Self-Regulatory Organizations; MIAX PEARL LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 404, Series of Option Contracts Open for Trading To Adopt New Interpretations and Policies .12, 84379-84383 [2023-26591]

Download as PDF Federal Register / Vol. 88, No. 232 / Tuesday, December 5, 2023 / Notices 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–MIAX–2023–45 and should be submitted on or before December 26, 2023. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.34 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–26596 Filed 12–4–23; 8:45 am] BILLING CODE 8011–01–P I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to adopt new Interpretations and Policies .12 to Rule 404, Series of Option Contracts Open for Trading, to adopt a new strike interval program. The text of the proposed rule change is available on the Exchange’s website at https://www.miaxglobal.com/markets/ us-options/pearl-options/rule-filings, at MIAX Pearl’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 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 SECURITIES AND EXCHANGE COMMISSION 1. Purpose [Release No. 34–99034; File No. SR– PEARL–2023–66] Self-Regulatory Organizations; MIAX PEARL LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 404, Series of Option Contracts Open for Trading To Adopt New Interpretations and Policies .12 khammond on DSKJM1Z7X2PROD with NOTICES November 29, 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 November 24, 2023, MIAX PEARL LLC (‘‘MIAX Pearl’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. CFR 200.30–3(a)(12), (59). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 16:35 Dec 04, 2023 Background Currently, Exchange Rule 404, Series of Option Contracts Open for Trading, describes the process and procedures for listing and trading series of options 3 on the Exchange. Rule 404 provides for a $2.50 Strike Price Program, where the Exchange may select up to 60 option 3 The term ‘‘option contract’’ means a put or a call issued, or subject to issuance, by the Clearing Corporation pursuant to the Rules of the Clearing Corporation. See Exchange Rule 100. 34 17 VerDate Sep<11>2014 The Exchange proposes to amend Rule 404, Series of Option Contracts Open for Trading. Specifically, the Exchange proposes to adopt new Interpretations and Policies .12 to Rule 404 to implement a new strike interval program for stocks that are priced less than $2.50 and have an average daily trading volume of at least 1,000,000 shares per day for the three (3) preceding calendar months. The Exchange also proposes to amend the table in Interpretations and Policies .11 of Rule 404 to harmonize the table to the propose change. Jkt 262001 PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 84379 classes 4 on individual stocks for which the interval of strike prices will be $2.50 where the strike price is greater than $25.00 but less than $50.00.5 Rule 404 also provides for a $1 Strike Price Interval Program, where the interval between strike prices of series of options 6 on individual stocks may be $1.00 or greater provided the strike price is $50.00 or less, but not less than $1.00.7 Additionally, Rule 404 provides for a $0.50 Strike Program.8 The interval of strike prices of series of options on individual stocks may be $0.50 or greater beginning at $0.50 where the strike price is $5.50 or less, but only for options classes whose underlying security closed at or below $5.00 in its primary market on the previous trading day and which have national average daily volume that equals or exceeds 1,000 contracts per day as determined by The Options Clearing Corporation during the preceding three calendar months. The listing of $0.50 strike prices is limited to options classes overlying no more than 20 individual stocks (the ‘‘$0.50 Strike Program’’) as specifically designated by the Exchange. The Exchange may list $0.50 strike prices on any other option classes if those classes are specifically designated by other securities exchanges that employ a similar $0.50 Strike Program under their respective rules. A stock shall remain in the $0.50 Strike Program until otherwise designated by the Exchange.9 Proposal At this time, the Exchange proposes to adopt a new strike interval program for underlying stocks that are not in the aforementioned $0.50 Strike Program (or the Short Term Option Series Program) 10 and that close below $2.50 and have an average daily trading volume of at least 1,000,000 shares per day for the three (3) preceding calendar months. The $0.50 Strike Program considers stocks that have a closing price at or below $5.00 whereas the Exchange’s proposal will consider stocks that have a closing price below $2.50. Currently, there is a subset of stocks that are not included in the $0.50 Strike Program as a result of the 4 The terms ‘‘class of options’’ or ‘‘option class’’ means all option contracts covering the same underlying security. See Exchange Rule 100. 5 See Exchange Rule 404(f). 6 The term ‘‘series of options’’ means all option contracts of the same class having the same exercise price and expiration date. See Exchange Rule 100. 7 See Interpretations and Policies .01(a) of Rule 404. 8 See Interpretations and Policies .04 of Rule 404. 9 Id. 10 See Interpretations and Policies .02 of Rule 404. E:\FR\FM\05DEN1.SGM 05DEN1 84380 Federal Register / Vol. 88, No. 232 / Tuesday, December 5, 2023 / Notices limitations of that program which provides that the listing of $0.50 strike prices shall be limited to option classes overlying no more than 20 individual stocks as specifically designated by the Exchange and requires a national average daily volume that equals or exceeds 1,000 contracts per day as determined by The Options Clearing Corporation during the preceding three calendar months.11 Therefore, the Exchange is proposing to implement a new strike interval program termed the ‘‘Low Priced Stock Strike Price Interval Program.’’ The Exchange notes that this proposal is substantively identical to a proposal recently approved on the Exchange’s affiliate, MIAX Options Exchange.12 To be eligible for the inclusion in the Low Priced Stock Strike Price Interval Program, an underlying stock must (i) close below $2.50 in its primary market on the previous trading day; and (ii) have an average daily trading volume of at least 1,000,000 shares per day for the three (3) preceding calendar months. The Exchange notes that there is no limit to the number of classes that will be eligible for inclusion in the proposed program, provided, of course, that the underlying stocks satisfy both the price and average daily trading volume requirements of the proposed program. The Exchange also proposes that after a stock is added to the Low Priced Stock Strike Price Interval Program, the Exchange may list $0.50 strike price intervals from $0.50 up to $2.00.13 For the purpose of adding strikes under the Low Priced Stock Strike Price Interval Program, the ‘‘price of the underlying stock’’ shall be measured in the same way as ‘‘the price of the underlying security’’ as set forth in Rule 404A(b)(1).14 Further, no additional series in $0.50 intervals may be listed if the underlying stock closes at or above $2.50 in its primary market. Additional series in $0.50 intervals may not be added until the underlying stock again closes below $2.50. The Exchange’s proposal addresses a gap in strike coverage for low priced 11 See Interpretations and Policies .04 of Rule 404. Securities Exchange Release Act No. 98917 (November 13, 2023), 88 FR 80361 (November 17, 2023) (SR–MIAX–2023–36) (Order Approving a Proposed Rule Change to Amend Exchange Rule 404, Series of Option Contracts Open for Trading). 13 While the Exchange may list new strikes on underlying stocks that meet the eligibility requirements of the new program the Exchange will exercise its discretion and will not list strikes on underlying stocks the Exchange believes are subject to imminent delisting from their primary exchange. 14 The Exchange notes this is the same methodology used in the $1 Strike Price Interval Program. See Interpretations and Policies .01(c)(3) of Rule 404. khammond on DSKJM1Z7X2PROD with NOTICES 12 See VerDate Sep<11>2014 16:35 Dec 04, 2023 Jkt 262001 stocks. The $0.50 Strike Program considers stocks that close below $5.00 and limits the number of option classes listed to no more than 20 individual stocks (provided that the open interest criteria is also satisfied). Whereas, the Exchange’s proposal has a narrower focus, with respect to the underlying’s stock price, and is targeted to those stocks that close below $2.50 and does not limit the number of stocks that may participate in the program (provided that the average daily trading volume is also satisfied). The Exchange does not believe that any market disruptions will be encountered with the addition of these new strikes. The Exchange represents that it has the necessary capacity and surveillance programs in place to support and properly monitor trading in the proposed Low Priced Stock Strike Price Interval Program. The Exchange believes that its average daily trading volume requirement of 1,000,000 shares is a reasonable threshold to ensure adequate liquidity in eligible underlying stocks as it is substantially greater than the thresholds used for listing options on equities, American Depository Receipts, and broad-based indexes. Specifically, underlying securities with respect to which put or call option contracts are approved for listing and trading on the Exchange must meet certain criteria as determined by the Exchange. One of those requirements is that trading volume (in all markets in which the underlying security is traded) has been at least 2,400,000 shares in the preceding twelve (12) months.15 Rule 402(f) provides the criteria for listing options on American Depositary Receipts (‘‘ADRs’’) if they meet certain criteria and guidelines set forth in Exchange Rule 402. One of the requirements is that the average daily trading volume for the security in the U.S. markets over the three (3) months preceding the selection of the ADR for options trading is 100,000 or more shares.16 Finally, the Exchange may trade options on a broad-based index pursuant to Rule 19b–4(e) of the Securities Exchange Act of 1934 provided a number of conditions are satisfied. One of those conditions is that each component security that accounts for at least one percent (1%) of the weight of the index has an average daily trading volume of at least 90,000 shares during the last six month period.17 Additionally, the Exchange proposes to amend the table in Interpretations and Policies .11 of Rule 404 to insert a 15 See Exchange Rule 402(b)(4). Exchange Rule 402(f)(3)(ii). 