[Federal Register Volume 86, Number 190 (Tuesday, October 5, 2021)]
[Notices]
[Pages 55066-55067]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21750]



[[Page 55066]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93212; File No. SR-NYSE-2021-40]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To Adopt on a Permanent Basis the Pilot Program 
for Market-Wide Circuit Breakers in Rule 7.12

September 30, 2021.

I. Introduction

    On July 2, 2021, New York Stock Exchange LLC (``NYSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposal to make its rules governing the operation of the Market-Wide 
Circuit Breakers (``MWCB'') mechanism permanent. The proposed rule 
change was published for comment in the Federal Register on July 22, 
2021.\3\ On August 27, 2021, pursuant to Section 19(b)(2) of the 
Act,\4\ the Commission designated a longer period within which to 
either approve the proposed rule changes, disapprove the proposed rule 
changes, or institute proceedings to determine whether to disapprove 
the proposed changes.\5\ The Commission has received no comments on the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 92428 (July 16, 
2021), 86 FR 38776 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 92785A, 86 FR 50202 
(September 7, 2021).
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    This order institutes proceedings under Section 19(b)(2)(B) of the 
Exchange Act \6\ to determine whether to approve or disapprove the 
proposed rule changes.
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    \6\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Changes

    MWCBs are coordinated, cross-market trading halts designed to 
operate during extreme market-wide declines to provide opportunities 
for markets and market participants to assess market conditions and 
systemic stress.\7\ Each cash equity exchange and options exchange has 
rules that govern the operation of these MWCBs. These rules operate on 
a pilot basis. The current pilot period was recently extended from 
October 18, 2021 to March 18, 2022.\8\
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    \7\ See Notice, supra note 3 at 38777.
    \8\ See Securities Exchange Act Release No. 93203 (September 30, 
2021).
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    The MWCB Pilot Rules provide for trading halts in all cash equity 
securities during a severe market decline as measured by a single-day 
decline in the S&P 500 Index (``SPX'').\9\ Under the Pilot Rules, a 
market-wide trading halt will be triggered if SPX declines in price by 
specified percentages from the prior day's closing price of that 
index.\10\ The triggers are set at three circuit breaker thresholds: 7% 
(Level 1), 13% (Level 2), and 20% (Level 3).\11\ A market decline that 
triggers a Level 1 or Level 2 halt after 9:30 a.m. and before 3:25 p.m. 
would halt market-wide trading for 15 minutes, while a similar market 
decline at or after 3:25 p.m. would not halt market-wide trading.\12\ 
Level 1 and Level 2 halts may occur only once a day. 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.\13\
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    \9\ See Notice, supra note 3 at 38777.
    \10\ See id.
    \11\ See id.
    \12\ See id.
    \13\ See id.
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    The NYSE's MWCB Pilot Rules also require all designated Regulation 
SCI firms to participate in at least one MWCB test each year.\14\ 
Specifically, Regulation SCI Firms must attest that they are able to or 
have attempted to: (A) Receive and process MWCB halt messages from the 
securities information processors (``SIPs''); (B) receive and process 
resume messages from the SIPs following a MWCB halt; (C) receive and 
process market data from the SIPs relevant to MWCB halts; and (D) send 
orders following a Level 1 or Level 2 MWCB halt in a manner consistent 
with their usual trading behavior.\15\
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    \14\ See id. at 38786.
    \15\ See id.
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    The triggers provided for in the MWCB Pilot Rules were triggered 
for the first time in March 2020 when MWCB Level 1 halts occurred on 
March 9, 12, 16, and 18, 2020. In response to these events, a task 
force comprised of the SROs reviewed the events and concluded that the 
MWCBs had performed as expected and recommended that no changes be made 
to the MWCB rules.\16\ Subsequently, at the request of the Director of 
the Commission's Division of Trading and Markets, the SROs and a 
``Working Group'' composed of SRO representatives and industry advisers 
that included members of the advisory committees to both the LULD Plan 
and the NMS Plans prepared a study, which includes a timeline of the 
MWCB events in March 2020; a summary of the analysis and 
recommendations of the MWCB Task Force; an evaluation of the operation 
of the Pilot Rules during the March 2020 events; an evaluation of the 
design of the current MWCB system; and the Working Group's conclusions 
and recommendations.\17\
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    \16\ See id. at 38778.
    \17\ See id.
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    Based on the conclusions and recommendations reached by the Working 
Group after analyzing how the MWCBs performed in March 2020, the 
Exchange proposed to transition the Pilot Rules to operate on a 
permanent basis without substantive change.\18\
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    \18\ See id.
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III. Proceedings To Determine Whether To Disapprove SR-NYSE-2021-40 and 
Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act to determine whether the proposal should be 
approved or disapproved. Institution of such proceedings is appropriate 
at this time in view of the legal and policy issues raised by the 
proposed rule change, as discussed below. Institution of disapproval 
proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved.
    Pursuant to Section 19(b)(2)(B) of the Act, the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis and input concerning the proposed rule change's consistency 
with the Act \19\ and, in particular, with Section 6(b)(5) of the Act, 
which requires, among other things, that the rules of a national 
securities exchanges be designed to prevent fraudulent and manipulative 
acts and practices, 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.\20\
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    \19\ 15 U.S.C. 78s(b)(2)(B).
    \20\ 15 U.S.C. 78f(b)(5).
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    Under the Commission's Rule of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the Exchange 
Act and the rules and regulations issued thereunder . . . is on the 
self-regulatory organization [`SRO'] that proposed the

