Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Accelerate the Listing of Options on Certain IPOs, 55489-55492 [2023-17444]

Download as PDF Federal Register / Vol. 88, No. 156 / Tuesday, August 15, 2023 / Notices Commission to waive the 30-day operative delay contained in Rule 19b– 4(f)(6)(iii).13 The Commission believes that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest as the proposal raises no new or novel issues. Accordingly, the Commission hereby waives the 30-day operative delay and designates the proposal operative upon filing.14 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: ddrumheller on DSK120RN23PROD with NOTICES1 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– BSECC–2023–001 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–BSECC–2023–001. 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 13 17 CFR 240.19b–4(f)(6)(iii). 14 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule change’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). VerDate Sep<11>2014 18:39 Aug 14, 2023 Jkt 259001 proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–BSECC–2023–001 and should be submitted on or before September 5, 2023. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–17442 Filed 8–14–23; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–98096; File No. SR–ISE– 2023–16] Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Accelerate the Listing of Options on Certain IPOs August 9, 2023. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on August 4, 2023, Nasdaq ISE, LLC (‘‘ISE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 15 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00053 Fmt 4703 Sfmt 4703 55489 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Options 4, Section 3, Criteria For Underlying Securities. The text of the proposed rule change is available on the Exchange’s website at https:// listingcenter.nasdaq.com/rulebook/ise/ rules, 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 Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend Options 4, Section 3, Criteria For Underlying Securities. ISE is proposing a listing rule change that is substantially similar in all material respects to the proposal approved for NYSE American LLC (‘‘NYSE American’’).3 Following discussions with other exchanges and a cross-section of industry participants and in coordination with the Listed Options Market Structure Working Group (‘‘LOMSWG’’) (collectively, the ‘‘Industry Working Group’’), NYSE American filed a proposed rule change,4 which was recently approved, to modify the standard for the listing and trading of options on ‘‘covered securities’’ to reduce the time to market in Rule 915 (Criteria for Underlying Securities). At this time, ISE proposes to adopt an identical rule. Proposal ISE Options 4, Section 3(b)(5) sets forth the guidelines to be considered in evaluating for option transactions 3 See Securities Exchange Act Release No. 98013 (July 27, 2023) 88 FR 50927 (August 2, 2023) (SR– NYSEAMER–2023–27) (Order Granting Approval of a Proposed Rule Change to Amend Rule 915 (Criteria for Underlying Securities) to Accelerate the Listing of Options on Certain IPO). 4 Id. E:\FR\FM\15AUN1.SGM 15AUN1 55490 Federal Register / Vol. 88, No. 156 / Tuesday, August 15, 2023 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 underlying securities that are ‘‘covered securities,’’ as defined in section 18(b)(1)(A) of the Securities Act of 1933 (hereinafter ‘‘covered security’’ or ‘‘covered securities’’).5 Currently, the Exchange permits the listing of an option on an underlying covered security that, amongst other things, has a market price of at least $3.00 per share for the previous three consecutive business days preceding the date on which the Exchange submits a certificate to The Options Clearing Corporation (‘‘OCC’’) to list and trade options on the underlying security (the ‘‘three-day lookback period’’).6 Under the current rule, if an initial public offering (‘‘IPO’’) occurs on a Monday, the earliest date the Exchange could submit its listing certificate to OCC would be on Thursday, with the market price determined by the closing price over the three-day lookback period from Monday through Wednesday. The option on the IPO’d security would then be eligible for trading on the Exchange on Friday (i.e., within four business days of the IPO inclusive of the day the listing certificate is submitted to OCC). The Exchange notes that the three-day lookback period helps ensure that options on underlying securities may be listed and traded in a timely manner while also allowing time for OCC to accommodate the certification request. However, there are certain large IPOs that issue high-priced securities—well above the $3.00 per share threshold— that would obviate the need for the three-day lookback period. In this regard, NYSE American noted in its rule change that the Industry Working Group identified proposed changes that would help options on covered securities that have a market capitalization of at least $3 billion based upon the offering price of its IPO come to market earlier.7 The proposed change, which is intended to be harmonized across options exchanges, is designed to provide investors the opportunity to hedge their interest in IPO investments in a shorter amount of time than what is currently permitted.8 The Exchange believes that 5 Options 4, Section 3(a) requires that, for underlying securities to be eligible for option transactions, such securities must be duly registered and be an ‘‘NMS stock’’ as defined in Rule 600 of Regulation NMS under the Act and will be characterized by a substantial number of outstanding shares which are widely held and actively traded. See Options 4, Section 3(a)(1) and (2). 