17 See Exchange Rule 1802(d)(7). 16 See PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 new column to harmonize the Exchange’s proposal to the strike intervals for Short Term Options Series as described in Interpretations and Policies .02 of Rule 404. The table in Interpretations and Policies .11 is intended to limit the intervals between strikes for multiply listed equity options within the Short Term Options Series program that have an expiration date more than twenty-one days from the listing date. Specifically, the table defines the applicable strike intervals for options on underlying stocks given the closing price on the primary market on the last day of the calendar quarter, and a corresponding average daily volume of the total number of options contracts traded in a given security for the applicable calendar quarter divided by the number of trading days in the applicable calendar quarter.18 However, the lowest share price column is titled ‘‘Less than $25.’’ The Exchange now proposes to insert a column titled ‘‘Less than $2.50’’ and to set the strike interval at $0.50 for each average daily volume tier represented in the table. Also, the Exchange proposes to amend the heading of the column currently titled ‘‘Less than $25,’’ to ‘‘$2.50 to less than $25’’ as a result of the adoption of the new proposed column, ‘‘Less than $2.50.’’ The Exchange believes this change will remove any potential conflict between the strike intervals under the Short Term Options Series Program and those described herein under the Exchange’s proposal. Impact of Proposal The Exchange recognizes that its proposal will introduce new strikes in the marketplace and further acknowledges that there has been significant effort undertaken by the industry to curb strike proliferation. This initiative has been spearheaded by the Nasdaq BX who filed an initial proposal focused on the removal, and prevention of the listing, of strikes which are extraneous and do not add value to the marketplace (the ‘‘Strike Interval Proposal’’).19 The Strike Interval Proposal was intended to remove repetitive and unnecessary 18 See Securities Exchange Release Act No. 91125 (February 21, 2021), 86 FR 10375 (February 19, 2021) (SR–BX–2020–032) (Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Amend Options 4, Section 5, To Limit Short Term Options Series Intervals Between Strikes That Are Available for Quoting and Trading on BX). 19 See Securities Exchange Act No. 91225 (February 12, 2021), 86 FR 10375 (February 12, 2021) (SR–BX–2020–032) (BX Strike Approval Order); see also BX Options Strike Proliferation Proposal (February 25, 2021) available at: https:// www.nasdaq.com/solutions/bx-options-strikeproliferation-proposal). E:\FR\FM\05DEN1.SGM 05DEN1 khammond on DSKJM1Z7X2PROD with NOTICES Federal Register / Vol. 88, No. 232 / Tuesday, December 5, 2023 / Notices of 0.294% in the number of options listed on the Exchange. The Exchange does not believe that its proposal contravenes the industry’s efforts to curtail unnecessary strikes. The Exchange’s proposal is targeted to only underlying stocks that close at less than $2.50 and that also meet the average daily trading volume requirement. Additionally, because the strike increment is $0.50 there are only a total of four strikes that may be listed under the program ($0.50, $1.00, $1.50, and $2.00) for an eligible underlying stock. Finally, if an eligible underlying stock is in another program (e.g., the $0.50 Strike Program or the $1 Strike Price Interval Program) the number of strikes that may be added is further reduced if there are pre-existing strikes as part of another strike listing program. Therefore, the Exchange does not believe that it will list any unnecessary or repetitive strikes as part of its program, and that the strikes that will be listed will improve market quality and satisfy investor demand. The Exchange further believes that the Options Price Reporting Authority (‘‘OPRA’’), has the necessary systems capacity to handle any additional messaging traffic associated with this proposed rule change. The Exchange also believes that Members 23 will not have a capacity issue as a result of the proposed rule change. Finally, the Exchange believes that the additional options will serve to increase liquidity, provide additional trading and hedging opportunities for all market participants, and improve market quality. strike listings across the weekly expiries. Specifically, the Strike Interval Proposal aimed to reduce the density of strike intervals that would be listed in the later weeks, by creating limitations for intervals between strikes which have an expiration date more than twentyone days from the listing date.20 The Strike Interval Proposal took into account OCC customer-cleared volume, using it as an appropriate proxy for demand. The Strike Interval Proposal was designed to maintain strikes where there was customer demand and eliminate strikes where there wasn’t. At the time of its proposal Nasdaq BX estimated that the Strike Interval Proposal would reduce the number of strikes it listed by 81,000.21 The Exchange proposes to amend the table to define the strike interval at $0.50 for underlying stocks with a share price of less than $2.50. The Exchange believes this amendment will harmonize the Exchange’s proposal with the Strike Interval Proposal described above. The Exchange recognizes that its proposal will moderately increase the total number of option series available on the Exchange. However, the Exchange’s proposal is designed to only add strikes where there is investor demand 22 which will improve market quality. Under the requirements for the Low Priced Stock Strike Price Interval Program as described herein, the Exchange determined that as of August 9, 2023, 106 symbols met the proposed criteria. Of those symbols 36 are currently in the $1 Strike Price Interval Program with $1.00 and $2.00 strikes listed. Under the Exchange’s proposal the Exchange would add the $0.50 and $1.50 strikes for these symbols for the current expiration terms. The remaining 70 symbols eligible under the Exchange’s proposal would have $0.50, $1.00, $1.50 and $2.00 strikes added to their current expiration terms. Therefore, for the 106 symbols eligible for the Low Priced Stock Strike Price Interval Program a total of approximately 3,250 options would be added. As of August 9, 2023, the Exchange listed 1,106,550 options, therefore the additional options that would be listed under this proposal would represent a very minor increase 2. Statutory Basis The Exchange believes that its proposal to amend its Fee Schedule is consistent with section 6(b) of the Act 24 in general, and furthers the objectives of section 6(b)(4) of the Act 25 in particular, in that it is an equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities. The Exchange also believes the proposal furthers the objectives of section 6(b)(5) of the Act 26 in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and 20 See Securities Exchange Act No. 91225 (February 12, 2021), 86 FR 10375 (February 12, 2021) (SR–BX–2020–032). 21 See id. 22 See proposed Interpretations and Policies .12(a) of Rule 404 which requires that an underlying stock have an average daily trading volume of 1,000,000 shares for the three (3) preceding months to be eligible for inclusion in the Low Priced Stock Strike Price Interval Program. 23 The term ‘‘Member’’ means an individual or organization that is registered with the Exchange pursuant to Chapter II of MIAX Pearl Rules for purposes of trading on the Exchange as an ‘‘Electronic Exchange Member’’ or ‘‘Market Maker.’’ Members are deemed ‘‘members’’ under the Exchange Act. See Exchange Rule 100. 24 15 U.S.C. 78f(b). 25 15 U.S.C. 78f(b)(4). 26 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 16:35 Dec 04, 2023 Jkt 262001 PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 84381 open market and a national market system, and, in general to protect investors and the public interest and is not designed to permit unfair discrimination between customers, issuers, brokers and dealers. The Exchange believes its proposal promotes just and equitable principles of trade and removes impediments to and perfects the mechanisms of a free and open market and a national market system as the Exchange has identified a subset of stocks that are trading under $2.50 and do not have meaningful strikes available. For example, on August 9, 2023, symbol SOND closed at $0.50 and had open interest of over 44,000 contracts and an average daily trading volume in the underlying stock of over 1,900,000 shares for the three preceding calendar months.27 Currently the lowest strike listed is for $2.50, making the lowest strike 400% away from the closing stock price. Another symbol, CTXR, closed at $0.92 on August 9, 2023, and had open interest of over 63,000 contracts and an average daily trading volume in the underlying stock of over 1,900,000 shares for the three preceding calendar months.28 Similarly, the lowest strike listed is for $2.50, making the lowest strike more than 170% away from the closing stock price. Currently, such products have no at-the-money options, as well as no inthe-money calls or out-of-the-money puts. The Exchange’s proposal will provide additional strikes in $0.50 increments from $0.50 up to $2.00 to provide more meaningful trading and hedging opportunities for this subset of stocks. Given the increased granularity of strikes as proposed under the Exchange’s proposal out-of-the-money puts and in-the-money calls will be created. The Exchange believes this will allow market participants to tailor their investment and hedging needs more effectively. The Exchange believes its proposal promotes just and equitable principles of trade and removes impediments to and perfects the mechanisms of a free and open market and a national market system and, in general, protects investors and the public interest by adding strikes that improves market quality and satisfies investor demand. The Exchange does not believe that the number of strikes that will be added under the program will negatively impact the market. Additionally, the proposal does not run counter to the 27 See Yahoo! Finance, https://finance. yahoo.com/quote/SOND/history?p=SOND (last visited August 10, 2023). 