
[Federal Register Volume 80, Number 37 (Wednesday, February 25, 2015)]
[Notices]
[Pages 10169-10171]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-03875]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74323; File No. 4-631]


Joint Industry Plan; Order Approving the Eighth Amendment to the 
National Market System Plan To Address Extraordinary Market Volatility 
by BATS Exchange, Inc., BATS Y-Exchange, Inc., Chicago Board Options 
Exchange, Incorporated, Chicago Stock Exchange, Inc., EDGA Exchange, 
Inc., EDGX Exchange, Inc., Financial Industry Regulatory Authority, 
Inc., NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, The Nasdaq Stock Market 
LLC, National Stock Exchange, Inc., New York Stock Exchange LLC, NYSE 
MKT LLC, and NYSE Arca, Inc.

February 19, 2015.

I. Introduction

    On December 24, 2014, Financial Industry Regulatory Authority, Inc. 
(``FINRA''), on behalf of the following parties to the National Market 
System Plan: BATS Exchange, Inc., BATS Y-Exchange, Inc., Chicago Board 
Options Exchange, Incorporated, Chicago Stock Exchange, Inc., EDGA 
Exchange, Inc., EDGX Exchange, Inc., NASDAQ OMX

[[Page 10170]]

BX, Inc., NASDAQ OMX PHLX LLC, the Nasdaq Stock Market LLC, National 
Stock Exchange, Inc., New York Stock Exchange LLC, NYSE MKT LLC, and 
NYSE Arca, Inc. (collectively with FINRA, the ``Participants''), filed 
with the Securities and Exchange Commission (``Commission'') pursuant 
to Section 11A of the Securities Exchange Act of 1934 (``Act'') \1\ and 
Rule 608 thereunder,\2\ a proposal to amend the Plan to Address 
Extraordinary Market Volatility (``Plan'').\3\ The proposal represents 
the eighth amendment to the Plan (``Eighth Amendment''), and reflects 
proposed changes unanimously approved by the Participants. The Eighth 
Amendment was published for comment in the Federal Register on January 
27, 2015.\4\ The Commission has received no comment letters regarding 
the Eighth Amendment. This order approves the Eighth Amendment to the 
Plan.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78k-1.
    \2\ 17 CFR 242.608.
    \3\ See Letter from Christopher B. Stone, Vice President, FINRA, 
to Brent Fields, Secretary, Commission, dated December 24, 2014 
(``Transmittal Letter'').
    \4\ See Securities Exchange Act Release No. 74110 (January 21, 
2015), 80 FR 4321 (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposal

A. Eighth Amendment to the Plan

    The Eighth Amendment includes two proposed changes to the Plan. 
First, the Participants propose to amend the Plan to establish a 
requirement for the Participants to submit a Supplemental Joint 
Assessment to the Commission by May 29, 2015. Second, the Participants 
propose to extend the end date of the pilot period of the Plan from 
February 20, 2015 to October 23, 2015.

B. Background and Purpose of the Plan

    The Plan, approved by the Commission in March 2012,\5\ establishes 
a market-wide limit up-limit down mechanism that is intended to address 
extraordinary market volatility in ``NMS Stocks,'' as defined in Rule 
600(b)(47) of Regulation NMS under the Act.\6\ The Plan sets forth 
limit up-limit down requirements designed to prevent trades from 
occurring outside specified Price Bands.\7\ These limit up-limit down 
requirements are coupled with Trading Pauses, as defined in the Plan, 
to accommodate more fundamental price moves (as opposed to erroneous 
trades or momentary gaps in liquidity). The limit up-limit down 
mechanism is intended to reduce the negative impacts of sudden, 
unanticipated price movements in NMS Stocks, such as those experienced 
on May 6, 2010, thereby protecting investors and promoting a fair and 
orderly market. The initial date of Plan operations was April 8, 
2013.\8\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 67091, 77 FR 33498 
(Jun. 6, 2012) (File No. 4-631).
    \6\ 17 CFR 242.600(b)(47). See also Section I(H) of the Plan.
    \7\ See Section V of the Plan.
    \8\ See Securities Exchange Act Release No. 68953 (February 20, 
2013), 78 FR 13113 (February 26, 2013).
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review, the Commission finds that the Eighth 
Amendment is consistent with the requirements of the Act and the rules 
and regulations thereunder.\9\ Specifically, the Commission finds that 
the Eighth Amendment is consistent with Section 11A of the Act \10\ and 
Rule 608 thereunder \11\ in that it is appropriate in the public 
interest, for the protection of investors and the maintenance of fair 
and orderly markets, and that it removes impediments to, and perfects 
the mechanism of, a national market system.
---------------------------------------------------------------------------

