Document ID: SEC-2023-0471-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE American, LLC
Posted Date: 2023-05-01T04:00Z

[Federal Register Volume 88, Number 83 (Monday, May 1, 2023)]
[Notices]
[Pages 26634-26636]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[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 www.nyse.com, 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: https://ncuoccblobdev.blob.core.windows.net/media/theocc/media/clearing-services/services/options_listing_procedures_plan.pdf. 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

[[Page 26636]]

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

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEAMER-2023-27 on the subject line.

Paper Comments

     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 (https://www.sec.gov/rules/sro.shtml). 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