
[Federal Register Volume 77, Number 109 (Wednesday, June 6, 2012)]
[Notices]
[Pages 33531-33535]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-13652]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67090; File Nos. 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]


Self-Regulatory Organizations; BATS Exchange, Inc.; BATS Y-
Exchange, Inc.; NASDAQ OMX BX, Inc.; Chicago Board Options Exchange, 
Incorporated; C2 Options Exchange, Incorporated; Chicago Stock 
Exchange, Inc.; EDGA Exchange, Inc.; EDGX Exchange, Inc.; Financial 
Industry Regulatory Authority, Inc.; International Securities Exchange 
LLC; The NASDAQ Stock Market LLC; New York Stock Exchange LLC; NYSE 
Amex LLC; NYSE Arca, Inc.; National Stock Exchange, Inc.; NASDAQ OMX 
PHLX LLC; Notice of Filing of Amendments No. 1 and Order Granting 
Accelerated Approval of Proposed Rule Changes as Modified by Amendments 
No. 1, Relating to Trading Halts Due to Extraordinary Market Volatility

May 31, 2012.
    On September 27, 2011, each of BATS Exchange, Inc. (``BATS''), BATS 
Y-Exchange, Inc. (``BYX''), NASDAQ OMX BX, Inc. (``BX''), Chicago Board 
Options Exchange, Incorporated (``CBOE''), C2 Options Exchange, 
Incorporated (``C2''), Chicago Stock Exchange, Inc. (``CHX''), EDGA 
Exchange, Inc. (``EDGA''), EDGX Exchange, Inc. (``EDGX''), 
International Securities Exchange LLC (``ISE''), The NASDAQ Stock 
Market LLC (``Nasdaq''), National Stock Exchange, Inc. (``NSX''), New 
York Stock Exchange LLC (``NYSE''), NYSE Amex LLC (``NYSE Amex''), NYSE 
Arca, Inc. (``NYSE Arca''), NASDAQ OMX PHLX LLC (``Phlx'') 
(collectively, the ``Exchanges'') and the Financial Regulatory Industry 
Authority, Inc. (``FINRA'') (together, with the Exchanges, the 
``SROs'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ 
proposed rule changes (the ``SRO Proposals'') to amend certain of their 
respective rules relating to trading halts due to extraordinary market 
volatility. The SRO Proposals were published for comment in the Federal 
Register on October 4, 2011.\3\ The Commission received seven comment 
letters on the SRO Proposals.\4\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release Nos. 65437 (September 
28, 2011), 76 FR 61466 (October 4, 2011); 65428 (September 28, 
2011), 76 FR 61453 (October 4, 2011); 65429 (September 28, 2011), 76 
FR 61432 (October 4, 2011); 65433 (September 28, 2011), 76 FR 61453 
(October 4, 2011); 65438 (September 28, 2011), 76 FR 61447 (October 
4, 2011); 65426 (September 28, 2011), 76 FR 61460 (October 4, 2011); 
65431 (September 28, 2011), 76 FR 61425 (May 12, 2011); 65440 
(September 28, 2011), 76 FR 61444 (October 4, 2011); 65430 
(September 28, 2011), 76 FR 61429 (October 4, 2011); 65425 
(September 28, 2011), 76 FR 61438 (October 4, 2011); 65435 (May 6, 
2011), 76 FR 61416 (October 4, 2011); 65436 (September 28, 2011), 76 
FR 61450 (October 4, 2011); 65427 (September 28, 2011), 76 FR 61457 
(October 4, 2011); 65432 (September 28, 2011), 76 FR 61422 (October 
4, 2011); 65439 (September 28, 2011), 76 FR 61463 (October 4, 2011); 
65434 (September 28, 2011), 76 FR 61419 (October 4, 2011) 
(collectively, the ``Notices'').
    \4\ See letter to Elizabeth M. Murphy, Secretary, Commission, 
from Ann L. Vlcek, Managing Director and Associate General Counsel, 
the Securities Industry and Financial Markets Association, dated 
October 27, 2011 (``SIFMA Letter I''); letter to Commission, from 
James J. Angel, Ph.D., CFA, Associate Professor of Finance, 
Georgetown University, McDonough School of Business, dated October 
25, 2011 (``Angel Letter''); letter to Elizabeth M. Murphy, 
Secretary, Commission, from Craig S. Donohue, CME Group, Inc., dated 
October 25, 2011 (``CME Group Letter I''); letter to Elizabeth M. 
Murphy, Secretary, Commission, from Commissioner Bart Chilton, 
Commodity Futures Trading Commission, dated October 25, 2011 
(``Commissioner Chilton Letter''); letter to Elizabeth M. Murphy, 
Secretary, Commission, from Richard H. Baker, President and CEO, 
Managed Funds Association, dated October 25, 2011 (``MFA Letter''); 
letter to Commission from Suzanne H. Shatto, dated October 20, 2011 
(``Shatto Letter''); letter to Commission from Mark Roszak, dated 
October 4, 2011 (``Roszak Letter'').
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    On November 17, 2011, the Commission extended the time period in 
which to approve the SRO Proposals, disapprove the SRO Proposals, or 
institute proceedings to determine whether to disapprove the SRO 
Proposals, to December 30, 2011.\5\ On December 28, 2011, the 
Commission instituted proceedings to determine whether to disapprove 
the SRO Proposals.\6\ The Commission thereafter received an additional 
three comment letters on the SRO Proposals.\7\ On May 10, 2012, NYSE 
Euronext, on behalf of the three U.S. exchanges it operates, NYSE, NYSE 
Amex, and NYSE Arca, filed a response to comments (the 
``Response'').\8\
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    \5\ See Securities Exchange Act Release No. 65770 (November 17, 
2011), 76 FR 72492 (November 23, 2011).
    \6\ See Securities Exchange Act Release No. 66065 (December 28, 
2011), 77 FR 316 (January 4, 2012).
    \7\ See letters to Elizabeth Murphy, Secretary, Commission, from 
Timothy Quast, Managing Director, ModernIR, dated January 20, 2012 
(``ModernIR Letter''); Craig S. Donohue, Chief Executive Officer, 
CME Group, Inc., dated January 25, 2012 (``CME Group Letter II''), 
and Ann L. Vlcek, Managing Director and Associate General Counsel, 
the Securities Industry and Financial Markets Association, dated 
February 7, 2012 (``SIFMA Letter II'').
    \8\ See letter to Elizabeth M. Murphy, Secretary, Commission, 
from Janet McGinness, EVP & Corporate Secretary, General Counsel, 
NYSE Markets, dated May 10, 2012.
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    On May 23, 2012 and May 24, 2012, the SROs each submitted Amendment 
No. 1 to their respective proposed rule change (the ``Amendments''). In 
the Amendments, the SROs propose to make the SRO Proposals operative on 
a pilot basis scheduled to end on the same date that the pilot period 
for the Limit Up-Limit Down Plan (as defined below) ends.\9\ The 
Commission is publishing this notice to solicit comments on the SRO 
Proposals, as modified by the Amendments, from interested persons and 
is approving the SRO Proposals, as modified by the Amendments, on an 
accelerated basis.
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    \9\ See, e.g., SR-NYSE-2011-48, Amendment No. 1. The text of 
proposed Amendment No. 1 is available on the NYSE's Web site at 
http://www.nyse.com, at the principal office of NYSE and at the 
Commission's Public Reference Room.
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I. Description of the Proposals

