[Federal Register Volume 86, Number 200 (Wednesday, October 20, 2021)]
[Notices]
[Pages 58125-58127]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-22809]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93323; File No. SR-IEX-2021-12]


Self-Regulatory Organizations: Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Extend 
the Pilot Period for the Market-Wide Circuit Breakers to March 18, 2022

October 14, 2021.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on October 13, 2021, the Investors Exchange LLC (``IEX'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 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

    Pursuant to the provisions of Section 19(b)(1) under the Act,\4\ 
and Rule 19b-4 thereunder,\5\ IEX is filing with the Commission a 
proposed rule change to amend IEX Rule 11.280 to extend the pilot 
period for the market-wide circuit breaker to the close of business on 
March 18, 2022. IEX has designated this rule change as ``non-
controversial'' under Section 19(b)(3)(A) of the Act \6\ and requested 
that the Commission waive the five-day pre-filing notice required by 
Rule 19b-4(f)(6)(iii) thereunder.\7\
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the proposed rule change is available at the Exchange's 
website at www.iextrading.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 the 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
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 statement may be examined at 
the places specified in Item IV below. The self-regulatory organization 
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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Market-Wide Circuit Breaker (``MWCB'') rules, including 
paragraphs (a) through (d) and (f) of IEX Rule 11.280, provide an 
important, automatic mechanism that is invoked to promote stability and 
investor confidence during periods of significant stress when cash 
equities securities experience extreme market-wide declines. The MWCB 
rules are designed to slow the effects of extreme price declines 
through coordinated trading halts across both cash equity and equity 
options securities markets.
    The cash equities rules governing MWCBs were first adopted in 1988 
and, in 2012, all U.S. cash equity exchanges and FINRA amended their 
cash equities uniform rules on a pilot basis \8\ (the ``Pilot Rules,'' 
i.e., for IEX, Rule 11.280(a)-(d) and (f) \9\). The Pilot Rules 
currently provide for trading halts in all cash equity securities 
during a severe market decline as measured by a single-day decline in 
the S&P 500 Index (``SPX'').\10\ Under the Pilot Rules, a market-wide 
trading halt will be triggered if SPX declines in price by specified 
percentages from the prior day's closing price of that index. 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. and before 3:25 p.m. would halt market-
wide trading for 15 minutes, while a similar market decline at or after 
3:25 p.m. would not halt market-wide trading. (Level 1 and Level 2 
halts may occur only once a day.) A market decline that triggers a 
Level 3 halt at any time during the trading day would halt market-wide 
trading for the remainder of the trading day.
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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).
    \9\ IEX's Pilot Rule has been effective since its approval for 
registration as a national securities exchange in 2016. See 
Securities Exchange Act Release No. 78101 (June 17, 2016), 81 FR 
41142 (June 23, 2016) (File No. 10-222).
    \10\ The rules of the equity options exchanges similarly provide 
for a halt in trading if the cash equity exchanges invoke a MWCB 
Halt. See, e.g., NYSE Arca Rule 6.65-O(d)(4).
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    The Commission approved the Pilot Rules, 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'') \11\,

[[Page 58126]]

