83 FR 41117 - Self-Regulatory Organizations; New York Stock Exchange LLC; Order Approving a Proposed Rule Change, as Modified by Amendment No. 1, To Require Certain Member Organizations To Participate in Scheduled Market-Wide Circuit Breaker Testing

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 160 (August 17, 2018)

Page Range		41117-41118
FR Document		2018-17743

Federal Register, Volume 83 Issue 160 (Friday, August 17, 2018)

[Federal Register Volume 83, Number 160 (Friday, August 17, 2018)]
[Notices]
[Pages 41117-41118]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2018-17743]

[[Page 41117]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83836; File No. SR-NYSE-2018-31]

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

August 13, 2018.

I. Introduction

On June 26, 2018, New York Stock Exchange LLC (``Exchange'' or
``NYSE'') filed with the Securities and Exchange Commission
(``Commission'') pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to require certain member organizations to
participate in scheduled market-wide circuit breaker testing. On July
5, 2018, the Exchange filed Amendment No. 1 to the proposed rule
change, which supersedes the original filing in its entirety.\3\ The
proposed rule change, as amended by Amendment No. 1, was published for
comment in the Federal Register on July 11, 2018.\4\ The Commission has
received no comment letters on the proposed rule change. This order
approves the proposed rule change.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, the Exchange proposed to improve the
clarity of the proposal and elaborate on the Exchange's statement on
burden on competition. See Letter from Martha Redding, Associate
General Counsel, NYSE, to Brent J. Fields, Secretary, Commission
(Jul. 9, 2018), available at https://www.sec.gov/comments/sr-nyse-2018-31/nyse201831-4016966-167312.pdf.
\4\ See Securities Exchange Act Release No. 83601 (Jul. 6,
2018), 83 FR 32172 (Jul. 11, 2018) (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

The Exchange proposes to amend NYSE Rule 49 to require certain
member organizations to participate in scheduled Market-Wide Circuit
Breaker (``MWCB'') testing.\5\
---------------------------------------------------------------------------

\5\ The securities and futures exchanges have procedures for
coordinated cross-market trading halts if a severe market price
decline reaches levels that may exhaust market liquidity. These
procedures, known as market-wide circuit breakers, may halt trading
temporarily or, under extreme circumstances, close the markets
before the normal close of the trading session. Market-wide circuit
breakers provide for cross-market trading halts during a severe
market decline as measured by a single-day decrease in the S&P 500
Index. A cross-market trading halt can be triggered at three
circuit-breaker thresholds: 7% (Level 1), 13% (Level 2), and 20%
(Level 3). These triggers are set by the markets at levels that are
calculated daily based on the prior day's closing price of the S&P
500 Index.
---------------------------------------------------------------------------

The Securities Information Processors (``SIPs'') for the U.S.
equity markets have established a quarterly MWCB testing schedule.\6\
On the scheduled dates, the Consolidated Tape Association Plan (``CTA
Plan'') and the Consolidated Quotation Plan (``CQ'' Plan'')
(collectively ``the CTA/CQ Plans''),\7\ along with the Nasdaq/UTP
Plan,\8\ 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.
---------------------------------------------------------------------------

\6\ See, e.g., https://www.nyse.com/publicdocs/ctaplan/notifications/trader-update/CTS_CQS%202018_Failover%20Testing_Q1.pdf; https://www.nasdaqtrader.com/TraderNews.aspx?id=utp2017-15.
\7\ 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'').
\8\ 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.
---------------------------------------------------------------------------

The Exchange states that quarterly MWCB testing is critical to
ensure that securities markets halt trading and subsequently re-open in
a manner consistent with the MWCB rules.\9\ To that end, the Exchange
states 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 certain member
organizations in industry-wide tests to validate that their processing
in the event of MWCB is as expected within their systems.
---------------------------------------------------------------------------

\9\ 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 Exchange also 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) of Rule 49 \10\ would also be required to participate in
scheduled MWCB testing in the manner and frequency specified by the
Exchange. The Exchange proposes that future SCI Notices would also
include notification to member organizations of their obligation to
participate in a scheduled MWCB test.\11\
---------------------------------------------------------------------------

\10\ In 2015, 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 in
connection with Regulation Systems Compliance and Integrity
(``Regulation SCI''). Paragraph (b)(1) of Rule 49 establishes
standards for the designation by the Exchange of member
organizations that are necessary to participate in business
continuity and disaster recovery plans testing pursuant to
Regulation SCI. See Securities Exchange Act Release No. 76346 (Nov.
4, 2015), 80 FR 69765 (Nov. 10, 2015). The Exchange believes that,
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, these same member
organizations should also be required to participate in scheduled
MWCB testing. See Notice, supra note 4, 83 FR at 32173.
\11\ The Exchange states that the annual Regulation SCI test is
currently conducted in October of each calendar year and that it
provides at least (3) months advance notice to member organizations
that are required to participate in such SCI testing (``SCI
Notice'').
---------------------------------------------------------------------------

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.\12\ 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 that test on at
least one of the testing dates established by the SIPs.\13\
---------------------------------------------------------------------------

\12\ The Exchange states that member organizations were notified
in April 2018 of their required participation in the Regulation SCI
testing scheduled for October 13, 2018. The Exchange notes that,
while it encourages all member organizations to participate in MWCB
testing voluntarily, implementing the new rule in 2019 would provide
member organizations with sufficient time to prepare for a scheduled
MWCB test. See Notice, supra note 4, 83 FR at 32173 n. 8.
\13\ See supra, note 6 and accompanying text.

