[Federal Register Volume 85, Number 202 (Monday, October 19, 2020)]
[Notices]
[Pages 66391-66393]
[FR Doc No: 2020-23016]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90165; File No. SR-CBOE-2020-098]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Extend
the Pilot Period Related to the Market-Wide Circuit Breaker in Rule
5.22

October 13, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on October 8, 2020, Cboe Exchange, Inc. (the ``Exchange'' or
``Cboe Options'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been prepared by the Exchange. The
Exchange filed the proposal as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule
19b-4(f)(6) thereunder.\4\ 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\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 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

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes
to extend the pilot period related to the market-wide circuit breaker
in Rule 5.22. The text of the proposed rule change is provided in
Exhibit 5.
    The text of the proposed rule change is also available on the
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, 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 Exchange 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. The Exchange 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
    Exchange Rule 5.22 describes the methodology for determining when
to halt trading in all stock options due to extraordinary market
volatility, i.e., market-wide circuit breakers (``MWCB''). The MWCB
mechanism was approved by the Securities and Exchange Commission (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''),\5\ including any extensions to the pilot period for the LULD
Plan. Though the LULD Plan was primarily designed for equity markets,
the Exchange believed it would, indirectly, potentially impact the
options markets as well. Thus, the Exchange has previously adopted and
amended Rule 5.22 \6\ (as well as other options pilot rules) to ensure
the option markets were not harmed as a result of the Plan's
implementation and implemented such rule on a pilot basis that has
coincided with the pilot period for the Plan.\7\ The Commission
recently approved an amendment to the LULD Plan for it to operate on a
permanent, rather than pilot, basis.\8\ In light of the proposal to
make the LULD Plan permanent, the Exchange amended Rule 5.22 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.\9\
The Exchange subsequently amended Rule 5.22 to extend the pilot to the
close of business on October 18, 2020.\10\ The Exchange now proposes to
amend Rule 5.22 to extend the pilot to the close of business on October
18, 2021. This filing does not propose any substantive or additional
changes to Rule 5.22.
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    \5\ See Securities Exchange Act Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012). The LULD Plan provides a
mechanism to address extraordinary market volatility in individual
securities.
    \6\ In October 2019, the Exchange restructured its Rulebook and
relocated previous Rule 6.3B, governing the MWCB mechanism, to
current Rule 5.22. No substantive changes were made to the rule. See
Securities Exchange Act Release No. 87224 (October 4, 2019), 84 FR
54652 (October 10, 2019) (SR-CBOE-2019-081).
    \7\ See Securities Exchange Act Release Nos. 65438 (September
28, 2011), 76 FR 61447 (October 4, 2011) (SR-CBOE-2011-087)
(amending Rule 5.22, prior Rule 6.3B, for determining when to halt
trading in all stocks and stock options due to extraordinary market
volatility); 68770 (January 30, 2013), 78 FR 8211 (February 5, 2013)
(SR-CBOE-2013-011) (amending Rule 5.22, prior Rule 6.3B, to delay
the operative date of the pilot to coincide with the initial date of
operations of the Plan); and 85616 (April 11, 2019), 84 FR 16093
(April 17, 2019) (SR-CBOE-2019-020) (proposal to extend the pilot
for certain options pilots, including Rule 5.22, prior Rule 6.3B).
    \8\ See Securities Exchange Act Release No. 85623 (April 11,
2019), 84 FR 16086 (April 17, 2019) (Order Approving Amendment No.
18).
    \9\ See Securities Exchange Act Release No. 85616 (April 11,
2019), 84 FR 16093 (April 17, 2019) (SR-CBOE-2019-020) (proposal to
extend the pilot for certain options pilots, including Rule 5.22,
prior Rule 6.3B).
    \10\ See Securities Exchange Act Release No. 87341 (October 18,
2019), 84 FR 57081 (October 24, 2019) (SR-CBOE-2020-100).
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    The market-wide circuit breaker under Rule 5.22 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. As stated
above, because all U.S. equity exchanges and FINRA 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, the Exchange, too,
adopted a MWCB mechanism on a pilot basis pursuant to Rule 5.22.
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 5.22, 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 for the remainder of the trading
day.
    Since the MWCB pilot was last extended in October 2019, the MWCB
mechanism has proven itself to be an effective tool for protecting
markets through turbulent times. In the Spring of 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, the previously-convened MWCB Taskforce
(``Taskforce'') reviewed the March 2020 halts and considered whether
any immediate changes to the MWCB mechanism should be made. The
Taskforce, consisting of representatives from equities exchanges,
futures exchanges, FINRA, broker-dealers, and other market
participants, had been assembled in early 2020 to consider more
generally potential changes to the MWCB mechanism. The Taskforce held
ten meetings in the Spring and Summer of 2020 that were attended by
Commission staff to consider, among other things: (1) Whether to retain
the S&P 500 Index as the standard for measuring market declines; (2)
whether halts that occur shortly after the 9:30 a.m. market open cause
more harm than good; and (3) what additional testing of the MWCB
mechanism should be done.
    After considering data and anecdotal reports of market
participants' experiences during the March 2020 MWCB events, the
Taskforce did not recommend immediate changes be made to the use of the
S&P 500 Index as the reference price against which market declines are
measured, or to the current MWCB mechanism which permits halts even
shortly after the 9:30 a.m. market open. The Taskforce recommended
creating a process for a backup reference price in the event that the
S&P 500 Index becomes unavailable and enhancing functional MWCB
testing. The Taskforce 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%.
    On September 17, 2020, the Director of the Division of Trading and
Markets requested that the equities exchanges and FINRA prepare a more
complete study of the design and operation of the MWCB mechanism and
the LULD Plan during the period of volatility in the Spring of 2020.
Based on the results of that study, the Exchange expects to work with
the Commission, FINRA, the other exchanges, and market participants to
determine if any additional changes to the MWCB mechanism should be
made, including consideration of rules and procedures for the periodic
testing of the MWCB mechanism with industry participants.
    In addition to the work of the Taskforce, the equities exchanges
also moved forward in 2019 and 2020 with a plan to normalize their Day
2 opening procedures after a Level 3 MWCB halt, such that all exchanges
would reopen on Day 2 with a standard opening process. The Exchange
notes that its affiliated equities exchanges \11\ filed rule changes to
that effect in March 2020,\12\ and successfully tested the
implementation of those changes on September 12, 2020.
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    \11\ The Exchange's affiliated equities exchanges include Cboe
BYX Exchange, Inc., Cboe BZX Exchange, Inc., Cboe EDGA Exchange,
Inc., and Cboe EDGX Exchange, Inc.
    \12\ See Securities Exchange Act Release Nos. 88417 (March 18,
2020), 85 FR 16702 (March 24, 2020) (SR-CboeBZX-2020-025); 88416
(March 18, 2020), 85 FR 16699 (March 24, 2020) (SR-CboeBYX-2020-
009); 88420 (March 18, 2020), 85 FR 16696 (March 24, 2020) (SR-
CboeEDGX-2020-012); 88419 (March 18, 2020), 85 FR 16716 (March 24,
2020) (SR-CboeEDGA-2020-008).
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2. Statutory Basis

