Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Chapter IV, Section 3, 4104-4108 [2018-01542]
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Federal Register / Vol. 83, No. 19 / Monday, January 29, 2018 / Notices
transactions or proprietary data has the
potential to impair revenues from both
products. In this manner, the
competition for order flow will
constrain prices for proprietary data
products.
Competition among Distributors
provides another form of price
discipline for proprietary data products.
If the price of PSX TotalView were set
above competitive levels, Distributors
purchasing PSX TotalView would be at
a disadvantage relative to their
competitors, and would therefore either
curtail their purchase or forego the
product altogether.
Market forces constrain the price of
depth-of-book data such as PSX
TotalView through the competition for
order flow and in the competition
among vendors for customers. If the
changes proposed herein are
unattractive to market participants, it is
likely that the Exchange will lose
market share as a result. Accordingly,
the Exchange does not believe that the
proposed changes will impair the ability
of members or competing order
execution venues to maintain their
competitive standing in the financial
markets.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act.42
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: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) 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 rule-comments@
sec.gov. Please include File Number SR–
Phlx–2018–10 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–Phlx–2018–10. 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
10:00 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–Phlx–2018–10 and should
be submitted on or before February 20,
2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.43
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–01536 Filed 1–26–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82574; File No. SR–BX–
2018–004]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Chapter IV,
Section 3
January 23, 2018.
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 January
16, 2018, Nasdaq BX, Inc. (‘‘BX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Chapter IV, Section 3 (Criteria for
Underlying Securities) to modify the
criteria for listing an option on an
underlying covered security.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaqbx.cchwallstreet.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
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 the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend Chapter IV, Section
1 15
42 15
U.S.C. 78s(b)(3)(A)(ii).
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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3 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 (hereinafter
‘‘covered security’’ or ‘‘covered
securities’’). In particular, the Exchange
proposes to modify Section 3(b)v.1) to
permit the listing of an option on an
underlying covered security that 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’’) for listing and
trading. The Exchange does not intend
to amend any other criteria for listing
options on an underlying security in
Chapter IV, Section 3.
This proposed rule change is identical
to a recently-approved rule change by
the Exchange’s affiliate, Nasdaq PHLX
LLC (‘‘Phlx’’), to its initial listing
standards,3 and serves to align the rules
of Phlx and the Exchange.
Currently the underlying covered
security must have a closing market
price of $3.00 per share for the previous
five consecutive business days
preceding the date on which the
Exchange submits a listing certificate to
OCC. In the proposed amendment, the
market price will still be measured by
the closing price reported in the primary
market in which the underlying covered
security is traded, but the measurement
will be the price over the prior three
consecutive business day period
preceding the submission of the listing
certificate to OCC, instead of the prior
five business day period.
The Exchange acknowledges that the
Options Listing Procedures Plan 4
requires that the listing certificate be
3 See Securities Exchange Act Release No. 82474
(January 9, 2018) (SR–Phlx–2017–75) (Order
Granting Approval of a Proposed Rule Change)
(‘‘Phlx Filing’’). The Exchange, together with its
affiliates, The Nasdaq Stock Market LLC (‘‘Nasdaq’’)
and Nasdaq ISE, LLC (‘‘ISE’’), all of which are
wholly owned subsidiaries of Nasdaq, Inc.
(‘‘Nasdaq HoldCo’’), have filed identical rule change
proposals based on the Phlx Filing.
4 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 (a/k/a the Options
Listing Procedures Plan (‘‘OLPP’’)) 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 BX; OCC; BATS Exchange, Inc.; BOX
Options Exchange LLC; C2 Options Exchange,
Incorporated Chicago Board Options Exchange,
Incorporated; EDGX Exchange Inc.; Miami
International Securities Exchange, LLC; MIAX
PEARL, LLC; Nasdaq PHLX LLC; The Nasdaq Stock
Market LLC; Nasdaq GEMX, LLC; Nasdaq ISE, LLC;
Nasdaq MRX, LLC; NYSE American, LLC; and
NYSE Arca, Inc.
