83_FR_16218 83 FR 16146 - Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 19.3, Criteria for Underlying Securities

83 FR 16146 - Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 19.3, Criteria for Underlying Securities

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 72 (April 13, 2018)

Page Range16146-16150
FR Document2018-07673

Federal Register, Volume 83 Issue 72 (Friday, April 13, 2018)
[Federal Register Volume 83, Number 72 (Friday, April 13, 2018)]
[Notices]
[Pages 16146-16150]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-07673]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83018; File No. SR-CboeBZX-2018-025]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 19.3, Criteria for Underlying Securities

April 8, 2018.
    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 March 29, 2018, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX Options'') 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 Exchange 
has designated this proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6)(iii) thereunder,\4\ which renders it effective upon filing with 
the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend Rule 19.3(b).
    (additions are italicized; deletions are [bracketed])

* * * * *

Cboe BZX Exchange, Inc.

Rules

* * * * *

Rule 19.3. Criteria for Underlying Securities

    (a) (No change).
    (b) In addition, the Exchange shall from time to time establish 
standards to be considered in evaluating potential underlying 
securities for BZX Options options transactions. There are many 
relevant factors which must be considered in arriving at such a 
determination, and the fact that a particular security may meet the 
standards established by the Exchange does not necessarily mean that 
it will be selected as an underlying security. The Exchange may give 
consideration to maintaining diversity among various industries and 
issuers in selecting underlying securities. Notwithstanding the 
foregoing, an underlying security will not be selected unless:
    (1)-(4) (No change).
    (5) Either:
    (A) if the underlying security is a ``covered security'' as 
defined under Section 18(b)(1)(A) of the Securities Act of 1933, the 
market price per share of the underlying security has been at least 
$3.00 for the previous [five]three consecutive business days 
preceding the date on which the Exchange submits a certificate to 
the Clearing Corporation for listing and trading, as measured by the 
closing price reported in the primary market in which the underlying 
security is traded; or
    (B) (No change).
    (c)-(m) (No change).
* * * * *

    The text of the proposed rule change is available at the Exchange's 
website at www.markets.cboe.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 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 parts 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 Rule 19.3, Criteria for Underlying 
Securities, 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'' or ``covered securities''). This 
is a competitive filing that is based on a proposal recently submitted 
by Nasdaq PHLX LLC (``Nasdaq Phlx'') and approved by the Commission.\5\
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    \5\ See Securities Exchange Act Release No. 82474 (January 9, 
2018), 83 FR 2240 (January 16, 2018) (order approving SR-Phlx-2017-
75); see also Securities Exchange Act Release No. 82828 (March 8, 
2018), 83 FR 11278 (March 14, 2018) (notice of filing and immediate 
effectiveness of SR-MIAX-2018-06).
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    In particular, the Exchange proposes to modify Rule 19.3(b)(5)(A) 
to permit the listing of an option on an underlying covered security 
that has a market price of at least $3.00 per share for the previous 
three (3) consecutive business days preceding the date on which the 
Exchange submits a certificate to the

[[Page 16147]]

Options Clearing Corporation (``OCC'') for listing and trading. The 
Exchange does not intend to amend any other criteria for listing 
options on an underlying security in Rule 19.3.
    Currently the underlying covered security must have a closing 
market price of $3.00 per share for the previous five (5) consecutive 
business days preceding the date on which the Exchange submits a 
listing certificate to OCC. In the proposed amendment, the market price 
will still be measured by the closing price reported in the primary 
market in which the underlying covered security is traded, but the 
measurement will be the price over the prior three (3) consecutive 
business day period preceding the submission of the listing certificate 
to OCC, instead of the prior five (5) business day period.
    The Exchange acknowledges that the Options Listing Procedures Plan 
\6\ 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.\7\ The 
proposed amendment will still comport with that requirement. For 
example, if an initial public offering (``IPO'') occurs at 11:00 a.m. 
on Monday, the earliest date the Exchange could submit its listing 
certificate to OCC would be on Thursday by 12:01 a.m. (Chicago time), 
with the market price determined by the closing price over the three-
day period from Monday through Wednesday. The option on the IPO would 
then be eligible for trading on the Exchange on Friday. The proposed 
amendment would essentially enable options trading within four (4) 
business days of an IPO becoming available instead of six (6) business 
days (five (5) consecutive days plus the day the listing certificate is 
submitted to OCC).
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    \6\ The Plan for the Purpose of Developing and Implementing 
Procedures Designed to Facilitate the Listing and Trading of 
Standardized Options Submitted Pursuant to Section 11a(2)(3)(B) of 
the Securities Exchange Act of 1934 (a/k/a the Options Listing 
Procedures Plan (``OLPP'')) is a national market system plan that, 
among other things, sets forth procedures governing the listing of 
new options series. See Securities Exchange Act Release No. 44521 
(July 6, 2001), 66 FR 36809 (July 13, 2001) (Order approving OLPP). 
The sponsors of OLPP include OCC; Cboe BZX Exchange, Inc. (formerly 
BATS Exchange, Inc.); BOX Options Exchange LLC; Cboe C2 Exchange, 
Inc. (formerly C2 Options Exchange, Incorporated); Cboe Exchange, 
Inc. (formerly Chicago Board Options Exchange, Incorporated); Cboe 
EDGX Exchange, Inc. (formerly EDGX Exchange, Inc.); Miami 
International Securities Exchange, LLC; MIAX PEARL, LLC; The Nasdaq 
Stock Market LLC; NASDAQ BX, Inc.; Nasdaq PHLX LLC; Nasdaq GEMX, 
LLC; Nasdaq ISE, LLC; Nasdaq MRX, LLC; NYSE American, LLC; and NYSE 
Arca, Inc.
    \7\ See OLPP at page 3.
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    The Exchange's initial listing standards for equity options in Rule 
19.3 (including the current price/time standard of $3.00 per share for 
five (5) consecutive business days) are substantially similar to the 
initial listing standards adopted by other options exchanges.\8\ At the 
time BZX Options received its initial approval from the Commission, as 
part of its Rules, the Exchange adopted the options industry adopted 
the ``look back'' period of five consecutive business days, because it 
determined that the five-day period was sufficient to protect against 
attempts to manipulate the market price of the underlying security and 
would provide a reliable test for stability.\9\ Surveillance 
technologies and procedures concerning manipulation have evolved since 
then to provide adequate prevention or detection of rule or securities 
law violations within the proposed time frame, and the Exchange 
represents that its existing trading surveillances are adequate to 
monitor the trading of options on the Exchange.\10\
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    \8\ See, e.g., Phlx Rule 1009, Commentary .01; see also MIAX 
Rule 402(b)(5) and BOX Rule 5020(b)(5).
    \9\ See Securities Exchange Act Release No. 61419 (January 26, 
2010), 75 FR 5157 (February 1, 2010) (SR-BATS-2009-031) (order 
approving rules governing the trading of options on the Cboe BZX 
Exchange).
    \10\ Such surveillance procedures generally focus on detecting 
securities trading subject to opening price manipulation, closing 
price manipulation, layering, spoofing or other unlawful activity 
impacting an underlying security, the option, or both. The Exchange 
has price movement alerts, unusual market activity and order book 
alerts active for all trading symbols. These real-time patterns are 
active for the new security as soon as the IPO begins trading.
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    Furthermore, the Exchange notes that the scope of its surveillance 
program also includes cross-market surveillance for trading that is not 
just limited to the Exchange. In particular, the Exchange or the 
Financial Industry Regulatory Authority (``FINRA''), pursuant to a 
regulatory services agreement on behalf of the Exchange and its 
affiliate Cboe EDGX Exchange, Inc. (``EDGX''), operates a range of 
cross-market equity surveillance patterns to look for potential 
manipulative behavior, including spoofing, algorithm gaming, marking 
the close and open, and momentum ignition strategies, as well as more 
general, abusive behavior related to front running, wash sales, 
quoting/routing, and Reg SHO violations. These cross-market patterns 
incorporate relevant data from various markets beyond the Exchange and 
its affiliates, including data from the New York Stock Exchange 
(``NYSE'') and from the Nasdaq Stock Market (``Nasdaq'').
    Additionally, for options, the Exchange and EDGX utilize an array 
of patterns that monitor manipulation of options, or manipulation of 
equity securities (regardless of venue) for the purpose of impacting 
options prices on both the Exchange and EDGX options markets (i.e., 
mini-manipulation strategies). Surveillance coverage is initiated once 
options begin trading on either the Exchange or EDGX. Accordingly, the 
Exchange believes that the cross-market surveillance performed by the 
Exchange or FINRA on behalf of the Exchange and EDGX, coupled with the 
Exchange staff's real-time monitoring of similarly violative activity 
on the Exchange and EDGX as described herein, reflects a comprehensive 
surveillance program that is adequate to monitor for manipulation of 
the underlying security and overlying option within the proposed three-
day look back period.
    Furthermore, the Exchange notes that the proposed listing criteria 
would still require that the underlying security be listed on NYSE, the 
American Stock Exchange (now known as NYSE American), or the National 
Market System of The Nasdaq Stock Market (now known as the Nasdaq 
Global Market) (collectively, the ``Named Markets''), as provided for 
in the definition of ``covered security'' from Section 18(b)(1)(A) of 
the 1933 Act. Accordingly, the Exchange believes that the proposed rule 
change would still ensure that the underlying security meets the high 
listing standards of a Named Market, and would also ensure that the 
underlying is covered by the regulatory protections (including market 
surveillance, investigation and enforcement) offered by these exchanges 
for trading in covered securities conducted on their facilities.
    Furthermore, the Nasdaq had no cases within the past five years 
where an IPO-related issue for which it had pricing information 
qualified for the $3.00 price requirement during the first three (3) 
days of trading and did not qualify for the $3.00 price requirement 
during the first five (5) days.\11\ In other words, none of these 
qualifying issues fell below the $3.00 threshold within the first three 
(3) or five (5) days of trading. As such, the Exchange believes that 
its existing surveillance technologies and procedures, coupled with 
Nasdaq's

