Document ID: SEC-2020-0439-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2020-03-25T04:00Z

[Federal Register Volume 85, Number 58 (Wednesday, March 25, 2020)]
[Notices]
[Pages 16971-16974]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06189]

[[Page 16971]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88425; File No. SR-FINRA-2020-009]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend FINRA Rule 6121.02 (Market-Wide Circuit 
Breakers in NMS Stocks)

March 19, 2020.
    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 March 18, 2020, 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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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend FINRA Rule 6121.02 (Market-wide Circuit 
Breakers in NMS Stocks) concerning the resumption of trading following 
a Level 3 market-wide circuit breaker halt.
    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 Rule 6121.02 concerning the resumption of 
trading following a Level 3 market-wide circuit breaker halt. FINRA is 
proposing this rule change in conjunction with other self-regulatory 
organizations (``SROs'').
    Rule 6121.02 addresses the circumstances under which FINRA shall 
halt, and subsequently resume, over-the-counter trading in all NMS 
stocks due to extraordinary market volatility (i.e., market-wide 
circuit breakers). The market-wide circuit breaker (``MWCB'') mechanism 
under Rule 6121.02 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''),\4\ including any extensions to the 
pilot period for the LULD Plan.\5\ Last year, the Commission approved 
an amendment to the LULD Plan for it to operate on a permanent, rather 
than pilot, basis.\6\ In light of the proposal to make the LULD Plan 
permanent, FINRA amended Rule 6121.02 to untie the pilot's 
effectiveness from that of the LULD Plan and to extend the pilot's 
effectiveness to the close of business on October 18, 2019.\7\ FINRA 
then filed a proposed rule change to extend the pilot for an additional 
year to the close of business on October 18, 2020.\8\
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    \4\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down 
Release''). The LULD Plan provides a mechanism to address 
extraordinary market volatility in individual securities.
    \5\ See Securities Exchange Act Release Nos. 67090 (May 31, 
2012), 77 FR 33531 (June 6, 2012) (Order Approving File No. SR-
FINRA-2011-054); and 68778 (January 31, 2013), 78 FR 8668 (February 
6, 2013) (Notice of Filing and Immediate Effectiveness of File No. 
SR-FINRA-2013-011) (Proposed Rule Change to Delay the Operative Date 
of FINRA Rule 6121.02).
    \6\ See Securities Exchange Act Release No. 85623 (April 11, 
2019), 84 FR 16086 (April 17, 2019) (Order Approving the Eighteenth 
Amendment to the National Market System Plan To Address 
Extraordinary Market Volatility).
    \7\ See Securities Exchange Act Release No. 85547 (April 8, 
2019), 84 FR 14981 (April 12, 2019) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2019-010).
    \8\ See Securities Exchange Act Release No. 87078 (September 24, 
2019), 84 FR 51669 (September 30, 2019) (Notice of Filing and 
Immediate Effectiveness of File No. SR-FINRA- 2019-023).
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    The market-wide circuit breaker under Rule 6121.02 provides an 
important, automatic mechanism that is invoked to promote stability and 
investor confidence during a period of significant stress when 
securities markets experience extreme broad-based declines. FINRA and 
the U.S. equity exchanges adopted uniform rules on a pilot basis 
relating to market-wide circuit breakers in 2012 (``MWCB Rules''), 
which are designed to slow the effects of extreme price movement 
through coordinated trading halts across securities markets when severe 
price declines reach levels that may exhaust market liquidity.\9\ 
Market-wide circuit breakers provide for trading halts in all equities 
and options markets during a severe market decline as measured by a 
single-day decline in the S&P 500 Index.
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    \9\ 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) (Notice of 
Filing of Amendments No. 1 and Order Granting Accelerated Approval 
of Proposed Rule Changes as Modified by Amendments No. 1, Relating 
to Trading Halts Due to Extraordinary Market Volatility).
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    Pursuant to Rule 6121.02, a market-wide trading halt will be 
triggered if the S&P 500 Index declines in price by specified 
percentages from the prior day's closing price of that index. 
Currently, the triggers are set at three circuit breaker thresholds: 7% 
(Level 1), 13% (Level 2), and 20% (Level 3). A market decline that 
triggers a Level 1 or Level 2 halt after 9:30 a.m. ET and before 3:25 
p.m. ET would halt market-wide trading for 15 minutes, while a similar 
market decline at or after 3:25 p.m. ET would not halt market-wide 
trading. A market decline that triggers a Level 3 halt, at any time 
during the trading day, would halt market-wide trading until the 
primary listing market opens the next trading day.
    Today, in the event that a Level 3 market decline occurs, trading 
in exchange-listed stocks would be halted until the primary listing 
market opens the next trading day. Upon feedback from industry 
participants, FINRA has been working with other SROs to establish a 
standardized approach for resuming trading in all NMS stocks following 
a Level 3 halt. The proposed approach would allow for the opening of 
all NMS stocks the next trading day after a Level 3 halt as a regular 
trading day, and is designed to ensure that Level 3 MWCB events are 
handled in a more consistent manner that is transparent for market 
participants.\10\
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    \10\ Of note, the U.S. futures markets, which have similar rules 
for coordinated MWCB halts, normally begin their ``next day'' 
trading session at 6:00 p.m. ET (for CFE and CME) or at 8:00 p.m. ET 
(for ICE). If the U.S. futures markets amend their MWCB rules, as 
needed, to allow for normal course trading following a Level 3 halt, 
the futures markets would resume trading in their normal course at 
6:00 p.m. ET (CFE and CME) or 8:00 p.m. ET (ICE) the same day as the 
Level 3 halt.
    Furthermore, there may be cross-market differences in how each 
exchange currently opens the next day after a Level 3 MWCB halt. For 
example, while some exchanges currently resume trading in listed 
securities no differently from a regular trading day, other 
exchanges may, for instance, conduct a halt auction process instead 
of opening in the normal course under their respective rules. As 
discussed later in this filing, the proposed changes will allow each 
SRO to resume trading in all NMS stocks the next trading day 
following a Level 3 halt no differently from a regular trading day.

