Covered Securities of Bats Exchange, Inc., 3590-3598 [2012-1521]
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Federal Register / Vol. 77, No. 16 / Wednesday, January 25, 2012 / Rules and Regulations
any potentially significant
environmental impacts, and no
extraordinary circumstances exist that
warrant preparation of an
environmental assessment.
List of Subjects in 14 CFR Part 71
Airspace, Incorporation by reference,
Navigation (air).
Adoption of the Amendment
In consideration of the foregoing, the
Federal Aviation Administration
amends 14 CFR part 71 as follows:
PART 71—DESIGNATION OF CLASS A,
B, C, D, AND E AIRSPACE AREAS; AIR
TRAFFIC SERVICE ROUTES; AND
REPORTING POINTS
Authority: 49 U.S.C. 106(g), 40103, 40113,
40120; E.O. 10854, 24 FR 9565, 3 CFR, 1959–
1963 Comp., p. 389.
[Amended]
2. The incorporation by reference in
14 CFR 71.1 of FAA Order 7400.9V,
Airspace Designations and Reporting
Points, signed August 9, 2011, and
effective September 15, 2011, is
amended as follows:
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SKILA [Amended]
Lat. 60°29′50″ N., long. 150°40′02″ W. (INT
Anchorage, AK, 208°, Homer, AK, 026°
radials).
*
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Issued in Washington, DC, on January 17,
2012.
Gary A. Norek,
Acting Manager, Airspace, Regulations, &
ATC Procedures Group.
[FR Doc. 2012–1394 Filed 1–24–12; 8:45 am]
Barbara S. Gold, Associate Director,
Christopher W. Cummings, Special
Counsel, or Elizabeth Miller, AttorneyAdvisor, Division of Swap Dealer and
Intermediary Oversight, 1155 21st Street
NW., Washington, DC 20581. Telephone
number: (202) 418–6700 and electronic
mail: bgold@cftc.gov,
ccummings@cftc.gov, or
emiller@cftc.gov.
In the
final rule, FR Doc. 2012–00792, on page
2613 in the issue of Thursday, January
11, 2012, the following corrections are
made:
CLAMS [Amended]
Lat. 59°53′30″ N., long. 152°16′56″ W. (INT
Homer, AK, 294°, Kenai, AK, 217° radials).
*
Effective March 19, 2012.
SUPPLEMENTARY INFORMATION:
Paragraph 7004 Alaskan Low Altitude
Reporting Points
*
DATES:
FOR FURTHER INFORMATION CONTACT:
1. The authority citation for part 71
continues to read as follows:
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§ 71.1
This document corrects
language in the final rules published in
the Federal Register of Thursday,
January 19, 2012, regarding the
Registration of Swap Dealers and Major
Swap Participants. The Commission
adopted regulations under the
Commodity Exchange Act (Act or CEA)
that establish the process for the
registration of swap dealers (SDs) and
major swap participants (MSPs, and
collectively with SDs, Swaps Entities) in
accordance with section 4s of the CEA,
which was added recently to the CEA by
the Dodd-Frank Wall Street Reform and
Consumer Protection Act.
SUMMARY:
1. On page 2616 in the right column,
beginning on the thirteenth line of the
footnotes, the text ‘‘4s(f), 4s(h),’’ in
footnote 33 is corrected to read ‘‘4s(f),
4s(g), 4s(h)’’.
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PART 3—REGISTRATION
§ 3.1
[Corrected]
2. On page 2626 in the left column, in
§ 3.1 Definitions, in paragraph (f),
‘‘4s(e), 4s(f), 4s(h), 4s(i), 4s(j), 4s(k) or
4s(l) of the Act.’’ is corrected to read
‘‘4s(e), 4s(f), 4s(g), 4s(h), 4s(i), 4s(j), 4s(k)
or 4s(l) of the Act.’’
■
PART 23—[CORRECTED]
BILLING CODE 4910–13–P
COMMODITY FUTURES TRADING
COMMISSION
3. On page 2629 in the left column,
‘‘Subpart A—Definitions’’ is corrected to
read ‘‘Subpart A—[Reserved]’’.
■
RIN 3038–AC95
Dated: January 20, 2012.
David A. Stawick,
Secretary of the Commission.
Registration of Swap Dealers and
Major Swap Participants; Correction
[FR Doc. 2012–1507 Filed 1–24–12; 8:45 am]
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17 CFR Parts 3 and 23
BILLING CODE P
Commodity Futures Trading
Commission.
ACTION: Final rules; correction.
AGENCY:
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SECURITIES AND EXCHANGE
COMMISSION
17 CFR Part 230
[Release No. 33–9295; File No. S7–31–11]
RIN 3235–AL20
Covered Securities of Bats Exchange,
Inc.
Securities and Exchange
Commission.
ACTION: Final rule.
AGENCY:
The Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
is adopting an amendment to Rule 146
under Section 18 of the Securities Act
of 1933, as amended, (‘‘Securities Act’’)
to designate certain securities listed, or
authorized for listing, on BATS
Exchange, Inc. (‘‘BATS’’ or ‘‘Exchange’’)
as covered securities for purposes of
Section 18 of the Securities Act.
Covered securities under Section 18 of
the Securities Act are exempt from state
law registration requirements. The
Commission also is making corrections
to the rule text to reflect name changes.
DATES: Effective Date: February 24,
2012.
SUMMARY:
FOR FURTHER INFORMATION CONTACT:
David R. Dimitrious, Senior Special
Counsel, (202) 551–5131, Ronesha
Butler, Special Counsel, (202) 551–5629,
or Carl Tugberk, Special Counsel, (202)
551–6049, or Tyler Raimo, Special
Counsel, (202) 551–6227, Division of
Trading and Markets (‘‘Division’’),
Commission, 100 F Street NE.,
Washington, DC 20549–6628.
SUPPLEMENTARY INFORMATION:
I. Introduction
In 1996, Congress amended Section
18 of the Securities Act to exempt from
state registration requirements securities
listed, or authorized for listing, on the
New York Stock Exchange LLC
(‘‘NYSE’’), the American Stock
Exchange LLC (‘‘Amex’’) (now known as
NYSE Amex LLC),1 or the National
Market System of The NASDAQ Stock
1 On October 1, 2008, NYSE Euronext acquired
The Amex Membership Corporation (‘‘AMC’’)
pursuant to an Agreement and Plan of Merger,
dated January 17, 2008 (the ‘‘Merger’’). In
connection with the Merger, NYSE Amex’s
predecessor, the Amex, a subsidiary of AMC,
became a subsidiary of NYSE Euronext called NYSE
Alternext US LLC (‘‘NYSE Alternext’’). See
Securities Exchange Act Release No. 58673
(September 29, 2008), 73 FR 57707 (October 3,
2008) (SR–NYSE–2008–60 and SR–Amex 2008–62)
(approving the Merger). In 2009, the Exchange
changed its name from NYSE Alternext to NYSE
Amex LLC (‘‘NYSE Amex’’). See Securities
Exchange Act Release No. 59575 (March 13, 2009),
74 FR 11803 (March 19, 2009) (SR–NYSEALTR–
2009–24) (approving the name change).
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Market LLC (‘‘Nasdaq/NGM’’) 2
(collectively, the ‘‘Named Markets’’), or
any national securities exchange
designated by the Commission to have
substantially similar listing standards to
those of the Named Markets.3 More
specifically, Section 18(a) of the
Securities Act provides that ‘‘no law,
rule, regulation, or order, or other
administrative action of any State * * *
requiring, or with respect to, registration
or qualification of securities * * * shall
directly or indirectly apply to a security
that—(A) is a covered security.’’ 4
Covered securities are defined in
Section 18(b)(1) of the Securities Act to
include those securities listed, or
authorized for listing, on the Named
Markets, or securities listed, or
authorized for listing, on a national
securities exchange (or tier or segment
thereof) that has listing standards that
the Commission determines by rule are
‘‘substantially similar’’ to those of the
Named Markets (‘‘Covered Securities’’).5
Pursuant to Section 18(b)(1)(B) of the
Securities Act, the Commission adopted
Rule 146.6 Rule 146(b) lists those
national securities exchanges, or
segments or tiers thereof, that the
Commission has determined to have
listing standards substantially similar to
those of the Named Markets and thus
2 As of July 1, 2006, the National Market System
of The NASDAQ Stock Market LLC is known as the
Nasdaq Global Market (‘‘NGM’’). See Securities
Exchange Act Release Nos. 53799 (May 12, 2006),
71 FR 29195 (May 19, 2006) and 54071 (June 29,
2006), 71 FR 38922 (July 10, 2006).
3 See National Securities Markets Improvement
Act of 1996, Pub. L. 104–290, 110 Stat. 3416
(October 11, 1996).
4 15 U.S.C. 77r(a).
5 15 U.S.C. 77r(b)(1)(A) and (B). In addition,
securities of the same issuer that are equal in
seniority or senior to a security listed on a Named
Market or national securities exchange designated
by the Commission as having substantially similar
listing standards to a Named Market are covered
securities for purposes of Section 18 of the
Securities Act. 15 U.S.C. 77r(b)(1)(C).
6 Securities Exchange Act Release No. 39542
(January 13, 1998), 63 FR 3032 (January 21, 1998)
(determining that the listing standards of the
Chicago Board Options Exchange, Incorporated
(‘‘CBOE’’), Tier 1 of the Pacific Exchange, Inc.
(‘‘PCX’’) (now known as NYSE Arca, Inc.), and Tier
1 of the Philadelphia Stock Exchange, Inc. (‘‘Phlx’’)
(now known as NASDAQ OMX PHLX LLC) were
substantially similar to those of the Named Markets
and that securities listed pursuant to those
standards would be deemed Covered Securities for
purposes of Section 18 of the Securities Act). In
2004, the Commission amended Rule 146(b) to
designate options listed on the International
Securities Exchange, Inc. (‘‘ISE’’) (now known as
the International Securities Exchange, LLC) as
Covered Securities for purposes of Section 18(b) of
the Securities Act. See Securities Act Release No.
8442 (July 14, 2004), 69 FR 43295 (July 20, 2004).
In 2007, the Commission amended Rule 146(b) to
designate securities listed on the Nasdaq Capital
Market (‘‘NCM’’) as Covered Securities for purposes
of Section 18(b) of the Securities Act. See Securities
Act Release No. 8791 (April 18, 2007), 72 FR 20410
(April 24, 2007).
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securities listed on such exchanges are
deemed Covered Securities.7 BATS has
petitioned the Commission to amend
Rule 146(b) to designate certain
securities listed on BATS 8 as Covered
Securities for the purpose of Section 18
of the Securities Act.9
On August 8, 2011, the Commission
issued a release proposing to amend
Rule 146(b) to designate certain
securities listed, or authorized for
listing, on BATS as covered securities
for purposes of Section 18(a) of the
Securities Act.10 The Commission also
proposed to update certain references in
the rule. The Commission received one
comment letter,11 which favored
amending Rule 146(b) to reflect the
name change of Phlx, as proposed by
the Commission. In connection with its
petition, BATS filed a proposed rule
change to establish standards for the
listing of securities on BATS.12 On
7 17
CFR 230.146(b).
recently filed an immediately effective
rule change to amend Rule 14.1 of its listing
standards to include all securities listed on the
Exchange pursuant to Rule 14.11 as Tier I
securities. Exchange Rule 14.11 sets forth the
criteria for listing certain exchange traded products,
including exchange traded funds, portfolio
depository receipts, index fund shares and various
other types of securities (collectively, ‘‘ETPs’’).
ETPs were not designated as either Tier I or Tier
II securities prior to this amendment. The
Exchange’s recent filing modifies the definitions of
‘‘Tier I’’ in Rule 14.1(a)(29), and ‘‘Tier I security’’
in Rule 14.1(a)(30), to make clear that ETPs are
considered Tier I securities for purposes of the
Exchange’s rules. See Exchange Act Release No.
65809 (November 23, 2011), 76 FR 74079
(November 30, 2011). The Commission notes that
this is only a definitional change. It does not result
in any substantive changes to the Exchange’s
existing listing standards that are the subject of this
rule amendment.
9 See letter from Eric Swanson, Senior Vice
President and General Counsel, BATS, to Elizabeth
M. Murphy, Secretary, Commission, dated May 26,
2011 (File No. 4–632) (‘‘BATS Petition’’).
10 Securities Act Release No. 9251 (August 8,
2011), 76 FR 46698 (August 11, 2011) (‘‘Proposing
Release’’).
11 See letter to Elizabeth M. Murphy, Secretary,
Commission, from Keith Paul Bishop, former
California Commissioner of Corporations, dated
August 23, 2011 (‘‘Bishop Letter’’). The commenter
concurred with the Commission that Rule
146(b)(1)(iv) should be updated to reflect the term
‘‘NASDAQ OMX PHLX LLC’’ instead of ‘‘the
Philadelphia Stock Exchange, Inc.’’ The commenter
also requested that the Commission review the
current standards of the PHLX with respect to the
listing and trading of securities to determine
whether the current listing standards of PHLX are
substantially similar to standards of Named Market.
The Commission has carefully considered the
comment letter, and believes that the request of the
commenter with regard to the listing standards of
Phlx is beyond the scope of the Commission’s
proposed rule. However, the Commission notes
that, via its oversight, inspection and enforcement
functions, it regularly monitors the operations of
registered exchanges and their compliance with the
securities laws and rules applicable to them.
12 See Securities Exchange Act Release No. 64546
(May 25, 2011), 76 FR 31660 (June 1, 2011)
(proposing qualitative and quantitative listing
requirements and standards for securities).
8 BATS
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August 30, 2011, the Commission
approved this proposed rule change.13
Based on the approved BATS listing
standards and after careful comparison,
the Commission has determined that
BATS’ listing standards for Tier I and
Tier II securities are substantially
similar to the listing standards of the
Named Markets. Accordingly, the
Commission today is amending Rule
146(b) to designate securities listed, or
authorized for listing, on Tier I and Tier
II of BATS as Covered Securities under
Section 18(b)(1) of the Securities Act.14
Amending Rule 146(b) to include these
securities as Covered Securities will
exempt those securities from state
registration requirements as set forth
under Section 18(a) of the Securities
Act.15 The Commission also is adopting,
as proposed, updated references in the
rule.
The Commission notes that the
proposed rule text would have
designated any security listed, or
authorized for listing, on BATS as a
Covered Security. In light of BATS
recent rule amendment defining ‘‘Tier I’’
and ‘‘Tier I securities’’ to include
ETPs,16 the Commission is refining the
rule text adopted today to designate
those securities listed on Tier I and Tier
II of the Exchange as Covered Securities.
This designation is substantively
identical to the proposed rule text, as
the same securities that the Commission
proposed to be designated as Covered
Securities in the Proposing Release will
be so designated.
II. Amendment to Rule 146(b) To
Include BATS Securities
Under Section 18(b)(1)(B) of the
Securities Act,17 the Commission has
the authority to determine that the
listing standards of an exchange, or tier
or segment thereof, are substantially
similar with those of the NYSE, NYSE
Amex, or Nasdaq/NGM. The
Commission initially compared BATS’
listing standards for Tier I and Tier II
securities with those of one of the
Named Markets. If the listing standards
in a particular category were not
substantially similar to the standards of
that market, the Commission compared
BATS’ standards to one of the other two
markets.18 In addition, as it has done
13 Securities Exchange Act Release No. 65225
(August 30, 2011), 76 FR 55148 (September 6,
2011).
