Self-Regulatory Organizations; BATS Exchange, Inc.; Order Approving Proposed Rule Change To Adopt Rules for the Qualification, Listing and Delisting of Companies on the Exchange, 55148-55153 [2011-22627]

Download as PDF 55148 Federal Register / Vol. 76, No. 172 / Tuesday, September 6, 2011 / Notices [FR Doc. 2011–22652 Filed 9–2–11; 8:45 am] BILLING CODE 8011–01–C SECURITIES AND EXCHANGE COMMISSION [Release No. 34–65225; File No. SR–BATS– 2011–018] Self-Regulatory Organizations; BATS Exchange, Inc.; Order Approving Proposed Rule Change To Adopt Rules for the Qualification, Listing and Delisting of Companies on the Exchange August 30, 2011. I. Introduction On May 12, 2011, BATS Exchange, Inc. (‘‘BATS’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 a proposed rule change to adopt rules for the qualification, listing, and delisting of companies on the Exchange. The proposed rule change was published for comment in the Federal Register on June 1, 2011.3 The Commission received no comment letters regarding the proposal. This order approves the proposed rule change. II. Description of the Proposal The Exchange proposes rules to adopt a program for the qualification, listing, and delisting of companies on the Exchange (‘‘Listing Rules’’).4 The Exchange proposes to eliminate its current rules related to securities traded on the Exchange pursuant to unlisted trading privileges, and to replace such rules with the Listing Rules, which the Exchange notes are primarily based on and substantially similar to the rules of The NASDAQ Stock Market LLC (‘‘NASDAQ’’).5 The Exchange proposes to adopt two distinct tiers of securities 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 64546 (May 25, 2011), 76 FR 31660 (June 1, 2011) (‘‘Notice’’). 4 The Listing Rules are comprised of definitions, the Exchange’s general regulatory authority, the procedures and prerequisites for gaining a listing on the Exchange, the listing standards for units, the disclosure obligations of listed companies, Direct Registration Program requirements, the quantitative listing requirements and standards for listing on the Exchange in Tiers I and II, the corporate governance standards applicable to all listed companies; special listing standards for securities other than common or preferred stock and warrants; the consequences of a failure to meet the Exchange’s listing standards; and the Exchange’s listing fees. 5 See Notice, supra note 3, 76 FR at 31661. The Exchange is not proposing any changes to the rules of the Exchange’s options market. Id. mstockstill on DSK4VPTVN1PROD with NOTICES 2 17 VerDate Mar<15>2010 18:00 Sep 02, 2011 Jkt 223001 to be listed on the Exchange: Tier I and Tier II. The Exchange represents that the proposed standards for a security’s initial and continued listing on Tier I are nearly identical to the existing standards applicable to listing on The Nasdaq Global Market (‘‘NGM’’), and that the proposed standards for a security’s initial and continued listing on Tier II are nearly identical to the existing standards applicable to listing on The Nasdaq Capital Market (‘‘NCM’’).6 While the quantitative standards for Tier I and II differ, the Exchange notes that the qualitative standards for both tiers are the same and are nearly identical to NGM’s existing qualitative standards.7 A. General Regulatory Authority of the Exchange The Exchange proposes to have general, broad discretionary authority over the initial and continued listing of securities on the Exchange in order to maintain the quality of and public confidence in its market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest. The Exchange notes that it may use such discretion to deny initial listing, to apply additional or more stringent standards for the initial or continued listing of particular securities, or to suspend or delist particular securities based on any event, condition, or circumstance that exists or occurs that makes initial or continued listing of the securities on the Exchange inadvisable or unwarranted in the opinion of the Exchange, even though the securities meet all enumerated standards for initial or continued listing.8 The Exchange also proposes guidance regarding the circumstances in which it would invoke discretionary authority and the types of factors it would consider when making determinations pursuant to such authority. In addition, the Exchange proposes guidance on its use of discretionary authority as it relates to a Company 9 whose business plan is to complete an initial public offering and engage in a merger or acquisition with one or more unidentified Companies within a 6 The Notice identifies to which market’s quantitative standards (either NGM or NCM) and the NASDAQ rules the proposed BATS standards are comparable. Id. The Exchange is not proposing to adopt a tier equivalent to the NASDAQ Global Select Market. Id. 7 Id. 8 Id. 9 For purposes of the Listing Rules, a ‘‘Company’’ would be any issuer of a security listed or applying to list on the Exchange, including an issuer that is not incorporated (e.g., a limited partnership). PO 00000 Frm 00151 Fmt 4703 Sfmt 4703 specific period of time. The Exchange would permit the listing of such a Company if the Company were to meet all applicable initial listing standards, as well as the factors considered pursuant to its discretionary authority. The Exchange further proposes guidance on the use of its discretionary authority when a Company files for protection under any provision of the federal bankruptcy laws or comparable foreign laws. B. General Procedures and Prerequisites for Listing The Exchange proposes an application process that a Company must complete in order to be listed on the Exchange. To apply for listing on the Exchange, a Company would have to execute a Listing Agreement and a Listing Application on forms made available by the Exchange in order to provide the information required by Section 12(b) of the Act.10 A Company’s qualifications would be determined on the basis of financial statements that are either: (1) Prepared in accordance with U.S. generally accepted accounting principles; (2) reconciled to U.S. generally accepted accounting principles as required by the Commission’s rules; or (3) prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board, for Companies that are permitted to file financial statements using those standards consistent with the Commission’s rules. The Exchange also proposes prerequisites for an applicant Company to become listed on the Exchange: (1) The security would have to be registered pursuant to Section 12(b) of the Act 11 or subject to an applicable exemption; (2) the Company would have to be audited by a registered independent public accountant; (3) the securities would have to be eligible for a Direct Registration Program operated by a clearing agency registered under Section 17A of the Act,12 subject to certain exceptions; (4) the Company would have to pay the Exchange’s listing fees; (5) the securities would have to be in good standing with the Commission or Other Regulatory Authority; 13 (6) the Exchange would have to certify to the 10 15 U.S.C. 78l(b). 11 Id. 12 15 U.S.C. 78q–1. ‘‘ ‘Direct Registration Program’ means any program by a Company, directly or through its transfer agent, whereby a shareholder may have securities registered in the shareholder’s name on the books of the Company or its transfer agent without the need for a physical certificate to evidence ownership.’’ Proposed BATS Rule 14.1(a)(6). 13 See proposed BATS Rule 14.1(t). E:\FR\FM\06SEN1.SGM 06SEN1 Federal Register / Vol. 76, No. 172 / Tuesday, September 6, 2011 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES Commission, and the securities would have to become effective, pursuant to Section 12(d) of the Act; 14 and (7) the securities would have to be depositary eligible pursuant to the rules and procedures of a securities depository registered as a clearing agency under Section 17A of the Act.15 The Exchange proposes to permit Companies, which have securities listed on another national securities exchange, to apply to list those securities on the Exchange. The Exchange represents that this would foster competition among markets and further the development of the national market system.16 The Exchange would make an independent determination of whether such Companies satisfy all applicable listing standards and would require Companies to enter into a dual listing agreement with the Exchange. While the Exchange would certify such dually listed securities for listing on the Exchange, it would not exercise its authority separately to designate or register such dually listed securities as national market system securities within the meaning of Section 11A of the Act or the rules thereunder. As a result, these securities, which already would be designated as national market system securities under the Consolidated Quotation Service (‘‘CQS’’) and Consolidated Tape Association national market system plans (‘‘CQ and CTA Plans’’) or the Nasdaq Unlisted Trading Privileges national market system plan (‘‘UTP Plan’’), as applicable, would remain subject to those plans. For purposes of the national market system, such securities would continue to trade under their current ticker symbols. The Exchange would continue to send all quotations and transaction reports in such securities to the processor for the CTA Plan or UTP Plan, as applicable. C. Disclosure Obligations The Exchange proposes requirements for Companies to provide information to the Exchange, to file financial reports and other documentation required pursuant to the Securities Act of 1933 and the rules and regulations thereunder, and to make public disclosures, including disclosures required pursuant to Regulation FD.17 Such requirements would include providing the Exchange’s Surveillance Department with notification prior to public release of material information. The Exchange also proposes obligations regarding notification to the Exchange of 14 15 U.S.C. 78l(d). U.S.C. 78q–1. 16 See Notice, supra note 3, 76 FR at 31662. 