Self-Regulatory Organizations; MEMX LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt a Low Priced Stock Strike Price Interval Program, 15229-15233 [2024-04296]
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Federal Register / Vol. 89, No. 42 / Friday, March 1, 2024 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99599; File No. SR–MEMX–
2024–04]
Self-Regulatory Organizations; MEMX
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Adopt a Low Priced Stock
Strike Price Interval Program
February 26, 2024.
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 February
20, 2024, MEMX LLC (‘‘MEMX’’ 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 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 is filing with the
Commission a proposal to adopt a Low
Priced Stock Strike Price Interval
Program. The text of the proposed rule
change is provided in Exhibit 5.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 19.5 to adopt a Low Priced Stock
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4.
2 17
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Strike Price Interval Program. Miami
International Securities Exchange, LLC
(‘‘MIAX’’) recently received approval to
amend its 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
preceding calendar months.5 At this
time, the Exchange proposes to adopt
rules substantively identical to MIAX in
proposed Rule 19.5, Interpretation and
Policy .09, amend Rule 19.5(d) to add
clarifying text, and amend Rule 19.5
Interpretation and Policy .05(f) to
harmonize the table within that Rule to
the proposed rule text.
Currently, Rule 19.5 describes the
process and procedures for listing and
trading series of options on the
Exchange. Rule 19.5 provides for a $2.50
Strike Price Program, where the
Exchange may select up to 200 option
classes on individual stocks for which
the interval of strike prices will be $2.50
where the strike price is greater than
$25 but less than $50.6 Rule 19.5,
Interpretation and Policy .02 also
provides for a $1 Strike Price Program,
where the interval between strike prices
of series of options 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 19.5,
Interpretation and Policy .06 provides
for a ‘‘$0.50 Strike Program.’’ 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 (‘‘OCC’’) 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 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
5 See Securities Exchange Act Release 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).
6 See Rule 19.5, Interpretation and Policy .03(a).
7 See Rule 19.5, Interpretation and Policy .02(a).
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Exchange.8 The Exchange proposes to
adopt a new strike interval program for
stocks that are not in the
aforementioned $0.50 Strike Program (or
the Short Term Option Series Program) 9
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
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
limitations of that program which
provides that the listing of $0.50 strike
prices is 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 OCC during the
preceding three calendar months.10
Therefore, the Exchange is proposing to
implement a new strike interval
program termed the ‘‘Low Priced Stock
Strike Price Interval Program.’’
To be eligible for the inclusion in the
Low Priced Stock Strike Price Interval
Program, an underlying stock must (1)
close below $2.50 in its primary market
on the previous trading day; and (2)
have an average daily trading volume of
at least 1,000,000 shares per day for the
three 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 $2.00.11 For
the purpose of adding strikes under the
Low Priced Stock Strike Price Interval
8 See
Rule 19.5, Interpretation and Policy .06.
Rule 19.5, Interpretation and Policy .05. The
proposed rule change also makes two nonsubstantive changes to correct inadvertent errors in
the introductory paragraph of Rule 19.5,
Interpretation and Policy .05, by adding the word
‘‘Options’’ in the third sentence so that ‘‘Short Term
Weekly Expirations’’ becomes ‘‘Short Term Options
Weekly Expirations’’, and changing the term
‘‘Option’’ to ‘‘Options’’ in the second to last
sentence.
10 See Rule 19.5, Interpretation and Policy .06.
11 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.
9 See
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Program, the ‘‘price of the underlying
stock’’ is measured in the same way as
‘‘the price of the underlying security’’ is
measured as set forth in Section 3(g) of
the Options Listing Procedures Plan
(‘‘OLPP’’). 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 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 on 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 the
program’s 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
(‘‘ADRs’’), 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 12 months.12 Rule 19.3(f)
provides the criteria for listing options
on ADRs if they meet certain criteria
and guidelines set forth in Rule 19.3.