14 15 U.S.C. 77r(b)(1).
15 15 U.S.C. 77r(a).
16 See supra note 8.
17 15 U.S.C. 77r(b)(1)(B).
18 This approach is consistent with the approach
that the Commission has previously taken. See, e.g.,
Securities Act Release No. 7494 (January 13, 1998),
63 FR 3032 (January 21, 1998).
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previously, the Commission interpreted
the ‘‘substantially similar’’ standard to
require listing standards at least as
comprehensive as those of the Named
Markets.19 If BATS’ listing standards
were higher than those of the Named
Markets, then the Commission still
determined that BATS’ listing standards
are substantially similar to those of the
Named Markets.20 Finally, the
Commission notes that differences in
language or approach would not
necessarily lead to a determination that
BATS’ listing standards are not
substantially similar to those of any
Named Market.21
The Commission has reviewed BATS’
listing standards for securities to be
listed and traded on BATS and, for the
reasons discussed below, has
determined that the standards are
substantially similar to those of a
Named Market.22 Accordingly, the
Commission is amending Rule 146(b) to
include securities listed, or authorized
for listing, on Tier I and Tier II of BATS.
Because the Commission has
determined BATS’ qualitative listing
standards for BATS’ Tier I and Tier II
securities, Tier I quantitative listing
standards are substantively identical to
the listing standards for Nasdaq/NGM
securities (and, therefore, are
‘‘substantially similar’’ to a Named
Market as required by Section
18(b)(1)(B)),23 the discussion below
focuses on BATS’ Tier II quantitative
listing standards. The Commission
included in the Proposing Release its
preliminary view that the Tier I and Tier
II qualitative listing standards and Tier
I quantitative listing standards were
substantively identical to the listing
standards for Nasdaq/NGM securities
and received no comments on that
view.24
A. Primary Equity Securities
As discussed in the Proposing
Release, the Commission preliminarily
believed that BATS’ initial listing
19 See
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20 See
id.
Securities Act Release No. 8791, supra
note 6.
21 Id.
22 See generally BATS Chapter XIV; Securities
Exchange Act Release No. 64546, supra note 8, 76
FR 31660. In making its determination of
substantial similarity, as discussed in detail below,
the Commission generally compared BATS’
proposed qualitative listing standards for both Tier
I and Tier II securities with Nasdaq/NGM’s
qualitative listing standards, BATS’ proposed
quantitative listing standards for Tier I securities
with Nasdaq/NGM’s quantitative listing standards,
and BATS’ proposed quantitative listing standards
for Tier II securities with NYSE Amex’s quantitative
listing standards.
23 See infra notes 42–49.
24 See Proposing Release at 49699 to 49700 and
n. 25 to n. 26. See id. at 49703 (discussing ETPs).
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standards for primary equity securities
listed on Tier II of the Exchange were
substantially similar to those of NYSE
Amex’s common stock listing
standards.25 The Commission has
determined that BATS’ initial listing
standards for primary equity securities
are substantially similar to those of
NYSE Amex. BATS’ requirements
relating to bid price,26 round lot
holders,27 shares held by the public,28
and required number of registered and
active market makers 29 are substantially
25 See Proposing Release at 49700. BATS’ use of
‘‘primary equity securities’’ and NYSE Amex’s use
of ‘‘common stock’’ is simply a difference in
nomenclature, as BATS’ listing standards define
‘‘primary equity security’’ as a company’s first class
of common stock. See BATS Rule 14.1(a)(21).
26 BATS’ listing standards require a minimum bid
price of $4 per share for initial listing and $1 per
share for continued listing while NYSE Amex
requires a minimum bid price of $2–3 per share
depending on the issuer for initial listing and will
consider delisting if the price per share is ‘‘low.’’
Compare BATS Rule 14.9(b)(1)(A) with Section 102
of the NYSE Amex Company Guide. The
Commission has interpreted the substantially
similar standard to require listing standards at least
as comprehensive as those of the Named Markets;
the Commission may determine that a petitioner’s
standards are substantially similar if they are
higher, and differences in language or approach of
the listing standards are not dispositive. See supra
notes 19–21 and accompanying text.
27 While BATS’ listing standards require at least
300 round lot holders, NYSE Amex’s listing
standards require 400 or 800 public shareholders
(depending upon the number of shares held by the
public), or 300 or 600 public shareholders for its
alternate listing standards. The Commission does
not believe this difference precludes a
determination of substantial similarity between the
standards. Additionally, BATS’ listing standards are
identical to the listing standards of NCM, which the
Commission previously found to be substantially
similar to a Named Market. See Securities Act
Release 8791, supra note 6 (determining that NCM
listing standards, which are identical to BATS’
listing standards for primary equity securities on
Tier II of the Exchange, are substantially similar to
these same Amex standards). With respect to NCM
having alternative listing standards for the number
of round lot holders, the Commission noted that
this difference did not preclude a determination of
substantial similarity between the standards. See
Securities Act Release 8791, supra note 6, 72 FR at
20412; Securities Act Release No. 8754 (November
22, 2006), 71 FR 67762 (November 22, 2006)
(proposing that the Commission amend Rule 146(b)
to designate securities listed on the NCM as covered
securities for purposes of Section 18(b) of the
Securities Act).
28 BATS’ listing standards require a minimum of
1,000,000 publicly held shares while NYSE Amex
requires a minimum of 500,000. Compare BATS
Rule 14.9(b)(1)(B) with Section 102(a) of the NYSE
Amex Company Guide. The Commission has
interpreted the substantially similar standard to
require listing standards at least as comprehensive
as those of the Named Markets; the Commission
may determine that a petitioner’s standards are
substantially similar if they are higher, and
differences in language or approach of the listing
standards are not dispositive. See supra notes 17–
19 and accompanying text.
29 BATS’ listing requirements require at least
three registered and active market makers while
NYSE Amex requires one specialist to be assigned.
Compare BATS Rule 14.9(b)(1)(D) with Section
202(e) of the NYSE Amex Company Guide. The
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similar to NYSE Amex requirements.
Additionally, BATS’ proposed equity,30
market value,31 and net income 32
standards are substantially similar to
NYSE Amex standards.
In addition to the above initial listing
requirements, BATS requires that
American Depositary Receipts (‘‘ADRs’’)
comply with an additional criterion.
Specifically, BATS requires there be at
least 400,000 ADRs issued for such
securities to be initially listed on
BATS.33 However, NYSE Amex does
not have specific requirements for ADRs
in addition to its initial listing standards
for primary equity securities.34 As noted
above, the Commission may still
determine that the petitioner’s listing
standards are substantially similar to
those of the Named Markets if BATS’
listing standards are higher than the
Named Markets.35 Further, as noted
above, differences in language or
approach of listing standards are not
dispositive.36 The Commission has
determined that the quantitative initial
listing standards for primary equity
securities on Tier II of the Exchange are
substantially similar to those of NYSE
Amex.
The Commission has determined that
the continued listing requirements for
primary equity securities listed on Tier
II of the Exchange, while not identical,
are substantially similar to those of
Commission may still determine that the
petitioner’s listing standards are substantially
similar to those of the Named Markets if a
petitioner’s listing standards are higher than the
Named Markets. See Securities Act Release No.
8791, supra note 6.
30 BATS’ listing standards require a company to
have stockholder equity of at least $5 million, a
market value of publicly held shares of at least $15
million, and a two-year operating history. See BATS
Rule 14.9(b)(2)(A). NYSE Amex requires
stockholder equity of at least $4 million, a market
value of publicly held shares of at least $15 million,
and a two-year operating history.
31 BATS’ listing standards require a market value
of listed securities of at least $50 million and a
market value of publicly held shares of at least $15
million, which is the same as required by NYSE
Amex. Compare BATS Rule 14.9(b)(2)(B) with
Section 101(c)(2)–(3) of the NYSE Amex Company
Guide.
32 BATS’ listing standards require net income
from continuing operations of at least $750,000,
which is the same as required by NYSE Amex.
Compare BATS Rule 14.9(b)(2)(C) with Section
101(d)(1) of the NYSE Amex Company Guide.
33 See BATS Rule 14.9(b)(1)(E). This requirement
is identical to NCM. See Nasdaq Rule 5505(a)(5);
see generally Securities Act Release 8791, supra
note 6 (determining that NCM listing standards,
which are identical to BATS’ standards for primary
equity securities on Tier II of the Exchange, are
substantially similar to the Amex standards).
34 See Section 102 of the NYSE Amex Company
Guide. See also Section 110 of the NYSE Amex
Company Guide.
35 See Securities Act Release No. 8791, supra
note 6.
36 See id.
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NYSE Amex.37 NYSE Amex’s delisting
criteria are triggered by poor financial
conditions or operating results of the
issuer.38 Specifically, NYSE Amex will
consider delisting an equity issue if: (i)
Stockholders’ equity is less than $2
million and such issuer has sustained
losses from continuing operations and/
or net losses in two of its three most
recent fiscal years; (ii) stockholders’
equity is less than $4 million and such
issuer has sustained losses from
continuing operations and/or net losses
in three of its four most recent fiscal
years; (iii) stockholders’ equity is less
than $6 million if such issuer has
sustained losses from continuing
operations and/or net losses in its five
most recent fiscal years; or (iv) the
issuer has sustained losses which are so
substantial in relation to its overall
operations or its existing financial
resources, or its financial condition has
become so impaired that it appears
questionable, in the opinion of the
exchange, as to whether such company
will be able to continue operations and/
or meet its obligations as they mature.39
Although BATS does not have the
same continued listing provisions for
Tier II, BATS also looks at the financial
condition and operating results of the
issuer in order to determine whether to
delist an issuer. BATS’ continued listing
standards for Tier II securities require
compliance with either a (1) shareholder
equity, (2) market value of listed
securities or (3) net income standard.
Specifically, for continued listing, BATS
37 See generally Securities Act Release 8791,
supra note 6 (determining that NCM continued
listing standards, which are identical to BATS’
continued listing standards for primary equity
securities on Tier II of the Exchange, were
substantially similar to the Amex standards).
38 See generally Sections 1001 through 1006 of
the NYSE Amex Company Guide.
39 See Section 1003(a) of the NYSE Amex
Company Guide. While not identical to NYSE
Amex, BATS, as noted below, also has a
shareholder equity standard. See infra note 37 and
accompanying text. NYSE Amex, however, will not
normally consider suspending dealing in (i) through
(iii) noted above if the issuer is in compliance with
the following: (1) Total market value of market
capitalization of at least $50,000,000; or total assets
and revenue of $50,000,000 each in its last fiscal
year, or in tow of its last three fiscal years; and (2)
the issuer has at least 1,100,000 shares publicly
held, a value of publicly held shares of at least
$15,000,000 and 400 round lot holders. Id.
NYSE Amex also will consider delisting if: (i) an
issuer has sold or otherwise disposed of its
principal operating assets or has ceased to be an
operating company or has discontinued a
substantial portion of its operations or business; (ii)
if substantial liquidation of the issuer has been
made; or (iii) if advice has been received, deemed
by the Exchange to be authoritative, that the
security is without value, or in the case of a
common stock, such stock has been selling for a
substantial period of time at a low price. See
Section 1003(c) and (f)(v) of the NYSE Amex
Company Guide.
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requires shareholder’s equity of at least
$2.5 million, market value of listed
securities of at least $35 million, or net
income of $500,000 from continuing
operations in the past fiscal year or two
out of three past fiscal years.40 Further,
BATS requires an issuer to have (i) a
minimum bid price for continued listing
of $1 per share,41 (ii) at least two
registered and active market makers,
(iii) 300 public holders, and (iv) a
minimum number of publicly held
shares of at least 500,000 shares with a
market value of at least $1 million.42
The Commission has determined that
the differences in the maintenance
criteria for primary equity securities on
BATS for Tier II Securities and common
stock listed on NYSE Amex are not
significant and that, taken as a whole,
the criteria are substantially similar.43
B. Preferred Stock and Secondary
Classes of Common Stock
The Commission compared the listing
standards of preferred stock and
secondary classes 44 of common stock
on Tier II of the Exchange to the
Nasdaq/NGM standards. As discussed
in the Proposing Release,45 the
Commission preliminarily believed that
BATS’ standards were substantially
40 BATS Rule 14.9(e)(2)(A)–(C). NYSE Amex
focuses on a shareholder equity standard for
continued listing. BATS’ shareholder equity
standard requires at least $2.5 million shareholders’
equity compared to NYSE Amex’s lowest
shareholder equity standard of $2 million, if the
NYSE Amex issuer has sustained losses from
continuing operations and/or net losses in two of
its three most recent fiscal years. Compare BATS
Rule 14.9(e)(2)(A)–(C) with Section 1003(a) of the
NYSE Amex Company Guide.
41 See BATS Rule 14.9(e)(1)(B). Amex will
consider delisting if the price per share is ‘‘low.’’
See Section 1003(f)(v) of the Amex Company Guide.
See also Securities Act Release 8791, supra note 6
(noting the same regarding the NCM and Amex bid
price standards).
42 BATS Rule 14.9(e)(1)(A)–(E). NYSE Amex will
consider delisting the common stock of an issuer if
the aggregate market value of such publicly held
shares is less than $1 million for more than 90
consecutive days, the number of publicly held
shares is less than 200,000 shares, or the number
of its public stockholders is less than 300. See
Section 1003(b) of the NYSE Amex Company
Guide.
43 The Commission has interpreted the
substantially similar standard to require listing
standards at least as comprehensive as those of the
Named Markets, and differences in language or
approach of the listing standards are not
dispositive. See supra notes 17–19 and
accompanying text. See also Securities Act Release
8791, supra note 6 (determining that NCM
continued listing standards, which are identical to
BATS’ continued listing standards for primary
equity securities on Tier II of the Exchange, are
substantially similar to the Amex standards).
44 A secondary class of common stock is a class
of common stock of an issuer that has another class
of common stock listed on an exchange. See
Securities Act Release No. 8791, supra note 6, at
20411.
45 See Proposing Release at 49701 to 49702.
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similar to those of Nasdaq/NGM. BATS’
initial and continued listing standards
with respect to the number of round lot
holders,46 bid price,47 number of
publicly held shares,48 market value of
publicly held shares,49 and number of
market makers 50 are substantially
similar to the Nasdaq/NGM standards.51
As such, the Commission has
determined that BATS’ quantitative
listing standards for preferred stock and
secondary classes of common stock are
substantially similar to those of Nasdaq/
NGM.
46 BATS’ initial and continued listing standards
require 100 round lot holders, as Nasdaq/NGM
requires. Compare BATS Rule 14.9(c) with Nasdaq
Rule 5510; compare BATS Rule 14.9(f) with Nasdaq
Rule 5460(a)(4).
