[Federal Register Volume 87, Number 56 (Wednesday, March 23, 2022)]
[Notices]
[Pages 16512-16515]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06102]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94454; File No. SR-CBOE-2022-013]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Extend 
the Pilot Period Related to the Market-Wide Circuit Breaker in Rule 
5.22 to April 18, 2022

March 17, 2022.
    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, 2022, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe 
Options'') 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 Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to extend the pilot period related to the market-wide circuit breaker 
in Rule 5.22 to April 18, 2022. The text of the proposed rule change is 
provided in Exhibit 5. 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 (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), 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 extend the pilot related to the market-
wide circuit breaker in Rule 5.22 to the close of business on April 18, 
2022.
Background
    The Market-Wide Circuit Breaker (``MWCB'') rules, including the 
Exchange's Rule 5.22, provide an important, automatic mechanism that is 
invoked to promote stability and investor confidence during periods of 
significant stress when cash equities securities experience extreme 
market-wide declines. The MWCB rules are designed to slow the effects 
of extreme price declines through coordinated trading halts across both 
cash equity and equity options securities markets.
    The cash equities rules governing MWCBs were first adopted in 1988 
and, in 2012, all U.S. cash equity exchanges and FINRA amended their 
cash equities uniform rules on a pilot basis (the ``Pilot Rules'', 
including Exchange Rule 5.22).\5\

[[Page 16513]]

