Document ID: SEC-2023-0979-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe Exchange, Inc.
Posted Date: 2023-09-08T04:00Z

[Federal Register Volume 88, Number 173 (Friday, September 8, 2023)]
[Notices]
[Pages 62126-62129]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-19355]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98277; File No. SR-CBOE-2023-043]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 4.3 (Criteria for Underlying Securities) To Accelerate the Listing 
of Options on Certain IPOs

September 1, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on August 24, 2023, Cboe Exchange, Inc. (the ``Exchange'' or 
``Cboe Options'') filed with the Securities and Exchange Commission 
(the ``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

    Cboe Exchange, Inc. (the ``Exchange'' or ``Cboe Options'') proposes 
to amend Rule 4.3. The text of the proposed rule change is provided 
below.
    (additions are italicized; deletions are [bracketed])
* * * * *
Rules of Cboe Exchange, Inc.
* * * * *
Rule 4.3. Criteria for Underlying Securities
    (a)-(b) No change.
Interpretations and Policies
    .01 The [Board of Directors]Exchange has established guidelines to 
be considered [by the Exchange in]when evaluating potential underlying 
securities for Exchange option transactions. Absent exceptional 
circumstances with respect to subparagraphs (a)(1), (a)(2), (b)(1), or 
(b)(2) listed below, at the time the Exchange selects an underlying 
security for Exchange option transactions, the following guidelines 
with respect to the issuer shall be met.
    (a) No change.
    (b) Guidelines applicable to the market for the security are:
    (1) No change.
    (2) (A) If the underlying security is a ``covered security'' as 
defined under Section 18(b)(1)(A) of the Securities Act of 1933[,]: (i) 
the market price per share of the underlying security has been at least 
$3.00 for the previous three consecutive business days preceding the 
date on which the Exchange submits a certificate to the OCC for listing 
and trading. For purposes of this Interpretation .01(b)(2)(A), the 
market price of such underlying security is measured by the closing 
price reported in the primary market in which the underlying security 
is traded; however, (ii) the requirements set forth in clause (i) will 
be waived during the three days following an underlying security's 
initial public offering day if the underlying security has a market 
capitalization of at least $3 billion based on upon the offering price 
of its initial public offering, in which case options on the underlying 
security may 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 also available on the 
Exchange's website (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, 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.

[[Page 62127]]

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 Rule 4.3. The Exchange proposes a 
listing rule change that is substantially similar in all material 
respects to the proposal approved for NYSE American LLC (``NYSE 
American'').\3\ NYSE American filed a proposed rule change,\4\ which 
the Securities and Exchange Commission (the ``Commission'') recently 
approved, to modify the standard for the listing and trading of options 
on ``covered securities'' to reduce the time to market in NYSE American 
Rule 915 (Criteria for Underlying Securities). At this time, the 
Exchange proposes to adopt a substantively 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
    Exchange Rule 4.3, Interpretation and Policy .01 sets forth the 
guidelines to be considered by the Exchange in evaluating potential 
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''), for Exchange option 
transactions.\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\ Current Exchange Rule 4.3(a) requires that, for underlying 
securities to be eligible for listing and trading on the Exchange, 
securities must be duly registered and be an NMS stock (as defined 
in Rule 600 of Regulation NMS under the Act) and be characterized by 
a substantial number of outstanding shares that are widely held and 
actively traded. The Exchange also proposes to replace the term 
``Board of Directors'' with Exchange and make conforming 
nonsubstantive changes to the introductory paragraph of Rule 4.3, 
Interpretation and Policy .01, as it is outdated. The Board of 
Directors delegated authority to determine listing criteria to 
Exchange management. Exchange management currently determines 
guidelines for evaluating potential underlying securities for 
Exchange option transactions, as set forth in Rule 4.3(b).
    \6\ See Exchange Rule 4.3, Interpretation and Policy 
.01(b)(2)(A). The Exchange is not proposing to make any changes to 
the guidelines for listing securities that are not a ``covered 
security.'' See Exchange Rule 4.3, Interpretation and Policy 
.01(b)(2)(B).
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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. The Exchange 
understands from market participants that the proposed changes would 
help options on covered securities with a market capitalization of at 
least $3 billion based upon the offering prices of their IPOs come to 
market earlier. The proposed change, which the Exchange expects will be 
harmonized across options exchanges, is designed to provide investors 
the opportunity to hedge their interests in IPO investments in a 
shorter amount of time than what is currently permitted.\7\ The 
Exchange believes that options serve as 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.\8\
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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.
    \8\ See proposed Rule 4.3, Interpretation and Policy 
.01(b)(2)(A)(ii).
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    Accordingly, the Exchange proposes to modify Rule 4.3, 
Interpretation and Policy .01(b)(2) 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 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.\10\ 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.\11\ 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.\12\ 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 OLPP, at p. 3., available here: 
https://www.theocc.com/getmedia/198bfc93-5d51-443c-9e5b-fd575a0a7d0f/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.
    \10\ See supra note 5.
    \11\ Id.
    \12\ Id.
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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, options on 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 options on IPO'd 
securities--like all other options traded on the Exchange--is subject 
to surveillances administered by the Exchange and/or FINRA on

