[Federal Register Volume 83, Number 160 (Friday, August 17, 2018)]
[Notices]
[Pages 41117-41118]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-17743]



[[Page 41117]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83836; File No. SR-NYSE-2018-31]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving a Proposed Rule Change, as Modified by Amendment No. 1, To 
Require Certain Member Organizations To Participate in Scheduled 
Market-Wide Circuit Breaker Testing

August 13, 2018.

I. Introduction

    On June 26, 2018, New York Stock Exchange LLC (``Exchange'' or 
``NYSE'') 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\ a 
proposed rule change to require certain member organizations to 
participate in scheduled market-wide circuit breaker testing. On July 
5, 2018, the Exchange filed Amendment No. 1 to the proposed rule 
change, which supersedes the original filing in its entirety.\3\ The 
proposed rule change, as amended by Amendment No. 1, was published for 
comment in the Federal Register on July 11, 2018.\4\ The Commission has 
received no comment letters on the proposed rule change. This order 
approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange proposed to improve the 
clarity of the proposal and elaborate on the Exchange's statement on 
burden on competition. See Letter from Martha Redding, Associate 
General Counsel, NYSE, to Brent J. Fields, Secretary, Commission 
(Jul. 9, 2018), available at https://www.sec.gov/comments/sr-nyse-2018-31/nyse201831-4016966-167312.pdf.
    \4\ See Securities Exchange Act Release No. 83601 (Jul. 6, 
2018), 83 FR 32172 (Jul. 11, 2018) (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to amend NYSE Rule 49 to require certain 
member organizations to participate in scheduled Market-Wide Circuit 
Breaker (``MWCB'') testing.\5\
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    \5\ The securities and futures exchanges have procedures for 
coordinated cross-market trading halts if a severe market price 
decline reaches levels that may exhaust market liquidity. These 
procedures, known as market-wide circuit breakers, may halt trading 
temporarily or, under extreme circumstances, close the markets 
before the normal close of the trading session. Market-wide circuit 
breakers provide for cross-market trading halts during a severe 
market decline as measured by a single-day decrease in the S&P 500 
Index. A cross-market trading halt can be triggered at three 
circuit-breaker thresholds: 7% (Level 1), 13% (Level 2), and 20% 
(Level 3). These triggers are set by the markets at levels that are 
calculated daily based on the prior day's closing price of the S&P 
500 Index.
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    The Securities Information Processors (``SIPs'') for the U.S. 
equity markets have established a quarterly MWCB testing schedule.\6\ 
On the scheduled dates, the Consolidated Tape Association Plan (``CTA 
Plan'') and the Consolidated Quotation Plan (``CQ'' Plan'') 
(collectively ``the CTA/CQ Plans''),\7\ along with the Nasdaq/UTP 
Plan,\8\ conduct MWCB testing that allows market participants across 
the securities industry to test their ability to receive messages 
associated with MWCBs, including decline status, halt, and resume 
messages. Market participants are also able to participate in testing 
of re-opening auctions following market-wide circuit breaker halts.
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    \6\ See, e.g., https://www.nyse.com/publicdocs/ctaplan/notifications/trader-update/CTS_CQS%202018_Failover%20Testing_Q1.pdf; https://www.nasdaqtrader.com/TraderNews.aspx?id=utp2017-15.
    \7\ The CTA/CQ Plans govern the collection, consolidation, 
processing, and dissemination of last sale and quotation information 
for Network A and Network B securities. Network A refers to 
securities listed on NYSE and Network B refers to securities listed 
on exchanges other than the Nasdaq Stock Market LLC (``Nasdaq'').
    \8\ The Joint Self-Regulatory Organization Plan Governing the 
Collection, Consolidation and Dissemination of Quotation and 
Transaction Information for Nasdaq-Listed Securities Traded on 
Exchanges on an Unlisted Trading Privileges Basis (``Nasdaq/UTP 
Plan'') governs the collection, consolidation, processing, and 
dissemination of last sale and quotation information for Network C 
securities. Network C refers to securities listed on Nasdaq.
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    The Exchange states that quarterly MWCB testing is critical to 
ensure that securities markets halt trading and subsequently re-open in 
a manner consistent with the MWCB rules.\9\ To that end, the Exchange 
states that certain member organizations should be required to 
participate in scheduled MWCB tests. The proposed rule would provide 
the Exchange with authority to require participation by certain member 
organizations in industry-wide tests to validate that their processing 
in the event of MWCB is as expected within their systems.
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    \9\ Pursuant to NYSE Rule 80B (Trading Halts Due to 
Extraordinary Market Volatility), 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 circuit breaker 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 circuit breaker, at any time during the trading day, would 
halt market-wide trading for the remainder of the trading day.
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    The Exchange also proposes new Rule 49(c)(1), which would provide 
that each member organization notified of its obligation to participate 
in mandatory testing pursuant to standards established under paragraphs 
(b)(1) and (3) of Rule 49 \10\ would also be required to participate in 
scheduled MWCB testing in the manner and frequency specified by the 
Exchange. The Exchange proposes that future SCI Notices would also 
include notification to member organizations of their obligation to 
participate in a scheduled MWCB test.\11\
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    \10\ In 2015, the Exchange adopted rules to require certain 
member organizations to participate in testing of the operation of 
the Exchange's business continuity and disaster recovery plans in 
connection with Regulation Systems Compliance and Integrity 
(``Regulation SCI''). Paragraph (b)(1) of Rule 49 establishes 
standards for the designation by the Exchange of member 
organizations that are necessary to participate in business 
continuity and disaster recovery plans testing pursuant to 
Regulation SCI. See Securities Exchange Act Release No. 76346 (Nov. 
4, 2015), 80 FR 69765 (Nov. 10, 2015). The Exchange believes that, 
because member organizations required to participate in Regulation 
SCI testing have already been identified as essential for the 
maintenance of a fair and orderly market, these same member 
organizations should also be required to participate in scheduled 
MWCB testing. See Notice, supra note 4, 83 FR at 32173.
    \11\ The Exchange states that the annual Regulation SCI test is 
currently conducted in October of each calendar year and that it 
provides at least (3) months advance notice to member organizations 
that are required to participate in such SCI testing (``SCI 
Notice'').
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    Finally, proposed Rule 49(c)(2) would provide that member 
organizations not required to participate in a scheduled MWCB test 
pursuant to standards established in paragraphs (b)(1) and (3) of Rule 
49 would be permitted to participate in a scheduled MWCB test.
    The Exchange proposes to implement the proposed rule change at the 
same time that the Exchange notifies member organizations of required 
participation in the 2019 Regulation SCI industry test.\12\ The 2019 
SCI Notice would identify the member organizations that would be 
required to participate in scheduled MWCB testing. Member organizations 
notified in the 2019 SCI Notice of their obligation to participate in a 
scheduled MWCB test would be required to participate in that test on at 
least one of the testing dates established by the SIPs.\13\
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    \12\ The Exchange states that member organizations were notified 
in April 2018 of their required participation in the Regulation SCI 
testing scheduled for October 13, 2018. The Exchange notes that, 
while it encourages all member organizations to participate in MWCB 
testing voluntarily, implementing the new rule in 2019 would provide 
member organizations with sufficient time to prepare for a scheduled 
MWCB test. See Notice, supra note 4, 83 FR at 32173 n. 8.
    \13\ See supra, note 6 and accompanying text.

