Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 5.3-O (Criteria for Underlying Securities) To Accelerate the Listing of Options on Certain IPOs, 63993-63996 [2023-20078]

Download as PDF lotter on DSK11XQN23PROD with NOTICES1 Federal Register / Vol. 88, No. 179 / Monday, September 18, 2023 / Notices Although the proposed amendments to Rule G–3 and Rule G–8 would benefit, and be applied equally to, all individuals seeking to associate with municipal advisor firms and all such municipal advisor firms, the Commission believes that there are potential burdens on competition for small municipal advisor firms, and solopractitioners in particular. However, as described below, the Commission believes that these potential burdens are mitigated. First, the Commission believes that there is a potential burden on competition for solo-practitioners looking to establish a municipal advisor firm because, unlike larger firms, such solo-practitioners may not have developed CE materials addressing all of the prescribed subject matters necessary to meet the exemption’s CE requirements. However, the Commission believes that this potential burden is mitigated because the MSRB has indicated that such firms would be able to utilize ‘‘off-the-shelf content’’ or widely available industry educational materials (to the extent such materials meet the requirements set forth in the proposed rule change), which would be a less burdensome approach than creating new CE materials.103 The MSRB noted that sources of such educational materials may include industry trade associations, in addition to podcasts, webinars, and educational materials developed by the MSRB.104 Second, the Commission believes that there is a potential burden on competition for solo-practitioners and smaller municipal advisory firms because the new, criteria-based exemption would not extend to those seeking to associate and function in a municipal advisor principal capacity and, as noted above, Rule G–3(e)(iii) requires every municipal advisor firm to have at least one municipal advisor principal. Accordingly, individuals seeking to act as a municipal advisor principal (e.g., a solo-practitioner) would still have to take and pass the Series 54 examination in order to engage in principal-level activities. As a result, although all firms would benefit from the proposed rule change for municipal advisor representatives, smaller municipal advisor firms and solopractitioners in particular may experience a smaller benefit than larger municipal advisor firms. The Commission believes that this potential burden is mitigated, however, because the MSRB has indicated that current Rule G–3(e)(ii)(C) permits solo103 Notice, 104 Id. 88 FR at 49537. at 49537 n.43. VerDate Sep<11>2014 18:29 Sep 15, 2023 Jkt 259001 practitioners (or individuals associating or reassociating with a firm and designated as a principal) who are qualified as municipal advisor representatives to function as municipal advisor principals for up to 120 days before having to take and pass the Series 54 examination.105 The MSRB noted that, in concert with the proposed rule change, these provisions would allow such individuals to start their own firm, requalify as municipal securities representatives without reexamination, and then qualify as municipal advisor principals.106 As a result, all such persons, including those persons seeking to be solo-practitioners and seeking to associate with small (or larger) municipal advisor firms would be able to function in the principal-level capacity for several months before having to take and pass the Series 54 examination.107 Ultimately, municipal advisor principals are subject to additional regulatory standards given their supervisory, oversight, and management duties. The process of reexamination for municipal advisor principals helps to ensure that the specified level of competency and knowledge of the applicable securities laws and regulations, including MSRB rules, is sufficiently demonstrated. For the foregoing reasons, the Commission finds that, consistent with Sections 15B(b)(2)(C) and 15B(b)(2)(L)(iv) of the Act, the proposed rule change would not impact or impose any additional burdens on efficiency, competition, or capital formation that are not necessary or appropriate in furtherance of the purposes of the Act. As noted above, the Commission received one comment letter on the filing. The Commission believes that the MSRB, through its response, addressed the commenter’s concerns. For the reasons noted above, the Commission believes that the proposed rule change is consistent with the Exchange Act. 105 Id. at 49534 n.29; MSRB Letter at 3. 88 FR at 49534 n.29. 107 The Commission believes this potential burden may also be mitigated, in part, because the MSRB represented that it anticipates publishing a compliance resource in close proximity to the compliance date of the rule which would highlight the regulatory obligations for municipal advisors (and dealers) with respect to professional qualification standards, CE requirements, and related registration matters. See id. at 49538; MSRB Letter at 3. In addition, in the Notice itself, the MSRB addressed the timing and sequence of satisfying the exemption’s criteria, the filing of SEC Form MA–I (and SEC Form MA, as applicable), and the submission of the affirmation notification to the MSRB, including for solo-practitioners. See Notice, 88 FR at 49532–33; MSRB Letter at 2–3. 