Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 5.3, Criteria for Underlying Securities, 24372-24376 [2018-11222]
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Federal Register / Vol. 83, No. 102 / Friday, May 25, 2018 / Notices
namely, whether such disclosure is
consistent with the requirement of
Section 6(b)(5) that the rules of the
exchange be designed to prevent
fraudulent and manipulative acts and
practices. The Commission also seeks
commenters’ views regarding the
various concerns raised about how the
Shares may trade in the secondary
market, including the calculation engine
verification and trading halt procedures
and the potential for poor trading
performance during times of market
stress and volatility. In this regard, the
Commission specifically seeks
commenters’ views on whether the
proposal is consistent with the
maintenance of a fair and orderly
market.
Comments may be submitted by any
of the following methods:
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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–
CboeBZX–2018–010 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–CboeBZX–2018–010. 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
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comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeBZX–2018–010 and
should be submitted by June 15, 2018.
Rebuttal comments should be submitted
by June 29, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.40
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–11223 Filed 5–24–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83292; File No. SR–CBOE–
2018–040]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Rule 5.3,
Criteria for Underlying Securities
May 21, 2018.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 7,
2018, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Exchange filed the proposal as a
‘‘non-controversial’’ proposed rule
change pursuant to Section
19(b)(3)(A)(iii) of the Act 3 and Rule
19b–4(f)(6) thereunder.4 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
Rule 5.3, Interpretation and Policy .01.
(additions are italicized; deletions are
[bracketed])
*
*
*
*
*
Cboe Exchange, Inc.
Rules
*
*
*
*
*
40 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
1 15
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Rule 5.3. Criteria for Underlying
Securities
(a)–(b) (No change).
. . . Interpretations and Policies:
.01 The Board of Directors has
established guidelines to be considered
by the Exchange in evaluating potential
underlying securities for Exchange
option transactions. Absent exceptional
circumstances with respect to
Paragraphs (a)(1) or (2), or (b)(1) or (2)
listed below, at the time the Exchange
selects an underlying security for
Exchange option transactions, the
following guidelines with respect to the
issuer shall be met.
(a) (No change).
(b) Guidelines applicable to the
market for the security are:
(1) (No change).
(2)
(A) If the underlying security is a
‘‘covered security’’ as defined under
Section 18(b)(1)(A) of the Securities Act
of 1933, the market price per share of
the underlying security has been at least
$3.00 for the previous [five]three
consecutive business days preceding the
date on which the Exchange submits a
certificate to the Options Clearing
Corporation for listing and trading. For
purposes of this Interpretation
.01(b)(2)(A), the market price of such
underlying security is measured by the
closing price reported in the primary
market in which the underlying security
is traded.
(B) (No change).
(c) (No change).
.02–.13 (No change).
*
*
*
*
*
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/About
CBOE/CBOELegalRegulatory
Home.aspx), at the Exchange’s Office of
the Secretary, 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.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The Exchange proposes to amend
Interpretation and Policy .01 of Rule 5.3,
Criteria for Underlying Securities, 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’’). This is a
competitive filing that is based on a
proposal recently submitted by Nasdaq
PHLX LLC (‘‘Nasdaq Phlx’’) and
approved by the Commission.5
In particular, the Exchange proposes
to modify Rule 5.3, Interpretation and
Policy .01(b)(2)(A) 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 (3) 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 5.3.
Currently the underlying covered
security must have a closing market
price of $3.00 per share for the previous
five (5) 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 (3)
consecutive business day period
preceding the submission of the listing
certificate to OCC, instead of the prior
five (5) business day period.
The Exchange acknowledges that the
Options Listing Procedures Plan 6
5 See Securities Exchange Act Release No. 82474
(January 9, 2018), 83 FR 2240 (January 16, 2018)
(order approving SR–Phlx–2017–75); see also
Securities Exchange Act Release No. 82828 (March
8, 2018), 83 FR 11278 (March 14, 2018) (notice of
filing and immediate effectiveness of SR–MIAX–
2018–06).
6 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 OCC; Cboe BZX Exchange, Inc.
