[Federal Register Volume 85, Number 199 (Wednesday, October 14, 2020)]
[Notices]
[Pages 65119-65121]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-22709]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90126; File No. SR-CboeBZX-2020-074]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Extend 
the Pilot Related to the Market-wide Circuit Breaker in Rule 11.18

October 8, 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 October 6, 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

    Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (the ``Commission'') a 
proposal to extend the pilot related to the market-wide circuit breaker 
in Rule 11.18. The text of the proposed rule change is provided in 
Exhibit 5.
    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
    BZX Rules 11.18(a) through (d), (f) and (g) describe the 
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 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''),\5\ including any extensions to the pilot period for the LULD 
Plan. In April 2019, the Commission approved an amendment to the LULD 
Plan for it to operate on a permanent, rather than pilot, basis.\6\ 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.\7\ The Exchange subsequently amended Rule 
11.18 to extend the pilot's effectiveness for an additional year to the 
close of business on October 18, 2020.\8\ The Exchange now proposes to 
amend Rule 11.18 to extend the pilot to the close of business on 
October 18, 2021. This filing does

[[Page 65120]]

not propose any substantive or additional changes to Rule 11.18.
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    \5\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012). The LULD Plan provides a 
mechanism to address extraordinary market volatility in individual 
securities.
    \6\ See Securities Exchange Act Release No. 85623 (April 11, 
2019), 84 FR 16086 (April 17, 2019).
    \7\ See Securities Exchange Act Release No. 85689 (April 18, 
2019), 84 FR 17217 (April 24, 2019) (SR-CboeBZX-2019-028).
    \8\ See Securities Exchange Act Release No. 87336 (October 17, 
2019), 84 FR 56868 (October 23, 2019) (SR-CboeBZX-2019-088).
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    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.\9\ 
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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    \9\ 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 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. 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 for the 
remainder of the trading day.
    Since the MWCB pilot was last extended in October 2019, the MWCB 
mechanism has proven itself to be an effective tool for protecting 
markets through turbulent times. In the Spring of 2020, at the outset 
of the worldwide COVID-19 pandemic, U.S. equities markets experienced 
four MWCB Level 1 halts, on March 9, 12, 16, and 18, 2020. In each 
instance, the markets halted as intended upon a 7% drop in the S&P 500 
Index, and resumed as intended 15 minutes later.
    In response to these events, the previously-convened MWCB Taskforce 
(``Taskforce'') reviewed the March 2020 halts and considered whether 
any immediate changes to the MWCB mechanism should be made. The 
Taskforce, consisting of representatives from equities exchanges, 
futures exchanges, FINRA, broker-dealers, and other market 
participants, had been assembled in early 2020 to consider more 
generally potential changes to the MWCB mechanism. The Taskforce held 
ten meetings in the Spring and Summer of 2020 that were attended by 
Commission staff to consider, among other things: (1) Whether to retain 
the S&P 500 Index as the standard for measuring market declines; (2) 
whether halts that occur shortly after the 9:30 a.m. market open cause 
more harm than good; and (3) what additional testing of the MWCB 
mechanism should be done.
    After considering data and anecdotal reports of market 
participants' experiences during the March 2020 MWCB events, the 
Taskforce did not recommend immediate changes be made to the use of the 
S&P 500 Index as the reference price against which market declines are 
measured, or to the current MWCB mechanism which permits halts even 
shortly after the 9:30 a.m. market open. The Taskforce recommended 
creating a process for a backup reference price in the event that the 
S&P 500 Index becomes unavailable, and enhancing functional MWCB 
testing. The Taskforce also asked CME to consider modifying its rules 
to enter into a limit-down state in the futures pre-market after a 7% 
decline instead of 5%.
    On September 17, 2020, the Director of the Division of Trading and 
Markets requested that the equities exchanges and FINRA prepare a more 
complete study of the design and operation of the MWCB mechanism and 
the LULD Plan during the period of volatility in the Spring of 2020. 
Based on the results of that study, the Exchange expects to work with 
the Commission, FINRA, the other exchanges, and market participants to 
determine if any additional changes to the MWCB mechanism should be 
made, including consideration of rules and procedures for the periodic 
testing of the MWCB mechanism with industry participants.
    In addition to the work of the Taskforce, the equities exchanges 
also moved forward in 2019 and 2020 with a plan to normalize their Day 
2 opening procedures after a Level 3 MWCB halt, such that all exchanges 
would reopen on Day 2 with a standard opening process. The Exchange and 
its Affiliate SROs \10\ filed rule changes to that effect in March 
2020,\11\ and successfully tested the implementation of those changes 
on September 12, 2020.
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    \10\ The ``Affiliate SROs'' are the Exchange's affiliated 
equities exchanges, Cboe BYX Exchange, Inc., Cboe EDGA Exchange, 
Inc., and Cboe EDGX Exchange, Inc.
    \11\ See Securities Exchange Act Release Nos. 88417 (March 18, 
2020), 85 FR 16702 (March 24, 2020) (SR-CboeBZX-2020-025); 88416 
(March 18, 2020), 85 FR 16699 (March 24, 2020) (SR-CboeBYX-2020-
009); 88420 (March 18, 2020), 85 FR 16696 (March 24, 2020) (SR-
CboeEDGX-2020-012); 88419 (March 18, 2020), 85 FR 16716 (March 24, 
2020) (SR-CboeEDGA-2020-008).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\12\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\13\ 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. Extending 
the market-wide circuit breaker pilot for an additional year would 
ensure the continued, uninterrupted operation of a consistent mechanism 
to halt trading across the U.S. markets while the Exchange and the 
other SROs study the design and operation of the MWCB mechanism and the 
LULD Plan during the period of volatility in the Spring of 2020. Based 
on the results of that study, the Exchange expects to work with the 
Commission, FINRA, the other exchanges, and market participants to 
determine if any additional changes to the MWCB mechanism should be 
made, including consideration of rules and procedures for the periodic 
testing of the MWCB mechanism with industry participants.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The Exchange also believes that the proposed rule change promotes 
just and equitable principles of trade in that it promotes transparency 
and uniformity across markets concerning when and how to halt trading 
in all stocks as a result of extraordinary market volatility. Based on 
the foregoing, the Exchange believes the benefits to market 
participants from the MWCB under Rule 11.18 should continue on a pilot 
basis because the MWCB will promote fair and orderly markets, and 
protect investors and the public interest.

