[Federal Register Volume 88, Number 179 (Monday, September 18, 2023)]
[Notices]
[Pages 63993-63996]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-20078]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98355; File No. SR-NYSEARCA-2023-61]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Amend Rule
5.3-O (Criteria for Underlying Securities) To Accelerate the Listing of
Options on Certain IPOs
September 12, 2023.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on August 31, 2023, NYSE Arca, Inc. (``NYSE Arca'' or the
``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\ 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 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
[[Page 63994]]
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend Rule 5.3-O
(Criteria for Underlying Securities) (Criteria for Underlying
Securities) (the ``Rule''). 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'').\4\
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\4\ 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 IPO).
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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, which was recently approved, to modify the standard for the
listing and trading of options on ``covered securities'' to reduce the
time to market in Rule 915 (Criteria for Underlying Securities).\5\ At
this time, the Exchange proposes to adopt an identical rule.
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\5\ See id. See NYSE American Rule 915, Commentary
.01(4)(a)(ii).
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Rule 5.3-O(a) 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'').\6\ Currently, the 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'').\7\ 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).
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\6\ Rule 5.3-O 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 5.3-O(a)--(b).
\7\ See Rule 5.3-O (a)(4)(A). The Exchange is not proposing to
make any changes to the guidelines for listing securities that are
not a ``covered security.'' See Rule 5.3-O (a)(4)(B).
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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, NYSE American noted in its rule change that the Industry
Working Group has recently identified proposed changes 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.\8\ 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.\9\ 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.\10\
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\8\ See supra note 4.
\9\ 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.
\10\ See proposed Rule 5.3-O(a)(4)(A)(ii). To align the proposed
rule with NYSE American Rule 915, the Exchange proposes two non-
substantive changes: first, to number the existing and proposed
criteria for covered securities as (i) and (ii) of paragraph
(a)(4)(A); second, to delete now-extraneous text from proposed
paragraph (a)(4)(A)(i), each of which change would add clarity and
transparency to Exchange rules. See proposed Rule 5.3-O
(a)(4)(A)(i). See also NYSE American Rule 915, Commentary
.01(4)(a)(i).
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Accordingly, the Exchange proposes to modify Rule 5.3-O 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).\11\ NYSE American noted in its rule change that it
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.\12\ Specifically, NYSE American stated in its rule change
that it 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.\13\ 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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\11\ The Exchange acknowledges that the Options Listing
Procedures Plan (or ``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://www.theocc.com/getmedia/198bfc93-5d51-443c-9e5b-fd575a0a7d0f/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.
\12\ See supra note 4.
\13\ See supra note 4.
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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
[[Page 63995]]
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.\14\ 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.\15\ As such, the
Exchange believes that its existing surveillance technologies and
procedures, coupled with its findings related to the IPOs reviewed as
described herein, adequately address potential concerns regarding
possible manipulation or price stability.
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\14\ 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.
\15\ See supra note 9.
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Implementation Date
The Exchange will announce the effective date of the proposed
change by Trader Update distributed to all OTP Holders, which will be
no later than sixty-days after the effective date of this proposal.\16\
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\16\ An ``OTP Holder'' refers to a natural person, sole
proprietorship, partnership, corporation, limited liability company
or other organization, in good standing that has been issued an ATP.
See Rule 1.1. An ``OTP'' is an Options Trading Permit issued by the
Exchange for effecting approved securities transactions on the
Exchange. See id.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\17\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \18\ requirements that the rules
of an 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,
clearing, settling, processing information with respect to, and
facilitating 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.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
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In particular, the Exchange believes the proposed change would
facilitate options transactions and would remove impediments to and
perfect the mechanism of a free and open market and a national market
system, which would, in turn, protect investors and the public interest
by providing an avenue for options on IPO'd securities to come to
market earlier. 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. As noted above, NYSE American noted that it reviewed trading
data for IPO'd securities dating back to 2017 and is unaware of an
IPO'd security with a market capitalization of $3 billion or more
(based upon the offering price of its IPO) that subsequently would have
failed to qualify for listing and trading as options under the three-
day lookback requirement. The Exchange believes that the proposed
amendment, which would be harmonized across options exchanges, would
remove impediments to and perfect the mechanism of a free and open
market and a national market system by providing an avenue for
investors to hedge their interest in IPO investments in a shorter
amount of time than what is currently permitted. 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 to IPO'd securities.\19\
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\19\ See supra note 9.
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Further, as noted herein, the Exchange believes the proposed change
would 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 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.\20\ 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, including
wrongful efforts to manipulate the prices of those securities in order
to bring them in compliance with the $3.00/share threshold for the
listing of options. 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, would
adequately address potential concerns regarding possible manipulation
or price stability.
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\20\ 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.
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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 that is not necessary or appropriate
in furtherance of the purposes of the Act.
The Exchange anticipates that the other options exchanges will
adopt substantively similar proposals, such that there would be no
burden on intermarket competition from the Exchange's proposal.
Accordingly, the proposed change is not meant to affect competition
among the options exchanges. For these reasons, the Exchange believes
that the proposed rule change reflects this competitive environment and
does not impose any undue burden on intermarket competition.
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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \21\ and Rule 19b-4(f)(6) thereunder.\22\
Because the proposed rule change does not: (i) significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on
[[Page 63996]]
competition; and (iii) become operative prior to 30 days from the date
on which it was filed, or such shorter time as the Commission may
designate, if consistent with the protection of investors and the
public interest, the proposed rule change has become effective pursuant
to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6)(iii) thereunder.
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\21\ 15 U.S.C. 78s(b)(3)(A)(iii).
\22\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \23\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(f)(6)(iii),\24\ 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 requested
the waiver, stating that the proposal harmonizes its rules to those of
NYSE American to ensure fair competition among the options exchanges.
Further, the proposed change would 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. For these reasons, and because the proposed rule change
does not raise any novel legal or regulatory issues, the Commission
believes that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest. Therefore, the
Commission hereby waives the 30-day operative delay and designates the
proposal operative upon filing.\25\
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\23\ 17 CFR 240.19b-4(f)(6).
\24\ 17 CFR 240.19b-4(f)(6)(iii).
\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 such 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 under
Section 19(b)(2)(B) \26\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\26\ 15 U.S.C. 78s(b)(2)(B).
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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-NYSEARCA-2023-61 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-2023-61. 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-NYSEARCA-2023-61 and should
be submitted on or before October 10, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-20078 Filed 9-15-23; 8:45 am]
BILLING CODE 8011-01-P