Notice2023-09080
Self-Regulatory Organizations; NYSE American LLC; Notice of Filing of Proposed Change To Amend Rule 915 (Criteria for Underlying Securities) To Accelerate the Listing of Options on Certain IPOs
Primary source
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Published
May 1, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 83 (Monday, May 1, 2023)</title>
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[Federal Register Volume 88, Number 83 (Monday, May 1, 2023)]
[Notices]
[Pages 26634-26636]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-09080]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97374; File No. SR-NYSEAMER-2023-27]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing of Proposed Change To Amend Rule 915 (Criteria for Underlying
Securities) To Accelerate the Listing of Options on Certain IPOs
April 25, 2023
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on April 21, 2023, NYSE American LLC (``NYSE American'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. 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\ 15 U.S.C. 78a.
\3\ 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 amend Rule 915 (Criteria for Underlying
Securities). The proposed rule change is available on the Exchange's
website at <a href="http://www.nyse.com">www.nyse.com</a>, 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 purpose of the proposed rule change is to amend Rule 915
(Criteria for Underlying Securities) (the ``Rule'') as set forth below.
Following discussions with other exchanges and a cross-section of
industry participants and in coordination with the Listed Options
Market Structure Working Group (``LOMSWG'') (collectively, the
``Industry Working Group''), the Exchange proposes to modify the
standard set forth in the Rule for the listing and trading of options
on ``covered securities'' to reduce the time to market.
Commentary .01(4)(a) to Rule 915 sets forth the guidelines to be
considered in evaluating for option transactions underlying securities
that are ``covered securities,'' as defined in Section 18(b)(1)(A) of
the Securities Act of 1933 (hereinafter ``covered security'' or
``covered securities'').\4\ Currently, the Exchange permits the listing
of an option on an underlying covered security that, amongst other
things, has a market price of at least $3.00 per share for the previous
three consecutive business days preceding the date on which the
Exchange submits a certificate to The Options Clearing Corporation
(``OCC'') to list and trade options on the underlying security (the
``three-day lookback period'').\5\ Under the current rule, if an
initial public offering (``IPO'') occurs on a Monday, the earliest date
the Exchange could submit its listing certificate to OCC would be on
Thursday, with the market price determined by the closing price over
the three-day lookback period from Monday through Wednesday. The option
on the IPO'd security would then be eligible for trading on the
Exchange on Friday (i.e., within four business days of the IPO
inclusive of the day the listing certificate is submitted to OCC).\6\
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\4\ Rule 915(a) requires that, for underlying securities to be
eligible for option transactions, such securities must be duly
registered and be an ``NMS stock'' as defined in Rule 600 of
Regulation NMS under the Act and will be characterized by a
substantial number of outstanding shares which are widely held and
actively traded. See Rule 915(a)(1) and (2).
\5\ See Commentary .01(4)(a) to Rule 915. The Exchange is not
proposing to make any changes to the guidelines for listing
securities that are not a ``covered security.'' See Commentary
.01(4)(b) to Rule 915.
\6\ See proposed Commentary .01(4)(a)(ii) to Rule 915. The
Exchange proposes a non-substantive change to number the existing
and proposed criteria for covered securities as (i) and (ii) of
paragraph (4)(a). See proposed Commentary .01(4)(a)(i) to Rule 915.
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The Exchange notes that the three-day look back period helps ensure
that options on underlying securities may be listed and traded in a
timely manner while also allowing time for OCC to accommodate the
certification request. However, there are certain large IPOs that issue
high-priced securities--well above the $3.00 per share threshold--that
would obviate the need for the three-day lookback period. In this
regard, the Industry Working Group has recently identified proposed
changes to Commentary .01(4)(a) to Rule 915 that would help options on
covered securities that have a market capitalization of at least $3
billion based upon the offering price of its IPO come to market
earlier. The proposed change, which is intended to be harmonized across
options exchanges, is designed to provide investors the opportunity to
hedge their interest in IPO investments in a shorter amount of time
than what is currently permitted.\7\ The Exchange believes that options
serve a valuable tool to the trading community and help markets
function efficiently by mitigating risk. To that end, the Exchange
believes that the absence of options in the early days after an IPO
[[Page 26635]]
may heighten volatility in the trading of IPO'd securities.