(formerly BATS Exchange, Inc.); BOX Options
Exchange LLC; Cboe C2 Exchange, Inc. (formerly C2
Options Exchange, Incorporated); Cboe Exchange,
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requires that the listing certificate be
provided to OCC no earlier than 12:01
a.m. and no later than 11:00 a.m.
(Chicago time) on the trading day prior
to the day on which trading is to begin.7
The proposed amendment will still
comport with that requirement. For
example, if an initial public offering
(‘‘IPO’’) occurs at 11:00 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 (4) business
days of an IPO becoming available
instead of six (6) business days (five (5)
consecutive days plus the day the listing
certificate is submitted to OCC).
The Exchange’s initial listing
standards for equity options in Rule 5.3
(including the current price/time
standard of $3.00 per share for five (5)
consecutive business days) are
substantially similar to the initial listing
standards adopted by other options
exchanges.8 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.9 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.
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), or listed on a
national securities exchange that has
listing standards the Commission
determines by rule are substantially
similar to the listing standards
applicable to securities listed the
exchanges noted in the previous clause
(collectively, the ‘‘Designated Markets’’),
as provided for in the definition of
‘‘covered security’’ from Section 18(b)(1)
of the 1933 Act. Accordingly, the
Exchange believes that the proposed
rule change would still ensure that the
underlying security meets the high
listing standards of a Designated Market,
and would also ensure that the
underlying is covered by the regulatory
protections (including market
surveillance, investigation and
enforcement) offered by these exchanges
for trading in covered securities
conducted on their facilities.
Furthermore, the Nasdaq, Nasdaq
Phlx’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 (3) days of trading and did not
qualify for the $3.00 price requirement
during the first five (5) days.10 In other
words, none of these qualifying issues
fell below the $3.00 threshold within
the first three (3) or five (5) days of
trading. As such, the Exchange believes
that its existing surveillance
technologies and procedures, coupled
with Nasdaq’s findings related to the
IPO-related issues as described herein,
adequately address potential concerns
regarding possible manipulation or
price stability within the proposed
timeframe.
Additionally, the Exchange represents
that its existing trading surveillances are
adequate to monitor the trading of
options on the Exchange.11 Cboe
Options and C2, either themselves or
through FINRA, utilize an array of
patterns that monitor manipulation of
Inc. (formerly Chicago Board Options Exchange,
Incorporated); Cboe EDGX Exchange, Inc. (formerly
EDGX Exchange, Inc.); Miami International
Securities Exchange, LLC; MIAX PEARL, LLC; The
Nasdaq Stock Market LLC; NASDAQ BX, Inc.;
Nasdaq PHLX LLC; Nasdaq GEMX, LLC; Nasdaq
ISE, LLC; Nasdaq MRX, LLC; NYSE American, LLC;
and NYSE Arca, Inc.
7 See OLPP at page 3.
8 See, e.g., Phlx Rule 1009, Commentary .01; see
also MIAX Rule 402(b)(5) and BOX Rule 5020(b)(5).
9 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).
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; see also Release No. 82474 in supra note
5.
11 Such surveillance procedures generally focus
on detecting securities trading subject to price
manipulation, layering, spoofing or other unlawful
activity impacting an underlying security, the
option, or both. The Exchange and its affiliate C2,
themselves or through the Financial Industry
Regulatory Authority (‘‘FINRA’’), have price
movement alerts, unusual market activity and order
book alerts active for all trading symbols.
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options, or manipulation of equity
securities (regardless of venue) for the
purpose of impacting options prices on
both Cboe Options and C2 options
markets (i.e., mini-manipulation
strategies). Accordingly, the Exchange
believes that the cross-market
surveillance performed by the
Designated Markets, coupled with the
Exchange staff’s monitoring of similarly
violative activity on Cboe Options and
C2 as described herein, reflects a
comprehensive surveillance program
that is adequate to monitor for
manipulation of the underlying security
within the proposed three-day look back
period. The Exchange notes certain of
its affiliated exchanges, Cboe BYX
Exchange, Inc., Cboe BZX Exchange,
Inc., Cboe EDGA Exchange, Inc., and
Cboe EDGX Exchange, Inc., list stock for
trading and have surveillance programs
in place that include cross-market
surveillance for trading not just limited
to those exchanges. The cross-market
patters (sic) in those surveillance
programs incorporate relevant data from
various markets beyond the Exchange
and its affiliates, including NYSE and
Nasdaq.