including any extensions to the pilot period for the LULD Plan.\12\ In 
April 2019, the Commission approved an amendment to the LULD Plan for 
it to operate on a permanent, rather than pilot, basis.\13\ In 
conjunction with the proposal to make the LULD Plan permanent, the 
Exchange amended IEX Rule 11.280 to extend the Pilot Rules' 
effectiveness to the close of business on October 18, 2019.\14\ The 
Exchange subsequently amended IEX Rule 11.280 to untie the Pilot Rules' 
effectiveness from that of the LULD Plan and extend the Pilot Rules' 
effectiveness for an additional year to the close of business on 
October 18, 2020,\15\ and later, on October 18, 2021.\16\
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    \11\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012). An amendment to the LULD Plan 
adding IEX as a Participant was filed with the Commission on August 
11, 2016, and became effective upon filing pursuant to Rule 
608(b)(3)(iii) of the Act. See Securities Exchange Act Release No. 
78703 (August 26, 2016), 81 FR 60397 (September 1, 2016) (File No. 
4-631). The LULD Plan provides a mechanism to address extraordinary 
market volatility in individual securities.
    \12\ See, e.g., Securities Exchange Act Release No. 78703 
(August 26, 2016), 81 FR 60397 (September 1, 2016) (File No. 4-631) 
(describing the several extensions of the LULD Plan pilot period).
    \13\ See Securities Exchange Act Release No. 85623 (April 11, 
2019), 84 FR 16086 (April 17, 2019).
    \14\ See Securities Exchange Act Release No. 85576 (April 9, 
2019), 84 FR 15237 (April 15, 2019) (SR-IEX-2019-04). See Securities 
Exchange Act Release No. 85560 (April 9, 2019), 84 FR 15247 (April 
15, 2019) (SR-NYSE-2019-19). At that time, Rule 7.12 existed but was 
not operative with respect to Exchange-listed securities and was not 
amended to extend its effectiveness through October 18, 2019. 
Subsequently, all Exchange-listed securities transitioned to the 
Pillar trading platform. See Securities Exchange Act Release No. 
85962 (May 29, 2019), 84 FR 26188 (June 5, 2019) (SR-NYSE-2019-05).
    \15\ See Securities Exchange Act Release No. 87298 (October 15, 
2019), 84 FR 56255 (October 21, 2019) (SR-IEX-2019-11).
    \16\ See Securities Exchange Act Release No. 90128 (October 8, 
2020), 85 FR 65127 (October 14, 2020) (SR-IEX-2020-17).
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    The Exchange now proposes to amend IEX Rule 11.280 to extend the 
pilot to the close of business on March 18, 2022. This filing does not 
propose any substantive or additional changes to IEX Rule 11.280.
The MWCB Task Force and the March 2020 MWCB Events
    In late 2019, Commission staff requested the formation of a MWCB 
Task Force (``Task Force'') to evaluate the operation and design of the 
MWCB mechanism. The Task Force included representatives from the SROs, 
the Commission, CME, the Commodity Futures Trading Commission 
(``CFTC''), and the securities industry and conducted several 
organizational meetings in December 2019 and January 2020.
    In Spring 2020, the MWCB mechanism proved itself to be an effective 
tool for protecting markets through turbulent times. In March 2020, at 
the outset of the worldwide COVID-19 pandemic, U.S. equities markets 
experienced four MWCB Level 1 halts, on March 9, 12, 16, and 18, 2020. 
In each instance, the markets halted as intended upon a 7% drop in the 
S&P 500 Index, and resumed as intended 15 minutes later.
    In response to these events, in the Spring and Summer of 2020, the 
Task Force held ten meetings that were attended by Commission staff, 
with the goal of performing an expedited review of the March 2020 halts 
and identifying any areas where the MWCB mechanism had not worked 
properly. Given the risk of unintended consequences, the Task Force did 
not recommend changes that were not rooted in a noted deficiency. The 
Task Force recommended creating a process for a backup reference price 
in the event that SPX were to become unavailable, and enhancing 
functional MWCB testing. The Task Force also asked CME to consider 
modifying its rules to enter into a limit-down state in the futures 
pre-market after a 7% decline instead of 5%. CME made the requested 
change, which became effective on October 12, 2020.\17\
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    \17\ See https://www.cmegroup.com/content/dam/cmegroup/market-regulation/rule-filings/2020/9/20-392_1.pdf; https://www.cmegroup.com/market-regulation/rule-filings/2020/9/20-392_2.pdf.
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The MWCB Working Group's Study
    On September 17, 2020, the Director of the Commission's Division of 
Trading and Markets asked the SROs to conduct a more complete study of 
the design and operation of the Pilot Rules and the LULD Plan during 
the period of volatility in the Spring of 2020.
    In response to the request, the SROs created a MWCB ``Working 
Group'' composed of SRO representatives and industry advisers that 
included members of the advisory committees to both the LULD Plan and 
the NMS Plans governing the collection, consolidation, and 
dissemination of last-sale transaction reports and quotations in NMS 
Stocks. The Working Group met regularly from September 2020 through 
March 2021 to consider the Commission's request, review data, and 
compile its study. The Working Group's efforts in this respect 
incorporated and built on the work of an MWCB Task Force.
    The Working Group submitted its study to the Commission on March 
31, 2021 (the ``Study'').\18\ In addition to a timeline of the MWCB 
events in March 2020, the Study includes a summary of the analysis and 
recommendations of the MWCB Task Force; an evaluation of the operation 
of the Pilot Rules during the March 2020 events; an evaluation of the 
design of the current MWCB system; and the Working Group's conclusions 
and recommendations.
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    \18\ See Report of the Market-Wide Circuit Breaker (``MWCB'') 
Working Group Regarding the March 2020 MWCB Events, submitted March 
31, 2021 (the ``Study''), available at https://www.nyse.com/publicdocs/nyse/markets/nyse/Report_of_the_Market-Wide_Circuit_Breaker_Working_Group.pdf.
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    In the Study, the Working Group concluded: (1) The MWCB mechanism 
set out in the Pilot Rules worked as intended during the March 2020 
events; (2) the MWCB halts triggered in March 2020 appear to have had 
the intended effect of calming volatility in the market, without 
causing harm; (3) the design of the MWCB mechanism with respect to 
reference value (SPX), trigger levels (7%/13%/20%), and halt times (15 
minutes) is appropriate; (4) the change implemented in Amendment 10 to 
the Plan to Address Extraordinary Market Volatility (the ``LULD Plan'') 
did not likely have any negative impact on MWCB functionality; and (5) 
no changes should be made to the mechanism to prevent the market from 
halting shortly after the opening of regular trading hours at 9:30 a.m.
    In light of the foregoing conclusions, the Working Group also made 
several recommendations, including that the Pilot Rules should be 
permanent without any changes.\19\
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    \19\ See id. at 46.
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Proposal To Extend the Operation of the Pilot Rules Pending the 
Commission's Consideration of the Exchange's Filing To Make the Pilot 
Rules Permanent
    On July 16, 2021, the New York Stock Exchange (``NYSE'') proposed a 
rule change to make the Pilot Rules permanent, consistent with the 
Working Group's recommendations.\20\ On August 27, 2021, the Commission 
extended its time to consider the proposed rule change to October 20, 
2021.\21\ The Exchange now proposes to extend the expiration date of 
the Pilot Rules to the end of business on March 18, 2022.
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    \20\ See Securities Exchange Act Release No. 92428 (July 16, 
2021), 86 FR 38776 (July 22, 2021) (SR-NYSE-2021-40).
    \21\ See Securities Exchange Act Release No. 92785A (August 27, 
2021), 86 FR 50202 (September 7, 2021) (SR-NYSE-2021-40).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of Sections 6(b) \22\ and 6(b)(5) of the Act,\23\ 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

