Document ID: SEC-2018-1085-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange, LLC
Posted Date: 2018-07-11T04:00Z

[Federal Register Volume 83, Number 133 (Wednesday, July 11, 2018)]
[Notices]
[Pages 32172-32174]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14850]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83601; File No. SR-NYSE-2018-31]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 
1, To Require Certain Member Organizations To Participate in Scheduled 
Market-Wide Circuit Breaker Testing

July 6, 2018.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on June 26, 2018, the New York Stock Exchange LLC (``NYSE'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change. On July 5, 2018, the Exchange 
filed Amendment No. 1 to the proposed rule change, as described in 
Items I, II, and III, below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, 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

    The Exchange proposes to require certain member organizations to 
participate in scheduled Market-Wide Circuit Breaker testing. Amendment 
No.1 supersedes the original filing in its entirety. The proposed rule 
change is available on the Exchange's website at www.nyse.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 those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

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

1. Purpose
    The Exchange proposes to amend NYSE Rule 49 to require certain 
member organizations to participate in scheduled Market-Wide Circuit 
Breaker (``MWCB'') testing.
    MWCBs are important, automatic mechanisms that are invoked to 
promote stability and investor confidence during a period of 
significant stress when securities markets experience extreme broad-
based declines. MWCBs 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. All U.S. equity and options exchanges have established 
procedures that allow for trading to be halted, or under extreme 
circumstances, for markets to be closed before the normal close of 
trading for a trading day. 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.
    Pursuant to NYSE Rule 80B (Trading Halts Due to Extraordinary 
Market Volatility), 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 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 Security [sic] Information Processors (``SIP'') for the U.S. 
equity markets have established a quarterly MWCB testing schedule.\4\ 
On the

[[Page 32173]]

