[Federal Register Volume 85, Number 184 (Tuesday, September 22, 2020)]
[Notices]
[Pages 59572-59574]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-20840]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89898; File No. SR-NYSEArca-2020-46]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change To Amend NYSE Arca Rule 5.2-E(j)(6) Relating to Options-
Linked Securities

September 16, 2020.
    On June 10, 2020, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
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 
amend NYSE Arca Rule 5.2-E(j)(6) to accommodate Exchange listing and 
trading of Options-Linked Securities. The proposed rule change was 
published for comment in the Federal Register on June 22, 2020.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 89073 (June 16, 
2020), 85 FR 37488 (``Notice'').
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    On July 28, 2020, pursuant to Section 19(b)(2) of the Act,\4\ the 
Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\5\ The Commission has received no comment letters on the 
proposed rule change.
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 89412, 85 FR 46744 
(August 3, 2020). The Commission designated September 20, 2020 as 
the date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
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    The Commission is issuing this order to institute proceedings 
pursuant to Section 19(b)(2)(B) of the Act \6\ to determine whether to 
approve or disapprove the proposed rule change.
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    \6\ 15 U.S.C. 78s(b)(2)(B).
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I. Description of the Proposal

    Exchange Rule 5.2-E(j)(6) provides for Exchange listing and trading 
of Equity Index-Linked Securities, Commodity-Linked Securities, 
Currency-Linked Securities, Fixed Income Index-Linked Securities, 
Futures-Linked Securities, and Multifactor Index-Linked Securities 
(collectively, ``Index-Linked Securities''). The Exchange proposes to 
amend Rule 5.2-E(j)(6) to add Options-Linked Securities to the type of 
Index-Linked Securities set forth in Rule 5.2-E(j)(6) permitted to list 
and trade on the Exchange.
    The proposal would also add a new paragraph (vii) to Rule 5.2-
E(j)(6) to provide that the payment at maturity with respect to 
Options-Linked Securities is based on the performance of U.S. exchange-
traded options on any one or combination of the following: (a) 
Investment Company Units; (b) Exchange-Traded Fund Shares; (c) Index-
Linked Securities; (d) securities defined in Section 2 of Rule 8-E; (e) 
the S&P 100 Index, the S&P 500 Index, the Nasdaq 100 Index, the Dow 
Jones Industrial Average, the MSCI EAFE Index, the MSCI Emerging 
Markets Index, the NYSE FANG Index, or the Russell 2000 Index; or (f) a 
basket or index of any of the foregoing (``Options Reference Asset''). 
To the extent that the Options Reference Asset consists of options 
based on Investment Company Units, Exchange-Traded Fund Shares, Index-
Linked Securities, or securities defined in Section 2 of Rule 8-E, such 
Investment Company Units, Exchange-Traded Fund Shares, Index-Linked 
Securities, or securities defined in Section 2 of Rule 8-E shall not 
seek to provide investment results, before fees and expenses, that 
correspond to the inverse, a specific multiple, or a specific inverse 
multiple of the percentage performance on a given day of a particular 
index or combination of indexes.

[[Page 59573]]

