
[Federal Register Volume 88, Number 154 (Friday, August 11, 2023)]
[Notices]
[Pages 54687-54690]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17212]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98073; File No. SR-BOX-2023-21]


Self-Regulatory Organizations; BOX Exchange LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Rule 5020 
(Criteria for Underlying Securities) To Accelerate the Listing of 
Options on Certain IPOs

August 7, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 3, 2023, BOX Exchange LLC (``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I and II below, which Items have been 
prepared by the self-regulatory organization. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend BOX Rule 5020 (Criteria for 
Underlying Securities) to permit an underlying security having a market 
capitalization of at least $3 billion based upon the offering price of 
its initial public offering, to be listed and traded starting on or 
after the second business day following the initial public offering 
day. The text of the proposed rule change is available from the 
principal office of the Exchange, at the Commission's Public Reference 
Room and also on the Exchange's internet website at https://rules.boxexchange.com/rulefilings.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing a listings rule change that is 
substantially similar in all material respects to the proposal approved 
for NYSE American LLC (``NYSE American'').\3\ Specifically, the 
Exchange proposes to amend BOX Rule 5020 (Criteria for Underlying 
Securities) to permit an underlying security having a market 
capitalization of at least $3 billion based upon the offering price of 
its initial public offering, to be listed and traded starting on or 
after the second business day following the initial public offering 
day. This is a competitive filing that is based on a proposal recently 
submitted by NYSE American and approved by the Commission.\4\
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    \3\ See Securities Exchange Act Release No. 98013 (July 27, 
2023) (Order Approving SR-NYSEAMER-2023-27).
    \4\ Id.
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    The purpose of the proposed rule change is to amend Rule 5020 
(Criteria for Underlying Securities) (the ``Rule'') as set forth below. 
Following discussions with other exchanges and a cross-section of 
industry participants and in coordination with the Listed Options 
Market Structure Working Group (``LOMSWG'') (collectively, the 
``Industry Working Group''), the Exchange proposes to modify the 
standard set forth in the Rule for the listing and trading of options 
on ``covered securities'' to reduce the time to market.
    Rule 5020(b)(5)(i) sets forth the guidelines to be considered in 
evaluating for option transactions underlying securities that are 
``covered securities,'' as defined in Section 18(b)(1)(A) of the 
Securities Act of 1933 (hereinafter ``covered security'' or ``covered 
securities'').\5\ Currently, the Exchange permits the listing of an 
option on an underlying covered

[[Page 54688]]

