
[Federal Register Volume 82, Number 16 (Thursday, January 26, 2017)]
[Notices]
[Pages 8551-8554]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-01717]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79845; File No. 4-631]


Joint Industry Plan; Order Approving the Twelfth Amendment to the 
National Market System Plan To Address Extraordinary Market Volatility 
by Bats BZX Exchange, Inc., Bats BYX Exchange, Inc., Bats EDGA 
Exchange, Inc., Bats EDGX Exchange, Inc., Chicago Stock Exchange, Inc., 
Financial Industry Regulatory Authority, Inc., Investors Exchange LLC, 
NASDAQ BX, Inc., NASDAQ PHLX LLC, The Nasdaq Stock Market LLC, National 
Stock Exchange, Inc., New York Stock Exchange LLC, NYSE MKT LLC, and 
NYSE Arca, Inc.

January 19, 2017.

I. Introduction

    On September 19, 2016, NYSE Group, Inc., on behalf of the other 
parties \1\ to the National Market System Plan to Address Extraordinary 
Market Volatility (the ``Plan''), filed with the Securities and 
Exchange Commission (``Commission'') pursuant to Section 11A of the 
Securities Exchange Act of 1934 (``Act'') \2\ and Rule 608 
thereunder,\3\ a proposal to amend the Plan.\4\ The proposal represents 
the twelfth amendment to the Plan, and reflects proposed changes 
unanimously approved by the Participants (``Twelfth Amendment''). The 
proposed Twelfth Amendment was published for comment in the Federal 
Register on December 2, 2016.\5\ The Commission received two comment 
letters regarding the amendment.\6\ On January 17, 2017, the 
Participants submitted a letter to the Commission related to the 
Twelfth Amendment, which requests that the Commission modify the 
Twelfth Amendment to retain provisions in the

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Plan related to Straddle States.\7\ This order approves the Twelfth 
Amendment to the Plan, as modified.
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    \1\ NYSE Group, Inc. filed on behalf of the following parties to 
the Plan: Bats BZX Exchange, Inc., Bats BYX Exchange, Inc., Bats 
EDGA Exchange, Inc., Bats EDGX Exchange, Inc., Chicago Stock 
Exchange, Inc., Financial Industry Regulatory Authority, Inc., 
Investors Exchange LLC, NASDAQ BX, Inc., NASDAQ PHLX LLC, The Nasdaq 
Stock Market LLC, National Stock Exchange, Inc., New York Stock 
Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc. (``Participants'').
    \2\ 15 U.S.C. 78k-1.
    \3\ 17 CFR 242.608.
    \4\ See Letter from Elizabeth King, General Counsel and 
Corporate Secretary, NYSE, to Brent J. Fields, Secretary, 
Commission, dated September 16, 2016.
    \5\ See Securities Exchange Act Release No. 79410 (November 28, 
2016), 81 FR 87114 (``Notice'').
    \6\ See Letters from Mortimer J. Buckley, Chief Investment 
Officer, Vanguard, dated December 23, 2016 (``Vanguard Letter''); 
and David W. Blass, General Counsel, Investment Company Institute, 
dated December 22, 2016 (``ICI Letter'') to Brent J. Fields, 
Secretary, Commission.
    \7\ See Letter from Elizabeth K. King, General Counsel and 
Corporate Secretary, NYSE to Brent J. Fields, Secretary, Commission, 
dated January 13, 2017 (``Modification Letter'').
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II. Description of the Proposal