    The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\13\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \14\ requirements that the rules of an exchange be
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
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \15\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ Id.
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    The MWCB mechanism under Rule 5.22 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 MWCB pilot for
an additional year would ensure the continued, uninterrupted operation
of a consistent mechanism to halt trading across the U.S. markets while
the Exchange, with the other SROs, study the design and operation of
the MWCB mechanism and the LULD Plan during the period of volatility in
the Spring of 2020. Based on the results of that study, the Exchange
expects to work with the Commission, FINRA, the other exchanges, and
market participants to determine if any additional changes to the MWCB
mechanism should be made, including consideration of rules and
procedures for the periodic testing of the MWCB mechanism with industry
participants.
    The Exchange 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, the Exchange believes the benefits to market
participants from the MWCB under Rule 5.22 should continue on a pilot
basis because the MWCB will promote fair and orderly markets and
protect investors and the public interest.

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

    The Exchange 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 Exchange, in conjunction with the other SROs, study
the design and operation of the MWCB mechanism and the LULD Plan during
the period of volatility in the Spring of 2020. Further, the Exchange
understands that FINRA and other national securities exchanges will
file proposals to extend their rules regarding the market-wide 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

    The Exchange neither solicited nor received comments on the
proposed rule change.

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

    The Exchange has designated this rule filing as non-controversial
under Section 19(b)(3)(A) \16\ of the Act and Rule 19b-4(f)(6) \17\
thereunder. 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 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 and Rule 19b-
4(f)(6) thereunder.\18\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ In addition, Rule 19b-4(f)(6)(iii) requires the Exchange 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
filing of the proposed rule change, or such shorter time as
designated by the Commission. The Commission has waived this
requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally
does not become operative for 30 days after the date of filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\20\ 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 upon filing. Extending the pilot for an additional
year will allow the uninterrupted operation of the existing pilot while
the Exchange, FINRA, and the other exchanges conduct a study of the
MWCB mechanism in consultation with market participants and determine
if any additional changes to the MWCB mechanism should be made,
including consideration of rules and procedures for the periodic
testing of the MWCB mechanism with industry participants. Therefore,
the Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
The Commission hereby designates the proposed rule change to be
operative upon filing.\21\
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    \19\ Id.
    \20\ 17 CFR 240.19b-4(f)(6)(iii).
    \21\ 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 change 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_ADDRESS>Please include
File Number SR-CBOE-2020-098 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-CBOE-2020-098. 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 and on its internet
website. 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-CBOE-2020-098 and
should be submitted on or before November 9, 2020.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-23016 Filed 10-16-20; 8:45 am]
BILLING CODE 8011-01-P


Comment Info: =================

General Comment:Notice approving the application.

Effective October 17, 2002 through October 17, 2003.

Petitions due October 28, 2002