Document ID: SEC-2019-1528-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Investors Exchange, LLC
Posted Date: 2019-10-21T04:00Z

[Federal Register Volume 84, Number 203 (Monday, October 21, 2019)]
[Notices]
[Pages 56255-56258]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22837]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87298; File No. SR-IEX-2019-11]

Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend IEX 
Rule 11.280 To Extend the Pilot Period for the Market-Wide Circuit 
Breaker to the Close of Business on October 18, 2020 and To Clarify 
That the Remaining Parts of Rule 11.280 Are Not Subject to Any Pilot 
Period

October 15, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on October 11, 2019, the Investors Exchange LLC (``IEX'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) under the Act,\4\ 
and Rule 19b-4 thereunder,\5\ IEX is filing with the Commission a 
proposed rule change to amend IEX Rule 11.280 to extend the pilot 
period for the market-wide circuit breaker to the close of business on 
October 18, 2020 and to clarify that the remaining parts of Rule 11.280 
are not subject to any pilot period. IEX has designated this rule 
change as ``non-controversial'' under Section 19(b)(3)(A) of the Act 
\6\ and provided the

[[Page 56256]]

Commission with the notice required by Rule 19b-4(f)(6) thereunder.\7\
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4.
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    The text of the proposed rule change is available at the Exchange's 
website at www.iextrading.com, at the principal office of the Exchange, 
and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statement may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Paragraphs (a) through (d) and (f) of Rule 11.280 describe the 
methodology for determining when to halt trading in all stocks due to 
extraordinary market volatility (i.e., market-wide circuit breakers). 
The market-wide circuit breaker (``MWCB'') mechanism under Rule 11.280 
was approved by the Commission to operate on a pilot basis, the term of 
which was to coincide with the pilot period for the Plan to Address 
Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS 
(the ``LULD Plan''),\8\ including any extensions to the pilot period 
for the LULD Plan. The Commission recently approved an amendment to the 
LULD Plan for it to operate on a permanent, rather than pilot, 
basis.\9\ In light of the proposal to make the LULD Plan permanent, the 
Exchange amended Rule 11.280 to untie the pilot's effectiveness from 
that of the LULD Plan and to extend the pilot's effectiveness to the 
close of business on October 18, 2019.\10\
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    \8\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012). An amendment to the LULD Plan 
adding IEX as a Participant was filed with the Commission on August 
11, 2016, and became effective upon filing pursuant to Rule 
608(b)(3)(iii) of the Act. See Securities Exchange Act Release No. 
78703 (August 26, 2016), 81 FR 60397 (September 1, 2016) (File No. 
4-631).
    \9\ See Securities Exchange Act Release No. 85623 (April 11, 
2019), 84 FR 16086 (April 17, 2019) (``LULD Plan Amendment 18 
Approval Order'').
    \10\ See Securities Exchange Act Release No. 85576 (April 9, 
2019), 84 FR 15237 (April 15, 2019) (SR-IEX-2019-04).
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    The purpose of this proposed rule change is to amend Rule 11.280(a) 
to extend the pilot period for the MWCB, set forth in paragraphs (a) 
through (d) and (f),\11\ to the close of business on October 18, 2020. 
In addition, this proposed rule change will clarify that the remaining 
paragraphs of Rule 11.280 are not subject to any pilot period. This 
filing does not propose any substantive or additional changes to Rule 
11.280. The Exchange will use the MWCB pilot extension period to 
develop with the other self-regulatory organizations (``SROs'') rules 
and procedures that would allow for the periodic testing of the 
performance of the MWCB mechanism, with industry member participation 
in such testing. The extension will also permit the SROs to consider 
enhancements to the MWCB processes such as modifications to the Level 3 
process.
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    \11\ Rule 11.280(f) also relates to the MWCB because it 
specifies the time zone for all times referenced in Rule 11.280(a) 
and (b).
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    MWCBs under Rule 11.280 provide an important, automatic mechanism 