106 Notice, PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 63993 V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Exchange Act,108 that the proposed rule change (SR– MSRB–2023–05) be, and hereby is, approved. For the Commission, pursuant to delegated authority.109 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–20077 Filed 9–15–23; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–98355; File No. SR– NYSEARCA–2023–61] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 5.3–O (Criteria for Underlying Securities) To Accelerate the Listing of Options on Certain IPOs September 12, 2023. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on August 31, 2023, NYSE Arca, Inc. (‘‘NYSE Arca’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 5.3–O (Criteria for Underlying Securities). The proposed rule change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received 108 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 109 17 E:\FR\FM\18SEN1.SGM 18SEN1 63994 Federal Register / Vol. 88, No. 179 / Monday, September 18, 2023 / Notices on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change lotter on DSK11XQN23PROD with NOTICES1 1. Purpose The purpose of the proposed rule change is to amend Rule 5.3–O (Criteria for Underlying Securities) (Criteria for Underlying Securities) (the ‘‘Rule’’). The Exchange is proposing a listing rule change that is substantially similar in all material respects to the proposal approved for NYSE American LLC (‘‘NYSE American’’).4 Following discussions with other exchanges and a cross-section of industry participants and in coordination with the Listed Options Market Structure Working Group (‘‘LOMSWG’’) (collectively, the ‘‘Industry Working Group’’), NYSE American filed a proposed rule change, which was recently approved, to modify the standard for the listing and trading of options on ‘‘covered securities’’ to reduce the time to market in Rule 915 (Criteria for Underlying Securities).5 At this time, the Exchange proposes to adopt an identical rule. Rule 5.3–O(a) sets forth the guidelines to be considered in evaluating for option transactions underlying securities that are ‘‘covered securities,’’ as defined in Section 18(b)(1)(A) of the Securities Act of 1933 (hereinafter ‘‘covered security’’ or ‘‘covered securities’’).6 Currently, the Exchange permits the listing of an option on an underlying covered security that, amongst other things, has a market price of at least $3.00 per share for the previous three consecutive business days preceding the date on which the Exchange submits a certificate to The Options Clearing Corporation (‘‘OCC’’) to list and trade options on the underlying security (the 4 See Securities Exchange Act Release No. 98013 (July 27, 2023) 88 FR 50927 (August 2, 2023) (SR– NYSEAMER–2023–27) (Order Granting Approval of a Proposed Rule Change to Amend Rule 915 (Criteria for Underlying Securities) to Accelerate the Listing of Options on Certain IPO). 5 See id. See NYSE American Rule 915, Commentary .01(4)(a)(ii). 6 Rule 5.3–O requires that, for underlying securities to be eligible for option transactions, such securities must be duly registered and be an ‘‘NMS stock’’ as defined in Rule 600 of Regulation NMS under the Act and will be characterized by a substantial number of outstanding shares which are widely held and actively traded. See Rule 5.3– O(a)—(b). VerDate Sep<11>2014 18:29 Sep 15, 2023 Jkt 259001 ‘‘three-day lookback period’’).7 Under the current rule, if an initial public offering (‘‘IPO’’) occurs on a Monday, the earliest date the Exchange could submit its listing certificate to OCC would be on Thursday, with the market price determined by the closing price over the three-day lookback period from Monday through Wednesday. The option on the IPO’d security would then be eligible for trading on the Exchange on Friday (i.e., within four business days of the IPO inclusive of the day the listing certificate is submitted to OCC). The Exchange notes that the three-day look back period helps ensure that options on underlying securities may be listed and traded in a timely manner while also allowing time for OCC to accommodate the certification request. However, there are certain large IPOs that issue high-priced securities—well above the $3.00 per share threshold— that would obviate the need for the three-day lookback period. In this regard, NYSE American noted in its rule change that the Industry Working Group has recently identified proposed changes that would help options on covered securities that have a market capitalization of at least $3 billion based upon the offering price of its IPO come to market earlier.8 The proposed change, which is intended to be harmonized across options exchanges, is designed to provide investors the opportunity to hedge their interest in IPO investments in a shorter amount of time than what is currently permitted.9 The Exchange believes that options serve a valuable tool to the trading community and help markets function efficiently by mitigating risk. To that end, the Exchange believes that the absence of options in the early days after an IPO may heighten volatility in the trading of IPO’d securities.10 7 See Rule 5.3–O (a)(4)(A). The Exchange is not proposing to make any changes to the guidelines for listing securities that are not a ‘‘covered security.’’ See Rule 5.3–O (a)(4)(B). 8 See supra note 4. 9 While the Exchange acknowledges that market participants may utilize options for speculative purposes (in addition to as a hedging tool), the Exchange believes (as set forth below) that its existing surveillance technologies and procedures adequately address potential violations of exchange rules and federal securities laws applicable to trading on the Exchange. 10 See proposed Rule 5.3–O(a)(4)(A)(ii). To align the proposed rule with NYSE American Rule 915, the Exchange proposes two non-substantive changes: first, to number the existing and proposed criteria for covered securities as (i) and (ii) of paragraph (a)(4)(A); second, to delete nowextraneous text from proposed paragraph (a)(4)(A)(i), each of which change would add clarity and transparency to Exchange rules. See proposed Rule 5.3–O (a)(4)(A)(i). See also NYSE American Rule 915, Commentary .01(4)(a)(i). PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 Accordingly, the Exchange proposes to modify Rule 5.3–O to waive the threeday lookback period for covered securities that have a market capitalization of at least $3 billion based upon the offering price of the IPO of such securities and to allow options on such securities to be listed and traded starting on or after the second business day following the initial public offering day (i.e., not inclusive of the day of the IPO).11 NYSE American noted in its rule change that it reviewed trading data for IPO’d securities dating back to 2017 and is unaware of any such security that achieved a market capitalization of $3 billion based upon the offering price of its IPO that would not have also qualified for listing options based on the three-day lookback requirement.12 Specifically, NYSE American stated in its rule change that it determined that 202 of the 1,179 IPOs that took place between January 1, 2017, and October 21, 2022, met the $3 billion market capitalization/IPO offering price threshold. Options on all 202 of those IPO shares subsequently satisfied the three-day lookback requirement for listing and trading, i.e., none of these large IPOs closed below the $3.00/share threshold during its first three days of its trading.13 As such, the Exchange believes the proposed capitalization threshold of $3 billion based upon the offering price of its IPO is appropriate. 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 11 The Exchange acknowledges that the Options Listing Procedures Plan (or ‘‘OLPP’’) requires that the listing certificate be provided to OCC no earlier than 12:01 a.m. and no later than 11:00 a.m. (Chicago time) on the trading day prior to the day on which trading is to begin. See the OLPP, at p. 3., available here: https://www.theocc.com/ getmedia/198bfc93-5d51-443c-9e5b-fd575a0a7d0f/ options_listing_procedures_plan.pdf. The OLPP is a national market system plan that, among other things, sets forth procedures governing the listing of new options series. 12 See supra note 4. 13 See supra note 4. E:\FR\FM\18SEN1.SGM 18SEN1 Federal Register / Vol. 88, No. 179 / Monday, September 18, 2023 / Notices 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 Date The Exchange will announce the effective date of the proposed change by Trader Update distributed to all OTP Holders, which will be no later than sixty-days after the effective date of this proposal.16 lotter on DSK11XQN23PROD with NOTICES1 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.17 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 18 requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and 14 FINRA conducts cross-market surveillances on behalf of the Exchange pursuant to a regulatory services agreement. The Exchange is responsible for FINRA’s performance under this regulatory services agreement. 15 See supra note 9. 16 An ‘‘OTP Holder’’ refers to a natural person, sole proprietorship, partnership, corporation, limited liability company or other organization, in good standing that has been issued an ATP. See Rule 1.1. An ‘‘OTP’’ is an Options Trading Permit issued by the Exchange for effecting approved securities transactions on the Exchange. See id. 17 15 U.S.C. 78f(b). 