47 While BATS’ bid price requirement for initial
listing is $4 and the Nasdaq/NGM requirement is
$5, the Commission does not believe this difference
is significant. Compare BATS Rule 14.9(c)(1)(A)
with Nasdaq Rule 5510(a)(1). See also Securities Act
Release No. 8791, supra note 6, at 20412 n. 28
(determining that an NCM bid requirement, which
is identical to BATS’ bid requirement, was
substantially similar to the Nasdaq/NGM
requirement). Both BATS’ standard and Nasdaq/
NGM’s existing standard require a $1 bid price for
continued listing. Compare BATS Rule 14.9(f)(1)
with Nasdaq Rule 5460(a)(3).
48 BATS’ standard requires 200,000 publicly held
shares for initial listing, and 100,000 publicly held
shares for continued listing, which is the same as
Nasdaq/NGM requires. Compare BATS Rule
14.9(c)(1)(C) and 14.9(f)(1)(c) with Nasdaq Rules
5415(a)(1) and 5460(a)(1).
49 BATS’ standard for initial listing of preferred
stock or a secondary class of common stock requires
a market value of publicly held shares of at least
$3.5 million. Nasdaq/NGM requires a market value
of publicly held shares of at least $4 million.
Compare BATS Rule 14.9(c)(1)(D) with Nasdaq Rule
5415(a)(2). BATS standard for continued listing
requires a market value of publicly held shares of
at least $1 million. Nasdaq/NGM requires a market
value of publicly held shares of at least $1 million
for continued listing. Compare BATS Rule
14.9(f)(1)(D) with Nasdaq Rule 5460(a)(1). The
Commission believes BATS’ initial and continued
listing standards for preferred stock and secondary
classes of common stock are substantially similar to
Nasdaq/NGM. See also Securities Act Release No.
8791, supra note 6, at 20411–12 (determining that
NCM listing standards, which are identical to
BATS’ listing standards for preferred stock and
secondary classes of common stock, are
substantially similar to the Nasdaq/NGM
standards).
50 BATS’ standards for initial listing require at
least three registered and active market makers,
while its continued listing standards require at least
two registered and active market makers. Nasdaq/
NGM requires the same. Compare BATS Rule
14.9(c)(1)(E) with Nasdaq Rule 5415(a)(2).
51 The Commission notes that these requirements
apply to instances when the common stock or
common stock equivalent security of the issuer is
listed on BATS as a Tier II Security or otherwise
is a Covered Security. If the common stock or
common stock equivalent is not listed as a Tier II
Security or is a Covered Security, then the security
would be required to meet the initial primary equity
listing requirements for Tier II noted above.
Nasdaq/NGM contains a similar requirement.
Compare BATS Rule 14.9(f)(2) with Nasdaq Rule
5460(b).
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C. Warrants
The Commission compared BATS’
listing standards for warrants to Nasdaq/
NGM’s standards. In the Proposing
Release, the Commission stated that it
preliminarily believed that the BATS’
standards were substantially similar to
the Nasdaq/NGM standards.52 BATS’
initial listing standards require that
400,000 warrants be outstanding for
initial listing, and that there be at least
three registered and active market
makers and 400 round lot holders.53
Nasdaq/NGM’s standards are identical
except that Nasdaq/NGM requires
450,000 warrants to be outstanding.54
Though not identical with respect to the
number of warrants outstanding
standard, the Commission believes that
the Nasdaq/NGM higher listing
standards do not preclude a finding of
substantial similarity. BATS’ initial
listing standards also require the
issuer’s underlying security to be listed
on the Exchange or be a Covered
Security.55 The Commission notes that
Nasdaq/NGM has a similar standard that
the underlying security be listed on
Nasdaq/NGM or be a Covered Security
and believes BATS’ standard is
substantially similar to Nasdaq/NGM.56
Therefore, the Commission has
determined that BATS’ initial listing
standards for warrants are substantially
similar to those of Nasdaq/NGM.57
As discussed in the Proposing
Release, the Commission also
preliminarily believed that BATS’
continued listing requirements for
warrants that there be two registered
and active market makers (one of which
may be a market maker entering a
stabilizing bid) and that the underlying
security remain listed on the Exchange
or be a Covered Security were
substantially similar to that of Nasdaq/
NGM.58 The Commission has
determined that BATS’ continued
listing standards for warrants are
substantially similar to those of Nasdaq/
NGM.
D. Index Warrants
For index warrants traded on BATS,
BATS has the same standards (both
initial and continuing) that apply to
52 See
Proposing Release at 49702.
BATS Rule 14.9(d)(1)(A), (C) and (D).
54 See Nasdaq Rule 5410(a), (c) and (d).
55 See BATS Rule 14.9(d)(1)(B).
56 See Nasdaq Rule 5410(b).
57 See also Securities Act Release 8791, supra
note 6 (determining that NCM initial listing
standards, which are identical to BATS’ standards
for warrants on Tier II of the Exchange, are
substantially similar to the Amex standards).
58 See Proposing Release at 49702. Compare
proposed BATS’ Rule 14.9(g)(1) with Nasdaq Rule
5455(1) and (2).
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53 See
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index warrants traded on Nasdaq/
NGM.59 Therefore, the Commission has
determined that the listing standards for
index warrants traded on BATS are
substantially similar to the standards
applicable to index warrants traded on
the Nasdaq/NGM market.
E. Convertible Debt
The Commission has compared
BATS’ listing standards for convertible
debt to NYSE Amex’s listing standards
for debt, and preliminarily believed that
BATS’ initial listing standards for
convertible debt were substantially
similar to those of NYSE Amex. BATS’
listing standards for convertible debt,
regarding the threshold principal
amount outstanding,60 the availability
of current last sale information,61 and
number of market makers 62 are
substantially similar to NYSE Amex
standards.63 In addition to the
59 Compare BATS Rule 14.9(d)(3) with Nasdaq
Rule 5725.
60 BATS’ rule requires a principal amount
outstanding of at least $10 million for initial listing
and $5 million for continued listing. See BATS Rule
14.9(d)(2)(A) and 14.9(g)(2)(A). NYSE Amex
requires a principal amount outstanding of at least
$5 million for initial listing and will consider
delisting if the principal amount outstanding is less
than $400,000 or if the issuer is not able to meet
its obligations on the listed debt security. See
Sections 104 and 1003 of the NYSE Amex Company
Guide. As the Commission noted in a prior release,
while these requirements are not identical, the
Commission believes that both standards are
designed to ensure the continued liquidity of the
debt security, and, thus, are substantially similar.
See Securities Act Release 8791, supra note 6, at
20412 (finding that an identical NCM listing
standard was substantially similar to the Amex
standard).
61 Both BATS and NYSE Amex include an initial
listing requirement that there be current last sale
information available in the United States with
respect to the underlying security into which the
bond or debenture is convertible. Compare BATS
Rule 14.9(d)(2)(B) with Section 104 of the NYSE
Amex Company Guide. Additionally, Section
1003(e) of the NYSE Amex Company Guide states
that convertible bonds will be reviewed when the
underlying security is delisted and will be delisted
when the underlying security is no longer the
subject of real-time reporting in the United States.
BATS’ continued listing standards for a convertible
debt security also require that current last sale
information be available in the United States with
respect to the underlying security, whereas NYSE
Amex does not. Compare BATS Rule 14.9(g)(2)(C)
with Section 1003(e) of the NYSE Amex Company
Guide.
62 BATS’ standard requires at least three
registered and active market makers for initial
listing and two registered and active market makers
for continued listing (one of which may be a market
maker entering a stabilizing bid), whereas NYSE
Amex requires one specialist to be assigned.
Compare BATS Rule 14.9(d)(1)(C) with NYSE Amex
Rule 104.
63 NYSE Amex will not list a convertible debt
issue containing a provision which gives an issuer
discretion to reduce the conversion price unless the
issuer establishes a minimum 10-day period within
which such price reduction will be in effect. See
Section 104 of the NYSE Amex Company Guide.
The Commission believes that omission of such a
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requirements noted above, BATS’ listing
standards require that one of four
additional conditions be met for listing
of convertible debt. Specifically, BATS
will not list a convertible debt security
unless one of the following conditions
is met: (i) The issuer of the debt security
also has equity securities listed on the
Exchange, NYSE Amex, the NYSE, or
Nasdaq/NGM; (ii) an issuer of equity
securities listed on the Exchange, NYSE
Amex, the NYSE, or Nasdaq/NGM
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; (iii) 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 (iv) if no
NRSRO has assigned a rating to the
issue, an NRSRO has currently assigned
an investment grade rating to an
immediately senior issue or 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.64 Therefore, the
Commission has determined that BATS’
listing standards for convertible debt are
substantially similar to those of NYSE
Amex.
F. Units
The listing requirements for units on
Tier II of the Exchange, NYSE Amex,
and Nasdaq/NGM are all the same, as
each evaluates the initial and continued
listing of a unit by looking to its
components.65 If all of the components
of a unit individually meet the
standards for listing, then the unit
would meet the standards for listing.66
Because the components for units
provision does not impact its determination. See
Securities Act Release Nos. 39542, supra note 6
(finding PCX listing standards to be substantially
similar to Amex even with the absence of this
provision); 8791, supra note 6, at 20412 (finding
NCM’s listing standard, which is identical to BATS’
listing standard for convertible debt, was
substantially similar to Amex even with the absence
of this provision).
64 These standards are identical to the initial
listing standards for convertible debt securities on
NYSE Amex and NCM). Compare BATS Rule
14.9(d)(2)(D)(iv) with Section 104(A)–(E) of the
NYSE Amex Company Guide and Nasdaq Rule
5515(b)(4).
65 A unit is a type of security consisting of two
or more different types of securities (e.g., a
combination of common stocks and warrants). See,
e.g., Securities Exchange Act Release No. 48464
(September 9, 2003), 68 FR 54250 (September 16,
2003) (order approving NYSE Amex proposed rule
change to amend Sections 101 and 1003 of the
NYSE Amex Company Guide to clarify the listing
requirements applicable to units).
66 See generally BATS Rule 14.4, Section 101(f) of
the NYSE Amex Company Guide, and Nasdaq Rule
5225.
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proposed by BATS are substantially
similar to those of a Named Market, as
discussed above, the Commission has
determined that BATS’ listing standards
for units to be listed on Tier II of the
Exchange are substantially similar to a
Named Market.67
The Commission is amending Rule
146(b) as proposed to reflect the
following name changes:
• Sections (b)(1) and (b)(2) of Rule
146 use the term ‘‘Amex’’ to refer to the
American Stock Exchange LLC. As
noted above, on October 1, 2008, NYSE
Euronext acquired Amex and renamed it
NYSE Alternext.68 Further, in 2009,
NYSE Alternext was renamed NYSE
Amex LLC.69 The Commission is
making a conforming change to Rule
146(b).
• Section (b)(1) of Rule 146 refers to
‘‘the Philadelphia Stock Exchange,
Inc.’’ 70 On July 24, 2008, The NASDAQ
OMX Group, Inc. acquired Phlx and
renamed it ‘‘NASDAQ OMX PHLX
LLC.’’ 71 The Commission is making a
conforming change to Rule 146(b).
III. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
does not apply because the amendment
to Rule 146(b) does not impose
recordkeeping or information collection
requirements or other collection of
information, which require the approval
of the Office of Management and Budget
under 44 U.S.C. 3501 et seq.
IV. Economic Analysis
A. Introduction
Section 2(b) of the Securities Act 72
requires us, when engaging in
rulemaking that requires the
Commission to consider or determine
whether an action is necessary or
appropriate in the public interest, to
consider, in addition to the protection of
investors, whether the action will
promote efficiency, competition and
capital formation. We have considered,
and discuss below, the effects of the
amendment to Securities Act Rule 146,
with regard to BATS’ listing standards
to designate certain securities that will
be listed, or authorized for listing, on
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67 See
Securities Exchange Act Release No. 64546,
supra note 11, 76 FR 31660 at 31664.
68 See Securities Exchange Act Release No. 58673,
supra note 1.
69 See Securities Exchange Act Release No. 59575,
supra note 1.
70 See supra note 10.
71 On July 24, 2008, The NASDAQ OMX Group,
Inc. acquired Phlx and renamed it ‘‘NASDAQ OMX
PHLX LLC.’’ See Securities Exchange Act Release
Nos. 58179 (July 17, 2008), 73 FR 42874 (July 23,
2008) (SR–Phlx–2008–31); and 58183 (July 17,
2008), 73 FR 42850 (July 23, 2008) (SR–NASDAQ–
2008–035).
72 15 U.S.C. 77b(b).
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BATS as Covered Securities, on
efficiency, competition, and capital
formation, as well as the benefits and
costs associated with the rulemaking.
Congress amended Section 18 of the
Securities Act to exempt covered
securities from state registration
requirements. These securities are listed
on the Named Markets or any other
national securities exchange determined
by the Commission to have
‘‘substantially similar’’ listing standards
to those of the Named Markets
(‘‘Designated Markets’’).73 Consistent
with statutory authority, the
Commission has determined that the
listing standards for securities listed, or
authorized for listing, on BATS are
substantially similar to those of a
Named Market, specifically Nasdaq/
NGM or NYSE Amex. Securities listed,
or authorized for listing, on BATS,
therefore, will be exempt from state law
registration requirements.
There are three Named Markets
(NYSE, NYSE Amex, and Nasdaq/NGM)
and currently five Designated Markets
(Tier I of NYSE Arca, Tier I of the
Philadelphia Stock Exchange, CBOE,
ISE, and Nasdaq/NCM). NYSE and
Nasdaq/NGM are currently the largest
exchanges in terms of number of
securities listed. As of April 19, 2011, in
terms of securities listed, NYSE lists
3,255, Nasdaq/NGM lists 2,854, NYSE
Arca lists 1,213, and NYSE Amex lists
544.74
The direct economic effect of the rule
amendment will be to exempt issuers
that list, or are authorized to list, on
BATS from the requirements of state
registration. Instead, these issuers will
be required to comply with BATS’
listing standards and the federal
securities laws, rules and regulations
with respect to the registration and sale
of securities. The requirements of state
registration typically include: (i)
Paperwork and labor hours necessary to
comply with state registration
requirements, (ii) meeting the disclosure
standards, and (iii) in some states,
meeting certain minimum merit
requirements to make public offerings.75
73 See
15 U.S.C. 77r(b)(1)(B).
listed securities include exchange traded
funds and multiple securities from the same issuer.
75 It has been noted that the purpose of such
review is ‘‘to prevent ‘unfair’ and ‘oppressive’
offerings of securities,’’ and, as of 2011, merit
review is employed in about 30 states. See Jeffrey
B. Bartell & A.A. Sommer, Jr., Blue Sky Registration,
Securities Law Techniques (Matthew Bender ed.,
2011). Typical elements of merit review include:
offering expenses, including underwriter’s
compensation, rights of security holders, historical
ability to service debt or pay dividends, financial
condition of the issuer, cheap stock held by
insiders, the quantity of securities subject to options
and warrants, self-dealing and other conflicts of
interest, and the price at which the securities will
74 These
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3595
The Commission solicited comments
concerning the costs and benefits
associated with the proposal, but
received none.
The Commission believes that an
indirect effect of the rule amendment
will be that, by removing the
requirements of state registration for
issuers that list, or are authorized to list,
on BATS—the same privilege granted to
other Covered Securities—the rule can
improve BATS’ ability to compete
effectively with other exchanges.
