[Federal Register Volume 87, Number 187 (Wednesday, September 28, 2022)]
[Notices]
[Pages 58885-58891]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-20945]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95883; File No. SR-LTSE-2022-05]


Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Amend LTSE Rule 11.270, Clearly Erroneous Executions

September 22, 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 September 19, 2022, Long-Term Stock Exchange, Inc. (``LTSE'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule

[[Page 58886]]

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\ 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 LTSE Rule 11.270, Clearly Erroneous 
Executions to limit the circumstances where clearly erroneous review 
would continue to be available during the Regular Market Session \3\ 
when the LULD Plan to Address Extraordinary Market Volatility (the 
``LULD Plan'') \4\ already provides similar protections for trades 
occurring at prices that may be deemed erroneous.
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    \3\ The term ``Regular Trading Hours'' means the time between 
9:30 a.m. and 4:00 p.m. Eastern Time. See LTSE Rule 1.160(kk).
    \4\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012).
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    The text of the proposed rule change is enclosed as Exhibit 5 and 
is available on the Exchange's website at http://longtermstockexchange.com, at the Exchange's principal office and at 
the Public Reference Room of the Commission.

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 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 statements 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend LTSE Rule 
11.270, Clearly Erroneous Executions. Specifically, the Exchange 
proposes to limit the circumstances where clearly erroneous review 
would continue to be available during the Regular Market Session,\5\ 
when the LULD Plan to Address Extraordinary Market Volatility (the 
``LULD Plan'') \6\ already provides similar protections for trades 
occurring at prices that may be deemed erroneous. The Exchange believes 
that these changes are appropriate as the LULD Plan has been approved 
by the Commission on a permanent basis,\7\ and in light of amendments 
to the LULD Plan, including changes to the applicable Price Bands \8\ 
around the open and close of trading. The Exchange proposes that the 
implementation for the proposed rule change be October 1, 2022.
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    \5\ The term ``Regular Trading Hours'' means the time between 
9:30 a.m. and 4:00 p.m. Eastern Time. See LTSE Rule 1.160(kk).
    \6\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012).
    \7\ See Securities Exchange Act Release No. 84843 (December 18, 
2018), 83 FR 66464 (December 26, 2018) (``Notice''); 85623 (April 
11, 2019), 84 FR 16086 (April 17, 2019) (File No. 4-631) 
(``Amendment Eighteen'').
    \8\ ``Price Bands'' refers to the term provided in Section V of 
the LULD Plan.
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    On May 10, 2019, the Commission approved the Exchange's application 
for registration as a national securities exchange.\9\ The approval 
order noted that the Exchange had adopted rules to reduce the 
occurrence of erroneous trades, including LTSE Rule 11.270.\10\ The 
Exchange's registration was conditioned on the Exchange joining the 
LULD Plan as a participant.\11\ On November 22, 2019, the Exchange 
filed an amendment to the LULD Plan with the Commission to add itself 
as a participant.\12\ The amendment was immediately effective.\13\
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    \9\ See Securities Exchange Act Release No. 34-85828 (May 10, 
2019).
    \10\ Id. at 30.
    \11\ Id. at 47.
    \12\ See Securities Act Release No. 34-87598.
    \13\ Id.
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Amendments to the Clearly Erroneous Rules
    When the Participants to the LULD Plan filed to introduce the Limit 
Up-Limit Down (``LULD'') mechanism, itself a response to the Flash 
Crash, a handful of commenters noted the potential discordance between 
the clearly erroneous rules and the Price Bands used to limit the price 
at which trades would be permitted to be executed pursuant to the LULD 
Plan. For example, two commenters requested that the clearly erroneous 
rules be amended so the presumption would be that trades executed 
within the Price Bands would not be not subject to review.\14\ While 
the Participants acknowledged that the potential to prevent clearly 
erroneous executions would be a ``key benefit'' of the LULD Plan, the 
Participants decided not to amend the clearly erroneous rules at that 
time.\15\ In the years since, industry feedback has continued to 
reflect a desire to eliminate the discordance between the LULD 
mechanism and the clearly erroneous rules so that market participants 
would have more certainty that trades executed with the Price Bands 
would stand. For example, the Equity Market Structure Advisory 
Committee (``EMSAC'') Market Quality Subcommittee included in its April 
19, 2016 status report a preliminary recommendation that clearly 
erroneous rules be amended to conform to the Price Bands--i.e., ``any 
trade that takes place within the band would stand and not be broken 
and trades outside the LU/LD bands would be eligible for the 
consideration of the Clearly Erroneous rules.'' \16\
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    \14\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (n. 33505).
    \15\ Id.
    \16\ See EMSAC Market Quality Subcommittee, Recommendations for 
Rulemaking on Issues of Market Quality (November 29, 2016), 
available at https://www.sec.gov/spotlight/emsac/emsac/recommendations-rulemaking-market-quality.pdf.
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    The Exchange believes that it is important for there to be some 
mechanism to ensure that investors' orders are either not executed at 
clearly erroneous prices or are subsequently busted as needed to 
maintain a fair and orderly market. At the same time, the Exchange 
believes that the LULD Plan, as amended, would provide sufficient 
protection for trades executed during the Regular Market Session. 
Indeed, the LULD mechanism could be considered to offer superior 
protection as it prevents potentially erroneous trades from being 
executed in the first instance. After gaining experience with the LULD 
Plan, the Exchange now believes that it is appropriate to largely 
eliminate clearly erroneous review during the Regular Market Session 
when Price Bands are in effect. Thus, as proposed, trades executed 
within the Price Bands would stand, barring one of a handful of 
identified scenarios where such review may still be necessary for the 
protection of investors. The Exchange believes that this change would 
be beneficial for the U.S. equities markets as it would ensure that 
trades executed within the Price Bands are subject to clearly erroneous 
review in only rare circumstances, resulting in greater certainty for 
Members and investors.
    The current LULD mechanism for addressing extraordinary market 
volatility is available solely during Regular Trading Hours. Thus, 
trades during the Exchange's Pre-Market Session or Post-Market Session 
\17\ would

