[Federal Register Volume 85, Number 52 (Tuesday, March 17, 2020)]
[Notices]
[Pages 15240-15241]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05371]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88360; File No. SR-NASDAQ-2020-003]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Granting Approval of a Proposed Rule Change To Amend Rule 4121(b)

March 11, 2020.
    On January 14, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') 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 amend Rule 4121(b) concerning the resumption of 
trading following a Level 3 trading halt due to extraordinary market 
volatility. The proposed rule change was published for comment in the 
Federal Register on January 23, 2020.\3\ On March 6, 2020, the 
Commission extended the time period within which to either approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to approve or disapprove the proposed 
rule change, to April 22, 2020.\4\ The Commission 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\ See Securities Exchange Act Release No. 88004 (January 17, 
2020), 85 FR 3992 (``Notice'').
    \4\ See Securities Exchange Act Release No. 88342 (Federal 
Register publication pending).
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I. Description of the Proposal

    Rule 4121 provides a methodology for determining when to halt 
trading in all stocks due to extraordinary market volatility (``market-
wide circuit breakers'' or ``MWCB''). The Exchange proposes to amend 
Rule 4121(b) concerning the resumption of trading following a Level 3 
market-wide circuit breaker halt.
    Pursuant to Rule 4121, 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 until the primary listing market opens 
the next trading day.
    Currently, in the event that a Level 3 market decline occurs, the 
Exchange would halt trading for the remainder of the trading day, and 
would not resume until the primary listing market opens the next 
trading day. Thus, if the primary listing market is Nasdaq, the 
Exchange would resume trading in its listed securities at 4:00 a.m. ET 
on the next trading day, which is the beginning of the Exchange's Pre-
Market Session.\5\ Effectively, Nasdaq would open its listed securities 
for trading following a Level 3 halt the same as a regular trading day 
under its current MWCB Level 3 re-opening procedures.\6\ For non-Nasdaq 
listed securities, however, Nasdaq would resume trading once the 
primary listing market has re-opened the security for trading, which 
time may currently vary depending on the primary listing market.\7\
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    \5\ Pre-Market Session means the trading session that begins at 
4:00 a.m. and continues until 9:30 a.m. See Rule 4120(b)(4).
    \6\ The Nasdaq system begins accepting and processing eligible 
orders in time priority at 4:00 a.m. ET. See Nasdaq Rule 4752(b) for 
further description of trading in the Pre-Market Session.
    \7\ There may be cross-market differences in how each exchange 
currently opens the next day after a Level 3 MWCB halt. While Nasdaq 
currently resumes trading in its listed securities no differently 
from a regular trading day, other exchanges may, for instance, 
conduct a halt auction process instead of opening in the normal 
course under their respective rules.
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    The Exchange now proposes that a Level 3 halt would end at the end 
of the trading day on which it is declared. This proposed change would 
allow for next-day trading to resume in all NMS Stocks no differently 
from any other trading day.\8\ To effect this change, the Exchange 
proposes to delete the language in Rule 4121(b)(ii) requiring the 
Exchange to wait until the primary listing exchange opens the next 
trading day following a Level 3 market decline, and specify that the 
Exchange will halt trading for the remainder of the trading day.\9\ The 
proposed rule change would allow the Exchange to resume trading in all 
securities the next trading day following a Level 3 halt no differently 
than any other trading day, which for Nasdaq would be at the beginning 
of the Pre-Market Session at 4:00 a.m. ET under its current rules.\10\ 
The Exchange also expects that the primary listing exchanges will 
facilitate this change by sending resume messages to the applicable 
securities information processor (``SIP'') to lift the Level 3 trading 
halt message in all securities. The resumption messages will be 
disseminated after the SIP has started on the next trading day and 
before the start of the earliest pre-market trading session of all 
exchanges. If a security is separately subject to a regulatory halt 
that has not ended, the primary listing exchange would replace the 
Level 3 halt message with the applicable regulatory halt message.
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    \8\ The Exchange anticipates that the other national securities 
exchanges and FINRA will also file similar proposals to amend their 
MWCB rules on the resumption of trading following Level 3 halts, and 
amend their rules, where required, to have their Level 3 next-day 
openings happen normally.
    \9\ Presently, the Exchange's equities trading day ends at 8:00 
p.m. ET.
    \10\ The Commission notes that the Exchange has coordinated this 
proposal with the other national securities exchanges and FINRA and 
expects that they will file proposals with the Commission to 
harmonize the MWCB rules and facilitate appropriately a cross-market 
resumption of trading following a Level 3 halt that is no different 
from any normal trading day.
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    The Exchange believes, based on industry feedback, that opening in 
the normal course in all equity securities as opposed to, for instance, 
having a normal opening for Nasdaq-listed securities only or conducting 
a halt auction prior to resuming trading, would be more beneficial to 
the marketplace. The Exchange states that by allowing trading to resume 
after a Level 3 halt in all securities no differently from any normal 
trading day under the respective rules of each exchange, the proposed 
rule change would provide greater certainty to the marketplace by 
ensuring a familiar experience for all market participants that trade 
NMS Stocks and balances out potential concerns around volatility. The 
Exchange states that while it recognizes that the impact of this 
proposal is to permit all securities to be traded in the Pre-Market 
Session, which does not have certain price protections for volatility 
such as LULD Bands or MWCB protections, it nonetheless believes that 
this outcome is outweighed by the benefits provided by opening in the 
Pre-Market Session in a manner that is more familiar to the 
marketplace. The Exchange further states that allowing the resumption 
of