17 17 CFR 243.100 et seq. 15 15 VerDate Mar<15>2010 18:00 Sep 02, 2011 Jkt 223001 administrative matters and corporate actions. The Exchange proposes additional guidance to Companies on the importance of them providing prompt and complete notifications. The Exchange represents that such notice is critical to the proper functioning of the capital markets and to investor confidence.18 D. Quantitative Listing Requirements and Standards for Tier I Securities 19 1. Primary Equity Securities—Initial Listing Requirements and Standards The Exchange proposes to adopt quantitative initial listing requirements pertaining to the public float, distribution of shares, and trading volume of the security. Specifically, a Company would have to have a minimum bid price of $4 per share, a minimum of 1.1 million publicly held shares, and a minimum of 400 round lot holders. The Exchange also proposes to require that the issuer of the security meet at least one of the following standards— income, equity, market value, or total assets/total revenue. The income standard would require that an issuer have annual pre-tax income from continuing operations of at least $1 million in the most recently completed fiscal year or in two of the three most recently completed fiscal years, $15 million in stockholders’ equity, a market value of publicly held shares of at least $8 million, and at least three registered and active Market Makers.20 The equity standard would require that an issuer have stockholders’ equity of at least $30 million, a two-year operating history, a market value of publicly held shares of at least $18 million, and at least three registered and active Market Makers. The market value standard for currently publicly traded Companies would require a market value of listed securities of at least $75 million, a market value of publicly held shares of at least $20 million, and at least four registered and active Market Makers. Finally, the total assets/total revenue standard would require that total assets and total revenue for the most recent 18 See Notice, supra note 3, 76 FR at 31662. Exchange proposes to divide the quantitative listing standards into two subcategories in the Listing Rules: listing requirements and listing standards. Listing requirements would be quantitative metrics, all of which a Company would have to meet for initial or continued listing on a particular tier. Listing standards would consist of bundles of quantitative metrics; however, unlike listing requirements, a Company only would have to meet at least one listing standard to become listed or to continue listing. 20 ‘‘Market Maker’’ means a member of the Exchange that acts as a market maker on the Exchange. See BATS Rules Chapter XI. 19 The PO 00000 Frm 00152 Fmt 4703 Sfmt 4703 55149 fiscal year and two of the three most recently completed fiscal years be at least $75 million, that the market value of publicly held shares be at least $20 million, and that the issuer have at least four registered and active Market Makers. 2. Rights and Warrants, and Preferred Stock and Secondary Classes of Common Stock—Initial Listing Requirements For initial listing, the Exchange proposes to require that at least 450,000 rights or warrants be issued, and that the underlying security be listed on the Exchange or be a covered security, and that the issuer have at least three registered and active Market Makers. For warrants, the Exchange would also require that there be at least 400 round lot holders. When the primary equity security of an issuer is listed on the Exchange as a Tier I security or is a covered security, the Exchange would require that the preferred stock or secondary classes of common stock meet similar requirements. Specifically, the Exchange would require that there be at least 200,000 publicly held shares with a market value of at least $4 million, a minimum bid price of $4 per share, at least 100 round lot holders, and at least three registered and active Market Makers. When the primary equity security of an issuer is not listed on the Exchange as a Tier I security or is not a covered security, the Exchange proposes that the preferred stock and/or secondary class of common stock be listed on the Exchange as a Tier I security so long as the security has met the initial listing requirements and standards for primary equity securities on Tier I. 3. Units—Initial Listing and Maintenance Requirements The Exchange proposes that all units must have at least one equity component, and that all components of such units must satisfy the requirements for initial and continued listing as Tier I securities, except for debt components.21 All components of a unit 21 The Exchange proposes that all debt components of a unit, if any, must meet the following requirements: (1) The debt issue must have an aggregate market value or principal amount of at least $5 million; (2) the issuer of the debt security must have equity securities listed on the Exchange as a Tier I security; and (3) in the case of convertible debt, the equity into which the debt is convertible must itself be subject to real-time last sale reporting in the United States, and the convertible debt must not contain a provision which gives the company the right, at its discretion, to reduce the conversion price for periods of time or from time to time unless the company establishes E:\FR\FM\06SEN1.SGM Continued 06SEN1 55150 Federal Register / Vol. 76, No. 172 / Tuesday, September 6, 2011 / Notices would have to be issued by the same issuer, and all units and issuers of such units would have to comply with the initial and continued listing requirements of Tier I. For initial listing, a unit would have to have at least three registered and active Market Makers, and, for continued listing, a unit would have to have at least two registered and active Market Makers, one of which could be a Market Maker entering a stabilizing bid. mstockstill on DSK4VPTVN1PROD with NOTICES 4. Primary Equity Securities— Maintenance Requirements and Standards For continued approval of a primary equity security listing, the Exchange proposes to require that there be a minimum bid price of $1 per share and at least 400 total holders. The Exchange would also require that issuers meet at least one of the following standards— equity, market value, or total assets/total revenue. The equity standard would require that stockholders’ equity be at least $10 million, that there be at least 750,000 publicly held shares with a market value of at least $5 million, and that there be at least two registered and active Market Makers. The market value standard would require that the market value of listed securities be at least $50 million, that there be at least 1.1 million publicly held shares with a market value of at least $15 million, and that there be at least two registered and active Market Makers. The total assets/ total revenue standards would require that there be total assets and total revenue of at least $50 million each for the most recently completed fiscal year or two of the three most recently completed fiscal years, at least 1.1 million publicly held shares with a market value of at least $15 million, and at least four registered and active Market Makers. 5. Rights and Warrants, Preferred Stock and Secondary Classes of Common Stock—Maintenance Requirements and Standards For continued listing, the Exchange proposes to require that the rights or warrants continue to be listed on the Exchange as a Tier I security or be a covered security, and that there be at least two registered and active Market Makers, one of which could be a Market Maker entering a stabilizing bid. For preferred stock and secondary classes of common stock, the Exchange also proposes that a Company’s primary equity security be listed on the Exchange as a Tier I security or as a covered security. The Exchange further proposes that the preferred stock or secondary class of common stock have at least 100,000 publicly held shares with a market value of at least $1 million, a minimum bid price of $1 per share, at least 100 public holders, and at least two registered and active Market Makers. When a Company’s primary equity security is not listed on the Exchange as a Tier I security or is not a covered security, the Exchange proposes that the preferred stock and/or secondary class of common stock may continue to be listed on the Exchange as a Tier I security so long as the security has met the continued listing criteria for primary equity securities. E. Quantitative Listing Requirements and Standards for Tier II Securities 22 1. Primary Equity Securities—Initial Listing Requirements and Standards The Exchange proposes to adopt quantitative initial listing requirements pertaining to the public float, distribution of shares, and trading volume of a security. Specifically, the Exchange would require a Company to have a minimum bid price of $4 per share, a minimum of one million publicly held shares, at least 300 round lot holders, and at least three registered and active Market Makers.23 The Exchange would also require that the issuer of the security meets at least one of the following standards—equity, market value, or net income. The equity standard would require stockholders’ equity of at least $5 million, a market value of publicly held shares of at least $15 million, and a two-year operating history. The market value standard would require a market value of listed securities of at least $50 million, stockholders’ equity of at least $4 million, and a market value of publicly held shares of at least $15 million. The net income standard would require net income from continuing operations of at least $750,000 in the most recently completed fiscal year or in two of the three most recently completed fiscal years, stockholders’ equity of at least $4 million, and a market value of publicly held shares of at least $5 million. 2. Preferred Stock and Secondary Classes of Common Stock; Rights, Warrants, and Convertible Debt—Initial Listing Requirements When the primary equity security of an issuer is listed on the Exchange as a Tier II security or is a covered security, 22 See supra note 19. American Depository Receipts, the Exchange would also require there be at least 400,000 issued. 