[[Page 16148]]

findings related to the IPO-related issues as described herein, 
adequately address potential concerns regarding possible manipulation 
or price stability within the proposed timeframe.
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    \11\ There were over 750 IPO-related issues on Nasdaq within the 
past five years. Out of all of the issues with pricing information, 
there was only one issue that had a price below $3 during the first 
five consecutive business days. The Exchange notes, however, that 
Nasdaq allows for companies to list on the Nasdaq Capital Market at 
$2.00 or $3.00 per share in some instances, which was the case for 
this particular issue. See Nasdaq Rule 5500 Series for initial 
listing standards on the Nasdaq Capital Market; see also Release No. 
82474 in supra note 5.
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    The Exchange also believes that the proposed look back period can 
be implemented in connection with the other initial listing criteria 
for underlying covered securities. In particular, the Exchange 
recognizes that it may be difficult to verify the number of 
shareholders in the days immediately following an IPO due to the fact 
that stock trades generally clear within two business days (T+2) of 
their trade date and therefore the shareholder count will generally not 
be known until T+2.\12\ The Exchange notes that the current T+2 
settlement cycle was recently reduced from T+3 on September 5, 2017 in 
connection with the Commission's amendments to Rule 15c6-1(a) to adopt 
the shortened settlement cycle,\13\ and the look back period of three 
(3) consecutive business days proposed herein reflects this shortened 
T+2 settlement period. As proposed, stock trades would clear within T+2 
of their trade date (i.e., within three (3) business days) and 
therefore the number of shareholders could be verified within three (3) 
business days, thereby enabling options trading within four (4) 
business days of an IPO (three (3) consecutive business days plus the 
day the listing certificate is submitted to OCC).
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    \12\ The number of shareholders of record can be validated by 
large clearing agencies such as The Depository Trust and Clearing 
Corporation (``DTCC'') upon the settlement date (i.e., T+2).
    \13\ See Securities Exchange Act Release No. 78962 (September 
28, 2016), 81 FR 69240 (October 5, 2016) (Amendment to Securities 
Transaction Settlement Cycle) (File No. S7-22-16).
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    Furthermore, the Exchange notes that it can verify the shareholder 
count with various brokerage firms that have a large retail customer 
clientele. Such firms can confirm the number of individual customers 
who have a position in the new issue. The earliest that these firms can 
provide confirmation is usually the day after the first day of trading 
(T+1) on an unsettled basis, while others can confirm on the third day 
of trading (T+2). The Exchange has confirmed with some of these 
brokerage firms who provide shareholder numbers to the Exchange that 
they are T+2 after an IPO. For the foregoing reasons, the Exchange 
believes that basing the proposed three (3) business day look back 
period on the T+2 settlement cycle would allow for sufficient 
verification of the number of shareholders.
    The proposed rule change will apply to all covered securities that 
meet the criteria of Rule 19.3. Pursuant to Rule 19.3, the Exchange 
establishes guidelines to be considered in evaluating the potential 
underlying securities for Exchange option transactions.\14\ However, 
the fact that a particular security may meet the guidelines established 
by the Exchange does not necessarily mean that it will be approved as 
an underlying security.\15\ As part of the established criteria, the 
issuer must be in compliance with any applicable requirement of the 
Securities Exchange Act of 1934.\16\ Additionally, there are many 
relevant factors that are considered in arriving at a determination to 
approve an underlying security.\17\ Even if the proposed option meets 
the objective criteria, the Exchange may decide not to list, or place 
limitations or conditions upon listing.\18\ The Exchange believes that 
these measures, together with its existing surveillance procedures, 
provide adequate safeguards in the review of any covered security that 
may meet the proposed criteria for consideration of the option within 
the timeframe contained in this proposal.
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    \14\ See Rule 19.3(b). The Exchange established specific 
criteria to be considered in evaluating potential underlying 
securities for Exchange option transactions.
    \15\ Id.
    \16\ See Rule 19.3(b)(3).
    \17\ See Rule 19.3(b).
    \18\ Id.
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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.\19\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \20\ 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) \21\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
    \21\ Id.
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    The Exchange believes that the proposed changes to its listing 
standards for covered securities would allow the Exchange to more 
quickly list options on a qualifying covered security that has met the 
$3.00 eligibility price without sacrificing investor protection. As 
discussed above, the Exchange believes that its existing trading 
surveillances provide a sufficient measure of protection against 
potential price manipulation within the proposed three (3) consecutive 
business day timeframe. The Exchange also believes that the proposed 
three (3) consecutive business day timeframe would continue to be a 
reliable test for price stability in light of Nasdaq's findings that 
none of the IPO-related issues on Nasdaq within the past five years 
that qualified for the $3.00 per share price standard during the first 
three trading days fell below the $3.00 threshold during the fourth or 
fifth trading day. Furthermore, the established guidelines to be 
considered by the Exchange in evaluating the potential underlying 
securities for Exchange option transactions,\22\ together with existing 
trading surveillances, provide adequate safeguards in the review of any 
covered security that may meet the proposed criteria for consideration 
of the option within the proposed timeframe.
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    \22\ See supra notes 14-18.
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    In addition, the Exchange believes that basing the proposed 
timeframe on the T+2 settlement cycle adequately addresses the 
potential difficulties in confirming the number of shareholders of the 
underlying covered security. Having some of the largest brokerage firms 
that provide these shareholder counts to the Exchange confirm that they 
are able to provide these numbers within T+2 further demonstrates that 
the 2,000 shareholder requirement can be sufficiently verified within 
the proposed timeframe. For the foregoing reasons, the Exchange 
believes that the proposed amendments will remove and perfect the 
mechanism of a free and open market and a national market system by 
providing an avenue for investors to swiftly hedged their investment in 
the stock in a shorter amount of time than what is currently in 
place.\23\
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    \23\ This proposed rule change does not alter any obligations of 
issuers or other investors of an IPO that may be subject to a lock-
up or other restrictions on trading related securities.
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    Finally, it should be noted that a price/time standard for the 
underlying security was first adopted when the listed options market 
was in its infancy,