    In the Twelfth Amendment, the Participants propose to implement a 
modified reopening process following a Trading Pause.\8\ In particular, 
the Participants propose to amend the Plan to provide that a Trading 
Pause will continue until the Primary Listing Exchange has reopened 
trading using its established reopening procedures, even if such 
reopening is more than 10 minutes after the beginning of a Trading 
Pause, require that trading centers may not resume trading in an NMS 
Stock following a Trading Pause without Price Bands in such NMS Stock, 
and delete language made unnecessary in light of the proposed reopening 
procedures.\9\ In addition, the Participants propose to address the 
situation where there is no Reopening Price from the Primary Listing 
Exchange due to a systems or technology issue and make related changes 
regarding how the Reference Price would be determined and Price Bands 
calculated and disseminated following a resumption of trading. Further, 
the Participants propose to amend the Plan to provide that if an NMS 
Stock is in a Trading Pause during the last ten minutes of trading 
before the end of Regular Trading Hours, the Primary Listing Exchange 
shall attempt to execute a closing transaction using its established 
closing procedures. Finally, the Participants propose to clarify in the 
Plan the limited circumstances in which a trading center may calculate 
and apply Price Bands when a Reference Price is available but Price 
Bands have not been disseminated by the Processor (``Synthetic Price 
Bands'').
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    \8\ Unless otherwise specified, the terms used herein have the 
same meaning as set forth in the Plan.
    \9\ The Primary Listing Exchanges filed proposed rule changes 
pursuant to Section 19(b)(1) of the Act, 15 U.S.C. 78s(b)(1), and 
Rule 19b-4 thereunder, 17 CFR 240.19b-4, relating to the changes to 
the reopening procedures proposed in the Twelfth Amendment. See 
Securities Exchange Act Release Nos. 79162 (October 26, 2016), 81 FR 
75875 (November 1, 2016) (SR-BatsBZX-2016-61; 79158 (October 26, 
2016), 81 FR 75879 November 1, 2016) (SR-NASDAQ-2016-131); and 79107 
(October 18, 2016), 81 FR 73159 (October 24, 2016) (SR-NYSEArca-
2016-130). See also Securities Exchange Act Release No 79846, 
(January 19, 2017) (SR-NYSEArca-2016-130).
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    Finally, in the Twelfth Amendment, the Participants propose to 
remove provisions related to Straddle States. However, as described in 
the Modification Letter, the Participants have requested the Commission 
to modify the Twelfth Amendment to retain the provisions related to 
Straddle States in the Plan.

III. Summary of Comment Letters

    The Commission received two comment letters on the proposed Twelfth 
Amendment, both supporting the proposed changes to the Plan related to 
the reopening process. One commenter noted that the proposed amendments 
to the Plan along with the related proposed rule changes submitted by 
the exchanges \10\ ``should improve the transparency of the reopening 
process, allow reopening auctions to establish more accurate prices, 
and make it less likely that trading in a security will be halted again 
shortly after trading resumes.'' \11\ This commenter further noted that 
``[I]mplementing these proposals also should increase market confidence 
by reducing the likelihood of the Limit Up-Limit Down Plan creating 
confusion during volatile markets, when clarity and certainty are most 
important.'' \12\ This commenter urged the Commission to approve the 
proposed Twelfth Amendment and corresponding rule changes, but noted 
that the Twelfth Amendment ``does not address the discordance between 
the rules governing clearly erroneous executions and the limit up-limit 
down price bands, which contributes unnecessarily to uncertainty in the 
equity markets in volatile times.'' \13\ The second commenter urged the 
Commission to approve the Twelfth Amendment ``without delay'' and 
before considering a change to the Plan recommended by the Equity 
Market Structure Advisory Committee in which ``securities in a limit 
state would not be halted pursuant to existing rules, but would be 
permitted to trade within established price bands.'' \14\ This 
commenter believes that ``the Twelfth Amendment is an important step 
towards improving the equity markets and minimizing the likelihood of 
an event like August 24, 2015.'' \15\
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    \10\ See supra note 9.
    \11\ See ICI Letter, supra note 6 at 2.
    \12\ Id.
    \13\ Id.
    \14\ See Vanguard Letter, supra note 6, at 2.
    \15\ Id.
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IV. Discussion and Commission Findings

    Rule 608 under Regulation NMS provides that the Commission shall 
approve an NMS plan amendment, with such changes or subject to such 
conditions as the Commission may deem necessary or appropriate, if it 
finds that the plan amendment is ``necessary or appropriate in the 
public interest, for the protection of investors and the maintenance of 
fair and orderly markets, to remove impediments to, and perfect the 
mechanism of, a national market system, or otherwise in furtherance of 
the purposes of the Act.'' \16\ The Commission finds that the Twelfth 
Amendment, as modified, is consistent with Section 11A of the Act \17\ 
and Rule 608 thereunder \18\ because, for the reasons discussed below 
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. The Commission notes that the Participants proposed the 
Twelfth Amendment to address issues experienced on August 24, 2015. In 
particular, the Participants believe that the changes to the Plan set 
forth in the Twelfth Amendment should reduce the number of repeat 
Trading Pauses in a single NMS Stock and establish a more standardized 
process across Primary Listing Exchanges in reopening trading following 
a Trading Pause.
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    \16\ 17 CFR 242.608(b)(2).
    \17\ 15 U.S.C. 78k-1.
    \18\ 17 CFR 242.608.
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A. Coordinated Reopening Procedures After a Trading Pause

