14062 Federal Register / Vol. 87, No. 48 / Friday, March 11, 2022 / Notices 

32 17 CFR 240.19b–4. 

33Section 19(b)(2) of the Act, as amended by the 

Securities Acts Amendments of 1975, Public Law 

94–29 (June 4, 1975), grants to the Commission 

flexibility to determine what type of proceeding— 

either oral or notice and opportunity for written 

comments—is appropriate for consideration of a 

particular proposal by a self-regulatory 

organization. See Securities Acts Amendments of 

1975, Senate Comm. on Banking, Housing & Urban 

Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 

(1975). 

34 17 CFR 200.30–3(a)(12); 17 CFR 200.30– 

3(a)(57). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 The term ‘‘Regular Trading Hours’’ means the 

time between 9:30 a.m. and 4:00 p.m. Eastern Time. 

See BZX Rule 1.5(w). 

4 See Securities Exchange Act Release No. 67091 

(May 31, 2012), 77 FR 33498 (June 6, 2012). 

proposed rule change is consistent with 

Section 6(b)(5) or any other provision of 

the Act, or the rules and regulations 

thereunder. Although there do not 

appear to be any issues relevant to 

approval or disapproval that would be 

facilitated by an oral presentation of 

data, views, and arguments, the 

Commission will consider, pursuant to 

Rule 19b–4 under the Act,32 any request 

for an opportunity to make an oral 

presentation.33

Interested persons are invited to 

submit written data, views, and 

arguments regarding whether the 

proposed rule change should be 

approved or disapproved by April 1, 

2022. Any person who wishes to file a 

rebuttal to any other person’s 

submission must file that rebuttal by 

April 15, 2022. 

The Commission asks that 

commenters address the sufficiency of 

the Exchange’s statements in support of 

the proposal, and any other issues 

raised by the proposed rule change 

under the Act. In particular, the 

Commission seeks commenters’ views 

regarding whether the Exchange has 

adequately described the proposed new 

data product for the Commission to 

make a determination under Section 

6(b)(5) of the Act. 

Comments may be submitted by any 

of the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File No. SR– 

CboeBYX–2021–028 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 No. 

SR–CboeBYX–2021–028. The 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 No. 

SR–CboeBYX–2021–028 and should be 

submitted by April 1, 2022. Rebuttal 

comments should be submitted by April 

15, 2022. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.34

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–05149 Filed 3–10–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94374; File No. SR– 

CboeBZX–2022–017] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing of 

a Proposed Rule Change Relating to 

Amend BZX Rule 11.17, Clearly 

Erroneous Executions 

March 7, 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 7, 

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, II, and 

III below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

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 proposed rule 

change to amend BZX Rule 11.17, 

Clearly Erroneous Executions. 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 

The purpose of the proposed rule 

change is to amend BZX Rule 11.17, 

Clearly Erroneous Executions. 

Specifically, the Exchange proposes to: 

(1) Make the current clearly erroneous 

pilot program permanent; and (2) limit 

the circumstances where clearly 

erroneous review would continue to be 

available during Regular Trading 

Hours,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. The 

Exchange believes that these changes 

are appropriate as the LULD Plan has 

been approved by the Commission on a 


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5 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’’). 

6 ‘‘Price Bands’’ refers to the term provided in 

Section V of the LULD Plan. 

7See Securities Exchange Act Release No. 62886 

(Sept. 10, 2010), 75 FR 56613 (Sept. 16, 2010) (SR– 

BATS–2010–016). 

8See Securities Exchange Act Release No. 68797 

(Jan. 31, 2013), 78 FR 8635 (Feb. 6, 2013) (SR– 

BATS–2013–008). 

9See Securities Exchange Act Release No. 72434 

(June 19, 2014), 79 FR 36110 (June 25, 2014) (SR– 

BATS–2014–014). 

10See Securities Exchange Act Release No. 93342 

(October 15, 2021), 86 FR 58332 (October 21, 2021) 

(SR–CboeBZX–2021–070). 

11See Securities Exchange Act Release No. 62886 

(September 10, 2010), 75 FR 56613 (September 16, 

2010) (SR–BATS–2010–016). 

12 Id. 

13See Securities Exchange Act Release No. 67091 

(May 31, 2012), 77 FR 33498 (June 6, 2012) (File 

No. 4–631) (n. 33505). 