18 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 18:29 Sep 15, 2023 Jkt 259001 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 is unaware of an IPO’d security with a market capitalization of $3 billion or more (based upon the offering price of its IPO) that subsequently would have failed to qualify for listing and trading as options under the three-day lookback requirement. The Exchange believes that the proposed amendment, which would be harmonized across options exchanges, would remove impediments to and perfect the mechanism of a free and open market and a national market system by providing an avenue for investors to hedge their interest in IPO investments in a shorter amount of time than what is currently permitted. The Exchange believes that options serve a valuable tool to the trading community and help markets function efficiently by mitigating risk. To that end, the Exchange believes that the absence of options in the early days after an IPO may heighten volatility to IPO’d securities.19 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 19 See PO 00000 supra note 9. Frm 00067 Fmt 4703 Sfmt 4703 63995 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. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange anticipates that the other options exchanges will adopt substantively similar proposals, such that there would be no burden on intermarket competition from the Exchange’s proposal. Accordingly, the proposed change is not meant to affect competition among the options exchanges. For these reasons, the Exchange believes that the proposed rule change reflects this competitive environment and does not impose any undue burden on intermarket competition. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 21 and Rule 19b–4(f)(6) thereunder.22 Because the proposed rule change does not: (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on 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. 21 15 U.S.C. 78s(b)(3)(A)(iii). 22 17 CFR 240.19b–4(f)(6). E:\FR\FM\18SEN1.SGM 18SEN1 63996 Federal Register / Vol. 88, No. 179 / Monday, September 18, 2023 / Notices competition; and (iii) become operative prior to 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b–4(f)(6)(iii) thereunder. A proposed rule change filed under Rule 19b–4(f)(6) 23 normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b4(f)(6)(iii),24 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Exchange requested the waiver, stating that the proposal harmonizes its rules to those of NYSE American to ensure fair competition among the options exchanges. Further, the proposed change would allow options on IPO’d securities to come to market sooner (i.e., at least two business days post-IPO not inclusive of the day of the IPO) without sacrificing investor protection. For these reasons, and because the proposed rule change does not raise any novel legal or regulatory issues, the Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. Therefore, the Commission hereby waives the 30-day operative delay and designates the proposal operative upon filing.25 At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 26 of the Act to determine whether the proposed rule change should be approved or disapproved. lotter on DSK11XQN23PROD with NOTICES1 IV. Solicitation of Comments Interested persons are invited to submit written data, views and 23 17 CFR 240.19b–4(f)(6). CFR 240.19b–4(f)(6)(iii). 25 For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 26 15 U.S.C. 78s(b)(2)(B). 24 17 VerDate Sep<11>2014 18:29 Sep 15, 2023 Jkt 259001 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. 2023–20078 Filed 9–15–23; 8:45 am] Electronic Comments BILLING CODE 8011–01–P • 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– NYSEARCA–2023–61 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to file number SR–NYSEARCA–2023–61. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–NYSEARCA–2023–61 and should be submitted on or before October 10, 2023. PO 00000 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.27 Sherry R. Haywood, Assistant Secretary. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–98361; File No. SR–MIAX– 2023–33] Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fee Schedule September 12, 2023 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 August 31, 2023, Miami International Securities Exchange, LLC (‘‘MIAX’’ or ‘‘Exchange’’) 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 selfregulatory organization. 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 is filing a proposal to amend the MIAX Fee Schedule (‘‘Fee Schedule’’). The text of the proposed rule change is available on the Exchange’s website at https://www.miaxglobal.com/markets/ us-options/miax-options/rule-filings, at MIAX’s principal office, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of 27 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 Frm 00068 Fmt 4703 Sfmt 4703 E:\FR\FM\18SEN1.SGM 18SEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 88, Number 179 (Monday, September 18, 2023)]
[Notices]
[Pages 63993-63996]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-20078]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98355; File No. SR-NYSEARCA-2023-61]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 
5.3-O (Criteria for Underlying Securities) To Accelerate the Listing of 
Options on Certain IPOs