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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.5
The proposed amendment will 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).
The Exchange’s initial listing
standards for equity options in Chapter
IV, Section 3 (including the current
price/time standard of $3.00 per share
for five consecutive business days) are
substantially similar to the initial listing
standards adopted by other options
exchanges.6 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.7 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.8
5 See
OLPP at page 3.
e.g., Phlx Rule 1009, Commentary .01.
7 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).
8 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 Nasdaq MarketWatch
group, which provides such real-time surveillance
on the Exchange and its affiliated markets, monitors
trading activity in IPOs to see whether the new
6 See,
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Furthermore, the Exchange notes that
the scope of its surveillance program
also includes cross market surveillance
for trading that is not just limited to the
Exchange. In particular, the Financial
Industry Regulatory Authority
(‘‘FINRA’’), pursuant to a regulatory
services agreement, operates a range of
cross-market equity surveillance
patterns on behalf of the Exchange to
look for potential manipulative
behavior, including spoofing, algorithm
gaming, marking the close and open,
and momentum ignition strategies, as
well as more general, abusive behavior
related to front running, wash sales,
quoting/routing, and Reg SHO
violations. These cross-market patterns
incorporate relevant data from various
markets beyond the Exchange and its
affiliates, including data from the New
York Stock Exchange (‘‘NYSE’’).
Additionally for options, the Nasdaq
Options Surveillance team utilizes an
array of patterns that monitor
manipulation of options, or
manipulation of equity securities
(regardless of venue) for the purpose of
impacting options prices on any of the
six Nasdaq HoldCo-operated options
markets (i.e., mini-manipulation
strategies). Surveillance coverage is
initiated once options begin trading on
any of Nasdaq HoldCo’s six options
markets, including the Exchange.
Accordingly, the Exchange believes that
the cross market surveillance performed
by FINRA on behalf of the Exchange,
coupled with Exchange staff’s real-time
monitoring of similarly violative activity
on BX and its affiliated markets as
described herein, reflects a
comprehensive surveillance program
that is adequate to monitor for
manipulation of the underlying security
and overlying option within 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 National Market
System of The Nasdaq Stock Market
(now known as 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.9
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
issue moves substantially above or below the public
offering price in the first day or several days of
trading.
9 See 15 U.S.C. 77r(b)(1)(A).
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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.
In addition, The Nasdaq Stock Market
LLC, the Exchange’s affiliated listing
market, had no cases within the past
five years where an IPO-related issue for
which it had pricing information
qualified for the $3.00 price requirement
during the first three days of trading and
did not qualify for the $3.00 price
requirement during the first five days.10
In other words, none of these qualifying
issues fell below the $3.00 threshold
within the first three or five days of
trading. As such, the Exchange believes
that its existing surveillance program,
coupled with its findings related to the
IPO-related issues on Nasdaq as
described herein, adequately address
potential concerns regarding possible
manipulation or price stability within
the proposed timeframe.
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 will
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
10 There were over 750 IPO-related issues on
Nasdaq within the past five years. Out of all of the
issues with pricing information, there was only one
issue that had a price below $3 during the first five
consecutive business days. The Exchange notes,
however, that Nasdaq allows for companies to list
on the Nasdaq Capital Market at $2.00 or $3.00 per
share in some instances, which was the case for this
particular issue. See Nasdaq Rule 5500 Series for
initial listing standards on the Nasdaq Capital
Market.
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. 78962
(September 28, 2016), 81 FR 69240 (October 5,
2016) (Amendment to Securities Transaction
Settlement Cycle) (File No. S7–22–16).
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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).
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 will apply
to all covered securities that meet the
relevant criteria in Chapter IV, Section
3. Pursuant to Section 3(b), BX
Regulation establishes guidelines to be
considered in evaluating potential
underlying securities for BX Options
transactions. However, the fact that a
particular security may meet the
standards established by BX Regulation
does not necessarily mean that it will be
selected as an underlying security.13 As
part of the established criteria, the
issuer must be in compliance with any
applicable requirements of the Act and
the rules thereunder.14 Additionally, in
considering the underlying security, BX
Regulation relies on information made
publicly available by the issuer and/or
the markets in which the security is
traded.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.