    The Participants propose to remove the language in Plan Section 
VII(B)(3) that permits trading centers to begin trading an NMS Stock 
ten minutes after declaration of a Trading Pause in an NMS Stock if the 
Primary Listing Exchange has not either reported a Reopening Price or 
declared a Regulatory Halt.\19\ Accordingly, Trading Pauses would 
continue until a Primary Listing Market reports a Reopening Price, 
except in limited circumstances discussed below. In addition, the 
Participants propose to provide that trading centers may not resume 
trading in an NMS Stock following a Trading Pause without Price Bands 
in such NMS Stock.
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    \19\ The Participants also propose to amend Section V(C) of the 
Plan to remove language, which describes the first Reference Price 
in situations when a Primary Listing Market does not reopen within 
ten minutes after the beginning of a Trading Pause. The Commission 
believes that with the adoption of the proposed amendments described 
above, the Plan text in Section V(C) is no longer necessary.
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    The Commission believes that it is appropriate in the public 
interest, for the protection of investors and the maintenance of a fair 
and orderly market to provide that a Trading Pause

[[Page 8553]]

continue until the Primary Listing Exchange has reopened trading using 
its established reopening procedures, even if such reopening is more 
than 10 minutes after the beginning of a Trading Pause, and to require 
that trading centers may not resume trading in an NMS Stock following a 
Trading Pause without Price Bands in such NMS Stock. The Commission 
believes that these two provisions together support a more standardized 
process for reopening trading after a Trading Pause has been declared. 
Further, these provisions ensure that trading would not resume after a 
Trading Pause without Price Bands.

B. Systems and Technology Issues

    The Participants propose to amend Section VII(B)(2) of the Plan to 
clarify that the only time trading centers may resume trading in an NMS 
Stock in the absence of a Reopening Price from the Primary Listing 
Exchange is if the Primary Listing Exchange notifies the Processor that 
it is unable to reopen trading due to a systems or technology issue. 
The Commission believes that this change is appropriate in the public 
interest, for the protection of investors and the maintenance of a fair 
and orderly market because if a Primary Listing Exchange is unable to 
reopen trading due to a systems or technology issue, trading should be 
permitted to resume in that NMS Stock on other trading centers.
    Further, the Participants propose to add a new sentence to Section 
V(C)(1) of the Plan to specify that if the Primary Listing Exchange 
notifies the Processor that it is unable to reopen an NMS Stock due to 
a systems or technology issue, the next Reference Price would be the 
last effective Price Band that was in a Limit State before the Trading 
Pause. The Participants also propose to use this process for 
determining a Reference Price in situations where the Primary Listing 
Exchange reopens trading with a quotation that has a zero bid or offer, 
or both. The Commission believes that it is appropriate to use the last 
effective Price Band as the new Reference Price in these situations. As 
noted by the Participants, using the last effective Price Band that 
triggered the Trading Pause should be a closer approximation of the 
most recent trading in the NMS Stock, which should help to prevent 
repeat Trading Pauses.
    The Participants also propose to provide that if, under Section 
VII(B)(2), the Primary Listing Exchange notifies the Processor that it 
is unable to reopen an NMS Stock due to a systems or technology issue 
and it has not declared a Regulatory Halt, the Processor will calculate 
and disseminate Price Bands by applying triple the Percentage 
Parameters set forth in Appendix A to the Plan for the first 30 seconds 
such Price Bands are disseminated. The Commission notes that the Plan 
currently reflects that triple Percentage Parameters are applied if 
trading resumes ten minutes after a Trading Pause has been declared 
when the Primary Listing Exchange has not issued a Reopening Price. 
Accordingly, the Commission believes that that it is appropriate to 
apply triple Percentage Parameters to the new limited instances when a 
Reopening Price is not disseminated.
    Finally, the Participants propose to amend Section VII(B)(4) of the 
Plan to clarify that the Processor shall update the Price Bands, as set 
forth in Section V(C)(1)-(2) of the Plan, after receiving notification 
from the Primary Listing Exchange of a Reopening Price following a 
Trading Pause (or a resume message in the case of a reopening quote 
that has a zero bid or zero offer, or both), or notification that the 
Primary Listing Exchange is unable to reopen trading following a 
Trading Pause due to a systems or technology issue. In instances when 
the Primary Listing Exchange is unable to reopen due to a systems or 
technology issue, the Processor shall update the Price Bands no earlier 
than ten minutes after the beginning of the Trading Pause. The 
Commission believes that these changes are appropriate to clarify the 
requirements of the Processor to update the Price Bands in all 
situations following a Trading Pause.