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+2.12 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 Rule 15c6–1(a) to adopt
the shortened settlement cycle,13 and
the look back period of three (3)
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 (3) business
days) and therefore the number of
shareholders could be verified within
three (3) business days, thereby enabling
options trading within four (4) business
days of an IPO (three (3) consecutive
business days plus the day the listing
certificate is submitted to OCC).
12 The number of shareholders of record can be
validated by large clearing agencies such as T+2).
13 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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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 T+2 after an IPO.
For the foregoing reasons, the Exchange
believes that basing the proposed three
(3) 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
criteria of Rule 5.3. Pursuant to Rule 5.3,
the Exchange establishes guidelines to
be considered in evaluating the
potential underlying securities for
Exchange option transactions.14
However, the fact that a particular
security may meet the guidelines
established by the Exchange does not
necessarily mean that it will be
approved as an underlying security.15
As part of the established criteria, the
issuer must be in compliance with any
applicable requirement of the Securities
Exchange Act of 1934.16 Additionally,
in considering the underlying security,
the Exchange relies on information
made publicly available by the issuer
and/or the markets in which the
security is traded.17 Even if the
proposed option meets the objective
criteria, the Exchange may decide not to
list, or place limitations or conditions
upon listing.18 The Exchange believes
that these measures, together with
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 the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) and the rules and regulations
thereunder applicable to the Exchange
14 See Rule 5.3 (b) and Interpretation and Policy
.01. The Exchange established specific criteria to be
considered in evaluating potential underlying
securities for Exchange option transactions.
15 See Rule 5.3(b).
16 See Rule 5.3, Interpretation and Policy
.01(a)(3).
17 See Rule 5.3, Interpretation and Policy .02.
18 See Rule 5.3, Interpretation and Policy .09.
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and, in particular, the requirements of
Section 6(b) of the Act.19 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 20 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.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 21 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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 surveillance procedures
provide a sufficient measure of
protection against potential price
manipulation within the proposed three
(3) consecutive business day timeframe.
The Exchange also believes that the
proposed three (3) consecutive business
day timeframe would continue to be a
reliable test for price stability in light of
Nasdaq’s findings that none of the IPOrelated 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,22 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.
19 15
20 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
21 Id.
22 See
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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.23
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.24 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.25 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.26
At the 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.27
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
23 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.
24 See Securities Exchange Act Release No. 29628
(August 29, 1991), 56 FR 43949–01 (September 5,
1991) (SR–AMEX–86–21; 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).
25 See 1991 Approval Order at 43949.
26 Id.
27 Id.
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throughout the years,28 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’’).29 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, Cboe
Options is only proposing a modest
reduction of the current five (5) business
day standard to three (3) business days
to correspond to the securities
industry’s move to a T+2 standard
settlement cycle.30 The $3.00 per share
standard and all other initial options
listing criteria in Rule 5.3 will remain
unchanged by this proposal. For the
reasons discussed herein, the Exchange
therefore believes that the proposed
three (3) business day period will be
beneficial to the marketplace without
sacrificing investor protections.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Cboe Options 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. In this regard
and as indicated above, the Exchange
notes that the rule change is being
proposed as a competitive response to a
filing submitted by Nasdaq Phlx that
was recently approved by the
Commission.31 The proposed rule
change will reduce 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
The Exchange neither solicited nor
received comments on the proposed
rule change.
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 from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) 32 of the Act and Rule 19b–
4(f)(6) thereunder.33
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 34 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 35
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has asked
the Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. As discussed above, the Exchange
notes that its proposal is consistent with
rules of other exchanges.36 Because the
proposal does not raise any new or
novel issues, the Commission believes
that waiver of the operative delay is
consistent with the protection of
investors and the public interest.
Therefore, the Commission hereby
waives the operative delay and
designates the proposal operative upon
filing.37
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.
32 15
28 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).
29 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).
30 See supra note 13.
31 See supra note 5.
PO 00000
Frm 00104
Fmt 4703
Sfmt 4703
24375
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change, along with a brief
description and the text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
34 17 CFR 240.19b–4(f)(6).
