Notice2023-19122
Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rule 402 (Criteria for Underlying Securities) To Accelerate the Listing of Options on Certain IPOs
Primary source
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Published
September 6, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 171 (Wednesday, September 6, 2023)</title>
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[Federal Register Volume 88, Number 171 (Wednesday, September 6, 2023)]
[Notices]
[Pages 60996-60999]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-19122]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98249; File No. SR-MIAX-2023-32]
Self-Regulatory Organizations; Miami International Securities
Exchange, LLC; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend Exchange Rule 402 (Criteria for
Underlying Securities) To Accelerate the Listing of Options on Certain
IPOs
August 30, 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 23, 2023, Miami International Securities Exchange LLC
(``MIAX'' 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 Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing a proposal to amend Exchange Rule 402. The
text of the proposed rule change is available on the Exchange's website
at <a href="https://www.miaxglobal.com/markets/us-options/miax-options/rule-filings">https://www.miaxglobal.com/markets/us-options/miax-options/rule-filings</a>, at MIAX's principal office, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Exchange Rule 402, 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 Exchange 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. At this time, the
Exchange 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 IPOs).
\4\ Id.
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Rule 402 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 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).\7\
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\5\ Rule 402(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 402(a)(1) and (2).
\6\ See Rule 402(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 Rule 402(b)(5)(ii).
\7\ See proposed Rule 402(b)(5)(i). The Exchange proposes a non-
substantive change to number the existing and proposed criteria for
covered securities as (A) and (B) of paragraph (5)(i). See proposed
Rule 402(b)(5)(i).
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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 402(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. 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
[[Page 60997]]
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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\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 402 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 stated that it 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, NYSE American 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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\9\ The Exchange acknowledges that the Options Listing
Procedures Plan (``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://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.\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 Members.\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 ``Member'' means an individual or organization
approved to exercise the trading rights associated with a Trading
Permit. Members are deemed ``members'' under the Exchange Act. See
Exchange Rule 100.
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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.\13\ Specifically, the Exchange believes the proposed rule change
is consistent with the section 6(b)(5) \14\ 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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\13\ 15 U.S.C. 78f(b).
\14\ 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 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.\15\
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\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
[[Page 60998]]
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\ See supra note 10.
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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.
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\17\ See supra note 3.
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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
Written comments were neither solicited nor 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 if consistent with the
protection of investors and the public interest, it has become
effective pursuant to section 19(b)(3)(A) of the Act \18\ and Rule 19b-
4(f)(6) \19\ thereunder.
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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, along
with a brief description and text of 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, pursuant to Rule 19b-4(f)(6)(iii),\21\ the Commission
may 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
a waiver of the operative delay is consistent with the protection of
investors and the public interest because it will ensure fair
competition among the exchanges by allowing the Exchange to 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 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. Accordingly, the Commission hereby
waives the 30-day operative delay and designates the proposed rule
change as operative upon filing.\22\
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\20\ 17 CFR 240.19b-4(f)(6).
\21\ 17 CFR 240.19b-4(f)(6)(iii).
\22\ 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
<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#641611080149070b0909010a1017241701074a030b12"><span class="__cf_email__" data-cfemail="2d5f584148004e4240404843595e6d5e484e034a425b">[email protected]</span></a>. Please include
file number SR-MIAX-2023-32 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-MIAX-2023-32. 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
[[Page 60999]]
SR-MIAX-2023-32 and should be submitted on or before September 27,
2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-19122 Filed 9-5-23; 8:45 am]
BILLING CODE 8011-01-P
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