security that, amongst other things, has a market price of at least 
$3.00 per share for the previous three consecutive business days 
preceding the date on which the Exchange submits a certificate to The 
Options Clearing Corporation (``OCC'') to list and trade options on the 
underlying security (the ``three-day lookback period'').\6\ Under the 
current rule, if an initial public offering (``IPO'') occurs on a 
Monday, the earliest date the Exchange could submit its listing 
certificate to OCC would be on Thursday, with the market price 
determined by the closing price over the three-day lookback period from 
Monday through Wednesday. The option on the IPO'd security would then 
be eligible for trading on the Exchange on Friday (i.e., within four 
business days of the IPO inclusive of the day the listing certificate 
is submitted to OCC).
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    \5\ Rule 5020(a) requires that, for underlying securities to be 
eligible for option transactions, such securities must be duly 
registered and be an ``NMS stock'' as defined in Rule 600 of 
Regulation NMS under the Act and will be characterized by a 
substantial number of outstanding shares which are widely held and 
actively traded. See BOX Rules 5020(a)(1) and (2).
    \6\ See BOX Rule 5020(b)(5)(i). The Exchange is not proposing to 
make any changes to the guidelines for listing securities that are 
not a ``covered security.'' See BOX Rule 5020(b)(5)(ii).
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    The Exchange notes that the three-day look back period helps ensure 
that options on underlying securities may be listed and traded in a 
timely manner while also allowing time for OCC to accommodate the 
certification request. However, there are certain large IPOs that issue 
high-priced securities--well above the $3.00 per share threshold--that 
would obviate the need for the three-day lookback period. In this 
regard, the Industry Working Group has recently identified proposed 
changes to Rule 5020(b)(5)(i) that would help options on covered 
securities that have a market capitalization of at least $3 billion 
based upon the offering price of its IPO come to market earlier.\7\ The 
proposed change, which is intended to be harmonized across options 
exchanges, is designed to provide investors the opportunity to hedge 
their interest in IPO investments in a shorter amount of time than what 
is currently permitted.\8\ The Exchange believes that options serve a 
valuable tool to the trading community and help markets function 
efficiently by mitigating risk. To that end, the Exchange believes that 
the absence of options in the early days after an IPO may heighten 
volatility in the trading of IPO'd securities.
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    \7\ See proposed Rule 5020(b)(5)(i)(2). The Exchange proposes a 
non-substantive change to number the existing and proposed criteria 
for covered securities as (1) and (2) of paragraph (5)(i). See 
proposed Rule 5020(b)(5)(i).
    \8\ While the Exchange acknowledges that market participants may 
utilize options for speculative purposes (in addition to as a 
hedging tool), the Exchange believes (as set forth below) that its 
existing surveillance technologies and procedures adequately address 
potential violations of Exchange rules and federal securities laws 
applicable to trading on the Exchange.
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    Accordingly, the Exchange proposes to modify Rule 5020 to waive the 
three-day lookback period for covered securities that have a market 
capitalization of at least $3 billion based upon the offering price of 
the IPO of such securities and to allow options on such securities to 
be listed and traded starting on or after the second business day 
following the initial public offering day (i.e., not inclusive of the 
day of the IPO).\9\ NYSE American has reviewed trading data for IPO'd 
securities dating back to 2017 and stated that it is unaware of any 
such security that achieved a market capitalization of $3 billion based 
upon the offering price of its IPO that would not have also qualified 
for listing options based on the three-day lookback requirement. 
Specifically, NYSE American determined that 202 of the 1,179 IPOs that 
took place between January 1, 2017, and October 21, 2022, met the $3 
billion market capitalization/IPO offering price threshold. Options on 
all 202 of those IPO shares subsequently satisfied the three-day 
lookback requirement for listing and trading, i.e., none of these large 
IPOs closed below the $3.00/share threshold during its first three days 
of its trading. As such, the Exchange believes the proposed 
capitalization threshold of $3 billion based upon the offering price of 
its IPO is appropriate.
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    \9\ The Exchange acknowledges that the Options Listing 
Procedures Plan (or ``OLPP'') requires that the listing certificate 
be provided to OCC no earlier than 12:01 a.m. and no later than 
11:00 a.m. (Chicago time) on the trading day prior to the day on 
which trading is to begin. See the OLPP, at p. 3, available here: 
https://www.theocc.com/getmedia/198bfc93-5d51-443c-9e5b-fd575a0a7d0f/options_listing_procedures_plan.pdf. The OLPP is a 
national market system plan that, among other things, sets forth 
procedures governing the listing of new options series.
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    Under the proposed rule, if an IPO for a company with a market 
capitalization of $3 billion based upon the offering price of its IPO 
occurs on a Monday, the Exchange could submit its listing certificate 
to OCC (to list and trade options on the IPO'd security) as soon as all 
the other requirements for listing are satisfied. If, on Tuesday, all 
requirements are deemed satisfied, the IPO'd security could then be 
eligible for trading on the Exchange on Wednesday (i.e., starting on or 
after the second business day following the IPO day). Thus, the 
proposal could potentially accelerate the listing of options on IPO'd 
securities by two days.
    The Exchange believes the proposed change would allow options on 
IPO'd securities to come to market sooner without sacrificing investor 
protection. The Exchange represents that trading in IPO'd securities--
like all other securities traded on the Exchange--is subject to 
surveillances administered by the Exchange and to cross-market 
surveillances administered by FINRA on behalf of the Exchange. Those 
surveillances are designed to detect violations of Exchange rules and 
applicable federal securities laws.\10\ The Exchange represents that 
those surveillances are adequate to reasonably monitor Exchange trading 
of IPO'd securities in all trading sessions and to reasonably deter and 
detect violations of Exchange rules and federal securities laws 
applicable to trading on the Exchange.\11\ As such, the Exchange 
believes that its existing surveillance technologies and procedures, 
coupled with NYSE American's findings related to the IPOs reviewed as 
described herein, adequately address potential concerns regarding 
possible manipulation or price stability.
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    \10\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
    \11\ See supra note 8.
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Implementation Date
    The Exchange will announce the effective date of the proposed 
change by Notice distributed to all Participants.\12\ The Exchange will 
coordinate the effective date to coincide with the implementation of 
the proposed change on the other options exchanges.
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    \12\ The term ``Participant'' means a firm, or organization that 
is registered with the Exchange pursuant to the Rule 2000 Series for 
purposes of participating in trading on a facility of the Exchange 
and includes an ``Options Participant'' and ``BSTX Participant.'' 
See BOX Rule 100(a)(42).
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with the 
requirements of Section 6(b) of the Act,\13\ in general, and Section 
6(b)(5) of the Act,\14\ in particular, in that it is 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 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. In particular, the Exchange 
believes the proposed change would facilitate options transactions and 
would remove impediments to and perfect the mechanism of a free and