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[[Page 16972]]

    As proposed, a Level 3 halt would end at the end of the trading day 
on which it is declared. This proposed change would allow over-the-
counter trading in all NMS stocks to resume the next day no differently 
from any other trading day. In other words, a member could resume 
trading otherwise than on an exchange in any NMS stock on the day 
following the Level 3 market wide circuit breaker, and would not need 
to wait for the primary listing market to re-open trading in a security 
before it could start trading such security, so long as the halt has 
been lifted by the applicable securities information processor 
(``SIP'').\11\
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    \11\ The SEC has approved a proposed rule change by NASDAQ to 
permit NASDAQ to resume trading the day following a Level 3 market 
decline as it would on any other trading day. See Securities 
Exchange Act Release No. 88360 (March 11, 2020) (Order Approving 
File No. SR-NASDAQ- 2020-003) (``Nasdaq Approval Order''). FINRA 
anticipates that the other SROs also will file similar proposals to 
amend their MWCB rules on the resumption of trading following Level 
3 halts, and amend their rules, where required, to have their Level 
3 next-day openings happen normally.
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    To effect this change, FINRA is amending Rule 6121.02 to delete the 
language requiring that members wait until the primary listing exchange 
opens the next trading day following a Level 3 market decline, and 
specify that FINRA will halt trading otherwise than on an exchange in 
all NMS stocks for the remainder of the trading day. The proposed rule 
change would therefore allow each SRO to resume trading in all NMS 
stocks the next trading day following a Level 3 halt as they normally 
would. Members should ensure that they have policies and procedures in 
place that address their resumption of over-the-counter trading in NMS 
stocks following a Level 3 MWCB.
    FINRA expects that the primary listing exchanges will facilitate 
this change by sending resume messages to the applicable SIP to lift 
the Level 3 trading halt message in all NMS stocks. The resumption 
messages will be disseminated after the SIP has started on the next 
trading day and before the start of the earliest pre-market trading 
session of all exchanges. If a security is separately subject to a 
regulatory halt that has not ended, FINRA expects that the primary 
listing exchanges would replace the Level 3 halt message with the 
applicable regulatory halt message.
    Having a consistent approach for all NMS stocks will make the 
opening process the day after a Level 3 halt more uniform and reduce 
complexity, which FINRA believes is important after a significant 
market event. Based on industry feedback, FINRA believes that opening 
in the normal course for all NMS stocks will be more beneficial to the 
marketplace. By allowing trading to resume after a Level 3 halt in all 
NMS stocks no differently from any normal trading day under the 
respective rules of each SRO, the proposed rule change would provide 
greater certainty to the marketplace by ensuring a familiar experience 
for all market participants that trade NMS stocks and balances out 
potential concerns around volatility. While FINRA recognizes that the 
impact of this proposal is to permit all NMS stocks to be traded during 
time periods that do not have certain price protections for volatility 
such as LULD Bands or MWCB protections, FINRA nonetheless believes that 
this outcome is outweighed by the benefits provided by opening in a 
manner that is more familiar to the marketplace. Moreover, allowing the 
resumption of trading to occur as it would on any other trading day 
will allow for price formation to occur earlier in the trading day, 
which in turn allows market participants to react to news that has 
developed. As such, trading at the beginning of regular hours may be 
more orderly.
    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.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\12\ 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, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest. The market-wide 
circuit breaker mechanism under Rule 6121.02 is an important, automatic 
mechanism that is invoked to promote stability and investor confidence 
during a period of significant stress when securities markets 
experience extreme broad-based declines. FINRA 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, and how the markets will resume trading following a 
Level 3 market decline.
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    \12\ 15 U.S.C. 78o-3(b)(6).
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    As described above, FINRA together with other SROs, is seeking to 
adopt a standardized approach related to resuming trading in NMS stocks 
after a Level 3 MWCB halt. In this regard, FINRA believes that the 
proposal to resume trading in all NMS stocks following a Level 3 halt 
in the same manner that these securities would open trading on a 
regular trading day will benefit investors, the national market system, 
and FINRA members by promoting a fair and orderly market and reducing 
confusion during a significant cross-market event. By allowing trading 
to resume after a Level 3 halt in all NMS stocks no differently from 
any normal trading day under the respective rules of each exchange, the 
proposed rule change would provide greater certainty to the marketplace 
by ensuring a familiar experience for all market participants that 
trade NMS stocks.
    Based on the foregoing, FINRA believes that the benefits to market 
participants under the proposed revisions to Rule 6121.02 with the 
proposed standardized process for resuming trading in all NMS stocks 
following a Level 3 halt will promote fair and orderly markets, and 
protect investors and the public interest.

