[Federal Register Volume 83, Number 51 (Thursday, March 15, 2018)]
[Notices]
[Pages 11576-11578]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-05209]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82851; File No. SR-NYSEArca-2018-16]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Rule 5.3-O
March 9, 2018.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on March 6, 2018, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') 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 self-regulatory
organization. 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\ 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 the
Substance of the Proposed Rule Change
The Exchange proposes to amend Rule 5.3-O (Criteria for Underlying
Securities). 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend Rule 5.3-O to
modify the criteria for listing options on an underlying security as
defined in Section 18(b)(1)(A) of the Securities Act of 1933 (each a
``covered security''; collectively, ``covered securities''). In
particular, the Exchange proposes to modify Rule 5.3-(a)(4)(A), which
currently requires that to list an option, the underlying covered
security has to have a market price of at least $3.00 per share for the
previous five consecutive business days preceding the date on which the
Exchange submits a certificate to the Options Clearing Corporation
(``OCC'') for listing and trading. The proposal would shorten the
current ``look back'' period of five consecutive business days to three
consecutive business days.\4\ The Exchange does not intend to amend any
other criteria in Rule 5.3-O. This proposed rule change is
substantively identical to a recently-approved rule change by Nasdaq
PHLX LLC (``Phlx''),\5\ and would align Exchange listing rules with
those of other options markets.
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\4\ See proposed Rule 5.3-O(a)(4)(A) (providing that the market
price per share of an covered security is ``at least $3.00 for the
previous three consecutive business days preceding the date on which
the Exchange submits a certificate to [the OCC] for listing and
trading, as measured by the closing price reported in the primary
market in which the underlying security is traded'').
\5\ See Securities Exchange Act Release No. 82474 (January 9,
2018), 83 FR 2240 (January 16, 2018) (SR-Phlx-2017-75) (Order
approving amendment to Rule 1009 to modify the criteria for listing
an option on an underlying covered security).
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The Exchange acknowledges that the Options Listing Procedures Plan
(``OLPP'') \6\ requires that the listing certificate be provided to OCC
no earlier than 12:01 a.m. and no later than 11:00 a.m. (Chicago time)
on the trading day prior to the day on which trading is to begin.\7\
The proposed amendment would still comport with that requirement. For
example, if an initial public offering (``IPO'') occurs at 11 a.m. on
Monday, the earliest date the Exchange could submit its listing
certificate to OCC would be on Thursday by 12:01 a.m. (Chicago time),
with the market price determined by the closing price over the three-
day period from Monday through Wednesday. The option on the IPO would
then be eligible for trading on the Exchange on Friday. The proposed
amendment would essentially enable options trading within four business
days of an IPO becoming available instead of six business days (five
consecutive days, plus the day the listing certificate is submitted to
OCC).
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\6\ The OLPP (a/k/a the Plan for the Purpose of Developing and
Implementing Procedures Designed to Facilitate the Listing and
Trading of Standardized Options Submitted Pursuant to Section
11a(2)(3)(B) of the Securities Exchange Act of 1934) is a national
market system plan that, among other things, sets forth procedures
governing the listing of new options series. See Securities Exchange
Act Release No. 44521 (July 6, 2001), 66 FR 36809 (July 13, 2001)
(Order approving OLPP). The sponsors of OLPP include the Exchange;
OCC; BATS Exchange, Inc.; BOX Options Exchange LLC; C2 Options
Exchange, Inc.; Chicago Board Options Exchange, Inc.; EDGX Exchange,
Inc.; Miami International Securities Exchange, LLC; MIAX PEARL, LLC;
Phlx; Nasdaq BX, Inc.; Nasdaq GEMX, LLC; Nasdaq ISE, LLC; Nasdaq
MRX, LLC; and NYSE American LLC.
\7\ See OLPP at page 3.
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At the time the options industry adopted the ``look back'' period
of five consecutive business days, it was determined that the five-day
period was sufficient to protect against attempts to manipulate the
market price of the underlying security and would provide a reliable
test for stability.\8\ Surveillance technologies and procedures
concerning manipulation have evolved since then to provide adequate
prevention or detection of rule or securities law violations within the
proposed time frame, and the Exchange represents that its existing
trading surveillances are adequate to monitor the trading in the
underlying security and subsequent trading of options on the
Exchange.\9\
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\8\ See Securities Exchange Act Release Nos. 47190 (January 15,
2003), 68 FR 3072 (January 22, 2003) (SR-CBOE-2002-62); 47352
(February 11, 2003), 68 FR 8319 (February 20, 2003) (SR-PCX-2003-
06); 47483 (March 11, 2003), 68 FR 13352 (March 19, 2003) (SR-ISE-
2003-04); 47613 (April 1, 2003), 68 FR 17120 (April 8, 2003) (SR-
Amex-2003-19); and 47794 (May 5, 2003), 68 FR 25076 (May 9, 2003)
(SR-Phlx-2003-27).