[[Page 16149]]

and was intended to prevent the proliferation of options being listed 
on low-priced securities that presented special manipulation concerns 
and/or lacked liquidity needed to maintain fair and orderly 
markets.\24\ When options trading commenced in 1973, the Commission 
determined that it was necessary for securities underlying options to 
meet certain minimum standards regarding both the quality of the issuer 
and the quality of the market for a particular security.\25\ These 
standards, including a price/time standard, were imposed to ensure that 
those issuers upon whose securities options were to be traded were 
widely-held, financially sound companies whose shares had trading 
volume and float substantial enough so as not to be readily susceptible 
to manipulation.\26\ At the time, the Commission determined that the 
imposition of these standards was reasonable in view of the pilot 
nature of options trading and the limited experience of investors with 
options trading.\27\
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    \24\ See Securities Exchange Act Release No. 29628 (August 29, 
1991), 56 FR 43949-01 (September 5, 1991) (SR-AMEX-86-21; SR-CBOE-
86-15; SR-NYSE-86-20; SR-PSE-86-15; and SR-PHLX-86-21) (``1991 
Approval Order'') at 43949 (discussing the Commission's concerns 
when options trading initially commenced in 1973).
    \25\ See 1991 Approval Order at 43949.
    \26\ Id.
    \27\ Id.
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    Now more than 40 years later, the listed options market has evolved 
into a mature market with sophisticated investors. In view of this 
evolution, the Commission has approved various exchange proposals to 
relax some of these initial listing standards throughout the years,\28\ 
including reducing the price/time standard in 2003 from $7.50 per share 
for the majority of business days over a three month period to the 
current $3.00 per share/five business day standard (``2003 
Proposal'').\29\ It has been almost fifteen years since the Commission 
approved the 2003 proposal, and both the listed options market and 
exchange technologies have continued to evolve since then. In this 
instance, the Exchange is only proposing a modest reduction of the 
current five (5) business day standard to three (3) business days to 
correspond to the securities industry's move to a T+2 standard 
settlement cycle.\30\ The $3.00 per share standard and all other 
initial options listing criteria in Rule 19.3 will remain unchanged by 
this proposal. For the reasons discussed herein, the Exchange therefore 
believes that the proposed three (3) business day period will be 
beneficial to the marketplace without sacrificing investor protections.
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    \28\ See, e.g., 1991 Approval Order (modifying a number of 
initial listing criteria, including the reduction of the price/time 
standard from $10 per share each day during the preceding three 
calendar months to $7.50 per share for the majority of days during 
the same period).
    \29\ See Securities Exchange Act Release Nos. 47190 (January 15, 
2003), 68 FR 3072 (January 22, 2003) (SR-CBOE-2002-62); 47352 
(February 11, 2003), 68 FR 8319 (February 20, 2003) (SR-PCX-2003-
06); 47483 (March 11, 2003), 68 FR 13352 (March 19, 2003) (SR-ISE-
2003-04); 47613 (April 1, 2003), 68 FR 17120 (April 8, 2003) (SR-
Amex-2003-19); and 47794 (May 5, 2003), 68 FR 25076 (May 9, 2003) 
(SR-Phlx-2003-27).
    \30\ See supra note 13.
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    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. 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 Nasdaq Phlx 
that was recently approved by the Commission.\31\ The proposed rule 
change will reduce the number of days to list options on an underlying 
security, and is intended to bring new options listings to the 
marketplace quicker.
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    \31\ See supra note 5.
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(B) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received written 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 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) \32\ of the Act and Rule 19b-
4(f)(6) thereunder.\33\
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    \32\ 15 U.S.C. 78s(b)(3)(A).
    \33\ 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 the 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 pursuant to Rule 19b-4(f)(6) under the 
Act \34\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \35\ 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 waiver of the 30-day operative delay would allow the 
Exchange greater flexibility in bringing new options listing to the 
marketplace more quickly, which will be beneficial to the marketplace 
permit fair competition among the exchanges by allowing the Exchange to 
modify the criteria for listing an option on an underlying covered 
security which is currently allowed on Nasdaq Phlx.\36\ Based on the 
foregoing, the Commission believes the waiver of the operative delay is 
consistent with the protection of investors and the public interest. 
Therefore, the Commission hereby waives the operative delay and 
designates the proposal operative upon filing.\37\
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    \34\ 17 CFR 240.19b-4(f)(6).
    \35\ 17 CFR 240.19b-4(f)(6)(iii).
    \36\ See supra note 5.
    \37\ 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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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 proposal is 
consistent with the Act. Comments may be submitted by any of the 
following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File No. SR-CboeBZX-2018-025 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange

[[Page 16150]]

Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File No. SR-CboeBZX-2018-025. 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 (http://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 such filing will also be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File No. SR-CboeBZX-2018-025 and should be submitted on 
or before May 4, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-07673 Filed 4-12-18; 8:45 am]
 BILLING CODE 8011-01-P