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
13 See
Chapter IV, Section 3(b).
Chapter IV, Section 3(b)iii.
15 See Chapter IV, Section 3(d).
16 15 U.S.C. 78f(b).
17 15 U.S.C. 78f(b)(5).
14 See
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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.
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.
The Exchange also believes that the
proposed three consecutive business
day timeframe would continue to be a
reliable test for price stability in light of
its findings that none of the IPO-related
issues on Nasdaq within the past five
years that qualified for the $3.00 per
share price standard during the first
three trading days fell below the $3.00
threshold during the fourth or fifth
trading day. 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 criteria for
consideration of the option within the
proposed timeframe.
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
18 See
notes 13–15 above.
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.
19 This
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Finally, it should be noted that a
price/time standard for the underlying
security was first adopted when the
listed options market was in its infancy,
and was intended to prevent the
proliferation of options being listed on
low-priced securities that presented
special manipulation concerns and/or
lacked liquidity needed to maintain fair
and orderly markets.20 When options
trading commenced in 1973, the
Commission determined that it was
necessary for securities underlying
options to meet certain minimum
standards regarding both the quality of
the issuer and the quality of the market
for a particular security.21 These
standards, including a price/time
standard, were imposed to ensure that
those issuers upon whose securities
options were to be traded were widelyheld, financially sound companies
whose shares had trading volume and
float substantial enough so as not to be
readily susceptible to manipulation.22
At that time, the Commission
determined that the imposition of these
standards was reasonable in view of the
pilot nature of options trading and the
limited experience of investors with
options trading.23
Now more than 40 years later, the
listed options market has evolved into a
mature market with sophisticated
investors. In view of this evolution, the
Commission has approved various
exchange proposals to relax some of
these initial listing standards
throughout the years,24 including
reducing the price/time standard in
2003 from $7.50 per share for the
majority of business days over a three
month period to the current $3.00 per
share/five business day standard (‘‘2003
Proposal’’).25 It has been almost fifteen
years since the Commission approved
the 2003 Proposal, and both the listed
options market and exchange
technologies have continued to evolve
since then. In this instance, Nasdaq is
only proposing a modest reduction of
the current five business day standard to
three business days to correspond to the
20 See Securities Exchange Act Release No. 29628
(August 29, 1991), 56 FR 43949–01 (September 5,
1991) (SR–AMEX–86–19; SR–CBOE–86–15; SR–
NYSE–86–20; SR–PSE–86–15; and SR–PHLX–86–
21) (‘‘1991 Approval Order’’) at 43949 (discussing
the Commission’s concerns when options trading
initially commenced in 1973).
21 See 1991 Approval Order at 43949.
22 Id.
23 Id.
24 See e.g., 1991 Approval Order (modifying a
number of initial listing criteria, including the
reduction of the price/time standard from $10 per
share each day during the preceding three calendar
months to $7.50 per share for the majority of days
during the same period).
25 See note 7 above.
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securities industry’s move to a T+2
standard settlement cycle.26 The $3.00
per share standard and all other initial
options listing criteria in Chapter IV,
Section 3 will remain unchanged by this
proposal. For the reasons discussed
herein, the Exchange therefore believes
that the proposed three business day
period will be beneficial to the
marketplace without sacrificing investor
protections.
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 either
solicited or received.
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 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 27 and Rule 19b–4(f)(6)
thereunder.28
A proposed rule change filed under
Rule 19b–4(f)(6) 29 normally does not
become operative for 30 days after the
date of filing. However, pursuant to
Rule 19b–4(f)(6)(iii),30 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest. The
26 See
note 12 above.
U.S.C. 78s(b)(3)(A).
28 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires the Exchange to give the
Commission written notice of the Exchange’s 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.