35 17 CFR 240.19b–4(f)(6)(iii).
36 See supra note 6 and accompanying text.
37 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).
33 17
E:\FR\FM\25MYN1.SGM
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Federal Register / Vol. 83, No. 102 / Friday, May 25, 2018 / Notices
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:
[FR Doc. 2018–11222 Filed 5–24–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
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–
CBOE–2018–040 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.
amozie on DSK3GDR082PROD with NOTICES1
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.38
Eduardo A. Aleman,
Assistant Secretary.
All submissions should refer to File
Number SR–CBOE–2018–040. 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–CBOE–2018–040 and
should be submitted on or before June
15, 2018.
Submission for OMB Review;
Comment Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Extension:
Rule 17g–1, SEC File No. 270–208, OMB
Control No. 3235–0213
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 350l-3520), the Securities and
Exchange Commission (the
‘‘Commission’’) has submitted to the
Office of Management and Budget a
request for extension of the previously
approved collection of information
discussed below.
Rule 17g–1 (17 CFR 270.17g–1) under
the Investment Company Act of 1940
(the ‘‘Act’’) (15 U.S.C. 80a–17(g))
governs the fidelity bonding of officers
and employees of registered
management investment companies
(‘‘funds’’) and their advisers. Rule 17g–
1 requires, in part, the following:
Independent Directors’ Approval
The form and amount of the fidelity
bond must be approved by a majority of
the fund’s independent directors at least
once annually, and the amount of any
premium paid by the fund for any ‘‘joint
insured bond,’’ covering multiple funds
or certain affiliates, must be approved
by a majority of the fund’s independent
directors.
Terms and Provisions of the Bond
The amount of the bond may not be
less than the minimum amounts of
coverage set forth in a schedule based
on the fund’s gross assets. The bond
must provide that it shall not be
cancelled, terminated, or modified
except upon 60-days written notice to
the affected party and to the
Commission. In the case of a joint
insured bond, 60-days written notice
must also be given to each fund covered
by the bond. A joint insured bond must
provide that the fidelity insurance
company will provide all funds covered
38 17
VerDate Sep<11>2014
18:28 May 24, 2018
Jkt 241001
PO 00000
CFR 200.30–3(a)(12).
Frm 00105
Fmt 4703
Sfmt 4703
by the bond with a copy of the
agreement, a copy of any claim on the
bond, and notification of the terms of
the settlement of any claim prior to
execution of that settlement. Finally, a
fund that is insured by a joint bond
must enter into an agreement with all
other parties insured by the joint bond
regarding recovery under the bond.
Filings with the Commission
Upon the execution of a fidelity bond
or any amendment thereto, a fund must
file with the Commission within 10
days: (i) A copy of the executed bond or
any amendment to the bond, (ii) the
independent directors’ resolution
approving the bond, and (iii) a
statement as to the period for which
premiums have been paid on the bond.
In the case of a joint insured bond, a
fund must also file: (i) A statement
showing the amount the fund would
have been required to maintain under
the rule if it were insured under a single
insured bond; and (ii) the agreement
between the fund and all other insured
parties regarding recovery under the
bond. A fund must also notify the
Commission in writing within five days
of any claim or settlement on a claim
under the fidelity bond.
Notices to Directors
A fund must notify by registered mail
each member of its board of directors of:
(i) Any cancellation, termination, or
modification of the fidelity bond at least
45 days prior to the effective date; and
(ii) the filing or settlement of any claim
under the fidelity bond when
notification is filed with the
Commission.
Rule 17g–1’s independent directors’
annual review requirements, fidelity
bond content requirements, joint bond
agreement requirement, and the
required notices to directors are
designed to ensure the safety of fund
assets against losses due to the conduct
of persons who may obtain access to
those assets. These requirements also
seek to facilitate oversight of a fund’s
fidelity bond. The rule’s required filings
with the Commission are designed to
assist the Commission in monitoring
funds’ compliance with the fidelity
bond requirements.