28 See Yahoo! Finance, https://finance. yahoo.com/quote/CTXR/history?p=CTXR (last visited August 10, 2023). E:\FR\FM\05DEN1.SGM 05DEN1 khammond on DSKJM1Z7X2PROD with NOTICES 84382 Federal Register / Vol. 88, No. 232 / Tuesday, December 5, 2023 / Notices efforts undertaken by the industry to curb strike proliferation as that effort focused on the removal and prevention of extraneous strikes where there was no investor demand. The Exchange’s proposal requires the satisfaction of an average daily trading volume threshold in addition to the underlying stock closing at a price below $2.50 to be eligible for the program. The Exchange believes that the average daily trading volume threshold of the program ensures that only strikes with investor demand will be listed and fills a gap in strike interval coverage as described above. Further, being that the strike interval is $0.50, there are only a maximum of four strikes that may be added ($0.50, $1.00, $1.50, and $2.00). Therefore, the Exchange does not believe that its proposal will undermine the industry’s efforts to eliminate repetitive and unnecessary strikes in any fashion. The Exchange believes that its average daily trading volume threshold promotes just and equitable principles of trade and removes impediments to and perfects the mechanisms of a free and open market and a national market system and, in general, protects investors and the public interest as it is designed to permit only those stocks with demonstrably high levels of trading activity to participate in the program. The Exchange notes that its average daily trading volume requirement is substantially greater that the average daily trading requirement currently in place on the Exchange for options on equity underlyings,29 ADRs,30 and broad-based indexes.31 The Exchange believes that the proposed rule change is consistent with section 6(b)(1) of the Act, which provides that the Exchange be organized and have the capacity to be able to carry out the purposes of the Act and the rules and regulations thereunder, and the rules of the Exchange. The proposed rule change allows the Exchange to respond to customer demand to provide meaningful strikes for low priced stocks. The Exchange does not believe that the proposed rule would create any capacity issue or negatively affect market functionality. Additionally, the Exchange represents that it has the necessary systems capacity to support the new options series and handle additional messaging traffic associated with this proposed rule change. The Exchange also believes that its Members will not experience any capacity issues as a result of this proposal. In addition, supra note 15. supra note 16. 31 See supra note 17. the Exchange represents that it believes that additional strikes for low priced stocks will serve to increase liquidity available as well and improve price efficiency by providing more trading opportunities for all market participants. The Exchange believes that the proposed rule change will benefit investors by giving them increased opportunities to execute their investment and hedging decisions. Finally, the Exchange believes its proposal is designed to prevent fraudulent and manipulative acts and practices as options may only be listed on underlyings that satisfy the listing requirements of the Exchange as described in Exchange Rule 402, Criteria for Underlying Securities. Specifically, Rule 402 requires that underlying securities for which put or call option contracts are approved for listing and trading on the Exchange must meet the following criteria: (1) the security must be registered and be an ‘‘NMS stock’’ as defined in Rule 600 of Regulation NMS under the Exchange Act; (2) the security shall be characterized by a substantial number of outstanding shares that are widely held and actively traded.32 Additionally, Rule 402 provides that absent exceptional circumstances, an underlying security will not be selected for options transactions unless: (1) there are a minimum of seven (7) million shares of the underlying security which are owned by persons other than those required to report their stock holdings under section 16(a) of the Exchange Act; (2) there are a minimum of 2,000 holders of the underlying security; (3) the issuer is in compliance with any applicable requirements of the Exchange Act; and (4) trading volume (in all markets in which the underlying security is traded) has been at least 2,400,000 shares in the preceding twelve (12) months.33 The Exchange’s proposal does not impact the eligibility of an underlying stock to have options listed on it, but rather addresses only the listing of new additional option classes on an underlying listed on the Exchange in accordance to the Exchange’s listings rules. As such, the Exchange believes that the listing requirements described in Exchange Rule 402 address potential concerns regarding possible manipulation. Additionally, in conjunction with the proposed Average Daily Volume requirement described herein, the Exchange believes any possible market manipulation is further mitigated. 29 See 30 See VerDate Sep<11>2014 16:35 Dec 04, 2023 32 See 33 See Jkt 262001 PO 00000 Exchange Rule 402(a)(1) and (2). Exchange Rule 402(b)(1), (2), (3) and (4). Frm 00086 Fmt 4703 Sfmt 4703 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 does not believe that its proposed rule change will impose any burden on intra-market competition as the Rules of the Exchange apply equally to all Members of the Exchange and all Members may trade the new proposed strikes if they so choose. Specifically, the Exchange believes that investors and market participants will significantly benefit from the availability of finer strike price intervals for stocks priced below $2.50, which will allow them to tailor their investment and hedging needs more effectively. The Exchange does not believe that its proposed rule change will impose any burden on inter-market competition, as nothing prevents other options exchanges from proposing similar rules to list and trade options on low priced stocks. Rather the Exchange believes that its proposal will promote intermarket competition, as the Exchange’s proposal will result in additional opportunities for investors to achieve their investment and trading objectives, to the benefit of investors, market participants, and the marketplace in general. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Pursuant to section 19(b)(3)(A) of the Act 34 and Rule 19b–4(f)(6) 35 thereunder, the Exchange has designated this proposal as one that effects a change that: (i) does not significantly affect the protection of investors or the public interest; (ii) does not impose any significant burden on competition; and (iii) by its terms, does not become operative for 30 days after the date of the filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest.36 34 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 36 In addition, Rule 19b–4(f)(6) requires a selfregulatory 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 35 17 E:\FR\FM\05DEN1.SGM 05DEN1 Federal Register / Vol. 88, No. 232 / Tuesday, December 5, 2023 / Notices A proposed rule change filed pursuant to Rule 19b–4(f)(6) under the Act normally does not become operative for 30 days after the date of its filing. However, Rule 19b–4(f)(6)(iii) 37 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange requested that the Commission waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Commission notes it has approved a proposed rule change substantially identical to the one proposed by the Exchange.38 The proposed change raises no novel legal or regulatory issues. Therefore, the Commission believes that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest. Accordingly, the Commission hereby waives the 30-day operative delay and designates the proposed rule change operative upon filing.39 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Paper Comments khammond on DSKJM1Z7X2PROD with NOTICES • Send paper comments in triplicate to Secretary, Securities and Exchange shorter time as designated by the Commission. The Exchange has satisfied this requirement. 37 17 CFR 240.19b–4(f)(6)(iii). 38 See supra note 3. 39 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). 16:35 Dec 04, 2023 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.40 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–26591 Filed 12–4–23; 8:45 am] • 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– PEARL–2023–66 on the subject line. VerDate Sep<11>2014 Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to file number SR–PEARL–2023–66. 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–PEARL–2023–66 and should be submitted on or before December 26, 2023. Jkt 262001 BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99036; File No. SR– CboeBZX–2023–096] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Short Term Option Series Program November 29, 2023. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 40 17 PO 00000 CFR 200.30–3(a)(12), (59). Frm 00087 Fmt 4703 Sfmt 4703 84383 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on November 22, 2023, Cboe BZX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BZX’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Exchange filed the proposal as a ‘‘non-controversial’’ proposed rule change pursuant to section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b–4(f)(6) thereunder.4 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its Short Term Option Series Program. The text of the proposed rule change is available on the Exchange’s website (https://markets.cboe.com/us/equities/ regulation/rule_filings/bzx/), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. 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 Rule 19.6, Interpretation and Policy .05. Specifically, the Exchange proposes to expand the Short Term Option Series Program to permit the listing of two Wednesday expirations for options on United States Oil Fund, LP (‘‘USO’’), United States Natural Gas Fund, LP (‘‘UNG’’), SPDR Gold Shares (‘‘GLD’’), iShares Silver Trust (‘‘SLV’’), and iShares 20+ Year Treasury Bond ETF (‘‘TLT’’) (collectively ‘‘Exchange Traded 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b–4(f)(6). 2 17 E:\FR\FM\05DEN1.SGM 05DEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 88, Number 232 (Tuesday, December 5, 2023)]
[Notices]
[Pages 84379-84383]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-26591]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99034; File No. SR-PEARL-2023-66]


