Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change To Adopt an Alternative to the $4 Initial Listing Bid Price Requirement for the Nasdaq Capital Market of Either $2 or $3, if Certain Other Listing Requirements Are Met, 3021-3024 [2012-1045]

Download as PDF Federal Register / Vol. 77, No. 13 / Friday, January 20, 2012 / Notices The Exchange has requested that the Commission waive the 30-day operative delay. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest because the proposal only allows Exchange market makers to opt out of the Automated Quote Management service which will enable market makers to manage their own quotes if they so choose. Therefore, the Commission designates the proposed rule change to be operative upon filing with the Commission.9 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. 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: 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 Web site 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. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NASDAQ–2012–009 and should be submitted on or before February 10, 2012. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–1034 Filed 1–19–12; 8:45 am] BILLING CODE 8011–01–P Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–NASDAQ–2012–009 on the subject line. wreier-aviles on DSK5TPTVN1PROD with NOTICES Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASDAQ–2012–009. 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 Web site (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 9 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). VerDate Mar<15>2010 14:12 Jan 19, 2012 Jkt 226001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–66159; File No. SR– NASDAQ–2012–002] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change To Adopt an Alternative to the $4 Initial Listing Bid Price Requirement for the Nasdaq Capital Market of Either $2 or $3, if Certain Other Listing Requirements Are Met January 13, 2012. 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 January 3, 2012, The NASDAQ Stock Market LLC (‘‘Nasdaq’’) 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 Nasdaq. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Nasdaq proposes to adopt an alternative to the $4 initial listing bid price requirement for the Nasdaq Capital Market. The text of the proposed rule change is available on the Nasdaq’s Web site at https:// www.nasdaq.cchwallstreet.com, at Nasdaq’s principal office, and at the Commission’s Public Reference Room. Nasdaq will implement the proposed rule change upon approval. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, Nasdaq 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. Nasdaq 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 the Statutory Basis for, the Proposed Rule Change 1. Purpose Nasdaq proposes to adopt an alternative to the minimum $4 price requirement for companies seeking to list on the Capital Market which meet the express exclusion from the definition of a ‘‘penny stock’’ contained in Exchange Act Rule 3a51–1(g).3 Nasdaq is seeking to make this change to enhance the competition among exchanges for companies with securities priced between $2 and $4. While Section 11A of the Act 4 reflects a Congressional finding that it ‘‘is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure * * * fair competition * * * among exchange markets,’’ currently the only exchange listing alternative available to these companies is NYSE Amex, which has listing standards permitting the listing of companies at either $2 or $3.5 Nasdaq is unable to adopt an identical requirement for the Capital Market because of changes the Commission made to the Penny Stock 3 17 10 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 3021 CFR 240.3a51–1(g). U.S.C. 78k–1. 5 Section 102(b) of the NYSE Amex Company Guide. 4 15 E:\FR\FM\20JAN1.SGM 20JAN1 3022 Federal Register / Vol. 77, No. 13 / Friday, January 20, 2012 / Notices wreier-aviles on DSK5TPTVN1PROD with NOTICES Rules in 2005,6 which would treat securities listed on the Capital Market as ‘‘penny stocks’’ if Nasdaq adopted the identical requirement. A number of companies have indicated a preference to initially list on the Capital Market instead of NYSE Amex and have expressed frustration at their inability to do so without reverse splitting their stock.7 Nasdaq has previously requested that the Commission modify its rules to eliminate this arbitrary regulatory disparity. In fact, as early as 2004, Nasdaq noted that the then proposed changes to the penny stock rules— which created a ‘‘grandfather’’ for Amex stocks and which were ultimately adopted by the Commission—would memorialize an unfair competitive advantage for Amex that is not available to other exchanges.8 The Commission rejected Nasdaq’s call for a uniform approach to all exchanges.9 In a petition filed in May 2010, Nasdaq again requested that the Commission act to eliminate the competitive advantage provided NYSE Amex by the grandfather provision, including, if it felt appropriate, by abrogating the NYSE Amex rule and requiring NYSE Amex to adopt the same minimum $4 initial listing price currently applicable to Nasdaq.10 The Commission has not acted on this request and has not provided any rationale for its delay. The proposed rule change fits within another express exclusion to the Commission’s penny stock definition and would allow a company that currently meets NYSE Amex’s price requirement to instead list on the Capital Market at the same initial listing 6 Securities Exchange Act Release No. 51983 (July 7, 2005) 70 FR 40614 (July 13, 2005). 7 Some companies have indicated that they would not consider a reverse stock split unless there was an underlying business rationale to support it. Other companies are unable to reverse split their stock and maintain qualification with the public float requirement for listing. 8 See Comment of Edward S. Knight, Nasdaq (March 18, 2004) regarding Proposed Amendments to the Penny Stock Rules, Securities Exchange Act Release No. 49037 (January 8, 2004), 69 FR 2531 (January 16, 2004) (available at https://www.sec.gov/ rules/proposed/s70204/s70704-5.pdf). 