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

[[Page 41118]]

III. Discussion and Commission's Findings

After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\14\ In particular, the
Commission finds that the proposed rule change, as modified by
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\15\
which requires, among other things, that the rules of a national
securities 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 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,
and that the rules not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers. The Commission also
finds that the proposed rule change, as modified by Amendment No. 1, is
consistent with Section 6(b)(8) of the Act,\16\ which requires that the
rules of an exchange not impose any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act. As
indicated above, the Commission has received no comment letters
addressing the proposed rule change.
---------------------------------------------------------------------------

\14\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\15\ 15 U.S.C. 78f(b)(5).
\16\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

The Commission believes that amending NYSE Rule 49 to require
certain member organizations to participate in scheduled MWCB testing
would enable the Exchange, participating member organizations, and
others to assess the readiness of participating member organizations to
respond in the event of unanticipated market volatility. Member
organizations required to participate in MWCB testing pursuant to the
proposal would be designated as such using the same standards used by
the Exchange in determining which member organizations are subject to
mandatory Regulation SCI testing. Because these member organizations
have been designated by the Exchange as essential to the maintenance of
a fair and orderly market, their demonstrated ability to halt and
subsequently re-open trading in a manner consistent with the MWCB rules
should contribute to the fairness and orderliness of the market for the
benefit of all market participants. The Commission therefore believes
that the proposal, as modified by Amendment No. 1, is designed to
remove impediments to, and perfect the mechanism of, a free and open
market and a national market system, and to protect investors and the
public interest.
Accordingly, for the reasons discussed above, the Commission
believes that the Exchange's proposal, as modified by Amendment No. 1,
is consistent with the Act.

IV. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\17\ that the proposed rule change (SR-NYSE-2018-31), as modified
by Amendment No.1, be, and hereby is, approved.
---------------------------------------------------------------------------

\17\ 15 U.S.C. 78s(b)(2).
\18\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018-17743 Filed 8-16-18; 8:45 am]
BILLING CODE 8011-01-P