23 For a minimum period of ten business days within which such price reduction will be in effect. VerDate Mar<15>2010 18:00 Sep 02, 2011 Jkt 223001 PO 00000 Frm 00153 Fmt 4703 Sfmt 4703 the Exchange proposes to require that the preferred stock or secondary classes of common stock have at least 200,000 publicly held shares with a market value of at least $3.5 million, a minimum bid price of $4 per share, at least 100 round lot holders, and at least three registered and active Market Makers. When a company’s primary equity security is not listed on the Exchange as a Tier II security or is not a covered security, the Exchange proposes that the preferred stock and/or secondary class of common stock be listed on the Exchange as a Tier II security so long as the security has met the initial listing requirements and standards for primary equity securities on Tier II. For initial listing of rights, warrants, and put warrants, the Exchange also proposes to require that at least 400,000 are issued and that the underlying security is listed on the Exchange or is a covered security. For warrants, the Exchange further proposes to require that there be at least 400 round lot holders, and at least three registered and active Market Makers. For initial listing of convertible debt securities, the Exchange would require that the principal amount outstanding be at least $10 million, that the current last sale information be available in the United States with respect to the underlying security into which the bond or debenture is convertible, and that the security have at least three registered and active Market Makers. In addition to these conditions, the Exchange proposes to require that issuers also meet one of the following conditions: (1) That the issuer of the debt has an equity security that is listed on the Exchange, NASDAQ, NYSE Amex LLC (‘‘NYSE Amex’’), or the New York Stock Exchange (‘‘NYSE’’); (2) that an issuer whose equity security is listed on the Exchange, NASDAQ, NYSE Amex, or NYSE directly or indirectly owns a majority interest in, or is under common control with, the issuer of the debt security, or has guaranteed the debt security; (3) a nationally recognized securities rating organization (an ‘‘NRSRO’’) has assigned a current rating to the debt security that is no lower than an S&P Corporation ‘‘B’’ rating or equivalent rating by another NRSRO; or (4) if no NRSRO has assigned a rating to the issue, an NRSRO has currently assigned: (a) an investment grade rating to an immediately senior issue; or (b) a rating that is no lower than an S&P Corporation ‘‘B’’ rating, or an equivalent rating by another NRSRO, to a pari passu or junior issue. For initial listing of index warrants, the Exchange would require that the E:\FR\FM\06SEN1.SGM 06SEN1 Federal Register / Vol. 76, No. 172 / Tuesday, September 6, 2011 / Notices minimum public distribution be at least one million warrants, that there be a minimum of 400 public holders, that the market value of the index warrants be at least $4 million, and that the issuer have a minimum tangible net worth in excess of $150 million. 3. Units—Initial Listing and Maintenance Requirements The Exchange proposes that all component parts of units must meet the Tier II requirements for initial and continued listing. Further, the minimum period for listing of the units would be 30 days from the first day of listing, except the period could be shortened if the units are suspended or withdrawn for regulatory purposes. Companies and underwriters seeking to withdraw units from listing would have to provide the Exchange with notice of such intent at least 15 days prior to withdrawal. For initial listing, a unit would have to have at least three registered and active Market Makers, and, for continued listing, a unit would have to have at least two registered and active Market Makers, one of which may be a Market Maker entering a stabilizing bid. mstockstill on DSK4VPTVN1PROD with NOTICES 4. Primary Equity Securities— Maintenance Requirements and Standards For continued approval of a primary equity security listing, the Exchange proposes to require a minimum bid price of $1 per share, at least 300 public holders, at least 500,000 publicly held shares with a market value of at least $1 million, and at least two registered and active Market Makers, one of which may be a Market Maker entering a stabilizing bid. Additionally, the Exchange proposes to require that issuers meet at least one of the following standards—equity, market value, or net income. The equity standard would require that stockholders’ equity be at least $2.5 million. The market value standard would require that the market value of listed securities be at least $35 million. The net income standard would require net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the three most recently completed fiscal years. 5. Preferred Stock and Secondary Classes of Common Stock; Rights, Warrants, and Convertible Debt— Maintenance Requirements When the primary equity security is listed on the Exchange as a Tier II security or is a covered security, the Exchange proposes that a Company’s preferred stock or secondary class of VerDate Mar<15>2010 18:00 Sep 02, 2011 Jkt 223001 common stock have a minimum bid price of $1 per share, at least 100 public holders, at least 100,000 publicly held shares, a market value of publicly held shares of at least $1 million, and at least two registered and active Market Makers, one of which may be a Market Maker entering a stabilizing bid. When a Company’s primary equity security is not listed on the Exchange as a Tier II security or is not a covered security, the Exchange proposes that the preferred stock and/or secondary class of common stock be listed on the Exchange as a Tier II security so long as the security has met the criteria of the continued listing of primary equity securities on Tier II. For rights, warrants, and put warrants (i.e., instruments that grant the holder the right to sell to the issuing Company a specified number of shares of the Company’s common stock, at a specified price until a specified period of time), the Exchange proposes that the underlying security remain listed on the Exchange or be a covered security, and that there be at least two registered and active Market Makers, one of which may be a Market Maker entering a stabilizing bid. For continued listing of convertible debt securities, the Exchange proposes to require a principal amount outstanding of at least $5 million, at least two registered and active Market Makers, one of which may be a Market Maker entering a stabilizing bid, and current last sale information available in the United States with respect to the underlying security into which the bond or debenture is convertible. F. Corporate Governance Standards As noted by the Exchange, in addition to having quantitative listing standards based on the standards applicable to NASDAQ-listed Companies, particularly those designated as NGM or NCM securities, the Exchange proposes nearly identical qualitative standards to those of NGM for both tiers of the Exchange.24 Specifically, the Exchange proposes to adopt corporate governance standards relating to a Company’s board of directors, audit committee requirements, independent director oversight of executive compensation, a mandatory code of conduct, shareholder meetings (including proxy solicitation and quorum), review of related party transactions, and shareholder approval (including voting rights). The Exchange believes that preliminarily adopting uniform corporate governance standards to those of NASDAQ would assist issuers and their advisors in determining the Exchange’s requirements.25 G. Listing Standards for Other Securities The Exchange proposes listing standards applicable to ‘‘other securities,’’ including exchange traded funds, index-linked securities, selected equity-linked debt securities, trust issued receipts, and index warrants. The Exchange notes that the proposed standards for these securities are both similar to the Exchange’s current standards applicable to securities traded on the Exchange pursuant to unlisted trading privileges, as well as NASDAQ’s standards.26 H. Failure to Meet Listing Standards The Exchange proposes that securities of a Company that do not meet the listing standards set forth in the Listing Rules are subject to delisting from, or denial of initial listing on, the Exchange. Accordingly, the Exchange proposes procedures for the independent review, suspension, and delisting of Companies that fail to satisfy one or more requirements or standards for initial or continued listing, and thus are deficient with respect to the listing standards. The Listings Qualifications Department would be responsible for identifying deficiencies that could lead to delisting or denial of a listing application, notifying the Company of the deficiency or denial, and issuing Staff Delisting Determinations and Public Reprimand Letters. The Exchange also proposes various responsibilities when a Company receives notice of a deficiency, including public notification responsibilities. The Hearings Panel, upon timely request by a Company, would review a staff delisting determination, denial of a listing application, or public reprimand letter at an oral or written hearing, and issue a decision that could, among other things, grant an exception to the Exchange’s listing standards or affirm a delisting. The Exchange Listing and Hearings Review Council, upon timely appeal by a Company or on its own initiative, could review the decisions of the Hearings Panel. Finally, the Exchange Board of Directors could exercise discretion to review a Listing Council decision. The Exchange also proposes procedures related to Commission notification of the Exchange’s final delisting determinations, rules applicable to adjudicators and advisors, 25 Id. 24 See PO 00000 Notice, supra note 3, 76 FR at 31665. Frm 00154 Fmt 4703 Sfmt 4703 55151 26 Id. E:\FR\FM\06SEN1.SGM 06SEN1 55152 Federal Register / Vol. 76, No. 172 / Tuesday, September 6, 2011 / Notices and general information relating to the adjudicatory process. A Company’s failure to maintain compliance with the applicable provisions of the Listing Rules would result in the termination of the listing unless an exception is granted to the Company. The termination of the Company’s listing would become effective in accordance with the procedures set forth in the Listing Rules. I. Listing Fees The Exchange proposes to commence its listings business by charging entry fees of $100,000 and $50,000 for Companies listed on Tiers I and II, respectively. The initial primary listing fee for both tiers would include a $25,000 non-refundable application fee. The Exchange also proposes to charge annual fees of $35,000 and $20,000 for Companies listed on Tiers I and II, respectively, on a prorated basis. The Exchange proposes to waive the entry fee for any Company that is listed on another national securities exchange if such Company transfers its listing to the Exchange, is dually-listed on the Exchange and another national securities exchange but ceases to maintain its listing on that other national securities exchange, or is listed on another national securities exchange but not listed on the Exchange, if the issuer of such securities is acquired by an unlisted Company and, in connection with the acquisition, the unlisted Company lists exclusively on the Exchange. Annual dual listing fees would be $15,000 for both tiers and would be prorated.27 mstockstill on DSK4VPTVN1PROD with NOTICES III. Discussion After careful review of the proposal, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.28 In particular, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act,29 which requires, among other things, that the rules of an exchange be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in 27 The Exchange does not propose to charge for ministerial changes implemented by a Company (e.g., name changes and symbol changes), nor does the Exchange propose to charge a fee for necessary work related to corporate actions of a Company (e.g., a reverse stock split, re-incorporation, etc.). 