The Securities and Exchange Commission (the ``Commission'') approved 
the Pilot Rules, 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. Though the LULD Plan 
was primarily designed for equity markets, the Exchange believed it 
would, indirectly, potentially impact the options markets as well. 
Thus, the Exchange has previously adopted and amended Rule 5.22 \7\ (as 
well as other options pilot rules) to ensure the option markets were 
not harmed as a result of the Plan's implementation and implemented 
such rule on a pilot basis that has coincided with the pilot period for 
the Plan.\8\ In April 2019, the Commission approved an amendment to the 
LULD Plan for it to operate on a permanent, rather than pilot, 
basis.\9\ In light of the proposal to make the LULD Plan permanent, the 
Exchange amended Rule 5.22 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 5.22 to extend the pilot to the close of business on October 18, 
2020,\11\ October 18, 2021,\12\ and March 18, 2022.\13\ The Exchange 
now proposes to amend Rule 5.22 to extend the pilot to the close of 
business on April 18, 2022. This filing does not propose any 
substantive or additional changes to Rule 5.22.
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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; 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; 
SRNYSEAmex-2011-73; SR-NYSEArca-2011-68; SR-Phlx-2011-129) (``Pilot 
Rules Approval Order'').
    \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\ In October 2019, the Exchange restructured its Rulebook and 
relocated previous Rule 6.3B, governing the MWCB mechanism, to 
current Rule 5.22. No substantive changes were made to the rule. See 
Securities Exchange Act Release No. 87224 (October 4, 2019), 84 FR 
54652 (October 10, 2019) (SR-CBOE-2019-081).
    \8\ See Securities Exchange Act Release Nos. 65438 (September 
28, 2011), 76 FR 61447 (October 4, 2011) (SR-CBOE-2011-087) 
(amending Rule 5.22, prior Rule 6.3B, for determining when to halt 
trading in all stocks and stock options due to extraordinary market 
volatility); 68770 (January 30, 2013), 78 FR 8211 (February 5, 2013) 
(SR-CBOE-2013-011) (amending Rule 5.22, prior Rule 6.3B, to delay 
the operative date of the pilot to coincide with the initial date of 
operations of the Plan); and 85616 (April 11, 2019), 84 FR 16093 
(April 17, 2019) (SR-CBOE-2019-020) (proposal to extend the pilot 
for certain options pilots, including Rule 5.22, prior Rule 6.3B).
    \9\ See Securities Exchange Act Release No. 85623 (April 11, 
2019), 84 FR 16086 (April 17, 2019) (Order Approving Amendment No. 
18).
    \10\ See Securities Exchange Act Release No. 85616 (April 11, 
2019), 84 FR 16093 (April 17, 2019) (SR-CBOE-2019-020) (proposal to 
extend the pilot for certain options pilots, including Rule 5.22, 
prior Rule 6.3B).
    \11\ See Securities Exchange Act Release No. 87341 (October 18, 
2019), 84 FR 57081 (October 24, 2019) (SR-CBOE-2020-100).
    \12\ See Securities Exchange Act Release No. 90165 (October 13, 
2020), 85 FR 66391 (October 19, 2020) (SR-CBOE-2020-098).
    \13\ See Securities Exchange Act Release No. 93372 (October 18, 
2021), 86 FR 58709 (October 22, 2021) (SR-CBOE-2021-060).
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    As stated above, because all U.S. equity exchanges and FINRA 
adopted uniform Pilot Rules relating to market-wide circuit breakers in 
2012, the Exchange, too, adopted a MWCB mechanism on a pilot basis 
pursuant to Rule 5.22. Pursuant to Rule 5.22, 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.
The MWCB Task Force and the March 2020 MWCB Events
    In late 2019, Commission staff requested the formation of a MWCB 
Task Force (``Task Force'') to evaluate the operation and design of the 
MWCB mechanism. The Task Force included representatives from the SROs, 
the Commission, CME, the Commodity Futures Trading Commission 
(``CFTC''), and the securities industry and conducted several 
organizational meetings in December 2019 and January 2020. In Spring 
2020, the MWCB mechanism proved itself to be an effective tool for 
protecting markets through turbulent times. In March 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, in the Spring and Summer of 2020, the 
Task Force held ten meetings that were attended by Commission staff, 
with the goal of performing an expedited review of the March 2020 halts 
and identifying any areas where the MWCB mechanism had not worked 
properly. Given the risk of unintended consequences, the Task Force did 
not recommend changes that were not rooted in a noted deficiency. The 
Task Force recommended creating a process for a backup reference price 
in the event that SPX were to become unavailable, and enhancing 
functional MWCB testing. The Task Force 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%. CME made the requested 
change, which became effective on October 12, 2020.\14\
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    \14\ See https://www.cmegroup.com/content/dam/cmegroup/market-regulation/rulefilings/2020/9/20-392_1.pdf; https://www.cmegroup.com/content/dam/cmegroup/marketregulation/rule-filings/2020/9/20-392_2.pdf.
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The MWCB Working Group's Study
    On September 17, 2020, the Director of the Commission's Division of 
Trading and Markets asked the SROs to conduct a more complete study of 
the design and operation of the Pilot Rules and the LULD Plan during 
the period of volatility in the Spring of 2020. In response to the 
request, the SROs created a MWCB ``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 governing 
the collection, consolidation, and dissemination of last-sale 
transaction reports and quotations in NMS Stocks. The Working Group met 
regularly from September 2020 through March 2021 to consider the 
Commission's request, review data, and compile its study. The Working 
Group's efforts in this respect incorporated and built on the work of 
an MWCB Task Force. The Working Group submitted its study to the 
Commission on March 31, 2021 (the ``Study'').\15\ In addition to a 
timeline of the MWCB events in March 2020, the Study includes 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.
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    \15\ See Report of the Market-Wide Circuit Breaker (``MWCB'') 
Working Group Regarding the March 2020 MWCB Events, submitted March 
31, 2021 (the ``Study''), available at https://www.nyse.com/publicdocs/nyse/markets/nyse/Report_of_the_MarketWide_Circuit_Breaker_Working_Group.pdf.
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    In the Study, the Working Group concluded: (1) The MWCB mechanism