9 Securities Exchange Act Release No. 51983, supra. In rejecting Nasdaq’s comment, the Commission stated its belief that the rule would maintain the status quo. This conclusion was incorrect, however, as the status quo would have permitted Nasdaq to maintain its penny stock exclusion if it modified its listing standards to adopt the same requirements as NYSE Amex, whereas the new Commission rule did not. 10 See Request for Rulemaking to Allow the Nasdaq Capital Market to Adopt Initial Listing Price Requirements Identical to NYSE Amex, File No. 4– 604 (May 25, 2010), available at https://www.sec.gov/ rules/petitions/2010/petn4-604.pdf (the ‘‘2010 Petition’’). VerDate Mar<15>2010 14:12 Jan 19, 2012 Jkt 226001 price requirement.11 However, companies listing on the Capital Market under the proposed $2 or $3 price requirement would also have to satisfy the proposed net tangible assets or revenue test,12 which is not a requirement of the NYSE Amex rules, but which satisfies the requirements of Rule 3a51–1(g).13 Specifically, as revised, a company would be eligible to list on the Capital Market if it satisfies all existing listing standards except for the $4 price requirement. Such a company must instead have a minimum $3 price if it qualifies under the $5 million equity or $750,000 net income alternatives 14 or a minimum $2 price if it qualifies under the $50 million market value of listed securities alternative 15. [sic] In addition, a company qualifying under the proposed standard must have either: (a) Net tangible assets in excess of $2 million, if the issuer has been in continuous operation for at least three years; or (b) net tangible assets in excess of $5 million, if the issuer has been in continuous operation for less than three years; or (c) average revenue of at least $6 million for the last three years. For this purpose, net tangible assets or revenue must be demonstrated on the Company’s most recently filed audited financial statements, satisfying the requirements of the Commission, and which are dated less than 15 months prior to the date of listing.16 Unlike the relief Nasdaq requested in 2004 and 2010, the proposed rule change will require companies to meet an additional net tangible assets or revenue test, which NYSE Amex does 11 All other requirements for listing on the Capital Market are the same or higher than those of NYSE Amex. Nasdaq included a table comparing its listing standards with NYSE Amex’s as an attachment to the 2010 Petition. In addition, the Commission previously concluded that the initial listing standards for common stock on the Capital Market were substantially similar to those of NYSE Amex, allowing it to designate Capital Market securities as ‘‘covered securities’’ under Section 18 of the 1933 Act, 15 U.S.C. 77r(b). Securities Act Release No. 8791 (April 18, 2007), 72 FR 20410 (April 24, 2007). 12 The net tangible asset or revenue requirements would not apply to a company whose securities satisfy the existing $4 price requirement. 13 17 CFR 240.3a51–1(g). 14 Rules 5505(b)(1) or (b)(3). 15 Rule 5505(b)(2). 16 Nasdaq notes that under Rule 5210(a)(1), any newly listing company, including a foreign private issuer, must be registered under Section 12(b) of the Act, which requires filing audited financial statements. Nasdaq believes that in all cases those financial statements must be more recent than 15 months old. See Rule 3–01 and 3–12, 17 CFR 210.3– 01 and 210.3–12, with respect to domestic companies, and Item 8.A(4) of Form 20–F, with respect to foreign private issuers. However, the proposed rule adopts the 15 month requirement to assure consistency with the timing requirements contained in Rule 3a51–1(g). PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 not require, thus assuring that securities listed under the proposed rule change would not be considered ‘‘penny stocks’’ under the Act at the time of their listing. In that regard, Rule 3a51– 1 17 provides that ‘‘penny stock’’ means any equity security other than securities that meet certain exclusions. Rule 3a51– 1(g) provides an exclusion for a security if its issuer has either ‘‘[n]et tangible assets (i.e., total assets less intangible assets and liabilities) in excess of $2,000,000, if the issuer has been in continuous operation for at least three years, or $5,000,000, if the issuer has been in continuous operation for less than three years’’ or ‘‘[a]verage revenue of at least $6,000,000 for the last three years.’’ When the Commission made changes to Rule 3a51–1 concerning exchange-listed securities, it specifically noted that it did not intend to foreclose reliance on the other exclusions available in Rule 3a51–1, including the exclusion available in Rule 3a51–1(g).18 Proposed Rule 5505(a)(1)(B) would only permit a company to list with a $2 or $3 price if it satisfies the net tangible assets or revenue test of Rule 3a51–1(g) and, as such, securities listing under the proposed rule would not be penny stocks at the time of their listing.19 A company that qualifies for initial listing only under the proposed requirement could become a ‘‘penny stock’’ if it fails the net tangible assets and revenue tests after listing and does not satisfy any of the other exclusions from being a penny stock. In order to assist brokers’ and dealers’ compliance with the requirements of the Penny Stock Rules, Nasdaq will monitor companies listed under the proposed alternative and publish a list of any company that initially listed under that requirement, which does not then meet the requirements of Rule 3a51–1(g), described above, or any of the other exclusions from being a penny stock contained in Rule 3a51–1.20 17 17 CFR 240.3a51–1. No. 49037, 69 FR at 2535 (text at footnote 41) (‘‘In addition, we note that any security that satisfies one of the other exclusions in Rule 3a51–1 will not be a penny stock even if it fails to satisfy any of the proposed conditions for reported securities or for other exchange registered securities discussed above.’’). 