28 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 29 15 U.S.C. 78f(b)(5). VerDate Mar<15>2010 18:00 Sep 02, 2011 Jkt 223001 general, to protect investors and the public interest. The Exchange has proposed an extensive program for the qualification, listing, and delisting of Companies on the Exchange and has represented that its rules are nearly identical to listing rules of an existing national securities exchange. As the Commission has noted, the development and enforcement of adequate standards governing the initial listing and maintenance of listing of securities is an activity of critical importance to financial markets and the investing public. Listing standards serve as a means for a marketplace to screen issuers and to provide listed status only to bona fide companies with sufficient float, investor base, and trading interest to maintain fair and orderly markets. Once an issuer has been approved for initial listing, the maintenance criteria allow a marketplace to monitor the status and trading characteristics of that issue to ensure that it continues to meet standards for market depth and liquidity.30 In addition to the quantitative standards, the qualitative requirements, such as audit committees, independent director oversight of executive compensation, a mandatory code of conduct, shareholder meetings (including proxy solicitation and quorum), review of related party transactions, shareholder approval (including voting rights), and disclosure policies are designed to ensure that companies trading on the Exchange will adequately protect the interests of public shareholders.31 The Commission also notes that, because extensive listing and maintenance standards are being adopted, only companies suitable for exchange listing are eligible for trading on the Exchange.32 The Commission believes that inclusion of a security for listing on an exchange should not depend solely on meeting quantitative criteria, but should also entail an element of judgment given the expectations of investors and the imprimatur of listing on a particular market.33 The Commission believes that this rule provides the necessary flexibility to determine whether to list an issuer while ensuring that certain minimum standards must be met. Thus, the Commission believes that the listing and maintenance standards strike the appropriate balance between protecting investors and providing a marketplace for issuers satisfying the disclosure requirements under the federal securities laws. The standards will provide important guidance on the Exchange review process, and will alert issuers seeking to list on the Exchange of its specific standards. The Commission also believes the proposal is consistent with Section 6(b)(9) of the Act 34 because the rules will prohibit the listing of any security issued in a limited partnership rollup transaction (as defined in Section 14(h) of the Act), unless such transaction satisfies the criteria of Section 6(b)(9) and a broker-dealer that is a member of a national securities association subject to Section 15A(b)(12) of the Act participates in the rollup transaction. Finally, the Commission finds that the proposal is consistent with Section 6(b)(4) of the Act,35 which requires that the rules of an exchange provide for the equitable allocation of reasonable dues, fees, and other charges among members and issuers, and other persons using its facilities. Specifically, as proposed, the Exchange will establish a pricing structure that is not variable based on the number of shares or other metrics. The fees are designed to be equitable in that they will be the same amongst issuers seeking to list Tier I securities and the same amongst issuers seeking to list Tier II securities. Further, the Commission notes the Exchange will not charge additional fees that issuers incur at other exchanges, including fees for issuance of additional shares, name changes, and other corporate actions. Finally, the Commission also notes that the Exchange’s pricing, in general, will be roughly equivalent to or less than what issuers would pay at other national securities exchanges,36 and 30 See Securities Exchange Act Release No. 55642 (April 18, 2007), 72 FR 20395 (April 24, 2007) (granting accelerated approval to certain NCM listing standards); Securities Exchange Act Release No. 37481 (July 25, 1996), 61 FR 40270, 40273–74 (August 1, 1996) (granting accelerated approval to establish new quantitative and qualitative listing standards of Chicago Stock Exchange, Incorporated (‘‘Chx’’)) (‘‘Chx Listing Standards Approval’’); Securities Exchange Act Release No. 34429 (July 22, 1994), 59 FR 38998, 39002 (August 1, 1994) (granting accelerated approval to new quantitative and qualitative listing standards of Pacific Stock Exchange, Inc. (‘‘PSE’’)) (‘‘PSE Listing Standards Approval’’). 31 Id. 32 Id. 33 See Chx Listing Standards Approval, supra note 30, 61 FR at 40274; PSE Listing Standards Approval Order, supra note 30, 59 FR at 39002. 34 15 U.S.C. 78f(b)(9). 35 15 U.S.C. 78f(b)(4). 36 For instance, issuers listing on NGM pay between $125,000 and $225,000 initially (depending on the number of shares) and between $35,000 and $99,500 annually, compared to proposed Tier I fees of $100,000 initially and $35,000 annually. See NASDAQ Rule 5910(a) and (c). Similarly, issuers listing on NCM pay either $50,000 or $75,000 initially (depending on the number of shares) and between $17,500 and $75,000 annually, compared to proposed Tier II fees of $50,000 initially and $20,000 annually. See NASDAQ Rule 5920(a) and (c). PO 00000 Frm 00155 Fmt 4703 Sfmt 4703 E:\FR\FM\06SEN1.SGM 06SEN1 Federal Register / Vol. 76, No. 172 / Tuesday, September 6, 2011 / Notices will not include multiple other fees applicable on other national securities exchanges to additional shares issued by listed companies, corporate actions, and related activities of issuers. (Catalog of Federal Domestic Assistance Numbers 59002 and 59008). IV. Conclusion [FR Doc. 2011–22647 Filed 9–2–11; 8:45 am] It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act,37 that the proposed rule change (SR–BATS–2011– 0118) be, and hereby is, approved. BILLING CODE 8025–01–P For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.38 Elizabeth M. Murphy, Secretary. James E. Rivera, Associate Administrator for Disaster Assistance. SMALL BUSINESS ADMINISTRATION [Disaster Declaration #12758 and #12759] New York Disaster #NY–00104 [FR Doc. 2011–22627 Filed 9–2–11; 8:45 am] U.S. Small Business Administration. ACTION: Notice. BILLING CODE 8011–01–P SUMMARY: SMALL BUSINESS ADMINISTRATION [Disaster Declaration #12744 and #12745] Nebraska Disaster Number NE–00044 U.S. Small Business Administration. ACTION: Amendment 1. AGENCY: This is an amendment of the Presidential declaration of a major disaster for Public Assistance Only for the State of Nebraska (FEMA–4014–DR), dated 08/12/2011 . Incident: Severe Storms, Tornadoes, Straight-line Winds, and Flooding. Incident Period: 06/19/2011 through 06/21/2011. Effective Date: 08/25/2011. Physical Loan Application Deadline Date: 10/11/2011. Economic Injury (EIDL) Loan Application Deadline Date: 05/14/2012. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street, SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: The notice of the President’s major disaster declaration for Private Non-Profit organizations in the State of Nebraska, dated 08/12/2011, is hereby amended to include the following areas as adversely affected by the disaster. Primary Counties: Dundy, Logan. All other information in the original declaration remains unchanged. mstockstill on DSK4VPTVN1PROD with NOTICES SUMMARY: 37 15 38 17 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). VerDate Mar<15>2010 18:00 Sep 02, 2011 Jkt 223001 AGENCY: This is a notice of an Administrative declaration of a disaster for the State of New York dated 08/26/ 2011. Incident: Severe storms and flooding. Incident Period: 04/26/2011 through 05/30/2011. Effective Date: 08/26/2011. Physical Loan Application Deadline Date: 10/25/2011. Economic Injury (EIDL) Loan Application Deadline Date: 05/26/2012. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street, SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the Administrator’s disaster declaration, applications for disaster loans may be filed at the address listed above or other locally announced locations. The following areas have been determined to be adversely affected by the disaster: Primary Counties: Clinton, Franklin, Oneida, Warren. Contiguous Counties: New York: Essex, Hamilton, Herkimer, Lewis, Madison, Oswego, Otsego, Saint Lawrence, Saratoga, Washington. Vermont: Chittenden, Grand Isle. The Interest Rates are: For Physical Damage: Homeowners With Credit Available Elsewhere ...................... Homeowners Without Credit Available Elsewhere .............. Businesses With Credit Available Elsewhere ...................... Businesses Without Credit Available Elsewhere .............. PO 00000 Frm 00156 Fmt 4703 Sfmt 4703 55153 Percent Non-Profit Organizations With Credit Available Elsewhere ... Non-Profit Organizations Without Credit Available Elsewhere ..................................... For Economic Injury: Businesses & Small Agricultural Cooperatives Without Credit Available Elsewhere .............. Non-Profit Organizations Without Credit Available Elsewhere ..................................... 3.250 3.000 4.000 3.000 The number assigned to this disaster for physical damage is 12758B and for economic injury is 127590. The States which received an EIDL Declaration # are: New York, Vermont. (Catalog of Federal Domestic Assistance Numbers 59002 and 59008) Dated: August 26, 2011. Karen G. Mills, Administrator. [FR Doc. 2011–22648 Filed 9–2–11; 8:45 am] BILLING CODE 8025–01–P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #12764 and #12765] Michigan Disaster #MI–00028 U.S. Small Business Administration. ACTION: Notice. AGENCY: This is a notice of an Administrative declaration of a disaster for the State of Michigan dated 08/29/ 2011. Incident: Heavy Rain and Flooding. Incident Period: 07/28/2011 through 07/29/2011. Effective Date: 08/29/2011. Physical Loan Application Deadline Date: 10/28/2011. Economic Injury (EIDL) Loan Application Deadline Date: 05/29/2012. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street, SW., Suite 6050, Washington, DC 20416. Percent SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the Administrator’s disaster declaration, 5.375 applications for disaster loans may be 2.688 filed at the address listed above or other locally announced locations. The following areas have been 6.000 determined to be adversely affected by 4.000 the disaster: SUMMARY: E:\FR\FM\06SEN1.SGM 06SEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 76, Number 172 (Tuesday, September 6, 2011)]
[Notices]
[Pages 55148-55153]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-22627]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65225; File No. SR-BATS-2011-018]