                                               16146                              Federal Register / Vol. 83, No. 72 / Friday, April 13, 2018 / Notices

                                               including whether the proposal is                         SECURITIES AND EXCHANGE                                   (A) if the underlying security is a ‘‘covered
                                               consistent with the Act. Comments may                     COMMISSION                                              security’’ as defined under Section
                                               be submitted by any of the following                                                                              18(b)(1)(A) of the Securities Act of 1933, the
                                                                                                         [Release No. 34–83018; File No. SR–                     market price per share of the underlying
                                               methods:                                                  CboeBZX–2018–025]                                       security has been at least $3.00 for the
                                               Electronic Comments                                                                                               previous [five]three consecutive business
                                                                                                         Self-Regulatory Organizations; Cboe                     days preceding the date on which the
                                                  • Use the Commission’s internet                        BZX Exchange, Inc.; Notice of Filing                    Exchange submits a certificate to the Clearing
                                               comment form (http://www.sec.gov/                         and Immediate Effectiveness of a                        Corporation for listing and trading, as
                                               rules/sro.shtml); or                                      Proposed Rule Change To Amend Rule                      measured by the closing price reported in the
                                                  • Send an email to rule-comments@                                                                              primary market in which the underlying
                                                                                                         19.3, Criteria for Underlying Securities                security is traded; or
                                               sec.gov. Please include File No. SR–
                                               CboeEDGX–2018–011 on the subject                          April 8, 2018.                                            (B) (No change).
                                                                                                                                                                   (c)–(m) (No change).
                                               line.                                                        Pursuant to Section 19(b)(1) of the
                                                                                                         Securities Exchange Act of 1934 (the                    *     *     *     *    *
                                               Paper Comments                                                                                                       The text of the proposed rule change
                                                                                                         ‘‘Act’’),1 and Rule 19b–4 thereunder,2
                                                  • Send paper comments in triplicate                    notice is hereby given that on March 29,                is available at the Exchange’s website at
                                               to Secretary, Securities and Exchange                     2018, Cboe BZX Exchange, Inc. (the                      www.markets.cboe.com, at the principal
                                               Commission, 100 F Street NE,                              ‘‘Exchange’’ or ‘‘BZX Options’’) filed                  office of the Exchange, and at the
                                               Washington, DC 20549–1090.                                with the Securities and Exchange                        Commission’s Public Reference Room.
                                               All submissions should refer to File No.                  Commission (‘‘Commission’’) the                         II. Self-Regulatory Organization’s
                                               SR–CboeEDGX–2018–011. This file                           proposed rule change as described in                    Statement of the Purpose of, and
                                               number should be included on the                          Items I and II below, which Items have                  Statutory Basis for, the Proposed Rule
                                               subject line if email is used. To help the                been prepared by the Exchange. The                      Change
                                               Commission process and review your                        Exchange has designated this proposal
                                               comments more efficiently, please use                                                                                In its filing with the Commission, the
                                                                                                         as a ‘‘non-controversial’’ proposed rule
                                               only one method. The Commission will                                                                              Exchange included statements
                                                                                                         change pursuant to Section 19(b)(3)(A)
                                               post all comments on the Commission’s                                                                             concerning the purpose of and basis for
                                                                                                         of the Act 3 and Rule 19b–4(f)(6)(iii)
                                               internet website (http://www.sec.gov/                                                                             the proposed rule change and discussed
                                                                                                         thereunder,4 which renders it effective
                                               rules/sro.shtml). Copies of the                                                                                   any comments it received on the
                                                                                                         upon filing with the Commission. The
                                               submission, all subsequent                                                                                        proposed rule change. The text of these
                                                                                                         Commission is publishing this notice to
                                               amendments, all written statements                                                                                statements may be examined at the
                                                                                                         solicit comments on the proposed rule
                                               with respect to the proposed rule                                                                                 places specified in Item IV below. The
                                                                                                         change from interested persons.
                                                                                                                                                                 Exchange has prepared summaries, set
                                               change that are filed with the
                                                                                                         I. Self-Regulatory Organization’s                       forth in Sections A, B, and C below, of
                                               Commission, and all written
                                                                                                         Statement of the Terms of Substance of                  the most significant parts of such
                                               communications relating to the
                                                                                                         the Proposed Rule Change                                statements.
                                               proposed rule change between the
                                               Commission and any person, other than                        The Exchange filed a proposal to                     (A) Self-Regulatory Organization’s
                                               those that may be withheld from the                       amend Rule 19.3(b).                                     Statement of the Purpose of, and
                                               public in accordance with the                                (additions are italicized; deletions are             Statutory Basis for, the Proposed Rule
                                               provisions of 5 U.S.C. 552, will be                       [bracketed])                                            Change
                                               available for website viewing and                         *          *    *       *      *                        1. Purpose
                                               printing in the Commission’s Public
                                                                                                         Cboe BZX Exchange, Inc.                                    The Exchange proposes to amend
                                               Reference Room, 100 F Street NE,
                                               Washington, DC 20549, on official                         Rules                                                   Rule 19.3, Criteria for Underlying
                                               business days between the hours of                        *          *    *       *      *                        Securities, to modify the criteria for
                                               10:00 a.m. and 3:00 p.m. Copies of such                                                                           listing options on an underlying
                                                                                                         Rule 19.3. Criteria for Underlying Securities           security as defined in Section
                                               filing will also be available for
                                               inspection and copying at the principal                      (a) (No change).                                     18(b)(1)(A) of the Securities Act of 1933
                                               office of the Exchange. All comments                         (b) In addition, the Exchange shall from             (hereinafter ‘‘covered security’’ or
                                                                                                         time to time establish standards to be                  ‘‘covered securities’’). This is a
                                               received will be posted without change.                   considered in evaluating potential
                                               Persons submitting comments are                                                                                   competitive filing that is based on a
                                                                                                         underlying securities for BZX Options
                                               cautioned that we do not redact or edit                   options transactions. There are many relevant
                                                                                                                                                                 proposal recently submitted by Nasdaq
                                               personal identifying information from                     factors which must be considered in arriving            PHLX LLC (‘‘Nasdaq Phlx’’) and
                                               comment submissions. You should                           at such a determination, and the fact that a            approved by the Commission.5
                                               submit only information that you wish                     particular security may meet the standards                 In particular, the Exchange proposes
                                               to make available publicly. All                           established by the Exchange does not                    to modify Rule 19.3(b)(5)(A) to permit
                                               submissions should refer to File No.                      necessarily mean that it will be selected as            the listing of an option on an underlying
                                                                                                         an underlying security. The Exchange may                covered security that has a market price
                                               SR–CboeEDGX–2018–011 and should be                        give consideration to maintaining diversity
                                               submitted on or before May 4, 2018.                                                                               of at least $3.00 per share for the
                                                                                                         among various industries and issuers in                 previous three (3) consecutive business
                                                 For the Commission, by the Division of                  selecting underlying securities.
                                                                                                         Notwithstanding the foregoing, an underlying            days preceding the date on which the
                                               Trading and Markets, pursuant to delegated
                                                                                                                                                                 Exchange submits a certificate to the
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                                               authority.38                                              security will not be selected unless:
                                               Eduardo A. Aleman,                                           (1)–(4) (No change).
                                                                                                                                                                    5 See Securities Exchange Act Release No. 82474
                                                                                                            (5) Either:
                                               Assistant Secretary.                                                                                              (January 9, 2018), 83 FR 2240 (January 16, 2018)
                                               [FR Doc. 2018–07675 Filed 4–12–18; 8:45 am]                   1 15
                                                                                                                                                                 (order approving SR–Phlx–2017–75); see also
                                                                                                                  U.S.C. 78s(b)(1).                              Securities Exchange Act Release No. 82828 (March
                                               BILLING CODE 8011–01–P                                        2 17 CFR 240.19b–4.                                 8, 2018), 83 FR 11278 (March 14, 2018) (notice of
                                                                                                             3 15 U.S.C. 78s(b)(3)(A).
                                                                                                                                                                 filing and immediate effectiveness of SR–MIAX–
                                                 38 17   CFR 200.30–3(a)(12).                                4 17 CFR 240.19b–4(f)(6)(iii).                      2018–06).



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                                                                                Federal Register / Vol. 83, No. 72 / Friday, April 13, 2018 / Notices                                                     16147