    In the SRO Proposals, the Exchanges and FINRA propose to revise the 
existing market-wide circuit breakers, which halt trading in all NMS 
securities (as defined in Rule 600(b)(47) of Regulation NMS under the 
Act \10\) in the event of extraordinary market volatility, in order to 
make them more meaningful in today's high-speed electronic

[[Page 33532]]

markets. In so doing, the exchanges took into account the events of May 
6, 2010, where the markets experienced excessive volatility in a short 
period of time, as well as the recommendations of the Joint CFTC-SEC 
Advisory Committee on Emerging Regulatory Issues (the ``Joint CFTC-SEC 
Advisory Committee'').
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    \10\ 17 CFR 242.600(b)(47).
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    The existing market-wide circuit breakers provide for specified 
trading halts following certain ``Level 1,'' ``Level 2,'' and ``Level 
3'' market declines.\11\ The values of Levels 1, 2, and 3 are 
calculated at the beginning of each calendar quarter, using 10%, 20%, 
and 30%, respectively, of the average closing value of the Dow Jones 
Industrial Average (``DJIA'') for the month prior to the beginning of 
the quarter.\12\ The existing Level 1, Level 2, and Level 3 circuit 
breakers operate as follows:
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    \11\ See, e.g., NYSE Rule 80B.
    \12\ Each percentage calculation is rounded to the nearest 50 
points and remains in effect until the next quarterly calculation.

