Document ID: SEC-2018-0075-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX LLC
Posted Date: 2018-01-16T05:00Z

[Federal Register Volume 83, Number 10 (Tuesday, January 16, 2018)]
[Notices]
[Pages 2240-2241]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00531]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82474; File No. SR-Phlx-2017-75]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Order Granting 
Approval of a Proposed Rule Change To Amend Rule 1009 To Modify the 
Criteria for Listing an Option on an Underlying Covered Security

January 9, 2018.

I. Introduction

    On September 27, 2017, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
amend the criteria for listing an option on an underlying covered 
security in Phlx Rule 1009, Commentary .01. The proposed rule change 
was published for comment in the Federal Register on October 11, 
2017.\3\ On November 15, 2017 the Exchange submitted a comment letter 
on the proposed rule change.\4\ The Commission received no other 
comment letters. On November 22, 2017, pursuant to Section 19(b)(2) of 
the Act,\5\ the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether the proposed rule change 
should be disapproved.\6\ This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 81814 (Oct. 4, 
2017), 82 FR 47254 (``Notice'').
    \4\ See Letter to Brett J. Fields, Secretary, Commission, from 
Sun Kim, Assistant General Counsel, Exchange, dated November 15, 
2017 (``Exchange Letter'').
    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 82147, 82 FR 47254 
(November 25, 2017). The Commission designated January 9, 2017, as 
the date by which it should approve, disapprove, or institute 
proceedings to determine whether the proposed rule change should be 
disapproved.
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II. Description of the Proposal

    The Exchange proposes to amend Phlx Rule 1009, Commentary .01 to 
modify the criteria for listing options on an underlying security as 
defined in Section 18(b)(1)(A) of the Securities Act of 1933 
(hereinafter ``covered security''). In particular, the Exchange 
proposes to modify Phlx Rule 1009, Commentary .01(4)(i) which currently 
requires that to list an option, the underlying covered security has to 
have a market price of at least $3.00 per share for the previous

[[Page 2241]]

five consecutive business days preceding the date on which the Exchange 
submits a certificate to the Options Clearing Corporation (``OCC'') for 
listing and trading. The Proposal would shorten the current ``look 
back'' period of five consecutive business days to three consecutive 
business days. The Exchange does not propose to amend any other 
criteria in Phlx Rule 1009 and the accompanying Commentary to list an 
option on the Exchange.

III. Discussion and Commission's Findings

    After careful review of the proposed rule change, the Commission 
finds that the proposal is consistent with the requirements of the Act 
and the rules and regulations thereunder that are applicable to a 
national securities exchange.\7\ Specifically, the Commission finds 
that the proposed rule change is consistent with Section 6(b)(5) of the 
Act,\8\ which requires that the rules of a national securities exchange 
be designed, among other things, 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 to protect investors and the public interest; and 
are not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \7\ In approving this rule change, the Commission has considered 
the rule's impact on efficiency, competition, and capital formation. 
See 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(5).
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    As noted above, although the Exchange proposes to shorten the look 
back period for listing options on the Exchange found in Phlx Rule 
1009, Commentary .01(4)(i) from five consecutive business days \9\ to 
three consecutive business days, it does not propose to change any 
other listing provision found in Phlx Rule 1009 and the accompanying 
Commentary, including the requirement of Phlx Rule 1009, Commentary 
.01(2) that the Exchange verify the number of shareholders of a 
security underlying an option. The Exchange states that the proposed 
look back period of three consecutive business days is intended to 
correspond to the securities industry's recent shortening of the 
settlement period from T+3 to the current T+2.\10\ The Exchange 
represents that stock trades would clear within T+2 of their trade date 
(i.e., within three consecutive business days) and therefore the number 
of shareholders could be verified within three consecutive business 
days.\11\ This would facilitate options trading within four business 
days of an IPO (three consecutive business days plus the day the 
listing certificate is submitted to OCC).
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    \9\ See Securities Exchange Act Release Nos. 47190 (January 15, 
2003), 68 FR 3072 (January 22, 2003) (SR-CBOE-2002-62) (Order 
approving CBOE's proposal to, among other things, shorten the look 
back period from the majority of business days during the preceding 
three calendar months to the current five consecutive business 
days); 47794 (May 5, 2003), 68 FR 25076 (May 9, 2003) (SR-Phlx-2003-
27) (Notice and immediate effectiveness of the Exchange's filing 
adopting the same changes to its options listing standards).
    \10\ See Securities Exchange Act Release No. 80295 (March 22, 
2017), 82 FR 15564 (March 29, 2017) (Securities Transaction 
Settlement Cycle) (File No. S7-22-16).
    \11\ In addition to confirming through large clearing agencies 
such as the Depository Trust and Clearing Corporation, the Exchange 
also represents that it can verify the shareholder count with 
various brokerage firms that have a large retail customer clientele, 
and that it has confirmed with some of these brokerage firms who 
provide shareholder numbers to the Exchange that they are able to 
provide these numbers within T+2 after an IPO.
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    The Exchange also represents that its surveillance technologies and 
procedures concerning manipulation provide adequate prevention or 
detection of rule or securities law violations in relation to the 
proposed shortened time frame, and specifically, that its existing 
trading surveillances are adequate to monitor the trading in the 
underlying security and subsequent trading of options.\12\ The 
Commission notes the limited nature of the proposal to shorten the look 
back period of Phlx Rule 1009, Commentary .01(4)(i) from the current 
five consecutive business days to the proposed three consecutive 
business days. In addition, the Exchange represents that its 
surveillance program is comprehensive and adequate to monitor for 
manipulation of the underlying security and overlying option. The 
Commission also notes that it has not received any comments on the 
proposal, aside from the Exchange Letter.
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    \12\ See Notice, supra note 3 at 47255-256; Exchange Letter, 
supra note 4 at 2-3.
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    The Commission finds that the proposal, coupled with the recent 
move to T+2 settlement, would facilitate transactions in securities, 
while providing customers safeguards comparable to those provided under 
the current five consecutive business day look back period. 
Accordingly, the Commission finds that the proposed rule change is 
consistent with the requirements of the Act, specifically the 
requirements that the rules of an Exchange be designed to prevent 
fraudulent and manipulative acts and practices.

IV. Conclusion

    It is therefore ordered that, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-Phlx-2017-75), be and hereby 
is, approved.
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    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00531 Filed 1-12-18; 8:45 am]
 BILLING CODE 8011-01-P