that is invoked to promote stability and investor confidence during 
periods of significant stress when securities markets experience 
extreme broad-based declines. All SROs have rules relating to MWCBs, 
which are designed to slow the effects of extreme price movement 
through coordinated trading halts across securities markets when severe 
price declines reach levels that may exhaust market liquidity.\12\ 
MWCBs provide for trading halts in all equities and options markets 
during a severe market decline as measured by a single-day decline in 
the S&P 500 Index.
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    \12\ See Securities Exchange Act Release No. 67090 (May 31, 
2012), 77 FR 33531 (June 6, 2012) (SR-BATS-2011-038; SR-BYX-2011-
025; SR-BX-2011-068; SR-CBOE-2011-087; SR-C2-2011-024; SR-CHX-2011-
30; SR-EDGA-2011-31; SR-EDGX-2011-30; SR-FINRA-2011-054; SR-ISE-
2011-61; SR-NASDAQ-2011-131; SR-NSX-2011-11; SR-NYSE-2011-48; SR-
NYSEAmex-2011-73; SR-NYSEArca-2011-68; SR-Phlx-2011-129).
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    Pursuant to Rule 11.280(a) through (d) and (f), a market-wide 
trading halt will be triggered if the S&P 500 Index declines in price 
by specified percentages from the prior day's closing price of that 
index. Currently, the triggers are set at three circuit breaker 
thresholds: A 7% market decline (Level 1), a 13% market decline (Level 
2), and a 20% market decline (Level 3). A market decline that triggers 
a Level 1 or Level 2 circuit breaker after 9:30 a.m. ET and before 3:25 
p.m. ET would halt market-wide trading for 15 minutes, while a similar 
market decline at or after 3:25 p.m. ET would not halt market-wide 
trading. A market decline that triggers a Level 3 circuit breaker, at 
any time during the trading day, would halt market-wide trading for the 
remainder of the trading day.
    The Exchange also proposes to amend Rule 11.280(a) to clarify that 
the pilot period set forth in Rule 11.280(a) only applies to paragraphs 
(a) through (d) and (f) of Rule 11.280 (i.e., the MWCB mechanism). 
Paragraph (e) of Rule 11.280, which relates to IEX's LULD Mechanism 
\13\ was subject to the pilot period specified in paragraph (a) of Rule 
11.280, as described above.\14\ With the Commission's LULD Plan 
Amendment 18 Approval Order providing that the LULD Plan now operates 
on a permanent basis,\15\ the Exchange is proposing to update Rule 
11.280(a) to reflect that IEX's LULD Mechanism no longer operates on a 
pilot basis, thus ensuring continued compliance with the LULD Plan.
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    \13\ The Exchange is required by the LULD Plan to establish, 
maintain, and enforce written policies and procedures that are 
reasonably designed to comply with the LULD and trading pause 
requirements specified in the LULD Plan. Rule 11.280(e) sets forth 
the Exchange's LULD mechanism, including provisions stating that the 
Exchange is a Participant in the LULD Plan and that IEX Members are 
required to comply with the provisions of the LULD Plan. 
Furthermore, Rule 11.280(e) describes order handling performed by 
the Exchange to maintain compliance with the LULD Plan. 
Specifically, Rule 11.280(e): (1) Provides that the System shall not 
display or execute buy (sell) interest above (below) the Upper 
(Lower) Price Bands, unless such interest is specifically exempted 
under the Plan; (2) describes how the System re-prices and/or 
cancels buy (sell) interest that is priced or could be executed 
above (below) the Upper (Lower) Price Band; (3) confirms that the 
Exchange may declare a Trading Pause during a Straddle State; and 
(4) addresses how the Exchange would re-open a security following a 
Trading Pause.
    \14\ See supra note 10.
    \15\ See supra note 9.
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    Similarly, the Exchange proposes to amend Rule 11.280(a) to clarify 
that paragraphs (g) and (h) of Rule 11.280 are not subject to any pilot 
period. Rule 11.280(g) provides the authority under which the Exchange 
can initiate a trading halt ``in circumstances in which IEX deems it 
necessary to protect investors and the public interest,'' and Rule 
11.280(h) provides the procedures by which IEX can both initiate and 
terminate a trading halt. Neither of these paragraphs are related to 
either the MWCB or LULD Plans, but Rule 11.280(a) may inadvertently 
connote that these two paragraphs were subject to a pilot period. The 
proposed changes to paragraph (a) will clarify that the trading halt 
procedures contained in

