Document ID: SEC-2016-1356-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2016-08-03T04:00Z

[Federal Register Volume 81, Number 149 (Wednesday, August 3, 2016)]
[Notices]
[Pages 51239-51241]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18317]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78435; File No. SR-FINRA-2016-028]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Clarify the Operation of the Regulation NMS 
Plan To Address Extraordinary Market Volatility

July 28, 2016.
    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 July 22, 2016, 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, 
II, and III 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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

    FINRA is proposing to clarify the operation of the Regulation NMS 
Plan to Address Extraordinary Volatility (``Plan'') following a Trading 
Pause or Regulatory Halt in a security subject to the Plan.\4\
---------------------------------------------------------------------------

    \4\ Unless otherwise specified, the capitalized terms used 
herein have the same meanings as set forth in the Plan.
---------------------------------------------------------------------------

    The text of the proposed rule change is available on FINRA's Web 
site 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 Rule 6121.01 (Trading Pauses) (``Rule'') sets forth 
requirements applicable to member firms in connection with Trading 
Pauses.\5\ The Rule addresses the Plan's provisions regarding Trading 
Pause, including that no trades in an NMS Stock are permitted to occur 
during a Trading Pause, and sets forth the circumstances under which 
trading in an NMS Stock can resume after a Trading Pause. Currently, 
the Rule also provides that FINRA may permit the resumption of trading 
otherwise than on an exchange if trading has commenced on at least one 
other national securities exchange. In addition, FINRA Rule 6190 
(Compliance with Regulation NMS Plan to Address Extraordinary Market 
Volatility) provides, among other things, that a member that is a 
Trading Center in an NMS Stock must establish, maintain and enforce 
written policies and procedures reasonably designed to comply with the 
requirements of the Plan, including to prevent the execution of trades 
at prices below the Lower Price Band or above the Upper Price Band for 
an NMS Stock. The pilot period for the Plan was recently extended 
through April 21, 2017.\6\
---------------------------------------------------------------------------

    \5\ 17 CFR 242.608.
    \6\ See Securities Exchange Act Release No. 77679 (April 21, 
2016), 81 FR 24908 (April 27, 2016).
---------------------------------------------------------------------------

    FINRA and other self-regulatory organizations (SROs) are taking 
measures to clarify the operation of the Plan that results from the 
short period of time (generally up to three milliseconds) following the 
resumption of trading after a Trading Pause or Regulatory Halt and 
before the Price Bands are received from the Processor for securities 
that are subject to the

[[Page 51240]]

Plan.\7\ Specifically, FINRA is proposing an amendment to Rule 6121.01 
to provide that, following a Trading Pause or Regulatory Halt in an NMS 
Stock that is subject to the Plan, a member may resume trading 
otherwise than on an exchange if trading has commenced on the primary 
listing exchange (or on another national securities exchange in the 
case of the resumption of trading following a ten-minute trading pause) 
and either: (1) The member has received the Price Bands from the 
Processor; or (2) if immediately following a Trading Pause or 
Regulatory Halt the member has not yet received the Price Bands from 
the Processor, the member has calculated an upper price band and lower 
price band consistent with the methodology provided for in Section V of 
the Plan and ensures that any transactions prior to the receipt of the 
Price Bands from the Processor are within the ranges provided for 
pursuant to the Plan, consistent with Section VI(A)(1) of the Plan.
---------------------------------------------------------------------------

    \7\ See NASDAQ Equity Trader Alert #2016-79 (NASDAQ Announces 
Improved Protections for Equity Markets Coming Out of Halts (``Leaky 
Bands'')) (April 12, 2016); See Bats Release Notes (Bats Announces 
Updates to Halt Resumption Behavior Effective July 15, 2016) (June 
2, 2016). FINRA anticipates that other SROs will adopt similar 
measures to calculate an interim band for their listed securities to 
be applied in the brief time between the resumption of trading and 
when the Price Bands are subsequently received from the Processor.
---------------------------------------------------------------------------