Self-Regulatory Organizations; BATS Exchange, Inc.; Order 
Approving Proposed Rule Change To Adopt Rules for the Qualification, 
Listing and Delisting of Companies on the Exchange

August 30, 2011.

I. Introduction

    On May 12, 2011, BATS Exchange, Inc. (``BATS'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
adopt rules for the qualification, listing, and delisting of companies 
on the Exchange. The proposed rule change was published for comment in 
the Federal Register on June 1, 2011.\3\ The Commission received no 
comment letters regarding the proposal. This order approves the 
proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 64546 (May 25, 
2011), 76 FR 31660 (June 1, 2011) (``Notice'').
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II. Description of the Proposal

    The Exchange proposes rules to adopt a program for the 
qualification, listing, and delisting of companies on the Exchange 
(``Listing Rules'').\4\ The Exchange proposes to eliminate its current 
rules related to securities traded on the Exchange pursuant to unlisted 
trading privileges, and to replace such rules with the Listing Rules, 
which the Exchange notes are primarily based on and substantially 
similar to the rules of The NASDAQ Stock Market LLC (``NASDAQ'').\5\ 
The Exchange proposes to adopt two distinct tiers of securities to be 
listed on the Exchange: Tier I and Tier II. The Exchange represents 
that the proposed standards for a security's initial and continued 
listing on Tier I are nearly identical to the existing standards 
applicable to listing on The Nasdaq Global Market (``NGM''), and that 
the proposed standards for a security's initial and continued listing 
on Tier II are nearly identical to the existing standards applicable to 
listing on The Nasdaq Capital Market (``NCM'').\6\ While the 
quantitative standards for Tier I and II differ, the Exchange notes 
that the qualitative standards for both tiers are the same and are 
nearly identical to NGM's existing qualitative standards.\7\
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    \4\ The Listing Rules are comprised of definitions, the 
Exchange's general regulatory authority, the procedures and 
prerequisites for gaining a listing on the Exchange, the listing 
standards for units, the disclosure obligations of listed companies, 
Direct Registration Program requirements, the quantitative listing 
requirements and standards for listing on the Exchange in Tiers I 
and II, the corporate governance standards applicable to all listed 
companies; special listing standards for securities other than 
common or preferred stock and warrants; the consequences of a 
failure to meet the Exchange's listing standards; and the Exchange's 
listing fees.
    \5\ See Notice, supra note 3, 76 FR at 31661. The Exchange is 
not proposing any changes to the rules of the Exchange's options 
market. Id.
    \6\ The Notice identifies to which market's quantitative 
standards (either NGM or NCM) and the NASDAQ rules the proposed BATS 
standards are comparable. Id. The Exchange is not proposing to adopt 
a tier equivalent to the NASDAQ Global Select Market. Id.
    \7\ Id.
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A. General Regulatory Authority of the Exchange

    The Exchange proposes to have general, broad discretionary 
authority over the initial and continued listing of securities on the 
Exchange in order to maintain the quality of and public confidence in 
its market, to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, and to protect 
investors and the public interest. The Exchange notes that it may use 
such discretion to deny initial listing, to apply additional or more 
stringent standards for the initial or continued listing of particular 
securities, or to suspend or delist particular securities based on any 
event, condition, or circumstance that exists or occurs that makes 
initial or continued listing of the securities on the Exchange 
inadvisable or unwarranted in the opinion of the Exchange, even though 
the securities meet all enumerated standards for initial or continued 
listing.\8\
---------------------------------------------------------------------------

    \8\ Id.
---------------------------------------------------------------------------

    The Exchange also proposes guidance regarding the circumstances in 
which it would invoke discretionary authority and the types of factors 
it would consider when making determinations pursuant to such 
authority. In addition, the Exchange proposes guidance on its use of 
discretionary authority as it relates to a Company \9\ whose business 
plan is to complete an initial public offering and engage in a merger 
or acquisition with one or more unidentified Companies within a 
specific period of time. The Exchange would permit the listing of such 
a Company if the Company were to meet all applicable initial listing 
standards, as well as the factors considered pursuant to its 
discretionary authority. The Exchange further proposes guidance on the 
use of its discretionary authority when a Company files for protection 
under any provision of the federal bankruptcy laws or comparable 
foreign laws.
---------------------------------------------------------------------------

    \9\ For purposes of the Listing Rules, a ``Company'' would be 
any issuer of a security listed or applying to list on the Exchange, 
including an issuer that is not incorporated (e.g., a limited 
partnership).
---------------------------------------------------------------------------

B. General Procedures and Prerequisites for Listing

    The Exchange proposes an application process that a Company must 
complete in order to be listed on the Exchange. To apply for listing on 
the Exchange, a Company would have to execute a Listing Agreement and a 
Listing Application on forms made available by the Exchange in order to 
provide the information required by Section 12(b) of the Act.\10\ A 
Company's qualifications would be determined on the basis of financial 
statements that are either: (1) Prepared in accordance with U.S. 
generally accepted accounting principles; (2) reconciled to U.S. 
generally accepted accounting principles as required by the 
Commission's rules; or (3) prepared in accordance with International 
Financial Reporting Standards, as issued by the International 
Accounting Standards Board, for Companies that are permitted to file 
financial statements using those standards consistent with the 
Commission's rules.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78l(b).
---------------------------------------------------------------------------

    The Exchange also proposes prerequisites for an applicant Company 
to become listed on the Exchange: (1) The security would have to be 
registered pursuant to Section 12(b) of the Act \11\ or subject to an 
applicable exemption; (2) the Company would have to be audited by a 
registered independent public accountant; (3) the securities would have 
to be eligible for a Direct Registration Program operated by a clearing 
agency registered under Section 17A of the Act,\12\ subject to certain 
exceptions; (4) the Company would have to pay the Exchange's listing 
fees; (5) the securities would have to be in good standing with the 
Commission or Other Regulatory Authority; \13\ (6) the Exchange would 
have to certify to the

[[Page 55149]]

Commission, and the securities would have to become effective, pursuant 
to Section 12(d) of the Act; \14\ and (7) the securities would have to 
be depositary eligible pursuant to the rules and procedures of a 
securities depository registered as a clearing agency under Section 17A 
of the Act.\15\
---------------------------------------------------------------------------

    \11\ Id.
    \12\ 15 U.S.C. 78q-1. `` `Direct Registration Program' means any 
program by a Company, directly or through its transfer agent, 
whereby a shareholder may have securities registered in the 
shareholder's name on the books of the Company or its transfer agent 
without the need for a physical certificate to evidence ownership.'' 
Proposed BATS Rule 14.1(a)(6).
    \13\ See proposed BATS Rule 14.1(t).
    \14\ 15 U.S.C. 78l(d).
    \15\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    The Exchange proposes to permit Companies, which have securities 
listed on another national securities exchange, to apply to list those 
securities on the Exchange. The Exchange represents that this would 
foster competition among markets and further the development of the 
national market system.\16\ The Exchange would make an independent 
determination of whether such Companies satisfy all applicable listing 
standards and would require Companies to enter into a dual listing 
agreement with the Exchange.
---------------------------------------------------------------------------

    \16\ See Notice, supra note 3, 76 FR at 31662.
---------------------------------------------------------------------------

    While the Exchange would certify such dually listed securities for 
listing on the Exchange, it would not exercise its authority separately 
to designate or register such dually listed securities as national 
market system securities within the meaning of Section 11A of the Act 
or the rules thereunder. As a result, these securities, which already 
would be designated as national market system securities under the 
Consolidated Quotation Service (``CQS'') and Consolidated Tape 
Association national market system plans (``CQ and CTA Plans'') or the 
Nasdaq Unlisted Trading Privileges national market system plan (``UTP 
Plan''), as applicable, would remain subject to those plans. For 
purposes of the national market system, such securities would continue 
to trade under their current ticker symbols. The Exchange would 
continue to send all quotations and transaction reports in such 
securities to the processor for the CTA Plan or UTP Plan, as 
applicable.