6 See Options 4, Section 3(b)(5)(i). The Exchange is not proposing to make any changes to the guidelines for listing securities that are not a ‘‘covered security.’’ See Options 4, Section 3(b)(5)(ii). 7 See supra note 3. 8 While the Exchange acknowledges that market participants may utilize options for speculative VerDate Sep<11>2014 18:39 Aug 14, 2023 Jkt 259001 options serve a valuable tool to the trading community and help markets function efficiently by mitigating risk. To that end, the Exchange believes that the absence of options in the early days after an IPO may heighten volatility in the trading of IPO’d securities.9 Accordingly, the Exchange proposes to modify Options 4, Section 3 to waive the three-day lookback period for covered securities that have a market capitalization of at least $3 billion based upon the offering price of the IPO of such securities and to allow options on such securities to be listed and traded starting on or after the second business day following the initial public offering day (i.e., not inclusive of the day of the IPO).10 NYSE American noted in its rule change that it reviewed trading data for IPO’d securities dating back to 2017 and is unaware of any such security that achieved a market capitalization of $3 billion based upon the offering price of its IPO that would not have also qualified for listing options based on the three-day lookback requirement.11 Specifically, NYSE American stated in its rule change that it determined that 202 of the 1,179 IPOs that took place between January 1, 2017, and October 21, 2022, met the $3 billion market capitalization/IPO offering price threshold.12 Further, NYSE American stated that options on all 202 of those IPO shares subsequently satisfied the three-day lookback requirement for listing and trading, i.e., none of these large IPOs closed below the $3.00/share threshold during its first three days of its trading.13 As such, the Exchange believes the proposed capitalization threshold of $3 billion based upon the offering price of its IPO is appropriate. Under the proposed rule, if an IPO for a company with a market capitalization purposes (in addition to as a hedging tool), the Exchange believes (as set forth below) that its existing surveillance technologies and procedures adequately address potential violations of exchange rules and federal securities laws applicable to trading on the Exchange. 9 See proposed Options 4, Section 3(b)(5)(i)(B). The Exchange proposes a non-substantive change to number the existing and proposed criteria for covered securities as (A) and (B) of paragraph (b)(5)(i). See proposed Options 4, Section 3(b)(5)(i). 10 The Exchange acknowledges that the Options Listing Procedures Plan (or ‘‘OLPP’’) requires that the listing certificate be provided to OCC no earlier than 12:01 a.m. and no later than 11:00 a.m. (Chicago time) on the trading day prior to the day on which trading is to begin. See the OLPP, at p. 3, available here: https://www.theocc.com/ getmedia/198bfc93-5d51-443c-9e5b-fd575a0a7d0f/ options_listing_procedures_plan.pdf. The OLPP is a national market system plan that, among other things, sets forth procedures governing the listing of new options series. 11 See supra note 3. 12 See supra note 3. 13 See supra note 3. PO 00000 Frm 00054 Fmt 4703 Sfmt 4703 of $3 billion based upon the offering price of its IPO occurs on a Monday, the Exchange could submit its listing certificate to OCC (to list and trade options on the IPO’d security) as soon as all the other requirements for listing are satisfied. If, on Tuesday, all requirements are deemed satisfied, the IPO’d security could then be eligible for trading on the Exchange on Wednesday (i.e., starting on or after the second business day following the IPO day). Thus, the proposal could potentially accelerate the listing of options on IPO’d securities by two days. The Exchange believes the proposed change would allow options on IPO’d securities to come to market sooner without sacrificing investor protection. The Exchange represents that trading in IPO’d securities—like all other securities traded on the Exchange—is subject to surveillances administered by the Exchange and to cross-market surveillances administered by FINRA on behalf of the Exchange. Those surveillances are designed to detect violations of Exchange rules and applicable federal securities laws.14 The Exchange represents that those surveillances are adequate to reasonably monitor Exchange trading of IPO’d securities in all trading sessions and to reasonably deter and detect violations of Exchange rules and federal securities laws applicable to trading on the Exchange.15 As such, the Exchange believes that its existing surveillance technologies and procedures, coupled with its findings related to the IPOs reviewed as described herein, adequately address potential concerns regarding possible manipulation or price stability. Implementation The proposed rule change will become operative within six months following the approval of the proposed Rule change to coincide with implementation on other options exchanges. The Exchange will announce the effective date of the proposed change by an Options Trader Update. The Exchange will coordinate the effective date to coincide with the implementation of the proposed change on the other options exchanges. 