41118 Federal Register / Vol. 83, No. 160 / Friday, August 17, 2018 / Notices

III. Discussion and Commission’s a manner consistent with the MWCB Federal Register on June 29, 2018.4 The
Findings rules should contribute to the fairness Commission has not received any
After careful review, the Commission and orderliness of the market for the comments on the proposed rule change.
finds that the proposed rule change, as benefit of all market participants. The For the reasons discussed below, the
modified by Amendment No. 1, is Commission therefore believes that the Commission is approving the proposed
consistent with the requirements of the proposal, as modified by Amendment rule change.
Act and the rules and regulations No. 1, is designed to remove
II. Description of the Proposed Rule
thereunder applicable to a national impediments to, and perfect the
Change
securities exchange.14 In particular, the mechanism of, a free and open market
Commission finds that the proposed and a national market system, and to The proposed rule change would
rule change, as modified by Amendment protect investors and the public interest. revise Chapters 4, 8, and 20 of the ICC
No. 1, is consistent with Section 6(b)(5) Accordingly, for the reasons Rules to more clearly characterize Mark-
of the Act,15 which requires, among discussed above, the Commission to-Market Margin payments as
other things, that the rules of a national believes that the Exchange’s proposal, as settlement payments (‘‘settled-to-
securities exchange be designed to modified by Amendment No. 1, is market’’) rather than collateral
prevent fraudulent and manipulative consistent with the Act. (‘‘collateralized-to-market’’).5 The
acts and practices, to promote just and proposed rule change would not change
IV. Conclusion the manner in which Mark-to-Market
equitable principles of trade, to foster
cooperation and coordination with It is therefore ordered, pursuant to Margin is calculated, or other current
persons engaged in regulating Section 19(b)(2) of the Act,17 that the ICC operational practices.6 Rather, the
transactions in securities, to remove proposed rule change (SR–NYSE–2018– proposed rule change would revise
impediments to and perfect the 31), as modified by Amendment No.1, terminology to further clarify the legal
mechanism of a free and open market be, and hereby is, approved. characterization that payments of Mark-
and a national market system and, in For the Commission, by the Division of to-Market Margin represent settlement
general, to protect investors and the Trading and Markets, pursuant to delegated rather than collateral payments.7 ICC
public interest, and that the rules not be authority.18 states that these clarifying changes are
designed to permit unfair Robert W. Errett, the result of ICC’s analysis of the legal
discrimination between customers, Deputy Secretary. characterization of Mark-to-Market
issuers, brokers, or dealers. The Margin payments, at the request of its
[FR Doc. 2018–17743 Filed 8–16–18; 8:45 am]
Commission also finds that the Clearing Participants (‘‘CPs’’).8
BILLING CODE 8011–01–P
proposed rule change, as modified by The proposed rule change would
Amendment No. 1, is consistent with revise Rule 401 to reference Mark-to-
Section 6(b)(8) of the Act,16 which Market Margin Balance, a new term that
SECURITIES AND EXCHANGE
requires that the rules of an exchange is defined in Rule 404 to mean the
COMMISSION
not impose any burden on competition aggregate amount of Mark-to-Market
that is not necessary or appropriate in [Release No. 34–83832; File No. SR–ICC– Margin paid or received.9 The new
furtherance of the purposes of the Act. 2018–006] definition would be used in several
As indicated above, the Commission has calculations to describe specifics
received no comment letters addressing Self-Regulatory Organizations; ICE pertaining to the Mark-to-Market Margin
the proposed rule change. Clear Credit LLC; Order Approving calculation.10 For example, the
The Commission believes that Proposed Rule Change Relating To proposed rule change would amend
amending NYSE Rule 49 to require Amending the ICC Clearing Rules Rule 401(a), which governs House
certain member organizations to Regarding Mark-to-Market Margin Margin, to state that ICC calculates a net
participate in scheduled MWCB testing amount of Mark-to-Market Margin by
August 13, 2018. subtracting a CP’s Mark-to-Market
would enable the Exchange,
participating member organizations, and I. Introduction Margin Balance from a CP’s Mark-to-
others to assess the readiness of Market Margin Requirement.11 The
On June 13, 2018, ICE Clear Credit proposed rule change would make
participating member organizations to LLC (‘‘ICC’’) filed with the Securities
respond in the event of unanticipated corresponding changes to reference
and Exchange Commission
market volatility. Member organizations (‘‘Commission’’), pursuant to Section 4 Securities Exchange Act Release No. 34–83513
required to participate in MWCB testing 19(b)(1) of the Securities Exchange Act (June 25, 2018), 83 FR 30802 (June 29, 2018) (SR–
pursuant to the proposal would be of 1934 (‘‘Act’’),1 and Rule 19b–4 ICC–2018–006) (‘‘Notice’’).
designated as such using the same thereunder,2 a proposed rule change to 5 Under the settled-to-market model, the transfer

standards used by the Exchange in amend the ICC Clearing Rules (the ‘‘ICC of Mark-to-Market Margin constitutes a settlement
determining which member of the contract’s outstanding exposure, with the
Rules’’) 3 to more clearly characterize receiving party taking outright title to the Mark-to-
organizations are subject to mandatory Mark-to-Market Margin payments as Market Margin and the transferring party retaining
Regulation SCI testing. Because these settled-to-market rather than no rights to such margin. Under the collateralized-
member organizations have been collateralized-to-market. The proposed to-market model, the transfer of Mark-to-Market
designated by the Exchange as essential Margin constitutes a pledge of collateral, such that
rule change was published in the the transferring party has a right to reclaim the
to the maintenance of a fair and orderly collateral and the receiving party has an obligation
market, their demonstrated ability to 17 15 U.S.C. 78s(b)(2). to return the collateral. For further explanation of
amozie on DSK3GDR082PROD with NOTICES1

halt and subsequently re-open trading in 18 17 CFR 200.30–3(a)(12). the settled-to-market model and collateralized-to-
1 15 U.S.C. 78s(b)(1). market model, see Notice, 83 FR at 30803.
6 Notice, 83 FR at 30803.
14 In approving this proposed rule change, the 2 17 CFR 240.19b–4.
7 Id.
Commission has considered the proposed rule’s 3 Available at https://www.theice.com/
8 Id.
impact on efficiency, competition, and capital publicdocs/clear_credit/ICE_Clear_Credit_
formation. See 15 U.S.C. 78c(f). Rules.pdf. Capitalized terms used herein but not
9 Id.
15 15 U.S.C. 78f(b)(5). 10 Id.
otherwise defined have the meaning set forth in the
16 15 U.S.C. 78f(b)(8). ICC Rules. 11 Notice, 83 FR at 30803.

VerDate Sep<11>2014 17:17 Aug 16, 2018 Jkt 244001 PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 E:\FR\FM\17AUN1.SGM 17AUN1

Document Created: 2018-08-17 03:24:56
Document Modified: 2018-08-17 03:24:56

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		83 FR 41117