C. Disclosure Obligations

    The Exchange proposes requirements for Companies to provide 
information to the Exchange, to file financial reports and other 
documentation required pursuant to the Securities Act of 1933 and the 
rules and regulations thereunder, and to make public disclosures, 
including disclosures required pursuant to Regulation FD.\17\ Such 
requirements would include providing the Exchange's Surveillance 
Department with notification prior to public release of material 
information. The Exchange also proposes obligations regarding 
notification to the Exchange of administrative matters and corporate 
actions. The Exchange proposes additional guidance to Companies on the 
importance of them providing prompt and complete notifications. The 
Exchange represents that such notice is critical to the proper 
functioning of the capital markets and to investor confidence.\18\
---------------------------------------------------------------------------

    \17\ 17 CFR 243.100 et seq.
    \18\ See Notice, supra note 3, 76 FR at 31662.
---------------------------------------------------------------------------

D. Quantitative Listing Requirements and Standards for Tier I 
Securities \19\
---------------------------------------------------------------------------

    \19\ The Exchange proposes to divide the quantitative listing 
standards into two subcategories in the Listing Rules: listing 
requirements and listing standards. Listing requirements would be 
quantitative metrics, all of which a Company would have to meet for 
initial or continued listing on a particular tier. Listing standards 
would consist of bundles of quantitative metrics; however, unlike 
listing requirements, a Company only would have to meet at least one 
listing standard to become listed or to continue listing.
---------------------------------------------------------------------------

1. Primary Equity Securities--Initial Listing Requirements and 
Standards
    The Exchange proposes to adopt quantitative initial listing 
requirements pertaining to the public float, distribution of shares, 
and trading volume of the security. Specifically, a Company would have 
to have a minimum bid price of $4 per share, a minimum of 1.1 million 
publicly held shares, and a minimum of 400 round lot holders.
    The Exchange also proposes to require that the issuer of the 
security meet at least one of the following standards--income, equity, 
market value, or total assets/total revenue. The income standard would 
require that an issuer have annual pre-tax income from continuing 
operations of at least $1 million in the most recently completed fiscal 
year or in two of the three most recently completed fiscal years, $15 
million in stockholders' equity, a market value of publicly held shares 
of at least $8 million, and at least three registered and active Market 
Makers.\20\ The equity standard would require that an issuer have 
stockholders' equity of at least $30 million, a two-year operating 
history, a market value of publicly held shares of at least $18 
million, and at least three registered and active Market Makers. The 
market value standard for currently publicly traded Companies would 
require a market value of listed securities of at least $75 million, a 
market value of publicly held shares of at least $20 million, and at 
least four registered and active Market Makers. Finally, the total 
assets/total revenue standard would require that total assets and total 
revenue for the most recent fiscal year and two of the three most 
recently completed fiscal years be at least $75 million, that the 
market value of publicly held shares be at least $20 million, and that 
the issuer have at least four registered and active Market Makers.
---------------------------------------------------------------------------

    \20\ ``Market Maker'' means a member of the Exchange that acts 
as a market maker on the Exchange. See BATS Rules Chapter XI.
---------------------------------------------------------------------------

2. Rights and Warrants, and Preferred Stock and Secondary Classes of 
Common Stock--Initial Listing Requirements
    For initial listing, the Exchange proposes to require that at least 
450,000 rights or warrants be issued, and that the underlying security 
be listed on the Exchange or be a covered security, and that the issuer 
have at least three registered and active Market Makers. For warrants, 
the Exchange would also require that there be at least 400 round lot 
holders. When the primary equity security of an issuer is listed on the 
Exchange as a Tier I security or is a covered security, the Exchange 
would require that the preferred stock or secondary classes of common 
stock meet similar requirements. Specifically, the Exchange would 
require that there be at least 200,000 publicly held shares with a 
market value of at least $4 million, a minimum bid price of $4 per 
share, at least 100 round lot holders, and at least three registered 
and active Market Makers. When the primary equity security of an issuer 
is not listed on the Exchange as a Tier I security or is not a covered 
security, the Exchange proposes that the preferred stock and/or 
secondary class of common stock be listed on the Exchange as a Tier I 
security so long as the security has met the initial listing 
requirements and standards for primary equity securities on Tier I.
3. Units--Initial Listing and Maintenance Requirements
    The Exchange proposes that all units must have at least one equity 
component, and that all components of such units must satisfy the 
requirements for initial and continued listing as Tier I securities, 
except for debt components.\21\ All components of a unit

[[Page 55150]]

would have to be issued by the same issuer, and all units and issuers 
of such units would have to comply with the initial and continued 
listing requirements of Tier I. For initial listing, a unit would have 
to have at least three registered and active Market Makers, and, for 
continued listing, a unit would have to have at least two registered 
and active Market Makers, one of which could be a Market Maker entering 
a stabilizing bid.
---------------------------------------------------------------------------

    \21\ The Exchange proposes that all debt components of a unit, 
if any, must meet the following requirements: (1) The debt issue 
must have an aggregate market value or principal amount of at least 
$5 million; (2) the issuer of the debt security must have equity 
securities listed on the Exchange as a Tier I security; and (3) in 
the case of convertible debt, the equity into which the debt is 
convertible must itself be subject to real-time last sale reporting 
in the United States, and the convertible debt must not contain a 
provision which gives the company the right, at its discretion, to 
reduce the conversion price for periods of time or from time to time 
unless the company establishes a minimum period of ten business days 
within which such price reduction will be in effect.
---------------------------------------------------------------------------

4. Primary Equity Securities--Maintenance Requirements and Standards
    For continued approval of a primary equity security listing, the 
Exchange proposes to require that there be a minimum bid price of $1 
per share and at least 400 total holders. The Exchange would also 
require that issuers meet at least one of the following standards--
equity, market value, or total assets/total revenue. The equity 
standard would require that stockholders' equity be at least $10 
million, that there be at least 750,000 publicly held shares with a 
market value of at least $5 million, and that there be at least two 
registered and active Market Makers. The market value standard would 
require that the market value of listed securities be at least $50 
million, that there be at least 1.1 million publicly held shares with a 
market value of at least $15 million, and that there be at least two 
registered and active Market Makers. The total assets/total revenue 
standards would require that there be total assets and total revenue of 
at least $50 million each for the most recently completed fiscal year 
or two of the three most recently completed fiscal years, at least 1.1 
million publicly held shares with a market value of at least $15 
million, and at least four registered and active Market Makers.
5. Rights and Warrants, Preferred Stock and Secondary Classes of Common 
Stock--Maintenance Requirements and Standards
    For continued listing, the Exchange proposes to require that the 
rights or warrants continue to be listed on the Exchange as a Tier I 
security or be a covered security, and that there be at least two 
registered and active Market Makers, one of which could be a Market 
Maker entering a stabilizing bid. For preferred stock and secondary 
classes of common stock, the Exchange also proposes that a Company's 
primary equity security be listed on the Exchange as a Tier I security 
or as a covered security. The Exchange further proposes that the 
preferred stock or secondary class of common stock have at least 
100,000 publicly held shares with a market value of at least $1 
million, a minimum bid price of $1 per share, at least 100 public 
holders, and at least two registered and active Market Makers. When a 
Company's primary equity security is not listed on the Exchange as a 
Tier I security or is not a covered security, the Exchange proposes 
that the preferred stock and/or secondary class of common stock may 
continue to be listed on the Exchange as a Tier I security so long as 
the security has met the continued listing criteria for primary equity 
securities.