One of the requirements is that the
average daily trading volume for the
security in the U.S. markets over the
three months preceding the selection of
the ADR for options trading is 100,000
or more shares.13 Finally, the Exchange
may trade options on a broad-based
index pursuant to Rule 19b–4(e) of the
12 See
13 See
Rule 19.3(b)(4).
Rule 19.3(f)(3)(B).
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Securities Exchange Act of 1934 (the
‘‘Act’’) provided a number of conditions
are satisfied. One of those conditions is
that each component security that
accounts for at least 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.14
Additionally, the Exchange proposes
to add non-substantive clarifying
language to Rule 19.5(d), which defines
the interval between strike prices of
series of options on individual stocks.
Specifically, in light of the multiple
strike intervals allowed under various
provisions of Rule 19.5 and the
Interpretations and Policies thereto, the
Exchange proposes to insert ‘‘except as
otherwise provided in this Rule and the
Interpretations and Policies hereto . . .’’
at the beginning of Rule 19.5(d). The
Staff believes this will eliminate any
potential confusion and further clarify
that other strikes not mentioned in
19.5(d) are permissible under the
Exchange’s Rules.15
Lastly, the Exchange proposes to
amend the table in Rule 19.5,
Interpretation and Policy .05(f) to insert
a new column to harmonize the
Exchange’s proposal to the strike
intervals for Short Term Options Series
as described in Rule 19.5, Interpretation
and Policy .05. The table in Rule 19.5,
Interpretation and Policy .05(f) 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.16 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
14 See
Rule 29.3(b)(7).
Exchange notes that this introductory
language appears in MIAX’s similar Rule 404(d).
16 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).
15 The
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‘‘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.
The Exchange recognizes that its
proposal will introduce new strikes in
the marketplace and further
acknowledges that there has been
significant effort 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’’).17 For
example, the Exchange filed a 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’’).18 The Strike Interval
Proposal was intended to remove
repetitive and unnecessary 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.19 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 was not demand. At the
time of its proposal, Nasdaq BX
estimated that the Strike Interval
Proposal would reduce the number of
listed strikes in the options market by
approximately 81,000 strikes.20 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
17 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.
18 Id.
19 Id.
20 Id.
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on the Exchange. However, the
Exchange’s proposal is designed to only
add strikes where there is investor
demand 21 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, the Exchange
notes that 36 were in the $1 Strike Price
Interval Program with $1.00 and $2.00
strikes listed. Under the Exchange’s
proposal, the $0.50 and $1.50 strikes for
these symbols would be added for the
current expiration terms. The remaining
70 symbols eligible under the proposal
would have $0.50, $1.00, $1.50 and
$2.00 strikes added to their current
expiration terms. Therefore, the
Exchange notes that for the 106 symbols
eligible for the Low Priced Stock Strike
Price Interval Program, a total of
approximately 3,250 options would be
added. The Exchange is still in the
process of listing underlying option
symbols in phases in connection with
the launch of MEMX Options, but once
fully rolled out, expects to list over
1,000,000 options, therefore, the
additional options that would be listed
under this proposal would represent a
relatively minor increase of
approximately 0.325% in the number of
options listed.
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
21 See proposed Rule 19.5, Interpretation and
Policy .09(a), which requires that an underlying
stock must (1) close below $2.50 in its primary
market on the previous trading day; and (2) have
an average daily trading volume of at least
1,000,000 shares per day for the three preceding
calendar months.
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(‘‘OPRA’’), has the necessary systems
capacity to handle any additional
messaging traffic associated with this
proposed rule change. The Exchange
also believes that Members 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.
2. Statutory Basis
The Exchange believes that 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.22 Specifically,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 23 requirements that the rules of
an exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 24 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
In particular, 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.25 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,
22 15
23 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
24 Id.
25 See Yahoo! Finance, https://finance.
yahoo.com/quote/SOND/history?p=SOND (last
visited August 10, 2023).