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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\14\ In particular, the 
Commission finds that the proposed rule change, as modified by 
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\15\ 
which requires, among other things, that the rules of a national 
securities 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 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, 
and that the rules not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers. The Commission also 
finds that the proposed rule change, as modified by Amendment No. 1, is 
consistent with Section 6(b)(8) of the Act,\16\ which requires that the 
rules of an exchange not impose any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. As 
indicated above, the Commission has received no comment letters 
addressing the proposed rule change.
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    \14\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ 15 U.S.C. 78f(b)(8).
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    The Commission believes that amending NYSE Rule 49 to require 
certain member organizations to participate in scheduled MWCB testing 
would enable the Exchange, participating member organizations, and 
others to assess the readiness of participating member organizations to 
respond in the event of unanticipated market volatility. Member 
organizations required to participate in MWCB testing pursuant to the 
proposal would be designated as such using the same standards used by 
the Exchange in determining which member organizations are subject to 
mandatory Regulation SCI testing. Because these member organizations 
have been designated by the Exchange as essential to the maintenance of 
a fair and orderly market, their demonstrated ability to halt and 
subsequently re-open trading in a manner consistent with the MWCB rules 
should contribute to the fairness and orderliness of the market for the 
benefit of all market participants. The Commission therefore believes 
that the proposal, as modified by Amendment No. 1, is designed 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.
    Accordingly, for the reasons discussed above, the Commission 
believes that the Exchange's proposal, as modified by Amendment No. 1, 
is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\17\ that the proposed rule change (SR-NYSE-2018-31), as modified 
by Amendment No.1, be, and hereby is, approved.
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    \17\ 15 U.S.C. 78s(b)(2).
    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018-17743 Filed 8-16-18; 8:45 am]
BILLING CODE 8011-01-P