2. Statutory Basis The Exchange believes that its proposal is consistent with section 6(b) 14 FINRA conducts cross-market surveillances on behalf of the Exchange pursuant to a regulatory services agreement. The Exchange is responsible for FINRA’s performance under this regulatory services agreement. 15 See supra note 8. E:\FR\FM\15AUN1.SGM 15AUN1 ddrumheller on DSK120RN23PROD with NOTICES1 Federal Register / Vol. 88, No. 156 / Tuesday, August 15, 2023 / Notices 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 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. In particular, the Exchange believes the proposed change would facilitate options transactions and would remove impediments to and perfect the mechanism of a free and open market and a national market system, which would, in turn, protect investors and the public interest by providing an avenue for options on IPO’d securities to come to market earlier. The Exchange notes that the three-day look back period helps ensure that options on underlying securities may be listed and traded in a timely manner while also allowing time for OCC to accommodate the certification request. However, there are certain large IPOs that issue high-priced securities—well above the $3.00 per share threshold—that would obviate the need for the three-day lookback period. As noted above, NYSE American noted that it reviewed trading data for IPO’d securities dating back to 2017 and was unaware of an IPO’d security with a market capitalization of $3 billion or more (based upon the offering price of its IPO) that subsequently would have failed to qualify for listing and trading as options under the three-day lookback requirement.18 The Exchange believes that the proposed amendment, which would be harmonized across options exchanges, would remove impediments to and perfect the mechanism of a free and open market and a national market system by providing an avenue for investors to hedge their interest in IPO investments in a shorter amount of time than what is currently permitted. The Exchange believes that options serve a valuable tool to the trading community and help markets function efficiently by mitigating risk. To that end, the Exchange believes that the absence of options in the early days after an IPO may heighten volatility to IPO’d securities.19 Further, as noted herein, the Exchange believes the proposed change U.S.C. 78f(b). U.S.C. 78f(b)(5). 18 See supra note 3. 19 See supra note 8. 17 15 18:39 Aug 14, 2023 B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange anticipates that the other options exchanges will adopt substantively similar proposals, such that there would be no burden on intermarket competition from the Exchange’s proposal. Accordingly, the proposed change is not meant to affect competition among the options exchanges. For these reasons, the Exchange believes that the proposed rule change reflects this competitive environment and does not impose any undue burden on intermarket competition. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. 20 FINRA conducts cross-market surveillances on behalf of the Exchange pursuant to a regulatory services agreement. The Exchange is responsible for FINRA’s performance under this regulatory services agreement. 16 15 VerDate Sep<11>2014 would allow options on IPO’d securities to come to market sooner (i.e., at least two business days post-IPO not inclusive of the day of the IPO) without sacrificing investor protection. The Exchange represents that trading in IPO’d securities—like all other securities traded on the Exchange—is subject to surveillances administered by the Exchange and to cross-market surveillances administered by FINRA on behalf of the Exchange. Those surveillances are designed to detect violations of Exchange rules and applicable federal securities laws.20 The Exchange represents that those surveillances are adequate to reasonably monitor Exchange trading of IPO’d securities in all trading sessions and to reasonably deter and detect violations of Exchange rules and federal securities laws applicable to trading on the Exchange, including wrongful efforts to manipulate the prices of those securities in order to bring them in compliance with the $3.00/share threshold for the listing of options. As such, the Exchange believes that its existing surveillance technologies and procedures, coupled with NYSE American’s findings related to the IPOs reviewed as described herein, would adequately address potential concerns regarding possible manipulation or price stability. Jkt 259001 PO 00000 Frm 00055 Fmt 4703 Sfmt 4703 55491 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days after the date of the filing, or