29 17 CFR 240.19b–4(f)(6).
30 17 CFR 240.19b–4(f)(6)(iii).
27 15
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Exchange has asked the Commission to
waive the 30-day operative delay so that
the proposal may become operative
upon filing. The Commission believes
that waiving the 30-day operative delay
is consistent with the protection of
investors and the public interest as it
will allow the Exchange to align its
initial options listing standards with
that of its affiliates, and the Exchange’s
proposal does not raise new issues.
Accordingly, the Commission hereby
waives the 30-day operative delay
requirement and designates the
proposed rule change as operative upon
filing.31
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 rule-comments@
sec.gov. Please include File Number SR–
BX–2018–004 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–BX–2018–004. 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
31 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).
E:\FR\FM\29JAN1.SGM
29JAN1
4108
Federal Register / Vol. 83, No. 19 / Monday, January 29, 2018 / Notices
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–BX–2018–004, and should
be submitted on or before February 20,
2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–01542 Filed 1–26–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82572; File No. SR–ISE–
2018–06]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Rule 502
sradovich on DSK3GMQ082PROD with NOTICES
January 23, 2018.
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 January
16, 2018, Nasdaq ISE, LLC (‘‘ISE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
32 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
19:42 Jan 26, 2018
Jkt 244001
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 502 (Criteria for Underlying
Securities) to modify the criteria for
listing an option on an underlying
covered security.
The text of the proposed rule change
is available on the Exchange’s website at
https://ise.cchwallstreet.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
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 the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend ISE Rule 502 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 (hereinafter ‘‘covered security’’
or ‘‘covered securities’’). In particular,
the Exchange proposes to modify
Section (b)(5)(i) of Rule 502 to permit
the listing of an option on an underlying
covered security that 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’’)
for listing and trading. The Exchange
does not intend to amend any other
criteria for listing options on an
underlying security in Rule 502.
This proposed rule change is identical
to a recently-approved rule change by
the Exchange’s affiliate, Nasdaq PHLX
LLC (‘‘Phlx’’), to its initial listing
standards,3 and serves to align the rules
of Phlx and the Exchange.
3 See Securities Exchange Act Release No. 82474
(January 9, 2018) (SR–Phlx–2017–75) (Order
Granting Approval of a Proposed Rule Change)
(‘‘Phlx Filing’’). The Exchange, together with its
affiliates, The Nasdaq Stock Market LLC (‘‘Nasdaq’’)
PO 00000
Frm 00086
Fmt 4703
Sfmt 4703
Currently the underlying covered
security must have a closing market
price of $3.00 per share for the previous
five consecutive business days
preceding the date on which the
Exchange submits a listing certificate to
OCC. In the proposed amendment, the
market price will still be measured by
the closing price reported in the primary
market in which the underlying covered
security is traded, but the measurement
will be the price over the prior three
consecutive business day period
preceding the submission of the listing
certificate to OCC, instead of the prior
five business day period.
The Exchange acknowledges that the
Options Listing Procedures Plan 4
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.5
The proposed amendment will 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).
and Nasdaq BX, Inc. (‘‘BX’’), have filed identical
rule change proposals based on the Phlx Filing. The
Exchange notes that Chapter 5 of the ISE Rulebook,
including Rule 502, is incorporated by reference
into the rulebooks of Nasdaq GEMX, LLC (‘‘GEMX’’)
and Nasdaq MRX, LLC (‘‘MRX’’). As such, the
amendments to ISE Rule 502 will also impact
GEMX and MRX Rules 502. ISE, GEMX, MRX,
Nasdaq, Phlx and BX are all wholly owned
subsidiaries of Nasdaq, Inc. (‘‘Nasdaq HoldCo’’).