C. Trading Pauses Before the End of Regular Trading Hours

    The Participants propose to amend Section VII(C)(1) of the Plan to 
provide that if an NMS Stock is in a Trading Pause during the last ten 
minutes of trading before the end of Regular Trading Hours, the Primary 
Listing Exchange shall, rather than seek to resume trading through its 
established reopening procedures, attempt to execute a closing 
transaction using its established closing procedures. The Commission 
believes that this change is appropriate in the public interest, for 
the protection of investors and the maintenance of a fair and orderly 
market to accommodate the new standardized process for reopening 
trading. As noted above, all trading centers must wait to resume 
trading in an NMS Stock subject to a Trading Pause until the Primary 
Listing Exchange has reported a Reopening Price. It is possible that a 
Trading Pause that was declared before the last ten minutes of trading 
before the end of Regular Trading Hours could be extended until after 
the last ten minutes of trading before the end of Regular Trading 
Hours. The Commission believes that it is appropriate to amend the Plan 
to reflect in such case, that trading in the NMS Stock should not 
resume, and instead the Primary Listing Exchange should attempt to 
execute a closing transaction using established closing procedures.

D. Synthetic Price Bands

    The Participants propose to amend Section V(A)(1) of the Plan to 
clarify that if the Processor has not yet disseminated Price Bands, but 
a Reference Price is available, a trading center may calculate and 
apply Synthetic Price Bands based on the same Reference Price that the 
Processor would use for calculating such Price Bands until the trading 
center receives Price Bands from the Processor. The Commission believes 
that this change is appropriate in the public interest, for the 
protection of investors and the maintenance of a fair and orderly 
market because it will make clear that, while a trading center may not 
resume trading in an NMS Stock following a Trading Pause without Price 
Bands in such NMS Stock, when a Reference Price is available, a trading 
center is permitted to calculate and apply its own Synthetic Price 
Bands before Price Bands have been received from the Processor.

E. Straddle States

    In the Twelfth Amendment, the Participants proposed to remove 
provisions in the Plan related to Straddle States. In its Modification 
Letter, the Participants request that the Commission approve the 
Twelfth Amendment, as modified, to retain the provisions related to 
Straddle States.\20\ The Participants note that they intend to further 
study alternatives to eliminating Straddle States from the Plan. The 
Commission deems it necessary to modify the Twelfth Amendment so that 
the provisions related to Straddle States are retained. The Commission 
believes that further data analysis is appropriate to evaluate 
alternatives to eliminating Straddle States from the Plan.
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    \20\ See Modification Letter, supra note 7.
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    For the reasons noted above, the Commission finds that the Twelfth 
Amendment to the Plan, as modified, is consistent with Section 11A of 
the Act \21\ and Rule 608 thereunder.\22\
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    \21\ 15 U.S.C. 78k-1.
    \22\ 17 CFR 242.608. Consistent with their representations set 
forth in the Notice, the Commission expects the Participants to 
implement the Twelfth Amendment, as modified, no later than six 
months after the date of this order.

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[[Page 8554]]

V. Conclusion

    It is therefore ordered, pursuant to Section 11A of the Act \23\ 
and Rule 608 thereunder,\24\ that the Twelfth Amendment to the Plan 
(File No. 4-631), as modified, be, and it hereby is, approved.
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    \23\ 15 U.S.C. 78k-1.
    \24\ 17 CFR 242.608.

    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)(29).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-01717 Filed 1-25-17; 8:45 am]
BILLING CODE 8011-01-P