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2023, and had open interest of 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.26 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.
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
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
any previous efforts to eliminate
repetitive and unnecessary strikes in
any fashion.
The Exchange believes that the
proposed program’s average daily
trading volume threshold promotes just
and equitable principles of trade and
removes impediments to and perfects
26 Id.
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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 the proposed
program’s average daily trading volume
requirement is substantially greater than
the average daily trading requirement
currently in place on the Exchange for
options on equity underlyings,27
ADRs,28 and broad-based indexes.29
The Exchange also believes the
proposed rule change is consistent with
Section 6(b)(1) of the Act,30 which
provides that the Exchange be organized
and have the capacity to be able to carry
out the purposes of the Act and to
enforce compliance by the Exchange’s
Members and persons associated with
its Members with the Act, 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 as 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.
The Exchange believes that the
proposal to add non-substantive
clarifying language to Rule 19.5(d),
which defines the interval between
strike prices of series of options on
individual stocks, and make other nonsubstantive corrective edits to Rule 19.5,
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
27 See
supra note 12.
supra note 13.
29 See supra note 14.
30 15 U.S.C. 78f(b)(1).
28 See
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designed to eliminate potential Member
confusion.
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 19.3. Specifically, Rule
19.3(a) 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 with the Commission and
be an ‘‘NMS stock’’ as defined in Rule
600 of Regulation NMS under the Act;
(2) the security shall be characterized by
a substantial number of outstanding
shares that are widely held and actively
traded. Additionally, Rule 19.3(b)
provides that, subject to other factors
the Exchange may consider, an
underlying security will not be selected
for options transactions unless: (1) there
are a minimum of 7,000,000 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 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 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 12 months. 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 with the
Exchange’s listings rules. As such, the
Exchange believes that the listing
requirements described in Rule 19.3
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.
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 intramarket competition as
the Rules of the Exchange apply equally
to all Members and all Members may
trade the new proposed strikes if they so
choose. Specifically, the Exchange
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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’s proposal is
substantively identical to MIAX
Interpretations and Policies .11 and .12
to Rule 404.
The Exchange does not believe that its
proposed rule change will impose any
burden on intermarket 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
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Pursuant to Section 19(b)(3)(A) of the
Act 31 and Rule 19b–4(f)(6) 32
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.33
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) 34 permits
the Commission to designate a shorter
time if such action is consistent with the
protection of investors and the public
31 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
33 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
shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
34 17 CFR 240.19b–4(f)(6)(iii).
32 17
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ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 89, No. 42 / Friday, March 1, 2024 / Notices
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.35 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.36
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.
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–MEMX–2024–04 and should be
submitted on or before March 22, 2024.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.37
Sherry R. Haywood,
Assistant Secretary.
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
MEMX–2024–04 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
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–MEMX–2024–04. 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/
35 See
supra note 5.
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).
36 For
VerDate Sep<11>2014
21:28 Feb 29, 2024
Jkt 262001
[FR Doc. 2024–04296 Filed 2–29–24; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–99603; File No. SR–NYSE–
2024–09]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend Rule
7.31(a)(2)(B)
February 26, 2024.
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 February
16, 2024, New York Stock Exchange
LLC (‘‘NYSE’’ or the ‘‘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
37 17
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.
PO 00000
Frm 00118
Fmt 4703
Sfmt 4703
15233
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 7.31(a)(2)(B) regarding Limit Order
Price Protection. 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
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 Exchange proposes to amend
Rule 7.31(a)(2)(B) (‘‘Limit Order Price
Protection’’) to provide for the
application of Limit Order Price
Protection during the Core Trading
Session even where a contra-side NBB
(NBO) has not been established.
