[Federal Register Volume 86, Number 202 (Friday, October 22, 2021)]
[Notices]
[Pages 58709-58712]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-23022]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93372; File No. SR-CBOE-2021-060]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Extend 
the Pilot Period Related to the Market-Wide Circuit Breaker in Rule 
5.22

October 18, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 14, 2021, Cboe Exchange, Inc. (the ``Exchange'' or 
``Cboe Options'') 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 Exchange. The 
Exchange filed the proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 
19b-4(f)(6) thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to extend the pilot period related to the market-wide circuit breaker 
in Rule 5.22. The text of the proposed rule change is provided in 
Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, 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 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 extend the pilot related to the market-
wide circuit breaker in Rule 5.22 to the close of business on March 18, 
2022.
Background
    The Market-Wide Circuit Breaker (``MWCB'') rules, including the 
Exchange's Rule 5.22, provide an important, automatic mechanism that is 
invoked to promote stability and investor confidence during periods of 
significant stress when cash equities

[[Page 58710]]

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 (the ``Pilot Rules'', 
including Exchange Rule 5.22).\5\ The Securities and Exchange 
Commission (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''),\6\ including any extensions to the pilot period 
for the LULD Plan. Though the LULD Plan was primarily designed for 
equity markets, the Exchange believed it would, indirectly, potentially 
impact the options markets as well. Thus, the Exchange has previously 
adopted and amended Rule 5.22 \7\ (as well as other options pilot 
rules) to ensure the option markets were not harmed as a result of the 
Plan's implementation and implemented such rule on a pilot basis that 
has coincided with the pilot period for the Plan.\8\ In April 2019, the 
Commission approved an amendment to the LULD Plan for it to operate on 
a permanent, rather than pilot, basis.\9\ In light of the proposal to 
make the LULD Plan permanent, the Exchange amended Rule 5.22 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.\10\ 
The Exchange subsequently amended Rule 5.22 to extend the pilot to the 
close of business on October 18, 2020,\11\ and later, on October 18, 
2021.\12\ The Exchange now proposes to amend Rule 5.22 to extend the 
pilot to the close of business on March 18, 2022. This filing does not 
propose any substantive or additional changes to Rule 5.22.
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    \5\ 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; 
SRNYSEAmex-2011-73; SR-NYSEArca-2011-68; SR-Phlx-2011-129) (``Pilot 
Rules Approval Order'').
    \6\ 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.
    \7\ In October 2019, the Exchange restructured its Rulebook and 
relocated previous Rule 6.3B, governing the MWCB mechanism, to 
current Rule 5.22. No substantive changes were made to the rule. See 
Securities Exchange Act Release No. 87224 (October 4, 2019), 84 FR 
54652 (October 10, 2019) (SR-CBOE-2019-081).
    \8\ See Securities Exchange Act Release Nos. 65438 (September 
28, 2011), 76 FR 61447 (October 4, 2011) (SR-CBOE-2011-087) 
(amending Rule 5.22, prior Rule 6.3B, for determining when to halt 
trading in all stocks and stock options due to extraordinary market 
volatility); 68770 (January 30, 2013), 78 FR 8211 (February 5, 2013) 
(SR-CBOE-2013-011) (amending Rule 5.22, prior Rule 6.3B, to delay 
the operative date of the pilot to coincide with the initial date of 
operations of the Plan); and 85616 (April 11, 2019), 84 FR 16093 
(April 17, 2019) (SR-CBOE-2019-020) (proposal to extend the pilot 
for certain options pilots, including Rule 5.22, prior Rule 6.3B).
    \9\ See Securities Exchange Act Release No. 85623 (April 11, 
2019), 84 FR 16086 (April 17, 2019) (Order Approving Amendment No. 
18).
    \10\ See Securities Exchange Act Release No. 85616 (April 11, 
2019), 84 FR 16093 (April 17, 2019) (SR-CBOE-2019-020) (proposal to 
extend the pilot for certain options pilots, including Rule 5.22, 
prior Rule 6.3B).
    \11\ See Securities Exchange Act Release No. 87341 (October 18, 
2019), 84 FR 57081 (October 24, 2019) (SR-CBOE-2020-100).
    \12\ See Securities Exchange Act Release No. 90165 (October 13, 
2020), 85 FR 66391 (October 19, 2020) (SR-CBOE-2020-098).
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    As stated above, because all U.S. equity exchanges and FINRA 
adopted uniform Pilot Rules relating to market-wide circuit breakers in 
2012, the Exchange, too, adopted a MWCB mechanism on a pilot basis 
pursuant to Rule 5.22. Pursuant to Rule 5.22, 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 for the 
remainder of the trading day.
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.\13\
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    \13\ See https://www.cmegroup.com/content/dam/cmegroup/market-regulation/rulefilings/2020/9/20-392_1.pdf; https://www.cmegroup.com/content/dam/cmegroup/marketregulation/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'').\14\ In addition to a

[[Page 58711]]

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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    \14\ 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_MarketWide_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 ``Limit Up/
Limit Down Plan'' or ``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.\15\
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    \15\ See id. at 46
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    Proposal To Extend the Operation of the Pilot Rules Pending the 
Commission's Consideration of the New York Stock Exchange LLC's Filing 
To Make the Pilot Rules Permanent
    On July 16, 2021, an SRO member of the Working Group, the New York 
Stock Exchange (``NYSE''), proposed a rule change to make the Pilot 
Rules permanent, consistent with the Working Group's 
recommendations.\16\ On August 27, 2021, the Commission extended its 
time to consider the proposed rule change to October 20, 2021.\17\ The 
Exchange understands that upon approval of this proposal, the other 
national securities exchanges and FINRA, including the Exchange, will 
also submit substantively identical proposals to the Commission. 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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    \16\ See Securities Exchange Act Release No. 92428 (July 16, 
2021), 86 FR 38776 (July 22, 2021) (SR-NYSE-2021-40).
    \17\ 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 the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\18\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \19\ requirements that the rules of an 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, clearing, 
settling, processing information with respect to, and 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. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \20\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
    \20\ Id.
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    The MWCB mechanism under Rule 5.22 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. Extending the market-wide 
circuit breaker pilot for an additional five months would ensure the 
continued, uninterrupted operation of a consistent mechanism to halt 
trading across the U.S. markets while the Commission reviews the 
proposed rule change to make the Pilot Rules permanent.\21\
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    \21\ See supra notes 16 and 17.
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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 5.22 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

    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 proposal would 
ensure the continued, uninterrupted operation of a consistent mechanism 
to halt trading across the U.S. markets while the Commission reviews 
the proposed rule change to make the Pilot Rules permanent.
    Further, the Exchange understands that FINRA and other national 
securities exchanges will file proposals to extend their rules 
regarding the market-wide circuit breaker 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

    The Exchange neither solicited nor received comments on the 
proposed rule change.

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 \22\ and Rule 19b-4 (f)(6) \23\ thereunder.
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 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 Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4 (f)(6) \24\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4 (f)(6)(iii),\25\ 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

[[Page 58712]]

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.\26\
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    \24\ 17 CFR 240.19b-4 (f)(6).
    \25\ 17 CFR 240.19b-4(f)(6)(iii).
    \26\ 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) \27\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \27\ 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-CBOE-2021-060 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-CBOE-2021-060. 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 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change; the Commission does not 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-CBOE-2021-060 
and should be submitted on or before November 12, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-23022 Filed 10-21-21; 8:45 am]
BILLING CODE 8011-01-P