4 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 (a/k/a the Options
Listing Procedures Plan (‘‘OLPP’’)) 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 ISE; OCC; BATS Exchange, Inc.; BOX
Options Exchange LLC; C2 Options Exchange,
Incorporated; Chicago Board Options Exchange,
Incorporated; EDGX Exchange, Inc.; Miami
International Securities Exchange, LLC; MIAX
PEARL, LLC; Nasdaq BX, Inc.; Nasdaq PHLX LLC;
The Nasdaq Stock Market LLC; Nasdaq GEMX, LLC;
Nasdaq MRX, LLC; NYSE American, LLC; and
NYSE Arca, Inc.
5 See OLPP at page 3.
E:\FR\FM\29JAN1.SGM
29JAN1
]]>Agencies
[Federal Register Volume 83, Number 19 (Monday, January 29, 2018)]
[Notices]
[Pages 4104-4108]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-01542]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82574; File No. SR-BX-2018-004]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Chapter
IV, Section 3
January 23, 2018.
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 January 16, 2018, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I, II, and III, below,
which Items have been prepared by the Exchange. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Chapter IV, Section 3 (Criteria for
Underlying Securities) to modify the criteria for listing an option on
an underlying covered security.
The text of the proposed rule change is available on the Exchange's
website at https://nasdaqbx.cchwallstreet.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 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend Chapter IV,
Section
[[Page 4105]]
3 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
(hereinafter ``covered security'' or ``covered securities''). In
particular, the Exchange proposes to modify Section 3(b)v.1) to permit
the listing of an option on an underlying covered security that 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'') for
listing and trading. The Exchange does not intend to amend any other
criteria for listing options on an underlying security in Chapter IV,
Section 3.
This proposed rule change is identical to a recently-approved rule
change by the Exchange's affiliate, Nasdaq PHLX LLC (``Phlx''), to its
initial listing standards,\3\ and serves to align the rules of Phlx and
the Exchange.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 82474 (January 9,
2018) (SR-Phlx-2017-75) (Order Granting Approval of a Proposed Rule
Change) (``Phlx Filing''). The Exchange, together with its
affiliates, The Nasdaq Stock Market LLC (``Nasdaq'') and Nasdaq ISE,
LLC (``ISE''), all of which are wholly owned subsidiaries of Nasdaq,
Inc. (``Nasdaq HoldCo''), have filed identical rule change proposals
based on the Phlx Filing.
---------------------------------------------------------------------------
Currently the underlying covered security must have a closing
market price of $3.00 per share for the previous five consecutive
business days preceding the date on which the Exchange submits a
listing certificate to OCC. In the proposed amendment, the market price
will still be measured by the closing price reported in the primary
market in which the underlying covered security is traded, but the
measurement will be the price over the prior three consecutive business
day period preceding the submission of the listing certificate to OCC,
instead of the prior five business day period.
The Exchange acknowledges that the Options Listing Procedures Plan
\4\ 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.\5\ The
proposed amendment will 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).
---------------------------------------------------------------------------
\4\ 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 (a/k/a the Options Listing
Procedures Plan (``OLPP'')) 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 BX; OCC; BATS Exchange, Inc.; BOX
Options Exchange LLC; C2 Options Exchange, Incorporated Chicago
Board Options Exchange, Incorporated; EDGX Exchange Inc.; Miami
International Securities Exchange, LLC; MIAX PEARL, LLC; Nasdaq PHLX
LLC; The Nasdaq Stock Market LLC; Nasdaq GEMX, LLC; Nasdaq ISE, LLC;
Nasdaq MRX, LLC; NYSE American, LLC; and NYSE Arca, Inc.
\5\ See OLPP at page 3.
---------------------------------------------------------------------------
The Exchange's initial listing standards for equity options in
Chapter IV, Section 3 (including the current price/time standard of
$3.00 per share for five consecutive business days) are substantially
similar to the initial listing standards adopted by other options
exchanges.\6\ 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.\7\ 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.\8\
---------------------------------------------------------------------------
\6\ See, e.g., Phlx Rule 1009, Commentary .01.
\7\ 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).
\8\ 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 Nasdaq MarketWatch 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.