[[Page 56257]]

paragraphs (g) and (h) of Rule 11.280 are not subject to a pilot 
period.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of Sections 6(b) \16\ and 6(b)(5) of the Act,\17\ in 
particular, in that it is designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in general 
to protect investors and the public interest. The MWCB mechanism under 
Rule 11.280 is an important, automatic mechanism that is invoked to 
promote stability and investor confidence during periods of significant 
stress when securities markets experience extreme broad-based declines. 
Extending the MWCB pilot for an additional year would ensure the 
continued, uninterrupted operation of a consistent mechanism to halt 
trading across the U.S. equity markets while the Exchange, with the 
other SROs, considers and develops rules and procedures that would 
allow for the periodic testing of the performance of the MWCB 
mechanism, which would include industry member participation in such 
testing. The extension will also permit the SROs to consider 
enhancements to the MWCB processes such as modifications to the Level 3 
process.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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    The Exchange also believes that the proposed rule change promotes 
just and equitable principles of trade in that it promotes transparency 
and uniformity across markets concerning when and how to halt trading 
in all stocks as a result of extraordinary market volatility. Based on 
the foregoing, the Exchange believes the benefits to market 
participants from the MWCB under Rule 11.280(a) through (d) and (f) 
should continue on a pilot basis because the MWCB will promote fair and 
orderly markets, and protect investors and the public interest.
    Additionally, the Exchange believes that it is consistent with the 
public interest and the protection of investors to modify the language 
in Rule 11.280(a) to indicate that the LULD Plan Amendment 18 Approval 
Order made permanent the Exchange's LULD Mechanism contained in 
paragraph (e) of Rule 11.280. Furthermore, the Exchange believes it is 
consistent with the public interest and the protection of investors to 
clarify that paragraphs (g) and (h) of Rule 11.280, which set forth the 
Exchange's authority and process for initiating and terminating trading 
halts, are not subject to any pilot period. These clarifying changes 
are designed to ensure continued compliance by the Exchange and its 
Members with the requirements of the LULD Plan and remove any ambiguity 
on the ongoing applicability of the trading halt provisions.

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

    IEX does not believe that the proposed rule change implicates any 
competitive issues because the proposal would ensure the continued, 
uninterrupted operation of a consistent mechanism to halt trading 
across the U.S. markets while the Exchange, in conjunction with the 
other SROs, considers and develops rules and procedures that would 
allow for the periodic testing of the performance of the MWCB 
mechanism. Furthermore, as noted above, the extension will permit the 
SROs to consider enhancements to the MWCB processes such as 
modifications to the Level 3 process.
    Further, IEX understands that the other SROs will file proposals to 
extend their rules regarding the MWCB pilot. Thus, the proposed rule 
change will help to ensure consistency across market centers without 
implicating any competitive issues.
    Additionally, clarifying that paragraph (e) of Rule 11.280 was made 
permanent by the LULD Plan Amendment 18 Approval Order is designed to 
ensure continued compliance with the requirements of the LULD Plan. And 
the Exchange believes that clarifying that the trading halt provisions 
of paragraphs (g) and (h) of Rule 11.280 are not subject to any pilot 
period, removes any ambiguity on the ongoing applicability of the 
trading halt provisions, which the Exchange believes would not have an 
impact on competition.

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

    Written comments were neither solicited nor received.

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

    Because the 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 \18\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \20\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\21\ the Commission may 
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 proposal 
may become operative upon filing. Extending the pilot for an additional 
year will allow the uninterrupted operation of the existing pilot to 
halt trading across the U.S. markets. Therefore, the Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. The Commission hereby 
designates the proposed rule change to be operative upon filing.\22\
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    \20\ Id.
    \21\ 17 CFR 240.19b-4(f)(6)(iii).
    \22\ 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

[[Page 56258]]

     Send an email to rule-comments@sec.gov. Please include 
File Number SR-IEX-2019-11 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-IEX-2019-11. This file 
number should be included in the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Section, 100 F Street NE, Washington, 
DC 20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing will also be available for inspection 
and copying at the IEX's principal office and on its internet website 
at www.iextrading.com. All comments received will be posted without 
change. Persons submitting comments are cautioned that we do not redact 
or edit personal identifying information from comment submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-IEX-2019-11 
and should be submitted on or before November 12, 2019.
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    \23\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22837 Filed 10-18-19; 8:45 am]
 BILLING CODE 8011-01-P