Document ID: SEC-2021-1442-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc
Posted Date: 2021-10-19T04:00Z

[Federal Register Volume 86, Number 199 (Tuesday, October 19, 2021)]
[Notices]
[Pages 57867-57869]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-22685]

[[Page 57867]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93300; File No. SR-FINRA-2021-027]

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

October 13, 2021.
    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 October 7, 2021, the 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 extend the pilot period related to FINRA Rule 
6121.02 (Market-wide Circuit Breakers in NMS Stocks) to the close of 
business on March 18, 2022.
    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 extend the pilot related to the market-wide 
circuit breaker in Rule 6121.02 to the close of business on March 18, 
2022.
Background
    The Market-Wide Circuit Breaker (``MWCB'') rules, including FINRA 
Rule 6121.02, provide an important, automatic mechanism that is invoked 
to promote stability and investor confidence during periods of 
significant stress when cash equities securities experience extreme 
market-wide declines. The MWCB rules are designed to slow the effects 
of extreme price declines through coordinated trading halts across both 
cash equity and equity options securities markets.
    The cash equities rules governing MWCBs were first adopted in 1988 
and, in 2012, FINRA and all U.S. cash equity exchanges amended their 
cash equities uniform rules on a pilot basis (the ``Pilot Rules,'' 
i.e., for FINRA, Rule 6121.02).\4\ The Pilot Rules currently provide 
for trading halts in all cash equity securities during a severe market 
decline as measured by a single-day decline in the S&P 500 Index 
(``SPX'').\5\ Under the Pilot Rules, a market-wide trading halt will be 
triggered if SPX declines in price by specified percentages from the 
prior day's closing price of that index. 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. and before 3:25 p.m. would halt market-wide trading for 15 
minutes, while a similar market decline at or after 3:25 p.m. would not 
halt market-wide trading. (Level 1 and Level 2 halts may occur only 
once a day.) A market decline that triggers a Level 3 halt at any time 
during the trading day would halt market-wide trading for the remainder 
of the trading day.
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    \4\ 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) (``Pilot 
Rules Approval Order'').
    \5\ The rules of the equity options exchanges similarly provide 
for a halt in trading if the cash equity exchanges invoke a MWCB 
Halt. See, e.g., NYSE Arca Rule 6.65-O(d)(4).
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    The Commission approved the Pilot Rules, 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''),\6\ including any extensions to the pilot period for the LULD 
Plan.\7\ In April 2019, the Commission approved an amendment to the 
LULD Plan for it to operate on a permanent, rather than pilot, 
basis.\8\ In conjunction with the proposal to make the LULD Plan 
permanent, FINRA amended Rule 6121.02 to untie Rule 6121.02's 
effectiveness from that of the LULD Plan and to extend Rule 6121.02's 
effectiveness to the close of business on October 18, 2019.\9\ FINRA 
subsequently amended Rule 6121.02 to extend Rule 6121.02's 
effectiveness for an additional year to the close of business on 
October 18, 2020,\10\ and later, on October 18, 2021.\11\
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    \6\ 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.
    \7\ 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).
    \8\ 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).
    \9\ 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).
    \10\ 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).
    \11\ See Securities Exchange Act Release No. 90160 (October 13, 
2020), 85 FR 67072 (October 21, 2020) (Notice of Filing and 
Immediate Effectiveness of File No. SR-FINRA-2020-033).
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    FINRA now proposes to amend Rule 6121.02 to extend the pilot to the 
close of business on March 18, 2022. This filing does not propose any 
substantive or additional changes to Rule 6121.02.
The MWCB Task Force and the March 2020 MWCB Events
    In late 2019, Commission staff requested the formation of a MWCB 
Task Force (``Task Force'') to evaluate the operation and design of the 
MWCB mechanism. The Task Force included representatives from the SROs, 
the Commission, CME, the Commodity Futures Trading Commission 
(``CFTC'') and the securities industry, and

[[Page 57868]]

