[Federal Register Volume 87, Number 57 (Thursday, March 24, 2022)]
[Notices]
[Pages 16809-16811]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06185]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94464; File No. SR-CboeBZX-2022-023]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Extend 
the Pilot Related to the Market-Wide Circuit Breaker in Rule 11.18 to 
April 18, 2022

March 18, 2022.
    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 March 17, 2022, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') 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 BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (the ``Commission'') a 
proposal to extend the pilot related to the market-wide circuit breaker 
in Rule 11.18 to April 18, 2022. 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://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), 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 
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
    BZX Rules 11.18(a) through (d), (f) and (g) describe the 
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 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''),\5\ including any extensions to the pilot period for the LULD 
Plan. In April 2019, the Commission approved an amendment to the LULD 
Plan for it to operate on a permanent, rather than pilot, basis.\6\ In 
light of the proposal to make the LULD Plan permanent, the Exchange 
amended Rule 11.18 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.\7\ The Exchange subsequently amended Rule 
11.18 to extend the pilot's effectiveness to October 18, 2020,\8\ 
October 18, 2021,\9\ and March 18, 2022.\10\ The Exchange now proposes 
to amend Rule 11.18 to extend the pilot to the close of business on 
April 18, 2022. This filing does not propose any substantive or 
additional changes to Rule 11.18.
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    \5\ 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.
    \6\ See Securities Exchange Act Release No. 85623 (April 11, 
2019), 84 FR 16086 (April 17, 2019).
    \7\ See Securities Exchange Act Release No. 85689 (April 18, 
2019), 84 FR 17217 (April 24, 2019) (SR-CboeBZX-2019-028).
    \8\ See Securities Exchange Act Release No. 87336 (October 17, 
2019), 84 FR 56868 (October 23, 2019) (SR-CboeBZX-2019-088).
    \9\ See Securities Exchange Act Release No. 90126 (October 8, 
2020), 85 FR 65119 (October 14, 2020) (SR-CboeBZX-2020-074).
    \10\ See Securities Exchange Act Release No. 93365 (October 15, 
2021) 86 FR 58342 (October 21, 2022) (SR-CboeBZX-2021-071).
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    The market-wide circuit breaker under Rule 11.18 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.\11\ 
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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    \11\ 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 11.18, 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.
    In the Spring of 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, the previously-convened MWCB Taskforce 
(``Taskforce'') reviewed the March 2020 halts and considered whether 
any immediate changes to the MWCB mechanism should be made. The 
Taskforce, consisting of representatives from equities exchanges, 
futures

[[Page 16810]]

exchanges, FINRA, broker-dealers, and other market participants, had 
been assembled in early 2020 to consider more generally potential 
changes to the MWCB mechanism. The Taskforce held ten meetings in the 
Spring and Summer of 2020 that were attended by Commission staff to 
consider, among other things: (1) Whether to retain the S&P 500 Index 
as the standard for measuring market declines; (2) whether halts that 
occur shortly after the 9:30 a.m. market open cause more harm than 
good; and (3) what additional testing of the MWCB mechanism should be 
done.
    After considering data and anecdotal reports of market 
participants' experiences during the March 2020 MWCB events, the 
Taskforce did not recommend immediate changes be made to the use of the 
S&P 500 Index as the reference price against which market declines are 
measured, or to the current MWCB mechanism which permits halts even 
shortly after the 9:30 a.m. market open. The Taskforce recommended 
creating a process for a backup reference price in the event that the 
S&P 500 Index becomes unavailable, and enhancing functional MWCB 
testing. The Taskforce 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%.
    On September 17, 2020, the Director of the Division of Trading and 
Markets requested that the equities exchanges and FINRA prepare a more 
complete study of the design and operation of the MWCB mechanism 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'').\12\ 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. 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.\13\
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    \12\ 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.
    \13\ See id. at 46.
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    The SROs have since worked on a proposed a rule change to make the 
Pilot Rules permanent, consistent with the Working Group's 
recommendations. New York Stock Exchange (``NYSE'') filed such proposed 
rule change on July 16, 2021.\14\ On August 27, 2021, the Commission 
extended its time to consider the proposed rule change to October 20, 
2021.\15\ On September 30, 2021, the Commission initiated proceedings 
to determine whether to approve or disapprove the proposed rule 
change.\16\ On January 7, 2022, the Commission extended its time to 
approve or disapprove the proposed rule change by an additional 60 
days, to March 19, 2022.\17\ The Exchange now proposes to extend the 
expiration date of the Pilot Rules to the end of business on April 18, 
2022.
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    \14\ See Securities Exchange Act Release No. 92428 (July 16, 
2021), 86 FR 38776 (July 22, 2021) (SR-NYSE-2021-40) (the ``NYSE 
Proposal'').
    \15\ See Securities Exchange Act Release No. 92785A (August 27, 
2021), 86 FR 50202 (September 7, 2021) (SR-NYSE-2021-40).
    \16\ See Securities Exchange Act Release No. 93212 (September 
30, 2021), 86 FR 55066 (October 5, 2021) (SR-NYSE-2021-40).
    \17\ See Securities Exchange Act Release No. 93933 (January 7, 
2022), 87 FR 2189 (January 13, 2022) (SR-NYSE-2021-40).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\18\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\19\ 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 11.18 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 month would 
ensure the continued, uninterrupted operation of a consistent mechanism 
to halt trading across the U.S. markets while the Exchange and the 
other SROs work to make the Pilot Rules permanent.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 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 11.18 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 Exchange and the 
other SROs finalize their proposals 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 following Commission 
approval of the NYSE proposal. Thus, the proposed rule change will help 
to ensure consistency across market centers without implicating any 
competitive issues.

[[Page 16811]]

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 on the 
proposed rule change.

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

    Because the foregoing proposed rule change does not:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. 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 \20\ and 
Rule 19b-4(f)(6) \21\ thereunder.
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \22\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\23\ 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 April 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.\24\
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    \22\ 17 CFR 240.19b-4(f)(6).
    \23\ 17 CFR 240.19b-4(f)(6)(iii).
    \24\ 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 will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

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-CboeBZX-2022-023 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-CboeBZX-2022-023. 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. 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-CboeBZX-2022-
023 and should be submitted on or before April 14, 2022.
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    \25\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-06185 Filed 3-23-22; 8:45 am]
BILLING CODE 8011-01-P