E. Quantitative Listing Requirements and Standards for Tier II 
Securities \22\
---------------------------------------------------------------------------

    \22\ See supra note 19.
---------------------------------------------------------------------------

1. Primary Equity Securities--Initial Listing Requirements and 
Standards
    The Exchange proposes to adopt quantitative initial listing 
requirements pertaining to the public float, distribution of shares, 
and trading volume of a security. Specifically, the Exchange would 
require a Company to have a minimum bid price of $4 per share, a 
minimum of one million publicly held shares, at least 300 round lot 
holders, and at least three registered and active Market Makers.\23\
---------------------------------------------------------------------------

    \23\ For American Depository Receipts, the Exchange would also 
require there be at least 400,000 issued.
---------------------------------------------------------------------------

    The Exchange would also require that the issuer of the security 
meets at least one of the following standards--equity, market value, or 
net income. The equity standard would require stockholders' equity of 
at least $5 million, a market value of publicly held shares of at least 
$15 million, and a two-year operating history. The market value 
standard would require a market value of listed securities of at least 
$50 million, stockholders' equity of at least $4 million, and a market 
value of publicly held shares of at least $15 million. The net income 
standard would require net income from continuing operations of at 
least $750,000 in the most recently completed fiscal year or in two of 
the three most recently completed fiscal years, stockholders' equity of 
at least $4 million, and a market value of publicly held shares of at 
least $5 million.
2. Preferred Stock and Secondary Classes of Common Stock; Rights, 
Warrants, and Convertible Debt--Initial Listing Requirements
    When the primary equity security of an issuer is listed on the 
Exchange as a Tier II security or is a covered security, the Exchange 
proposes to require that the preferred stock or secondary classes of 
common stock have at least 200,000 publicly held shares with a market 
value of at least $3.5 million, a minimum bid price of $4 per share, at 
least 100 round lot holders, and at least three registered and active 
Market Makers. When a company's primary equity security is not listed 
on the Exchange as a Tier II security or is not a covered security, the 
Exchange proposes that the preferred stock and/or secondary class of 
common stock be listed on the Exchange as a Tier II security so long as 
the security has met the initial listing requirements and standards for 
primary equity securities on Tier II.
    For initial listing of rights, warrants, and put warrants, the 
Exchange also proposes to require that at least 400,000 are issued and 
that the underlying security is listed on the Exchange or is a covered 
security. For warrants, the Exchange further proposes to require that 
there be at least 400 round lot holders, and at least three registered 
and active Market Makers.
    For initial listing of convertible debt securities, the Exchange 
would require that the principal amount outstanding be at least $10 
million, that the current last sale information be available in the 
United States with respect to the underlying security into which the 
bond or debenture is convertible, and that the security have at least 
three registered and active Market Makers. In addition to these 
conditions, the Exchange proposes to require that issuers also meet one 
of the following conditions: (1) That the issuer of the debt has an 
equity security that is listed on the Exchange, NASDAQ, NYSE Amex LLC 
(``NYSE Amex''), or the New York Stock Exchange (``NYSE''); (2) that an 
issuer whose equity security is listed on the Exchange, NASDAQ, NYSE 
Amex, or NYSE directly or indirectly owns a majority interest in, or is 
under common control with, the issuer of the debt security, or has 
guaranteed the debt security; (3) a nationally recognized securities 
rating organization (an ``NRSRO'') has assigned a current rating to the 
debt security that is no lower than an S&P Corporation ``B'' rating or 
equivalent rating by another NRSRO; or (4) if no NRSRO has assigned a 
rating to the issue, an NRSRO has currently assigned: (a) an investment 
grade rating to an immediately senior issue; or (b) a rating that is no 
lower than an S&P Corporation ``B'' rating, or an equivalent rating by 
another NRSRO, to a pari passu or junior issue.
    For initial listing of index warrants, the Exchange would require 
that the

[[Page 55151]]

minimum public distribution be at least one million warrants, that 
there be a minimum of 400 public holders, that the market value of the 
index warrants be at least $4 million, and that the issuer have a 
minimum tangible net worth in excess of $150 million.
3. Units--Initial Listing and Maintenance Requirements
    The Exchange proposes that all component parts of units must meet 
the Tier II requirements for initial and continued listing. Further, 
the minimum period for listing of the units would be 30 days from the 
first day of listing, except the period could be shortened if the units 
are suspended or withdrawn for regulatory purposes. Companies and 
underwriters seeking to withdraw units from listing would have to 
provide the Exchange with notice of such intent at least 15 days prior 
to withdrawal. For initial listing, a unit would have to have at least 
three registered and active Market Makers, and, for continued listing, 
a unit would have to have at least two registered and active Market 
Makers, one of which may be a Market Maker entering a stabilizing bid.
4. Primary Equity Securities--Maintenance Requirements and Standards
    For continued approval of a primary equity security listing, the 
Exchange proposes to require a minimum bid price of $1 per share, at 
least 300 public holders, at least 500,000 publicly held shares with a 
market value of at least $1 million, and at least two registered and 
active Market Makers, one of which may be a Market Maker entering a 
stabilizing bid.
    Additionally, the Exchange proposes to require that issuers meet at 
least one of the following standards--equity, market value, or net 
income. The equity standard would require that stockholders' equity be 
at least $2.5 million. The market value standard would require that the 
market value of listed securities be at least $35 million. The net 
income standard would require net income from continuing operations of 
$500,000 in the most recently completed fiscal year or in two of the 
three most recently completed fiscal years.
5. Preferred Stock and Secondary Classes of Common Stock; Rights, 
Warrants, and Convertible Debt--Maintenance Requirements
    When the primary equity security is listed on the Exchange as a 
Tier II security or is a covered security, the Exchange proposes that a 
Company's preferred stock or secondary class of common stock have a 
minimum bid price of $1 per share, at least 100 public holders, at 
least 100,000 publicly held shares, a market value of publicly held 
shares of at least $1 million, and at least two registered and active 
Market Makers, one of which may be a Market Maker entering a 
stabilizing bid. When a Company's primary equity security is not listed 
on the Exchange as a Tier II security or is not a covered security, the 
Exchange proposes that the preferred stock and/or secondary class of 
common stock be listed on the Exchange as a Tier II security so long as 
the security has met the criteria of the continued listing of primary 
equity securities on Tier II.
    For rights, warrants, and put warrants (i.e., instruments that 
grant the holder the right to sell to the issuing Company a specified 
number of shares of the Company's common stock, at a specified price 
until a specified period of time), the Exchange proposes that the 
underlying security remain listed on the Exchange or be a covered 
security, and that there be at least two registered and active Market 
Makers, one of which may be a Market Maker entering a stabilizing bid.
    For continued listing of convertible debt securities, the Exchange 
proposes to require a principal amount outstanding of at least $5 
million, at least two registered and active Market Makers, one of which 
may be a Market Maker entering a stabilizing bid, and current last sale 
information available in the United States with respect to the 
underlying security into which the bond or debenture is convertible.

F. Corporate Governance Standards

    As noted by the Exchange, in addition to having quantitative 
listing standards based on the standards applicable to NASDAQ-listed 
Companies, particularly those designated as NGM or NCM securities, the 
Exchange proposes nearly identical qualitative standards to those of 
NGM for both tiers of the Exchange.\24\ Specifically, the Exchange 
proposes to adopt corporate governance standards relating to a 
Company's board of directors, audit committee requirements, independent 
director oversight of executive compensation, a mandatory code of 
conduct, shareholder meetings (including proxy solicitation and 
quorum), review of related party transactions, and shareholder approval 
(including voting rights). The Exchange believes that preliminarily 
adopting uniform corporate governance standards to those of NASDAQ 
would assist issuers and their advisors in determining the Exchange's 
requirements.\25\
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    \24\ See Notice, supra note 3, 76 FR at 31665.
    \25\ Id.
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G. Listing Standards for Other Securities

    The Exchange proposes listing standards applicable to ``other 
securities,'' including exchange traded funds, index-linked securities, 
selected equity-linked debt securities, trust issued receipts, and 
index warrants. The Exchange notes that the proposed standards for 
these securities are both similar to the Exchange's current standards 
applicable to securities traded on the Exchange pursuant to unlisted 
trading privileges, as well as NASDAQ's standards.\26\
---------------------------------------------------------------------------

    \26\ Id.
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H. Failure to Meet Listing Standards