[[Page 58127]]

general to protect investors and the public interest. The MWCB 
mechanism under Rule 11.280 is an important, automatic mechanism that 
is invoked to promote stability and investor confidence during periods 
of significant stress when securities markets experience extreme broad-
based declines. Extending the MWCB pilot for an additional five months 
would ensure the continued, uninterrupted operation of a consistent 
mechanism to halt trading across the U.S. equity markets while the 
Commission reviews NYSE's proposed rule change to make the Pilot Rules 
permanent.
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    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(5).
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    The Exchange also 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. Based on 
the foregoing, the Exchange believes the benefits to market 
participants from the MWCB under Rule 11.280(a) through (d) and (f) 
should continue on a pilot basis because the MWCB will promote fair and 
orderly markets, and protect investors and the public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    IEX does not believe that the proposed rule change implicates any 
competitive issues because the proposal would ensure the continued, 
uninterrupted operation of a consistent mechanism to halt trading 
across the U.S. markets while the Commission reviews NYSE's proposed 
rule change to make the Pilot Rules permanent.
    Further, IEX understands that the other SROs will file proposals to 
extend their rules regarding the MWCB pilot. Thus, the proposed rule 
change will help to ensure consistency across market centers without 
implicating any competitive issues.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

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

    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 for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \24\ and Rule 19b-4(f)(6) \25\ thereunder.
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    \24\ 15 U.S.C. 78s(b)(3)(A).
    \25\ 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 this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \26\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\27\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange asked 
that the Commission waive the 30 day operative delay so that the 
proposal may become operative immediately upon filing. Extending the 
Pilot Rules' effectiveness to the close of business on March 18, 2022 
will extend the protections provided by the Pilot Rules, which would 
otherwise expire in less than 30 days. Waiver of the operative delay 
would therefore permit uninterrupted continuation of the MWCB pilot 
while the Commission reviews the NYSE's proposed rule change to make 
the Pilot Rules permanent. Therefore, the Commission hereby waives the 
30-day operative delay and designates the proposed rule change as 
operative upon filing.\28\
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    \26\ 17 CFR 240.19b-4(f)(6).
    \27\ 17 CFR 240.19b-4(f)(6)(iii).
    \28\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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 the 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) \29\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \29\ 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 [email protected]. Please include 
File Number SR-IEX-2021-12 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-IEX-2021-12. This file 
number should be included in 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 10:00 a.m. and 
3:00 p.m. Copies of the filing will also be available for inspection 
and copying at the IEX's principal office and on its internet website 
at www.iextrading.com. All comments received will be posted without 
change. Persons submitting comments are cautioned that we do not redact 
or edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-IEX-2021-12 and should be 
submitted on or before November 10, 2021.
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    \30\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-22809 Filed 10-19-21; 8:45 am]
BILLING CODE 8011-01-P