14 Id. 

15See EMSAC Market Quality Subcommittee, 

Recommendations for Rulemaking on Issues of 

Market Quality (November 29, 2016), available at 

https://www.sec.gov/spotlight/emsac/emsacrecommendations-rulemaking-market-quality.pdf. 

permanent basis,5 and in light of 

amendments to the LULD Plan, 

including changes to the applicable 

Price Bands 6 around the open and close 

of trading. 

Proposal To Make the Clearly Erroneous 

Pilot Permanent 

On September 10, 2010, the 

Commission approved, on a pilot basis, 

changes to BZX Rule 11.17 that, among 

other things: (i) Provided for uniform 

treatment of clearly erroneous execution 

reviews in multi-stock events involving 

twenty or more securities; and (ii) 

reduced the ability of the Exchange to 

deviate from the objective standards set 

forth in the rule.7 In 2013, the Exchange 

adopted a provision designed to address 

the operation of the LULD Plan.8

Finally, in 2014, the Exchange adopted 

two additional provisions providing 

that: (i) A series of transactions in a 

particular security on one or more 

trading days may be viewed as one 

event if all such transactions were 

effected based on the same 

fundamentally incorrect or grossly 

misinterpreted issuance information 

resulting in a severe valuation error for 

all such transactions; and (ii) in the 

event of any disruption or malfunction 

in the operation of the electronic 

communications and trading facilities of 

an Exchange, another SRO, or 

responsible single plan processor in 

connection with the transmittal or 

receipt of a trading halt, an Officer, 

acting on his or her own motion, shall 

nullify any transaction that occurs after 

a trading halt has been declared by the 

primary listing market for a security and 

before such trading halt has officially 

ended according to the primary listing 

market.9 These changes are currently 

scheduled to operate for a pilot period 

that would end at the close of business 

on April 20, 2022.10

When it originally approved the 

clearly erroneous pilot, the Commission 

explained that the changes were ‘‘being 

implemented on a pilot basis so that the 

Commission and the Exchanges can 

monitor the effects of the pilot on the 

markets and investors, and consider 

appropriate adjustments, as 

necessary.’’ 11 In the 12 years since that 

time, the Exchange and other national 

securities exchanges have gained 

considerable experience in the 

operation of the rule, as amended on a 

pilot basis. Based on that experience, 

the Exchange believes that the program 

should be allowed to continue on a 

permanent basis so that equities market 

participants and investors can benefit 

from the increased certainty provided 

by the amended rule. 

The clearly erroneous pilot was 

implemented following a severe 

disruption in the U.S. equities markets 

on May 6, 2010 (‘‘Flash Crash’’) to 

‘‘provide greater transparency and 

certainty to the process of breaking 

trades.’’ 12 Largely, the pilot reduced the 

discretion of the Exchange, other 

national securities exchanges, and 

Financial Industry Regulatory Authority 

(‘‘FINRA’’) to deviate from the objective 

standards in their respective rules when 

dealing with potentially erroneous 

transactions. The pilot has thus helped 

afford greater certainty to Members and 

investors about when trades will be 

deemed erroneous pursuant to selfregulatory organization (‘‘SRO’’) rules, 

and has provided a more transparent 

process for conducting such reviews. 

The Exchange proposes to make the 

current pilot permanent so that market 

participants can continue to benefit 

from the increased certainty afforded by 

the current rule. 

Amendments to the Clearly Erroneous 

Rules 

When the Participants to the LULD 

Plan filed to introduce the Limit UpLimit 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.13 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.14 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.’’ 15

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 

Regular Trading Hours. 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 Regular Trading Hours 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 


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14064 Federal Register / Vol. 87, No. 48 / Friday, March 11, 2022 / Notices 

16The term ‘‘Early Trading Session’’ means the 

time between 7:00 a.m. and 8:00 a.m. Eastern Time. 

See BZX Rule 1.5(ee). 

17The term ‘‘Pre-Opening Session’’ means the 

time between 8:00 a.m. and 9:30 a.m. Eastern Time. 

See BZX Rule 1.5(r). 

18The term ‘‘After Hours Trading Session’’ means 

the time between 4:00 p.m. and 8:00 p.m. Eastern 

Time. See BZX Rule 1.5(c). 

19See Amendment Eighteen, supra note 5. 