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 because the proposed Level 3 
rule change described above would standardize the opening process for 
all NMS stocks, which would make the opening process the day after a 
Level 3 halt more uniform and reduce complexity. Further, The Nasdaq 
Stock Market LLC (``Nasdaq'') already amended its rules to adopt 
amendments concerning the resumption of trading following a Level 3 
MWCB to allow for the opening of all securities the next trading day 
after a Level 3 halt

[[Page 16973]]

as a regular trading day.\13\ FINRA understands that the other SROs 
will file similar proposals to adopt the proposed changes related to 
resumptions following a Level 3 MWCB.
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    \13\ See Nasdaq Approval Order.
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Economic Impact Assessment

    FINRA has undertaken an economic impact assessment, as set forth 
below, to analyze the potential economic impacts, including anticipated 
costs, benefits, and distributional and competitive effects, relative 
to the current baseline, and the alternatives FINRA considered in 
assessing how to best meet its regulatory objectives.\14\
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    \14\ FINRA believes an abbreviated economic impact assessment is 
appropriate to facilitate the expedient adoption of consistent rules 
regarding the resumption of trading in all NMS stocks following a 
Level 3 market-wide circuit breaker.
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Regulatory Objective

    FINRA proposes to amend Rule 6121.02 concerning the resumption of 
trading following a Level 3 market-wide circuit breaker halt. The 
proposed rule change would allow each SRO to resume trading in all NMS 
stocks the next trading day following a Level 3 halt as they normally 
would, without requiring the primary listing market to first re-open 
trading in a security.

Economic Baseline

    The market-wide circuit breaker under Rule 6121.02 provides an 
automatic mechanism that is invoked to promote stability and investor 
confidence during a period of stress when securities markets experience 
extreme broad-based declines. Market-wide circuit breakers provide for 
trading halts in all equities and options markets during a severe 
market decline as measured by a single-day decline in the S&P 500 
Index.
    Pursuant to Rule 6121.02, 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. A market 
decline that triggers a Level 3 halt, defined as a 20% decline in price 
from the prior day's closing price of the S&P 500 Index, currently 
would halt market-wide trading until the primary listing market opens 
the next trading day.
    Over-the-counter trading in an NMS stock currently may start the 
next trading day when its primary listing market opens the security. 
Consequently, the opening process for NMS stocks after a Level 3 halt 
is different from any other trading day that was not preceded by a 
Level 3 MWCB. This adds to complexity the day after a Level 3 MWCB 
halt.

Economic Impact

    Having a consistent approach for all NMS stocks will make the 
opening process the day after a Level 3 halt more uniform and reduce 
complexity. FINRA recognizes that the proposed rule change would permit 
all NMS stocks to be traded during time periods when certain price 
protections for volatility such as LULD Bands or MWCB protections are 
not in force. The absence of these protections may be mitigated because 
the resumption of trading would occur as it would on any other trading 
day, which permits price formation to occur earlier in the trading day, 
and should allow market participants to more quickly react to news 
events. As a result, trading at the beginning of regular hours may be 
less volatile.

Alternatives

    No further alternatives are under consideration.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \15\ and Rule 19b-4(f)(6) thereunder.\16\ 
Because the 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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\17\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 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 Commission has waived the pre-filing requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \18\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\19\ 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 immediately upon filing. The Commission notes that 
it approved a substantively similarly proposed rule change submitted by 
The Nasdaq Stock Market LLC.\20\ Waiver of the operative delay will 
ensure consistency across the market centers and the timely 
implementation of the proposed rule change. Accordingly, the Commission 
waives the 30-day operative delay and designates the proposed rule 
change operative upon filing.\21\
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 17 CFR 240.19b-4(f)(6)(iii).
    \20\ See Securities Exchange Act Release No. 88360 (March 11, 
2020) (SR-NASDAQ-2020-03).
    \21\ For purposes only of waiving the 30-day operative delay, 
the Commission has 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 such 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 under 
Section 19(b)(2)(B) \22\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \22\ 15 U.S.C. 78s(b)(2)(B).
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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-FINRA-2020-009 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-2020-009. This 
file

[[Page 16974]]

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 a.m. and 3 
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-2020-009 and should be submitted on or before April 15, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06189 Filed 3-24-20; 8:45 am]
 BILLING CODE 8011-01-P