---------------------------------------------------------------------------
Furthermore, the Exchange notes that the scope of its surveillance
program also includes cross market surveillance for trading that is not
just limited to the Exchange. In particular, the Financial Industry
Regulatory Authority (``FINRA''), pursuant to a regulatory services
agreement, operates a range of cross-market equity surveillance
patterns on behalf of the Exchange to look for potential manipulative
behavior, including spoofing, algorithm gaming, marking the close and
open, and momentum ignition strategies, as well as more general,
abusive behavior related to front running, wash sales, quoting/routing,
and Reg SHO violations. These cross-market patterns incorporate
relevant data from various markets beyond the Exchange and its
affiliates, including data from the New York Stock Exchange (``NYSE'').
Additionally for options, the Nasdaq Options Surveillance team
utilizes an array of patterns that monitor manipulation of options, or
manipulation of equity securities (regardless of venue) for the purpose
of impacting options prices on any of the six Nasdaq HoldCo-operated
options markets (i.e., mini-manipulation strategies). Surveillance
coverage is initiated once options begin trading on any of Nasdaq
HoldCo's six options markets, including the Exchange. Accordingly, the
Exchange believes that the cross market surveillance performed by FINRA
on behalf of the Exchange, coupled with Exchange staff's real-time
monitoring of similarly violative activity on BX and its affiliated
markets as described herein, reflects a comprehensive surveillance
program that is adequate to monitor for manipulation of the underlying
security and overlying option within 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 National
Market System of The Nasdaq Stock Market (now known as 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.\9\ 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
[[Page 4106]]
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.
---------------------------------------------------------------------------
\9\ See 15 U.S.C. 77r(b)(1)(A).
---------------------------------------------------------------------------
In addition, The Nasdaq Stock Market LLC, the Exchange's affiliated
listing market, had no cases within the past five years where an IPO-
related issue for which it had pricing information qualified for the
$3.00 price requirement during the first three days of trading and did
not qualify for the $3.00 price requirement during the first five
days.\10\ In other words, none of these qualifying issues fell below
the $3.00 threshold within the first three or five days of trading. As
such, the Exchange believes that its existing surveillance program,
coupled with its findings related to the IPO-related issues on Nasdaq
as described herein, adequately address potential concerns regarding
possible manipulation or price stability within the proposed timeframe.
---------------------------------------------------------------------------
\10\ There were over 750 IPO-related issues on Nasdaq within the
past five years. Out of all of the issues with pricing information,
there was only one issue that had a price below $3 during the first
five consecutive business days. The Exchange notes, however, that
Nasdaq allows for companies to list on the Nasdaq Capital Market at
$2.00 or $3.00 per share in some instances, which was the case for
this particular issue. See Nasdaq Rule 5500 Series for initial
listing standards on the Nasdaq Capital Market.
---------------------------------------------------------------------------
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 will 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).
---------------------------------------------------------------------------
\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. 78962 (September
28, 2016), 81 FR 69240 (October 5, 2016) (Amendment to Securities
Transaction Settlement Cycle) (File No. S7-22-16).
---------------------------------------------------------------------------
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 will apply to all covered securities that
meet the relevant criteria in Chapter IV, Section 3. Pursuant to
Section 3(b), BX Regulation establishes guidelines to be considered in
evaluating potential underlying securities for BX Options transactions.
However, the fact that a particular security may meet the standards
established by BX Regulation does not necessarily mean that it will be
selected as an underlying security.\13\ As part of the established
criteria, the issuer must be in compliance with any applicable
requirements of the Act and the rules thereunder.\14\ Additionally, in
considering the underlying security, BX Regulation relies on
information made publicly available by the issuer and/or the markets in
which the security is traded.\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.
---------------------------------------------------------------------------
\13\ See Chapter IV, Section 3(b).
\14\ See Chapter IV, Section 3(b)iii.
\15\ See Chapter IV, Section 3(d).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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. The Exchange also believes that the proposed
three consecutive business day timeframe would continue to be a
reliable test for price stability in light of its findings that none of
the IPO-related issues on Nasdaq within the past five years that
qualified for the $3.00 per share price standard during the first three
trading days fell below the $3.00 threshold during the fourth or fifth
trading day. 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 criteria for consideration of the
option within the proposed timeframe.