September 12, 2023.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on August 31, 2023, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 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 Rule 5.3-O (Criteria for Underlying 
Securities). The proposed rule change is available on the Exchange's 
website at www.nyse.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received

[[Page 63994]]

on the proposed rule change. The text of those statements may be 
examined at the places specified in Item IV below. The Exchange has 
prepared summaries, set forth in sections A, B, and C below, of the 
most significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend Rule 5.3-O 
(Criteria for Underlying Securities) (Criteria for Underlying 
Securities) (the ``Rule''). The Exchange is proposing a listing rule 
change that is substantially similar in all material respects to the 
proposal approved for NYSE American LLC (``NYSE American'').\4\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 98013 (July 27, 
2023) 88 FR 50927 (August 2, 2023) (SR-NYSEAMER-2023-27) (Order 
Granting Approval of a Proposed Rule Change to Amend Rule 915 
(Criteria for Underlying Securities) to Accelerate the Listing of 
Options on Certain IPO).
---------------------------------------------------------------------------

    Following discussions with other exchanges and a cross-section of 
industry participants and in coordination with the Listed Options 
Market Structure Working Group (``LOMSWG'') (collectively, the 
``Industry Working Group''), NYSE American filed a proposed rule 
change, which was recently approved, to modify the standard for the 
listing and trading of options on ``covered securities'' to reduce the 
time to market in Rule 915 (Criteria for Underlying Securities).\5\ At 
this time, the Exchange proposes to adopt an identical rule.
---------------------------------------------------------------------------

    \5\ See id. See NYSE American Rule 915, Commentary 
.01(4)(a)(ii).
---------------------------------------------------------------------------

    Rule 5.3-O(a) sets forth the guidelines to be considered in 
evaluating for option transactions underlying securities that are 
``covered securities,'' as defined in Section 18(b)(1)(A) of the 
Securities Act of 1933 (hereinafter ``covered security'' or ``covered 
securities'').\6\ Currently, the Exchange permits the listing of an 
option on an underlying covered security that, amongst other things, 
has a market price of at least $3.00 per share for the previous three 
consecutive business days preceding the date on which the Exchange 
submits a certificate to The Options Clearing Corporation (``OCC'') to 
list and trade options on the underlying security (the ``three-day 
lookback period'').\7\ Under the current rule, if an initial public 
offering (``IPO'') occurs on a Monday, the earliest date the Exchange 
could submit its listing certificate to OCC would be on Thursday, with 
the market price determined by the closing price over the three-day 
lookback period from Monday through Wednesday. The option on the IPO'd 
security would then be eligible for trading on the Exchange on Friday 
(i.e., within four business days of the IPO inclusive of the day the 
listing certificate is submitted to OCC).
---------------------------------------------------------------------------

    \6\ Rule 5.3-O requires that, for underlying securities to be 
eligible for option transactions, such securities must be duly 
registered and be an ``NMS stock'' as defined in Rule 600 of 
Regulation NMS under the Act and will be characterized by a 
substantial number of outstanding shares which are widely held and 
actively traded. See Rule 5.3-O(a)--(b).
    \7\ See Rule 5.3-O (a)(4)(A). The Exchange is not proposing to 
make any changes to the guidelines for listing securities that are 
not a ``covered security.'' See Rule 5.3-O (a)(4)(B).
---------------------------------------------------------------------------