\9\ Such surveillance procedures generally focus on detecting
securities trading subject to opening price manipulation, closing
price manipulation, layering, spoofing or other unlawful activity
impacting an underlying security, the option, or both. As it relates
to IPOs, the Exchange has price movement alerts, unusual market
activity and order book alerts active for all trading symbols. These
real-time patterns are active for the new security as soon as the
IPO begins trading. The NYSE Regulation group, which provides such
real-time surveillance on the Exchange and its affiliated markets,
monitors trading activity in IPOs to see whether the new issue moves
substantially above or below the public offering price in the first
day or several days of trading.
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[[Page 11577]]
Furthermore, the Exchange notes that the regulatory program
operated by and overseen by NYSE Regulation includes cross-market
surveillances designed to identify manipulative and other improper
trading that may occur on the Exchange and other markets. In
particular, the Financial Industry Regulatory Authority (``FINRA''),
pursuant to a regulatory services agreement and other arrangements,
operates a range of cross-market equity and options surveillance
patterns on behalf of the Exchange to identify a variety of potentially
manipulative trading activities. These cross-market patterns
incorporate relevant data from the Exchange, its affiliates (including
the New York Stock Exchange), and markets not affiliated with the
Exchange.
In addition, NYSE Regulation operates an array of surveillances to
identify potentially manipulative trading of options on the Exchange
and its affiliated markets. That surveillance coverage is initiated
once options begin trading on the Exchange or an options exchange
affiliated with the Exchange. Accordingly, the Exchange believes that
the cross-market surveillance performed by FINRA on behalf of the
Exchange and NYSE Regulation's own monitoring for violative activity on
the Exchange and its affiliated markets comprise a comprehensive
surveillance program that is adequate to monitor for manipulation of
options and their underlying equity securities that could occur during
the proposed three-day look back period.
Furthermore, the Exchange notes that the proposed listing criteria
would still require that the underlying security be listed on NYSE, the
American Stock Exchange (now known as NYSE American), or the Nasdaq
Global Market (collectively, the ``Named Markets''), as provided for in
the definition of ``covered security'' from Section 18(b)(1)(A) of the
1933 Act.\10\ Accordingly, the Exchange believes that the proposed rule
change would still ensure that the underlying security meets the high
listing standards of a Named Market, and would also ensure that the
underlying is covered by the regulatory protections (including market
surveillance, investigation and enforcement) offered by these exchanges
for trading in covered securities conducted on their facilities.
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\10\ See 15 U.S.C. 77r(b)(1)(A).
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The Exchange also believes that the proposed look back period can
be implemented in connection with the other initial listing criteria
for underlying covered securities. In particular, the Exchange
recognizes that it may be difficult to verify the number of
shareholders in the days immediately following an IPO due to the fact
that stock trades generally clear within two business days (T+2) of
their trade date and therefore the shareholder count would generally
not be known until T+2.\11\ The Exchange notes that the current T+2
settlement cycle was recently reduced from T+3 on September 5, 2017 in
connection with the Commission's amendments to Exchange Rule 15c6-1(a)
to adopt the shortened settlement cycle,\12\ and the look back period
of three consecutive business days proposed herein reflects this
shortened T+2 settlement period. As proposed, stock trades would clear
within T+2 of their trade date (i.e., within three business days) and
therefore the number of shareholders could be verified within three
business days, thereby enabling options trading within four business
days of an IPO (three consecutive business days, plus the day the
listing certificate is submitted to OCC).
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\11\ The number of shareholders of record can be verified from
large clearing agencies such as The Depository Trust and Clearing
Corporation (``DTCC'') upon the settlement date (i.e., T+2).
\12\ See Securities Exchange Act Release No. 80295 (March 22,
2017), 82 FR 15564 (March 29, 2017) (release adopting amendment to
securities transaction settlement cycle) (File No. S7-22-16). See
also Exchange Act Release No. 78962 (Sep. 28, 2016), 81 FR 69240
(Oct. 5, 2016) (release proposing amendment to securities
transaction settlement cycle) (File No. S7-22-16).