Therefore, the Commission believes an
important economic effect of the rule
amendment can be to engender greater
competition in the market for listing
services.
Exchanges generally compete in
multiple areas, which include the
market for listing, the market for
trading, and the market for order-flow.
This rule amendment and BATS’ listing
standards 76 relate primarily to the
market for listing, although the rule
amendment and the entry of a new
participant in the listings market could
impact other markets as well.77 In the
market for listing, exchanges compete
for issuers to list on their exchanges, so
that the exchange may collect listing
fees. Domestic exchanges face listing
competition from other domestic
exchanges and from foreign
exchanges.78 The benefit of listing for
issuers generally is to gain greater access
to capital through measures designed to
help promote quality certification and
visibility to public investors, which will
generally result in a reduction in the
cost of raising capital for these issuers.
This access to capital may be further
be offered. See id. Some merit regulation would be
imposed on these issuers through application of
exchange listing standards.
76 See Securities Exchange Act Release No. 64546,
supra note 11.
77 See, e.g., Thierry Foucault and Christine A.
Parlour, Competition for Listing, 35 R and J. Econ.
329 (2004) (describing how listing fees and trading
costs both affect firms’ incentives to list with one
exchange versus another).
78 It has been noted that NYSE and the London
Stock Exchange, for example, compete for listings
of firms in third countries, in particular from
emerging economies. See Thomas J. Chemmanur &
Paolo Fulghieri, Competition and Cooperation
Among Exchanges: A Theory of Cross-Listing and
Endogenous Listing Standards, 82 J. Fin. Econ. 455,
456 (2006). See generally Craig Doidge, Andrew
´
Karolyi, and Rene Stulz, Has New York Become
Less Competitive than London in Global Markets?
Evaluating Foreign Listing Choices Over Time,
Journal of Financial Economics 91, 253–277 (2009);
´
Craig Doidge, Andrew Karolyi, and Rene Stulz, Why
Do Foreign Firms Leave U.S. Equity Markets?,
Journal of Finance 65, 1507–1553 (2010); Caglio,
Cecilia, Hanley, Kathleen Weiss and MariettaWestberg, Jennifer, Going Public Abroad: The Role
of International Markets for IPOs (March 16, 2010),
available at SSRN: https://papers.ssrn.com/sol3/
papers.cfm?abstract_id=1572949. Additionally,
differences in regulatory regimes may impact listing
decisions.
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enhanced through listing on particular
exchanges, which could affect the level
of investors’ trust in a listed company’s
governance structure and the fairness of
trading in the company’s securities
(through the perceived effectiveness of
exchanges’ conduct rules and
surveillance of trading as well as other
services and regulatory functions).
Exchanges may try to compete for
issuers by reducing listing fees or by
improving the quality of services they
offer, or both. The cost of listing for an
issuer includes listing fees and the cost
of complying with listing standards. In
principle, this means exchanges can
compete by reducing listing fees, by
relaxing the listing standards issuers
must meet, or by offering several trading
segments with different listing
standards on each, though such
standards must be determined to be
substantially similar to a Named Market
in order to get the benefit of the
Securities Act Section 18(b)(1)(B)
exemption from state registration
requirements. The Commission believes
that any concern that exchanges may try
to compete by lowering the listing
standards to attract issuers (and hence
enter in a ‘‘race-to-the-bottom’’) is
mitigated by the fact that (1) listing
standards affect exchanges’ reputations
among investors, which, in turn,
impacts their attractiveness to issuers,
(2) any proposed listing standards or
proposed changes to existing listing
standards must be filed with the
Commission pursuant to Section 19(b)
of the Exchange Act and must meet its
requirements to become effective,79 and
(3) lower listing standards that are not
substantially similar to those of a
Named Market will not have the benefit
of the exemption from state registration
requirements.80
The competition among exchanges for
listings is only partially based on price.
Exchanges also compete in various other
areas, which contribute to the quality of
the services listed issuers receive,
including, but not limited to, provision
of trade statistics, regulatory and
surveillance services, access to new
technology, attractive trading
mechanisms, and marketing services.
One important dimension of
competition is brand name.81 Issuers
79 Any revision to exchange listing standards
must be done in accordance with Section 19(b) of
the Exchange Act and Rule 19b–4 thereunder. Any
Commission approval of a listing standard revision
is conditioned upon a finding by the Commission
that the revision is consistent with the requirements
of the Exchange Act and rules thereunder. See 15
U.S.C. 78s.
80 See Chemmanur & Fulghieri, supra note 74, at
458.
81 See generally Clement G. Krouse, Brand Name
as a Barrier to Entry: The Rea Lemon Case, 51
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place high value on being listed on
certain exchanges because investors
may more readily trust those exchanges,
which may, in turn, reduce the cost of
raising capital for those issuers. As a
result, NYSE and Nasdaq/NGM, which
are already the two largest exchanges in
terms of securities listed, may be able to
charge listing fees that are above
marginal cost—that is, what it would
cost them to list additional issuers—and
higher than other competing exchanges;
therefore, certain exchanges may earn
economic rent from these higher listing
premiums (the amount of fee difference
certain exchanges can charge, above a
competitor’s price, because of its brand
name). In addition to brand name
recognition, the market for listing
exhibits positive network externalities:
issuers may prefer to be listed on
exchanges where many other issuers are
listed and where there are more
intermediaries trading because of
increased liquidity and visibility.82 This
indicates that, all else being equal, large
exchanges (in terms of listings) will tend
to be favored over smaller ones. In
theory, this preference may persist to
some extent even if large exchanges
were to offer slightly inferior services
than their smaller counterparts because
the advantages of being listed on a large
exchange, where there are many issuers
and intermediaries, might outweigh the
cost of being offered slightly inferior
services. Because of these brand name
effects and positive externalities, the
Commission believes that the market for
listings, to some extent, exhibits certain
barriers to entry for new entrants to the
listing markets, such as BATS.83
Southern Econ. J. 495 (1984) (describing the effect
of brand name on competition in markets with
incomplete information); see also Tibor Scitovsky,
Ignorance as a Source of Oligopoly Power, 40 Amer.
Econ. Rev. 48, 49 (1950) (‘‘An ignorant buyer * * *
is unable to judge the quality of the products he
buys by their intrinsic merit. Unable to appraise
products by objective standards, he is forced to base
his judgment on indices of quality, such as * * *
general reputation of the producing firms.’’).
82 See, e.g., Carmine Di Nola, Competition and
Integration Among Stock Exchanges in Europe:
Network Effects, Implicit Mergers and Remote
Access, 7 European Fin. Man. 39 (2001) (‘‘Firms
may derive more utility in being listed on
exchanges where there are more intermediaries as
they give more liquidity to the market.’’).
83 Brand name recognition is frequently
recognized as a barrier to entry mainly because
consumers do not have all the information
regarding product quality and thus tend to rely on
brand names as a proxy for quality. See, e.g., Brand
Name as a Barrier to Entry: The Rea Lemon Case,
51 S. Econ. J. 495 (1984); Tibor Scitovsky, Ignorance
as a Source of Oligopoly Power, 40 Amer. Econ.
Rev. 48 (1950). Network externalities are also
recognized as a barrier to entry. See, e.g., Gregory
J. Weden, Network Effects and Conditions of Entry:
Lessons from the Microsoft Case, 69 Antitrust L.J.
87 (2001); Douglas A. Melamed, Network Industries
and Antitrust, 23 Harv. J. L. & Pub. Pol’y 147 (1999).
PO 00000
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B. Benefits, Including the Impact on
Efficiency, Competition, and Capital
Formation
By exempting securities listed, or
authorized for listing, on BATS from
state law registration requirements, the
Commission believes that issuers
seeking to list securities on BATS could
have the benefit of reduced regulatory
compliance burdens, as compliance
with state blue sky law requirements
will not be required. One benefit of this
amendment will be to eliminate these
compliance burdens with respect to
securities listed, or authorized for
listing, on BATS. The Commission
expects that the rule amendment can
improve efficiency by eliminating
duplicative registration costs for issuers
and improving liquidity by allowing for
greater market access to issuers who
have not been listed previously.
To the extent that state merit reviews
may have inhibited certain smaller
businesses from making public
offerings,84 the Commission believes an
exemption from state registration
requirements will facilitate capital
formation.
The Commission believes that the
amendment to Rule 146(b) should
permit BATS to better compete for
listings with other markets whose listed
securities already are exempt from state
law registration requirements, and the
Commission believes that this result can
enhance competition, thus benefiting
market participants and the public.
Specifically, BATS currently intends to
enter the listing market with generally
lower fees than incumbent exchanges in
84 A number of scholarly articles have expressed
concerns over the possibility for blue sky merit
regulation to hinder capital formation. See, e.g.,
Martin Fojas, Ay Dios NSMIA!: Proof of a Private
Offering Exemption Should Not Be a Precondition
for Preempting Blue Sky Law Under the National
Securities Markets Improvement Act, 74 Brooklyn
L. Rev. 477 (2009); Rutheford B. Campbell, Jr., Blue
Sky Laws and the Recent Congressional Preemption
Failure, 22 J. Corp. L. 175 (1997); Brian J. Fahrney,
State Blue Sky Laws: A Stronger Case for Federal
Pre-Emption Due to Increasing Internationalization
of Securities Markets, Comment, 86 Nw. U. L. Rev.
753 (1991–92); Roberta S. Karmel, Blue-Sky Merit
Regulation: Benefit to Investors or Burden on
Commerce, 53 Brook. L. Rev. 106 (1987–88). While
the concerns are numerous, other studies have
shown some positive effect of merit regulation. See
Jay T. Brandi, The Silverlining in Blue Sky Laws:
The Effect of Merit Regulation on Common Stock
Returns and Market Efficiency, 12 J. Corp. L. 713
(1986–87) (reporting that merit regulation can have
a positive effect on investor returns); Ashwini K.
Agrawal, ‘‘The Impact of Investor Protection Law on
Corporate Policy: Evidence from the Blue Sky
Laws,’’ working paper (2009) (reporting that the
passage of investor protection statutes causes firms
to pay out greater dividends, issue more equity, and
grow in size), available at https://ssrn.com/
abstract=1442224. Some merit regulation would be
imposed on these issuers through application of
exchange listing standards.
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Federal Register / Vol. 77, No. 16 / Wednesday, January 25, 2012 / Rules and Regulations
order to compete with them.85 In
response to BATS’ entry, although
recognizing the significant barriers to
entry noted above, the incumbent
exchanges might choose to reduce their
listing fees to match or come closer to
those proposed by BATS. Incumbent
exchanges might also enhance the other
services they provide to their currently
listed issuers (e.g., regulatory and
surveillance services, access to new
technology, attractive trading
mechanisms, marketing services) as a
way to counteract BATS’ lower listing
fees.
The Commission believes that
additional competition in the market for
listings can enable some issuers, both
public and private, that have (1) either
not listed on any exchange or (2) have
listed on an exchange but have chosen
not to list on certain exchanges because
of the costs of listing there, to list on any
Named or Designated Market due to the
potential for lower listing fees across all
exchanges. The Commission further
believes that this will result in a lower
cost of capital for those issuers that
previously had not listed on an
exchange and could benefit the current
investors in such issuers in the form of
higher company value arising from the
reduced cost of capital and increased
liquidity. Since currently unlisted firms
may be able to list because of lower
listing fees, the Commission believes
this may improve efficiency and capital
formation since future investors in these
issuers would have easier access to
invest in them and to further diversify
their investment portfolios.
The Commission believes that those
issuers that are currently listed on an
exchange, including the Named
Markets, and that remain listed there,
can potentially benefit from any
reduced listing fees; however, because
any such benefit will come at the
expense of the exchange on which they
are listed in the form of potentially
reduced profit, this aggregate effect
would be a transfer from one group of
investors (exchange shareholders) to
another group of investors (listed issuer
shareholders).
Additionally, the Commission
believes that some issuers currently
listed on other Named or Designated
Markets could potentially switch their
listings to BATS, thus potentially
lowering their listing costs (provided
the Named or Designated Markets do
85 See Securities Exchange Act Release No. 64546,
supra note 11, 76 FR at 31666 & n. 27–28
(representing that BATS’ pricing, while not
necessarily cheaper for all issuers at all other
markets, is roughly equivalent to or less than the
price issuers would pay at other exchanges,
including NGM and NCM).
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not reduce their listing fees). The size of
any such potential benefit will depend
on how large any cost savings due to
listing on BATS would be in
comparison to the cost of giving up any
valuable services that the other
exchanges might provide that BATS
might not. In addition, the behavior of
these issuers will depend heavily on the
extent to which these other exchanges
respond to BATS’ entry by making
themselves more competitive to the
issuers.
C. Costs, Including the Impact on
Efficiency, Competition, and Capital
Formation
The rule amendment will eliminate
state registration requirements for
securities listed, or authorized for
listing, on BATS. The Commission notes
that there may be certain economic costs
to investors through the loss of benefits
of state registration and oversight. For
example, by listing on BATS, issuers
will no longer be required to comply
with certain states’ blue sky laws, which
could mandate more detailed disclosure
than BATS’ listing standards and the
requirements imposed pursuant to the
federal securities laws, rules, and
regulations. In such circumstances,
investors could lose the benefit of the
additional information. Additionally, to
the extent blue sky laws result in
additional enforcement protections in
the form of another regulator policing
issuer activity, then investors from these
states could incur costs when issuers
choose to list on BATS. Some
researchers have also expressed a
concern that the exemption from blue
sky laws could prompt riskier public
offerings.86
From the perspective of competition
in the market for listing, the
Commission notes that there could be a
concern that, to the extent the market
for exchange services exhibits network
effects, as explained above, there could
be a loss in efficiency as a result of
having a greater number of networks, if
one or more of the existing large
exchanges (in terms of listings) shrinks
in size. However, the Commission also
notes that the overall efficiency effect
will depend on the precise
fragmentation of the exchanges. It is
possible, for instance, that, through
specialization of exchanges, there could
be an efficiency gain from having more
distinct exchanges, each of which
specializes in listing issuers from
certain types of industries.
The Commission acknowledges that
these costs are difficult to quantify. The
Commission believes that Congress
86 See,
PO 00000
e.g., Brandi, supra note 84.
Frm 00039
Fmt 4700
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3597
contemplated these costs in relation to
the economic benefits of exempting
Covered Securities from state regulation.
The rule amendment otherwise imposes
no recordkeeping or compliance
burdens, but will provide a limited
purpose exemption under the federal
securities laws. The Commission
solicited comments on the rule
amendment’s effect on competition,
efficiency, and capital formation, but
received none. Thus, the Commission
believes that the amendment to Rule
146(b) should not impair efficiency,
competition, and capital formation.
V. Regulatory Flexibility Act
Certification
The Commission certified, pursuant
to Section 605(b) of the Regulatory
Flexibility Act,87 that the amendment to
Rule 146 will not have a significant
economic impact on a substantial
number of small entities. This
certification was included in the
Proposing Release.88 The Commission
solicited comments as to the nature of
any impact on small entities, and
generally on whether the amendment to
Rule 146(b) could have an effect that has
not been considered. No comments on
these issues were received.