[[Page 16514]]

set out in the Pilot Rules worked as intended during the March 2020 
events; (2) the MWCB halts triggered in March 2020 appear to have had 
the intended effect of calming volatility in the market, without 
causing harm; (3) the design of the MWCB mechanism with respect to 
reference value (SPX), trigger levels (7%/13%/20%), and halt times (15 
minutes) is appropriate; (4) the change implemented in Amendment 10 to 
the Plan to Address Extraordinary Market Volatility (the ``Limit Up/
Limit Down Plan'' or ``LULD Plan'') did not likely have any negative 
impact on MWCB functionality; and (5) no changes should be made to the 
mechanism to prevent the market from halting shortly after the opening 
of regular trading hours at 9:30 a.m. In light of the foregoing 
conclusions, the Working Group also made several recommendations, 
including that the Pilot Rules should be permanent without any 
changes.\16\
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    \16\ See id. at 46
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Proposal To Extend the Operation of the Pilot Rules Pending the 
Commission's Consideration of the New York Stock Exchange LLC's Filing 
To Make the Pilot Rules Permanent
    On July 16, 2021, an SRO member of the Working Group, the New York 
Stock Exchange (``NYSE''), proposed a rule change to make the Pilot 
Rules permanent, consistent with the Working Group's 
recommendations.\17\ On August 27, 2021, the Commission extended its 
time to consider the proposed rule change to October 20, 2021.\18\ On 
September 30, 2021, the Commission initiated proceedings to determine 
whether to approve or disapprove the proposed rule change.\19\ On 
January 7, 2022, the Commission extended its time to approve or 
disapprove the proposed rule change by an additional 60 days, to March 
19, 2022.\20\ The Exchange understands that upon approval of this 
proposal, the other national securities exchanges and FINRA, including 
the Exchange, will also submit substantively identical proposals to the 
Commission. The Exchange now proposes to extend the expiration date of 
the Pilot Rules to the end of business on April 18, 2022.
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    \17\ See Securities Exchange Act Release No. 92428 (July 16, 
2021), 86 FR 38776 (July 22, 2021) (SR-NYSE-2021-40) (the ``NYSE 
Proposal'').
    \18\ See Securities Exchange Act Release No. 92785A (August 27, 
2021), 86 FR 50202 (September 7, 2021) (SR-NYSE-2021-40).
    \19\ See Securities Exchange Act Release No. 93212 (September 
30, 2021), 86 FR 55066 (October 5, 2021) (SR-NYSE-2021-40).
    \20\ See Securities Exchange Act Release No. 93933 (January 7, 
2022), 87 FR 2189 (January 13, 2022) (SR-NYSE-2021-40).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\21\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \22\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, 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. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \23\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
    \23\ Id.
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    The MWCB mechanism under Rule 5.22 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 month would ensure the 
continued, uninterrupted operation of a consistent mechanism to halt 
trading across the U.S. markets while the Commission reviews the NYSE 
Proposal change to make the Pilot Rules permanent.
    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 5.22 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

    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 Commission reviews 
the proposed rule change to make the Pilot Rules permanent.
    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

    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

    Because the foregoing proposed rule change does not:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. 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 \24\ and 
Rule 19b-4(f)(6) \25\ thereunder.
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    \24\ 15 U.S.C. 78s(b)(3)(A).
    \25\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \26\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\27\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange asked 
that the Commission waive the 30-day operative delay so that the 
proposal may become operative immediately upon filing. Extending the 
Pilot Rules' effectiveness to the close of business on April 18, 2022 
will extend the protections provided by the Pilot Rules, which would 
otherwise expire in less than 30-

[[Page 16515]]

days. Waiver of the operative delay would therefore permit 
uninterrupted continuation of the MWCB pilot while the Commission 
reviews the NYSE's proposed rule change to make the Pilot Rules 
permanent. Therefore, the Commission hereby waives the 30-day operative 
delay and designates the proposed rule change as operative upon 
filing.\28\
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    \26\ 17 CFR 240.19b-4(f)(6).
    \27\ 17 CFR 240.19b-4(f)(6)(iii).
    \28\ 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 will 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CBOE-2022-013 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-CBOE-2022-013. 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 (https://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-CBOE-2022-013 
and should be submitted on or before April 13, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-06102 Filed 3-22-22; 8:45 am]
BILLING CODE 8011-01-P