Self-Regulatory Organizations; MIAX PEARL LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange 
Rule 404, Series of Option Contracts Open for Trading To Adopt New 
Interpretations and Policies .12

November 29, 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 November 24, 2023, MIAX PEARL LLC (``MIAX Pearl'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt new Interpretations and Policies .12 
to Rule 404, Series of Option Contracts Open for Trading, to adopt a 
new strike interval program.
    The text of the proposed rule change is available on the Exchange's 
website at https://www.miaxglobal.com/markets/us-options/pearl-options/rule-filings, at MIAX Pearl'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 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 Rule 404, Series of Option Contracts 
Open for Trading. Specifically, the Exchange proposes to adopt new 
Interpretations and Policies .12 to Rule 404 to implement a new strike 
interval program for stocks that are priced less than $2.50 and have an 
average daily trading volume of at least 1,000,000 shares per day for 
the three (3) preceding calendar months. The Exchange also proposes to 
amend the table in Interpretations and Policies .11 of Rule 404 to 
harmonize the table to the propose change.
Background
    Currently, Exchange Rule 404, Series of Option Contracts Open for 
Trading, describes the process and procedures for listing and trading 
series of options \3\ on the Exchange. Rule 404 provides for a $2.50 
Strike Price Program, where the Exchange may select up to 60 option 
classes \4\ on individual stocks for which the interval of strike 
prices will be $2.50 where the strike price is greater than $25.00 but 
less than $50.00.\5\ Rule 404 also provides for a $1 Strike Price 
Interval Program, where the interval between strike prices of series of 
options \6\ on individual stocks may be $1.00 or greater provided the 
strike price is $50.00 or less, but not less than $1.00.\7\ 
Additionally, Rule 404 provides for a $0.50 Strike Program.\8\ The 
interval of strike prices of series of options on individual stocks may 
be $0.50 or greater beginning at $0.50 where the strike price is $5.50 
or less, but only for options classes whose underlying security closed 
at or below $5.00 in its primary market on the previous trading day and 
which have national average daily volume that equals or exceeds 1,000 
contracts per day as determined by The Options Clearing Corporation 
during the preceding three calendar months. The listing of $0.50 strike 
prices is limited to options classes overlying no more than 20 
individual stocks (the ``$0.50 Strike Program'') as specifically 
designated by the Exchange. The Exchange may list $0.50 strike prices 
on any other option classes if those classes are specifically 
designated by other securities exchanges that employ a similar $0.50 
Strike Program under their respective rules. A stock shall remain in 
the $0.50 Strike Program until otherwise designated by the Exchange.\9\
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    \3\ The term ``option contract'' means a put or a call issued, 
or subject to issuance, by the Clearing Corporation pursuant to the 
Rules of the Clearing Corporation. See Exchange Rule 100.
    \4\ The terms ``class of options'' or ``option class'' means all 
option contracts covering the same underlying security. See Exchange 
Rule 100.
    \5\ See Exchange Rule 404(f).
    \6\ The term ``series of options'' means all option contracts of 
the same class having the same exercise price and expiration date. 
See Exchange Rule 100.
    \7\ See Interpretations and Policies .01(a) of Rule 404.
    \8\ See Interpretations and Policies .04 of Rule 404.
    \9\ Id.
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Proposal
    At this time, the Exchange proposes to adopt a new strike interval 
program for underlying stocks that are not in the aforementioned $0.50 
Strike Program (or the Short Term Option Series Program) \10\ and that 
close below $2.50 and have an average daily trading volume of at least 
1,000,000 shares per day for the three (3) preceding calendar months. 
The $0.50 Strike Program considers stocks that have a closing price at 
or below $5.00 whereas the Exchange's proposal will consider stocks 
that have a closing price below $2.50. Currently, there is a subset of 
stocks that are not included in the $0.50 Strike Program as a result of 
the