[[Page 62128]]

behalf of the Exchange.\13\ Those surveillances are designed to detect 
violations of Exchange rules and applicable federal securities laws. 
The Exchange represents that those surveillances are adequate to 
reasonably monitor Exchange trading of options on 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.\14\ 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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    \13\ FINRA currently conducts certain surveillances on behalf of 
the Exchange pursuant to a regulatory services agreement. To the 
extent that FINRA may conduct any surveillances on behalf of the 
Exchange pursuant to the regulatory services agreement (which 
surveillances may vary over time), the Exchange is responsible for 
FINRA's performance under the regulatory services agreement. The 
Exchange is also a party to a bilateral Rule 17d-2 Agreement with 
FINRA and various multi-party Rule 17d-2 Agreements with FINRA and 
other national securities exchanges that trade options (e.g., Rule 
17d-2 Agreements governing options sales practice and options 
position limits) and to national market systems plans with the other 
national securities exchanges that trade options (e.g., the national 
market system plan that governs options insider trading for which 
FINRA is the current plan processor).
    \14\ See supra note 9.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\15\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \16\ 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. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \17\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
    \17\ Id.
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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 the Exchange expects to 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 as 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 5.
    \19\ See supra note 9.
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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 
without sacrificing investor protection. The Exchange represents that 
trading in options on IPO'd securities--like all other options traded 
on the Exchange--is subject to surveillances administered by the 
Exchange and/or FINRA on behalf of the Exchange.\20\ Those 
surveillances are designed to detect violations of Exchange rules and 
applicable federal securities laws. The Exchange represents that those 
surveillances are adequate to reasonably monitor Exchange trading of 
options on 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.\21\ 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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    \20\ FINRA currently conducts certain surveillances on behalf of 
the Exchange pursuant to a regulatory services agreement. To the 
extent that FINRA may conduct any surveillances on behalf of the 
Exchange pursuant to the regulatory services agreement (which 
surveillances may vary over time), the Exchange is responsible for 
FINRA's performance under the regulatory services agreement. The 
Exchange is also a party to a bilateral Rule 17d-2 Agreement with 
FINRA and various multi-party Rule 17d-2 Agreements with FINRA and 
other national securities exchanges that trade options (e.g., Rule 
17d-2 Agreements governing options sales practice and options 
position limits) and to national market systems plans with the other 
national securities exchanges that trade options (e.g., the national 
market system plan that governs options insider trading for which 
FINRA is the current plan processor).
    \21\ See supra note 9.
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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 expects 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

    The Exchange 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

[[Page 62129]]

operative for 30 days from the date on which it was filed, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \22\ and Rule 19b-4(f)(6) 
\23\ thereunder.
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    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 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) \24\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\25\ 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 proposed 
rule change may become operative upon filing. The Exchange requested 
the waiver, stating its desire to harmonize its rules to those of NYSE 
American to ensure fair competition among the options exchanges. 
Further, 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. For these reasons, and because the proposed rule change 
does not raise any novel legal or regulatory issues, the Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. Therefore, the 
Commission hereby waives the 30-day operative delay and designates the 
proposal operative upon filing.\26\
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    \24\ 17 CFR 240.19b-4(f)(6).
    \25\ 17 CFR 240.19b-4(f)(6)(iii).
    \26\ 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 change 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

     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-CBOE-2023-043 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-CBOE-2023-043. 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 
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-CBOE-2023-043 and should be 
submitted on or before September 29, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-19355 Filed 9-7-23; 8:45 am]
BILLING CODE 8011-01-P