VI. Statutory Authority and Text of the
Rule
The Commission is adopting an
amendment to Rule 146 pursuant to the
authority of Section 19(a) of the
Securities Act of 1933 89 particularly
Sections 18(b)(1)(B) and 19(a).90
List of Subjects in 17 CFR Part 230
Securities.
For the reasons set forth in the
preamble, Title 17, Chapter II of the
Code of Federal Regulations is amended
as follows:
PART 230—GENERAL RULES AND
REGULATIONS, SECURITIES ACT OF
1933
1. The authority citation for Part 230
continues to read, in part, as follows:
■
Authority: 15 U.S.C. 77b, 77c, 77d, 77f,
77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 78c, 78d,
78j, 78l, 78m, 78n, 78o, 78t, 78w, 78ll(d),
78mm, 80a–8, 80a–24, 80a–28, 80a–29, 80a–
30, and 80a–37, and Pub. L. 111–203, § 939A,
124 Stat. 1376, (2010) unless otherwise
noted.
*
*
*
*
*
2. Section 230.146 is amended by
revising paragraphs (b)(1) and (b)(2) to
read as follows:
■
87 5
U.S.C. 605(b).
Proposing Release at 49706.
89 15 U.S.C. 77a et seq.
90 15 U.S.C. 77r(b)(1)(B) and 77s(a).
88 See
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Federal Register / Vol. 77, No. 16 / Wednesday, January 25, 2012 / Rules and Regulations
§ 230.146
Act.
Rules under section 18 of the
*
*
*
*
*
(b) * * *
(1) For purposes of Section 18(b) of
the Act (15 U.S.C. 77r), the Commission
finds that the following national
securities exchanges, or segments or
tiers thereof, have listing standards that
are substantially similar to those of the
New York Stock Exchange (‘‘NYSE’’),
the NYSE Amex LLC (‘‘NYSE Amex’’),
or the National Market System of the
Nasdaq Stock Market (‘‘Nasdaq/NGM’’),
and that securities listed, or authorized
for listing, on such exchanges shall be
deemed covered securities:
(i) Tier I of the NYSE Arca, Inc.;
(ii) Tier I of the NASDAQ OMX PHLX
LLC;
(iii) The Chicago Board Options
Exchange, Incorporated;
(iv) Options listed on the
International Securities Exchange, LLC;
(v) The Nasdaq Capital Market; and
(vi) Tier I and Tier II of BATS
Exchange, Inc.
(2) The designation of securities in
paragraphs (b)(1)(i) through (vi) of this
section as covered securities is
conditioned on such exchanges’ listing
standards (or segments or tiers thereof)
continuing to be substantially similar to
those of the NYSE, NYSE Amex, or
Nasdaq/NGM.
*
*
*
*
*
By the Commission.
Dated: January 20, 2012.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012–1521 Filed 1–24–12; 8:45 am]
BILLING CODE 8011–01–P
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Food and Drug Administration
21 CFR Part 524
[Docket No. FDA–2011–N–0003]
Ophthalmic and Topical Dosage Form
New Animal Drugs; Gentamicin and
Betamethasone Spray
AGENCY:
Food and Drug Administration,
HHS.
ACTION:
Final rule.
The Food and Drug
Administration (FDA) is amending the
animal drug regulations to reflect the
original approval of an abbreviated new
animal drug application (ANADA) filed
by Sparhawk Laboratories, Inc. The
ANADA provides for the veterinary
prescription use of gentamicin sulfate
sroberts on DSK4TPTVN1PROD with RULES
SUMMARY:
VerDate Mar<15>2010
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and betamethasone valerate topical
spray in dogs.
DATES: This rule is effective January 25,
2012.
FOR FURTHER INFORMATION CONTACT: John
K. Harshman, Center for Veterinary
Medicine (HFV–170), Food and Drug
Administration, 7500 Standish Pl.,
Rockville, MD 20855, (240) 276–8197,
email: john.harshman@fda.hhs.gov.
SUPPLEMENTARY INFORMATION: Sparhawk
Laboratories, Inc., 12340 Santa Fe Trail
Dr., Lenexa, KS 66215, filed ANADA
200–416 that provides for veterinary
prescription use of Gentamicin Topical
Spray (gentamicin sulfate and
betamethasone valerate) in dogs.
Sparhawk Laboratories, Inc.’s
Gentamicin Topical Spray is approved
as a generic copy of Intervet, Inc.’s
GENTOCIN Topical Spray, approved
under NADA 132–338. The ANADA is
approved as of November 10, 2011, and
the regulations are amended in 21 CFR
524.1044f to reflect the approval and
revised terminology in the indication.
In accordance with the freedom of
information provisions of 21 CFR part
20 and 21 CFR 514.11(e)(2)(ii), a
summary of safety and effectiveness
data and information submitted to
support approval of this application
may be seen in the Division of Dockets
Management (HFA–305), Food and Drug
Administration, 5630 Fishers Lane, Rm.
1061, Rockville, MD 20852, between 9
a.m. and 4 p.m., Monday through
Friday.
The Agency has determined under 21
CFR 25.33 that this action is of a type
that does not individually or
cumulatively have a significant effect on
the human environment. Therefore,
neither an environmental assessment
nor an environmental impact statement
is required.
This rule does not meet the definition
of ‘‘rule’’ in 5 U.S.C. 804(3)(A) because
it is a rule of ‘‘particular applicability.’’
Therefore, it is not subject to the
congressional review requirements in 5
U.S.C. 801–808.
List of Subjects in 21 CFR Part 524
Animal drugs.
Therefore, under the Federal Food,
Drug, and Cosmetic Act and under
authority delegated to the Commissioner
of Food and Drugs and redelegated to
the Center for Veterinary Medicine, 21
CFR part 524 is amended as follows:
PART 524—OPHTHALMIC AND
TOPICAL DOSAGE FORM NEW
ANIMAL DRUGS
1. The authority citation for 21 CFR
part 524 continues to read as follows:
■
PO 00000
Frm 00040
Fmt 4700
Sfmt 4700
Authority: 21 U.S.C. 360b.
§ 524.1044f
[Amended]
2. In § 524.1044f, revise paragraphs (b)
and (c)(2) to read as follows:
■
§ 524.1044f Gentamicin and
betamethasone spray.
*
*
*
*
*
(b) Sponsors. See Nos. 000061,
054925, 058005, 058829, and 065531 in
§ 510.600(c) of this chapter.
(c) * * *
(2) Indications for use. For the
treatment of infected superficial lesions
caused by bacteria susceptible to
gentamicin.
*
*
*
*
*
Dated: January 19, 2012.
William T. Flynn,
Acting Director, Center for Veterinary
Medicine.
[FR Doc. 2012–1501 Filed 1–24–12; 8:45 am]
BILLING CODE 4160–01–P
DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
24 CFR Part 203
[Docket No. FR–5156–F–02]
RIN 2502–AI58
Federal Housing Administration (FHA)
Single Family Lender Insurance
Process: Eligibility, Indemnification,
and Termination
Office of the Assistant
Secretary for Housing—Federal Housing
Commissioner, HUD.
ACTION: Final rule.
AGENCY:
This final rule updates and
enhances the Lender Insurance process,
through which the majority of Federal
Housing Administration (FHA)-insured
mortgages are endorsed for insurance.
These changes also further HUD efforts
to improve and expand the risk
management activities of the FHA. This
final rule follows the publication of an
October 8, 2010, proposed rule, and
takes into consideration public
comments received in response to it.
DATES: Effective Date: February 24,
2012.
SUMMARY:
FOR FURTHER INFORMATION CONTACT:
Karin Hill, Director, Office of Single
Family Program Development, Office of
Housing, Department of Housing and
Urban Development, 451 Seventh Street
SW., Room 9278, Washington, DC
20410–8000; telephone number (202)
708–4308 (this is not a toll-free
number). Persons with hearing or
speech impairments may access these
E:\FR\FM\25JAR1.SGM
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]]>Agencies
[Federal Register Volume 77, Number 16 (Wednesday, January 25, 2012)]
[Rules and Regulations]
[Pages 3590-3598]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-1521]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 230
[Release No. 33-9295; File No. S7-31-11]
RIN 3235-AL20
Covered Securities of Bats Exchange, Inc.
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Securities and Exchange Commission (``SEC'' or
``Commission'') is adopting an amendment to Rule 146 under Section 18
of the Securities Act of 1933, as amended, (``Securities Act'') to
designate certain securities listed, or authorized for listing, on BATS
Exchange, Inc. (``BATS'' or ``Exchange'') as covered securities for
purposes of Section 18 of the Securities Act. Covered securities under
Section 18 of the Securities Act are exempt from state law registration
requirements. The Commission also is making corrections to the rule
text to reflect name changes.
DATES: Effective Date: February 24, 2012.
FOR FURTHER INFORMATION CONTACT: David R. Dimitrious, Senior Special
Counsel, (202) 551-5131, Ronesha Butler, Special Counsel, (202) 551-
5629, or Carl Tugberk, Special Counsel, (202) 551-6049, or Tyler Raimo,
Special Counsel, (202) 551-6227, Division of Trading and Markets
(``Division''), Commission, 100 F Street NE., Washington, DC 20549-
6628.
SUPPLEMENTARY INFORMATION:
I. Introduction
In 1996, Congress amended Section 18 of the Securities Act to
exempt from state registration requirements securities listed, or
authorized for listing, on the New York Stock Exchange LLC (``NYSE''),
the American Stock Exchange LLC (``Amex'') (now known as NYSE Amex
LLC),\1\ or the National Market System of The NASDAQ Stock
[[Page 3591]]
Market LLC (``Nasdaq/NGM'') \2\ (collectively, the ``Named Markets''),
or any national securities exchange designated by the Commission to
have substantially similar listing standards to those of the Named
Markets.\3\ More specifically, Section 18(a) of the Securities Act
provides that ``no law, rule, regulation, or order, or other
administrative action of any State * * * requiring, or with respect to,
registration or qualification of securities * * * shall directly or
indirectly apply to a security that--(A) is a covered security.'' \4\
Covered securities are defined in Section 18(b)(1) of the Securities
Act to include those securities listed, or authorized for listing, on
the Named Markets, or securities listed, or authorized for listing, on
a national securities exchange (or tier or segment thereof) that has
listing standards that the Commission determines by rule are
``substantially similar'' to those of the Named Markets (``Covered
Securities'').\5\
---------------------------------------------------------------------------
\1\ On October 1, 2008, NYSE Euronext acquired The Amex
Membership Corporation (``AMC'') pursuant to an Agreement and Plan
of Merger, dated January 17, 2008 (the ``Merger''). In connection
with the Merger, NYSE Amex's predecessor, the Amex, a subsidiary of
AMC, became a subsidiary of NYSE Euronext called NYSE Alternext US
LLC (``NYSE Alternext''). See Securities Exchange Act Release No.
58673 (September 29, 2008), 73 FR 57707 (October 3, 2008) (SR-NYSE-
2008-60 and SR-Amex 2008-62) (approving the Merger). In 2009, the
Exchange changed its name from NYSE Alternext to NYSE Amex LLC
(``NYSE Amex''). See Securities Exchange Act Release No. 59575
(March 13, 2009), 74 FR 11803 (March 19, 2009) (SR-NYSEALTR-2009-24)
(approving the name change).
\2\ As of July 1, 2006, the National Market System of The NASDAQ
Stock Market LLC is known as the Nasdaq Global Market (``NGM''). See
Securities Exchange Act Release Nos. 53799 (May 12, 2006), 71 FR
29195 (May 19, 2006) and 54071 (June 29, 2006), 71 FR 38922 (July
10, 2006).
\3\ See National Securities Markets Improvement Act of 1996,
Pub. L. 104-290, 110 Stat. 3416 (October 11, 1996).
\4\ 15 U.S.C. 77r(a).
\5\ 15 U.S.C. 77r(b)(1)(A) and (B). In addition, securities of
the same issuer that are equal in seniority or senior to a security
listed on a Named Market or national securities exchange designated
by the Commission as having substantially similar listing standards
to a Named Market are covered securities for purposes of Section 18
of the Securities Act. 15 U.S.C. 77r(b)(1)(C).
---------------------------------------------------------------------------
Pursuant to Section 18(b)(1)(B) of the Securities Act, the
Commission adopted Rule 146.\6\ Rule 146(b) lists those national
securities exchanges, or segments or tiers thereof, that the Commission
has determined to have listing standards substantially similar to those
of the Named Markets and thus securities listed on such exchanges are
deemed Covered Securities.\7\ BATS has petitioned the Commission to
amend Rule 146(b) to designate certain securities listed on BATS \8\ as
Covered Securities for the purpose of Section 18 of the Securities
Act.\9\
---------------------------------------------------------------------------
\6\ Securities Exchange Act Release No. 39542 (January 13,
1998), 63 FR 3032 (January 21, 1998) (determining that the listing
standards of the Chicago Board Options Exchange, Incorporated
(``CBOE''), Tier 1 of the Pacific Exchange, Inc. (``PCX'') (now
known as NYSE Arca, Inc.), and Tier 1 of the Philadelphia Stock
Exchange, Inc. (``Phlx'') (now known as NASDAQ OMX PHLX LLC) were
substantially similar to those of the Named Markets and that
securities listed pursuant to those standards would be deemed
Covered Securities for purposes of Section 18 of the Securities
Act). In 2004, the Commission amended Rule 146(b) to designate
options listed on the International Securities Exchange, Inc.
(``ISE'') (now known as the International Securities Exchange, LLC)
as Covered Securities for purposes of Section 18(b) of the
Securities Act. See Securities Act Release No. 8442 (July 14, 2004),
69 FR 43295 (July 20, 2004). In 2007, the Commission amended Rule
146(b) to designate securities listed on the Nasdaq Capital Market
(``NCM'') as Covered Securities for purposes of Section 18(b) of the
Securities Act. See Securities Act Release No. 8791 (April 18,
2007), 72 FR 20410 (April 24, 2007).
\7\ 17 CFR 230.146(b).
\8\ BATS recently filed an immediately effective rule change to
amend Rule 14.1 of its listing standards to include all securities
listed on the Exchange pursuant to Rule 14.11 as Tier I securities.
Exchange Rule 14.11 sets forth the criteria for listing certain
exchange traded products, including exchange traded funds, portfolio
depository receipts, index fund shares and various other types of
securities (collectively, ``ETPs''). ETPs were not designated as
either Tier I or Tier II securities prior to this amendment. The
Exchange's recent filing modifies the definitions of ``Tier I'' in
Rule 14.1(a)(29), and ``Tier I security'' in Rule 14.1(a)(30), to
make clear that ETPs are considered Tier I securities for purposes
of the Exchange's rules. See Exchange Act Release No. 65809
(November 23, 2011), 76 FR 74079 (November 30, 2011). The Commission
notes that this is only a definitional change. It does not result in
any substantive changes to the Exchange's existing listing standards
that are the subject of this rule amendment.
\9\ See letter from Eric Swanson, Senior Vice President and
General Counsel, BATS, to Elizabeth M. Murphy, Secretary,
Commission, dated May 26, 2011 (File No. 4-632) (``BATS Petition'').
