[Federal Register Volume 85, Number 58 (Wednesday, March 25, 2020)]
[Notices]
[Pages 16968-16970]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06197]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88431; File No. SR-Phlx-2020-11]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change to Rule 3101(b)

March 19, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 19, 2020, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I and II, below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 3101(b) concerning the 
resumption of trading following a Level 3 market-wide circuit breaker 
halt.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqphlx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 3101(b) concerning the 
resumption of trading following a Level 3 market-wide circuit breaker 
halt. The Exchange is proposing this rule change in conjunction with 
other national securities exchanges and the Financial Industry 
Regulatory Authority (``FINRA'').
    Rule 3101 provides a methodology for determining when to halt 
trading in all stocks due to extraordinary market volatility (i.e., 
market-wide circuit breakers). The market-wide circuit breaker 
(``MWCB'') mechanism under Rule 3101 was approved by the Commission to 
operate on a pilot basis, the term of which was to coincide with the 
pilot period for the Plan to Address Extraordinary Market Volatility 
Pursuant to Rule 608 of Regulation NMS (the ``LULD Plan''),\3\ 
including any extensions to the pilot period for the LULD Plan.\4\ The 
Commission recently approved an amendment to the LULD Plan for it to 
operate on a permanent, rather than pilot, basis.\5\ In light of the 
proposal to make the LULD Plan permanent, the Exchange amended Rule 133 
to untie the pilot's effectiveness from that of the LULD Plan and to 
extend the pilot's effectiveness to the close of business on October 
18, 2019.\6\ The Exchange then filed to extend the pilot for an 
additional year to the close of business on October 18, 2020.\7\
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    \3\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012). The LULD Plan provides a 
mechanism to address extraordinary market volatility in individual 
securities.
    \4\ See Securities Exchange Act Release Nos. 67090 (May 31, 
2012), 77 FR 33531 (June 6, 2012) (SR-Phlx-2011-129) (Approval 
Order); and 68816 (February 1, 2013), 78 FR 9760 (February 11, 2013) 
(SR-Phlx-2013-11) (Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change to Delay the Operative Date of a Rule Change to 
Exchange Rule 133).
    \5\ See Securities Exchange Act Release No. 85623 (April 11, 
2019), 84 FR 16086 (April 17, 2019).
    \6\ See Securities Exchange Act Release No. 85579 (April 9, 
2019), 84 FR 15258 (April 15, 2019) (SR-Phlx-2019-12).
    \7\ See Securities Exchange Act Release No. 87206 (October 3, 
2019), 84 FR 54234 (October 9, 2019) (SR-Phlx-2019-40).
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    The market-wide circuit breaker under Rule 3101 provides an 
important, automatic mechanism that is invoked to promote stability and 
investor confidence during a period of significant stress when 
securities markets experience extreme broad-based declines. All U.S. 
equity exchanges and FINRA adopted uniform rules on a pilot basis 
relating to market-wide circuit breakers in 2012 (``MWCB Rules''), 
which are designed to slow the effects of extreme price movement 
through coordinated trading halts across securities markets when severe 
price declines reach levels that may exhaust market liquidity.\8\ 
Market-wide circuit breakers provide for trading halts in all equities 
and options markets during a severe market decline as measured by a 
single-day decline in the S&P 500 Index.
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    \8\ See Securities Exchange Act Release No. 67090 (May 31, 
2012), 77 FR 33531 (June 6, 2012) (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) (``MWCB 
Approval Order'').
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    Pursuant to Rule 3101, 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

[[Page 16969]]