Based on conversations with
representatives in the fund industry, the
Commission staff estimates that for each
of the estimated 3,173 active funds
(respondents),1 the average annual
paperwork burden associated with rule
1 Based on statistics compiled by Commission
staff, we estimate that there are approximately 3,173
funds that must comply with the collections of
information under rule 17g–1 and have made a
filing within the last 12 months.
E:\FR\FM\25MYN1.SGM
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]]>Agencies
[Federal Register Volume 83, Number 102 (Friday, May 25, 2018)]
[Notices]
[Pages 24372-24376]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-11222]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83292; File No. SR-CBOE-2018-040]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 5.3, Criteria for Underlying Securities
May 21, 2018.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on May 7, 2018, Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe
Options'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Exchange filed the proposal as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule
19b-4(f)(6) thereunder.\4\ 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 5.3, Interpretation and Policy
.01.
(additions are italicized; deletions are [bracketed])
* * * * *
Cboe Exchange, Inc.
Rules
* * * * *
Rule 5.3. Criteria for Underlying Securities
(a)-(b) (No change).
. . . Interpretations and Policies:
.01 The Board of Directors has established guidelines to be
considered by the Exchange in evaluating potential underlying
securities for Exchange option transactions. Absent exceptional
circumstances with respect to Paragraphs (a)(1) or (2), or (b)(1) or
(2) listed below, at the time the Exchange selects an underlying
security for Exchange option transactions, the following guidelines
with respect to the issuer shall be met.
(a) (No change).
(b) Guidelines applicable to the market for the security are:
(1) (No change).
(2)
(A) If the underlying security is a ``covered security'' as defined
under Section 18(b)(1)(A) of the Securities Act of 1933, the market
price per share of the underlying security has been at least $3.00 for
the previous [five]three consecutive business days preceding the date
on which the Exchange submits a certificate to the Options Clearing
Corporation for listing and trading. For purposes of this
Interpretation .01(b)(2)(A), the market price of such underlying
security is measured by the closing price reported in the primary
market in which the underlying security is traded.
(B) (No change).
(c) (No change).
.02-.13 (No change).
* * * * *
The text of the proposed rule change is also available on the
Exchange's website (https://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, 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.
[[Page 24373]]
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 Interpretation and Policy .01 of
Rule 5.3, Criteria for Underlying Securities, 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''). This is a competitive filing
that is based on a proposal recently submitted by Nasdaq PHLX LLC
(``Nasdaq Phlx'') and approved by the Commission.\5\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 82474 (January 9,
2018), 83 FR 2240 (January 16, 2018) (order approving SR-Phlx-2017-
75); see also Securities Exchange Act Release No. 82828 (March 8,
2018), 83 FR 11278 (March 14, 2018) (notice of filing and immediate
effectiveness of SR-MIAX-2018-06).
---------------------------------------------------------------------------
In particular, the Exchange proposes to modify Rule 5.3,
Interpretation and Policy .01(b)(2)(A) 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 (3) 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 5.3.
Currently the underlying covered security must have a closing
market price of $3.00 per share for the previous five (5) 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 (3) consecutive
business day period preceding the submission of the listing certificate
to OCC, instead of the prior five (5) business day period.
The Exchange acknowledges that the Options Listing Procedures Plan
\6\ requires that the listing certificate be provided to OCC no earlier
than 12:01 a.m. and no later than 11:00 a.m. (Chicago time) on the
trading day prior to the day on which trading is to begin.\7\ The
proposed amendment will still comport with that requirement. For
example, if an initial public offering (``IPO'') occurs at 11:00 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 (4)
business days of an IPO becoming available instead of six (6) business
days (five (5) consecutive days plus the day the listing certificate is
submitted to OCC).
---------------------------------------------------------------------------
\6\ 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 OCC; Cboe BZX Exchange, Inc. (formerly
BATS Exchange, Inc.); BOX Options Exchange LLC; Cboe C2 Exchange,
Inc. (formerly C2 Options Exchange, Incorporated); Cboe Exchange,
Inc. (formerly Chicago Board Options Exchange, Incorporated); Cboe
EDGX Exchange, Inc. (formerly EDGX Exchange, Inc.); Miami
International Securities Exchange, LLC; MIAX PEARL, LLC; The Nasdaq
Stock Market LLC; NASDAQ BX, Inc.; Nasdaq PHLX LLC; Nasdaq GEMX,
LLC; Nasdaq ISE, LLC; Nasdaq MRX, LLC; NYSE American, LLC; and NYSE
Arca, Inc.