    The proposed rule change also clarifies what activity is permitted 
around the resumption of trading following a Trading Pause. Previously, 
the Rule provided that FINRA may permit the resumption of trading 
following a Trading Pause if trading has resumed on any national 
securities exchange. FINRA is revising the Rule to provide that members 
may resume trading following a Trading Pause if trading has resumed on 
the Primary Listing Exchange or, where the Primary Listing Exchange 
does not reopen for trading at the end of a ten-minute Trading Pause 
(and has issued notice that it cannot resume trading for a reason other 
than a significant imbalance), a member may resume trading otherwise 
than on an exchange if trading has commenced in such NMS Stock on at 
least one other national securities exchange.\8\
---------------------------------------------------------------------------

    \8\ Deleted language from paragraph (b) is no longer applicable 
because it addressed a transitional period in Plan implementation 
prior to the Plan becoming effective as to all NMS Stocks. The Plan 
applied to all NMS Stocks on December 8, 2013. Rights and warrants 
are excluded from the Plan. See Securities Exchange Act Release No. 
70273 (August 27, 2013), 78 FR 54321 (September 3, 2013) (File No. 
4-631).
---------------------------------------------------------------------------

    Thus, the proposed amendment addresses the brief time between the 
resumption of trading following a Trading Pause or Regulatory Halt and 
when the Price Bands are received from the Processor by requiring 
members to take measures to ensure bands are in place (either by 
waiting for the receipt of the Price Bands from the Processor or 
calculating an interim upper price band and lower price band and 
ensuring that trades occur within those bands). Members may not rely on 
interim bands beyond the short period of time (generally up to three 
milliseconds) between the resumption of trading and the receipt of 
Price Bands by market participants.
    FINRA has filed the proposed rule change for immediate 
effectiveness. The operative date of the proposed rule change will be 
August 22, 2016.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\9\ 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. The proposed rule change also is designed to support 
the principles of Section 11A(a)(1) of the Act \10\ in that it seeks to 
assure fair competition among brokers and dealers and among exchange 
markets.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78o-3(b)(6).
    \10\ 15 U.S.C. 78k-1(a)(1).
---------------------------------------------------------------------------

    The proposed rule change is designed to better implement the goals 
of the Plan, which has been approved by the Commission as reasonably 
designed to prevent potentially harmful price volatility, including 
severe volatility of the kind that occurred on May 6, 2010. In 
clarifying the operation of the Plan, the proposed rule change seeks to 
help ensure that the goals of the Plan are met. Accordingly, FINRA 
believes that the proposed rule change will further the goals of 
investor protection and fair and orderly markets.

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 proposed rule change seeks 
to require members to take measures to ensure that their trading 
activity is in compliance with FINRA Rule 6190 and the Plan, and does 
not impose requirements that do not currently exist under FINRA rules, 
FINRA guidance and the Plan.
    Specifically, a member that is a Trading Center in an NMS Stock 
already is required to establish, maintain and enforce written policies 
and procedures that are reasonably designed to comply with the 
requirements of the Plan, including to prevent the execution of trades 
at prices that are outside of the Price Bands. To comply with this 
requirement, members must be aware of the upper and lower price bands 
applicable to their trading activity. This proposal provides that, 
immediately following a halt of a security subject to the Plan, a 
member may not resume trading until trading has resumed on the primary 
listing exchange (or on another national securities exchange in the 
case of the resumption of trading following a ten-minute pause) and 
either the member has received the Price Bands from the processor or 
has established interim bands calculated in compliance with the Plan.

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) of the Act \11\ and Rule 19b-
4(f)(6) thereunder.\12\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    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.

[[Page 51241]]

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-2016-028 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2016-028. 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 Web site (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 Web site 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; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-FINRA-2016-028 and should be 
submitted on or before August 24, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-18317 Filed 8-2-16; 8:45 am]
BILLING CODE 8011-01-P