    The Exchange proposes that securities of a Company that do not meet 
the listing standards set forth in the Listing Rules are subject to 
delisting from, or denial of initial listing on, the Exchange. 
Accordingly, the Exchange proposes procedures for the independent 
review, suspension, and delisting of Companies that fail to satisfy one 
or more requirements or standards for initial or continued listing, and 
thus are deficient with respect to the listing standards.
    The Listings Qualifications Department would be responsible for 
identifying deficiencies that could lead to delisting or denial of a 
listing application, notifying the Company of the deficiency or denial, 
and issuing Staff Delisting Determinations and Public Reprimand 
Letters. The Exchange also proposes various responsibilities when a 
Company receives notice of a deficiency, including public notification 
responsibilities.
    The Hearings Panel, upon timely request by a Company, would review 
a staff delisting determination, denial of a listing application, or 
public reprimand letter at an oral or written hearing, and issue a 
decision that could, among other things, grant an exception to the 
Exchange's listing standards or affirm a delisting. The Exchange 
Listing and Hearings Review Council, upon timely appeal by a Company or 
on its own initiative, could review the decisions of the Hearings 
Panel. Finally, the Exchange Board of Directors could exercise 
discretion to review a Listing Council decision.
    The Exchange also proposes procedures related to Commission 
notification of the Exchange's final delisting determinations, rules 
applicable to adjudicators and advisors,

[[Page 55152]]

and general information relating to the adjudicatory process.
    A Company's failure to maintain compliance with the applicable 
provisions of the Listing Rules would result in the termination of the 
listing unless an exception is granted to the Company. The termination 
of the Company's listing would become effective in accordance with the 
procedures set forth in the Listing Rules.

I. Listing Fees

    The Exchange proposes to commence its listings business by charging 
entry fees of $100,000 and $50,000 for Companies listed on Tiers I and 
II, respectively. The initial primary listing fee for both tiers would 
include a $25,000 non-refundable application fee. The Exchange also 
proposes to charge annual fees of $35,000 and $20,000 for Companies 
listed on Tiers I and II, respectively, on a prorated basis.
    The Exchange proposes to waive the entry fee for any Company that 
is listed on another national securities exchange if such Company 
transfers its listing to the Exchange, is dually-listed on the Exchange 
and another national securities exchange but ceases to maintain its 
listing on that other national securities exchange, or is listed on 
another national securities exchange but not listed on the Exchange, if 
the issuer of such securities is acquired by an unlisted Company and, 
in connection with the acquisition, the unlisted Company lists 
exclusively on the Exchange. Annual dual listing fees would be $15,000 
for both tiers and would be prorated.\27\
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    \27\ The Exchange does not propose to charge for ministerial 
changes implemented by a Company (e.g., name changes and symbol 
changes), nor does the Exchange propose to charge a fee for 
necessary work related to corporate actions of a Company (e.g., a 
reverse stock split, re-incorporation, etc.).
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III. Discussion

    After careful review of the proposal, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\28\ In particular, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act,\29\ which 
requires, among other things, that the rules of an exchange be designed 
to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.
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    \28\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \29\ 15 U.S.C. 78f(b)(5).
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    The Exchange has proposed an extensive program for the 
qualification, listing, and delisting of Companies on the Exchange and 
has represented that its rules are nearly identical to listing rules of 
an existing national securities exchange. As the Commission has noted, 
the development and enforcement of adequate standards governing the 
initial listing and maintenance of listing of securities is an activity 
of critical importance to financial markets and the investing public. 
Listing standards serve as a means for a marketplace to screen issuers 
and to provide listed status only to bona fide companies with 
sufficient float, investor base, and trading interest to maintain fair 
and orderly markets. Once an issuer has been approved for initial 
listing, the maintenance criteria allow a marketplace to monitor the 
status and trading characteristics of that issue to ensure that it 
continues to meet standards for market depth and liquidity.\30\
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    \30\ See Securities Exchange Act Release No. 55642 (April 18, 
2007), 72 FR 20395 (April 24, 2007) (granting accelerated approval 
to certain NCM listing standards); Securities Exchange Act Release 
No. 37481 (July 25, 1996), 61 FR 40270, 40273-74 (August 1, 1996) 
(granting accelerated approval to establish new quantitative and 
qualitative listing standards of Chicago Stock Exchange, 
Incorporated (``Chx'')) (``Chx Listing Standards Approval''); 
Securities Exchange Act Release No. 34429 (July 22, 1994), 59 FR 
38998, 39002 (August 1, 1994) (granting accelerated approval to new 
quantitative and qualitative listing standards of Pacific Stock 
Exchange, Inc. (``PSE'')) (``PSE Listing Standards Approval'').
---------------------------------------------------------------------------

    In addition to the quantitative standards, the qualitative 
requirements, such as audit committees, independent director oversight 
of executive compensation, a mandatory code of conduct, shareholder 
meetings (including proxy solicitation and quorum), review of related 
party transactions, shareholder approval (including voting rights), and 
disclosure policies are designed to ensure that companies trading on 
the Exchange will adequately protect the interests of public 
shareholders.\31\ The Commission also notes that, because extensive 
listing and maintenance standards are being adopted, only companies 
suitable for exchange listing are eligible for trading on the 
Exchange.\32\
---------------------------------------------------------------------------

    \31\ Id.
    \32\ Id.
---------------------------------------------------------------------------

    The Commission believes that inclusion of a security for listing on 
an exchange should not depend solely on meeting quantitative criteria, 
but should also entail an element of judgment given the expectations of 
investors and the imprimatur of listing on a particular market.\33\ The 
Commission believes that this rule provides the necessary flexibility 
to determine whether to list an issuer while ensuring that certain 
minimum standards must be met. Thus, the Commission believes that the 
listing and maintenance standards strike the appropriate balance 
between protecting investors and providing a marketplace for issuers 
satisfying the disclosure requirements under the federal securities 
laws. The standards will provide important guidance on the Exchange 
review process, and will alert issuers seeking to list on the Exchange 
of its specific standards.
---------------------------------------------------------------------------

    \33\ See Chx Listing Standards Approval, supra note 30, 61 FR at 
40274; PSE Listing Standards Approval Order, supra note 30, 59 FR at 
39002.
---------------------------------------------------------------------------

    The Commission also believes the proposal is consistent with 
Section 6(b)(9) of the Act \34\ because the rules will prohibit the 
listing of any security issued in a limited partnership rollup 
transaction (as defined in Section 14(h) of the Act), unless such 
transaction satisfies the criteria of Section 6(b)(9) and a broker-
dealer that is a member of a national securities association subject to 
Section 15A(b)(12) of the Act participates in the rollup transaction.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78f(b)(9).
---------------------------------------------------------------------------

    Finally, the Commission finds that the proposal is consistent with 
Section 6(b)(4) of the Act,\35\ which requires that the rules of an 
exchange provide for the equitable allocation of reasonable dues, fees, 
and other charges among members and issuers, and other persons using 
its facilities. Specifically, as proposed, the Exchange will establish 
a pricing structure that is not variable based on the number of shares 
or other metrics. The fees are designed to be equitable in that they 
will be the same amongst issuers seeking to list Tier I securities and 
the same amongst issuers seeking to list Tier II securities. Further, 
the Commission notes the Exchange will not charge additional fees that 
issuers incur at other exchanges, including fees for issuance of 
additional shares, name changes, and other corporate actions. Finally, 
the Commission also notes that the Exchange's pricing, in general, will 
be roughly equivalent to or less than what issuers would pay at other 
national securities exchanges,\36\ and

[[Page 55153]]

will not include multiple other fees applicable on other national 
securities exchanges to additional shares issued by listed companies, 
corporate actions, and related activities of issuers.
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78f(b)(4).
    \36\ For instance, issuers listing on NGM pay between $125,000 
and $225,000 initially (depending on the number of shares) and 
between $35,000 and $99,500 annually, compared to proposed Tier I 
fees of $100,000 initially and $35,000 annually. See NASDAQ Rule 
5910(a) and (c). Similarly, issuers listing on NCM pay either 
$50,000 or $75,000 initially (depending on the number of shares) and 
between $17,500 and $75,000 annually, compared to proposed Tier II 
fees of $50,000 initially and $20,000 annually. See NASDAQ Rule 
5920(a) and (c).
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IV. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\37\ that the proposed rule change (SR-BATS-2011-0118) be, and 
hereby is, approved.
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 78s(b)(2).

    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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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-22627 Filed 9-2-11; 8:45 am]
BILLING CODE 8011-01-P

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