\7\ See OLPP at page 3.
---------------------------------------------------------------------------
The Exchange's initial listing standards for equity options in Rule
5.3 (including the current price/time standard of $3.00 per share for
five (5) consecutive business days) are substantially similar to the
initial listing standards adopted by other options exchanges.\8\ 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.\9\ 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.
---------------------------------------------------------------------------
\8\ See, e.g., Phlx Rule 1009, Commentary .01; see also MIAX
Rule 402(b)(5) and BOX Rule 5020(b)(5).
\9\ 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).
---------------------------------------------------------------------------
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), or listed on a national securities exchange that has listing
standards the Commission determines by rule are substantially similar
to the listing standards applicable to securities listed the exchanges
noted in the previous clause (collectively, the ``Designated
Markets''), as provided for in the definition of ``covered security''
from Section 18(b)(1) of the 1933 Act. Accordingly, the Exchange
believes that the proposed rule change would still ensure that the
underlying security meets the high listing standards of a Designated
Market, and would also ensure that the underlying is covered by the
regulatory protections (including market surveillance, investigation
and enforcement) offered by these exchanges for trading in covered
securities conducted on their facilities.
Furthermore, the Nasdaq, Nasdaq Phlx'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 (3) days of trading and did not
qualify for the $3.00 price requirement during the first five (5)
days.\10\ In other words, none of these qualifying issues fell below
the $3.00 threshold within the first three (3) or five (5) days of
trading. As such, the Exchange believes that its existing surveillance
technologies and procedures, coupled with Nasdaq's findings related to
the IPO-related issues 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; see also Release No.
82474 in supra note 5.
---------------------------------------------------------------------------
Additionally, the Exchange represents that its existing trading
surveillances are adequate to monitor the trading of options on the
Exchange.\11\ Cboe Options and C2, either themselves or through FINRA,
utilize an array of patterns that monitor manipulation of
[[Page 24374]]
options, or manipulation of equity securities (regardless of venue) for
the purpose of impacting options prices on both Cboe Options and C2
options markets (i.e., mini-manipulation strategies). Accordingly, the
Exchange believes that the cross-market surveillance performed by the
Designated Markets, coupled with the Exchange staff's monitoring of
similarly violative activity on Cboe Options and C2 as described
herein, reflects a comprehensive surveillance program that is adequate
to monitor for manipulation of the underlying security within the
proposed three-day look back period. The Exchange notes certain of its
affiliated exchanges, Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc.,
Cboe EDGA Exchange, Inc., and Cboe EDGX Exchange, Inc., list stock for
trading and have surveillance programs in place that include cross-
market surveillance for trading not just limited to those exchanges.
The cross-market patters (sic) in those surveillance programs
incorporate relevant data from various markets beyond the Exchange and
its affiliates, including NYSE and Nasdaq.
---------------------------------------------------------------------------
\11\ Such surveillance procedures generally focus on detecting
securities trading subject to price manipulation, layering, spoofing
or other unlawful activity impacting an underlying security, the
option, or both. The Exchange and its affiliate C2, themselves or
through the Financial Industry Regulatory Authority (``FINRA''),
have price movement alerts, unusual market activity and order book
alerts active for all trading symbols.
---------------------------------------------------------------------------
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.\12\ 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 Rule 15c6-1(a) to adopt
the shortened settlement cycle,\13\ and the look back period of three
(3) 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 (3) business days) and
therefore the number of shareholders could be verified within three (3)
business days, thereby enabling options trading within four (4)
business days of an IPO (three (3) consecutive business days plus the
day the listing certificate is submitted to OCC).
---------------------------------------------------------------------------
\12\ The number of shareholders of record can be validated by
large clearing agencies such as T+2).