Currently, Rule 7.31(a)(2)(B) provides
that a Limit Order to buy (sell) will be
rejected if it is priced at or above
(below) the greater of $0.15 or a
specified percentage away from the
National Best Offer (National Best Bid)
(‘‘NBO’’ and ‘‘NBB,’’ respectively),4 and
that Limit Order Price Protection will
not be applied to an incoming Limit
Order to buy (sell) if there is no NBO
(NBB).
The Exchange has recently received
requests from market participants to
modify this rule so that during the Core
Trading Session, Limit Order Price
Protection would apply even when no
contra-side NBB or NBO has been
established. In such cases, market
4 For securities with a reference price between
$0.00 and $25.00, the specified percentage is 10%;
for securities with a reference price between $25.01
and $50.00, the specified percentage is 5%; and for
securities with a reference price greater than $50.00,
the specified percentage is 3%.
E:\FR\FM\01MRN1.SGM
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]]>Agencies
[Federal Register Volume 89, Number 42 (Friday, March 1, 2024)]
[Notices]
[Pages 15229-15233]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-04296]
[[Page 15229]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99599; File No. SR-MEMX-2024-04]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing and
Immediate Effectiveness of a Proposed Rule Change To Adopt a Low Priced
Stock Strike Price Interval Program
February 26, 2024.
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 February 20, 2024, MEMX LLC (``MEMX'' 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 Exchange. The Exchange filed the proposal as
a ``non-controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Commission a proposal to adopt a
Low Priced Stock Strike Price Interval Program. The text of the
proposed rule change is provided in Exhibit 5.
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 19.5 to adopt a Low Priced
Stock Strike Price Interval Program. Miami International Securities
Exchange, LLC (``MIAX'') recently received approval to amend its 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 preceding calendar
months.\5\ At this time, the Exchange proposes to adopt rules
substantively identical to MIAX in proposed Rule 19.5, Interpretation
and Policy .09, amend Rule 19.5(d) to add clarifying text, and amend
Rule 19.5 Interpretation and Policy .05(f) to harmonize the table
within that Rule to the proposed rule text.
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release 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).
---------------------------------------------------------------------------
Currently, Rule 19.5 describes the process and procedures for
listing and trading series of options on the Exchange. Rule 19.5
provides for a $2.50 Strike Price Program, where the Exchange may
select up to 200 option classes on individual stocks for which the
interval of strike prices will be $2.50 where the strike price is
greater than $25 but less than $50.\6\ Rule 19.5, Interpretation and
Policy .02 also provides for a $1 Strike Price Program, where the
interval between strike prices of series of options 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 19.5,
Interpretation and Policy .06 provides for a ``$0.50 Strike Program.''
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 (``OCC'') 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 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.\8\ The Exchange
proposes to adopt a new strike interval program for stocks that are not
in the aforementioned $0.50 Strike Program (or the Short Term Option
Series Program) \9\ 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
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 limitations of that program
which provides that the listing of $0.50 strike prices is 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 OCC during the preceding three calendar months.\10\
Therefore, the Exchange is proposing to implement a new strike interval
program termed the ``Low Priced Stock Strike Price Interval Program.''
---------------------------------------------------------------------------
\6\ See Rule 19.5, Interpretation and Policy .03(a).
\7\ See Rule 19.5, Interpretation and Policy .02(a).
\8\ See Rule 19.5, Interpretation and Policy .06.
\9\ See Rule 19.5, Interpretation and Policy .05. The proposed
rule change also makes two non-substantive changes to correct
inadvertent errors in the introductory paragraph of Rule 19.5,
Interpretation and Policy .05, by adding the word ``Options'' in the
third sentence so that ``Short Term Weekly Expirations'' becomes
``Short Term Options Weekly Expirations'', and changing the term
``Option'' to ``Options'' in the second to last sentence.
\10\ See Rule 19.5, Interpretation and Policy .06.