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.
    Today, 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, which time may currently vary depending on the primary 
listing market. For example, if the primary listing market is the New 
York Stock Exchange (``NYSE''), NYSE would resume trading in its listed 
securities at 9:30 a.m. Eastern Time (``ET''), and the Exchange would 
not be able to resume trading during its Pre-Market Session.\9\ 
Alternatively, if the primary listing market is the Nasdaq Stock Market 
LLC (``Nasdaq''), Nasdaq would resume trading in its listed securities 
at 4:00 a.m. ET on the next trading day, and therefore, the Exchange 
could resume trading at the commencement of its Pre-Market Session.\10\
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    \9\ Pre-Market Session means the trading session that begins at 
8:00 a.m. and continues until 9:30 a.m. See Rule 3100(b)(2).
    \10\ The Exchange's system is opened for order entry and 
processing at 8:00 a.m. See Rule 3302 for further description of 
trading in the Pre-Market Session.
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    Upon feedback from industry participants, the Exchange 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. 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.\11\
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    \11\ Of note, the U.S. futures markets, which have similar rules 
for coordinated MWCB halts, normally begin their ``next day'' 
trading session at 6:00 p.m. ET (for CFE and CME) or at 8:00 p.m. ET 
(for ICE). If the U.S. futures markets amend their MWCB rules, as 
needed, to allow for normal course trading following a Level 3 halt, 
the futures markets would resume trading in their normal course at 
6:00 p.m. ET (CFE and CME) or 8:00 p.m. ET (ICE) the same day as the 
Level 3 halt.
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    As proposed, 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. In other words, an exchange could resume trading in any 
security when it first begins trading under its rules and would not 
need to wait for the primary listing market to re-open trading in a 
security before it could start trading such security.\12\ Accordingly, 
under the proposal, the Exchange could begin trading all securities at 
the beginning of the Exchange's Pre-Market Session.
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    \12\ 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.
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    To effect this change, the Exchange proposes to delete the language 
in Rule 3101(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.\13\ The proposed rule change would 
therefore allow each exchange to resume trading in all securities the 
next trading day following a Level 3 halt at whatever time such 
exchange normally begins trading under its rules, which for the 
Exchange would be at the beginning of the Pre-Market Session at 8:00 
a.m. ET under its current rules. 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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    \13\ Presently, the Exchange's equities trading day ends at 5:00 
p.m. ET. See Rule 3301(g).
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    Having a consistent approach for all securities will make the 
opening process the day after a Level 3 halt more uniform and reduce 
complexity, which the Exchange believes is important after a 
significant market event. Based on industry feedback, the Exchange 
believes that opening in the normal course in all equity securities 
will be beneficial to the marketplace. 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. While 
the Exchange 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, the Exchange 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. Moreover, 
allowing the resumption of trading to occur on the Exchange at the 
beginning of the Pre-Market Session in all NMS Stocks will allow for 
price formation to occur earlier in the trading day, which in turn 
allows market participants to react to news that has developed. As 
such, trading at the beginning of regular hours may be more orderly.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\15\ in particular, in that it is 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, in general to protect investors and the public 
interest. The market-wide circuit breaker mechanism under Rule 3101 is 
an important, automatic mechanism that is invoked to promote stability 
and investor confidence during a period of significant stress when 
securities markets experience extreme broad-based declines. The 
Exchange believes that the proposed rule change promotes just and 
equitable principles of trade in that it promotes transparency and 
uniformity across markets concerning when and how to halt trading in 
all stocks as a result of extraordinary market volatility, and how the 
markets will resume trading following a Level 3 market decline. As 
described above, the Exchange, together with other national securities 
exchanges and FINRA, is seeking to adopt a standardized approach 
related to resuming trading in NMS Stocks after a Level 3 MWCB halt. In 
this regard, the Exchange believes that the proposal to resume trading 
in all securities following a Level 3 halt in the same manner that 
securities would open trading on a regular trading day (i.e., the 
beginning of the Pre-Market Session at 8 a.m. ET on the Exchange) will 
benefit investors, the national market system, Exchange members, and 
the Exchange market by promoting a fair and orderly market and reducing

[[Page 16970]]

confusion during a significant cross-market event. 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. Based on the foregoing, the Exchange believes the 
benefits to market participants from the MWCB under Rule 3101 with the 
proposed standardized process for resuming trading in all securities 
following a Level 3 halt will promote fair and orderly markets, and 
protect investors and the public interest.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act because the proposed Level 3 
rule change described above would standardize the opening process for 
all securities on the Exchange, which would make the opening process 
the day after a Level 3 halt more uniform and reduce complexity. 
Further, the Exchange understands that FINRA and other national 
securities exchanges will file similar proposals to adopt the proposed 
Level 3 rule change.\16\
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    \16\ See, e.g., Securities Exchange Act Release No. 88360 (March 
11, 2020), 85 FR 15240 (March 17, 2020) (SR-NASDAQ-2020-003) 
(``Nasdaq Proposal'').
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \17\ and Rule 19b-4(f)(6) thereunder.\18\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\19\
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    \17\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Commission has waived the pre-filing requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \20\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\21\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Commission notes that 
it approved a substantively similarly proposed rule change submitted by 
The Nasdaq Stock Market LLC.\22\ Waiver of the operative delay will 
ensure consistency across the market centers and the timely 
implementation of the proposed rule change. Accordingly, the Commission 
waives the 30-day operative delay and designates the proposed rule 
change operative upon filing.\23\
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    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ 17 CFR 240.19b-4(f)(6)(iii).
    \22\ See Securities Exchange Act Release No. 88360 (March 11, 
2020) (SR-NASDAQ-2020-03).
    \23\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \24\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \24\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

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 Number SR-Phlx-2020-11 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Phlx-2020-11. This file 
number 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 website (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 website 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 a.m. and 3 
p.m. Copies of such filing also will be available for inspection and 
copying at the principal office of the Exchange. All comments received 
will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-Phlx-2020-11 and should be submitted on 
or before April 15, 2020.

    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)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06197 Filed 3-24-20; 8:45 am]
 BILLING CODE 8011-01-P