[[Page 84380]]

limitations of that program which provides that the listing of $0.50 
strike prices shall be limited to option classes overlying no more than 
20 individual stocks as specifically designated by the Exchange and 
requires a national average daily volume that equals or exceeds 1,000 
contracts per day as determined by The Options Clearing Corporation 
during the preceding three calendar months.\11\ Therefore, the Exchange 
is proposing to implement a new strike interval program termed the 
``Low Priced Stock Strike Price Interval Program.'' The Exchange notes 
that this proposal is substantively identical to a proposal recently 
approved on the Exchange's affiliate, MIAX Options Exchange.\12\
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    \10\ See Interpretations and Policies .02 of Rule 404.
    \11\ See Interpretations and Policies .04 of Rule 404.
    \12\ See Securities Exchange Release Act No. 98917 (November 13, 
2023), 88 FR 80361 (November 17, 2023) (SR-MIAX-2023-36) (Order 
Approving a Proposed Rule Change to Amend Exchange Rule 404, Series 
of Option Contracts Open for Trading).
---------------------------------------------------------------------------

    To be eligible for the inclusion in the Low Priced Stock Strike 
Price Interval Program, an underlying stock must (i) close below $2.50 
in its primary market on the previous trading day; and (ii) have an 
average daily trading volume of at least 1,000,000 shares per day for 
the three (3) preceding calendar months. The Exchange notes that there 
is no limit to the number of classes that will be eligible for 
inclusion in the proposed program, provided, of course, that the 
underlying stocks satisfy both the price and average daily trading 
volume requirements of the proposed program.
    The Exchange also proposes that after a stock is added to the Low 
Priced Stock Strike Price Interval Program, the Exchange may list $0.50 
strike price intervals from $0.50 up to $2.00.\13\ For the purpose of 
adding strikes under the Low Priced Stock Strike Price Interval 
Program, the ``price of the underlying stock'' shall be measured in the 
same way as ``the price of the underlying security'' as set forth in 
Rule 404A(b)(1).\14\ Further, no additional series in $0.50 intervals 
may be listed if the underlying stock closes at or above $2.50 in its 
primary market. Additional series in $0.50 intervals may not be added 
until the underlying stock again closes below $2.50.
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    \13\ While the Exchange may list new strikes on underlying 
stocks that meet the eligibility requirements of the new program the 
Exchange will exercise its discretion and will not list strikes on 
underlying stocks the Exchange believes are subject to imminent 
delisting from their primary exchange.
    \14\ The Exchange notes this is the same methodology used in the 
$1 Strike Price Interval Program. See Interpretations and Policies 
.01(c)(3) of Rule 404.
---------------------------------------------------------------------------