                                               Options Clearing Corporation (‘‘OCC’’)                  19.3 (including the current price/time                  options, or manipulation of equity
                                               for listing and trading. The Exchange                   standard of $3.00 per share for five (5)                securities (regardless of venue) for the
                                               does not intend to amend any other                      consecutive business days) are                          purpose of impacting options prices on
                                               criteria for listing options on an                      substantially similar to the initial listing            both the Exchange and EDGX options
                                               underlying security in Rule 19.3.                       standards adopted by other options                      markets (i.e., mini-manipulation
                                                  Currently the underlying covered                     exchanges.8 At the time BZX Options                     strategies). Surveillance coverage is
                                               security must have a closing market                     received its initial approval from the                  initiated once options begin trading on
                                               price of $3.00 per share for the previous               Commission, as part of its Rules, the                   either the Exchange or EDGX.
                                               five (5) consecutive business days                      Exchange adopted the options industry                   Accordingly, the Exchange believes that
                                               preceding the date on which the                         adopted the ‘‘look back’’ period of five                the cross-market surveillance performed
                                               Exchange submits a listing certificate to               consecutive business days, because it                   by the Exchange or FINRA on behalf of
                                               OCC. In the proposed amendment, the                     determined that the five-day period was                 the Exchange and EDGX, coupled with
                                               market price will still be measured by                  sufficient to protect against attempts to               the Exchange staff’s real-time
                                               the closing price reported in the primary               manipulate the market price of the                      monitoring of similarly violative activity
                                               market in which the underlying covered                  underlying security and would provide                   on the Exchange and EDGX as described
                                               security is traded, but the measurement                 a reliable test for stability.9 Surveillance            herein, reflects a comprehensive
                                               will be the price over the prior three (3)              technologies and procedures concerning                  surveillance program that is adequate to
                                               consecutive business day period                         manipulation have evolved since then                    monitor for manipulation of the
                                               preceding the submission of the listing                 to provide adequate prevention or                       underlying security and overlying
                                               certificate to OCC, instead of the prior                detection of rule or securities law                     option within the proposed three-day
                                               five (5) business day period.                           violations within the proposed time                     look back period.
                                                  The Exchange acknowledges that the                   frame, and the Exchange represents that                    Furthermore, the Exchange notes that
                                               Options Listing Procedures Plan 6                       its existing trading surveillances are                  the proposed listing criteria would still
                                               requires that the listing certificate be                adequate to monitor the trading of                      require that the underlying security be
                                               provided to OCC no earlier than 12:01                   options on the Exchange.10                              listed on NYSE, the American Stock
                                               a.m. and no later than 11:00 a.m.                          Furthermore, the Exchange notes that                 Exchange (now known as NYSE
                                               (Chicago time) on the trading day prior                 the scope of its surveillance program                   American), or the National Market
                                               to the day on which trading is to begin.7               also includes cross-market surveillance                 System of The Nasdaq Stock Market
                                               The proposed amendment will still                       for trading that is not just limited to the             (now known as the Nasdaq Global
                                               comport with that requirement. For                      Exchange. In particular, the Exchange or                Market) (collectively, the ‘‘Named
                                               example, if an initial public offering                  the Financial Industry Regulatory                       Markets’’), as provided for in the
                                               (‘‘IPO’’) occurs at 11:00 a.m. on Monday,               Authority (‘‘FINRA’’), pursuant to a                    definition of ‘‘covered security’’ from
                                               the earliest date the Exchange could                    regulatory services agreement on behalf                 Section 18(b)(1)(A) of the 1933 Act.
                                               submit its listing certificate to OCC                   of the Exchange and its affiliate Cboe                  Accordingly, the Exchange believes that
                                               would be on Thursday by 12:01 a.m.                      EDGX Exchange, Inc. (‘‘EDGX’’),                         the proposed rule change would still
                                               (Chicago time), with the market price                   operates a range of cross-market equity                 ensure that the underlying security
                                               determined by the closing price over the                surveillance patterns to look for                       meets the high listing standards of a
                                               three-day period from Monday through                    potential manipulative behavior,                        Named Market, and would also ensure
                                               Wednesday. The option on the IPO                        including spoofing, algorithm gaming,                   that the underlying is covered by the
                                               would then be eligible for trading on the               marking the close and open, and                         regulatory protections (including market
                                               Exchange on Friday. The proposed                        momentum ignition strategies, as well                   surveillance, investigation and
                                               amendment would essentially enable                      as more general, abusive behavior                       enforcement) offered by these exchanges
                                               options trading within four (4) business                related to front running, wash sales,                   for trading in covered securities
                                               days of an IPO becoming available                       quoting/routing, and Reg SHO                            conducted on their facilities.
                                               instead of six (6) business days (five (5)              violations. These cross-market patterns                    Furthermore, the Nasdaq had no cases
                                               consecutive days plus the day the listing               incorporate relevant data from various                  within the past five years where an IPO-
                                               certificate is submitted to OCC).                       markets beyond the Exchange and its                     related issue for which it had pricing
                                                  The Exchange’s initial listing                       affiliates, including data from the New                 information qualified for the $3.00 price
                                               standards for equity options in Rule                    York Stock Exchange (‘‘NYSE’’) and                      requirement during the first three (3)
                                                                                                       from the Nasdaq Stock Market                            days of trading and did not qualify for
                                                  6 The Plan for the Purpose of Developing and
                                                                                                       (‘‘Nasdaq’’).                                           the $3.00 price requirement during the
                                               Implementing Procedures Designed to Facilitate the
                                               Listing and Trading of Standardized Options
                                                                                                          Additionally, for options, the                       first five (5) days.11 In other words, none
                                               Submitted Pursuant to Section 11a(2)(3)(B) of the       Exchange and EDGX utilize an array of                   of these qualifying issues fell below the
                                               Securities Exchange Act of 1934 (a/k/a the Options      patterns that monitor manipulation of                   $3.00 threshold within the first three (3)
                                               Listing Procedures Plan (‘‘OLPP’’)) is a national
                                               market system plan that, among other things, sets
                                                                                                                                                               or five (5) days of trading. As such, the
                                                                                                          8 See, e.g., Phlx Rule 1009, Commentary .01; see
                                               forth procedures governing the listing of new                                                                   Exchange believes that its existing
                                                                                                       also MIAX Rule 402(b)(5) and BOX Rule 5020(b)(5).
                                               options series. See Securities Exchange Act Release
                                                                                                          9 See Securities Exchange Act Release No. 61419
                                                                                                                                                               surveillance technologies and
                                               No. 44521 (July 6, 2001), 66 FR 36809 (July 13,                                                                 procedures, coupled with Nasdaq’s
                                               2001) (Order approving OLPP). The sponsors of           (January 26, 2010), 75 FR 5157 (February 1, 2010)
                                               OLPP include OCC; Cboe BZX Exchange, Inc.               (SR–BATS–2009–031) (order approving rules
                                               (formerly BATS Exchange, Inc.); BOX Options             governing the trading of options on the Cboe BZX           11 There were over 750 IPO-related issues on

                                               Exchange LLC; Cboe C2 Exchange, Inc. (formerly C2       Exchange).                                              Nasdaq within the past five years. Out of all of the
                                               Options Exchange, Incorporated); Cboe Exchange,            10 Such surveillance procedures generally focus      issues with pricing information, there was only one
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                                               Inc. (formerly Chicago Board Options Exchange,          on detecting securities trading subject to opening      issue that had a price below $3 during the first five
                                               Incorporated); Cboe EDGX Exchange, Inc. (formerly       price manipulation, closing price manipulation,         consecutive business days. The Exchange notes,
                                               EDGX Exchange, Inc.); Miami International               layering, spoofing or other unlawful activity           however, that Nasdaq allows for companies to list
                                               Securities Exchange, LLC; MIAX PEARL, LLC; The          impacting an underlying security, the option, or        on the Nasdaq Capital Market at $2.00 or $3.00 per
                                               Nasdaq Stock Market LLC; NASDAQ BX, Inc.;               both. The Exchange has price movement alerts,           share in some instances, which was the case for this
                                               Nasdaq PHLX LLC; Nasdaq GEMX, LLC; Nasdaq               unusual market activity and order book alerts active    particular issue. See Nasdaq Rule 5500 Series for
                                               ISE, LLC; Nasdaq MRX, LLC; NYSE American, LLC;          for all trading symbols. These real-time patterns are   initial listing standards on the Nasdaq Capital
                                               and NYSE Arca, Inc.                                     active for the new security as soon as the IPO begins   Market; see also Release No. 82474 in supra note
                                                  7 See OLPP at page 3.                                trading.                                                5.



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                                               16148                            Federal Register / Vol. 83, No. 72 / Friday, April 13, 2018 / Notices