19 Furthermore, the Commission has already concluded that companies that satisfy the NYSE Amex listing standards, including price, are not penny stocks. There is no reason to draw a different conclusion about these same companies if they were to list instead on the Nasdaq Capital Market under the proposed standard. See Indep. Petroleum Ass’n of Am. v. Babbitt, 92 F.3d 1248, 1258 (DC Cir. 1996) (‘‘An agency must treat similar cases in a similar manner unless it can provide a legitimate reason for failing to do so.’’). 20 Nasdaq believes that the other exclusion most likely to be implicated would be Rule 3a51–1(d), 17 18 Release E:\FR\FM\20JAN1.SGM 20JAN1 Federal Register / Vol. 77, No. 13 / Friday, January 20, 2012 / Notices Nasdaq notes that the adoption of the proposed rule change should not alter the Commission’s prior designation of securities listed on the Capital Market as ‘‘covered securities’’ under Section 18 of the Securities Act of 1933.21 In 2007, the Commission concluded that Capital Market securities were covered securities, exempt from State law registration requirements, because the Capital Market has listing standards that are substantially similar to the listing standards of the Nasdaq Global Market, New York Stock Exchange, or NYSE Amex (the ‘‘Named Markets’’).22 The Commission has held that an exchange’s listing requirements will be considered substantially similar if the listing standards are ‘‘at least as comprehensive as those of the Named Markets’’ and that if ‘‘listing standards are higher than the Named Markets, then the Commission still determined that the petitioner’s listing standards are substantially similar to the Named Markets.’’ 23 As described above, following approval of the proposed rule change, the Capital Market listing requirements for common stock will continue to be the same as, or higher than, those of NYSE Amex, which permit the listing of companies at $2 and $3 without the proposed additional net tangible asset or revenue test. Indeed, all other requirements for listing on the Capital Market meet or exceed the requirements for listing on NYSE Amex. The proposed rule change, therefore, should not disturb the Commission’s designation of Capital Market securities as covered securities. wreier-aviles on DSK5TPTVN1PROD with NOTICES 2. Statutory Basis Nasdaq believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,24 in general and with Sections 6(b)(5) and (8) of the Act,25 in particular. Section 6(b)(5) requires, among other things, that a national securities exchange’s rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. The proposed rule change would adopt a $2 and $3 initial listing price alternative for the NASDAQ Capital CFR 240.3a51–1(d), which provides an exclusion from the definition of a penny stock for a security with a minimum bid price of $5. Note, however, that if a company obtains a $4 minimum bid price at a time when it meets all other initial listing requirements, Nasdaq would no longer consider the company as having listed under the proposed alternative standard. 21 15 U.S.C. 77r. 22 Securities Act Release No. 8791, supra. 23 Id., 72 FR at 20411. 24 15 U.S.C. 78f. 25 15 U.S.C. 78f(b)(5) and (8). VerDate Mar<15>2010 14:12 Jan 19, 2012 Jkt 226001 3023 Market that is substantially similar to the requirements of NYSE Amex, which the Commission has already determined is consistent with these requirements.26 However, the proposed rule change would require companies to also satisfy an additional net tangible asset or revenue test, which is not a requirement of the NYSE Amex listing requirements and which is consistent with the requirements for a security to avoid being a ‘‘penny stock’’ set forth in Rule 3a51–1(g).27 Nasdaq believes that the proposed price requirement is sufficient to protect investors and would exercise its discretionary authority to deny initial listing if Nasdaq was concerned about the ability of the company to maintain compliance with the continued listing price or believed there were public interest concerns leading to the company’s low stock price.28 Moreover, given that these companies have an exchange-listing available to them, prohibiting listing on Nasdaq does not serve to protect investors and Nasdaq believes that investors would be at least as well protected by having these companies instead listed on the Capital Market, where they would be subject to oversight by Nasdaq’s regulatory staff. Section 6(b)(8) of the Act requires that the rules of an exchange not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. In addition, Section 11A of the Act 29 requires that there be fair competition among exchange markets to further the public interest and protection of investors. The Department of Justice recently noted the importance of a competitive environment for exchange listings.30 Nasdaq believes that the existing situation, whereby NYSE Amex is permitted to list companies that no other market can, is an unfair burden on competition in violation of Sections 6(b)(8) and 11A. Since 2008, NYSE Amex listed approximately 50 companies for which no other market could compete. The proposed rule change would enhance the competition between exchanges, and benefit companies and their investors, by providing companies that today are forced to list on NYSE Amex an alternative exchange listing venue. As such, the proposed rule change is consistent with Sections 6(b)(8) and 11A. Finally, as noted above, the proposed rule change would adopt the identical initial listing price requirement contained in the NYSE Amex Company Guide. As such, Nasdaq believes that its listing requirements would remain substantially similar to those of NYSE Amex, as required for covered securities under Section 18 of the Securities Act.31 In addition, as noted, the proposed rule change would require that any company qualifying under this new price alternative also meet the requirements of Rule 3a51–1(g) 32 and that these securities therefore would not be considered ‘‘penny stocks’’ under the Act at the time of their listing. To the extent that a company no longer qualified for the exclusion under Rule 3a51–1(g), or any of the other exclusions in Rule 3a51–1, Nasdaq would notify the public by including the company in a list published on Nasdaq’s Web site. 26 Securities Exchange Act Release No. 53050 (January 3, 2006), 71 FR 1580 (January 10, 2006) (approving the NYSE Amex $2 price requirement). The Commission notes that, prior to the adoption of the $2 price requirement, the applicable NYSE Amex standard did not require a minimum market price per share. 