    The Exchange's proposal addresses a gap in strike coverage for low 
priced stocks. The $0.50 Strike Program considers stocks that close 
below $5.00 and limits the number of option classes listed to no more 
than 20 individual stocks (provided that the open interest criteria is 
also satisfied). Whereas, the Exchange's proposal has a narrower focus, 
with respect to the underlying's stock price, and is targeted to those 
stocks that close below $2.50 and does not limit the number of stocks 
that may participate in the program (provided that the average daily 
trading volume is also satisfied). The Exchange does not believe that 
any market disruptions will be encountered with the addition of these 
new strikes. The Exchange represents that it has the necessary capacity 
and surveillance programs in place to support and properly monitor 
trading in the proposed Low Priced Stock Strike Price Interval Program.
    The Exchange believes that its average daily trading volume 
requirement of 1,000,000 shares is a reasonable threshold to ensure 
adequate liquidity in eligible underlying stocks as it is substantially 
greater than the thresholds used for listing options on equities, 
American Depository Receipts, and broad-based indexes. Specifically, 
underlying securities with respect to which put or call option 
contracts are approved for listing and trading on the Exchange must 
meet certain criteria as determined by the Exchange. One of those 
requirements is that trading volume (in all markets in which the 
underlying security is traded) has been at least 2,400,000 shares in 
the preceding twelve (12) months.\15\ Rule 402(f) provides the criteria 
for listing options on American Depositary Receipts (``ADRs'') if they 
meet certain criteria and guidelines set forth in Exchange Rule 402. 
One of the requirements is that the average daily trading volume for 
the security in the U.S. markets over the three (3) months preceding 
the selection of the ADR for options trading is 100,000 or more 
shares.\16\ Finally, the Exchange may trade options on a broad-based 
index pursuant to Rule 19b-4(e) of the Securities Exchange Act of 1934 
provided a number of conditions are satisfied. One of those conditions 
is that each component security that accounts for at least one percent 
(1%) of the weight of the index has an average daily trading volume of 
at least 90,000 shares during the last six month period.\17\
---------------------------------------------------------------------------

    \15\ See Exchange Rule 402(b)(4).
    \16\ See Exchange Rule 402(f)(3)(ii).
    \17\ See Exchange Rule 1802(d)(7).
---------------------------------------------------------------------------

    Additionally, the Exchange proposes to amend the table in 
Interpretations and Policies .11 of Rule 404 to insert a new column to 
harmonize the Exchange's proposal to the strike intervals for Short 
Term Options Series as described in Interpretations and Policies .02 of 
Rule 404. The table in Interpretations and Policies .11 is intended to 
limit the intervals between strikes for multiply listed equity options 
within the Short Term Options Series program that have an expiration 
date more than twenty-one days from the listing date. Specifically, the 
table defines the applicable strike intervals for options on underlying 
stocks given the closing price on the primary market on the last day of 
the calendar quarter, and a corresponding average daily volume of the 
total number of options contracts traded in a given security for the 
applicable calendar quarter divided by the number of trading days in 
the applicable calendar quarter.\18\ However, the lowest share price 
column is titled ``Less than $25.'' The Exchange now proposes to insert 
a column titled ``Less than $2.50'' and to set the strike interval at 
$0.50 for each average daily volume tier represented in the table. 
Also, the Exchange proposes to amend the heading of the column 
currently titled ``Less than $25,'' to ``$2.50 to less than $25'' as a 
result of the adoption of the new proposed column, ``Less than $2.50.'' 
The Exchange believes this change will remove any potential conflict 
between the strike intervals under the Short Term Options Series 
Program and those described herein under the Exchange's proposal.
---------------------------------------------------------------------------

    \18\ See Securities Exchange Release Act No. 91125 (February 21, 
2021), 86 FR 10375 (February 19, 2021) (SR-BX-2020-032) (Order 
Granting Accelerated Approval of a Proposed Rule Change, as Modified 
by Amendment No. 1, To Amend Options 4, Section 5, To Limit Short 
Term Options Series Intervals Between Strikes That Are Available for 
Quoting and Trading on BX).
---------------------------------------------------------------------------

Impact of Proposal
    The Exchange recognizes that its proposal will introduce new 
strikes in the marketplace and further acknowledges that there has been 
significant effort undertaken by the industry to curb strike 
proliferation. This initiative has been spearheaded by the Nasdaq BX 
who filed an initial proposal focused on the removal, and prevention of 
the listing, of strikes which are extraneous and do not add value to 
the marketplace (the ``Strike Interval Proposal'').\19\ The Strike 
Interval Proposal was intended to remove repetitive and unnecessary

[[Page 84381]]

strike listings across the weekly expiries. Specifically, the Strike 
Interval Proposal aimed to reduce the density of strike intervals that 
would be listed in the later weeks, by creating limitations for 
intervals between strikes which have an expiration date more than 
twenty-one days from the listing date.\20\ The Strike Interval Proposal 
took into account OCC customer-cleared volume, using it as an 
appropriate proxy for demand. The Strike Interval Proposal was designed 
to maintain strikes where there was customer demand and eliminate 
strikes where there wasn't. At the time of its proposal Nasdaq BX 
estimated that the Strike Interval Proposal would reduce the number of 
strikes it listed by 81,000.\21\ The Exchange proposes to amend the 
table to define the strike interval at $0.50 for underlying stocks with 
a share price of less than $2.50. The Exchange believes this amendment 
will harmonize the Exchange's proposal with the Strike Interval 
Proposal described above.
---------------------------------------------------------------------------