Level 1 Halt
    Before 2:00 p.m.--one hour;
    At or after 2:00 p.m. but before 2:30 p.m.--30 minutes;
    At or after 2:30 p.m.--trading shall continue, unless there is a 
Level 2 Halt.
Level 2 Halt
    Before 1:00 p.m.--two hours;
    At or after 1:00 p.m. but before 2:00 p.m.--one hour;
    At or after 2:00 p.m.--trading shall halt and not resume for the 
rest of the day.
Level 3 Halt
    At any time--trading shall halt and not resume for the rest of 
the day.

    As described in detail in the Notices, the SRO Proposals, among 
other things, would: (i) Replace the DJIA with the S&P 500[supreg] 
Index (``S&P 500'') as the reference index; (ii) recalculate the 
values of the triggers daily instead of each calendar quarter; (iii) 
reduce the 10%, 20%, and 30% market decline trigger percentages to 
7%, 13%, and 20%; (iv) shorten the length of the trading halts 
associated with each market decline level; and (v) modify the times 
when a trading halt may be triggered. The proposed Level 1, Level 2, 
and Level 3 circuit breakers would operate as follows:

Level 1 Halt
    Before 3:25 p.m.--15 minutes;
    At or after 3:25 p.m.--trading shall continue, unless there is a 
Level 3 halt.
Level 2 Halt
    Before 3:25 p.m.--15 minutes;
    At or after 3:25 p.m.--trading shall continue, unless there is a 
Level 3 halt.
Level 3 Halt
    At any time--trading shall halt and not resume for the rest of 
the day.

II. Limit Up-Limit Down Plan

    Separately, certain equities exchanges \13\ and FINRA have proposed 
to establish a new mechanism to address extraordinary market volatility 
in individual securities, pursuant to a national market system plan 
filed under Rule 608 of Regulation NMS (the National Market System Plan 
to Address Extraordinary Market Volatility, or, the ``Limit Up-Limit 
Down Plan'').\14\ The new Limit Up-Limit Down Plan, which would replace 
the existing single-stock circuit breaker mechanism,\15\ would prevent 
trades in individual securities from occurring outside of a specified 
price band, and would be coupled with a trading pause mechanism to 
accommodate more fundamental price moves. In essence, a security would 
enter a ``limit state'' if its price moves a certain percentage--
generally 5%, 10% or 20%, depending on the stock and the time of day--
over a five-minute period. If the market does not naturally exit the 
limit state within 15 seconds, there would be a five-minute trading 
pause. The Commission also is approving today the Limit Up-Limit Down 
Plan on a pilot basis.\16\
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    \13\ These exchanges are BATS, BX, BYX, CBOE, CHX, EDGA, EDGX, 
Nasdaq, NSX, NYSE, NYSE MKT LLC (f/k/a NYSE Amex LLC), NYSE Arca, 
and Phlx.
    \14\ See Securities Exchange Act Release No. 64547 (May 25, 
2011), 76 FR 31647 (June 1, 2011).
    \15\ See Securities Exchange Act Release No. 64735 (June 23, 
2011), 76 FR 38243 (June 29, 2011) (order approving the current 
single-stock circuit breaker mechanism). The single-stock circuit 
breaker mechanism, which was approved as a pilot program, is 
currently scheduled to expire on July 31, 2012. See e.g., Securities 
Exchange Act Release No. 66136 (January 11, 2012), 77 FR 2589 
(January 18, 2012) (SR-NYSE-2011-69).
    \16\ See Securities Exchange Act Release No. 67091 (May 31, 
2012) (File No. 4-631).
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    As discussed below, the Commission, in the Notices for the SRO 
Proposals, specifically requested comment on how the proposed changes 
to the market-wide circuit breakers would interact with the Limit Up-
Limit Down Plan for individual securities, if approved, and several 
commenters expressed views on this issue.\17\
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    \17\ See Commissioner Chilton Letter, CME Group Letters I and 
II, and SIFMA Letters I and II.
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III. Summary of Comments