[[Page 58887]]

not benefit from this protection and could ultimately be executed at 
prices that may be considered erroneous. For this reason, the Exchange 
proposes that transactions executed during the Pre-Market or Post-
Market Sessions would continue to be reviewable as clearly erroneous. 
Continued availability of the clearly erroneous rule during pre- and 
post-market trading sessions would therefore ensure that investors have 
appropriate recourse when erroneous trades are executed outside of the 
hours where similar protection can be provided by the LULD Plan. 
Further, the proposal is designed to eliminate the potential 
discordance between clearly erroneous review and LULD Price Bands, 
which does not exist outside of the Regular Market Session because the 
LULD Plan is not in effect. Thus, the Exchange believes that it is 
appropriate to continue to allow transactions to be eligible for 
clearly erroneous review if executed outside of the Regular Market 
Session.
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    \17\ The term ``Pre-Market Session'' means the time between 8:00 
a.m. and 9:30 a.m. Eastern Time. See LTSE Rule 1.160(dd). The term 
``Post-Market Session'' means the time between 4:00 p.m. and 8:00 
p.m. Eastern Time. See LTSE Rule 1.160(ee).
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    On the other hand, there would be much more limited potential to 
request that a transaction be reviewed as potentially erroneous during 
the Regular Market Session. With the introduction of the LULD mechanism 
in 2013, clearly erroneous trades are largely prevented by the 
requirement that trades be executed within the Price Bands. In 
addition, in 2019, Amendment Eighteen to the LULD Plan eliminated 
double-wide Price Bands: (1) at the Open, and (2) at the Close for Tier 
2 NMS Stocks 2 with a Reference Price above $3.00.\18\ Due to these 
changes, the Exchange believes that the Price Bands would provide 
sufficient protection to investor orders such that clearly erroneous 
review would no longer be necessary during the Regular Market Session. 
As the Participants to the LULD Plan explained in Amendment Eighteen: 
``Broadly, the Limit Up-Limit Down mechanism prevents trades from 
happening at prices where one party to the trade would be considered 
`aggrieved,' and thus could be viewed as an appropriate mechanism to 
supplant clearly erroneous rules.'' While the Participants also 
expressed concern that the Price Bands might be too wide to afford 
meaningful protection around the open and close of trading, amendments 
to the LULD Plan adopted in Amendment Eighteen narrowed Price Bands at 
these times in a manner that the Exchange believes is sufficient to 
ensure that investors' orders would be appropriately protected in the 
absence of clearly erroneous review. The Exchange therefore believes 
that it is appropriate to rely on the LULD mechanism as the primary 
means of preventing clearly erroneous trades during the Regular Market 
Session.
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    \18\ See Amendment Eighteen, supra note 5.
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    At the same time, the Exchange is cognizant that there may be 
limited circumstances where clearly erroneous review may continue to be 
appropriate, even during the Regular Market Session. Thus, the Exchange 
proposes to amend its clearly erroneous rules to enumerate the specific 
circumstances where such review would remain available during the 
course of the Regular Market Session, as follows. All transactions that 
fall outside of these specific enumerated exceptions would be 
ineligible for clearly erroneous review.
    First, proposed paragraph (b)(2) would adopt provisions contained 
in the clearly erroneous executions rules of other exchanges pertaining 
to routed executions.\19\ These provisions provide that other market 
centers will have additional time to file with the Exchange for review 
of transactions routed to the Exchange from that market center and 
executed on the Exchange.