\13\ 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 T+2 after an IPO. For the foregoing reasons, the Exchange
believes that basing the proposed three (3) 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 criteria of Rule 5.3. Pursuant to Rule 5.3, the Exchange
establishes guidelines to be considered in evaluating the potential
underlying securities for Exchange option transactions.\14\ However,
the fact that a particular security may meet the guidelines established
by the Exchange does not necessarily mean that it will be approved as
an underlying security.\15\ As part of the established criteria, the
issuer must be in compliance with any applicable requirement of the
Securities Exchange Act of 1934.\16\ Additionally, in considering the
underlying security, the Exchange relies on information made publicly
available by the issuer and/or the markets in which the security is
traded.\17\ Even if the proposed option meets the objective criteria,
the Exchange may decide not to list, or place limitations or conditions
upon listing.\18\ The Exchange believes that these measures, together
with 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.
---------------------------------------------------------------------------
\14\ See Rule 5.3 (b) and Interpretation and Policy .01. The
Exchange established specific criteria to be considered in
evaluating potential underlying securities for Exchange option
transactions.
\15\ See Rule 5.3(b).
\16\ See Rule 5.3, Interpretation and Policy .01(a)(3).
\17\ See Rule 5.3, Interpretation and Policy .02.
\18\ See Rule 5.3, Interpretation and Policy .09.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\19\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \20\ 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. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \21\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(5).
\21\ Id.
---------------------------------------------------------------------------
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 surveillance
procedures provide a sufficient measure of protection against potential
price manipulation within the proposed three (3) consecutive business
day timeframe. The Exchange also believes that the proposed three (3)
consecutive business day timeframe would continue to be a reliable test
for price stability in light of Nasdaq's 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,\22\ 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.
---------------------------------------------------------------------------
\22\ See supra notes 14-18.
---------------------------------------------------------------------------
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.
[[Page 24375]]
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.\23\
---------------------------------------------------------------------------
\23\ 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.
---------------------------------------------------------------------------
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.\24\ 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.\25\
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.\26\ At the 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.\27\
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\24\ See Securities Exchange Act Release No. 29628 (August 29,
1991), 56 FR 43949-01 (September 5, 1991) (SR-AMEX-86-21; 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).
\25\ See 1991 Approval Order at 43949.
\26\ Id.
\27\ Id.
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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,\28\
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'').\29\ 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, Cboe Options is only proposing a modest reduction of the
current five (5) business day standard to three (3) business days to
correspond to the securities industry's move to a T+2 standard
settlement cycle.\30\ The $3.00 per share standard and all other
initial options listing criteria in Rule 5.3 will remain unchanged by
this proposal. For the reasons discussed herein, the Exchange therefore
believes that the proposed three (3) business day period will be
beneficial to the marketplace without sacrificing investor protections.
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\28\ 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).
\29\ 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).
\30\ See supra note 13.
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B. Self-Regulatory Organization's Statement on Burden on Competition
Cboe Options 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. In this regard and as
indicated above, the Exchange notes that the rule change is being
proposed as a competitive response to a filing submitted by Nasdaq Phlx
that was recently approved by the Commission.\31\ The proposed rule
change will reduce the number of days to list options on an underlying
security, and is intended to bring new options listings to the
marketplace quicker.
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\31\ See supra note 5.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
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 from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) \32\ of the Act and Rule 19b-
4(f)(6) thereunder.\33\
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\32\ 15 U.S.C. 78s(b)(3)(A).
\33\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and the text of the proposed rule change,
at least five business days prior to the date of filing of the
proposed rule change, or such shorter time as designated by the
Commission. The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \34\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \35\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay so that
the proposal may become operative immediately upon filing. As discussed
above, the Exchange notes that its proposal is consistent with rules of
other exchanges.\36\ Because the proposal does not raise any new or
novel issues, the Commission believes that waiver of the operative
delay is consistent with the protection of investors and the public
interest. Therefore, the Commission hereby waives the operative delay
and designates the proposal operative upon filing.\37\
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\34\ 17 CFR 240.19b-4(f)(6).
\35\ 17 CFR 240.19b-4(f)(6)(iii).
\36\ See supra note 6 and accompanying text.
\37\ 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: (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.
[[Page 24376]]
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-CBOE-2018-040 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-CBOE-2018-040. 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-CBOE-2018-040 and should be submitted on
or before June 15, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
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\38\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-11222 Filed 5-24-18; 8:45 am]
BILLING CODE 8011-01-P