    The Commission received ten comment letters from eight commenters 
on the SRO Proposals.\18\ The commenters generally supported the 
proposals and their goals, but several expressed concern with 
particular provisions or offered alternative suggestions.\19\
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    \18\ See supra notes 4 and 7.
    \19\ See SIFMA Letters I and II, MFA Letter, CME Group Letter I, 
Angel Letter, and Shatto Letter. Some commenters suggested the 
Commission instead focus on other market structure changes; those 
changes are outside the scope of the SRO Proposals. See Modern IR 
Letter (suggesting the Commission suspend core trading rules in the 
event of extraordinary volatility) and Roszak Letter (suggesting the 
Commission more vigorously regulate high-frequency traders such as 
by limiting connection speeds).
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    Some commenters expressed concern that the Level 2 circuit breaker 
would not apply after 3:25 p.m.\20\ As explained in the Notices, the 
SROs adopted this approach to avoid disrupting the normal 4:00 p.m. 
market close. The Commission, however, specifically solicited comment 
on whether some provision should be made to end the regular trading 
session if a market decline suddenly occurs after 3:25 p.m., even if 
the decline is less than 20%. Some commenters believed that the 
proposal could leave the market vulnerable to a severe decline that 
occurs late in the trading day, and instead suggested that a Level 2 
circuit breaker triggered at or after 3:25 p.m. halt trading for the 
remainder of the trading session.\21\
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    \20\ See CME Group Letters I and II, Commissioner Chilton 
Letter, MFA Letter, and SIFMA Letter II.
    \21\ See CME Group Letters I and II, MFA Letter, and SIFMA 
Letter II.
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    The Commission also specifically requested comment on how the 
proposed changes would interact with the single-stock circuit breaker 
pilot program or, if approved, the proposed Limit Up-Limit Down Plan 
for individual securities. The Commission further asked whether the 
market-wide circuit breaker should be triggered if a sufficient number 
of single-stock circuit breakers or price limits were triggered. One 
commenter believed that the market-wide circuit breaker should be 
triggered if a sufficient number of single-stock circuit breakers or 
price limits were triggered, given the potential difficulties of 
accurately calculating the value of the S&P 500 Index in such 
circumstances.\22\ This commenter made some suggestions for this 
additional trigger, and encouraged Commission staff to assess empirical 
data to develop appropriate parameters in this area.\23\ Two other 
commenters also expressed

[[Page 33533]]