---------------------------------------------------------------------------
To be eligible for the inclusion in the Low Priced Stock Strike
Price Interval Program, an underlying stock must (1) close below $2.50
in its primary market on the previous trading day; and (2) have an
average daily trading volume of at least 1,000,000 shares per day for
the three 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.\11\ For the purpose of adding strikes under the Low Priced
Stock Strike Price Interval
[[Page 15230]]
Program, the ``price of the underlying stock'' is measured in the same
way as ``the price of the underlying security'' is measured as set
forth in Section 3(g) of the Options Listing Procedures Plan
(``OLPP''). 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 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 on 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.
---------------------------------------------------------------------------
\11\ 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.
---------------------------------------------------------------------------
The Exchange believes that the program's 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 (``ADRs''), 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 12 months.\12\ Rule 19.3(f) provides the criteria for
listing options on ADRs if they meet certain criteria and guidelines
set forth in Rule 19.3. One of the requirements is that the average
daily trading volume for the security in the U.S. markets over the
three months preceding the selection of the ADR for options trading is
100,000 or more shares.\13\ Finally, the Exchange may trade options on
a broad-based index pursuant to Rule 19b-4(e) of the Securities
Exchange Act of 1934 (the ``Act'') provided a number of conditions are
satisfied. One of those conditions is that each component security that
accounts for at least 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.\14\
---------------------------------------------------------------------------
\12\ See Rule 19.3(b)(4).
\13\ See Rule 19.3(f)(3)(B).
\14\ See Rule 29.3(b)(7).
---------------------------------------------------------------------------
Additionally, the Exchange proposes to add non-substantive
clarifying language to Rule 19.5(d), which defines the interval between
strike prices of series of options on individual stocks. Specifically,
in light of the multiple strike intervals allowed under various
provisions of Rule 19.5 and the Interpretations and Policies thereto,
the Exchange proposes to insert ``except as otherwise provided in this
Rule and the Interpretations and Policies hereto . . .'' at the
beginning of Rule 19.5(d). The Staff believes this will eliminate any
potential confusion and further clarify that other strikes not
mentioned in 19.5(d) are permissible under the Exchange's Rules.\15\
---------------------------------------------------------------------------
\15\ The Exchange notes that this introductory language appears
in MIAX's similar Rule 404(d).
---------------------------------------------------------------------------
Lastly, the Exchange proposes to amend the table in Rule 19.5,
Interpretation and Policy .05(f) to insert a new column to harmonize
the Exchange's proposal to the strike intervals for Short Term Options
Series as described in Rule 19.5, Interpretation and Policy .05. The
table in Rule 19.5, Interpretation and Policy .05(f) 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.\16\ 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.
---------------------------------------------------------------------------
\16\ 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).
---------------------------------------------------------------------------
The Exchange recognizes that its proposal will introduce new
strikes in the marketplace and further acknowledges that there has been
significant effort 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'').\17\ For example, the Exchange filed a 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'').\18\ The Strike Interval Proposal was intended to
remove repetitive and unnecessary 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.\19\
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 was not demand. At
the time of its proposal, Nasdaq BX estimated that the Strike Interval
Proposal would reduce the number of listed strikes in the options
market by approximately 81,000 strikes.\20\ 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.
---------------------------------------------------------------------------
\17\ 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.
\18\ Id.
\19\ Id.
\20\ Id.
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The Exchange recognizes that its proposal will moderately increase
the total number of option series available
[[Page 15231]]
on the Exchange. However, the Exchange's proposal is designed to only
add strikes where there is investor demand \21\ 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, the Exchange notes that 36 were in the $1 Strike Price
Interval Program with $1.00 and $2.00 strikes listed. Under the
Exchange's proposal, the $0.50 and $1.50 strikes for these symbols
would be added for the current expiration terms. The remaining 70
symbols eligible under the proposal would have $0.50, $1.00, $1.50 and
$2.00 strikes added to their current expiration terms. Therefore, the
Exchange notes that for the 106 symbols eligible for the Low Priced
Stock Strike Price Interval Program, a total of approximately 3,250
options would be added. The Exchange is still in the process of listing
underlying option symbols in phases in connection with the launch of
MEMX Options, but once fully rolled out, expects to list over 1,000,000
options, therefore, the additional options that would be listed under
this proposal would represent a relatively minor increase of
approximately 0.325% in the number of options listed.