---------------------------------------------------------------------------
On August 8, 2011, the Commission issued a release proposing to
amend Rule 146(b) to designate certain securities listed, or authorized
for listing, on BATS as covered securities for purposes of Section
18(a) of the Securities Act.\10\ The Commission also proposed to update
certain references in the rule. The Commission received one comment
letter,\11\ which favored amending Rule 146(b) to reflect the name
change of Phlx, as proposed by the Commission. In connection with its
petition, BATS filed a proposed rule change to establish standards for
the listing of securities on BATS.\12\ On August 30, 2011, the
Commission approved this proposed rule change.\13\
---------------------------------------------------------------------------
\10\ Securities Act Release No. 9251 (August 8, 2011), 76 FR
46698 (August 11, 2011) (``Proposing Release'').
\11\ See letter to Elizabeth M. Murphy, Secretary, Commission,
from Keith Paul Bishop, former California Commissioner of
Corporations, dated August 23, 2011 (``Bishop Letter''). The
commenter concurred with the Commission that Rule 146(b)(1)(iv)
should be updated to reflect the term ``NASDAQ OMX PHLX LLC''
instead of ``the Philadelphia Stock Exchange, Inc.'' The commenter
also requested that the Commission review the current standards of
the PHLX with respect to the listing and trading of securities to
determine whether the current listing standards of PHLX are
substantially similar to standards of Named Market. The Commission
has carefully considered the comment letter, and believes that the
request of the commenter with regard to the listing standards of
Phlx is beyond the scope of the Commission's proposed rule. However,
the Commission notes that, via its oversight, inspection and
enforcement functions, it regularly monitors the operations of
registered exchanges and their compliance with the securities laws
and rules applicable to them.
\12\ See Securities Exchange Act Release No. 64546 (May 25,
2011), 76 FR 31660 (June 1, 2011) (proposing qualitative and
quantitative listing requirements and standards for securities).
\13\ Securities Exchange Act Release No. 65225 (August 30,
2011), 76 FR 55148 (September 6, 2011).
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Based on the approved BATS listing standards and after careful
comparison, the Commission has determined that BATS' listing standards
for Tier I and Tier II securities are substantially similar to the
listing standards of the Named Markets. Accordingly, the Commission
today is amending Rule 146(b) to designate securities listed, or
authorized for listing, on Tier I and Tier II of BATS as Covered
Securities under Section 18(b)(1) of the Securities Act.\14\ Amending
Rule 146(b) to include these securities as Covered Securities will
exempt those securities from state registration requirements as set
forth under Section 18(a) of the Securities Act.\15\ The Commission
also is adopting, as proposed, updated references in the rule.
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\14\ 15 U.S.C. 77r(b)(1).
\15\ 15 U.S.C. 77r(a).
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The Commission notes that the proposed rule text would have
designated any security listed, or authorized for listing, on BATS as a
Covered Security. In light of BATS recent rule amendment defining
``Tier I'' and ``Tier I securities'' to include ETPs,\16\ the
Commission is refining the rule text adopted today to designate those
securities listed on Tier I and Tier II of the Exchange as Covered
Securities. This designation is substantively identical to the proposed
rule text, as the same securities that the Commission proposed to be
designated as Covered Securities in the Proposing Release will be so
designated.
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\16\ See supra note 8.
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II. Amendment to Rule 146(b) To Include BATS Securities
Under Section 18(b)(1)(B) of the Securities Act,\17\ the Commission
has the authority to determine that the listing standards of an
exchange, or tier or segment thereof, are substantially similar with
those of the NYSE, NYSE Amex, or Nasdaq/NGM. The Commission initially
compared BATS' listing standards for Tier I and Tier II securities with
those of one of the Named Markets. If the listing standards in a
particular category were not substantially similar to the standards of
that market, the Commission compared BATS' standards to one of the
other two markets.\18\ In addition, as it has done
[[Page 3592]]
previously, the Commission interpreted the ``substantially similar''
standard to require listing standards at least as comprehensive as
those of the Named Markets.\19\ If BATS' listing standards were higher
than those of the Named Markets, then the Commission still determined
that BATS' listing standards are substantially similar to those of the
Named Markets.\20\ Finally, the Commission notes that differences in
language or approach would not necessarily lead to a determination that
BATS' listing standards are not substantially similar to those of any
Named Market.\21\
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\17\ 15 U.S.C. 77r(b)(1)(B).
\18\ This approach is consistent with the approach that the
Commission has previously taken. See, e.g., Securities Act Release
No. 7494 (January 13, 1998), 63 FR 3032 (January 21, 1998).
\19\ See id.
\20\ See Securities Act Release No. 8791, supra note 6.
\21\ Id.
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The Commission has reviewed BATS' listing standards for securities
to be listed and traded on BATS and, for the reasons discussed below,
has determined that the standards are substantially similar to those of
a Named Market.\22\ Accordingly, the Commission is amending Rule 146(b)
to include securities listed, or authorized for listing, on Tier I and
Tier II of BATS. Because the Commission has determined BATS'
qualitative listing standards for BATS' Tier I and Tier II securities,
Tier I quantitative listing standards are substantively identical to
the listing standards for Nasdaq/NGM securities (and, therefore, are
``substantially similar'' to a Named Market as required by Section
18(b)(1)(B)),\23\ the discussion below focuses on BATS' Tier II
quantitative listing standards. The Commission included in the
Proposing Release its preliminary view that the Tier I and Tier II
qualitative listing standards and Tier I quantitative listing standards
were substantively identical to the listing standards for Nasdaq/NGM
securities and received no comments on that view.\24\
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\22\ See generally BATS Chapter XIV; Securities Exchange Act
Release No. 64546, supra note 8, 76 FR 31660. In making its
determination of substantial similarity, as discussed in detail
below, the Commission generally compared BATS' proposed qualitative
listing standards for both Tier I and Tier II securities with
Nasdaq/NGM's qualitative listing standards, BATS' proposed
quantitative listing standards for Tier I securities with Nasdaq/
NGM's quantitative listing standards, and BATS' proposed
quantitative listing standards for Tier II securities with NYSE
Amex's quantitative listing standards.
\23\ See infra notes 42-49.
\24\ See Proposing Release at 49699 to 49700 and n. 25 to n. 26.
See id. at 49703 (discussing ETPs).
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A. Primary Equity Securities
As discussed in the Proposing Release, the Commission preliminarily
believed that BATS' initial listing standards for primary equity
securities listed on Tier II of the Exchange were substantially similar
to those of NYSE Amex's common stock listing standards.\25\ The
Commission has determined that BATS' initial listing standards for
primary equity securities are substantially similar to those of NYSE
Amex. BATS' requirements relating to bid price,\26\ round lot
holders,\27\ shares held by the public,\28\ and required number of
registered and active market makers \29\ are substantially similar to
NYSE Amex requirements. Additionally, BATS' proposed equity,\30\ market
value,\31\ and net income \32\ standards are substantially similar to
NYSE Amex standards.
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\25\ See Proposing Release at 49700. BATS' use of ``primary
equity securities'' and NYSE Amex's use of ``common stock'' is
simply a difference in nomenclature, as BATS' listing standards
define ``primary equity security'' as a company's first class of
common stock. See BATS Rule 14.1(a)(21).
\26\ BATS' listing standards require a minimum bid price of $4
per share for initial listing and $1 per share for continued listing
while NYSE Amex requires a minimum bid price of $2-3 per share
depending on the issuer for initial listing and will consider
delisting if the price per share is ``low.'' Compare BATS Rule
14.9(b)(1)(A) with Section 102 of the NYSE Amex Company Guide. The
Commission has interpreted the substantially similar standard to
require listing standards at least as comprehensive as those of the
Named Markets; the Commission may determine that a petitioner's
standards are substantially similar if they are higher, and
differences in language or approach of the listing standards are not
dispositive. See supra notes 19-21 and accompanying text.
\27\ While BATS' listing standards require at least 300 round
lot holders, NYSE Amex's listing standards require 400 or 800 public
shareholders (depending upon the number of shares held by the
public), or 300 or 600 public shareholders for its alternate listing
standards. The Commission does not believe this difference precludes
a determination of substantial similarity between the standards.
Additionally, BATS' listing standards are identical to the listing
standards of NCM, which the Commission previously found to be
substantially similar to a Named Market. See Securities Act Release
8791, supra note 6 (determining that NCM listing standards, which
are identical to BATS' listing standards for primary equity
securities on Tier II of the Exchange, are substantially similar to
these same Amex standards). With respect to NCM having alternative
listing standards for the number of round lot holders, the
Commission noted that this difference did not preclude a
determination of substantial similarity between the standards. See
Securities Act Release 8791, supra note 6, 72 FR at 20412;
Securities Act Release No. 8754 (November 22, 2006), 71 FR 67762
(November 22, 2006) (proposing that the Commission amend Rule 146(b)
to designate securities listed on the NCM as covered securities for
purposes of Section 18(b) of the Securities Act).
\28\ BATS' listing standards require a minimum of 1,000,000
publicly held shares while NYSE Amex requires a minimum of 500,000.
Compare BATS Rule 14.9(b)(1)(B) with Section 102(a) of the NYSE Amex
Company Guide. The Commission has interpreted the substantially
similar standard to require listing standards at least as
comprehensive as those of the Named Markets; the Commission may
determine that a petitioner's standards are substantially similar if
they are higher, and differences in language or approach of the
listing standards are not dispositive. See supra notes 17-19 and
accompanying text.
\29\ BATS' listing requirements require at least three
registered and active market makers while NYSE Amex requires one
specialist to be assigned. Compare BATS Rule 14.9(b)(1)(D) with
Section 202(e) of the NYSE Amex Company Guide. The Commission may
still determine that the petitioner's listing standards are
substantially similar to those of the Named Markets if a
petitioner's listing standards are higher than the Named Markets.
See Securities Act Release No. 8791, supra note 6.
\30\ BATS' listing standards require a company to have
stockholder equity of at least $5 million, a market value of
publicly held shares of at least $15 million, and a two-year
operating history. See BATS Rule 14.9(b)(2)(A). NYSE Amex requires
stockholder equity of at least $4 million, a market value of
publicly held shares of at least $15 million, and a two-year
operating history.
\31\ BATS' listing standards require a market value of listed
securities of at least $50 million and a market value of publicly
held shares of at least $15 million, which is the same as required
by NYSE Amex. Compare BATS Rule 14.9(b)(2)(B) with Section
101(c)(2)-(3) of the NYSE Amex Company Guide.
\32\ BATS' listing standards require net income from continuing
operations of at least $750,000, which is the same as required by
NYSE Amex. Compare BATS Rule 14.9(b)(2)(C) with Section 101(d)(1) of
the NYSE Amex Company Guide.
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In addition to the above initial listing requirements, BATS
requires that American Depositary Receipts (``ADRs'') comply with an
additional criterion. Specifically, BATS requires there be at least
400,000 ADRs issued for such securities to be initially listed on
BATS.\33\ However, NYSE Amex does not have specific requirements for
ADRs in addition to its initial listing standards for primary equity
securities.\34\ As noted above, the Commission may still determine that
the petitioner's listing standards are substantially similar to those
of the Named Markets if BATS' listing standards are higher than the
Named Markets.\35\ Further, as noted above, differences in language or
approach of listing standards are not dispositive.\36\ The Commission
has determined that the quantitative initial listing standards for
primary equity securities on Tier II of the Exchange are substantially
similar to those of NYSE Amex.
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\33\ See BATS Rule 14.9(b)(1)(E). This requirement is identical
to NCM. See Nasdaq Rule 5505(a)(5); see generally Securities Act
Release 8791, supra note 6 (determining that NCM listing standards,
which are identical to BATS' standards for primary equity securities
on Tier II of the Exchange, are substantially similar to the Amex
standards).
\34\ See Section 102 of the NYSE Amex Company Guide. See also
Section 110 of the NYSE Amex Company Guide.
\35\ See Securities Act Release No. 8791, supra note 6.
\36\ See id.
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The Commission has determined that the continued listing
requirements for primary equity securities listed on Tier II of the
Exchange, while not identical, are substantially similar to those of
[[Page 3593]]
NYSE Amex.\37\ NYSE Amex's delisting criteria are triggered by poor
financial conditions or operating results of the issuer.\38\
Specifically, NYSE Amex will consider delisting an equity issue if: (i)
Stockholders' equity is less than $2 million and such issuer has
sustained losses from continuing operations and/or net losses in two of
its three most recent fiscal years; (ii) stockholders' equity is less
than $4 million and such issuer has sustained losses from continuing
operations and/or net losses in three of its four most recent fiscal
years; (iii) stockholders' equity is less than $6 million if such
issuer has sustained losses from continuing operations and/or net
losses in its five most recent fiscal years; or (iv) the issuer has
sustained losses which are so substantial in relation to its overall
operations or its existing financial resources, or its financial
condition has become so impaired that it appears questionable, in the
opinion of the exchange, as to whether such company will be able to
continue operations and/or meet its obligations as they mature.\39\
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\37\ See generally Securities Act Release 8791, supra note 6
(determining that NCM continued listing standards, which are
identical to BATS' continued listing standards for primary equity
securities on Tier II of the Exchange, were substantially similar to
the Amex standards).
\38\ See generally Sections 1001 through 1006 of the NYSE Amex
Company Guide.
\39\ See Section 1003(a) of the NYSE Amex Company Guide. While
not identical to NYSE Amex, BATS, as noted below, also has a
shareholder equity standard. See infra note 37 and accompanying
text. NYSE Amex, however, will not normally consider suspending
dealing in (i) through (iii) noted above if the issuer is in
compliance with the following: (1) Total market value of market
capitalization of at least $50,000,000; or total assets and revenue
of $50,000,000 each in its last fiscal year, or in tow of its last
three fiscal years; and (2) the issuer has at least 1,100,000 shares
publicly held, a value of publicly held shares of at least
$15,000,000 and 400 round lot holders. Id.
NYSE Amex also will consider delisting if: (i) an issuer has
sold or otherwise disposed of its principal operating assets or has
ceased to be an operating company or has discontinued a substantial
portion of its operations or business; (ii) if substantial
liquidation of the issuer has been made; or (iii) if advice has been
received, deemed by the Exchange to be authoritative, that the
security is without value, or in the case of a common stock, such
stock has been selling for a substantial period of time at a low
price. See Section 1003(c) and (f)(v) of the NYSE Amex Company
Guide.
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Although BATS does not have the same continued listing provisions
for Tier II, BATS also looks at the financial condition and operating
results of the issuer in order to determine whether to delist an
issuer. BATS' continued listing standards for Tier II securities
require compliance with either a (1) shareholder equity, (2) market
value of listed securities or (3) net income standard. Specifically,
for continued listing, BATS requires shareholder's equity of at least
$2.5 million, market value of listed securities of at least $35
million, or net income of $500,000 from continuing operations in the
past fiscal year or two out of three past fiscal years.\40\ Further,
BATS requires an issuer to have (i) a minimum bid price for continued
listing of $1 per share,\41\ (ii) at least two registered and active
market makers, (iii) 300 public holders, and (iv) a minimum number of
publicly held shares of at least 500,000 shares with a market value of
at least $1 million.\42\ The Commission has determined that the
differences in the maintenance criteria for primary equity securities
on BATS for Tier II Securities and common stock listed on NYSE Amex are
not significant and that, taken as a whole, the criteria are
substantially similar.\43\
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\40\ BATS Rule 14.9(e)(2)(A)-(C). NYSE Amex focuses on a
shareholder equity standard for continued listing. BATS' shareholder
equity standard requires at least $2.5 million shareholders' equity
compared to NYSE Amex's lowest shareholder equity standard of $2
million, if the NYSE Amex issuer has sustained losses from
continuing operations and/or net losses in two of its three most
recent fiscal years. Compare BATS Rule 14.9(e)(2)(A)-(C) with
Section 1003(a) of the NYSE Amex Company Guide.