                                               findings related to the IPO-related issues              19.3, the Exchange establishes                        to permit unfair discrimination between
                                               as described herein, adequately address                 guidelines to be considered in                        customers, issuers, brokers, or dealers.
                                               potential concerns regarding possible                   evaluating the potential underlying                      The Exchange believes that the
                                               manipulation or price stability within                  securities for Exchange option                        proposed changes to its listing standards
                                               the proposed timeframe.                                 transactions.14 However, the fact that a              for covered securities would allow the
                                                  The Exchange also believes that the                  particular security may meet the                      Exchange to more quickly list options
                                               proposed look back period can be                        guidelines established by the Exchange                on a qualifying covered security that has
                                               implemented in connection with the                      does not necessarily mean that it will be             met the $3.00 eligibility price without
                                               other initial listing criteria for                      approved as an underlying security.15                 sacrificing investor protection. As
                                               underlying covered securities. In                       As part of the established criteria, the              discussed above, the Exchange believes
                                               particular, the Exchange recognizes that                issuer must be in compliance with any                 that its existing trading surveillances
                                               it may be difficult to verify the number                applicable requirement of the Securities              provide a sufficient measure of
                                               of shareholders in the days immediately                 Exchange Act of 1934.16 Additionally,                 protection against potential price
                                               following an IPO due to the fact that                   there are many relevant factors that are              manipulation within the proposed three
                                               stock trades generally clear within two                 considered in arriving at a                           (3) consecutive business day timeframe.
                                               business days (T+2) of their trade date                 determination to approve an underlying                The Exchange also believes that the
                                               and therefore the shareholder count will                security.17 Even if the proposed option               proposed three (3) consecutive business
                                               generally not be known until T+2.12 The                 meets the objective criteria, the                     day timeframe would continue to be a
                                               Exchange notes that the current T+2                     Exchange may decide not to list, or                   reliable test for price stability in light of
                                               settlement cycle was recently reduced                   place limitations or conditions upon                  Nasdaq’s findings that none of the IPO-
                                               from T+3 on September 5, 2017 in                        listing.18 The Exchange believes that                 related issues on Nasdaq within the past
                                               connection with the Commission’s                        these measures, together with its                     five years that qualified for the $3.00 per
                                               amendments to Rule 15c6–1(a) to adopt                   existing surveillance procedures,                     share price standard during the first
                                               the shortened settlement cycle,13 and                   provide adequate safeguards in the                    three trading days fell below the $3.00
                                               the look back period of three (3)                       review of any covered security that may               threshold during the fourth or fifth
                                               consecutive business days proposed                      meet the proposed criteria for                        trading day. Furthermore, the
                                               herein reflects this shortened T+2                      consideration of the option within the                established guidelines to be considered
                                               settlement period. As proposed, stock                   timeframe contained in this proposal.                 by the Exchange in evaluating the
                                               trades would clear within T+2 of their                                                                        potential underlying securities for
                                               trade date (i.e., within three (3) business             2. Statutory Basis                                    Exchange option transactions,22 together
                                               days) and therefore the number of                                                                             with existing trading surveillances,
                                               shareholders could be verified within                      The Exchange believes the proposed
                                                                                                       rule change is consistent with the                    provide adequate safeguards in the
                                               three (3) business days, thereby enabling                                                                     review of any covered security that may
                                               options trading within four (4) business                Securities Exchange Act of 1934 (the
                                                                                                       ‘‘Act’’) and the rules and regulations                meet the proposed criteria for
                                               days of an IPO (three (3) consecutive                                                                         consideration of the option within the
                                               business days plus the day the listing                  thereunder applicable to the Exchange
                                                                                                       and, in particular, the requirements of               proposed timeframe.
                                               certificate is submitted to OCC).                                                                                In addition, the Exchange believes
                                                  Furthermore, the Exchange notes that                 Section 6(b) of the Act.19 Specifically,
                                                                                                       the Exchange believes the proposed rule               that basing the proposed timeframe on
                                               it can verify the shareholder count with                                                                      the T+2 settlement cycle adequately
                                               various brokerage firms that have a large               change is consistent with the Section
                                                                                                       6(b)(5) 20 requirements that the rules of             addresses the potential difficulties in
                                               retail customer clientele. Such firms can                                                                     confirming the number of shareholders
                                               confirm the number of individual                        an exchange be designed to prevent
                                                                                                       fraudulent and manipulative acts and                  of the underlying covered security.
                                               customers who have a position in the                                                                          Having some of the largest brokerage
                                               new issue. The earliest that these firms                practices, to promote just and equitable
                                                                                                       principles of trade, to foster cooperation            firms that provide these shareholder
                                               can provide confirmation is usually the                                                                       counts to the Exchange confirm that
                                               day after the first day of trading (T+1)                and coordination with persons engaged
                                                                                                       in regulating, clearing, settling,                    they are able to provide these numbers
                                               on an unsettled basis, while others can                                                                       within T+2 further demonstrates that
                                               confirm on the third day of trading                     processing information with respect to,
                                                                                                       and facilitating transactions in                      the 2,000 shareholder requirement can
                                               (T+2). The Exchange has confirmed                                                                             be sufficiently verified within the
                                               with some of these brokerage firms who                  securities, to remove impediments to
                                                                                                       and perfect the mechanism of a free and               proposed timeframe. For the foregoing
                                               provide shareholder numbers to the                                                                            reasons, the Exchange believes that the
                                               Exchange that they are T+2 after an IPO.                open market and a national market
                                                                                                       system, and, in general, to protect                   proposed amendments will remove and
                                               For the foregoing reasons, the Exchange                                                                       perfect the mechanism of a free and
                                               believes that basing the proposed three                 investors and the public interest.
                                                                                                       Additionally, the Exchange believes the               open market and a national market
                                               (3) business day look back period on the                                                                      system by providing an avenue for
                                               T+2 settlement cycle would allow for                    proposed rule change is consistent with
                                                                                                       the Section 6(b)(5) 21 requirement that               investors to swiftly hedged their
                                               sufficient verification of the number of                                                                      investment in the stock in a shorter
                                               shareholders.                                           the rules of an exchange not be designed
                                                                                                                                                             amount of time than what is currently
                                                  The proposed rule change will apply
                                                                                                                                                             in place.23
                                               to all covered securities that meet the                    14 See Rule 19.3(b). The Exchange established

                                                                                                       specific criteria to be considered in evaluating         Finally, it should be noted that a
                                               criteria of Rule 19.3. Pursuant to Rule
                                                                                                       potential underlying securities for Exchange option   price/time standard for the underlying
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                                                  12 The number of shareholders of record can be
                                                                                                       transactions.                                         security was first adopted when the
                                                                                                          15 Id.
                                               validated by large clearing agencies such as The                                                              listed options market was in its infancy,
                                                                                                          16 See Rule 19.3(b)(3).
                                               Depository Trust and Clearing Corporation                  17 See Rule 19.3(b).
                                               (‘‘DTCC’’) upon the settlement date (i.e., T+2).                                                                22 See supra notes 14–18.
                                                                                                          18 Id.
                                                  13 See Securities Exchange Act Release No. 78962                                                             23 This proposed rule change does not alter any
                                                                                                          19 15 U.S.C. 78f(b).
                                               (September 28, 2016), 81 FR 69240 (October 5,                                                                 obligations of issuers or other investors of an IPO
                                                                                                          20 15 U.S.C. 78f(b)(5).
                                               2016) (Amendment to Securities Transaction                                                                    that may be subject to a lock-up or other restrictions
                                               Settlement Cycle) (File No. S7–22–16).                     21 Id.                                             on trading related securities.



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                                                                                Federal Register / Vol. 83, No. 72 / Friday, April 13, 2018 / Notices                                                       16149

