the Exchange amended Rule
4121 to untie the pilot's effectiveness from that of the LULD Plan and
to extend the pilot's effectiveness to the
[[Page 16966]]
close of business on October 18, 2019.\6\ The Exchange then filed to
extend the pilot for an additional year to the close of business on
October 18, 2020.\7\
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\3\ 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.
\4\ See Securities Exchange Act Release Nos. 67090 (May 31,
2012), 77 FR 33531 (June 6, 2012) (SR-BX-2011-068) (Approval Order);
and 68815 (February 1, 2013), 78 FR 9752 (February 11, 2013) (SR-BX-
2013-009) (Notice of Filing and Immediate Effectiveness of Proposed
Rule Change to Delay the Operative Date of a Rule Change to Exchange
Rule 4121).
\5\ See Securities Exchange Act Release No. 85623 (April 11,
2019), 84 FR 16086 (April 17, 2019).
\6\ See Securities Exchange Act Release No. 85585 (April 10,
2019), 84 FR 15643 (April 16, 2019) (SR-BX-2019-008).
\7\ See Securities Exchange Act Release No. 87208 (October 3,
2019), 84 FR 54213 (October 9, 2019) (SR-BX-2019-034).
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The market-wide circuit breaker under Rule 4121 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.\8\
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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\8\ 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) (``MWCB
Approval Order'').
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Pursuant to Rule 4121, 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.
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 (``ET''), and the Exchange would
not be able to resume trading during its Pre-Market Session.\9\
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. ET on the next trading day, and therefore, the Exchange
could resume trading at the commencement of its Pre-Market Session.\10\
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\9\ Pre-Market Session means the trading session that begins at
7:00 a.m. and continues until 9:30 a.m. See Rule 4120(b)(4).
\10\ The Exchange's system begins adding and processing all
eligible orders in time priority at 7:00 a.m. See Rule 4752(a) for
further description of trading in the Pre-Market Session.
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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.\11\
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\11\ 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.\12\ Accordingly,
under the proposal, the Exchange could begin trading all securities at
the beginning of the Exchange's Pre-Market Session.
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\12\ 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.
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To effect this change, the Exchange proposes to delete the language
in Rule 4121(b)(ii) 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.\13\ 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 Pre-Market Session at 7:00
a.m. ET 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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\13\ Presently, the Exchange's equities trading day ends at 7:00
p.m. ET. See Rule 4701(g).
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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 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
[[Page 16967]]
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,\14\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\15\ 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 4121 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 7 a.m. ET on BX) 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. Based on the foregoing, the Exchange believes the
benefits to market participants from the MWCB under Rule 4121 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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\14\ 15 U.S.C. 78f(b).
\15\ 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.\16\
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\16\ See, e.g., Securities Exchange Act Release No. 88360 (March
11, 2020), 85 FR 15240 (March 17, 2020) (SR-NASDAQ-2020-003)
(``Nasdaq Proposal'').
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or 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 \17\ and Rule 19b-4(f)(6) thereunder.\18\
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.\19\
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\17\ 15 U.S.C. 78s(b)(3)(A)(iii).
\18\ 17 CFR 240.19b-4(f)(6).
\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 Commission has waived the pre-filing requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \20\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(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 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.\22\ 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.\23\
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\20\ 17 CFR 240.19b-4(f)(6).
\21\ 17 CFR 240.19b-4(f)(6)(iii).
\22\ See Securities Exchange Act Release No. 88360 (March 11,
2020) (SR-NASDAQ-2020-003).
\23\ 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) \24\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\24\ 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-BX-2020-004 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-BX-2020-004. This file
number should be included on the subject line if email is used. To help
the Commission process and review your
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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-BX-2020-004 and
should be submitted on or before April 15, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06192 Filed 3-24-20; 8:45 am]
BILLING CODE 8011-01-P