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Furthermore, the Exchange notes that it can verify the shareholder
count with various brokerage firms that have a large retail customer
clientele. Such firms can confirm the number of individual customers
who have a position in the new issue. The earliest that these firms can
provide confirmation is usually the day after the first day of trading
(T+1) on an unsettled basis, while others can confirm on the third day
of trading (T+2). The Exchange has confirmed with some of these
brokerage firms who provide shareholder numbers to the Exchange that
they are able to provide these numbers within T+2 after an IPO. For the
foregoing reasons, the Exchange believes that basing the proposed three
business day look back period on the T+2 settlement cycle would allow
for sufficient verification of the number of shareholders.
The proposed rule change would apply to all covered securities that
meet the relevant criteria in Rule 5.3-O. Pursuant to Rule 5.3-O(a),
the Exchange establishes guidelines to be considered in evaluating the
potential underlying securities for Exchange options transactions.\13\
However, the fact that a particular security may meet the standards
established by the Exchange does not necessarily mean that it will be
selected as an underlying security.\14\ As part of the established
criteria, the issuer must be in compliance with any applicable
requirements of the Act.\15\ The Exchange believes that these measures,
together with its existing surveillance procedures, provide adequate
safeguards in the review of any covered security that may meet the
proposed criteria for consideration of the option within the timeframe
contained in this proposal.
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\13\ See Rule 5.3-O(a)(1)-(6).
\14\ Id.
\15\ See Rule 5.3-O(a)(5).
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\16\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\17\ in particular, in that it is designed to
promote just and equitable principles of trade, 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.
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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed changes to its listing
standards for covered securities would allow the Exchange to more
quickly list options on a qualifying covered security that has met the
$3.00 eligibility price without sacrificing investor protection. As
discussed above, the Exchange believes that its existing trading
surveillances provide a sufficient measure of protection against
potential price manipulation within the proposed three consecutive
business day timeframe. Furthermore, the established guidelines to be
considered by the Exchange in evaluating the potential underlying
securities for Exchange option transactions,\18\ together with existing
trading surveillances, provide adequate safeguards in the review of any
covered security that may meet the proposed
[[Page 11578]]
criteria for consideration of the option within the proposed timeframe.
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\18\ See supra notes 13-15.
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In addition, the Exchange believes that basing the proposed
timeframe on the T+2 settlement cycle adequately addresses the
potential difficulties in confirming the number of shareholders of the
underlying covered security. Having some of the largest brokerage firms
that provide these shareholder counts to the Exchange confirm that they
are able to provide these numbers within T+2 further demonstrates that
the 2,000 shareholder requirement can be sufficiently verified within
the proposed timeframe. For the foregoing reasons, the Exchange
believes that the proposed amendments will remove and perfect the
mechanism of a free and open market and a national market system by
providing an avenue for investors to swiftly hedge their investment in
the stock in a shorter amount of time than what is currently in
place.\19\
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\19\ This proposed rule change does not alter any obligations of
issuers or other investors of an IPO that may be subject to a lock-
up or other restrictions on trading related securities.
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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. The proposed rule change
reduces the number of days to list options on an underlying security,
and is intended to bring new options listings to the marketplace
quicker.
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.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
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 \20\ and Rule 19b-4(f)(6) thereunder.\21\
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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \22\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \23\ permits the
Commission to 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 proposed rule change may become effective and operative upon
filing. The Exchange states that waiver of the operative delay would be
consistent with the protection of investors and the public interest
because it would allow the Exchange to implement the modified rule,
which aligns with the rules of other options exchanges,\24\ without
delay. The Commission believes that waiving the 30-day operative delay
is consistent with the protection of investors and the public interest.
Accordingly, the Commission hereby waives the operative delay and
designates the proposal as operative upon filing.\25\
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\22\ 17 CFR 240.19b-4(f)(6).
\23\ 17 CFR 240.19b-4(f)(6)(iii).
\24\ See supra note 5.
\25\ 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 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 protected]. Please include
File Number SR-NYSEArca-2018-16 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-NYSEArca-2018-16. 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 such 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-NYSEArca-2018-16, and should be
submitted on or before April 5, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-05209 Filed 3-14-18; 8:45 am]
BILLING CODE 8011-01-P