concern about the interaction of market-wide circuit breakers and 
single-stock circuit breakers, and the effect that might have on index 
calculations, particularly in macro-market events.\24\
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    \22\ See SIFMA Letters I and II. SIFMA also believed it was 
critical to coordinate the market-wide circuit breakers with the 
options and futures markets. The Commission notes that the SRO 
Proposals have been developed in consultation with the options and 
futures markets. See, e.g., Securities Exchange Act Release No. 
65427, 76 FR at 61458.
    \23\ See SIFMA Letter II. For example, SIFMA suggested that 
there be an additional market-wide circuit breaker trigger when both 
(1) 5% (or 25) of the securities in the S&P 500 are in a limit down 
state or halted and (2) 10% of the market weighting of the SPX is in 
a limit down state or halted. As a simpler alternative, SIFMA also 
suggested there be an additional trigger if 10% of the securities in 
the S&P 100 are in a limit state or halted.
    \24\ See CME Group Letters I and II and Commissioner Chilton 
Letter. CME Group noted, among other things, that in a macro-market 
event, multiple constituent stocks in the S&P 500 index could be 
limited, halted, and reopened on staggered timelines, creating 
complexity and confusion in understanding the index calculation and 
in ascertaining the true value of the index. CME Group Letter I at 
3.
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    Two commenters also expressed views on how market centers should 
treat pending orders in the event a market-wide circuit breaker is 
triggered. One commenter believed that orders pending with a market 
center at the time of a Level 1 or Level 2 circuit breaker should 
remain queued by the market center during the halt and be eligible for 
execution after the halt.\25\ However, in the event of a Level 3 
circuit breaker, that commenter was of the view that all pending orders 
should be cancelled, since trading will cease for the remainder of the 
day. The commenter reiterated these views in its subsequent comment 
letter.\26\ Another commenter generally took the position that the SROs 
should not cancel pending orders during a trading halt, in order to 
preserve the queue priority of market participants.\27\ These views 
were restated by the same commenter in its subsequent comment 
letter.\28\
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    \25\ See SIFMA Letter I.
    \26\ See SIFMA Letter II.
    \27\ See CME Group Letter I.
    \28\ See CME Group Letter II.
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    The Commission also sought comment on whether a provision should be 
made for a closing auction in the event of a Level 3 circuit breaker 
decline. One commenter responded that allowing a closing auction under 
these extreme circumstances would risk greater market dislocations, and 
therefore was unadvisable,\29\ but others believed there should be a 
closing process so that, among other things, options market 
participants can unwind hedges and mutual fund prices can be properly 
determined.\30\ Another commenter recommended that the markets hold an 
end-of-day closing auction if the triggering of a Level 2 or Level 3 
circuit breaker precluded a normal 4:00 p.m. close.\31\
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    \29\ See CME Group Letter I.
    \30\ See SIFMA Letter II and Angel Letter.
    \31\ See SIMFA Letter II.
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    The Commission also sought comment on whether the primary market 
should have a longer period (e.g. 30 minutes) to re-open trading 
following a Level 2 circuit breaker decline. One commenter responded 
that trading halts should be as short as operationally practicable, and 
was of the view that the 15-minute trading halt remained appropriate in 
this circumstance.\32\
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    \32\ See CME Group Letter I.
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    Finally, commenters offered several other specific suggestions with 
respect to the SRO Proposals. Two commenters suggested that the market-
wide circuit breakers apply after hours.\33\ One believed the trigger 
thresholds should be recalculated weekly rather than daily as 
proposed.\34\ Another commenter offered a variety of additional 
recommendations, including triggering the circuit breakers in the event 
of material issues with market data integrity or disruptions, 
triggering the circuit breakers based on opening prices rather than the 
previous day's close and using a velocity-based mechanism similar to 
the single-stock circuit breakers, maintaining the Level 1 circuit 
breaker at 10%, and not having a Level 3 circuit breaker close the 
markets for the remainder of the day.\35\ Two commenters stressed the 
need to coordinate the market-wide circuit breakers with the futures 
markets.\36\
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    \33\ See CME Group Letter I and Chilton Letter.
    \34\ See CME Group I Letter.
    \35\ See Angel Letter.
    \36\ See SIFMA Letters I and II and CME Group Letter I.
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    The Response addressed the main issues the commenters raised. With 
respect to the relationship between the Limit Up-Limit Down Plan and 
the market-wide circuit breakers, and specifically the suggestion that 
a market-wide trading halt be declared if a sufficient number of 
single-stock trading pauses or price limits were triggered, the 
Response argued that attempting to identify the appropriate correlation 
between individual securities in a trading pause or limit state and a 
related trigger for a market-wide circuit breaker at this stage is 
premature. Instead, the Response urged that the Commission use the 
pilot periods for both the SRO Proposals and Limit Up-Limit Down Plan 
to examine data and develop a better understanding of how the Limit Up-
Limit Down Plan will operate in practice before determining whether any 
further revisions to the SRO Proposals should be made.\37\
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    \37\ See Response at 3.
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    The Response also addressed the suggestions by certain commenters 
that provision be made for a trading halt other than a Level 3 halt 
after 3:25 p.m. The Response recommended that the types of declines 
that should trigger a halt after 3:25 p.m. should continue to be 
explored during the pilot period, but that the SRO Proposals should be 
approved in their current form.\38\ The Response expressed particular 
concern that a 15-minute market-wide halt after 3:25 p.m. would be 
disruptive to the fair and orderly closing of the markets at 4:00 p.m.
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    \38\ Id. at 4.
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IV. Discussion and Commission Findings

    After careful review of the SRO Proposals, as modified by the 
Amendments, and consideration of the comment letters and the Response, 
the Commission finds that the SRO Proposals relating to trading halts 
due to extraordinary market volatility are consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange and national securities 
association and, in particular, the requirements of Sections 6 \39\ and 
15A \40\ of the Act. Specifically, the Commission finds that the SRO 
Proposals are consistent with Sections 6(b)(5) \41\ and 15A(b)(6) \42\ 
of the Act, which, among other things, require that rules of a national 
securities exchange and national securities association be 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 to protect investors and the public interest.\43\
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    \39\ 15 U.S.C. 78f.
    \40\ 15 U.S.C. 78o-3.
    \41\ 15 U.S.C. 78f(b)(5).
    \42\ 15 U.S.C. 78o-3(b)(6).
    \43\ Further, in approving the SRO Proposals, the Commission 
considered the SRO Proposals' impact on efficiency, competition, and 
capital formation. See 15 U.S.C. 78c(f).
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    The Commission believes that the SRO Proposals are reasonably 
designed to update the existing market-wide circuit breakers to make 
them more meaningful and effective in today's high-speed electronic 
securities markets. The Exchanges and FINRA are amending, in a uniform 
manner, their rules that halt trading in all NMS securities in the 
event of extraordinary market volatility so that these circuit breakers 
would, among other things, be triggered by a smaller market-wide 
decline but last for a shorter period of time. In developing their 
proposals, the SROs took into account the events of May 6, 2010--where 
the markets experienced substantial volatility in a short period of 
time but at a level insufficient to trigger the existing market-wide 
circuit breakers--as well as the recommendations of the Joint CFTC-SEC 
Advisory Committee.