27 17 CFR 240.3a51–1(g). 28 Nasdaq notes that NYSE Amex does not have a continued listing price requirement, although NYSE Amex will ‘‘consider suspending dealings’’ in a ‘‘common stock selling for a substantial period of time at a low price per share.’’ NYSE Amex Company Guide Section 1003(f)(v). As such, companies listing at $2 or $3 on NYSE Amex could quickly fall to a very low price and nonetheless remain listed indefinitely. On the other hand, Nasdaq requires a $1 price for continued listing. Nasdaq Listing Rule 5550(a)(2). See also Exchange Act Release No. 53050 (January 3, 2006), 71 FR 1580 at 1581 (note 11) (January 10, 2006) (encouraging NYSE Amex to adopt a minimum price requirement for continued listing while approving SR–AMEX–2005–114). 29 15 U.S.C. 78k–1. 30 See ‘‘NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. Abandon Their Proposed Acquisition of NYSE Euronext After Justice Department Threatens Lawsuit’’ (May 16, Nasdaq does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. Instead, the proposed rule change would enhance the competition between exchanges, and benefit companies and their investors, by allowing companies that today are forced to list on NYSE Amex an alternative listing venue. PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 B. Self-Regulatory Organization’s Statement on Burden on Competition C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. 2011), available at https://www.justice.gov/atr/ public/press_releases/2011/271214.htm. 31 15 U.S.C. 77r. 32 17 CFR 240.3a51–1(g). E:\FR\FM\20JAN1.SGM 20JAN1 3024 Federal Register / Vol. 77, No. 13 / Friday, January 20, 2012 / Notices III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission will: (a) By order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–NASDAQ–2012–002 on the subject line. wreier-aviles on DSK5TPTVN1PROD with NOTICES Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASDAQ–2012–002. 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 Web site (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 Web site viewing and 33 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 14:12 Jan 19, 2012 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.33 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–1045 Filed 1–19–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–66158; File No. SR– NASDAQ–2012–006] Self-Regulatory Organizations; NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Options Fees January 13, 2012. 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 January 6, 2012, The NASDAQ Stock Market LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by NASDAQ. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The NASDAQ Stock Market LLC proposes to relocate certain rules in the NASDAQ Rulebook. Specifically, the Exchange proposes to relocate the following Rules: (i) Rule 7007, Collection of Exchange Fees and Other Claims—NASDAQ Options Market; (ii) 3 The Exchange is proposing to create two Sales Fee Rules, one for equities and one for options. Rule 7002 will be relocated in part. The Exchange proposes to create a new ‘‘Sales Fee—Options’’ Rule in Section 8 of Chapter XV which Rule would 1 15 VerDate Mar<15>2010 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 Nasdaq. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NASDAQ–2012–002 and should be submitted on or before February 10, 2012. Jkt 226001 PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 Rule 7046, Nasdaq Options Maintenance Tool, (iii) Rule 7050, NASDAQ Options Market—Fees; (iv) Rule 7053, NASDAQ Options Market— Access Services; (v) Rule 7054, NASDAQ Options Market Data Distributor Fees; (vi) Rule 7056, NASDAQ Options Fee Disputes; and (vii) Rule 7059, NASDAQ Options Regulatory Fee. The Exchange is also proposing to relocate a portion of Rule 7002, Sales Fee, which applies to options, by replicating that fee in the new ‘‘Options Fees’’ Chapter. The Exchange is proposing to relocate these Rules to a new Chapter under the Options Rules. The text of the proposed rule change is available on the Exchange’s Web site at https:// www.nasdaq.cchwallstreet.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose NASDAQ proposes to create a new Chapter in the NASDAQ Rulebook and relocate certain options fees, which apply only to Options Participants, to this new Chapter to further clarify its fees. Specifically, the Exchange proposes to create a new ‘‘Chapter XV,’’ entitled ‘‘Options Fees’’ under the Options Rules portion of the Rulebook. The Exchange proposes to relocate the below listed Rules, currently in the 7000 Series of the Rulebook, to this new Chapter under the Options Rules.3 This is not a substantive change, but rather merely a relocation of Rule text within the Rulebook. The Exchange proposes to specifically relocate the following Rules to the replicate the Sales Fee Rule, specifically relocating paragraphs 7002(b) and (d), applicable to options. Rule 7002(a) and (c) would remain in Rule 7002, as those paragraphs apply to equities. E:\FR\FM\20JAN1.SGM 20JAN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 77, Number 13 (Friday, January 20, 2012)]
[Notices]
[Pages 3021-3024]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-1045]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66159; File No. SR-NASDAQ-2012-002]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing of Proposed Rule Change To Adopt an Alternative to the
$4 Initial Listing Bid Price Requirement for the Nasdaq Capital Market
of Either $2 or $3, if Certain Other Listing Requirements Are Met