such shorter time as the Commission may designate, it has become effective pursuant to section 19(b)(3)(A) of the Act 21 and Rule 19b– 4(f)(6) thereunder.22 A proposed rule change filed under Rule 19b–4(f)(6) 23 normally does not become operative prior to 30 days after the date of the filing. However, Rule 19b–4(f)(6)(iii) 24 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. The Exchange states that this proposed rule change is substantially similar in all material respects to a proposal submitted by NYSE American that was recently approved by the Commission.25 The Commission believes that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest because the proposed rule change does not raise any new or novel issues. The Exchange represents that it will coordinate the effective date to coincide with the implementation of the proposed change on the other options exchanges. Accordingly, the Commission hereby waives the 30-day operative delay and designates the proposed rule change as operative upon filing. 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 21 15 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 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. 23 Id. 24 17 CFR 240.19b–4(f)(6)(iii). 25 See supra note 3. 22 17 E:\FR\FM\15AUN1.SGM 15AUN1 55492 Federal Register / Vol. 88, No. 156 / Tuesday, August 15, 2023 / Notices 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– ISE–2023–16 on the subject line. ddrumheller on DSK120RN23PROD with NOTICES1 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–ISE–2023–16. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–ISE–2023–16 and should be submitted on or before September 5, 2023. VerDate Sep<11>2014 18:39 Aug 14, 2023 Jkt 259001 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–17444 Filed 8–14–23; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–98093; File No. SR–OCC– 2023–006] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Concerning Amendments to The Options Clearing Corporation’s Capital Management Policy and Cash and Investment Management Policy August 9, 2023. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on August 3, 2023, The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared primarily by OCC. OCC filed the proposed rule change pursuant to section 19(b)(3)(A)(i) of the Act 3 and Rule 19b–4(f)(1) thereunder,4 such that the proposed rule change was immediately effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change This proposed rule change would make certain administrative and clarifying amendments to OCC’s Capital Management Policy and Cash and Investment Management Policy. Specifically, the proposed changes would: (1) provide that Management will, at a minimum, review OCC’s fee schedule at each regularly scheduled Compensation and Performance Committee (‘‘CPC’’) meeting, consistent with recent updates to the OCC’s Board of Director (‘‘Board’’) and Board-level committee (‘‘Committee’’) charters, which require each Committee meet at 26 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(i). 4 17 CFR 240.19b–4(f)(1). PO 00000 Frm 00056 Fmt 4703 Sfmt 4703 least four times per year, rather than quarterly as the Capital Management Policy currently provides; (2) make certain other edits and additions to the Capital Management Policy for clarity and consistency with OCC’s other policies, and (3) amend the Cash and Investment Management Policy to better align the text of that policy to OCC Rules 604(a) and 1002(c), which provide separate treatment for cash deposited by Clearing Members in respect of margin requirements and Clearing Fund deposits, respectively. The proposed changes are included in confidential Exhibit 5 to File No. SR– OCC–2023–006. Material proposed to be added is underlined and material proposed to be deleted is marked in strikethrough text. All terms with initial capitalization that are not otherwise defined herein have the same meaning as set forth in OCC’s By-Laws and Rules.5 II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, OCC 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. OCC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of these statements. (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change As the sole clearing agency for standardized equity options listed on national securities exchanges registered with the Commission, and with respect to OCC’s clearance and settlement of futures and stock loan transactions, OCC maintains policies and procedures to manage the risks borne by OCC as a central counterparty. One such risk that OCC manages is general business risk— that is, the risk of potential impairment to OCC’s financial position resulting from a decline in revenues or an increase in expenses. In order to manage this risk and help to ensure that OCC can continue operations and services as a going concern if general business losses materialize, OCC has filed, and the Commission has approved,6 OCC’s 5 OCC’s current By-Laws and Rules can be found on OCC’s public website: https://www.theocc.com/ Company-Information/Documents-and-Archives/ By-Laws-and-Rules. 6 See Order Approving Proposed Rule Change to Establish OCC’s Persistent Minimum Skin-In-TheGame, Exchange Act Release No. 92038 (May 27, E:\FR\FM\15AUN1.SGM 15AUN1