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\7\ While the Exchange acknowledges that market participants may
utilize options for speculative purposes (in addition to as a
hedging tool), the Exchange believes (as set forth below) that its
existing surveillance technologies and procedures adequately address
potential violations of exchange rules and federal securities laws
applicable to trading on the Exchange.
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Accordingly, the Exchange proposes to modify Rule 915 to waive the
three-day lookback period for covered securities that have a market
capitalization of at least $3 billion based upon the offering price of
the IPO of such securities and to allow options on such securities to
be listed and traded starting on or after the second business day
following the initial public offering day (i.e., not inclusive of the
day of the IPO).\8\ The Exchange has reviewed trading data for IPO'd
securities dating back to 2017 and is unaware of any such security that
achieved a market capitalization of $3 billion based upon the offering
price of its IPO that would not have also qualified for listing options
based on the three-day lookback requirement. Specifically, the Exchange
has determined that 202 of the 1,179 IPOs that took place between
January 1, 2017, and October 21, 2022, met the $3 billion market
capitalization/IPO offering price threshold. Options on all 202 of
those IPO shares subsequently satisfied the three-day lookback
requirement for listing and trading, i.e., none of these large IPOs
closed below the $3.00/share threshold during its first three days of
its trading. As such, the Exchange believes the proposed capitalization
threshold of $3 billion based upon the offering price of its IPO is
appropriate.
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\8\ The Exchange acknowledges that the Options Listing
Procedures Plan (or ``OLPP'') requires that the listing certificate
be provided to OCC no earlier than 12:01 a.m. and no later than 11
a.m. (Chicago time) on the trading day prior to the day on which
trading is to begin. See the OLPP, at p. 3, available here: <a href="https://ncuoccblobdev.blob.core.windows.net/media/theocc/media/clearing-services/services/options_listing_procedures_plan.pdf">https://ncuoccblobdev.blob.core.windows.net/media/theocc/media/clearing-services/services/options_listing_procedures_plan.pdf</a>. The OLPP is a
national market system plan that, among other things, sets forth
procedures governing the listing of new options series.
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Under the proposed rule, if an IPO for a company with a market
capitalization of $3 billion based upon the offering price of its IPO
occurs on a Monday, the Exchange could submit its listing certificate
to OCC (to list and trade options on the IPO'd security) as soon as all
the other requirements for listing are satisfied. If, on Tuesday, all
requirements are deemed satisfied, the IPO'd security could then be
eligible for trading on the Exchange on Wednesday (i.e., starting on or
after the second business day following the IPO day). Thus, the
proposal could potentially accelerate the listing of options on IPO'd
securities by two days.
The Exchange believes the proposed change would allow options on
IPO'd securities to come to market sooner without sacrificing investor
protection. The Exchange represents that trading in IPO'd securities--
like all other securities traded on the Exchange--is subject to
surveillances administered by the Exchange and to cross-market
surveillances administered by FINRA on behalf of the Exchange. Those
surveillances are designed to detect violations of Exchange rules and
applicable federal securities laws.\9\ The Exchange represents that
those surveillances are adequate to reasonably monitor Exchange trading
of IPO'd securities in all trading sessions and to reasonably deter and
detect violations of Exchange rules and federal securities laws
applicable to trading on the Exchange.\10\ As such, the Exchange
believes that its existing surveillance technologies and procedures,
coupled with its findings related to the IPOs reviewed as described
herein, adequately address potential concerns regarding possible
manipulation or price stability.
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\9\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
\10\ See supra note 7.