    \19\ See Securities Exchange Act No. 91225 (February 12, 2021), 
86 FR 10375 (February 12, 2021) (SR-BX-2020-032) (BX Strike Approval 
Order); see also BX Options Strike Proliferation Proposal (February 
25, 2021) available at: https://www.nasdaq.com/solutions/bx-options-strike-proliferation-proposal).
    \20\ See Securities Exchange Act No. 91225 (February 12, 2021), 
86 FR 10375 (February 12, 2021) (SR-BX-2020-032).
    \21\ See id.
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    The Exchange recognizes that its proposal will moderately increase 
the total number of option series available on the Exchange. However, 
the Exchange's proposal is designed to only add strikes where there is 
investor demand \22\ which will improve market quality. Under the 
requirements for the Low Priced Stock Strike Price Interval Program as 
described herein, the Exchange determined that as of August 9, 2023, 
106 symbols met the proposed criteria. Of those symbols 36 are 
currently in the $1 Strike Price Interval Program with $1.00 and $2.00 
strikes listed. Under the Exchange's proposal the Exchange would add 
the $0.50 and $1.50 strikes for these symbols for the current 
expiration terms. The remaining 70 symbols eligible under the 
Exchange's proposal would have $0.50, $1.00, $1.50 and $2.00 strikes 
added to their current expiration terms. Therefore, for the 106 symbols 
eligible for the Low Priced Stock Strike Price Interval Program a total 
of approximately 3,250 options would be added. As of August 9, 2023, 
the Exchange listed 1,106,550 options, therefore the additional options 
that would be listed under this proposal would represent a very minor 
increase of 0.294% in the number of options listed on the Exchange.
---------------------------------------------------------------------------

    \22\ See proposed Interpretations and Policies .12(a) of Rule 
404 which requires that an underlying stock have an average daily 
trading volume of 1,000,000 shares for the three (3) preceding 
months to be eligible for inclusion in the Low Priced Stock Strike 
Price Interval Program.
---------------------------------------------------------------------------

    The Exchange does not believe that its proposal contravenes the 
industry's efforts to curtail unnecessary strikes. The Exchange's 
proposal is targeted to only underlying stocks that close at less than 
$2.50 and that also meet the average daily trading volume requirement. 
Additionally, because the strike increment is $0.50 there are only a 
total of four strikes that may be listed under the program ($0.50, 
$1.00, $1.50, and $2.00) for an eligible underlying stock. Finally, if 
an eligible underlying stock is in another program (e.g., the $0.50 
Strike Program or the $1 Strike Price Interval Program) the number of 
strikes that may be added is further reduced if there are pre-existing 
strikes as part of another strike listing program. Therefore, the 
Exchange does not believe that it will list any unnecessary or 
repetitive strikes as part of its program, and that the strikes that 
will be listed will improve market quality and satisfy investor demand.
    The Exchange further believes that the Options Price Reporting 
Authority (``OPRA''), has the necessary systems capacity to handle any 
additional messaging traffic associated with this proposed rule change. 
The Exchange also believes that Members \23\ will not have a capacity 
issue as a result of the proposed rule change. Finally, the Exchange 
believes that the additional options will serve to increase liquidity, 
provide additional trading and hedging opportunities for all market 
participants, and improve market quality.
---------------------------------------------------------------------------

    \23\ The term ``Member'' means an individual or organization 
that is registered with the Exchange pursuant to Chapter II of MIAX 
Pearl Rules for purposes of trading on the Exchange as an 
``Electronic Exchange Member'' or ``Market Maker.'' Members are 
deemed ``members'' under the Exchange Act. See Exchange Rule 100.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with section 6(b) of the Act \24\ in general, and 
furthers the objectives of section 6(b)(4) of the Act \25\ in 
particular, in that it is an equitable allocation of reasonable dues, 
fees, and other charges among its members and issuers and other persons 
using its facilities. The Exchange also believes the proposal furthers 
the objectives of section 6(b)(5) of the Act \26\ in that it is 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general to protect investors and the 
public interest and is not designed to permit unfair discrimination 
between customers, issuers, brokers and dealers.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(4).
    \26\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes its proposal promotes just and equitable 
principles of trade and removes impediments to and perfects the 
mechanisms of a free and open market and a national market system as 
the Exchange has identified a subset of stocks that are trading under 
$2.50 and do not have meaningful strikes available. For example, on 
August 9, 2023, symbol SOND closed at $0.50 and had open interest of 
over 44,000 contracts and an average daily trading volume in the 
underlying stock of over 1,900,000 shares for the three preceding 
calendar months.\27\ Currently the lowest strike listed is for $2.50, 
making the lowest strike 400% away from the closing stock price. 
Another symbol, CTXR, closed at $0.92 on August 9, 2023, and had open 
interest of over 63,000 contracts and an average daily trading volume 
in the underlying stock of over 1,900,000 shares for the three 
preceding calendar months.\28\ Similarly, the lowest strike listed is 
for $2.50, making the lowest strike more than 170% away from the 
closing stock price. Currently, such products have no at-the-money 
options, as well as no in-the-money calls or out-of-the-money puts. The 
Exchange's proposal will provide additional strikes in $0.50 increments 
from $0.50 up to $2.00 to provide more meaningful trading and hedging 
opportunities for this subset of stocks. Given the increased 
granularity of strikes as proposed under the Exchange's proposal out-
of-the-money puts and in-the-money calls will be created. The Exchange 
believes this will allow market participants to tailor their investment 
and hedging needs more effectively.
---------------------------------------------------------------------------

    \27\ See Yahoo! Finance, https://finance.yahoo.com/quote/SOND/history?p=SOND (last visited August 10, 2023).
    \28\ See Yahoo! Finance, https://finance.yahoo.com/quote/CTXR/history?p=CTXR (last visited August 10, 2023).
---------------------------------------------------------------------------

    The Exchange believes its proposal promotes just and equitable 
principles of trade and removes impediments to and perfects the 
mechanisms of a free and open market and a national market system and, 
in general, protects investors and the public interest by adding 
strikes that improves market quality and satisfies investor demand. The 
Exchange does not believe that the number of strikes that will be added 
under the program will negatively impact the market. Additionally, the 
proposal does not run counter to the