20See Appendix A of the LULD Plan. 

21The 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. 

22Such transactions similarly involve the 

execution of trades that should have been prevented 

but were not properly prevented due to a disruption 

or malfunction in the operation of the electronic 

communications and trading facilities of the 

Exchange, another market center or responsible 

single plan processor. 

23The 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. 

during the Exchange’s Early Trading,16

Pre-Opening,17 or After Hours 

Sessions 18 would 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 Early Trading, PreOpening, or After Hours 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 

Regular Trading Hours 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 Regular Trading 

Hours. 

On the other hand, there would be 

much more limited potential to request 

that a transaction be reviewed as 

potentially erroneous during Regular 

Trading Hours. 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 doublewide Price Bands: (1) At the Open, and 

(2) at the Close for Tier 2 NMS Stocks 

2 with a Reference Price above $3.00.19

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 Regular Trading Hours. 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 Regular Trading 

Hours. 

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 Regular Trading Hours. 

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 Regular Trading Hours, as 

follows. All transactions that fall 

outside of these specific enumerated 

exceptions would be ineligible for 

clearly erroneous review. 

First, pursuant to proposed paragraph 

(c)(1)(A), a transaction executed during 

Regular Trading Hours 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. 

Second, investors would also 

continue to be able to request review of 

transactions that resulted from certain 

systems issues pursuant to proposed 

paragraphs (c)(1)(B) and (c)(1)(C). In 

each case, these limited exceptions 

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 involves a disruption or 

malfunction in the operation of any 

electronic communications and trading 

facilities of the Exchange pursuant to 

BZX Rule 11.17(f). 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) below, 

by an amount that equals or exceeds the 

applicable Percentage Parameter defined 

in Appendix A to the LULD Plan 

(‘‘Percentage Parameters’’). Similarly, 

transactions executed during Regular 

Trading Hours would remain eligible for 

clearly erroneous review pursuant to 

proposed paragraph (c)(1)(C) if a 

transaction is the result of an Exchange 

technology or systems issue that results 

in the transaction occurring outside of 

the applicable Price Bands pursuant to 

BZX Rule 11.17(h) or if the transaction 

is executed after the primary listing 

market for the security declares a 

regulatory trading halt, suspension, or 

pause pursuant to BZX Rule 11.17(j). In 

such case, the Percentage Parameters 

will be applicable to such 

transactions.22

Third, the Exchange proposes to 

narrowly allow for the review of 

transactions during Regular Trading 

Hours when the Reference Price, 

described in proposed paragraph (d), is 

determined to be erroneous by an 

Officer of the Exchange. Specifically, 

pursuant to proposed paragraph 

(c)(1)(D), a transaction that involved, 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,23 a 

Reference Price that is determined to be 

erroneous by an Officer of the Exchange, 


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24See LULD Plan, Section I(U) and V(C)(1). 

the transaction will be reviewable as 

clearly erroneous. 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), by an 

amount that equals or exceeds the 

applicable Numerical Guidelines or 

Percentage Parameters. 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). 

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 at the 

theoretical price for the security as the 

correct Reference Price. For a corporate 

action, the theoretical price would be 

derived from a mathematical formula 

using the prior day’s close and then 

applying the ratio for the corporate 

action. For a new issue, the theoretical 

price would likewise be derived from 

the valuation of the new issue. If the 

new issue is an uplift from the OTC 

markets, the theoretical price would be 

the prior day’s close on the OTC market. 

In the foregoing instances, the 

theoretical price 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. 

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 × $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. 

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 × $22. 

2. An incoming buy order causes the 

stock to enter a Limit State pursuant to 

the LULD Plan 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, the quote 

available is widely set at $10 × $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 × 

$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 pursuant to the LULD 

Plan), 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)(D) 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 Regular 

Trading Hours, or during the Early 

Trading, Pre-Opening and After Hours 

Sessions. With respect to Regular 

Trading Hours, 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 


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14066 Federal Register / Vol. 87, No. 48 / Friday, March 11, 2022 / Notices 

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 

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 modify 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, PreOpening 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)(D) above 

(and in the case of (c)(1)(D)(2), the price 

of the prior LULD Band that triggered 

the Trading Pause will be used as the 

new Reference Price), 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. 