    The Exchange proposes that Options-Linked Securities \7\ must meet 
one of the following two initial listing standards:
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    \7\ The proposal would set forth the Options-Linked Securities 
listing standards in Rule 5.2-E(j)(6)(B)(VII). The Exchange also 
proposes to amend Commentary .01(a) and (b) to Rule 5.2-E(j)(6), 
which relate to specified requirements and obligations of an Equity 
Trading Permit (ETP) Holder acting as a registered Market Maker, to 
include Options Linked Securities and options to the financial 
instruments covered by Commentary .01 to Rule 5.2-E(j)(6).
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    (A) The Options Reference Asset to which the security is linked 
shall have been reviewed and approved for the trading of Options-Linked 
Securities or options or other derivatives by the Commission under 
Section 19(b)(2) of the Exchange Act and rules thereunder and the 
conditions set forth in the Commission's approval order, including with 
respect to comprehensive surveillance sharing agreements, continue to 
be satisfied; or
    (B) the pricing information for components of the Options Reference 
Asset must be derived from a market that is an Intermarket Surveillance 
Group (``ISG'') member or affiliate or with which the Exchange has a 
comprehensive surveillance sharing agreement.
    In addition, the Exchange also proposes that Options-Linked 
Securities must meet both of the following initial listing criteria: 
(1) The value of the Options Reference Asset must be calculated and 
widely disseminated by one or more major market data vendors on at 
least a 15-second basis during the Exchange's Core Trading Session; \8\ 
and (2) in the case of Options-Linked Securities that are periodically 
redeemable, the indicative value of the subject Options-Linked 
Securities must be calculated and widely disseminated by the Exchange 
or one or more major market data vendors on at least a 15-second basis 
during the Exchange's Core Trading Session.
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    \8\ As that term is defined in NYSE Arca Rule 7.34-E.
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    The Exchange will consider the suspension of trading in, and will 
initiate delisting proceedings pursuant to NYSE Arca Rule 5.5-E(m) if 
any of the initial listing criteria described above are not 
continuously maintained. The Exchange may also halt trading in Options-
Linked Securities, and will initiate delisting proceedings pursuant to 
NYSE Arca Rule 5.5-E(m) under any of the following circumstances:
    (A) If the aggregate market value or the principal amount of the 
Options-Linked Securities publicly held is less than $400,000;
    (B) if the value of the Options Reference Asset is no longer 
calculated or available and a new Options Reference Asset is 
substituted, unless the new Options Reference Asset meets the 
requirements of Rule 5.2-E(j)(6); or
    (C) if such other event shall occur or condition exists which in 
the opinion of the Exchange makes further dealings on the Exchange 
inadvisable.\9\
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    \9\ According to the Exchange, the proposed continued listing 
criteria for Options-Linked Securities are substantially identical 
to continued listing criteria in Rule 5.2-E(j)(6) applicable to 
other Index-Linked Securities. The proposal would also add Options 
Reference Assets to the permitted types of Multifactor Reference 
Assets.
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    According to the Exchange, the proposed standards would continue to 
ensure transparency surrounding the listing process for Index-Linked 
Securities. The Exchange also believes that the standards for listing 
and trading Options-Linked Securities are reasonably designed to 
promote a fair and orderly market for such securities. The proposed 
addition of Options Reference Assets, as described above, would also 
work in conjunction with the initial and continued listing criteria 
related to surveillance procedures and trading guidelines for Index-
Linked Securities. The Exchange further believes that its surveillance 
procedures are adequate to properly monitor the trading of Options-
Linked Securities in all trading sessions and to deter and detect 
violations of Exchange rules.

II. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2020-46 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \10\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide comments 
on the proposed rule change.
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    \10\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\11\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act, 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 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.'' \12\
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    \11\ Id.
    \12\ 15 U.S.C. 78f(b)(5).
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III. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposed rule change 
is consistent with Section 6(b)(5) or any other provision of the Act, 
or the rules and regulations thereunder. Although there do not appear 
to be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request for an 
opportunity to make an oral presentation.\13\
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    \13\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change should be approved 
or disapproved by October 13, 2020. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
October 27, 2020.
    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, which are set forth 
in the Notice,\14\ and any other issues raised by the proposed rule 
change under the Act. As discussed above, the Exchange proposes to 
adopt generic listing standards for Options-Linked Securities. The 
Exchange takes the position that the proposed Options-Linked Securities 
generic listing standards would continue to ensure transparency 
surrounding the listing process for Index-Linked Securities. The 
Exchange

[[Page 59574]]

also states that the standards for listing and trading Options-Linked 
Securities are reasonably designed to promote a fair and orderly market 
for such securities.
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    \14\ See supra note 3.
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    The Commission seeks commenters' views regarding whether the 
proposal is designed to protect investors and the public interest, and, 
in particular, whether there is adequate transparency and disclosure 
related to the options to which Options-Linked Securities or 
Multifactor Index-Linked Securities are proposed to be linked. In 
addition, the Commission seeks comment regarding whether additional 
requirements, either qualitative or quantitative, relating to either 
the generic listing standards for Options-Linked Securities or the 
definition of Options Reference Assets, would help to ensure that the 
proposal is designed to prevent fraudulent and manipulative acts and 
practices.
    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-2020-46 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-2020-46. 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-NYSEArca-2020-46 and should be submitted 
on or before October 13, 2020. Rebuttal comments should be submitted by 
October 27, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-20840 Filed 9-21-20; 8:45 am]
BILLING CODE 8011-01-P