Agencies

[Federal Register Volume 88, Number 156 (Tuesday, August 15, 2023)]
[Notices]
[Pages 55489-55492]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17444]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98096; File No. SR-ISE-2023-16]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Accelerate the 
Listing of Options on Certain IPOs

August 9, 2023.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 4, 2023, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II below, which Items have been 
prepared by the self-regulatory organization. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

    \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 Options 4, Section 3, Criteria For 
Underlying Securities. The text of the proposed rule change is 
available on the Exchange's website at https://listingcenter.nasdaq.com/rulebook/ise/rules, 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Options 4, Section 3, Criteria For 
Underlying Securities. ISE is proposing a listing rule change that is 
substantially similar in all material respects to the proposal approved 
for NYSE American LLC (``NYSE American'').\3\ Following discussions 
with other exchanges and a cross-section of industry participants and 
in coordination with the Listed Options Market Structure Working Group 
(``LOMSWG'') (collectively, the ``Industry Working Group''), NYSE 
American filed a proposed rule change,\4\ which was recently approved, 
to modify the standard for the listing and trading of options on 
``covered securities'' to reduce the time to market in Rule 915 
(Criteria for Underlying Securities). At this time, ISE proposes to 
adopt an identical rule.
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    \3\ See Securities Exchange Act Release No. 98013 (July 27, 
2023) 88 FR 50927 (August 2, 2023) (SR-NYSEAMER-2023-27) (Order 
Granting Approval of a Proposed Rule Change to Amend Rule 915 
(Criteria for Underlying Securities) to Accelerate the Listing of 
Options on Certain IPO).
    \4\ Id.
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Proposal
    ISE Options 4, Section 3(b)(5) sets forth the guidelines to be 
considered in evaluating for option transactions

[[Page 55490]]

underlying securities that are ``covered securities,'' as defined in 
section 18(b)(1)(A) of the Securities Act of 1933 (hereinafter 
``covered security'' or ``covered securities'').\5\ Currently, the 
Exchange permits the listing of an option on an underlying covered 
security that, amongst other things, has a market price of at least 
$3.00 per share for the previous three consecutive business days 
preceding the date on which the Exchange submits a certificate to The 
Options Clearing Corporation (``OCC'') to list and trade options on the 
underlying security (the ``three-day lookback period'').\6\ Under the 
current rule, if an initial public offering (``IPO'') occurs on a 
Monday, the earliest date the Exchange could submit its listing 
certificate to OCC would be on Thursday, with the market price 
determined by the closing price over the three-day lookback period from 
Monday through Wednesday. The option on the IPO'd security would then 
be eligible for trading on the Exchange on Friday (i.e., within four 
business days of the IPO inclusive of the day the listing certificate 
is submitted to OCC).
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    \5\ Options 4, Section 3(a) requires that, for underlying 
securities to be eligible for option transactions, such securities 
must be duly registered and be an ``NMS stock'' as defined in Rule 
600 of Regulation NMS under the Act and will be characterized by a 
substantial number of outstanding shares which are widely held and 
actively traded. See Options 4, Section 3(a)(1) and (2).
    \6\ See Options 4, Section 3(b)(5)(i). The Exchange is not 
proposing to make any changes to the guidelines for listing 
securities that are not a ``covered security.'' See Options 4, 
Section 3(b)(5)(ii).
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    The Exchange notes that the three-day lookback period helps ensure 
that options on underlying securities may be listed and traded in a 
timely manner while also allowing time for OCC to accommodate the 
certification request. However, there are certain large IPOs that issue 
high-priced securities--well above the $3.00 per share threshold--that 
would obviate the need for the three-day lookback period. In this 
regard, NYSE American noted in its rule change that the Industry 
Working Group identified proposed changes that would help options on 
covered securities that have a market capitalization of at least $3 
billion based upon the offering price of its IPO come to market 
earlier.\7\ The proposed change, which is intended to be harmonized 
across options exchanges, is designed to provide investors the 
opportunity to hedge their interest in IPO investments in a shorter 
amount of time than what is currently permitted.\8\ The Exchange 
believes that options serve a valuable tool to the trading community 
and help markets function efficiently by mitigating risk. To that end, 
the Exchange believes that the absence of options in the early days 
after an IPO may heighten volatility in the trading of IPO'd 
securities.\9\
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    \7\ See supra note 3.
    \8\ While the Exchange acknowledges that market participants may 
utilize options for speculative purposes (in addition to as a 
hedging tool), the Exchange believes (as set forth below) that its 
existing surveillance technologies and procedures adequately address 
potential violations of exchange rules and federal securities laws 
applicable to trading on the Exchange.
    \9\ See proposed Options 4, Section 3(b)(5)(i)(B). The Exchange 
proposes a non-substantive change to number the existing and 
proposed criteria for covered securities as (A) and (B) of paragraph 
(b)(5)(i). See proposed Options 4, Section 3(b)(5)(i).
---------------------------------------------------------------------------

