Notice2023-17212
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 5020 (Criteria for Underlying Securities) To Accelerate the Listing of Options on Certain IPOs
Primary source
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Published
August 11, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 154 (Friday, August 11, 2023)</title>
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[Federal Register Volume 88, Number 154 (Friday, August 11, 2023)]
[Notices]
[Pages 54687-54690]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-17212]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98073; File No. SR-BOX-2023-21]
Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Rule 5020
(Criteria for Underlying Securities) To Accelerate the Listing of
Options on Certain IPOs
August 7, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 3, 2023, BOX Exchange LLC (``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I and II below, which Items have been
prepared by the self-regulatory organization. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend BOX Rule 5020 (Criteria for
Underlying Securities) to permit an underlying security having a market
capitalization of at least $3 billion based upon the offering price of
its initial public offering, to be listed and traded starting on or
after the second business day following the initial public offering
day. The text of the proposed rule change is available from the
principal office of the Exchange, at the Commission's Public Reference
Room and also on the Exchange's internet website at <a href="https://rules.boxexchange.com/rulefilings">https://rules.boxexchange.com/rulefilings</a>.
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 these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
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 is proposing a listings rule change that is
substantially similar in all material respects to the proposal approved
for NYSE American LLC (``NYSE American'').\3\ Specifically, the
Exchange proposes to amend BOX Rule 5020 (Criteria for Underlying
Securities) to permit an underlying security having a market
capitalization of at least $3 billion based upon the offering price of
its initial public offering, to be listed and traded starting on or
after the second business day following the initial public offering
day. This is a competitive filing that is based on a proposal recently
submitted by NYSE American and approved by the Commission.\4\
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\3\ See Securities Exchange Act Release No. 98013 (July 27,
2023) (Order Approving SR-NYSEAMER-2023-27).
\4\ Id.
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The purpose of the proposed rule change is to amend Rule 5020
(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.
Rule 5020(b)(5)(i) 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'').\5\ Currently, the Exchange permits the listing of an
option on an underlying covered
[[Page 54688]]
security that, amongst other things, has a market price of at least
$3.00 per share for the previous three consecutive business days
preceding the date on which the Exchange submits a certificate to The
Options Clearing Corporation (``OCC'') to list and trade options on the
underlying security (the ``three-day lookback period'').\6\ Under the
current rule, if an initial public offering (``IPO'') occurs on a
Monday, the earliest date the Exchange could submit its listing
certificate to OCC would be on Thursday, with the market price
determined by the closing price over the three-day lookback period from
Monday through Wednesday. The option on the IPO'd security would then
be eligible for trading on the Exchange on Friday (i.e., within four
business days of the IPO inclusive of the day the listing certificate
is submitted to OCC).
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\5\ Rule 5020(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 BOX Rules 5020(a)(1) and (2).
\6\ See BOX Rule 5020(b)(5)(i). The Exchange is not proposing to
make any changes to the guidelines for listing securities that are
not a ``covered security.'' See BOX Rule 5020(b)(5)(ii).
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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 Rule 5020(b)(5)(i) that would help options on covered
securities that have a market capitalization of at least $3 billion
based upon the offering price of its IPO come to market earlier.\7\ The
proposed change, which is intended to be harmonized across options
exchanges, is designed to provide investors the opportunity to hedge
their interest in IPO investments in a shorter amount of time than what
is currently permitted.\8\ The Exchange believes that options serve a
valuable tool to the trading community and help markets function
efficiently by mitigating risk. To that end, the Exchange believes that
the absence of options in the early days after an IPO may heighten
volatility in the trading of IPO'd securities.
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\7\ See proposed Rule 5020(b)(5)(i)(2). The Exchange proposes a
non-substantive change to number the existing and proposed criteria
for covered securities as (1) and (2) of paragraph (5)(i). See
proposed Rule 5020(b)(5)(i).
\8\ While the Exchange acknowledges that market participants may
utilize options for speculative purposes (in addition to as a
hedging tool), the Exchange believes (as set forth below) that its
existing surveillance technologies and procedures adequately address
potential violations of Exchange rules and federal securities laws
applicable to trading on the Exchange.
