[Federal Register Volume 88, Number 172 (Thursday, September 7, 2023)]
[Notices]
[Pages 61642-61644]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-19235]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98261; File No. SR-PEARL-2023-38]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange 
Rule 402 (Criteria for Underlying Securities) To Accelerate the Listing 
of Options on Certain IPOs

August 31, 2023.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 23, 2023, MIAX PEARL, LLC (``MIAX Pearl'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``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\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend Exchange Rule 402. The 
text of the proposed rule change is available on the Exchange's website 
at https://www.miaxglobal.com/markets/us-options/pearl-options/rule-filings, at MIAX Pearl's principal office, 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
    The Exchange proposes to amend Exchange Rule 402, Criteria for 
Underlying Securities, to permit an underlying security having a market 
capitalization of at least $3 billion based upon the offering price of 
its initial public offering, to be listed and traded starting on or 
after the second business day following the initial public offering 
day. The Exchange is proposing a listing rule change that is 
substantially similar in all material respects to the proposal approved 
for NYSE American LLC (``NYSE American'').\3\ Following discussions 
with other exchanges and a cross-section of industry participants and 
in coordination with the Listed Options Market Structure Working Group 
(``LOMSWG'') (collectively, the ``Industry Working Group''), NYSE 
American filed a proposed rule change,\4\ which was recently approved, 
to modify the standard for the listing and trading of options on 
``covered securities'' to reduce the time to market. At this time, the 
Exchange proposes to adopt an identical rule.
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    \3\ See Securities Exchange Act Release No. 98013 (July 27, 
2023) 88 FR 50927 (August 2, 2023)(SR-NYSEAMER-2023-27)(Order 
Granting Approval of a Proposed Rule Change to Amend Rule 915 
(Criteria for Underlying Securities) to Accelerate the Listing of 
Options on Certain IPOs).
    \4\ Id.
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    Rule 402 sets forth the guidelines to be considered in evaluating 
for option transactions underlying securities that are ``covered 
securities,'' as defined in section 18(b)(1)(A) of the Securities Act 
of 1933 (hereinafter ``covered security'' or ``covered 
securities'').\5\ Currently, the

[[Page 61643]]

Exchange permits the listing of an option on an underlying covered 
security that, amongst other things, has a market price of at least 
$3.00 per share for the previous three consecutive business days 
preceding the date on which the Exchange submits a certificate to The 
Options Clearing Corporation (``OCC'') to list and trade options on the 
underlying security (the ``three-day lookback period'').\6\ Under the 
current rule, if an initial public offering (``IPO'') occurs on a 
Monday, the earliest date the Exchange could submit its listing 
certificate to OCC would be on Thursday, with the market price 
determined by the closing price over the three-day lookback period from 
Monday through Wednesday. The option on the IPO'd security would then 
be eligible for trading on the Exchange on Friday (i.e., within four 
business days of the IPO inclusive of the day the listing certificate 
is submitted to OCC).\7\
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    \5\ Rule 402(a) requires that, for underlying securities to be 
eligible for option transactions, such securities must be duly 
registered and be an ``NMS stock'' as defined in Rule 600 of 
Regulation NMS under the Act and will be characterized by a 
substantial number of outstanding shares which are widely held and 
actively traded. See Rule 402(a)(1) and (2).
    \6\ See Rule 402(b)(5)(i). The Exchange is not proposing to make 
any changes to the guidelines for listing securities that are not a 
``covered security.'' See Rule 402(b)(5)(ii).
    \7\ See proposed Rule 402(b)(5)(i). The Exchange proposes a non-
substantive change to number the existing and proposed criteria for 
covered securities as (A) and (B) of paragraph (5)(i). See proposed 
Rule 402(b)(5)(i).
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    The Exchange notes that the three-day look back period helps ensure 
that options on underlying securities may be listed and traded in a 
timely manner while also allowing time for OCC to accommodate the 
certification request. However, there are certain large IPOs that issue 
high-priced securities--well above the $3.00 per share threshold--that 
would obviate the need for the three-day lookback period. In this 
regard, the Industry Working Group has recently identified proposed 
changes to Rule 402(b)(5)(i) that would help options on covered 
securities that have a market capitalization of at least $3 billion 
based upon the offering price of its IPO come to market earlier. The 
proposed change, which is intended to be harmonized across options 
exchanges, is designed to provide investors the opportunity to hedge 
their interest in IPO investments in a shorter amount of time than what 
is currently permitted.\8\ The Exchange believes that options serve a 
valuable tool to the trading community and help markets function 
efficiently by mitigating risk. To that end, the Exchange believes that 
the absence of options in the early days after an IPO may heighten 
volatility in the trading of IPO'd securities.
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    \8\ While the Exchange acknowledges that market participants may 
utilize options for speculative purposes (in addition to as a 
hedging tool), the Exchange believes (as set forth below) that its 
existing surveillance technologies and procedures adequately address 
potential violations of exchange rules and federal securities laws 
applicable to trading on the Exchange.
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    Accordingly, the Exchange proposes to modify Rule 402 to waive the 
three-day lookback period for covered securities that have a market 
capitalization of at least $3 billion based upon the offering price of 
the IPO of such securities and to allow options on such securities to 
be listed and traded starting on or after the second business day 
following the initial public offering day (i.e., not inclusive of the 
day of the IPO).\9\ NYSE American has stated that it has reviewed 
trading data for IPO'd securities dating back to 2017 and is unaware of 
any such security that achieved a market capitalization of $3 billion 
based upon the offering price of its IPO that would not have also 
qualified for listing options based on the three-day lookback 
requirement. Specifically, NYSE American has determined that 202 of the 
1,179 IPOs that took place between January 1, 2017, and October 21, 
2022, met the $3 billion market capitalization/IPO offering price 
threshold. Options on all 202 of those IPO shares subsequently 
satisfied the three-day lookback requirement for listing and trading, 
i.e., none of these large IPOs closed below the $3.00/share threshold 
during its first three days of its trading. As such, the Exchange 
believes the proposed capitalization threshold of $3 billion based upon 
the offering price of its IPO is appropriate.
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    \9\ The Exchange acknowledges that the Options Listing 
Procedures Plan (``OLPP'') 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. See the OLPP, at p. 3., available here: https://ncuoccblobdev.blob.core.windows.net/media/theocc/media/clearing-services/services/options_listing_procedures_plan.pdf. The OLPP is a 
national market system plan that, among other things, sets forth 
procedures governing the listing of new options series.
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    Under the proposed rule, if an IPO for a company with a market 
capitalization of $3 billion based upon the offering price of its IPO 
occurs on a Monday, the Exchange could submit its listing certificate 
to OCC (to list and trade options on the IPO'd security) as soon as all 
the other requirements for listing are satisfied. If, on Tuesday, all 
requirements are deemed satisfied, the IPO'd security could then be 
eligible for trading on the Exchange on Wednesday (i.e., starting on or 
after the second business day following the IPO day). Thus, the 
proposal could potentially accelerate the listing of options on IPO'd 
securities by two days.
    The Exchange believes the proposed change would allow options on 
IPO'd securities to come to market sooner without sacrificing investor 
protection. The Exchange represents that trading in IPO'd securities--
like all other securities traded on the Exchange--is subject to 
surveillances administered by the Exchange and to cross-market 
surveillances administered by FINRA on behalf of the Exchange. Those 
surveillances are designed to detect violations of Exchange rules and 
applicable federal securities laws.\10\ The Exchange represents that 
those surveillances are adequate to reasonably monitor Exchange trading 
of IPO'd securities in all trading sessions and to reasonably deter and 
detect violations of Exchange rules and federal securities laws 
applicable to trading on the Exchange.\11\ As such, the Exchange 
believes that its existing surveillance technologies and procedures, 
coupled with NYSE American's findings related to the IPOs reviewed as 
described herein, adequately address potential concerns regarding 
possible manipulation or price stability.
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    \10\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
    \11\ See supra note 8.
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Implementation Date
    The Exchange will announce the effective date of the proposed 
change by Notice distributed to all Members.\12\ The Exchange will 
coordinate the effective date to coincide with the implementation of 
the proposed change on the other options exchanges.
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    \12\ The term ``Member'' means an individual or organization 
approved to exercise the trading rights associated with a Trading 
Permit. Members are deemed ``members'' under the Exchange Act. See 
Exchange Rule 100.
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2. Statutory Basis
    The Exchange believes that the proposed rule changes are consistent 
with section 6(b) of the Act \13\ in general, and furthers the 
objectives of section 6(b)(1) of the Act \14\ in particular, in that 
they are designed to enforce compliance by the Exchange's Equity 
Members \15\ and persons associated with its Equity Members, with the 
provisions of the rules of MIAX Pearl Equities. In particular, the 
Exchange believes that the proposed rule changes will provide greater 
clarity to Equity Members and the public regarding the Exchange's