    Accordingly, the Exchange proposes to modify Options 4, Section 3 
to waive the three-day lookback period for covered securities that have 
a market capitalization of at least $3 billion based upon the offering 
price of the IPO of such securities and to allow options on such 
securities to be listed and traded starting on or after the second 
business day following the initial public offering day (i.e., not 
inclusive of the day of the IPO).\10\ NYSE American noted in its rule 
change that it reviewed trading data for IPO'd securities dating back 
to 2017 and is unaware of any such security that achieved a market 
capitalization of $3 billion based upon the offering price of its IPO 
that would not have also qualified for listing options based on the 
three-day lookback requirement.\11\ Specifically, NYSE American stated 
in its rule change that it determined that 202 of the 1,179 IPOs that 
took place between January 1, 2017, and October 21, 2022, met the $3 
billion market capitalization/IPO offering price threshold.\12\ 
Further, NYSE American stated that options on all 202 of those IPO 
shares subsequently satisfied the three-day lookback requirement for 
listing and trading, i.e., none of these large IPOs closed below the 
$3.00/share threshold during its first three days of its trading.\13\ 
As such, the Exchange believes the proposed capitalization threshold of 
$3 billion based upon the offering price of its IPO is appropriate.
---------------------------------------------------------------------------

    \10\ The Exchange acknowledges that the Options Listing 
Procedures Plan (or ``OLPP'') requires that the listing certificate 
be provided to OCC no earlier than 12:01 a.m. and no later than 
11:00 a.m. (Chicago time) on the trading day prior to the day on 
which trading is to begin. See the OLPP, at p. 3, available here: 
https://www.theocc.com/getmedia/198bfc93-5d51-443c-9e5b-fd575a0a7d0f/options_listing_procedures_plan.pdf. The OLPP is a 
national market system plan that, among other things, sets forth 
procedures governing the listing of new options series.
    \11\ See supra note 3.
    \12\ See supra note 3.
    \13\ See supra note 3.
---------------------------------------------------------------------------

    Under the proposed rule, if an IPO for a company with a market 
capitalization of $3 billion based upon the offering price of its IPO 
occurs on a Monday, the Exchange could submit its listing certificate 
to OCC (to list and trade options on the IPO'd security) as soon as all 
the other requirements for listing are satisfied. If, on Tuesday, all 
requirements are deemed satisfied, the IPO'd security could then be 
eligible for trading on the Exchange on Wednesday (i.e., starting on or 
after the second business day following the IPO day). Thus, the 
proposal could potentially accelerate the listing of options on IPO'd 
securities by two days.
    The Exchange believes the proposed change would allow options on 
IPO'd securities to come to market sooner without sacrificing investor 
protection. The Exchange represents that trading in IPO'd securities--
like all other securities traded on the Exchange--is subject to 
surveillances administered by the Exchange and to cross-market 
surveillances administered by FINRA on behalf of the Exchange. Those 
surveillances are designed to detect violations of Exchange rules and 
applicable federal securities laws.\14\ The Exchange represents that 
those surveillances are adequate to reasonably monitor Exchange trading 
of IPO'd securities in all trading sessions and to reasonably deter and 
detect violations of Exchange rules and federal securities laws 
applicable to trading on the Exchange.\15\ As such, the Exchange 
believes that its existing surveillance technologies and procedures, 
coupled with its findings related to the IPOs reviewed as described 
herein, adequately address potential concerns regarding possible 
manipulation or price stability.
---------------------------------------------------------------------------

    \14\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
    \15\ See supra note 8.
---------------------------------------------------------------------------

Implementation
    The proposed rule change will become operative within six months 
following the approval of the proposed Rule change to coincide with 
implementation on other options exchanges. The Exchange will announce 
the effective date of the proposed change by an Options Trader Update. 
The Exchange will coordinate the effective date to coincide with the 
implementation of the proposed change on the other options exchanges.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b)