[[Page 33534]]

    As discussed above, the SRO Proposals would reduce the market 
decline percentage thresholds necessary to trigger a Level 1, 2, or 3 
market-wide circuit breaker from 10%, 20% and 30% to 7%, 13% and 20%, 
respectively. In light of the fact that the market-wide circuit 
breakers were not triggered on May 6, 2010 when the markets experienced 
extraordinary market volatility, the SROs are of the view that somewhat 
lower percentage thresholds are appropriate so that the market-wide 
circuit breakers are more meaningful. However, given the highly-
automated nature of today's markets and improvements in communication 
and connectivity, the SROs believe that a trading halt of shorter 
duration--15 minutes--would be sufficient to allow market participants 
an opportunity to assess a serious market decline and express their 
trading interest, with less disruption to the markets than the existing 
market-wide circuit breakers. The SROs also believe the broader-based 
S&P 500 is a more meaningful benchmark against which to assess a 
serious market-wide decline than the 30 listings that comprise the 
DJIA, and seek to improve the calibration and sensitivity of the 
circuit breaker mechanism by calculating the trigger values daily 
rather than quarterly.
    Commenters generally supported these core elements of the SRO 
Proposals, but several expressed concern about the interaction of the 
updated market-wide circuit breakers with the mechanisms to moderate 
excessive volatility in individual securities set forth in the proposed 
Limit Up-Limit Down Plan. Concerns were expressed about the impact on 
index calculations of a significant number of individual securities 
being in a limit state or halted, and the effectiveness of the market-
wide circuit breakers. Some interest was expressed in establishing an 
additional trigger for the market-wide circuit breakers if trading were 
limited or halted in a sufficient number of individual securities, and 
one commenter offered specific suggestions on how such a trigger might 
be established. The Commission notes that, in the Amendments, the SROs 
propose to establish the updated market-wide circuit breakers on a 
pilot basis, so that further thought could be given to this issue--as 
well as certain other issues raised by commenters--in light of the 
markets' experience with the new Limit Up-Limit Down mechanism for 
individual securities that is being approved today, and the further 
comment the Commission is seeking from market participants in this 
Order.
    Several commenters also expressed concern with the fact that the 
SRO proposals only provide for a Level 3 circuit breaker after 3:25 
p.m., so that the markets could experience up to a 20% decline during 
this period, and suggested instead that the Level 2 circuit breaker 
apply so as to leave the markets less vulnerable to a severe decline 
late in the trading day. Although a 13% decline after 3:25 p.m. would 
not halt trading under the SRO Proposals, the revised market-wide 
circuit breaker rules do maintain the 20% threshold that is currently 
in place as the minimum trigger level that would halt trading after 
3:25 p.m. The Commission notes that it will continue to consider this 
issue during the pilot period, and is specifically seeking further 
comment from market participants on this issue.
    Suggestions also were made with respect to certain other technical 
aspects of the SRO Proposals, such as providing for a closing auction 
in the event of a Level 3 circuit breaker,\44\ applying the circuit 
breakers after hours, creating an additional trigger if there are 
material market data issues, and clarifying the treatment of pending 
orders during a market-wide circuit breaker halt.\45\ The Response 
recommended that the Commission use the pilot periods contemplated in 
the SRO Proposals and Limit Up-Limit Down Plan to further consider all 
the concerns raised by the commenters.\46\ The Commission will continue 
to consider these issues during the pilot period.
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    \44\ Certain commenters believed there should be a closing 
process so that, among other things, options market participants can 
unwind hedges and mutual fund prices can be properly determined.
    \45\ Commenters also provided input on the duration of the 
trading halts, the application of market-wide circuit breakers in 
after hours trading, the frequency in which the trigger thresholds 
should be recalculated, the consideration of material issues with 
market data integrity or disruptions, and the use of opening prices 
rather than the previous day's close in calculating trigger 
thresholds. See supra, pp. 9-10.
    \46\ See Response at 3.
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    On balance, the Commission believes that the SRO Proposals are 
reasonably designed to improve the operation of the market-wide circuit 
breakers, in light of the changes to the trading markets since those 
rules were last amended and the lessons learned from the extraordinary 
volatility experienced on May 6, 2010. While the circuit breakers are 
likely to be triggered more frequently than before, the Commission 
believes this will continue to be a relatively rare event that is 
designed to address severe market declines.\47\ In addition, the 
updated market-wide circuit breakers should be less disruptive to the 
markets, given their shorter duration, yet should still be able to 
accomplish their goals given the significant advances in communication 
and connectivity in recent years. The Commission, the SROs and market 
participants will have an opportunity to further consider issues raised 
by commenters with respect to certain aspects of the operation of the 
updated circuit breakers during the pilot period, and will further 
benefit from observing the operation of the Limit Up-Limit Down 
mechanism for individual securities, which is being approved separately 
by the Commission today, during that period.
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    \47\ Data show that, since 1962, there would have been 13 
instances where at least a Level 1 circuit breaker decline would 
have been reached under the revised market-wide circuit breaker 
thresholds.
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    In light of the foregoing, the Commission finds that the SRO 
Proposals, as modified by the Amendments, are consistent with the Act.