    The Exchange notes that the three-day look back period helps ensure 
that options on underlying securities may be listed and traded in a 
timely manner while also allowing time for OCC to accommodate the 
certification request. However, there are certain large IPOs that issue 
high-priced securities--well above the $3.00 per share threshold--that 
would obviate the need for the three-day lookback period. In this 
regard, NYSE American noted in its rule change that the Industry 
Working Group has recently identified proposed changes that would help 
options on covered securities that have a market capitalization of at 
least $3 billion based upon the offering price of its IPO come to 
market earlier.\8\ The proposed change, which is intended to be 
harmonized across options exchanges, is designed to provide investors 
the opportunity to hedge their interest in IPO investments in a shorter 
amount of time than what is currently permitted.\9\ The Exchange 
believes that options serve a valuable tool to the trading community 
and help markets function efficiently by mitigating risk. To that end, 
the Exchange believes that the absence of options in the early days 
after an IPO may heighten volatility in the trading of IPO'd 
securities.\10\
---------------------------------------------------------------------------

    \8\ See supra note 4.
    \9\ While the Exchange acknowledges that market participants may 
utilize options for speculative purposes (in addition to as a 
hedging tool), the Exchange believes (as set forth below) that its 
existing surveillance technologies and procedures adequately address 
potential violations of exchange rules and federal securities laws 
applicable to trading on the Exchange.
    \10\ See proposed Rule 5.3-O(a)(4)(A)(ii). To align the proposed 
rule with NYSE American Rule 915, the Exchange proposes two non-
substantive changes: first, to number the existing and proposed 
criteria for covered securities as (i) and (ii) of paragraph 
(a)(4)(A); second, to delete now-extraneous text from proposed 
paragraph (a)(4)(A)(i), each of which change would add clarity and 
transparency to Exchange rules. See proposed Rule 5.3-O 
(a)(4)(A)(i). See also NYSE American Rule 915, Commentary 
.01(4)(a)(i).
---------------------------------------------------------------------------

    Accordingly, the Exchange proposes to modify Rule 5.3-O to waive 
the three-day lookback period for covered securities that have a market 
capitalization of at least $3 billion based upon the offering price of 
the IPO of such securities and to allow options on such securities to 
be listed and traded starting on or after the second business day 
following the initial public offering day (i.e., not inclusive of the 
day of the IPO).\11\ NYSE American noted in its rule change that it 
reviewed trading data for IPO'd securities dating back to 2017 and is 
unaware of any such security that achieved a market capitalization of 
$3 billion based upon the offering price of its IPO that would not have 
also qualified for listing options based on the three-day lookback 
requirement.\12\ Specifically, NYSE American stated in its rule change 
that it determined that 202 of the 1,179 IPOs that took place between 
January 1, 2017, and October 21, 2022, met the $3 billion market 
capitalization/IPO offering price threshold. Options on all 202 of 
those IPO shares subsequently satisfied the three-day lookback 
requirement for listing and trading, i.e., none of these large IPOs 
closed below the $3.00/share threshold during its first three days of 
its trading.\13\ As such, the Exchange believes the proposed 
capitalization threshold of $3 billion based upon the offering price of 
its IPO is appropriate.
---------------------------------------------------------------------------

    \11\ The Exchange acknowledges that the Options Listing 
Procedures Plan (or ``OLPP'') requires that the listing certificate 
be provided to OCC no earlier than 12:01 a.m. and no later than 
11:00 a.m. (Chicago time) on the trading day prior to the day on 
which trading is to begin. See the OLPP, at p. 3., available here: 
https://www.theocc.com/getmedia/198bfc93-5d51-443c-9e5b-fd575a0a7d0f/options_listing_procedures_plan.pdf. The OLPP is a 
national market system plan that, among other things, sets forth 
procedures governing the listing of new options series.
    \12\ See supra note 4.
    \13\ See supra note 4.
---------------------------------------------------------------------------

    Under the proposed rule, if an IPO for a company with a market 
capitalization of $3 billion based upon the offering price of its IPO 
occurs on a Monday, the Exchange could submit its listing certificate 
to OCC (to list and trade options on the IPO'd security) as soon as all 
the other requirements for listing are satisfied. If, on Tuesday, all 
requirements are deemed satisfied, the IPO'd security could then be 
eligible for trading on the Exchange on Wednesday (i.e., starting on or 
after the second business day following the IPO day). Thus, the 
proposal could potentially accelerate the listing of options on IPO'd 
securities by two days.
    The Exchange believes the proposed change would allow options on 
IPO'd securities to come to market sooner