January 13, 2012.
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 January 3, 2012, The NASDAQ Stock Market LLC (``Nasdaq'') 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 Nasdaq. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

Nasdaq proposes to adopt an alternative to the $4 initial listing
bid price requirement for the Nasdaq Capital Market. The text of the
proposed rule change is available on the Nasdaq's Web site at https://www.nasdaq.cchwallstreet.com, at Nasdaq's principal office, and at the
Commission's Public Reference Room. Nasdaq will implement the proposed
rule change upon approval.

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

In its filing with the Commission, Nasdaq 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. Nasdaq 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 the
Statutory Basis for, the Proposed Rule Change

1. Purpose
Nasdaq proposes to adopt an alternative to the minimum $4 price
requirement for companies seeking to list on the Capital Market which
meet the express exclusion from the definition of a ``penny stock''
contained in Exchange Act Rule 3a51-1(g).\3\
---------------------------------------------------------------------------

\3\ 17 CFR 240.3a51-1(g).
---------------------------------------------------------------------------

Nasdaq is seeking to make this change to enhance the competition
among exchanges for companies with securities priced between $2 and $4.
While Section 11A of the Act \4\ reflects a Congressional finding that
it ``is in the public interest and appropriate for the protection of
investors and the maintenance of fair and orderly markets to assure * *
* fair competition * * * among exchange markets,'' currently the only
exchange listing alternative available to these companies is NYSE Amex,
which has listing standards permitting the listing of companies at
either $2 or $3.\5\ Nasdaq is unable to adopt an identical requirement
for the Capital Market because of changes the Commission made to the
Penny Stock

[[Page 3022]]

Rules in 2005,\6\ which would treat securities listed on the Capital
Market as ``penny stocks'' if Nasdaq adopted the identical requirement.
---------------------------------------------------------------------------

\4\ 15 U.S.C. 78k-1.
\5\ Section 102(b) of the NYSE Amex Company Guide.
\6\ Securities Exchange Act Release No. 51983 (July 7, 2005) 70
FR 40614 (July 13, 2005).
---------------------------------------------------------------------------

A number of companies have indicated a preference to initially list
on the Capital Market instead of NYSE Amex and have expressed
frustration at their inability to do so without reverse splitting their
stock.\7\ Nasdaq has previously requested that the Commission modify
its rules to eliminate this arbitrary regulatory disparity. In fact, as
early as 2004, Nasdaq noted that the then proposed changes to the penny
stock rules--which created a ``grandfather'' for Amex stocks and which
were ultimately adopted by the Commission--would memorialize an unfair
competitive advantage for Amex that is not available to other
exchanges.\8\ The Commission rejected Nasdaq's call for a uniform
approach to all exchanges.\9\
---------------------------------------------------------------------------