[[Page 84382]]

efforts undertaken by the industry to curb strike proliferation as that 
effort focused on the removal and prevention of extraneous strikes 
where there was no investor demand. The Exchange's proposal requires 
the satisfaction of an average daily trading volume threshold in 
addition to the underlying stock closing at a price below $2.50 to be 
eligible for the program. The Exchange believes that the average daily 
trading volume threshold of the program ensures that only strikes with 
investor demand will be listed and fills a gap in strike interval 
coverage as described above. Further, being that the strike interval is 
$0.50, there are only a maximum of four strikes that may be added 
($0.50, $1.00, $1.50, and $2.00). Therefore, the Exchange does not 
believe that its proposal will undermine the industry's efforts to 
eliminate repetitive and unnecessary strikes in any fashion.
    The Exchange believes that its average daily trading volume 
threshold promotes just and equitable principles of trade and removes 
impediments to and perfects the mechanisms of a free and open market 
and a national market system and, in general, protects investors and 
the public interest as it is designed to permit only those stocks with 
demonstrably high levels of trading activity to participate in the 
program. The Exchange notes that its average daily trading volume 
requirement is substantially greater that the average daily trading 
requirement currently in place on the Exchange for options on equity 
underlyings,\29\ ADRs,\30\ and broad-based indexes.\31\
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    \29\ See supra note 15.
    \30\ See supra note 16.
    \31\ See supra note 17.
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is consistent 
with section 6(b)(1) of the Act, which provides that the Exchange be 
organized and have the capacity to be able to carry out the purposes of 
the Act and the rules and regulations thereunder, and the rules of the 
Exchange. The proposed rule change allows the Exchange to respond to 
customer demand to provide meaningful strikes for low priced stocks. 
The Exchange does not believe that the proposed rule would create any 
capacity issue or negatively affect market functionality. Additionally, 
the Exchange represents that it has the necessary systems capacity to 
support the new options series and handle additional messaging traffic 
associated with this proposed rule change. The Exchange also believes 
that its Members will not experience any capacity issues as a result of 
this proposal. In addition, the Exchange represents that it believes 
that additional strikes for low priced stocks will serve to increase 
liquidity available as well and improve price efficiency by providing 
more trading opportunities for all market participants. The Exchange 
believes that the proposed rule change will benefit investors by giving 
them increased opportunities to execute their investment and hedging 
decisions.
    Finally, the Exchange believes its proposal is designed to prevent 
fraudulent and manipulative acts and practices as options may only be 
listed on underlyings that satisfy the listing requirements of the 
Exchange as described in Exchange Rule 402, Criteria for Underlying 
Securities. Specifically, Rule 402 requires that underlying securities 
for which put or call option contracts are approved for listing and 
trading on the Exchange must meet the following criteria: (1) the 
security must be registered and be an ``NMS stock'' as defined in Rule 
600 of Regulation NMS under the Exchange Act; (2) the security shall be 
characterized by a substantial number of outstanding shares that are 
widely held and actively traded.\32\ Additionally, Rule 402 provides 
that absent exceptional circumstances, an underlying security will not 
be selected for options transactions unless: (1) there are a minimum of 
seven (7) million shares of the underlying security which are owned by 
persons other than those required to report their stock holdings under 
section 16(a) of the Exchange Act; (2) there are a minimum of 2,000 
holders of the underlying security; (3) the issuer is in compliance 
with any applicable requirements of the Exchange Act; and (4) trading 
volume (in all markets in which the underlying security is traded) has 
been at least 2,400,000 shares in the preceding twelve (12) months.\33\ 
The Exchange's proposal does not impact the eligibility of an 
underlying stock to have options listed on it, but rather addresses 
only the listing of new additional option classes on an underlying 
listed on the Exchange in accordance to the Exchange's listings rules. 
As such, the Exchange believes that the listing requirements described 
in Exchange Rule 402 address potential concerns regarding possible 
manipulation. Additionally, in conjunction with the proposed Average 
Daily Volume requirement described herein, the Exchange believes any 
possible market manipulation is further mitigated.
---------------------------------------------------------------------------

    \32\ See Exchange Rule 402(a)(1) and (2).
    \33\ See Exchange Rule 402(b)(1), (2), (3) and (4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    The Exchange does not believe that its proposed rule change will 
impose any burden on intra-market competition as the Rules of the 
Exchange apply equally to all Members of the Exchange and all Members 
may trade the new proposed strikes if they so choose. Specifically, the 
Exchange believes that investors and market participants will 
significantly benefit from the availability of finer strike price 
intervals for stocks priced below $2.50, which will allow them to 
tailor their investment and hedging needs more effectively.
    The Exchange does not believe that its proposed rule change will 
impose any burden on inter-market competition, as nothing prevents 
other options exchanges from proposing similar rules to list and trade 
options on low priced stocks. Rather the Exchange believes that its 
proposal will promote inter-market competition, as the Exchange's 
proposal will result in additional opportunities for investors to 
achieve their investment and trading objectives, to the benefit of 
investors, market participants, and the marketplace in general.

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

    Written comments were neither solicited nor received.

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

    Pursuant to section 19(b)(3)(A) of the Act \34\ and Rule 19b-
4(f)(6) \35\ thereunder, the Exchange has designated this proposal as 
one that effects a change that: (i) does not significantly affect the 
protection of investors or the public interest; (ii) does not impose 
any significant burden on competition; and (iii) by its terms, does not 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest.\36\
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78s(b)(3)(A).
    \35\ 17 CFR 240.19b-4(f)(6).
    \36\ 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.

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[[Page 84383]]

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act normally does not become operative for 30 days after the date of 
its filing. However, Rule 19b-4(f)(6)(iii) \37\ permits the Commission 
to designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange requested 
that the Commission waive the 30-day operative delay so that the 
proposal may become operative immediately upon filing. The Commission 
notes it has approved a proposed rule change substantially identical to 
the one proposed by the Exchange.\38\ The proposed change raises no 
novel legal or regulatory issues. Therefore, the Commission believes 
that waiver of the 30-day operative delay is consistent with the 
protection of investors and the public interest. Accordingly, the 
Commission hereby waives the 30-day operative delay and designates the 
proposed rule change operative upon filing.\39\
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    \37\ 17 CFR 240.19b-4(f)(6)(iii).
    \38\ See supra note 3.
    \39\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-PEARL-2023-66 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-PEARL-2023-66. 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-PEARL-2023-66 and should be 
submitted on or before December 26, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
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    \40\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-26591 Filed 12-4-23; 8:45 am]
BILLING CODE 8011-01-P

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