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Accordingly, the Exchange proposes to modify Rule 5020 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).\9\ NYSE American has reviewed trading data for IPO'd
securities dating back to 2017 and stated that it 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, NYSE American 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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\9\ The Exchange acknowledges that the Options Listing
Procedures Plan (or ``OLPP'') requires that the listing certificate
be provided to OCC no earlier than 12:01 a.m. and no later than
11:00 a.m. (Chicago time) on the trading day prior to the day on
which trading is to begin. See the OLPP, at p. 3, available here:
<a href="https://www.theocc.com/getmedia/198bfc93-5d51-443c-9e5b-fd575a0a7d0f/options_listing_procedures_plan.pdf">https://www.theocc.com/getmedia/198bfc93-5d51-443c-9e5b-fd575a0a7d0f/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.\10\ 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.\11\ As such, the Exchange
believes that its existing surveillance technologies and procedures,
coupled with NYSE American's findings related to the IPOs reviewed as
described herein, adequately address potential concerns regarding
possible manipulation or price stability.
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\10\ 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.
\11\ See supra note 8.
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Implementation Date
The Exchange will announce the effective date of the proposed
change by Notice distributed to all Participants.\12\ The Exchange will
coordinate the effective date to coincide with the implementation of
the proposed change on the other options exchanges.
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\12\ The term ``Participant'' means a firm, or organization that
is registered with the Exchange pursuant to the Rule 2000 Series for
purposes of participating in trading on a facility of the Exchange
and includes an ``Options Participant'' and ``BSTX Participant.''
See BOX Rule 100(a)(42).
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2. Statutory Basis
The Exchange believes that the proposal is consistent with the
requirements of Section 6(b) of the Act,\13\ in general, and Section
6(b)(5) of the Act,\14\ in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general to
protect investors and the public interest. In particular, the Exchange
believes the proposed change would facilitate options transactions and
would remove impediments to and perfect the mechanism of a free and
[[Page 54689]]
open market and a national market system, which would, in turn, protect
investors and the public interest by providing an avenue for options on
IPO'd securities to come to market earlier. The Exchange notes that the
three-day look back period helps ensure that options on underlying
securities may be listed and traded in a timely manner while also
allowing time for OCC to accommodate the certification request.
However, there are certain large IPOs that issue high-priced
securities--well above the $3.00 per share threshold--that would
obviate the need for the three-day lookback period. As noted above,
NYSE American has reviewed trading data for IPO'd securities dating
back to 2017 and it 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.\15\
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
\15\ See supra note 8.
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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 violations of
Exchange rules and applicable federal securities laws.\16\ The Exchange
represents that those surveillances are adequate to reasonably monitor
Exchange trading of IPO'd securities in all trading sessions and to
reasonably deter and detect violations of Exchange rules and federal
securities laws applicable to trading on the Exchange, including
wrongful efforts to manipulate the prices of those securities in order
to bring them in compliance with the $3.00/share threshold for the
listing of options. As such, the Exchange believes that its existing
surveillance technologies and procedures, coupled with NYSE American's
findings related to the IPOs reviewed as described herein, would
adequately address potential concerns regarding possible manipulation
or price stability.
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\16\ 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 not necessary or appropriate in
furtherance of the purposes of the Act. In this regard and as indicated
above, the Exchange notes that the rule change is being proposed as a
competitive response to a filing submitted by NYSE American that was
recently approved by the Commission.\17\ 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.
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\17\ See supra note 3.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to Section 19(b)(3)(A) of the Act \18\ and Rule 19b-4(f)(6)
thereunder.\19\
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \20\ normally
does not become operative prior to 30 days after the date of the
filing. However, Rule 19b-4(f)(6)(iii) \21\ permits the Commission to
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Exchange states that
this proposed rule change is substantially similar in all material
respects to a proposal submitted by NYSE American that was recently
approved by the Commission.\22\ The Commission believes that waiver of
the 30-day operative delay is consistent with the protection of
investors and the public interest because the proposed rule change does
not raise any new or novel issues. The Exchange represents that it will
coordinate the effective date to coincide with the implementation of
the proposed change on the other options exchanges. Accordingly, the
Commission hereby waives the 30-day operative delay and designates the
proposed rule change as operative upon filing.
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\20\ Id.
\21\ 17 CFR 240.19b-4(f)(6)(iii).
\22\ See supra note 3.
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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:
[[Page 54690]]
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#4133342d246c222e2c2c242f3532013224226f262e37"><span class="__cf_email__" data-cfemail="d4a6a1b8b1f9b7bbb9b9b1baa0a794a7b1b7fab3bba2">[email protected]</span></a>. Please include
file number SR-BOX-2023-21 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-BOX-2023-21. 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
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-BOX-2023-21 and should be
submitted on or before September 1, 2023.
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\23\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17212 Filed 8-10-23; 8:45 am]
BILLING CODE 8011-01-P
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