\7\ Some companies have indicated that they would not consider a
reverse stock split unless there was an underlying business
rationale to support it. Other companies are unable to reverse split
their stock and maintain qualification with the public float
requirement for listing.
\8\ See Comment of Edward S. Knight, Nasdaq (March 18, 2004)
regarding Proposed Amendments to the Penny Stock Rules, Securities
Exchange Act Release No. 49037 (January 8, 2004), 69 FR 2531
(January 16, 2004) (available at https://www.sec.gov/rules/proposed/s70204/s70704-5.pdf).
\9\ Securities Exchange Act Release No. 51983, supra. In
rejecting Nasdaq's comment, the Commission stated its belief that
the rule would maintain the status quo. This conclusion was
incorrect, however, as the status quo would have permitted Nasdaq to
maintain its penny stock exclusion if it modified its listing
standards to adopt the same requirements as NYSE Amex, whereas the
new Commission rule did not.
---------------------------------------------------------------------------

In a petition filed in May 2010, Nasdaq again requested that the
Commission act to eliminate the competitive advantage provided NYSE
Amex by the grandfather provision, including, if it felt appropriate,
by abrogating the NYSE Amex rule and requiring NYSE Amex to adopt the
same minimum $4 initial listing price currently applicable to
Nasdaq.\10\ The Commission has not acted on this request and has not
provided any rationale for its delay.
---------------------------------------------------------------------------

\10\ See Request for Rulemaking to Allow the Nasdaq Capital
Market to Adopt Initial Listing Price Requirements Identical to NYSE
Amex, File No. 4-604 (May 25, 2010), available at https://www.sec.gov/rules/petitions/2010/petn4-604.pdf (the ``2010
Petition'').
---------------------------------------------------------------------------

The proposed rule change fits within another express exclusion to
the Commission's penny stock definition and would allow a company that
currently meets NYSE Amex's price requirement to instead list on the
Capital Market at the same initial listing price requirement.\11\
However, companies listing on the Capital Market under the proposed $2
or $3 price requirement would also have to satisfy the proposed net
tangible assets or revenue test,\12\ which is not a requirement of the
NYSE Amex rules, but which satisfies the requirements of Rule 3a51-
1(g).\13\ Specifically, as revised, a company would be eligible to list
on the Capital Market if it satisfies all existing listing standards
except for the $4 price requirement. Such a company must instead have a
minimum $3 price if it qualifies under the $5 million equity or
$750,000 net income alternatives \14\ or a minimum $2 price if it
qualifies under the $50 million market value of listed securities
alternative \15\. [sic] In addition, a company qualifying under the
proposed standard must have either: (a) Net tangible assets in excess
of $2 million, if the issuer has been in continuous operation for at
least three years; or (b) net tangible assets in excess of $5 million,
if the issuer has been in continuous operation for less than three
years; or (c) average revenue of at least $6 million for the last three
years. For this purpose, net tangible assets or revenue must be
demonstrated on the Company's most recently filed audited financial
statements, satisfying the requirements of the Commission, and which
are dated less than 15 months prior to the date of listing.\16\
---------------------------------------------------------------------------

\11\ All other requirements for listing on the Capital Market
are the same or higher than those of NYSE Amex. Nasdaq included a
table comparing its listing standards with NYSE Amex's as an
attachment to the 2010 Petition. In addition, the Commission
previously concluded that the initial listing standards for common
stock on the Capital Market were substantially similar to those of
NYSE Amex, allowing it to designate Capital Market securities as
``covered securities'' under Section 18 of the 1933 Act, 15 U.S.C.
77r(b). Securities Act Release No. 8791 (April 18, 2007), 72 FR
20410 (April 24, 2007).
\12\ The net tangible asset or revenue requirements would not
apply to a company whose securities satisfy the existing $4 price
requirement.
\13\ 17 CFR 240.3a51-1(g).
\14\ Rules 5505(b)(1) or (b)(3).
\15\ Rule 5505(b)(2).
\16\ Nasdaq notes that under Rule 5210(a)(1), any newly listing
company, including a foreign private issuer, must be registered
under Section 12(b) of the Act, which requires filing audited
financial statements. Nasdaq believes that in all cases those
financial statements must be more recent than 15 months old. See
Rule 3-01 and 3-12, 17 CFR 210.3-01 and 210.3-12, with respect to
domestic companies, and Item 8.A(4) of Form 20-F, with respect to
foreign private issuers. However, the proposed rule adopts the 15
month requirement to assure consistency with the timing requirements
contained in Rule 3a51-1(g).
---------------------------------------------------------------------------

