Notice2023-17444
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Accelerate the Listing of Options on Certain IPOs
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 15, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 156 (Tuesday, August 15, 2023)</title>
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[Federal Register Volume 88, Number 156 (Tuesday, August 15, 2023)]
[Notices]
[Pages 55489-55492]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-17444]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98096; File No. SR-ISE-2023-16]
Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Accelerate the
Listing of Options on Certain IPOs
August 9, 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 4, 2023, Nasdaq ISE, LLC (``ISE'' or ``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 Options 4, Section 3, Criteria For
Underlying Securities. The text of the proposed rule change is
available on the Exchange's website at <a href="https://listingcenter.nasdaq.com/rulebook/ise/rules">https://listingcenter.nasdaq.com/rulebook/ise/rules</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 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 Options 4, Section 3, Criteria For
Underlying Securities. ISE is proposing a listing rule change that is
substantially similar in all material respects to the proposal approved
for NYSE American LLC (``NYSE American'').\3\ Following discussions
with other exchanges and a cross-section of industry participants and
in coordination with the Listed Options Market Structure Working Group
(``LOMSWG'') (collectively, the ``Industry Working Group''), NYSE
American filed a proposed rule change,\4\ which was recently approved,
to modify the standard for the listing and trading of options on
``covered securities'' to reduce the time to market in Rule 915
(Criteria for Underlying Securities). At this time, ISE proposes to
adopt an identical rule.
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\3\ See Securities Exchange Act Release No. 98013 (July 27,
2023) 88 FR 50927 (August 2, 2023) (SR-NYSEAMER-2023-27) (Order
Granting Approval of a Proposed Rule Change to Amend Rule 915
(Criteria for Underlying Securities) to Accelerate the Listing of
Options on Certain IPO).
\4\ Id.
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Proposal
ISE Options 4, Section 3(b)(5) sets forth the guidelines to be
considered in evaluating for option transactions
[[Page 55490]]
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
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\ Options 4, Section 3(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 Options 4, Section 3(a)(1) and (2).
\6\ See Options 4, Section 3(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 Options 4,
Section 3(b)(5)(ii).
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The Exchange notes that the three-day lookback period helps ensure
that options on underlying securities may be listed and traded in a
timely manner while also allowing time for OCC to accommodate the
certification request. However, there are certain large IPOs that issue
high-priced securities--well above the $3.00 per share threshold--that
would obviate the need for the three-day lookback period. In this
regard, NYSE American noted in its rule change that the Industry
Working Group identified proposed changes that would help options on
covered securities that have a market capitalization of at least $3
billion based upon the offering price of its IPO come to market
earlier.\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.\9\
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\7\ See supra note 3.
\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.
\9\ See proposed Options 4, Section 3(b)(5)(i)(B). The Exchange
proposes a non-substantive change to number the existing and
proposed criteria for covered securities as (A) and (B) of paragraph
(b)(5)(i). See proposed Options 4, Section 3(b)(5)(i).
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Accordingly, the Exchange proposes to modify Options 4, Section 3
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).\10\ NYSE American noted in its rule
change that it reviewed trading data for IPO'd securities dating back
to 2017 and is unaware of any such security that achieved a market
capitalization of $3 billion based upon the offering price of its IPO
that would not have also qualified for listing options based on the
three-day lookback requirement.\11\ Specifically, NYSE American stated
in its rule change that it determined that 202 of the 1,179 IPOs that
took place between January 1, 2017, and October 21, 2022, met the $3
billion market capitalization/IPO offering price threshold.\12\
Further, NYSE American stated that options on all 202 of those IPO
shares subsequently satisfied the three-day lookback requirement for
listing and trading, i.e., none of these large IPOs closed below the
$3.00/share threshold during its first three days of its trading.\13\
As such, the Exchange believes the proposed capitalization threshold of
$3 billion based upon the offering price of its IPO is appropriate.
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\10\ 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.
\11\ See supra note 3.
\12\ See supra note 3.
\13\ See supra note 3.
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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.\14\ The Exchange represents that
those surveillances are adequate to reasonably monitor Exchange trading
of IPO'd securities in all trading sessions and to reasonably deter and
detect violations of Exchange rules and federal securities laws
applicable to trading on the Exchange.\15\ As such, the Exchange
believes that its existing surveillance technologies and procedures,
coupled with its findings related to the IPOs reviewed as described
herein, adequately address potential concerns regarding possible
manipulation or price stability.
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\14\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
\15\ See supra note 8.
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Implementation
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 an Options Trader Update.
The Exchange will coordinate the effective date to coincide with the
implementation of the proposed change on the other options exchanges.
2. Statutory Basis
The Exchange believes that its proposal is consistent with section
6(b)
[[Page 55491]]
of the Act,\16\ in general, and furthers the objectives of section
6(b)(5) of the Act,\17\ 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 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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\16\ 15 U.S.C. 78f(b).
\17\ 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, NYSE American noted that it reviewed trading
data for IPO'd securities dating back to 2017 and was 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.\18\ The Exchange believes that the proposed
amendment, which would be harmonized across options exchanges, would
remove impediments to and perfect the mechanism of a free and open
market and a national market system by providing an avenue for
investors to hedge their interest in IPO investments in a shorter
amount of time than what is currently permitted. The Exchange believes
that options serve a valuable tool to the trading community and help
markets function efficiently by mitigating risk. To that end, the
Exchange believes that the absence of options in the early days after
an IPO may heighten volatility to IPO'd securities.\19\
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\18\ See supra note 3.
\19\ 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.\20\ The Exchange
represents that those surveillances are adequate to reasonably monitor
Exchange trading of IPO'd securities in all trading sessions and to
reasonably deter and detect violations of Exchange rules and federal
securities laws applicable to trading on the Exchange, including
wrongful efforts to manipulate the prices of those securities in order
to bring them in compliance with the $3.00/share threshold for the
listing of options. As such, the Exchange believes that its existing
surveillance technologies and procedures, coupled with NYSE American's
findings related to the IPOs reviewed as described herein, would
adequately address potential concerns regarding possible manipulation
or price stability.
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\20\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
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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 either solicited or received.
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 \21\ and Rule 19b-4(f)(6)
thereunder.\22\
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\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 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) \23\ normally
does not become operative prior to 30 days after the date of the
filing. However, Rule 19b-4(f)(6)(iii) \24\ 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.\25\ 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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\23\ Id.
\24\ 17 CFR 240.19b-4(f)(6)(iii).
\25\ 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
[[Page 55492]]
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
<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#d6a4a3bab3fbb5b9bbbbb3b8a2a596a5b3b5f8b1b9a0"><span class="__cf_email__" data-cfemail="9be9eef7feb6f8f4f6f6fef5efe8dbe8fef8b5fcf4ed">[email protected]</span></a>. Please include
file number SR-ISE-2023-16 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-ISE-2023-16. 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-ISE-2023-16 and should be
submitted on or before September 5, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17444 Filed 8-14-23; 8:45 am]
BILLING CODE 8011-01-P
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