\41\ See BATS Rule 14.9(e)(1)(B). Amex will consider delisting
if the price per share is ``low.'' See Section 1003(f)(v) of the
Amex Company Guide. See also Securities Act Release 8791, supra note
6 (noting the same regarding the NCM and Amex bid price standards).
\42\ BATS Rule 14.9(e)(1)(A)-(E). NYSE Amex will consider
delisting the common stock of an issuer if the aggregate market
value of such publicly held shares is less than $1 million for more
than 90 consecutive days, the number of publicly held shares is less
than 200,000 shares, or the number of its public stockholders is
less than 300. See Section 1003(b) of the NYSE Amex Company Guide.
\43\ The Commission has interpreted the substantially similar
standard to require listing standards at least as comprehensive as
those of the Named Markets, and differences in language or approach
of the listing standards are not dispositive. See supra notes 17-19
and accompanying text. See also Securities Act Release 8791, supra
note 6 (determining that NCM continued listing standards, which are
identical to BATS' continued listing standards for primary equity
securities on Tier II of the Exchange, are substantially similar to
the Amex standards).
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B. Preferred Stock and Secondary Classes of Common Stock
The Commission compared the listing standards of preferred stock
and secondary classes \44\ of common stock on Tier II of the Exchange
to the Nasdaq/NGM standards. As discussed in the Proposing Release,\45\
the Commission preliminarily believed that BATS' standards were
substantially similar to those of Nasdaq/NGM. BATS' initial and
continued listing standards with respect to the number of round lot
holders,\46\ bid price,\47\ number of publicly held shares,\48\ market
value of publicly held shares,\49\ and number of market makers \50\ are
substantially similar to the Nasdaq/NGM standards.\51\ As such, the
Commission has determined that BATS' quantitative listing standards for
preferred stock and secondary classes of common stock are substantially
similar to those of Nasdaq/NGM.
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\44\ A secondary class of common stock is a class of common
stock of an issuer that has another class of common stock listed on
an exchange. See Securities Act Release No. 8791, supra note 6, at
20411.
\45\ See Proposing Release at 49701 to 49702.
\46\ BATS' initial and continued listing standards require 100
round lot holders, as Nasdaq/NGM requires. Compare BATS Rule 14.9(c)
with Nasdaq Rule 5510; compare BATS Rule 14.9(f) with Nasdaq Rule
5460(a)(4).
\47\ While BATS' bid price requirement for initial listing is $4
and the Nasdaq/NGM requirement is $5, the Commission does not
believe this difference is significant. Compare BATS Rule
14.9(c)(1)(A) with Nasdaq Rule 5510(a)(1). See also Securities Act
Release No. 8791, supra note 6, at 20412 n. 28 (determining that an
NCM bid requirement, which is identical to BATS' bid requirement,
was substantially similar to the Nasdaq/NGM requirement). Both BATS'
standard and Nasdaq/NGM's existing standard require a $1 bid price
for continued listing. Compare BATS Rule 14.9(f)(1) with Nasdaq Rule
5460(a)(3).
\48\ BATS' standard requires 200,000 publicly held shares for
initial listing, and 100,000 publicly held shares for continued
listing, which is the same as Nasdaq/NGM requires. Compare BATS Rule
14.9(c)(1)(C) and 14.9(f)(1)(c) with Nasdaq Rules 5415(a)(1) and
5460(a)(1).
\49\ BATS' standard for initial listing of preferred stock or a
secondary class of common stock requires a market value of publicly
held shares of at least $3.5 million. Nasdaq/NGM requires a market
value of publicly held shares of at least $4 million. Compare BATS
Rule 14.9(c)(1)(D) with Nasdaq Rule 5415(a)(2). BATS standard for
continued listing requires a market value of publicly held shares of
at least $1 million. Nasdaq/NGM requires a market value of publicly
held shares of at least $1 million for continued listing. Compare
BATS Rule 14.9(f)(1)(D) with Nasdaq Rule 5460(a)(1). The Commission
believes BATS' initial and continued listing standards for preferred
stock and secondary classes of common stock are substantially
similar to Nasdaq/NGM. See also Securities Act Release No. 8791,
supra note 6, at 20411-12 (determining that NCM listing standards,
which are identical to BATS' listing standards for preferred stock
and secondary classes of common stock, are substantially similar to
the Nasdaq/NGM standards).
\50\ BATS' standards for initial listing require at least three
registered and active market makers, while its continued listing
standards require at least two registered and active market makers.
Nasdaq/NGM requires the same. Compare BATS Rule 14.9(c)(1)(E) with
Nasdaq Rule 5415(a)(2).
\51\ The Commission notes that these requirements apply to
instances when the common stock or common stock equivalent security
of the issuer is listed on BATS as a Tier II Security or otherwise
is a Covered Security. If the common stock or common stock
equivalent is not listed as a Tier II Security or is a Covered
Security, then the security would be required to meet the initial
primary equity listing requirements for Tier II noted above. Nasdaq/
NGM contains a similar requirement. Compare BATS Rule 14.9(f)(2)
with Nasdaq Rule 5460(b).
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[[Page 3594]]
C. Warrants
The Commission compared BATS' listing standards for warrants to
Nasdaq/NGM's standards. In the Proposing Release, the Commission stated
that it preliminarily believed that the BATS' standards were
substantially similar to the Nasdaq/NGM standards.\52\ BATS' initial
listing standards require that 400,000 warrants be outstanding for
initial listing, and that there be at least three registered and active
market makers and 400 round lot holders.\53\ Nasdaq/NGM's standards are
identical except that Nasdaq/NGM requires 450,000 warrants to be
outstanding.\54\ Though not identical with respect to the number of
warrants outstanding standard, the Commission believes that the Nasdaq/
NGM higher listing standards do not preclude a finding of substantial
similarity. BATS' initial listing standards also require the issuer's
underlying security to be listed on the Exchange or be a Covered
Security.\55\ The Commission notes that Nasdaq/NGM has a similar
standard that the underlying security be listed on Nasdaq/NGM or be a
Covered Security and believes BATS' standard is substantially similar
to Nasdaq/NGM.\56\ Therefore, the Commission has determined that BATS'
initial listing standards for warrants are substantially similar to
those of Nasdaq/NGM.\57\
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\52\ See Proposing Release at 49702.
\53\ See BATS Rule 14.9(d)(1)(A), (C) and (D).
\54\ See Nasdaq Rule 5410(a), (c) and (d).
\55\ See BATS Rule 14.9(d)(1)(B).
\56\ See Nasdaq Rule 5410(b).
\57\ See also Securities Act Release 8791, supra note 6
(determining that NCM initial listing standards, which are identical
to BATS' standards for warrants on Tier II of the Exchange, are
substantially similar to the Amex standards).
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As discussed in the Proposing Release, the Commission also
preliminarily believed that BATS' continued listing requirements for
warrants that there be two registered and active market makers (one of
which may be a market maker entering a stabilizing bid) and that the
underlying security remain listed on the Exchange or be a Covered
Security were substantially similar to that of Nasdaq/NGM.\58\ The
Commission has determined that BATS' continued listing standards for
warrants are substantially similar to those of Nasdaq/NGM.
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\58\ See Proposing Release at 49702. Compare proposed BATS' Rule
14.9(g)(1) with Nasdaq Rule 5455(1) and (2).
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D. Index Warrants
For index warrants traded on BATS, BATS has the same standards
(both initial and continuing) that apply to index warrants traded on
Nasdaq/NGM.\59\ Therefore, the Commission has determined that the
listing standards for index warrants traded on BATS are substantially
similar to the standards applicable to index warrants traded on the
Nasdaq/NGM market.
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\59\ Compare BATS Rule 14.9(d)(3) with Nasdaq Rule 5725.
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E. Convertible Debt
The Commission has compared BATS' listing standards for convertible
debt to NYSE Amex's listing standards for debt, and preliminarily
believed that BATS' initial listing standards for convertible debt were
substantially similar to those of NYSE Amex. BATS' listing standards
for convertible debt, regarding the threshold principal amount
outstanding,\60\ the availability of current last sale information,\61\
and number of market makers \62\ are substantially similar to NYSE Amex
standards.\63\ In addition to the requirements noted above, BATS'
listing standards require that one of four additional conditions be met
for listing of convertible debt. Specifically, BATS will not list a
convertible debt security unless one of the following conditions is
met: (i) The issuer of the debt security also has equity securities
listed on the Exchange, NYSE Amex, the NYSE, or Nasdaq/NGM; (ii) an
issuer of equity securities listed on the Exchange, NYSE Amex, the
NYSE, or Nasdaq/NGM 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; (iii) 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 (iv) if no NRSRO
has assigned a rating to the issue, an NRSRO has currently assigned an
investment grade rating to an immediately senior issue or 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.\64\
Therefore, the Commission has determined that BATS' listing standards
for convertible debt are substantially similar to those of NYSE Amex.
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\60\ BATS' rule requires a principal amount outstanding of at
least $10 million for initial listing and $5 million for continued
listing. See BATS Rule 14.9(d)(2)(A) and 14.9(g)(2)(A). NYSE Amex
requires a principal amount outstanding of at least $5 million for
initial listing and will consider delisting if the principal amount
outstanding is less than $400,000 or if the issuer is not able to
meet its obligations on the listed debt security. See Sections 104
and 1003 of the NYSE Amex Company Guide. As the Commission noted in
a prior release, while these requirements are not identical, the
Commission believes that both standards are designed to ensure the
continued liquidity of the debt security, and, thus, are
substantially similar. See Securities Act Release 8791, supra note
6, at 20412 (finding that an identical NCM listing standard was
substantially similar to the Amex standard).
\61\ Both BATS and NYSE Amex include an initial listing
requirement that there be current last sale information available in
the United States with respect to the underlying security into which
the bond or debenture is convertible. Compare BATS Rule
14.9(d)(2)(B) with Section 104 of the NYSE Amex Company Guide.
Additionally, Section 1003(e) of the NYSE Amex Company Guide states
that convertible bonds will be reviewed when the underlying security
is delisted and will be delisted when the underlying security is no
longer the subject of real-time reporting in the United States.
BATS' continued listing standards for a convertible debt security
also require that current last sale information be available in the
United States with respect to the underlying security, whereas NYSE
Amex does not. Compare BATS Rule 14.9(g)(2)(C) with Section 1003(e)
of the NYSE Amex Company Guide.
\62\ BATS' standard requires at least three registered and
active market makers for initial listing and two registered and
active market makers for continued listing (one of which may be a
market maker entering a stabilizing bid), whereas NYSE Amex requires
one specialist to be assigned. Compare BATS Rule 14.9(d)(1)(C) with
NYSE Amex Rule 104.
\63\ NYSE Amex will not list a convertible debt issue containing
a provision which gives an issuer discretion to reduce the
conversion price unless the issuer establishes a minimum 10-day
period within which such price reduction will be in effect. See
Section 104 of the NYSE Amex Company Guide. The Commission believes
that omission of such a provision does not impact its determination.
See Securities Act Release Nos. 39542, supra note 6 (finding PCX
listing standards to be substantially similar to Amex even with the
absence of this provision); 8791, supra note 6, at 20412 (finding
NCM's listing standard, which is identical to BATS' listing standard
for convertible debt, was substantially similar to Amex even with
the absence of this provision).
\64\ These standards are identical to the initial listing
standards for convertible debt securities on NYSE Amex and NCM).
Compare BATS Rule 14.9(d)(2)(D)(iv) with Section 104(A)-(E) of the
NYSE Amex Company Guide and Nasdaq Rule 5515(b)(4).
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F. Units
The listing requirements for units on Tier II of the Exchange, NYSE
Amex, and Nasdaq/NGM are all the same, as each evaluates the initial
and continued listing of a unit by looking to its components.\65\ If
all of the components of a unit individually meet the standards for
listing, then the unit would meet the standards for listing.\66\
Because the components for units
[[Page 3595]]
proposed by BATS are substantially similar to those of a Named Market,
as discussed above, the Commission has determined that BATS' listing
standards for units to be listed on Tier II of the Exchange are
substantially similar to a Named Market.\67\
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\65\ A unit is a type of security consisting of two or more
different types of securities (e.g., a combination of common stocks
and warrants). See, e.g., Securities Exchange Act Release No. 48464
(September 9, 2003), 68 FR 54250 (September 16, 2003) (order
approving NYSE Amex proposed rule change to amend Sections 101 and
1003 of the NYSE Amex Company Guide to clarify the listing
requirements applicable to units).
\66\ See generally BATS Rule 14.4, Section 101(f) of the NYSE
Amex Company Guide, and Nasdaq Rule 5225.
\67\ See Securities Exchange Act Release No. 64546, supra note
11, 76 FR 31660 at 31664.
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The Commission is amending Rule 146(b) as proposed to reflect the
following name changes:
Sections (b)(1) and (b)(2) of Rule 146 use the term
``Amex'' to refer to the American Stock Exchange LLC. As noted above,
on October 1, 2008, NYSE Euronext acquired Amex and renamed it NYSE
Alternext.\68\ Further, in 2009, NYSE Alternext was renamed NYSE Amex
LLC.\69\ The Commission is making a conforming change to Rule 146(b).
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\68\ See Securities Exchange Act Release No. 58673, supra note
1.
\69\ See Securities Exchange Act Release No. 59575, supra note
1.
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Section (b)(1) of Rule 146 refers to ``the Philadelphia
Stock Exchange, Inc.'' \70\ On July 24, 2008, The NASDAQ OMX Group,
Inc. acquired Phlx and renamed it ``NASDAQ OMX PHLX LLC.'' \71\ The
Commission is making a conforming change to Rule 146(b).
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\70\ See supra note 10.
\71\ On July 24, 2008, The NASDAQ OMX Group, Inc. acquired Phlx
and renamed it ``NASDAQ OMX PHLX LLC.'' See Securities Exchange Act
Release Nos. 58179 (July 17, 2008), 73 FR 42874 (July 23, 2008) (SR-
Phlx-2008-31); and 58183 (July 17, 2008), 73 FR 42850 (July 23,
2008) (SR-NASDAQ-2008-035).
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III. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 does not apply because the
amendment to Rule 146(b) does not impose recordkeeping or information
collection requirements or other collection of information, which
require the approval of the Office of Management and Budget under 44
U.S.C. 3501 et seq.
IV. Economic Analysis
A. Introduction
Section 2(b) of the Securities Act \72\ requires us, when engaging
in rulemaking that requires the Commission to consider or determine
whether an action is necessary or appropriate in the public interest,
to consider, in addition to the protection of investors, whether the
action will promote efficiency, competition and capital formation. We
have considered, and discuss below, the effects of the amendment to
Securities Act Rule 146, with regard to BATS' listing standards to
designate certain securities that will be listed, or authorized for
listing, on BATS as Covered Securities, on efficiency, competition, and
capital formation, as well as the benefits and costs associated with
the rulemaking.