System Disruption or Malfunction 

The Exchange proposes to change to 

Rule 11.17(f) to conform to the 

structural changes to the Rule described 

above and to reference the applicability 

of Percentage Parameters. Specifically, 

the Exchange proposes eliminate a 

reference to paragraph (c)(3) based on 

the structural changes described above. 

Further, existing rule text provides that 

in extraordinary circumstances an 

Officer of the Exchange or other senior 

level employee designee may use a 

lower Numerical Guideline if necessary 

to maintain a fair and order market, 

protect investors and the public interest. 

The Exchange proposes to amend this 

language to provide that an Officer of 

the Exchange or other senior level 

employee designee may use a lower 

Percentage Parameter, in the case of an 

NMS Stock subject to the LULD Plan, or 

a Numerical Guideline, in the case of an 

NMS Stock not subject to the LULD in 

such case. 

Trade Nullification for UTP Securities 

That Are the Subject of Initial Public 

Offerings 

Current paragraph (h) of BZX Rule 

11.17 provides different procedures for 

conducting clearly erroneous review in 

initial public offering (‘‘IPO’’) securities 

that are traded pursuant to unlisted 

trading privileges (‘‘UTP’’) after the 

initial opening of such IPO securities on 

the listing market. Specifically, this 

paragraph provides that a clearly 

erroneous error may be deemed to have 

occurred in the opening transaction of 

the subject security if the execution 

price of the opening transaction on the 

Exchange is the lesser of $1.00 or 10% 

away from the opening price on the 

listing exchange or association. The 

Exchange no longer believes that this 

provision is necessary as opening 

transactions on the Exchange following 

an IPO are subject to Price Bands 

pursuant to the LULD Plan. The 

Exchange therefore proposes to 

eliminate this provision in connection 

with the broader changes to clearly 

erroneous review during Regular 

Trading Hours. 

Securities Subject to Limit Up-Limit 

Down Plan 

The Exchange proposes to renumber 

paragraph (i) to paragraph (h) based on 

the proposal to eliminate existing 

paragraph (h), 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 (j) and (k) to paragraphs (i) 


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Federal Register / Vol. 87, No. 48 / Friday, March 11, 2022 / Notices 14067 

25 15 U.S.C. 78f(b). 

26 15 U.S.C. 78f(b)(5). 27See Amendment Eighteen, supra note 5. 

and (j), respectively, based on the 

proposal to eliminate existing paragraph 

(h). 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 (i) and (j) 

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 

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,25 in general, and Section 6(b)(5) of 

the Act,26 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. 

As explained in the purpose section 

of this proposed rule change, the current 

pilot was implemented following the 

Flash Crash to bring greater 

transparency to the process for 

conducting clearly erroneous reviews, 

and to help assure that the review 

process is based on clear, objective, and 

consistent rules across the U.S. equities 

markets. The Exchange believes that the 

amended clearly erroneous rules have 

been successful in that regard, and have 

thus furthered fair and orderly markets. 

Specifically, the Exchange believes that 

the pilot has successfully ensured that 

such reviews are conducted based on 

objective and consistent standards 

across SROs, and has therefore afforded 

greater certainty to Members and 

investors. The Exchange therefore 

believes that making the current pilot a 

permanent program is appropriate so 

that equities market participants can 

continue to reap the benefits of a clear, 

objective, and transparent process for 

conducting clearly erroneous reviews. 

In addition, the Exchange understands 

that the other U.S. equities exchanges 

and FINRA will also file largely 

identical proposals to make their 

respective clearly erroneous pilots 

permanent. The Exchange therefore 

believes that the proposed rule change 

would promote transparency and 

uniformity across markets concerning 

review of transactions as clearly 

erroneous, and would also help assure 

consistent results in handling erroneous 

trades across the U.S. equities markets, 

thus furthering fair and orderly markets, 

the protection of investors, and the 

public interest. 

Similarly, the Exchange believes that 

it is consistent with just and equitable 

principles of trade to limit the 

availability of clearly erroneous review 

during Regular Trading Hours. 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.’’ 27 Thus, 

the Exchange believes that clearly 

erroneous review should only be 

necessary in very limited circumstances 

during Regular Trading Hours. 

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. Thus, 

eliminating clearly erroneous review in 

all other instances will serve to increase 

certainty for Members and investors that 

trades executed during Regular Trading 

Hours would typically stand and would 

not be subject to review. 