[[Page 61644]]

Rules by providing consistency within the Exchange's Rulebook. The 
proposed changes will ensure the hierarchical heading scheme aligns 
throughout the Exchange's Rulebook. The proposed changes will also make 
it easier for Equity Members to interpret the Exchange's Rulebook.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(1).
    \15\ The term ``Equity Member'' is a Member authorized by the 
Exchange to transact business on MIAX Pearl Equities. See Exchange 
Rule 1901.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Specifically, the Exchange 
believes the proposed changes will not impose any burden on intra-
market competition as there is no functional change to the Exchange's 
System \16\ and because the rules of the Exchange apply to all MIAX 
Pearl Equities participants equally. The proposed rule change will have 
no impact on competition as it is not designed to address any 
competitive issue but rather is designed to remedy minor non-
substantive issues and provide added clarity to the rule text of 
Exchange Rules 2614, 2617, and 2626. In addition, the Exchange does not 
believe the proposal will impose any burden on inter-market competition 
as the proposal does not address any competitive issues and is intended 
to protect investors by providing further transparency regarding the 
Exchange's functionality.
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    \16\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

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

    Because the foregoing 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 after the date of the filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest, it has become 
effective pursuant to section 19(b)(3)(A) of the Act \17\ and Rule 19b-
4(f)(6) \18\ thereunder.
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    \17\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
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 date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally 
does not become operative prior to 30 days after the date of the 
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 immediately upon filing. The Exchange states that 
a waiver of the operative delay is consistent with the protection of 
investors and the public interest because it will ensure fair 
competition among the exchanges by allowing the Exchange to allow 
options on IPO'd securities to come to market sooner (i.e., at least 
two business days post-IPO not inclusive of the day of the IPO) without 
sacrificing investor protection. The Commission believes that waiver of 
the 30-day operative delay is consistent with the protection of 
investors and the public interest because the proposed rule change does 
not raise any new or novel issues. Accordingly, the Commission hereby 
waives the 30-day operative delay and designates the proposed rule 
change as operative upon filing.\21\
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    \19\ 17 CFR 240.19b-4(f)(6).
    \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 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-PEARL-2023-38 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-PEARL-2023-38. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-PEARL-2023-38 and should be 
submitted on or before September 28, 2023.

    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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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-19235 Filed 9-6-23; 8:45 am]
BILLING CODE 8011-01-P