[[Page 65121]]

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act because the proposal would 
ensure the continued, uninterrupted operation of a consistent mechanism 
to halt trading across the U.S. markets while the Exchange and the 
other SROs study the design and operation of the MWCB mechanism and the 
LULD Plan during the period of volatility in the Spring of 2020. 
Further, the Exchange understands that FINRA and other national 
securities exchanges will file proposals to extend their rules 
regarding the market-wide circuit breaker pilot. Thus, the proposed 
rule change will help to ensure consistency across market centers 
without implicating any competitive issues.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has designated this rule filing as non-controversial 
under Section 19(b)(3)(A) \14\ of the Act and Rule 19b-4(f)(6) \15\ 
thereunder. 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 for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6) thereunder.\16\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to 
give the Commission written notice of its intent to file the 
proposed rule change, along with a brief description and text of the 
proposed rule change, at least five business days prior to the 
filing of the proposed rule change, or such shorter time as 
designated by the Commission. The Commission has waived this 
requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \17\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\18\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative upon filing. Extending the pilot for an additional 
year will allow the uninterrupted operation of the existing pilot while 
the Exchange, FINRA, and the other exchanges conduct a study of the 
MWCB mechanism in consultation with market participants and determine 
if any additional changes to the MWCB mechanism should be made, 
including consideration of rules and procedures for the periodic 
testing of the MWCB mechanism with industry participants. Therefore, 
the Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The Commission hereby designates the proposed rule change to be 
operative upon filing.\19\
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    \17\ Id.
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2020-074 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-2020-074. 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 and on its internet 
website. 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.
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    \20\ 17 CFR 200.30-3(a)(12).
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    All submissions should refer to File Number SR-CboeBZX-2020-074 and 
should be submitted on or before November 4, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-22709 Filed 10-13-20; 8:45 am]
BILLING CODE 8011-01-P