[[Page 63995]]

without sacrificing investor protection. The Exchange represents that 
trading in IPO'd securities--like all other securities traded on the 
Exchange--is subject to surveillances administered by the Exchange and 
to cross-market surveillances administered by FINRA on behalf of the 
Exchange. Those surveillances are designed to detect violations of 
Exchange rules and applicable federal securities laws.\14\ The Exchange 
represents that those surveillances are adequate to reasonably monitor 
Exchange trading of IPO'd securities in all trading sessions and to 
reasonably deter and detect violations of Exchange rules and federal 
securities laws applicable to trading on the Exchange.\15\ As such, the 
Exchange believes that its existing surveillance technologies and 
procedures, coupled with its findings related to the IPOs reviewed as 
described herein, adequately address potential concerns regarding 
possible manipulation or price stability.
---------------------------------------------------------------------------

    \14\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
    \15\ See supra note 9.
---------------------------------------------------------------------------

Implementation Date
    The Exchange will announce the effective date of the proposed 
change by Trader Update distributed to all OTP Holders, which will be 
no later than sixty-days after the effective date of this proposal.\16\
---------------------------------------------------------------------------

    \16\ An ``OTP Holder'' refers to a natural person, sole 
proprietorship, partnership, corporation, limited liability company 
or other organization, in good standing that has been issued an ATP. 
See Rule 1.1. An ``OTP'' is an Options Trading Permit issued by the 
Exchange for effecting approved securities transactions on the 
Exchange. See id.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\17\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \18\ requirements that the rules 
of an exchange be designed to prevent fraudulent and manipulative acts 
and practices, to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f(b).
    \18\ 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 is unaware of an 
IPO'd security with a market capitalization of $3 billion or more 
(based upon the offering price of its IPO) that subsequently would have 
failed to qualify for listing and trading as options under the three-
day lookback requirement. The Exchange believes that the proposed 
amendment, which would be harmonized across options exchanges, would 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system by providing an avenue for 
investors to hedge their interest in IPO investments in a shorter 
amount of time than what is currently permitted. The Exchange believes 
that options serve a valuable tool to the trading community and help 
markets function efficiently by mitigating risk. To that end, the 
Exchange believes that the absence of options in the early days after 
an IPO may heighten volatility to IPO'd securities.\19\
---------------------------------------------------------------------------

    \19\ See supra note 9.
---------------------------------------------------------------------------

    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 solicited or received with respect to the 
proposed rule change.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \21\ and Rule 19b-4(f)(6) thereunder.\22\ 
Because the proposed rule change does not: (i) significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on

[[Page 63996]]

competition; and (iii) become operative prior to 30 days from the date 
on which it was filed, or such shorter time as the Commission may 
designate, if consistent with the protection of investors and the 
public interest, the proposed rule change has become effective pursuant 
to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6)(iii) thereunder.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \22\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \23\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\24\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange requested 
the waiver, stating that the proposal harmonizes its rules to those of 
NYSE American to ensure fair competition among the options exchanges. 
Further, the proposed change would allow options on IPO'd securities to 
come to market sooner (i.e., at least two business days post-IPO not 
inclusive of the day of the IPO) without sacrificing investor 
protection. For these reasons, and because the proposed rule change 
does not raise any novel legal or regulatory issues, the Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. Therefore, the 
Commission hereby waives the 30-day operative delay and designates the 
proposal operative upon filing.\25\
---------------------------------------------------------------------------

    \23\ 17 CFR 240.19b-4(f)(6).
    \24\ 17 CFR 240.19b-4(f)(6)(iii).
    \25\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \26\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NYSEARCA-2023-61 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-NYSEARCA-2023-61. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NYSEARCA-2023-61 and should 
be submitted on or before October 10, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
---------------------------------------------------------------------------

    \27\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-20078 Filed 9-15-23; 8:45 am]
BILLING CODE 8011-01-P

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