[[Page 15241]]

trading to occur on the Exchange at the beginning of the Pre-Market 
Session in all NMS Stocks would allow for price formation to occur 
earlier in the trading day, which in turn would allow market 
participants to react to news that has developed, and that, as such, 
trading at the beginning of regular hours may be more orderly.

II. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\11\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\12\ 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 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.
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    \11\ 15 U.S.C. 78s(b)(2).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the Exchange's proposal protects 
investors and the public interest because it is designed to promote 
fair and orderly markets following a MWCB Level 3 halt in all 
securities. The Exchange's proposal is designed to promote fair and 
orderly markets in two ways. First, by permitting the resumption of 
trading no differently from any normal trading day, market participants 
are not forced to trade in manner differently from normal trading days 
following a Level 3 market event.\13\ This is particularly important as 
the market seeks to resume trading after being required to halt trading 
for the remainder of the prior trading day. Secondly, the Exchange's 
proposal is designed to enable price formation to occur for all 
securities earlier in the trading day, which in turn could allow market 
participants to react to news that has developed and may result in more 
orderly trading at the beginning of regular hours.\14\ For these 
reasons, the Commission finds that the Exchange's proposal is 
consistent with the Act.
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    \13\ The Exchange states that it has been working with other 
national securities exchanges and FINRA to establish a standardized 
approach for resuming trading in all NMS Stocks following a Level 3 
halt, and that the proposed approach would allow for the opening of 
all securities the next trading day after a Level 3 halt as a 
regular trading day, and is designed to ensure that Level 3 MWCB 
events are handled in a more consistent manner that is transparent 
for market participants. See Notice, supra note 3, at 3993. As noted 
above, the Commission recognizes that the Exchange has filed this 
proposal in consultation and coordination with the other national 
securities exchanges and FINRA and expects that these SROs will file 
proposals with the Commission to harmonize the MWCB rules and 
facilitate appropriately a cross-market resumption of trading 
following a Level 3 halt that is no different from any normal 
trading day.
    \14\ The Commission recognizes that while the proposal will 
permit all securities to be traded in the Exchange's Pre-Market 
Session, during which certain price protections for volatility such 
as LULD Price Bands or MWCB protections are not in effect, it 
believes that this is justified by the benefits noted above.
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III. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-NASDAQ-2020-003) be, and 
hereby is, approved.
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    \15\ 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).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-05371 Filed 3-16-20; 8:45 am]
 BILLING CODE 8011-01-P