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    \19\ See, e.g., BZX Rule 11.17.
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    Second, pursuant to proposed paragraph (c)(1)(A), a transaction 
executed during the Regular Market Session would continue to be 
eligible for clearly erroneous review if the transaction is not subject 
to the LULD Plan. In such case, the Numerical Guidelines set forth in 
paragraph (c)(2) of Rule 11.17 will be applicable to such NMS Stock. 
While the majority of securities traded on the Exchange would be 
subject to the LULD Plan, certain equity securities, such as rights and 
warrants, are explicitly excluded from the provisions of the LULD Plan 
and would therefore be eligible for clearly erroneous review 
instead.\20\ Similarly, there are instances, such as the opening 
auction on the primary listing market,\21\ where transactions are not 
ordinarily subject to the LULD Plan, or circumstances where a 
transaction that ordinarily would have been subject to the LULD Plan is 
not--due, for example, to some issue with processing the Price Bands. 
These transactions would continue to be eligible for clearly erroneous 
review, effectively ensuring that such review remains available as a 
backstop when the LULD Plan would not prevent executions from occurring 
at erroneous prices in the first instance.
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    \20\ See Appendix A of the LULD Plan.
    \21\ The initial Reference Price used to calculate Price Bands 
is typically set by the Opening Price on the primary listing market. 
See Section V(B) of the LULD Plan.
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    Third, investors would also continue to be able to request review 
of transactions that resulted from certain systems issues pursuant to 
proposed paragraph (c)(1)(B). This limited exception would help to 
ensure that trades that should not have been executed would continue to 
be subject to clearly erroneous review. Specifically, as proposed, 
transactions executed during Regular Trading Hours would be eligible 
for clearly erroneous review pursuant to proposed paragraph (c)(1)(B) 
if the transaction is the result of an Exchange technology or systems 
issue that results in the transaction occurring outside of the 
applicable LULD Price Bands pursuant to LULD Rule 11.270(g). A 
transaction subject to review pursuant to this paragraph shall be found 
to be clearly erroneous if the price of the transaction to buy (sell) 
that is the subject of the complaint is greater than (less than) the 
Reference Price, described in paragraph (d) of this Rule, by an amount 
that equals or exceeds the applicable Percentage Parameter defined in 
Appendix A to the LULD Plan (``Percentage Parameters'').
    Fourth, the Exchange proposes to narrowly allow for the review of 
transactions during the Regular Market Session when the Reference 
Price, described in proposed paragraph (d), is determined to be 
erroneous by an Officer of the Exchange. Specifically, a transaction 
executed during the Regular Market Session would be eligible for 
clearly erroneous review pursuant to proposed paragraph (c)(1)(C) if 
the transaction involved, in the case of (1) a corporate action or new 
issue or (2) a security that enters a Trading Pause pursuant to the 
LULD Plan and resumes trading without an auction,\22\ a Reference Price 
that is determined to be erroneous by an Officer of the Exchange 
because it clearly deviated from the theoretical value of the security. 
In such circumstances, the Exchange may use a different Reference Price 
pursuant to proposed paragraph (d)(2) of this Rule. A transaction 
subject to review pursuant to this paragraph shall be found to be 
clearly erroneous if the price of the transaction to buy (sell) that is 
the subject of the complaint is greater than (less than) the new 
Reference Price, described in paragraph (d)(2) below, by an amount that 
equals or exceeds the applicable Numerical Guidelines or Percentage 
Parameters, as applicable