                                               and was intended to prevent the                         reduction of the current five (5) business                filing. However, Rule 19b–4(f)(6)(iii) 35
                                               proliferation of options being listed on                day standard to three (3) business days                   permits the Commission to designate a
                                               low-priced securities that presented                    to correspond to the securities                           shorter time if such action is consistent
                                               special manipulation concerns and/or                    industry’s move to a T+2 standard                         with the protection of investors and the
                                               lacked liquidity needed to maintain fair                settlement cycle.30 The $3.00 per share                   public interest. The Exchange has asked
                                               and orderly markets.24 When options                     standard and all other initial options                    the Commission to waive the 30-day
                                               trading commenced in 1973, the                          listing criteria in Rule 19.3 will remain                 operative delay so that the proposal may
                                               Commission determined that it was                       unchanged by this proposal. For the                       become operative immediately upon
                                               necessary for securities underlying                     reasons discussed herein, the Exchange                    filing. The Exchange states that waiver
                                               options to meet certain minimum                         therefore believes that the proposed                      of the 30-day operative delay would
                                               standards regarding both the quality of                 three (3) business day period will be                     allow the Exchange greater flexibility in
                                               the issuer and the quality of the market                beneficial to the marketplace without                     bringing new options listing to the
                                               for a particular security.25 These                      sacrificing investor protections.                         marketplace more quickly, which will
                                               standards, including a price/time                          The Exchange does not believe that                     be beneficial to the marketplace permit
                                               standard, were imposed to ensure that                   the proposed rule change will impose                      fair competition among the exchanges
                                               those issuers upon whose securities                     any burden on competition that is not                     by allowing the Exchange to modify the
                                               options were to be traded were widely-                  necessary or appropriate in furtherance                   criteria for listing an option on an
                                               held, financially sound companies                       of the purposes of the Act. In this regard                underlying covered security which is
                                               whose shares had trading volume and                     and as indicated above, the Exchange                      currently allowed on Nasdaq Phlx.36
                                               float substantial enough so as not to be                notes that the rule change is being                       Based on the foregoing, the Commission
                                               readily susceptible to manipulation.26                  proposed as a competitive response to a                   believes the waiver of the operative
                                               At the time, the Commission                             filing submitted by Nasdaq Phlx that                      delay is consistent with the protection
                                               determined that the imposition of these                 was recently approved by the                              of investors and the public interest.
                                               standards was reasonable in view of the                 Commission.31 The proposed rule                           Therefore, the Commission hereby
                                               pilot nature of options trading and the                 change will reduce the number of days                     waives the operative delay and
                                               limited experience of investors with                    to list options on an underlying                          designates the proposal operative upon
                                               options trading.27                                      security, and is intended to bring new                    filing.37
                                                  Now more than 40 years later, the                    options listings to the marketplace                          At any time within 60 days of the
                                               listed options market has evolved into a                quicker.                                                  filing of the proposed rule change, the
                                               mature market with sophisticated                                                                                  Commission summarily may
                                               investors. In view of this evolution, the               (B) Self-Regulatory Organization’s
                                                                                                                                                                 temporarily suspend such rule change if
                                               Commission has approved various                         Statement on Comments on the
                                                                                                                                                                 it appears to the Commission that such
                                               exchange proposals to relax some of                     Proposed Rule Change Received From
                                                                                                                                                                 action is: (i) Necessary or appropriate in
                                               these initial listing standards                         Members, Participants or Others
                                                                                                                                                                 the public interest; (ii) for the protection
                                               throughout the years,28 including
                                                                                                         The Exchange has neither solicited                      of investors; or (iii) otherwise in
                                               reducing the price/time standard in
                                                                                                       nor received written comments on the                      furtherance of the purposes of the Act.
                                               2003 from $7.50 per share for the
                                                                                                       proposed rule change.                                     If the Commission takes such action, the
                                               majority of business days over a three
                                                                                                                                                                 Commission shall institute proceedings
                                               month period to the current $3.00 per                   III. Date of Effectiveness of the
                                                                                                                                                                 to determine whether the proposed rule
                                               share/five business day standard (‘‘2003                Proposed Rule Change and Timing for
                                                                                                                                                                 should be approved or disapproved.
                                               Proposal’’).29 It has been almost fifteen               Commission Action
                                               years since the Commission approved                                                                               IV. Solicitation of Comments
                                                                                                         Because the foregoing proposed rule
                                               the 2003 proposal, and both the listed
                                                                                                       change does not: (i) Significantly affect                   Interested persons are invited to
                                               options market and exchange
                                                                                                       the protection of investors or the public                 submit written data, views and
                                               technologies have continued to evolve
                                                                                                       interest; (ii) impose any significant                     arguments concerning the foregoing,
                                               since then. In this instance, the
                                                                                                       burden on competition; and (iii) become                   including whether the proposal is
                                               Exchange is only proposing a modest
                                                                                                       operative for 30 days from the date on                    consistent with the Act. Comments may
                                                  24 See Securities Exchange Act Release No. 29628
                                                                                                       which it was filed, or such shorter time                  be submitted by any of the following
                                               (August 29, 1991), 56 FR 43949–01 (September 5,         as the Commission may designate, it has                   methods:
                                               1991) (SR–AMEX–86–21; SR–CBOE–86–15; SR–                become effective pursuant to Section
                                                                                                                                                                 Electronic Comments
                                               NYSE–86–20; SR–PSE–86–15; and SR–PHLX–86–               19(b)(3)(A) 32 of the Act and Rule 19b–
                                               21) (‘‘1991 Approval Order’’) at 43949 (discussing      4(f)(6) thereunder.33                                       • Use the Commission’s internet
                                               the Commission’s concerns when options trading
                                               initially commenced in 1973).                             A proposed rule change filed                            comment form (http://www.sec.gov/
                                                  25 See 1991 Approval Order at 43949.                 pursuant to Rule 19b–4(f)(6) under the                    rules/sro.shtml); or
                                                  26 Id.                                               Act 34 normally does not become                             • Send an email to rule-comments@
                                                  27 Id.
                                                                                                       operative for 30 days after the date of its               sec.gov. Please include File No. SR-
                                                  28 See, e.g., 1991 Approval Order (modifying a
                                                                                                                                                                 CboeBZX–2018–025 on the subject line.
                                               number of initial listing criteria, including the         30 See  supra note 13.
                                               reduction of the price/time standard from $10 per
                                                                                                         31 See
                                                                                                                                                                 Paper Comments
                                               share each day during the preceding three calendar                supra note 5.
                                               months to $7.50 per share for the majority of days        32 15 U.S.C. 78s(b)(3)(A).
                                                                                                                                                                   • Send paper comments in triplicate
                                               during the same period).                                  33 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
                                                                                                                                                                 to Secretary, Securities and Exchange
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                                                  29 See Securities Exchange Act Release Nos.          4(f)(6) requires a self-regulatory organization to give
                                               47190 (January 15, 2003), 68 FR 3072 (January 22,       the Commission written notice of its intent to file
                                                                                                                                                                   35 17  CFR 240.19b–4(f)(6)(iii).
                                               2003) (SR–CBOE–2002–62); 47352 (February 11,            the proposed rule change, along with a brief
                                               2003), 68 FR 8319 (February 20, 2003) (SR–PCX–          description and the text of the proposed rule               36 See  supra note 5.
                                               2003–06); 47483 (March 11, 2003), 68 FR 13352           change, at least five business days prior to the date        37 For purposes only of waiving the 30-day

                                               (March 19, 2003) (SR–ISE–2003–04); 47613 (April         of filing of the proposed rule change, or such            operative delay, the Commission has also
                                               1, 2003), 68 FR 17120 (April 8, 2003) (SR–Amex–         shorter time as designated by the Commission. The         considered the proposed rule’s impact on
                                               2003–19); and 47794 (May 5, 2003), 68 FR 25076          Exchange has satisfied this requirement.                  efficiency, competition, and capital formation. See
                                               (May 9, 2003) (SR–Phlx–2003–27).                          34 17 CFR 240.19b–4(f)(6).                              15 U.S.C. 78c(f).



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                                               16150                              Federal Register / Vol. 83, No. 72 / Friday, April 13, 2018 / Notices

