Document ID: SEC-2019-0500-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2019-04-17T04:00Z

[Federal Register Volume 84, Number 74 (Wednesday, April 17, 2019)]
[Notices]
[Pages 16107-16109]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07625]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85612; File No. SR-FINRA-2019-011]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Extend the Current Pilot Program Related to 
FINRA Rule 11892 (Clearly Erroneous Transactions in Exchange-Listed 
Securities)

April 11, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 9, 2019, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by FINRA. FINRA has designated 
the proposed rule change as constituting a ``non-controversial'' rule 
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which 
renders the proposal effective upon receipt of this filing by the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).

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[[Page 16108]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to extend the current pilot program related to 
FINRA Rule 11892 (Clearly Erroneous Transactions in Exchange-Listed 
Securities) to the close of business on October 18, 2019.
    The text of the proposed rule change is available on FINRA's 
website at http://www.finra.org, at the principal office of FINRA 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, FINRA 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. FINRA 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
    FINRA proposes to amend FINRA Rule 11892 (Clearly Erroneous 
Transactions in Exchange-Listed Securities) to extend the current pilot 
program to the close of business on October 18, 2019. This change is 
being proposed in connection with proposed amendments to the Plan to 
Address Extraordinary Market Volatility (the ``Limit Up-Limit Down 
Plan'' or the ``Plan'') that would allow the Plan to continue to 
operate on a permanent basis.\4\
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    \4\ See Securities Exchange Act Release No. 84843 (December 18, 
2018), 83 FR 66464 (December 26, 2018) (File No. 4-631) 
(``Eighteenth Amendment'').
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    On September 10, 2010, the Commission approved, on a pilot basis, 
changes to FINRA Rule 11892 that, among other things: (i) Provided for 
uniform treatment of clearly erroneous[thinsp]execution reviews in 
multi-stock events involving twenty or more securities; and (ii) 
reduced the ability of FINRA to deviate from the objective standards 
set forth in the rule.\5\ In 2013, FINRA adopted a provision designed 
to address the operation of the Plan.\6\ Finally, in 2014, FINRA 
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 [sic] self-regulatory organization or responsible single plan 
processor in connection with the transmittal or receipt of a regulatory 
trading halt, suspension or pause, a FINRA officer, acting on his or 
her own motion, shall declare as null and void any transaction in a 
security that occurs after the primary listing market for such security 
declares a trading halt, suspension or pause with respect to such 
security and before such trading halt, suspension or pause with respect 
to such security has officially ended according to the primary listing 
market.\7\ These changes are currently scheduled to operate for a pilot 
period that coincides with the pilot period for the Limit Up-Limit Down 
Plan,\8\ including any extensions to the pilot period for the Plan.\9\
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    \5\ See Securities Exchange Act Release No. 62885 (September 10, 
2010), 75 FR 56641 (September 16, 2010) (Order Approving File No. 
SR-FINRA-2010-032).
    \6\ See Securities Exchange Act Release No. 68808 (February 1, 
2013), 78 FR 9083 (February 7, 2013) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2013-012).
    \7\ See Securities Exchange Act Release No. 72434 (June 19, 
2014), 79 FR 36110 (June 25, 2014) (Order Approving File No. SR-
FINRA-2014-021).
    \8\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down 
Release'').
    \9\ See Securities Exchange Act Release No. 71781 (March 24, 
2014), 79 FR 17615 (March 28, 2014) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2014-013).
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    The Commission recently published the proposed Eighteenth Amendment 
to the Plan to allow the Plan to operate on a permanent, rather than 
pilot, basis. FINRA proposes to amend FINRA Rule 11892 to untie the 
pilot program's effectiveness from that of the Plan and to extend the 
pilot's effectiveness to the close of business on October 18, 2019--
i.e., six months after the expiration of the current pilot period for 
the Plan. If the pilot period is not either extended or approved as 
permanent, [sic] version of this Rule prior to SR-FINRA-2010-032 shall 
be in effect, and the amendments set forth in SR-FINRA-2014-021 and the 
provisions of Supplementary Material .03 of this Rule shall be null and 
void.\10\ In such an event, the remaining text of FINRA Rule 11892 
would continue to apply to all transactions in Exchange-Listed 
securities. FINRA understands that the national securities exchanges 
also will file similar proposals to extend their respective clearly 
erroneous execution pilot programs, the substance of which are 
identical to FINRA Rule 11982.
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    \10\ See supra notes 5-7. The version of this Rule prior to SR-
FINRA-2010-032 generally provided greater discretion to FINRA with 
respect to breaking erroneous trades.
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    FINRA does not propose any additional changes to FINRA Rule 11892. 
FINRA believes the benefits to market participants from the more 
objective clearly erroneous executions rule should continue on a 
limited six-month pilot basis after the Commission approves the Plan to 
operate on a permanent basis. Assuming the Plan is approved by the 
Commission to operate on a permanent, rather than pilot, basis FINRA 
intends to assess whether additional changes also should be made to the 
operation of the clearly erroneous execution rules. Extending the 
effectiveness of FINRA Rule 11892 for an additional six months should 
provide FINRA and the national securities exchanges additional time to 
consider further amendments to the clearly erroneous execution rules in 
light of the proposed Eighteenth Amendment to the Plan.
    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the SEC waive the requirement that 
the proposed rule change not become operative for 30 days after the 
date of the filing, so FINRA can implement the proposed rule change 
immediately.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\11\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade and, in general, to protect investors and the 
public interest. FINRA believes that the proposed rule change promotes 
just and equitable principles of trade in that it promotes transparency 
and uniformity across markets concerning the review of transactions as 
clearly erroneous. FINRA believes that extending the clearly erroneous 
execution pilot under FINRA Rule 11892 for an additional six months 
would help assure that the determination of whether a clearly erroneous 
trade has occurred will be based on clear and objective criteria, and 
that the resolution of the incident will occur promptly through a 
transparent process. The proposed rule

[[Page 16109]]

change also would 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. 
Based on the foregoing, FINRA believes the amended clearly erroneous 
executions rule should continue to be in effect on a pilot basis while 
FINRA and the national securities exchanges consider and develop a 
permanent proposal for clearly erroneous execution reviews.
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    \11\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
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 FINRA and the 
national securities exchanges consider further amendments to these 
rules in light of the proposed Eighteenth Amendment to the Plan. FINRA 
understands that the national securities exchanges will also file 
similar proposals to extend their respective clearly erroneous 
execution pilot programs. Thus, the proposed rule change will help to 
ensure consistency across market centers without implicating any 
competitive issues.

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

    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 \12\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 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. 
FINRA has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, Rule 19b-4(f)(6)(iii) \15\ permits the Commission to 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. FINRA has asked the 
Commission to waive the 30-day operative delay so that the proposed 
rule change may become effective and operative immediately upon filing. 
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 current clearly erroneous execution pilot program to 
continue uninterrupted, without any changes, while FINRA and the other 
national securities exchanges consider and develop a permanent proposal 
for clearly erroneous execution reviews. For this reason, the 
Commission hereby waives the 30-day operative delay and designates the 
proposed rule change as operative upon filing.\16\
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
    \16\ 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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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-FINRA-2019-011 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-FINRA-2019-011. 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 FINRA. 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-FINRA-2019-011 and should be submitted 
on or before May 8, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-07625 Filed 4-16-19; 8:45 am]
 BILLING CODE 8011-01-P