---------------------------------------------------------------------------
\21\ See proposed Rule 19.5, Interpretation and Policy .09(a),
which requires that an underlying stock must (1) close below $2.50
in its primary market on the previous trading day; and (2) have an
average daily trading volume of at least 1,000,000 shares per day
for the three preceding calendar months.
---------------------------------------------------------------------------
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 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.
2. Statutory Basis
The Exchange believes that 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.\22\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \23\ requirements that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
Additionally, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \24\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78f(b).
\23\ 15 U.S.C. 78f(b)(5).
\24\ Id.
---------------------------------------------------------------------------
In particular, 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.\25\ 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 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.\26\ 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.
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\25\ See Yahoo! Finance, https://finance.yahoo.com/quote/SOND/history?p=SOND (last visited August 10, 2023).
\26\ Id.
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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 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 any
previous efforts to eliminate repetitive and unnecessary strikes in any
fashion.
The Exchange believes that the proposed program's average daily
trading volume threshold promotes just and equitable principles of
trade and removes impediments to and perfects
[[Page 15232]]
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
the proposed program's average daily trading volume requirement is
substantially greater than the average daily trading requirement
currently in place on the Exchange for options on equity
underlyings,\27\ ADRs,\28\ and broad-based indexes.\29\
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\27\ See supra note 12.
\28\ See supra note 13.
\29\ See supra note 14.
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The Exchange also believes the proposed rule change is consistent
with Section 6(b)(1) of the Act,\30\ which provides that the Exchange
be organized and have the capacity to be able to carry out the purposes
of the Act and to enforce compliance by the Exchange's Members and
persons associated with its Members with the Act, 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 as 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.
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\30\ 15 U.S.C. 78f(b)(1).
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The Exchange believes that the proposal to add non-substantive
clarifying language to Rule 19.5(d), which defines the interval between
strike prices of series of options on individual stocks, and make other
non-substantive corrective edits to Rule 19.5, 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 eliminate potential Member confusion.
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 19.3. Specifically, Rule 19.3(a) 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 with the
Commission and be an ``NMS stock'' as defined in Rule 600 of Regulation
NMS under the Act; (2) the security shall be characterized by a
substantial number of outstanding shares that are widely held and
actively traded. Additionally, Rule 19.3(b) provides that, subject to
other factors the Exchange may consider, an underlying security will
not be selected for options transactions unless: (1) there are a
minimum of 7,000,000 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 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 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 12 months. 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 with the Exchange's listings rules. As such, the Exchange
believes that the listing requirements described in Rule 19.3 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.
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
intramarket competition as the Rules of the Exchange apply equally to
all Members 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's proposal is substantively identical to MIAX
Interpretations and Policies .11 and .12 to Rule 404.
The Exchange does not believe that its proposed rule change will
impose any burden on intermarket 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
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Pursuant to Section 19(b)(3)(A) of the Act \31\ and Rule 19b-
4(f)(6) \32\ 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.\33\
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\31\ 15 U.S.C. 78s(b)(3)(A).
\32\ 17 CFR 240.19b-4(f)(6).
\33\ 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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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) \34\ permits the Commission
to designate a shorter time if such action is consistent with the
protection of investors and the public
[[Page 15233]]
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.\35\
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.\36\
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\34\ 17 CFR 240.19b-4(f)(6)(iii).
\35\ See supra note 5.
\36\ 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-MEMX-2024-04 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-MEMX-2024-04. 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-MEMX-2024-04 and should be
submitted on or before March 22, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
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\37\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-04296 Filed 2-29-24; 8:45 am]
BILLING CODE 8011-01-P