    \9\ In approving the Eighth Amendment, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78k-1.
    \11\ 17 CFR 242.608.
---------------------------------------------------------------------------

    The Supplemental Joint Assessment will evaluate the impact of the 
Plan using the measures set forth in Appendix B of the Plan \12\ and 
provide the Commission with an extensive cross-market data analysis 
using methodology agreed upon by the Participants.\13\ The Participants 
stated that they intend to engage a third-party consultant to assist in 
conducting the cross-market analysis and preparing the Supplemental 
Joint Assessment.\14\ The Participants believe that the Supplemental 
Joint Assessment will facilitate the development of unified 
recommendations, if and where appropriate, regarding operation of the 
Plan.\15\ The Participants also state that they intend to make the 
Supplemental Joint Assessment publicly available.\16\
---------------------------------------------------------------------------

    \12\ Appendix B of the Plan requires the Participants to: (a) 
Assess the statistical and economic impact on liquidity of 
approaching Price Bands; (b) assess the statistical and economic 
impact of the Price Bands on erroneous trades; (c) assess the 
statistical and economic impact of the appropriateness of the 
Percentage Parameters used for the Price Bands; (d) assess whether 
the Limit State is the appropriate length to allow for liquidity 
replenishment when a Limit State is reached because of a temporary 
liquidity gap; (e) evaluate concerns from the options markets 
regarding the statistical and economic impact of Limit States on 
liquidity and market quality in the options markets; (f) assess 
whether the process for entering a Limit State should be adjusted 
and whether Straddle States are problematic; (g) assess whether the 
process for exiting a Limit State should be adjusted; and (h) assess 
whether the Trading Pauses are too long or short and whether the 
reopening procedures should be adjusted.
    These areas are intended to capture the key measures necessary 
to assess the impact of the Plan and, if and where appropriate, to 
support recommendations relating to the calibration of the 
Percentage Parameters to help ensure that the stated objectives of 
the Plan are achieved.
    \13\ See Notice, supra, note 4 at 4323.
    \14\ See id. More recently, however, the Participants notified 
Commission staff that they have engaged a third-party consultant. 
Telephone conversation between Chris Grobbel, Attorney-Adviser, 
Commission, and Thushara Therrien, Director--Transparency Services, 
FINRA (February 3, 2015).
    \15\ See Notice, supra, note 4 at 4323.
    \16\ See id.
---------------------------------------------------------------------------

    The Participants further believe that extending the end date of the 
pilot period will: (i) Provide the Participants with time to use the 
information collected during the operation of the Plan to perform 
further analysis and recommend further amendments to the Plan, as 
necessary; (ii) provide a reasonable period of time for the public to 
comment on the Supplemental Joint Assessment and recommendations; and 
(iii) allow the Commission and the public adequate time to review the 
Supplemental Joint Assessment and any recommendations provided by the 
Participants, and to determine if any modifications to the Plan are 
appropriate.\17\
---------------------------------------------------------------------------

    \17\ See id.
---------------------------------------------------------------------------

    The Commission believes that the Supplemental Joint Assessment and 
any resulting recommendations for modifications to the Plan from the 
Participants, along with any public comment in response thereto, will 
assist the Commission in assessing the operation of the Plan and in 
considering any future determinations regarding the Plan.
    For the reasons noted above, the Commission finds that the Eighth 
Amendment to the Plan is consistent with Section 11A of the Act \18\ 
and Rule 608 thereunder.\19\ The Commission reiterates its expectation 
that the Participants will continue to monitor the scope and operation 
of the Plan and study the data produced, and will propose any 
modifications to the Plan that may be necessary or appropriate.\20\
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78k-1.
    \19\ 17 CFR 242.608.
    \20\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 11A of the Act \21\ 
and Rule 608 thereunder,\22\ that the Eighth

[[Page 10171]]

Amendment to the Plan (File No. 4-631) be, and it hereby is, approved.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78k-1.
    \22\ 17 CFR 242.608.

Brent J. Fields,
Secretary.
[FR Doc. 2015-03875 Filed 2-24-15; 8:45 am]
BILLING CODE 8011-01-P


