FINRA seeks to extend pilot period for rule concerning market-wide circuit breakers

Maria Nikolova

The organization has filed a proposal with the SEC to extend the pilot period to October 18, 2019.

The Financial Industry Regulatory Authority (FINRA) is seeking to amend its rules concerning market-wide circuit breakers. On Friday, April 5, 2019, FINRA filed the relevant proposal with the Securities and Exchange Commission (SEC).

Under the proposal, the pilot period related to FINRA Rule 6121.02 (Market-wide Circuit Breakers in NMS Stocks) will be extended to the close of business on October 18, 2019.

FINRA explains that market-wide circuit breakers under Rule 6121.02 provide 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. All U.S. equity exchanges have rules similar to Rule 6121.02 relating to market-wide circuit breakers, which are aimed at slowing the effects of extreme price movement through coordinated trading halts across securities markets when severe price declines reach levels that may exhaust market liquidity.

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.

Rule 6121.02 provides that, in the event of a Level 1, Level 2 or Level 3 Market Decline, FINRA has to halt trading otherwise than on an exchange in all NMS stocks and will not permit the resumption of trading for the time periods specified by the primary listing market.

Rule 6121.02 also provides that, if trading is halted in all NMS stocks for a Level 1 or a Level 2 Market Decline, FINRA will halt trading otherwise than on an exchange in all NMS stocks until trading has resumed on the primary listing market; if, however, the primary listing market does not reopen a security within 15 minutes following the end of the 15-minute halt period, FINRA may permit the resumption of trading otherwise than on an exchange in that security if trading in the security has commenced on at least one other national securities exchange.

If a Level 3 Market Decline occurs at any time during the trading day, FINRA shall halt trading otherwise than on an exchange in all NMS stocks until the primary listing market opens the next trading day.

FINRA intends to file a separate proposed rule change with the SEC to operate Rule 6121.02 on a permanent, rather than pilot, basis. Extending the effectiveness of Rule 6121.02 to the close of business on October 18, 2019 is set to provide the Commission adequate time to consider whether to approve FINRA’s separate proposal to operate the market-wide circuit breaker mechanism under Rule 6121.02 on a permanent basis.

FINRA understands that the other self-regulatory organizations will submit proposals to extend their rules regarding the market-wide circuit breaker pilot with the SEC so that the market-wide circuit breaker mechanism may continue uninterrupted while the SEC considers whether to approve its operation on a permanent basis.

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