scheduled dates, the Consolidated Tape Association Plan (``CTA Plan'') 
and the Consolidated Quotation Plan (``CQ'' Plan'') (collectively ``the 
CTA/CQ Plans'') \5\ and the Nasdaq/UTP Plan \6\ conduct MWCB testing 
that allows market participants across the securities industry to test 
their ability to receive messages associated with MWCBs, including 
decline status, halt and resume messages. Market participants are also 
able to participate in testing of re-opening auctions following market-
wide circuit breaker halts.
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    \4\ See https://www.nyse.com/publicdocs/ctaplan/notifications/trader-update/CTS_CQS%202018_Failover%20Testing_Q1.pdf.
    \5\ The CTA/CQ Plans govern the collection, consolidation, 
processing and dissemination of last sale and quotation information 
for Network A and Network B securities. Network A refers to 
securities listed on NYSE and Network B refers to securities listed 
on exchanges other than the Nasdaq Stock Market LLC (``Nasdaq'').
    \6\ The Joint Self-Regulatory Organization Plan Governing the 
Collection, Consolidation and Dissemination of Quotation and 
Transaction Information for Nasdaq-Listed Securities Traded on 
Exchanges on an Unlisted Trading Privileges Basis (``Nasdaq/UTP 
Plan'') governs the collection, consolidation, processing, and 
dissemination of last sale and quotation information for Network C 
securities. Network C refers to securities listed on Nasdaq.
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    The Exchange believes the quarterly tests are critical to ensure 
that securities markets halt trading and subsequently re-open in a 
manner consistent with the MWCB rules. To that end, the Exchange 
believes that certain member organizations should be required to 
participate in scheduled MWCB tests. The proposed rule would provide 
the Exchange with authority to require participation by member 
organizations in industry-wide tests to validate that their processing 
in the event of MWCB is as expected within their systems.
    In 2015, in connection with Regulation Systems Compliance and 
Integrity (``Regulation SCI''), the Exchange adopted rules to require 
certain member organizations to participate in testing of the operation 
of the Exchange's business continuity and disaster recovery plans. The 
Exchange similarly believes that requiring member organizations to 
participate in mandatory MWCB testing because they, for example, 
account for a significant portion of the Exchange's overall volume or 
maintain exclusive responsibilities with respect to Exchange-listed 
securities would be a reasonable means to ensure the maintenance of a 
fair and orderly market. Because member organizations required to 
participate in Regulation SCI testing have already been identified as 
essential for the maintenance of a fair and orderly market, the 
Exchange believes these same member organizations should also be 
required to participate in scheduled MWCB testing. Accordingly, the 
Exchange proposes new Rule 49(c)(1), which would provide that each 
member organization notified of its obligation to participate in 
mandatory testing pursuant to standards established under paragraphs 
(b)(1) and (3) \7\ of Rule 49 would also be required to participate in 
scheduled MWCB testing, in the manner and frequency specified by the 
Exchange.
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    \7\ Paragraph (b)(1) of Rule 49 establishes standards for the 
designation of member organizations that the Exchange determines are 
necessary to participate in business continuity and disaster 
recovery plans testing in connection with Regulation SCI. See 
Securities Exchange Act Release No. 76346 (November 4, 2015), 80 FR 
69765 (November 10, 2015).
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    Currently, the annual Regulation SCI test is conducted in October 
of each calendar year and at least three (3) months prior to such test, 
the Exchange provides a notice to member organizations that are 
required to participate in such test (``SCI Notice''). The Exchange 
proposes that future SCI Notices would also include notification to 
member organizations of their obligation to participate in a scheduled 
MWCB test.
    Finally, proposed Rule 49(c)(2) would provide that member 
organizations not required to participate in a scheduled MWCB test 
pursuant to standards established in paragraphs (b)(1) and (3) of Rule 
49 would be permitted to participate in a scheduled MWCB test.
    The Exchange proposes to implement the proposed rule change at the 
same time that the Exchange notifies member organizations of required 
participation in the 2019 Regulation SCI industry test.\8\ The 2019 SCI 
Notice would identify the member organizations that would be required 
to participate in scheduled MWCB testing. Member organizations notified 
in the 2019 SCI Notice of their obligation to participate in a 
scheduled MWCB test would be required to participate in such test on at 
least one of the testing dates established by the SIPs.\9\
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    \8\ Member organizations were notified of required participation 
for the 2018 Regulation SCI test scheduled for October 13, 2018 in 
April 2018. As noted above, the Exchange encourages all member 
organizations to test voluntarily but believes that implementing the 
new rule in 2019 would provide member organizations with adequate 
time to prepare for a scheduled MWCB test.
    \9\ See supra, note 4.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\10\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\11\ in particular, because it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to, and 
perfect the mechanisms of, a free and open market and a national market 
system and, in general, to protect investors and the public interest 
and because it is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    The proposed rule requiring member organizations to participate in 
mandatory MWCB testing would enable the Exchange, participating member 
organizations, and others to evaluate the readiness of such member 
organizations in the event of unanticipated market volatility. The 
proposal would also ensure that the member organizations necessary to 
ensure the maintenance of a fair and orderly market are properly 
designated as such designation would be determined by the same clear 
and objective standards used by the Exchange currently to determine 
which member organizations are required to participate in mandatory 
Regulation SCI testing.

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

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes that 
requiring participation in MWCB testing does not impose an undue burden 
on competition that is not necessary or appropriate because member 
organizations required to participate in MWCB testing under the 
proposal have been designated by the Exchange as essential to the 
maintenance of a fair and orderly market, such that their demonstrated 
ability to halt and subsequently re-open trading in response to an 
emergency should contribute to a fair and orderly market for the 
benefit of all market participants.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

[[Page 32174]]

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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-NYSE-2018-31 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-NYSE-2018-31. 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 the filing also will be available for inspection 
and copying at the principal office of the Exchange. 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-NYSE-2018-31 and should be submitted on 
or before August 1, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-14850 Filed 7-10-18; 8:45 am]
 BILLING CODE 8011-01-P