V. Solicitation of Comments

    During the pilot period, the Commission encourages commenters to 
provide additional comments on the issues raised by commenters 
regarding certain aspects of the SRO Proposals or otherwise.
    The Commission specifically requests further comment on the 
following:
     Should a Level 1 or Level 2 trigger result in a trading 
halt after 3:25 p.m., or do the SRO Proposals' provisions that only a 
Level 3 trigger will halt trading after 3:25 p.m. adequately balance 
the need for an orderly close against the potential market disruptions 
associated with absence of a Level 1 or Level 2 halt after 3:25 p.m.?
     Should the market-wide circuit breakers be triggered if 
trading is limited or halted in a sufficient number of individual 
securities and, if so, how should such additional trigger be designed? 
What are the tradeoffs associated with such a trigger regarding 
simplicity and the risk of unnecessary triggers?
     Should any other aspects of the market-wide circuit 
breakers be modified in light of the experience with the new Limit Up-
Limit Down mechanism for individual securities?
    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Commenters are encouraged to submit 
empirical evidence to support their arguments. Comments may be 
submitted by any of the following methods:

[[Page 33535]]

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Numbers 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 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Numbers 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. These file 
numbers 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 Web site (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 Web site 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 filings also will be available 
for inspection and copying at the principal offices of the exchanges 
and FINRA, respectively. All comments received will be posted without 
change; the Commission does not edit personal identifying information 
from submissions. You should submit only information that you wish to 
make publicly available. All submissions should refer to File Numbers 
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 and should be submitted on or before June 27, 2012.

VI. Accelerated Approval of Proposed Rule Changes, as Modified by the 
Amendments

    The Amendments revised the SRO Proposals to, among other things, 
specify that the proposed rule change will be operative on a pilot 
basis, beginning February 4, 2013, and continuing until February 4, 
2014. The Amendments will allow the Commission, the SROs and market 
participants to further consider, during the pilot period, issues 
raised by commenters with respect to certain aspects of the SRO 
Proposals, and to benefit from the experience with the Limit Up-Limit 
Down mechanism for individual securities that also is being approved 
today on a pilot basis. Such further consideration will allow the 
Commission to consider whether modifications to the market-wide circuit 
breakers are warranted prior to any decision as to whether to approve 
them on a permanent basis. Accordingly, the Commission also finds good 
cause, pursuant to Section 19(b)(2) of the Act,\48\ for approving the 
SRO Proposals, as modified by the Amendments, prior to the 30th day 
after the date of publication of notice in the Federal Register.
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    \48\ 15 U.S.C. 78s(b)(2).
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VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\49\ that the proposed rule changes (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), as modified by the 
Amendments, be, and hereby are, approved on an accelerated basis.
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    \49\ 15 U.S.C. 78s(b)(2).

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-13652 Filed 6-5-12; 8:45 am]
BILLING CODE 8011-01-P