conducted several organizational meetings in December 2019 and January 
2020.
    In Spring 2020, the MWCB mechanism proved itself to be an effective 
tool for protecting markets through turbulent times. In March 2020, at 
the outset of the worldwide COVID-19 pandemic, U.S. equities markets 
experienced four MWCB Level 1 halts, on March 9, 12, 16, and 18, 2020. 
In each instance, the markets halted as intended upon a 7% drop in the 
S&P 500 Index, and resumed as intended 15 minutes later.
    In response to these events, in the Spring and Summer of 2020, the 
Task Force held ten meetings that were attended by Commission staff, 
with the goal of performing an expedited review of the March 2020 halts 
and identifying any areas where the MWCB mechanism had not worked 
properly. Given the risk of unintended consequences, the Task Force did 
not recommend changes that were not rooted in a noted deficiency. The 
Task Force recommended creating a process for a backup reference price 
in the event that SPX were to become unavailable, and enhancing 
functional MWCB testing. The Task Force also asked CME to consider 
modifying its rules to enter into a limit-down state in the futures 
pre-market after a 7% decline instead of 5%. CME made the requested 
change, which became effective on October 12, 2020.\12\
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    \12\ See https://www.cmegroup.com/content/dam/cmegroup/market-regulation/rule-filings/2020/9/20-392_1.pdf; https://www.cmegroup.com/content/dam/cmegroup/market-regulation/rule-filings/2020/9/20-392_2.pdf.
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The MWCB Working Group's Study
    On September 17, 2020, the Director of the Commission's Division of 
Trading and Markets asked the SROs to conduct a more complete study of 
the design and operation of the Pilot Rules and the LULD Plan during 
the period of volatility in the Spring of 2020.
    In response to the request, the SROs created a MWCB ``Working 
Group'' composed of SRO representatives and industry advisers that 
included members of the advisory committees to both the LULD Plan and 
the NMS Plans governing the collection, consolidation, and 
dissemination of last-sale transaction reports and quotations in NMS 
Stocks. The Working Group met regularly from September 2020 through 
March 2021 to consider the Commission's request, review data, and 
compile its study. The Working Group's efforts in this respect 
incorporated and built on the work of an MWCB Task Force.
    The Working Group submitted its study to the Commission on March 
31, 2021 (the ``Study'').\13\ In addition to a timeline of the MWCB 
events in March 2020, the Study includes a summary of the analysis and 
recommendations of the MWCB Task Force; an evaluation of the operation 
of the Pilot Rules during the March 2020 events; an evaluation of the 
design of the current MWCB system; and the Working Group's conclusions 
and recommendations.
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    \13\ See Report of the Market-Wide Circuit Breaker (``MWCB'') 
Working Group Regarding the March 2020 MWCB Events, submitted March 
31, 2021 (the ``Study''), available at https://www.nyse.com/publicdocs/nyse/markets/nyse/Report_of_the_Market-Wide_Circuit_Breaker_Working_Group.pdf.
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    In the Study, the Working Group concluded: (1) The MWCB mechanism 
set out in the Pilot Rules worked as intended during the March 2020 
events; (2) the MWCB halts triggered in March 2020 appear to have had 
the intended effect of calming volatility in the market, without 
causing harm; (3) the design of the MWCB mechanism with respect to 
reference value (SPX), trigger levels (7%/13%/20%), and halt times (15 
minutes) is appropriate; (4) the change implemented in Amendment 10 to 
the Plan to Address Extraordinary Market Volatility (the ``Limit Up/
Limit Down Plan'' or ``LULD Plan'') did not likely have any negative 
impact on MWCB functionality; and (5) no changes should be made to the 
mechanism to prevent the market from halting shortly after the opening 
of regular trading hours at 9:30 a.m.
    In light of the foregoing conclusions, the Working Group also made 
several recommendations, including that the Pilot Rules should be 
permanent without any changes.\14\
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    \14\ See the Study, supra note 13, at 46.
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Proposal To Extend the Operation of the Pilot Rules Pending the 
Commission's Consideration of the NYSE's Filing To Make the Pilot Rules 
Permanent
    On July 16, 2021, the NYSE proposed a rule change to make the Pilot 
Rules permanent, consistent with the Working Group's 
recommendations.\15\ On August 27, 2021, the Commission extended its 
time to consider the proposed rule change to October 20, 2021.\16\ 
FINRA now proposes to extend the expiration date of FINRA Rule 6121.02 
to the end of business on March 18, 2022.
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    \15\ See Securities Exchange Act Release No. 92428 (July 16, 
2021), 86 FR 38776 (July 22, 2021) (Notice of Filing File No. SR-
NYSE-2021-40).
    \16\ See Securities Exchange Act Release No. 92785A (August 27, 
2021), 86 FR 50202 (September 7, 2021) (Notice of Designation of a 
Longer Period for Commission Action on File No. SR-NYSE-2021-40).
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    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 from the date 
of filing, so that FINRA can implement the proposed rule change 
immediately.
2. Statutory Basis
    FINRA believes that its proposal is consistent with Section 15A(b) 
of the Act,\17\ in general, and furthers the objectives of Section 
15A(b)(6) of the Act,\18\ 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 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. 
Extending the market-wide circuit breaker pilot under Rule 6121.02 for 
an additional five months would ensure the continued, uninterrupted 
operation of a consistent mechanism to halt trading across the U.S. 
markets while the Commission reviews the NYSE's proposed rule change to 
make the Pilot Rules permanent.
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    \17\ 15 U.S.C. 78o-3(b).
    \18\ 15 U.S.C. 78o-3(b)(6).
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    FINRA 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, FINRA believes the benefits to market participants under 
Rule 6121.02 should continue on a pilot basis because they 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 impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act because the proposal would ensure the 
continued, uninterrupted operation of a consistent mechanism to halt 
trading across the U.S. markets while the Commission reviews the NYSE's 
proposed rule change to make the Pilot Rules permanent.
    Further, FINRA understands that other SROs will file proposals to 
extend their rules regarding the market-wide

[[Page 57869]]

circuit breaker pilot. 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

    No written comments were either solicited or 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) of the Act \19\ and Rule 19b-
4(f)(6) thereunder.\20\
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \21\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\22\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange asked 
that the Commission waive the 30 day operative delay so that the 
proposal may become operative immediately upon filing. Extending the 
Pilot Rules' effectiveness to the close of business on March 18, 2022 
will extend the protections provided by the Pilot Rules, which would 
otherwise expire in less than 30 days. Waiver of the operative delay 
would therefore permit uninterrupted continuation of the MWCB pilot 
while the Commission reviews the NYSE's proposed rule change to make 
the Pilot Rules permanent. Therefore, the Commission hereby waives the 
30-day operative delay and designates the proposed rule change as 
operative upon filing.\23\
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    \21\ 17 CFR 240.19b-4(f)(6).
    \22\ 17 CFR 240.19b-4(f)(6)(iii).
    \23\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-FINRA-2021-027 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-2021-027. 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 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-2021-027 and should be submitted on or before November 9, 2021.
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    \24\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-22685 Filed 10-18-21; 8:45 am]
BILLING CODE 8011-01-P