[[Page 54689]]

open market and a national market system, which would, in turn, protect 
investors and the public interest by providing an avenue for options on 
IPO'd securities to come to market earlier. The Exchange notes that the 
three-day look back period helps ensure that options on underlying 
securities may be listed and traded in a timely manner while also 
allowing time for OCC to accommodate the certification request. 
However, there are certain large IPOs that issue high-priced 
securities--well above the $3.00 per share threshold--that would 
obviate the need for the three-day lookback period. As noted above, 
NYSE American has reviewed trading data for IPO'd securities dating 
back to 2017 and it is unaware of an IPO'd security with a market 
capitalization of $3 billion or more (based upon the offering price of 
its IPO) that subsequently would have failed to qualify for listing and 
trading as options under the three-day lookback requirement. The 
Exchange believes that the proposed amendment, which would be 
harmonized across options exchanges, would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system by providing an avenue for investors to hedge their interest in 
IPO investments in a shorter amount of time than what is currently 
permitted. The Exchange believes that options serve a valuable tool to 
the trading community and help markets function efficiently by 
mitigating risk. To that end, the Exchange believes that the absence of 
options in the early days after an IPO may heighten volatility to IPO'd 
securities.\15\
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ See supra note 8.
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    Further, as noted herein, the Exchange believes the proposed change 
would allow options on IPO'd securities to come to market sooner (i.e., 
at least two business days post-IPO not inclusive of the day of the 
IPO) without sacrificing investor protection. The Exchange represents 
that trading in IPO'd securities--like all other securities traded on 
the Exchange--is subject to surveillances administered by the Exchange 
and to cross-market surveillances administered by FINRA on behalf of 
the Exchange. Those surveillances are designed to detect violations of 
Exchange rules and applicable federal securities laws.\16\ The Exchange 
represents that those surveillances are adequate to reasonably monitor 
Exchange trading of IPO'd securities in all trading sessions and to 
reasonably deter and detect violations of Exchange rules and federal 
securities laws applicable to trading on the Exchange, including 
wrongful efforts to manipulate the prices of those securities in order 
to bring them in compliance with the $3.00/share threshold for the 
listing of options. As such, the Exchange believes that its existing 
surveillance technologies and procedures, coupled with NYSE American's 
findings related to the IPOs reviewed as described herein, would 
adequately address potential concerns regarding possible manipulation 
or price stability.
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    \16\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In this regard and as indicated 
above, the Exchange notes that the rule change is being proposed as a 
competitive response to a filing submitted by NYSE American that was 
recently approved by the Commission.\17\ The Exchange anticipates that 
the other options exchanges will adopt substantively similar proposals, 
such that there would be no burden on intermarket competition from the 
Exchange's proposal. Accordingly, the proposed change is not meant to 
affect competition among the options exchanges. For these reasons, the 
Exchange believes that the proposed rule change reflects this 
competitive environment and does not impose any undue burden on 
intermarket competition.
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    \17\ See supra note 3.
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C. 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 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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \18\ and Rule 19b-4(f)(6) 
thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \20\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, Rule 19b-4(f)(6)(iii) \21\ 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 
this proposed rule change is substantially similar in all material 
respects to a proposal submitted by NYSE American that was recently 
approved by the Commission.\22\ The Commission believes that waiver of 
the 30-day operative delay is consistent with the protection of 
investors and the public interest because the proposed rule change does 
not raise any new or novel issues. The Exchange represents that it will 
coordinate the effective date to coincide with the implementation of 
the proposed change on the other options exchanges. Accordingly, the 
Commission hereby waives the 30-day operative delay and designates the 
proposed rule change as operative upon filing.
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    \20\ Id.
    \21\ 17 CFR 240.19b-4(f)(6)(iii).
    \22\ See supra note 3.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

[[Page 54690]]

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-BOX-2023-21 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-BOX-2023-21. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-BOX-2023-21 and should be 
submitted on or before September 1, 2023.
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    \23\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-17212 Filed 8-10-23; 8:45 am]
BILLING CODE 8011-01-P