Unlike the relief Nasdaq requested in 2004 and 2010, the proposed
rule change will require companies to meet an additional net tangible
assets or revenue test, which NYSE Amex does not require, thus assuring
that securities listed under the proposed rule change would not be
considered ``penny stocks'' under the Act at the time of their listing.
In that regard, Rule 3a51-1 \17\ provides that ``penny stock'' means
any equity security other than securities that meet certain exclusions.
Rule 3a51-1(g) provides an exclusion for a security if its issuer has
either ``[n]et tangible assets (i.e., total assets less intangible
assets and liabilities) in excess of $2,000,000, if the issuer has been
in continuous operation for at least three years, or $5,000,000, if the
issuer has been in continuous operation for less than three years'' or
``[a]verage revenue of at least $6,000,000 for the last three years.''
When the Commission made changes to Rule 3a51-1 concerning exchange-
listed securities, it specifically noted that it did not intend to
foreclose reliance on the other exclusions available in Rule 3a51-1,
including the exclusion available in Rule 3a51-1(g).\18\ Proposed Rule
5505(a)(1)(B) would only permit a company to list with a $2 or $3 price
if it satisfies the net tangible assets or revenue test of Rule 3a51-
1(g) and, as such, securities listing under the proposed rule would not
be penny stocks at the time of their listing.\19\
---------------------------------------------------------------------------

\17\ 17 CFR 240.3a51-1.
\18\ Release No. 49037, 69 FR at 2535 (text at footnote 41)
(``In addition, we note that any security that satisfies one of the
other exclusions in Rule 3a51-1 will not be a penny stock even if it
fails to satisfy any of the proposed conditions for reported
securities or for other exchange registered securities discussed
above.'').
\19\ Furthermore, the Commission has already concluded that
companies that satisfy the NYSE Amex listing standards, including
price, are not penny stocks. There is no reason to draw a different
conclusion about these same companies if they were to list instead
on the Nasdaq Capital Market under the proposed standard. See Indep.
Petroleum Ass'n of Am. v. Babbitt, 92 F.3d 1248, 1258 (DC Cir. 1996)
(``An agency must treat similar cases in a similar manner unless it
can provide a legitimate reason for failing to do so.'').
---------------------------------------------------------------------------

A company that qualifies for initial listing only under the
proposed requirement could become a ``penny stock'' if it fails the net
tangible assets and revenue tests after listing and does not satisfy
any of the other exclusions from being a penny stock. In order to
assist brokers' and dealers' compliance with the requirements of the
Penny Stock Rules, Nasdaq will monitor companies listed under the
proposed alternative and publish a list of any company that initially
listed under that requirement, which does not then meet the
requirements of Rule 3a51-1(g), described above, or any of the other
exclusions from being a penny stock contained in Rule 3a51-1.\20\
---------------------------------------------------------------------------

\20\ Nasdaq believes that the other exclusion most likely to be
implicated would be Rule 3a51-1(d), 17 CFR 240.3a51-1(d), which
provides an exclusion from the definition of a penny stock for a
security with a minimum bid price of $5. Note, however, that if a
company obtains a $4 minimum bid price at a time when it meets all
other initial listing requirements, Nasdaq would no longer consider
the company as having listed under the proposed alternative
standard.

---------------------------------------------------------------------------

[[Page 3023]]

Nasdaq notes that the adoption of the proposed rule change should
not alter the Commission's prior designation of securities listed on
the Capital Market as ``covered securities'' under Section 18 of the
Securities Act of 1933.\21\ In 2007, the Commission concluded that
Capital Market securities were covered securities, exempt from State
law registration requirements, because the Capital Market has listing
standards that are substantially similar to the listing standards of
the Nasdaq Global Market, New York Stock Exchange, or NYSE Amex (the
``Named Markets'').\22\ The Commission has held that an exchange's
listing requirements will be considered substantially similar if the
listing standards are ``at least as comprehensive as those of the Named
Markets'' and that if ``listing standards are higher than the Named
Markets, then the Commission still determined that the petitioner's
listing standards are substantially similar to the Named Markets.''
\23\ As described above, following approval of the proposed rule
change, the Capital Market listing requirements for common stock will
continue to be the same as, or higher than, those of NYSE Amex, which
permit the listing of companies at $2 and $3 without the proposed
additional net tangible asset or revenue test. Indeed, all other
requirements for listing on the Capital Market meet or exceed the
requirements for listing on NYSE Amex. The proposed rule change,
therefore, should not disturb the Commission's designation of Capital
Market securities as covered securities.
---------------------------------------------------------------------------

\21\ 15 U.S.C. 77r.
\22\ Securities Act Release No. 8791, supra.
\23\ Id., 72 FR at 20411.
---------------------------------------------------------------------------