[[Page 58888]]

depending on whether the security is subject to the LULD Plan. 
Specifically, the Percentage Parameters would apply to all transactions 
except those in an NMS Stock that is not subject to the LULD Plan, as 
described in paragraph (c)(1)(A).
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    \22\ The Exchange notes that the ``resumption of trading without 
an auction'' provision of the proposed rule text applies only to 
securities that enter a Trading Pause pursuant to LULD and does not 
apply to a corporate action or new issue.
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    In the context of a corporate action or a new issue, there may be 
instances where the security's Reference Price is later determined by 
the Exchange to be erroneous (e.g., because of a bad first trade for a 
new issue), and subsequent LULD Price Bands are calculated from that 
incorrect Reference Price. In determining whether the Reference Price 
is erroneous in such instances, the Exchange would generally look to 
see if such Reference Price clearly deviated from the theoretical value 
of the security. In such cases, the Exchange would consider a number of 
factors to determine a new Reference Price that is based on the 
theoretical value of the security, including but not limited to, the 
offering price of the new issue, the ratio of the stock split applied 
to the prior day's closing price, the theoretical price derived from 
the numerical terms of the corporate action transaction such as the 
exchange ratio and spin-off terms, and the prior day's closing price on 
the OTC market for an OTC up-listing.\23\ In the foregoing instances, 
the theoretical value of the security would be used as the new 
Reference Price when applying the Percentage Parameters under the LULD 
Plan (or Numerical Guidelines if the transaction is in an NMS Stock 
that is not subject to the LULD Plan) to determine whether executions 
would be cancelled as clearly erroneous.
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    \23\ Using transaction data reported to the FINRA OTC Reporting 
Facility, FINRA disseminates via the Trade Data Dissemination 
Service a final closing report for OTC equity securities for each 
business day that includes, among other things, each security's 
closing last sale price.
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    The following illustrate the proposed application of the rule in 
the context of a corporate action or new issue:
    Example 1:

    1. ABCD is subject to a corporate action, 1 for 10 reverse 
split, and the previous day close was $5, but the new theoretical 
price based on the terms of the corporate action is $50.
    2. The security opens at $5, with LULD bands at $4.50 x $5.50.
    3. The bands will be calculated correctly but the security is 
trading at an erroneous price based on the valuation of the 
remaining outstanding shares.
    4. The theoretical price of $50 would be used as the new 
Reference Price when applying LULD bands to determine if executions 
would be cancelled as clearly erroneous.

    Example 2:

    1. ABCD is subject to a corporate action, the company is doing a 
spin off where a new issue will be listed, BCDE. ABCD trades at $50, 
and the spinoff company is worth \1/5\ of ABCD.
    2. BCDE opens at $50 in the belief it is the same company as 
ABCD.
    3. The theoretical values of the two companies are ABCD $40 and 
BCDE $10.
    4. BCDE would be deemed to have had an incorrect Reference Price 
and the theoretical value of $10 would be used as the new Reference 
Price when applying the LULD Bands to determine if executions would 
be cancelled as clearly erroneous.

    Example 3:

    1. ABCD is an uplift from the OTC market, the prior days close 
on the OTC market was $20.
    2. ABCD opens trading on the new listing exchange at $0.20 due 
to an erroneous order entry.
    3. The new Reference Price to determine clearly erroneous 
executions would be $20, the theoretical value of the stock from 
where it was last traded.