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 

Regular Trading Hours 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. 

The Exchange believes that it is 

consistent with the protection of 

investors and the public interest to 

remove the current provision of the 

clearly erroneous rule dealing with UTP 

securities that are the subject of IPOs. 

This provision applies specifically to 

opening transactions on a non-listing 

market following an IPO on the listing 

market. As such, review under this 

paragraph is limited to trades conducted 

during Regular Trading Hours. As 

previously addressed, trades executed 

during Regular Trading Hours would 

generally not be subject to clearly 

erroneous review but would instead be 

protected by the Price Bands. The 

Exchange therefore no longer believes 

that this paragraph is necessary, as all 

trades subject to this provision today 

would either be subject to the LULD 

Plan, or, in the event of some systems 

or other issue, would be subject to the 

provisions that apply to transactions 

that are not adequately protected by the 

LULD Plan. 

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 


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14068 Federal Register / Vol. 87, No. 48 / Friday, March 11, 2022 / Notices 

28 17 CFR 200.30–3(a)(12). 

1Currently, FINRA is the only registered national 

securities association. 

2 17 CFR 240.15c2–4. 

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 

Regular Trading Hours 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 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

such proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be 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 rule-comments@

sec.gov. Please include File Number SR– 

CboeBZX–2022–017 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–2022–017. 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–2022–017 and 

should be submitted on or before April 

1, 2022. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.28

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–05150 Filed 3–10–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[SEC File No. 270–774, OMB Control No. 

3235–0726] 

Proposed Collection; Comment 

Request 

Upon Written Request, Copies Available 

From: Securities and Exchange 

Commission, Office of FOIA Services, 

100 F Street NE, Washington, DC 

20549–2736. 

Extension: 

Rules 300–304 of Regulation 

Crowdfunding (Intermediaries). 

Notice is hereby given that pursuant 

to the Paperwork Reduction Act of 1995 

(‘‘PRA’’) (44 U.S.C. 3501 et seq.), the 

Securities and Exchange Commission 

(‘‘Commission’’) is soliciting comments 

on the collection of information 

provided for Rule 17Ab2–1 (17 CFR 

240.17Ab2–1) and Form CA–1: 

Registration of Clearing Agencies (17 

CFR 249b.200) under the Securities 

Exchange Act of 1934 (‘‘Exchange Act’’) 

(15 U.S.C. 78a et seq.). The Commission 

plans to submit this existing collection 

of information to the Office of 

Management and Budget (‘‘OMB’’) for 

extension and approval. 

Rules 300–304 of Regulation 

Crowdfunding enumerate the 

requirements with which intermediaries 

must comply to participate in the offer 

and sale of securities in reliance on 

Section 4(a)(6) of the Securities Act of 

1933 (‘‘Section 4(a)(6)’’). Rule 300 

requires an intermediary to be registered 

with the Commission as a broker or as 

a funding portal and be a member of a 

registered national securities 

association.1

Rule 301 requires intermediaries to 

have a reasonable basis for believing 

that an issuer seeking to offer and sell 

securities in reliance on Section 4(a)(6) 

through the intermediary’s platform 

complies with the requirements in 

Section 4A(b) of the Securities Act and 

the related requirements in Regulation 

Crowdfunding. Rule 302 provides that 

no intermediary or associated person of 

an intermediary may accept an 

investment commitment in a transaction 

involving the offer or sale of securities 

made in reliance on Section 4(a)(6) until 

the investor has opened an account with 

the intermediary and the intermediary 

has obtained from the investor consent 

to electronic delivery of materials. Rule 

303 requires an intermediary to make 

publicly available on its platform the 

information that an issuer of 

crowdfunding securities is required to 

provide to potential investors, in a 

manner that reasonably permits a 

person accessing the platform to save, 

download, or otherwise store the 

information, for a minimum of 21 days 

before any securities are sold in the 

offering, during which time the 

intermediary may accept investment 

commitments. Rule 303 also requires 

intermediaries to comply with the 

requirements related to the maintenance 

and transmission of funds. An 

intermediary that is a registered broker 

is required to comply with the 

requirements of Rule 15c2–4 of the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’) (Transmission or 

Maintenance of Payments Received in 

Connection with Underwritings).2 An 

intermediary that is a registered funding 

portal must direct investors to transmit 


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