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\72\ 15 U.S.C. 77b(b).
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Congress amended Section 18 of the Securities Act to exempt covered
securities from state registration requirements. These securities are
listed on the Named Markets or any other national securities exchange
determined by the Commission to have ``substantially similar'' listing
standards to those of the Named Markets (``Designated Markets'').\73\
Consistent with statutory authority, the Commission has determined that
the listing standards for securities listed, or authorized for listing,
on BATS are substantially similar to those of a Named Market,
specifically Nasdaq/NGM or NYSE Amex. Securities listed, or authorized
for listing, on BATS, therefore, will be exempt from state law
registration requirements.
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\73\ See 15 U.S.C. 77r(b)(1)(B).
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There are three Named Markets (NYSE, NYSE Amex, and Nasdaq/NGM) and
currently five Designated Markets (Tier I of NYSE Arca, Tier I of the
Philadelphia Stock Exchange, CBOE, ISE, and Nasdaq/NCM). NYSE and
Nasdaq/NGM are currently the largest exchanges in terms of number of
securities listed. As of April 19, 2011, in terms of securities listed,
NYSE lists 3,255, Nasdaq/NGM lists 2,854, NYSE Arca lists 1,213, and
NYSE Amex lists 544.\74\
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\74\ These listed securities include exchange traded funds and
multiple securities from the same issuer.
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The direct economic effect of the rule amendment will be to exempt
issuers that list, or are authorized to list, on BATS from the
requirements of state registration. Instead, these issuers will be
required to comply with BATS' listing standards and the federal
securities laws, rules and regulations with respect to the registration
and sale of securities. The requirements of state registration
typically include: (i) Paperwork and labor hours necessary to comply
with state registration requirements, (ii) meeting the disclosure
standards, and (iii) in some states, meeting certain minimum merit
requirements to make public offerings.\75\ The Commission solicited
comments concerning the costs and benefits associated with the
proposal, but received none.
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\75\ It has been noted that the purpose of such review is ``to
prevent `unfair' and `oppressive' offerings of securities,'' and, as
of 2011, merit review is employed in about 30 states. See Jeffrey B.
Bartell & A.A. Sommer, Jr., Blue Sky Registration, Securities Law
Techniques (Matthew Bender ed., 2011). Typical elements of merit
review include: offering expenses, including underwriter's
compensation, rights of security holders, historical ability to
service debt or pay dividends, financial condition of the issuer,
cheap stock held by insiders, the quantity of securities subject to
options and warrants, self-dealing and other conflicts of interest,
and the price at which the securities will be offered. See id. Some
merit regulation would be imposed on these issuers through
application of exchange listing standards.
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The Commission believes that an indirect effect of the rule
amendment will be that, by removing the requirements of state
registration for issuers that list, or are authorized to list, on
BATS--the same privilege granted to other Covered Securities--the rule
can improve BATS' ability to compete effectively with other exchanges.
Therefore, the Commission believes an important economic effect of the
rule amendment can be to engender greater competition in the market for
listing services.
Exchanges generally compete in multiple areas, which include the
market for listing, the market for trading, and the market for order-
flow. This rule amendment and BATS' listing standards \76\ relate
primarily to the market for listing, although the rule amendment and
the entry of a new participant in the listings market could impact
other markets as well.\77\ In the market for listing, exchanges compete
for issuers to list on their exchanges, so that the exchange may
collect listing fees. Domestic exchanges face listing competition from
other domestic exchanges and from foreign exchanges.\78\ The benefit of
listing for issuers generally is to gain greater access to capital
through measures designed to help promote quality certification and
visibility to public investors, which will generally result in a
reduction in the cost of raising capital for these issuers. This access
to capital may be further
[[Page 3596]]
enhanced through listing on particular exchanges, which could affect
the level of investors' trust in a listed company's governance
structure and the fairness of trading in the company's securities
(through the perceived effectiveness of exchanges' conduct rules and
surveillance of trading as well as other services and regulatory
functions).
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\76\ See Securities Exchange Act Release No. 64546, supra note
11.
\77\ See, e.g., Thierry Foucault and Christine A. Parlour,
Competition for Listing, 35 R and J. Econ. 329 (2004) (describing
how listing fees and trading costs both affect firms' incentives to
list with one exchange versus another).
\78\ It has been noted that NYSE and the London Stock Exchange,
for example, compete for listings of firms in third countries, in
particular from emerging economies. See Thomas J. Chemmanur & Paolo
Fulghieri, Competition and Cooperation Among Exchanges: A Theory of
Cross-Listing and Endogenous Listing Standards, 82 J. Fin. Econ.
455, 456 (2006). See generally Craig Doidge, Andrew Karolyi, and
Ren[eacute] Stulz, Has New York Become Less Competitive than London
in Global Markets? Evaluating Foreign Listing Choices Over Time,
Journal of Financial Economics 91, 253-277 (2009); Craig Doidge,
Andrew Karolyi, and Ren[eacute] Stulz, Why Do Foreign Firms Leave
U.S. Equity Markets?, Journal of Finance 65, 1507-1553 (2010);
Caglio, Cecilia, Hanley, Kathleen Weiss and Marietta-Westberg,
Jennifer, Going Public Abroad: The Role of International Markets for
IPOs (March 16, 2010), available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1572949. Additionally, differences in
regulatory regimes may impact listing decisions.
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Exchanges may try to compete for issuers by reducing listing fees
or by improving the quality of services they offer, or both. The cost
of listing for an issuer includes listing fees and the cost of
complying with listing standards. In principle, this means exchanges
can compete by reducing listing fees, by relaxing the listing standards
issuers must meet, or by offering several trading segments with
different listing standards on each, though such standards must be
determined to be substantially similar to a Named Market in order to
get the benefit of the Securities Act Section 18(b)(1)(B) exemption
from state registration requirements. The Commission believes that any
concern that exchanges may try to compete by lowering the listing
standards to attract issuers (and hence enter in a ``race-to-the-
bottom'') is mitigated by the fact that (1) listing standards affect
exchanges' reputations among investors, which, in turn, impacts their
attractiveness to issuers, (2) any proposed listing standards or
proposed changes to existing listing standards must be filed with the
Commission pursuant to Section 19(b) of the Exchange Act and must meet
its requirements to become effective,\79\ and (3) lower listing
standards that are not substantially similar to those of a Named Market
will not have the benefit of the exemption from state registration
requirements.\80\
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\79\ Any revision to exchange listing standards must be done in
accordance with Section 19(b) of the Exchange Act and Rule 19b-4
thereunder. Any Commission approval of a listing standard revision
is conditioned upon a finding by the Commission that the revision is
consistent with the requirements of the Exchange Act and rules
thereunder. See 15 U.S.C. 78s.
\80\ See Chemmanur & Fulghieri, supra note 74, at 458.
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The competition among exchanges for listings is only partially
based on price. Exchanges also compete in various other areas, which
contribute to the quality of the services listed issuers receive,
including, but not limited to, provision of trade statistics,
regulatory and surveillance services, access to new technology,
attractive trading mechanisms, and marketing services.
One important dimension of competition is brand name.\81\ Issuers
place high value on being listed on certain exchanges because investors
may more readily trust those exchanges, which may, in turn, reduce the
cost of raising capital for those issuers. As a result, NYSE and
Nasdaq/NGM, which are already the two largest exchanges in terms of
securities listed, may be able to charge listing fees that are above
marginal cost--that is, what it would cost them to list additional
issuers--and higher than other competing exchanges; therefore, certain
exchanges may earn economic rent from these higher listing premiums
(the amount of fee difference certain exchanges can charge, above a
competitor's price, because of its brand name). In addition to brand
name recognition, the market for listing exhibits positive network
externalities: issuers may prefer to be listed on exchanges where many
other issuers are listed and where there are more intermediaries
trading because of increased liquidity and visibility.\82\ This
indicates that, all else being equal, large exchanges (in terms of
listings) will tend to be favored over smaller ones. In theory, this
preference may persist to some extent even if large exchanges were to
offer slightly inferior services than their smaller counterparts
because the advantages of being listed on a large exchange, where there
are many issuers and intermediaries, might outweigh the cost of being
offered slightly inferior services. Because of these brand name effects
and positive externalities, the Commission believes that the market for
listings, to some extent, exhibits certain barriers to entry for new
entrants to the listing markets, such as BATS.\83\
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\81\ See generally Clement G. Krouse, Brand Name as a Barrier to
Entry: The Rea Lemon Case, 51 Southern Econ. J. 495 (1984)
(describing the effect of brand name on competition in markets with
incomplete information); see also Tibor Scitovsky, Ignorance as a
Source of Oligopoly Power, 40 Amer. Econ. Rev. 48, 49 (1950) (``An
ignorant buyer * * * is unable to judge the quality of the products
he buys by their intrinsic merit. Unable to appraise products by
objective standards, he is forced to base his judgment on indices of
quality, such as * * * general reputation of the producing
firms.'').
\82\ See, e.g., Carmine Di Nola, Competition and Integration
Among Stock Exchanges in Europe: Network Effects, Implicit Mergers
and Remote Access, 7 European Fin. Man. 39 (2001) (``Firms may
derive more utility in being listed on exchanges where there are
more intermediaries as they give more liquidity to the market.'').
\83\ Brand name recognition is frequently recognized as a
barrier to entry mainly because consumers do not have all the
information regarding product quality and thus tend to rely on brand
names as a proxy for quality. See, e.g., Brand Name as a Barrier to
Entry: The Rea Lemon Case, 51 S. Econ. J. 495 (1984); Tibor
Scitovsky, Ignorance as a Source of Oligopoly Power, 40 Amer. Econ.
Rev. 48 (1950). Network externalities are also recognized as a
barrier to entry. See, e.g., Gregory J. Weden, Network Effects and
Conditions of Entry: Lessons from the Microsoft Case, 69 Antitrust
L.J. 87 (2001); Douglas A. Melamed, Network Industries and
Antitrust, 23 Harv. J. L. & Pub. Pol'y 147 (1999).
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B. Benefits, Including the Impact on Efficiency, Competition, and
Capital Formation
By exempting securities listed, or authorized for listing, on BATS
from state law registration requirements, the Commission believes that
issuers seeking to list securities on BATS could have the benefit of
reduced regulatory compliance burdens, as compliance with state blue
sky law requirements will not be required. One benefit of this
amendment will be to eliminate these compliance burdens with respect to
securities listed, or authorized for listing, on BATS. The Commission
expects that the rule amendment can improve efficiency by eliminating
duplicative registration costs for issuers and improving liquidity by
allowing for greater market access to issuers who have not been listed
previously.
To the extent that state merit reviews may have inhibited certain
smaller businesses from making public offerings,\84\ the Commission
believes an exemption from state registration requirements will
facilitate capital formation.
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\84\ A number of scholarly articles have expressed concerns over
the possibility for blue sky merit regulation to hinder capital
formation. See, e.g., Martin Fojas, Ay Dios NSMIA!: Proof of a
Private Offering Exemption Should Not Be a Precondition for
Preempting Blue Sky Law Under the National Securities Markets
Improvement Act, 74 Brooklyn L. Rev. 477 (2009); Rutheford B.
Campbell, Jr., Blue Sky Laws and the Recent Congressional Preemption
Failure, 22 J. Corp. L. 175 (1997); Brian J. Fahrney, State Blue Sky
Laws: A Stronger Case for Federal Pre-Emption Due to Increasing
Internationalization of Securities Markets, Comment, 86 Nw. U. L.
Rev. 753 (1991-92); Roberta S. Karmel, Blue-Sky Merit Regulation:
Benefit to Investors or Burden on Commerce, 53 Brook. L. Rev. 106
(1987-88). While the concerns are numerous, other studies have shown
some positive effect of merit regulation. See Jay T. Brandi, The
Silverlining in Blue Sky Laws: The Effect of Merit Regulation on
Common Stock Returns and Market Efficiency, 12 J. Corp. L. 713
(1986-87) (reporting that merit regulation can have a positive
effect on investor returns); Ashwini K. Agrawal, ``The Impact of
Investor Protection Law on Corporate Policy: Evidence from the Blue
Sky Laws,'' working paper (2009) (reporting that the passage of
investor protection statutes causes firms to pay out greater
dividends, issue more equity, and grow in size), available at https://ssrn.com/abstract=1442224. Some merit regulation would be imposed
on these issuers through application of exchange listing standards.
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The Commission believes that the amendment to Rule 146(b) should
permit BATS to better compete for listings with other markets whose
listed securities already are exempt from state law registration
requirements, and the Commission believes that this result can enhance
competition, thus benefiting market participants and the public.
Specifically, BATS currently intends to enter the listing market with
generally lower fees than incumbent exchanges in
[[Page 3597]]
order to compete with them.\85\ In response to BATS' entry, although
recognizing the significant barriers to entry noted above, the
incumbent exchanges might choose to reduce their listing fees to match
or come closer to those proposed by BATS. Incumbent exchanges might
also enhance the other services they provide to their currently listed
issuers (e.g., regulatory and surveillance services, access to new
technology, attractive trading mechanisms, marketing services) as a way
to counteract BATS' lower listing fees.
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\85\ See Securities Exchange Act Release No. 64546, supra note
11, 76 FR at 31666 & n. 27-28 (representing that BATS' pricing,
while not necessarily cheaper for all issuers at all other markets,
is roughly equivalent to or less than the price issuers would pay at
other exchanges, including NGM and NCM).
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The Commission believes that additional competition in the market
for listings can enable some issuers, both public and private, that
have (1) either not listed on any exchange or (2) have listed on an
exchange but have chosen not to list on certain exchanges because of
the costs of listing there, to list on any Named or Designated Market
due to the potential for lower listing fees across all exchanges. The
Commission further believes that this will result in a lower cost of
capital for those issuers that previously had not listed on an exchange
and could benefit the current investors in such issuers in the form of
higher company value arising from the reduced cost of capital and
increased liquidity. Since currently unlisted firms may be able to list
because of lower listing fees, the Commission believes this may improve
efficiency and capital formation since future investors in these
issuers would have easier access to invest in them and to further
diversify their investment portfolios.
The Commission believes that those issuers that are currently
listed on an exchange, including the Named Markets, and that remain
listed there, can potentially benefit from any reduced listing fees;
however, because any such benefit will come at the expense of the
exchange on which they are listed in the form of potentially reduced
profit, this aggregate effect would be a transfer from one group of
investors (exchange shareholders) to another group of investors (listed
issuer shareholders).
Additionally, the Commission believes that some issuers currently
listed on other Named or Designated Markets could potentially switch
their listings to BATS, thus potentially lowering their listing costs
(provided the Named or Designated Markets do not reduce their listing
fees). The size of any such potential benefit will depend on how large
any cost savings due to listing on BATS would be in comparison to the
cost of giving up any valuable services that the other exchanges might
provide that BATS might not. In addition, the behavior of these issuers
will depend heavily on the extent to which these other exchanges
respond to BATS' entry by making themselves more competitive to the
issuers.
C. Costs, Including the Impact on Effi