[[Page 55067]]

rule change.'' \21\ The description of a proposed rule change, its 
purpose and operation, its effect, and a legal analysis of its 
consistency with applicable requirements must all be sufficiently 
detailed and specific to support an affirmative Commission finding.\22\ 
Any failure of the SRO to provide this information may result in the 
Commission not having a sufficient basis to make an affirmative finding 
that a proposed rule change is consistent with the Act and applicable 
rules and regulations.\23\
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    \21\ 17 CFR 201.700(b)(3).
    \22\ See id.
    \23\ See id.
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    As discussed above, the Exchange is proposing to make the current 
MWCB Pilot Rules permanent, substantively without change, including the 
provision requiring systems testing by certain market participants. 
Specifically, the Exchange proposes to require Designated Market Makers 
and Supplemental Liquidity Providers that have been determined by the 
Exchange to contribute a meaningful percentage of the Exchange's 
overall volume, measured on a quarterly or monthly basis, to 
participate in MWCB testing, though the Exchange may consider other 
factors in determining the member organizations that will be required 
to participate in testing. These market participants would be required 
to participate in at least one MWCB test each year and attest that they 
can send and receive MWCB halt and resume messages, as well as receive 
and process market data from the SIPs relevant to MWCBs and send orders 
following a MWCB Level 1 or Level 2 event. The proposed testing 
requirement, however, does not contemplate an ongoing assessment of 
whether the MWCB design (e.g., trigger thresholds, measurement 
criteria, and time of day application) remains appropriate over time, 
as the market structure evolves, and under various threat scenarios, 
nor does it require the Exchange to participate in testing. The 
Commission seeks comment on the following questions and asks commenters 
to submit data where appropriate to support their views:
    1. Do commenters believe that an ongoing assessment of the MWCB 
design should be conducted as market structure evolves and under 
various threat scenarios? If so, how could such an assessment 
meaningfully be conducted, understanding that it is difficult to 
replicate or forecast how market participants would behave during an 
actual MWCB event? How frequently should such an assessment be done?
    2. Are commenters aware of ongoing assessment methods in other 
contexts (e.g., cybersecurity) that could inform how an ongoing 
assessment of the MWCB could be structured?
    3. Should the Exchange be required to participate in a coordinated 
fashion in the operational test with the other SROs, report the results 
of their operational tests and periodic assessment of the MWCB design 
to the Commission and inform the Commission of any concerns or proposed 
modifications concerning the MWCBs?
    For the reasons discussed above, the Commission believes it is 
appropriate to institute proceedings pursuant to Section 19(b)(2)(B) of 
the Act to determine whether the proposal should be approved or 
disapproved.

IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
concerns identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposed rule change 
is inconsistent with Section 6(b)(5) or any other provision of the Act, 
or the rules and regulation thereunder. Although there do not appear to 
be any issues relevant to approval or disapproval which would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request or an 
opportunity to make an oral presentation.\24\
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    \24\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing and Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by October 26, 2021. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
November 9, 2021. The Commission asks that commenters address the 
sufficiency of the Exchange's statements in support of the proposal 
which are set forth in the Notice, in addition to any other comments 
they may wish to submit about the proposed change.
    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-NYSE-2021-40 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-NYSE-2021-40. 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-NYSE-2021-40 and 
should be submitted on or before October 26, 2021. Rebuttal comments 
should be submitted by November 9, 2021.

    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)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-21750 Filed 10-4-21; 8:45 am]
BILLING CODE 8011-01-P