[Federal Register Volume 85, Number 199 (Wednesday, October 14, 2020)]
[Notices]
[Pages 65127-65129]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-22711]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90128; File No. SR-IEX-2020-17]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend IEX 
Rule 11.280 To Extend the Pilot Period for the Market-Wide Circuit 
Breaker to the Close of Business on October 18, 2021

October 8, 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 October 5, 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 to extend the pilot 
period for the market-wide circuit breaker to the close of business on 
October 18, 2021. 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 the 
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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Paragraphs (a) through (d) and (f) of Rule 11.280 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 under 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''),\8\ 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

[[Page 65128]]

permanent, rather than pilot, basis.\9\ In light of the proposal to 
make the LULD Plan permanent, the Exchange amended 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 business on October 18, 2019.\10\ 
The Exchange subsequently amended Rule 11.280 to extend the pilot's 
effectiveness for an additional year to the close of business on 
October 18, 2020.\11\
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    \8\ 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).
    \9\ See Securities Exchange Act Release No. 85623 (April 11, 
2019), 84 FR 16086 (April 17, 2019) (``LULD Plan Amendment 18 
Approval Order'').
    \10\ See Securities Exchange Act Release No. 85576 (April 9, 
2019), 84 FR 15237 (April 15, 2019) (SR-IEX-2019-04).
    \11\ 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 purpose of this proposed rule change is to amend Rule 11.280(a) 
to extend the pilot period for the MWCB, set forth in paragraphs (a) 
through (d) and (f),\12\ to the close of business on October 18, 2021. 
This filing does not propose any substantive or additional changes to 
Rule 11.280.
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    \12\ Rule 11.280(f) also relates to the MWCB because it 
specifies the time zone for all times referenced in Rule 11.280(a) 
and (b).
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    MWCBs under Rule 11.280 provide an important, automatic mechanism 
that is invoked to promote stability and investor confidence during 
periods of significant stress when securities markets experience 
extreme broad-based declines. All SROs have rules relating to MWCBs, 
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.\13\ 
MWCBs 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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    \13\ 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).
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    Pursuant to Rule 11.280(a) through (d) and (f), 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: A 7% market decline (Level 1), a 13% market decline (Level 
2), and a 20% market decline (Level 3). A market decline that triggers 
a Level 1 or Level 2 circuit breaker 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 circuit breaker, 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 the Chicago Mercantile Exchange, Inc. 
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 Commission's 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 auction. The Exchange 
filed a rule change to that effect in March 2020,\14\ and successfully 
tested the implementation of those changes on September 12, 2020.
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    \14\ See Securities Exchange Act Release No. 88421 (March 18, 
2020), 85 FR 16720 (March 24, 2020) (SR-IEX-2020-04).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of Sections 6(b) \15\ and 6(b)(5) of the Act,\16\ 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 MWCB mechanism under 
Rule 11.280 is an important, automatic mechanism that is invoked to 
promote stability and investor confidence during periods of significant 
stress when securities markets experience extreme broad-based declines. 
Extending the MWCB pilot for an additional year would ensure the 
continued, uninterrupted operation of a consistent mechanism to halt 
trading across the U.S. equity markets while the Exchange, with the 
other SROs, studies 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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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).

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[[Page 65129]]

    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 11.280(a) through (d) and (f) 
should continue on a pilot basis because the MWCB 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 implicates any 
competitive issues because the proposal would ensure the continued, 
uninterrupted operation of a consistent mechanism to halt trading 
across the U.S. markets while the Exchange, in conjunction with the 
other SROs, studies the design and operation of the MWCB mechanism and 
the LULD Plan during the period of volatility in the Spring of 2020.
    Further, IEX understands that the other SROs will file proposals to 
extend their rules regarding the MWCB 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

    Written comments were neither solicited nor received.

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) \17\ of the Act and Rule 19b-4(f)(6) \18\ 
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.\19\
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 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) \20\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(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 upon filing. Extending the pilot for an additional 
year will allow the uninterrupted operation of the existing pilot, 
while 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.\22\
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    \20\ Id.
    \21\ 17 CFR 240.19b-4(f)(6)(iii).
    \22\ 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 under 
Section 19(b)(2)(B) \23\ of the Act 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-IEX-2020-17 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-IEX-2020-17. 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-2020-17 and 
should be submitted on or before November 4, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-22711 Filed 10-13-20; 8:45 am]
BILLING CODE 8011-01-P