[[Page 55491]]

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 
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.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In particular, the Exchange believes the proposed change would 
facilitate options transactions and would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, which would, in turn, protect investors and the public interest 
by providing an avenue for options on IPO'd securities to come to 
market earlier. The Exchange notes that the three-day look back period 
helps ensure that options on underlying securities may be listed and 
traded in a timely manner while also allowing time for OCC to 
accommodate the certification request. However, there are certain large 
IPOs that issue high-priced securities--well above the $3.00 per share 
threshold--that would obviate the need for the three-day lookback 
period. As noted above, NYSE American noted that it reviewed trading 
data for IPO'd securities dating back to 2017 and was unaware of an 
IPO'd security with a market capitalization of $3 billion or more 
(based upon the offering price of its IPO) that subsequently would have 
failed to qualify for listing and trading as options under the three-
day lookback requirement.\18\ The Exchange believes that the proposed 
amendment, which would be harmonized across options exchanges, would 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system by providing an avenue for 
investors to hedge their interest in IPO investments in a shorter 
amount of time than what is currently permitted. The Exchange believes 
that options serve a valuable tool to the trading community and help 
markets function efficiently by mitigating risk. To that end, the 
Exchange believes that the absence of options in the early days after 
an IPO may heighten volatility to IPO'd securities.\19\
---------------------------------------------------------------------------

    \18\ See supra note 3.
    \19\ See supra note 8.
---------------------------------------------------------------------------

    Further, as noted herein, the Exchange believes the proposed change 
would allow options on IPO'd securities to come to market sooner (i.e., 
at least two business days post-IPO not inclusive of the day of the 
IPO) without sacrificing investor protection. The Exchange represents 
that trading in IPO'd securities--like all other securities traded on 
the Exchange--is subject to surveillances administered by the Exchange 
and to cross-market surveillances administered by FINRA on behalf of 
the Exchange. Those surveillances are designed to detect violations of 
Exchange rules and applicable federal securities laws.\20\ The Exchange 
represents that those surveillances are adequate to reasonably monitor 
Exchange trading of IPO'd securities in all trading sessions and to 
reasonably deter and detect violations of Exchange rules and federal 
securities laws applicable to trading on the Exchange, including 
wrongful efforts to manipulate the prices of those securities in order 
to bring them in compliance with the $3.00/share threshold for the 
listing of options. As such, the Exchange believes that its existing 
surveillance technologies and procedures, coupled with NYSE American's 
findings related to the IPOs reviewed as described herein, would 
adequately address potential concerns regarding possible manipulation 
or price stability.
---------------------------------------------------------------------------

    \20\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange anticipates 
that the other options exchanges will adopt substantively similar 
proposals, such that there would be no burden on intermarket 
competition from the Exchange's proposal. Accordingly, the proposed 
change is not meant to affect competition among the options exchanges. 
For these reasons, the Exchange believes that the proposed rule change 
reflects this competitive environment and does not impose any undue 
burden on intermarket competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to section 19(b)(3)(A) of the Act \21\ and Rule 19b-4(f)(6) 
thereunder.\22\
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 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 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.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \23\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, Rule 19b-4(f)(6)(iii) \24\ 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. The Exchange states that 
this proposed rule change is substantially similar in all material 
respects to a proposal submitted by NYSE American that was recently 
approved by the Commission.\25\ The Commission believes that waiver of 
the 30-day operative delay is consistent with the protection of 
investors and the public interest because the proposed rule change does 
not raise any new or novel issues. The Exchange represents that it will 
coordinate the effective date to coincide with the implementation of 
the proposed change on the other options exchanges. Accordingly, the 
Commission hereby waives the 30-day operative delay and designates the 
proposed rule change as operative upon filing.
---------------------------------------------------------------------------

    \23\ Id.
    \24\ 17 CFR 240.19b-4(f)(6)(iii).
    \25\ See supra note 3.
---------------------------------------------------------------------------

    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

[[Page 55492]]

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-ISE-2023-16 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-ISE-2023-16. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-ISE-2023-16 and should be 
submitted on or before September 5, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
---------------------------------------------------------------------------

    \26\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17444 Filed 8-14-23; 8:45 am]
BILLING CODE 8011-01-P
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