    In the context of the rare situation in which a security that 
enters a LULD Trading Pause and resumes trading without an auction 
(i.e., reopens with quotations), the LULD Plan requires that the new 
Reference Price in this instance be established by using the mid-point 
of the best bid and offer (``BBO'') on the primary listing exchange at 
the reopening time.\24\ This can result in a Reference Price and 
subsequent LULD Price Band calculation that is significantly away from 
the security's last traded or more relevant price, especially in less 
liquid names. In such rare instances, the Exchange is proposing to use 
a different Reference Price that is based on the prior LULD Band that 
triggered the Trading Pause, rather than the midpoint of the BBO.
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    \24\ See LULD Plan, Section I(U) and V(C)(1).
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    The following example illustrates the proposed application of the 
rule in the context of a security that reopens without an auction:

    Example 4:

    1. ABCD stock is trading at $20, with LULD Bands at $18 x $22.
    2. An incoming buy order causes the stock to enter a Limit State 
Trading Pause and then a Trading Pause at $22.
    3. During the Trading Pause, the buy order causing the Trading 
Pause is cancelled.
    4. At the end of the 5-minute halt, there is no crossed interest 
for an auction to occur, thus trading would resume on a quote.
    5. Upon resumption, a quote that was available prior to the 
Trading Pause (e.g. a quote was resting on the book prior to the 
Trading Pause), is widely set at $10 x $90.
    6. The Reference Price upon resumption is $50 (mid-point of 
BBO).
    7. The SIP will use this Reference Price and publish LULD Bands 
of $45 x $55 (i.e., far away from BBO prior to the halt).
    8. The bands will be calculated correctly, but the $50 Reference 
Price is subsequently determined to be incorrect as the price 
clearly deviated from where it previously traded prior to the 
Trading Pause.
    9. The new Reference Price would be $22 (i.e., the last 
effective Price Band that was in a limit state before the Trading 
Pause), and the LULD Bands would be applied to determine if the 
executions should be cancelled as clearly erroneous.

    In all of the foregoing situations, investors would be left with no 
remedy to request clearly erroneous review without the proposed 
carveouts in paragraph (c)(1)(C) because the trades occurred within the 
LULD Price Bands (albeit LULD Price Bands that were calculated from an 
erroneous Reference Price). The Exchange believes that removing the 
current ability for the Exchange to review in these narrow 
circumstances would lessen investor protections.
Numerical Guidelines
    Today, paragraph (c)(1) defines the Numerical Guidelines that are 
used to determine if a transaction is deemed clearly erroneous during 
the Regular Market Session, or during the Pre-Market and Post-Market 
Session. With respect to the Regular Market Session, trades are 
generally deemed clearly erroneous if the execution price differs from 
the Reference Price (i.e., last sale) by 10% if the Reference Price is 
greater than $0.00 up to and including $25.00; 5% if the Reference 
Price is greater than $25.00 up to and including $50.00; and 3% if the 
Reference Price is greater than $50.00. Wider parameters are also used 
for reviews for Multi-Stock Events, as described in paragraph (c)(2). 
With respect to transactions in Leveraged ETF/ETN securities executed 
during Regular Trading Hours, Early Trading, Pre-Opening and After-
Hours Trading Session, trades are deemed clearly erroneous if the 
execution price exceeds the Regular Trading Hours Numerical Guidelines 
multiplied by the leverage multiplier.
    Given the changes described in this proposed rule change, the 
Exchange proposes to amend the way that the Numerical Guidelines are 
calculated during Regular Trading Hours in the handful of instances 
where clearly erroneous review would continue to be available. 
Specifically, the Exchange would base these Numerical Guidelines, as 
applied to the circumstances described in paragraph (c)(1)(A), on the 
Percentage Parameters used to calculate Price Bands, as set forth in 
Appendix A to the LULD Plan. Without this change, a transaction that 
would otherwise stand if Price Bands were properly