---------------------------------------------------------------------------
\18\ See notes 13-15 above.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
[[Page 4107]]
Finally, it should be noted that a price/time standard for the
underlying security was first adopted when the listed options market
was in its infancy, and was intended to prevent the proliferation of
options being listed on low-priced securities that presented special
manipulation concerns and/or lacked liquidity needed to maintain fair
and orderly markets.\20\ When options trading commenced in 1973, the
Commission determined that it was necessary for securities underlying
options to meet certain minimum standards regarding both the quality of
the issuer and the quality of the market for a particular security.\21\
These standards, including a price/time standard, were imposed to
ensure that those issuers upon whose securities options were to be
traded were widely-held, financially sound companies whose shares had
trading volume and float substantial enough so as not to be readily
susceptible to manipulation.\22\ At that time, the Commission
determined that the imposition of these standards was reasonable in
view of the pilot nature of options trading and the limited experience
of investors with options trading.\23\
---------------------------------------------------------------------------
\20\ See Securities Exchange Act Release No. 29628 (August 29,
1991), 56 FR 43949-01 (September 5, 1991) (SR-AMEX-86-19; SR-CBOE-
86-15; SR-NYSE-86-20; SR-PSE-86-15; and SR-PHLX-86-21) (``1991
Approval Order'') at 43949 (discussing the Commission's concerns
when options trading initially commenced in 1973).
\21\ See 1991 Approval Order at 43949.
\22\ Id.
\23\ Id.
---------------------------------------------------------------------------
Now more than 40 years later, the listed options market has evolved
into a mature market with sophisticated investors. In view of this
evolution, the Commission has approved various exchange proposals to
relax some of these initial listing standards throughout the years,\24\
including reducing the price/time standard in 2003 from $7.50 per share
for the majority of business days over a three month period to the
current $3.00 per share/five business day standard (``2003
Proposal'').\25\ It has been almost fifteen years since the Commission
approved the 2003 Proposal, and both the listed options market and
exchange technologies have continued to evolve since then. In this
instance, Nasdaq is only proposing a modest reduction of the current
five business day standard to three business days to correspond to the
securities industry's move to a T+2 standard settlement cycle.\26\ The
$3.00 per share standard and all other initial options listing criteria
in Chapter IV, Section 3 will remain unchanged by this proposal. For
the reasons discussed herein, the Exchange therefore believes that the
proposed three business day period will be beneficial to the
marketplace without sacrificing investor protections.
---------------------------------------------------------------------------
\24\ See e.g., 1991 Approval Order (modifying a number of
initial listing criteria, including the reduction of the price/time
standard from $10 per share each day during the preceding three
calendar months to $7.50 per share for the majority of days during
the same period).
\25\ See note 7 above.
\26\ See note 12 above.
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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 either solicited or received.
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 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 \27\ and Rule 19b-4(f)(6)
thereunder.\28\
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\27\ 15 U.S.C. 78s(b)(3)(A).
\28\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's 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) \29\ normally
does not become operative for 30 days after the date of filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\30\ 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 upon filing. The Commission believes that waiving
the 30-day operative delay is consistent with the protection of
investors and the public interest as it will allow the Exchange to
align its initial options listing standards with that of its
affiliates, and the Exchange's proposal does not raise new issues.
Accordingly, the Commission hereby waives the 30-day operative delay
requirement and designates the proposed rule change as operative upon
filing.\31\
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\29\ 17 CFR 240.19b-4(f)(6).
\30\ 17 CFR 240.19b-4(f)(6)(iii).
\31\ 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-BX-2018-004 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-BX-2018-004. 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
[[Page 4108]]
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-BX-2018-004, and should be submitted on
or before February 20, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-01542 Filed 1-26-18; 8:45 am]
BILLING CODE 8011-01-P