                                               Commission, 100 F Street NE,                              SECURITIES AND EXCHANGE                                   has received no comments on the
                                               Washington, DC 20549–1090.                                COMMISSION                                                proposal. The Commission is publishing
                                                                                                                                                                   this notice to solicit comments on
                                               All submissions should refer to File No.                  [Release No. 34–83014; File No. SR–
                                                                                                                                                                   Amendment No. 2 from interested
                                               SR–CboeBZX–2018–025. This file                            CboeBZX–2017–023]
                                                                                                                                                                   persons and is approving the proposed
                                               number should be included on the                                                                                    rule change, as modified by Amendment
                                                                                                         Self-Regulatory Organizations;
                                               subject line if email is used. To help the                                                                          No. 2, on an accelerated basis.
                                                                                                         CboeBZX Exchange, Inc.; Notice of
                                               Commission process and review your                        Filing of Amendment No. 2 and Order
                                               comments more efficiently, please use                                                                               II. Exchange’s Description of the
                                                                                                         Granting Accelerated Approval of a                        Proposal, as Modified by Amendment
                                               only one method. The Commission will                      Proposed Rule Change, as Modified by
                                               post all comments on the Commission’s                                                                               No. 2
                                                                                                         Amendment No. 2, To List and Trade
                                               internet website (http://www.sec.gov/                     Shares of the iShares Gold Strategy                       A. Self-Regulatory Organization’s
                                               rules/sro.shtml). Copies of the                           ETF Under Exchange Rule 14.11(i)                          Statement of the Purpose of, and
                                               submission, all subsequent                                                                                          Statutory Basis for, the Proposed Rule
                                               amendments, all written statements                        April 9, 2018.                                            Change
                                               with respect to the proposed rule                         I. Introduction                                           1. Purpose
                                               change that are filed with the                               On December 21, 2017, CboeBZX                             This Amendment No. 2 to SR–
                                               Commission, and all written                               Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’)                  CboeBZX–2017–023 amends and
                                               communications relating to the                            filed with the Securities and Exchange                    replaces in its entirety Amendment No.
                                               proposed rule change between the                          Commission (‘‘Commission’’), pursuant
                                               Commission and any person, other than                     to Section 19(b)(1) of the Securities                     80% of the Fund’s investments in Gold Futures (as
                                               those that may be withheld from the                       Exchange Act of 1934 (‘‘Act’’) 1 and Rule                 defined below), as calculated using gross notional
                                               public in accordance with the                             19b–4 thereunder,2 a proposed rule                        exposure, will be in CME-listed or LME-listed gold
                                                                                                                                                                   futures or other exchange-traded gold futures with
                                               provisions of 5 U.S.C. 552, will be                       change to list and trade shares                           a similar liquidity profile; (6) represented that all
                                               available for website viewing and                         (‘‘Shares’’) of the iShares Gold Strategy                 of the Listed Gold Derivatives (as defined below)
                                               printing in the Commission’s Public                       ETF (‘‘Fund’’), a series of the iShares                   held by the Fund will trade on markets that are a
                                                                                                         U.S. ETF Trust (‘‘Trust’’), under                         member of, or affiliated with a member of, the
                                               Reference Room, 100 F Street NE,                                                                                    Intermarket Surveillance Group, or with which the
                                               Washington, DC 20549, on official                         Exchange Rule 14.11(i) (‘‘Managed Fund                    Exchange has in place a comprehensive
                                               business days between the hours of                        Shares’’). The proposed rule change was                   surveillance sharing agreement; (7) represented that
                                               10:00 a.m. and 3:00 p.m. Copies of such                   published for comment in the Federal                      all exchange-traded products held by the Fund will
                                                                                                         Register on January 11, 2018.3 On                         be listed on U.S. national securities exchanges; (8)
                                               filing will also be available for                                                                                   stated that the Fund’s investments in derivatives
                                               inspection and copying at the principal                   February 22, 2018, pursuant to Section                    will primarily consist of Gold Futures and clarified
                                               office of the Exchange. All comments                      19(b)(2) of the Act,4 the Commission                      the circumstances under which the Fund may
                                               received will be posted without change.                   designated a longer period within which                   invest in other specified derivatives; (9) represented
                                                                                                         to approve the proposed rule change,                      that the Fund will not hold mortgage-backed or
                                               Persons submitting comments are                                                                                     other asset-backed government obligations; (10)
                                                                                                         disapprove the proposed rule change, or                   clarified that the Fund will not invest in sovereign
                                               cautioned that we do not redact or edit
                                                                                                         institute proceedings to determine                        debt obligations of emerging market countries; (11)
                                               personal identifying information from                     whether to disapprove the proposed                        represented that all Fixed Income Investments (as
                                               comment submissions. You should                           rule change.5 On February 28, 2018, the                   defined below) held by the Fund will be investment
                                               submit only information that you wish                                                                               grade and will not include instruments with a
                                                                                                         Exchange filed Amendment No. 1 to the                     maturity longer than 397 days; (12) clarified the
                                               to make available publicly. All                           proposed rule change, which replaced                      Cash Equivalents (as defined below) in which the
                                               submissions should refer to File No.                      and superseded the proposed rule                          Fund may invest; (13) stated that up to 25% of the
                                               SR–CboeBZX–2018–025 and should be                         change as originally filed. On April 4,                   total assets of the Fund may be indirectly held
                                                                                                                                                                   through the Subsidiary (as defined below); (14)
                                               submitted on or before May 4, 2018.                       2018, the Exchange filed Amendment                        made representations relating to the Fund’s
                                                 For the Commission, by the Division of                  No. 2 to the proposed rule change,                        investments in derivatives, including that such
                                               Trading and Markets, pursuant to delegated                which replaced and superseded the                         investments will be made consistent with the
                                                                                                         proposed rule change as modified by                       Investment Company Act of 1940 and the Fund’s
                                               authority.38                                                                                                        objective and policies, that the Fund does not
                                               Eduardo A. Aleman,
                                                                                                         Amendment No. 1.6 The Commission                          intend to make investments for the purposes of
                                                                                                                                                                   enhancing leverage, and that the Fund will take
                                               Assistant Secretary.                                        1 15  U.S.C. 78s(b)(1).                                 certain actions to mitigate and disclose leveraging
                                               [FR Doc. 2018–07673 Filed 4–12–18; 8:45 am]                 2 17  CFR 240.19b–4.                                    risk; (15) stated where pricing information for the
                                                                                                            3 See Securities Exchange Act Release No. 82444        Fund’s permitted investments will be publicly
                                               BILLING CODE 8011–01–P                                                                                              available; (16) made additional representations
                                                                                                         (Jan. 5, 2018), 83 FR 1438.
                                                                                                            4 15 U.S.C. 78s(b)(2).                                 regarding the Fund, including where information
                                                                                                            5 See Securities Exchange Act Release No. 82758,
                                                                                                                                                                   relating to the Fund and the Shares will be made
                                                                                                                                                                   available; (17) provided additional justification for
                                                                                                         83 FR 8717 (Feb. 28, 2018). The Commission                why the Fund’s proposed investments are
                                                                                                         designated April 11, 2018, as the date by which it        consistent with the Act, including why it is
                                                                                                         should approve or disapprove, or institute                consistent with the Act for the Fund to hold fixed
                                                                                                         proceedings to determine whether to disapprove,           income instruments in a manner that may not
                                                                                                         the proposed rule change.                                 comply with Exchange Rule 14.11(i)(4)(C)(ii); (18)
                                                                                                            6 In Amendment No. 2, the Exchange: (1) Made
                                                                                                                                                                   represented that the Fixed Income Investments of
                                                                                                         changes to reflect that the Fund’s name changed; (2)      the Fund will meet the requirements of Exchange
                                                                                                         represented that the Adviser (as defined below) will      Rule 14.11(i)(4)(C)(ii)(e); (19) made additional
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                                                                                                         erect and maintain fire walls with respect to its         representations regarding the ability of the
                                                                                                         current and future broker-dealer affiliates; (3) stated   Exchange and the Financial Industry Regulatory
                                                                                                         that the Fund’s investments in fixed income               Authority, on behalf of the Exchange, to surveil
                                                                                                         instruments may not comply with Exchange Rule             trading in the Shares and certain of the underlying
                                                                                                         14.11(i)(4)(C)(ii); (4) modified and clarified the        investments; and (20) made other clarifications,
                                                                                                         Fund’s permitted investments, including with              corrections, and technical changes. Amendment No.
                                                                                                         respect to the listed and over-the-counter                2 is available at: https://www.sec.gov/comments/sr-
                                                                                                         derivatives and the fixed income instruments that         cboebzx-2017-023/cboebzx2017023-3383514-
                                                 38 17   CFR 200.30–3(a)(12).                            the Fund may invest in; (5) represented that at least     162149.pdf.



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Document Created: 2018-04-13 00:18:22
Document Modified: 2018-04-13 00:18:22
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation83 FR 16146 

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