[[Page 58889]]

applied to the transaction may end up being subject to review and 
deemed clearly erroneous solely due to the fact that the Price Bands 
were not available due to a systems or other issue. The Exchange 
believes that it makes more sense to instead base the Price Bands on 
the same parameters as would otherwise determine whether the trade 
would have been allowed to execute within the Price Bands. The Exchange 
also proposes to add the Numerical Guidelines applicable to leveraged 
ETF/ETN securities during Regular Trading Hours. As noted above, the 
Numerical Guidelines will only be applicable to transactions eligible 
for review pursuant paragraph (c)(1)(A) (i.e., to NMS Stocks that are 
not subject to the LULD Plan). As leveraged ETF/ETN securities are 
subject to LULD and thus the Percentage Parameters will be applicable 
during Regular Trading Hours, the Exchange proposes to eliminate the 
Numerical Guidelines for leveraged ETF/ETN securities traded during 
Regular Trading Hours. However, as no Price Bands are available outside 
of Regular Trading Hours, the Exchange proposes to keep the existing 
Numerical Guidelines in place for transactions in leveraged ETF/ETN 
securities that occur during Early Trading, Pre-Opening and After-Hours 
Trading.
    The Exchange also proposes to move existing paragraphs (c)(2), 
(c)(3), and (d) to proposed paragraph (c)(2)(B), (c)(2)(C), and 
(C)(2)(D), respectively, as Multi-Stock Events, Additional Factors, and 
Outlier Transactions will only be subject to review if those NMS Stocks 
are not subject to the LULD Plan or occur during the Early Trading, 
Pre-Opening and After Hours Sessions. Proposed paragraph (c)(2)(B) is 
substantially similar to existing paragraph (c)(2) except for a change 
in rule reference to paragraph (c)(1) has been updated to paragraph 
(c)(1)(A). Further, given the proposal to move existing paragraph 
(c)(2) to paragraph (c)(2)(B), the Exchange also proposes to amend 
applicable rule references throughout paragraph (c)(2)(A). Finally, the 
Exchange proposes to update applicable rule references in paragraph 
(c)(2)(D) based on the above-described structural changes to the Rule.
Reference Price
    As proposed, the Reference Price used would continue to be based on 
last sale and would be memorialized in proposed paragraph (d). 
Continuing to use the last sale as the Reference Price is necessary for 
operational efficiency as it may not be possible to perform a timely 
clearly erroneous review if doing so required computing the arithmetic 
mean price of eligible reported transactions over the past five 
minutes, as contemplated by the LULD Plan. While this means that there 
would still be some differences between the Price Bands and the clearly 
erroneous parameters, the Exchange believes that this difference is 
reasonable in light of the need to ensure timely review if clearly 
erroneous rules are invoked. The Exchange also proposes to allow for an 
alternate Reference Price to be used as prescribed in proposed 
paragraphs (d)(1), (2), and (3). Specifically, the Reference Price may 
be a value other than the consolidated last sale immediately prior to 
the execution(s) under review (1) in the case of Multi-Stock Events 
involving twenty or more securities, as described in paragraph 
(c)(2)(B) above, (2) in the case of an erroneous Reference Price, as 
described in paragraph (c)(1)(C) above,\25\ or (3) in other 
circumstances, such as, for example, relevant news impacting a security 
or securities, periods of extreme market volatility, sustained 
illiquidity, or widespread system issues, where use of a different 
Reference Price is necessary for the maintenance of a fair and orderly 
market and the protection of investors and the public interest, 
provided that such circumstances occurred during the Pre-Market Session 
or Post-Market Session or are eligible for review pursuant to paragraph 