2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\24\ in general and with
Sections 6(b)(5) and (8) of the Act,\25\ in particular. Section 6(b)(5)
requires, among other things, that a national securities exchange's
rules must be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, and, in
general, to protect investors and the public interest. The proposed
rule change would adopt a $2 and $3 initial listing price alternative
for the NASDAQ Capital Market that is substantially similar to the
requirements of NYSE Amex, which the Commission has already determined
is consistent with these requirements.\26\ However, the proposed rule
change would require companies to also satisfy an additional net
tangible asset or revenue test, which is not a requirement of the NYSE
Amex listing requirements and which is consistent with the requirements
for a security to avoid being a ``penny stock'' set forth in Rule 3a51-
1(g).\27\ Nasdaq believes that the proposed price requirement is
sufficient to protect investors and would exercise its discretionary
authority to deny initial listing if Nasdaq was concerned about the
ability of the company to maintain compliance with the continued
listing price or believed there were public interest concerns leading
to the company's low stock price.\28\ Moreover, given that these
companies have an exchange-listing available to them, prohibiting
listing on Nasdaq does not serve to protect investors and Nasdaq
believes that investors would be at least as well protected by having
these companies instead listed on the Capital Market, where they would
be subject to oversight by Nasdaq's regulatory staff.
---------------------------------------------------------------------------

\24\ 15 U.S.C. 78f.
\25\ 15 U.S.C. 78f(b)(5) and (8).
\26\ Securities Exchange Act Release No. 53050 (January 3,
2006), 71 FR 1580 (January 10, 2006) (approving the NYSE Amex $2
price requirement). The Commission notes that, prior to the adoption
of the $2 price requirement, the applicable NYSE Amex standard did
not require a minimum market price per share.
\27\ 17 CFR 240.3a51-1(g).
\28\ Nasdaq notes that NYSE Amex does not have a continued
listing price requirement, although NYSE Amex will ``consider
suspending dealings'' in a ``common stock selling for a substantial
period of time at a low price per share.'' NYSE Amex Company Guide
Section 1003(f)(v). As such, companies listing at $2 or $3 on NYSE
Amex could quickly fall to a very low price and nonetheless remain
listed indefinitely. On the other hand, Nasdaq requires a $1 price
for continued listing. Nasdaq Listing Rule 5550(a)(2). See also
Exchange Act Release No. 53050 (January 3, 2006), 71 FR 1580 at 1581
(note 11) (January 10, 2006) (encouraging NYSE Amex to adopt a
minimum price requirement for continued listing while approving SR-
AMEX-2005-114).
---------------------------------------------------------------------------

Section 6(b)(8) of the Act requires that the rules of an exchange
not impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. In addition, Section 11A of the
Act \29\ requires that there be fair competition among exchange markets
to further the public interest and protection of investors. The
Department of Justice recently noted the importance of a competitive
environment for exchange listings.\30\ Nasdaq believes that the
existing situation, whereby NYSE Amex is permitted to list companies
that no other market can, is an unfair burden on competition in
violation of Sections 6(b)(8) and 11A. Since 2008, NYSE Amex listed
approximately 50 companies for which no other market could compete. The
proposed rule change would enhance the competition between exchanges,
and benefit companies and their investors, by providing companies that
today are forced to list on NYSE Amex an alternative exchange listing
venue. As such, the proposed rule change is consistent with Sections
6(b)(8) and 11A.
---------------------------------------------------------------------------

\29\ 15 U.S.C. 78k-1.
\30\ See ``NASDAQ OMX Group Inc. and IntercontinentalExchange
Inc. Abandon Their Proposed Acquisition of NYSE Euronext After
Justice Department Threatens Lawsuit'' (May 16, 2011), available at
https://www.justice.gov/atr/public/press_releases/2011/271214.htm.
---------------------------------------------------------------------------

Finally, as noted above, the proposed rule change would adopt the
identical initial listing price requirement contained in the NYSE Amex
Company Guide. As such, Nasdaq believes that its listing requirements
would remain substantially similar to those of NYSE Amex, as required
for covered securities under Section 18 of the Securities Act.\31\ In
addition, as noted, the proposed rule change would require that any
company qualifying under this new price alternative also meet the
requirements of Rule 3a51-1(g) \32\ and that these securities therefore
would not be considered ``penny stocks'' under the Act at the time of
their listing. To the extent that a company no longer qualified for the
exclusion under Rule 3a51-1(g), or any of the other exclusions in Rule
3a51-1, Nasdaq would notify the public by including the company in a
list published on Nasdaq's Web site.
---------------------------------------------------------------------------

\31\ 15 U.S.C. 77r.
\32\ 17 CFR 240.3a51-1(g).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

Nasdaq does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended. Instead, the
proposed rule change would enhance the competition between exchanges,
and benefit companies and their investors, by allowing companies that
today are forced to list on NYSE Amex an alternative listing venue.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

Written comments were neither solicited nor received.

[[Page 3024]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2012-002 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2012-002. 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 Web site (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 Web site 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 Nasdaq. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-NASDAQ-2012-002 and should
be submitted on or before February 10, 2012.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
---------------------------------------------------------------------------

\33\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-1045 Filed 1-19-12; 8:45 am]
BILLING CODE 8011-01-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.