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Implementation Date
The proposed rule change will become operative within six months
following the approval of the proposed Rule change to coincide with
implementation on other options exchanges. The Exchange will announce
the effective date of the proposed change by Trader Update distributed
to all ATP Holders.\11\
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\11\ An ``ATP Holder'' refers to a natural person, sole
proprietorship, partnership, corporation, limited liability company
or other organization, in good standing that has been issued an ATP.
See Rule 900.2NY. An ``ATP'' is an American Trading Permit issued by
the Exchange for effecting approved securities transactions on the
Exchange. See id.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\12\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \13\ 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.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
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In particular, the Exchange believes the proposed change would
facilitate options transactions and would remove impediments to and
perfect the mechanism of a free and open market and a national market
system, which would, in turn, protect investors and the public interest
by providing an avenue for options on IPO'd securities to come to
market earlier. The Exchange notes that the three-day look back period
helps ensure that options on underlying securities may be listed and
traded in a timely manner while also allowing time for OCC to
accommodate the certification request. However, there are certain large
IPOs that issue high-priced securities--well above the $3.00 per share
threshold--that would obviate the need for the three-day lookback
period. As noted above, the Exchange has reviewed trading data for
IPO'd securities dating back to 2017 and is unaware of an IPO'd
security with a market capitalization of $3 billion or more (based upon
the offering price of its IPO) that subsequently would have failed to
qualify for listing and trading as options under the three-day lookback
requirement. The Exchange believes that the proposed amendment, which
would be harmonized across options exchanges, would remove impediments
to and perfect the mechanism of a free and open market and a national
market system by providing an avenue for investors to hedge their
interest in IPO investments in a shorter amount of time than what is
currently permitted. The Exchange believes that options serve a
valuable tool to the trading community and help markets function
efficiently by mitigating risk. To that end, the Exchange believes that
the absence of options in the early days after an IPO may heighten
volatility to IPO'd securities.\14\
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\14\ See supra note 7.
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Further, as noted herein, the Exchange believes the proposed change
would allow options on IPO'd securities to come to market sooner (i.e.,
at least two business days post-IPO not inclusive of the day of the
IPO) without sacrificing investor protection. The Exchange represents
that trading in IPO'd securities--like all other securities traded on
the Exchange--is subject to surveillances administered by the Exchange
and to cross-market surveillances administered by FINRA on behalf of
the Exchange. Those surveillances are designed to detect
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violations of Exchange rules and applicable federal securities
laws.\15\ The Exchange represents that those surveillances are adequate
to reasonably monitor Exchange trading of IPO'd securities in all
trading sessions and to reasonably deter and detect violations of
Exchange rules and federal securities laws applicable to trading on the
Exchange, including wrongful efforts to manipulate the prices of those
securities in order to bring them in compliance with the $3.00/share
threshold for the listing of options. As such, the Exchange believes
that its existing surveillance technologies and procedures, coupled
with its findings related to the IPOs reviewed as described herein,
would adequately address potential concerns regarding possible
manipulation or price stability.
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\15\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
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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 anticipates that the other options exchanges will
adopt substantively similar proposals, such that there would be no
burden on intermarket competition from the Exchange's proposal.
Accordingly, the proposed change is not meant to affect competition
among the options exchanges. For these reasons, the Exchange believes
that the proposed rule change reflects this competitive environment and
does not impose any undue burden on intermarket competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be 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
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#f183849d94dc929e9c9c949f8582b1829492df969e87"><span class="__cf_email__" data-cfemail="5c2e293039713f3331313932282f1c2f393f723b332a">[email protected]</span></a>. Please include
File Number SR-NYSEAMER-2023-27 on the subject line.
Paper Comments
<bullet> 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-NYSEAMER-2023-27. 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 (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. 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-NYSEAMER-2023-27 and
should be submitted on or before May 22, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-09080 Filed 4-28-23; 8:45 am]
BILLING CODE 8011-01-P
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