(c)(1)(A).
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    \25\ As discussed above, in the case of (c)(1)(C)(1), the 
Exchange would consider a number of factors to determine a new 
Reference Price that is based on the theoretical value of the 
security, including but not limited to, the offering price of the 
new issue, the ratio of the stock split applied to the prior day's 
closing price, the theoretical price derived from the numerical 
terms of the corporate action transaction such as the exchange ratio 
and spin-off terms, and the prior day's closing price on the OTC 
market for an OTC up-listing. In the case of (c)(1)(C)(2), the 
Reference Price will be the last effective Price Band that was in a 
limit state before the Trading Pause.
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Appeals
    As described more fully below, the Exchange proposes to eliminate 
paragraph (f), System Disruption or Malfunction. Accordingly, the 
Exchange proposes to remove from paragraph (e)(2), Appeals, each 
reference to paragraph (f), and include language referencing proposed 
paragraph (g), Transactions Occurring Outside of the LULD Bands.
System Disruption or Malfunction
    To conform with the structural changes described above, the 
Exchange proposes to remove paragraph 11.270(f), System Disruption or 
Malfunction, combine paragraph (c)(1)(C) with paragraph (c)(1)(B), and 
remove the reference to a trading halt in paragraph (c)(1)(C) to make 
clear that Trading Halts are subject to proposed paragraph (i). 
Specifically, as described in proposed paragraph (c)(1)(B) above, 
transactions occurring during the Regular Market Session that are 
executed outside of the LULD Price Bands due to an Exchange technology 
or system issue, may be subject to clearly erroneous review pursuant to 
proposed paragraphs 11.270(g). Proposed paragraph 11.270 (c)(1)(B) 
further provides that a transaction subject to review pursuant to this 
paragraph shall be found to be clearly erroneous if the price of the 
transaction to buy (sell) that is the subject of the complaint is 
greater than (less than) the Reference Price, described in paragraph 
(d), by an amount that equals or exceeds the applicable Percentage 
Parameter defined in Appendix A to the LULD Plan.
Officer Acting on Own Motion
    The Exchange proposes to renumber paragraph (g) to paragraph (f) 
based on the proposal to eliminate existing paragraph (f). The Exchange 
also proposes to update references throughout the paragraph to conform 
to the structural changes to the Rule.
Securities Subject to Limit Up-Limit Down Plan
    The Exchange proposes to renumber paragraph (h) to paragraph (g) 
based on the proposal to eliminate existing paragraph (f), and to 
rename the paragraph to provide for transactions occurring outside of 
LULD Price Bands. Given that proposed paragraph (c)(1) defines the LULD 
Plan, the Exchange also proposes to eliminate redundant language from 
proposed paragraph (h). Finally, the Exchange also proposes to update 
references to the LULD Plan and Price Bands so that they are uniform 
throughout the Rule and to update rule references throughout the 
paragraph to conform to the structural changes to the Rule described 
above.
Multi-Day Event and Trading Halts
    The Exchange proposes to renumber paragraphs (i) and (j) to 
paragraphs (h) and (i), respectively, based on the proposal to 
eliminate existing paragraph (f). Additionally, the Exchange proposes 
to modify the text of both paragraphs to reference the Percentage 
Parameters as well as the Numerical Guidelines. Specifically, the 
existing text of proposed paragraphs (h) and (i) provides that any 
action taken in connection with this paragraph will be taken without 
regard to the Numerical Guidelines set forth in this Rule. The Exchange 
proposes to amend the rule text to provide that any action taken in 
connection with this paragraph will be

[[Page 58890]]

taken without regard to the Percentage Parameters or Numerical 
Guidelines set forth in this Rule, with the Percentage Parameters being 
applicable to an NMS Stock subject to the LULD Plan and the Numerical 
Guidelines being applicable to an NMS Stock not subject to the LULD 
Plan.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of Section 6(b) of the Act,\26\ in general, and 
Section 6(b)(5) of the Act,\27\ in particular, in that it is designed 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest and not to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that it is consistent with just and equitable 
principles of trade to limit the availability of clearly erroneous 
review during the Regular Market Session. The Plan was approved by the 
Commission to operate on a permanent rather than pilot basis. As a 
number of market participants have noted, the LULD Plan provides 
protections that ensure that investors' orders are not executed at 
prices that may be considered clearly erroneous. Further, amendments to 
the LULD Plan approved in Amendment Eighteen serve to ensure that the 
Price Bands established by the LULD Plan are ``appropriately tailored 
to prevent trades that are so far from current market prices that they 
would be viewed as having been executed in error.'' \28\ Thus, the 
Exchange believes that clearly erroneous review should only be 
necessary in very limited circumstances during the Regular Market 
Session. Specifically, such review would only be necessary in instances 
where a transaction was not subject to the LULD Plan, or was the result 
of some form of systems issue, as detailed in the purpose section of 
this proposed rule change. Additionally, in narrow circumstances where 
the transaction was subject to the LULD Plan, a clearly erroneous 
review would be available in the case of (1) a corporate action or new 
issue or (2) a security that enters a Trading Pause pursuant to LULD 
and resumes trading without an auction, where the Reference Price is 
determined to be erroneous by an Officer of the Exchange because it 
clearly deviated from the theoretical value of the security. Thus, 
eliminating clearly erroneous review in all other instances will serve 
to increase certainty for Members and investors that trades executed 
during the Regular Market Session would typically stand and would not 
be subject to review.
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    \28\ See Amendment Eighteen, supra note 5.
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    Given the fact that clearly erroneous review would largely be 
limited to transactions that were not subject to the LULD Plan, the 
Exchange also believes that it is necessary to change the parameters 
used to determine whether a trade is clearly erroneous. Specifically, 
due to the different parameters currently used for clearly erroneous 
review and for determining Price Bands, it is possible that a trade 
that would have been permitted to execute within the Price Bands would 
later be deemed clearly erroneous, if, for example, a systems issue 
prevented the dissemination of the Price Bands. The Exchange believes 
that this result is contrary to the principle that trades within the 
Price Bands should stand, and has the potential to cause investor 
confusion if trades that are properly executed within the applicable 
parameters described in the LULD Plan are later deemed erroneous. By 
using consistent parameters for clearly erroneous reviews conducted 
during the Regular Market Session and the calculation of the Price 
Bands, the Exchange believes that this change would also serve to 
promote greater certainty with regards to when trades may be deemed 
erroneous.
    Finally, the proposed rule changes make organizational updates to 
the Exchange's Clearly Erroneous Execution Rule as well as minor 
updates and corrections to the Rule to improve readability and clarity.

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

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposal would ensure 
the continued, uninterrupted operation of harmonized clearly erroneous 
execution rules across the U.S. equities markets while also amending 
those rules to provide greater certainty to Members and investors that 
trades will stand if executed during the Regular Market Session where 
the LULD Plan provides adequate protection against trading at erroneous 
prices. The Exchange understands that the other national securities 
exchanges and FINRA will also file similar proposals, the substance of 
which are identical to this proposal. Thus, the proposed rule change 
will help to ensure consistency across SROs without implicating any 
competitive issues.

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

    No comments were solicited or received on the proposed rule change.

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 \29\ and Rule 19b-4(f)(6) thereunder.\30\ 
Because the foregoing 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)(iii) of the Act \31\ and subparagraph (f)(6) of 
Rule 19b-4 thereunder.\32\
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    \29\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \30\ 17 CFR 240.19b-4(f)(6).
    \31\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \32\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of 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) \33\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, Rule 19b-4(f)(6)(iii) \34\ permits the Commission to 
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 proposed 
rule change may become operative on October 1, 2022. The Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest, as it will allow the 
Exchange to coordinate its implementation of the revised clearly 
erroneous execution rules with the other national securities exchanges 
and FINRA, and will help ensure consistency across the SROs.\35\ For 
this reason, the Commission hereby waives the 30-day operative delay 
and

[[Page 58891]]

designates the proposed rule change as operative upon filing.\36\
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    \33\ 17 CFR 240.19b-4(f)(6).
    \34\ 17 CFR 240.19b-4(f)(6)(iii).
    \35\ See SR-CboeBZX-2022-37 (July 8, 2022).
    \36\ 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 to 
determine whether the proposed rule 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-LTSE-2022-05 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-LTSE-2022-05. 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 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-LTSE-2022-05 and should be submitted on 
or before October 19, 2022.
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    \37\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-20945 Filed 9-27-22; 8:45 am]
BILLING CODE 8011-01-P


