Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Initial and Continued Listing Standards for Subscription Receipts and Fees for Their Listing, 42541-42544 [2018-18058]
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Federal Register / Vol. 83, No. 163 / Wednesday, August 22, 2018 / Notices
proposed rule change is August 17,
2018.
The Commission is extending the 45day time period for Commission action
on the proposed rule change. ICC
proposes to revise the ICC Rulebook to
provide for the clearance of an
additional Standard Emerging Market
Sovereign CDS contract. The
Commission finds it appropriate to
designate a longer period within which
to take action on the proposed rule
change so that it has sufficient time to
consider ICC’s proposed rule change.
Accordingly, the Commission,
pursuant to Section 19(b)(2) 5 of the Act,
designates October 1, 2018, as the date
by which the Commission should either
approve or disapprove, or institute
proceedings to determine whether to
disapprove, the proposed rule change
(File No. SR–ICC–2018–007).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–18057 Filed 8–21–18; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83861; File No. SR–
NASDAQ–2018–059]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Adopt Initial
and Continued Listing Standards for
Subscription Receipts and Fees for
Their Listing
amozie on DSK3GDR082PROD with NOTICES1
August 16, 2018.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that, on August
3, 2018, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(31).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
6 17
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
BILLING CODE 8011–01–P
5 15
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to adopt
initial and continued listing standards
for subscription receipts and fees for
their listing.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaq.cchwallstreet.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
1. Purpose
The Exchange proposes to adopt
initial and continued listing standards
for the listing of Subscription Receipts
on the Nasdaq Capital Market and fees
for their listing.
Subscription Receipts are a financing
technique that has been used for many
years by Canadian public companies.
Typically, Canadian companies use
Subscription Receipts as a means of
providing cash consideration in merger
or acquisition transactions. Subscription
Receipts are sold in a public offering
that occurs after the execution of an
acquisition agreement. The proceeds of
the Subscription Receipt offering are
held in a custody account and, if the
related acquisition closes, the
Subscription Receipt holders receive a
specified number of shares of the issuer.
If the acquisition does not close, then
the Subscription Receipts are redeemed
for their original purchase price plus
any interest accrued on the custody
account. The benefit of Subscription
Receipts to the issuer is that they
provide a contingent form of financing
that only becomes permanent if the
acquisition is completed. By contrast, a
company financing the cash
consideration for an acquisition by
means of a traditional equity or debt
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42541
offering is at risk of having incurred
unnecessary dilution of its shareholders
or indebtedness if the related
acquisition fails to close. Subscription
Receipts provide investors with
flexibility to elect to invest in the post
merger company and not in the
company in its pre-merger form.
Nasdaq has received inquiries from
market participants about the possibility
of the use of Subscription Receipts as a
fundraising alternative for listed
companies. As a result of this interest,
the Exchange is now proposing to adopt
listing standards for Subscription
Receipts. Under the proposed rule,
Nasdaq will initially list Subscription
Receipts on the Capital Market pursuant
to proposed Rule 5520 if they meet the
following requirements: 3
(a) The security that the Subscription
Receipts are exchangeable for must be
listed on the Nasdaq Global Select,
Global or Capital Market.
(b) The issuer of the Subscription
Receipts must not have received a Staff
Delisting Determination with respect to
the security the Subscription Receipts
are exchangeable for and must not have
been notified about a deficiency in any
continued listing standard with respect
to the issuer of the Subscription
Receipts or the security the Subscription
Receipts are exchangeable for, except
with respect to a corporate governance
requirement where the issuer has
received a grace period under Rule
5810(c)(3)(E).4
(c) The proceeds of the Subscription
Receipts offering must be designated
solely for use in connection with the
consummation of a specified acquisition
that is the subject of a binding
acquisition agreement (the ‘‘Specified
Acquisition’’).
(d) The proceeds of the Subscription
Receipts offering must be held in an
interest-bearing custody account by an
independent custodian.
(e) The Subscription Receipts will
promptly be redeemed for cash (i) at any
3 As described in more detail below, these
requirements are each either identical or
substantially similar to those in Section 102.08 of
the NYSE Listed Company Manual for the initial
listing of Subscription Receipts.
4 Rule 5810(c)(3)(E) provides a grace period for a
company to regain compliance if the company fails
to meet the majority board independence or the
audit committee composition requirements due to
one vacancy, or fails to meet the audit committee
composition requirements because an audit
committee member ceases to be independent for
reasons outside of her control. The grace period is
until the earlier of the company’s next annual
shareholders meeting or one year from the event
that caused the deficiency to cure the deficiency.
However, if the company’s next annual
shareholders’ meeting is held sooner than 180 days
after the event that caused the deficiency, then the
company has 180 days from the event that caused
the deficiency to cure it.
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Federal Register / Vol. 83, No. 163 / Wednesday, August 22, 2018 / Notices
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time the Specified Acquisition is
terminated, or (ii) if the Specified
Acquisition does not close within
twelve months from the date of issuance
of the Subscription Receipts, or such
earlier time as is specified in the
operative agreements. If the
Subscription Receipts are redeemed, the
holders will receive cash payments
equal to their proportionate share of the
funds in the custody account, including
any interest earned on those funds.
(f) If the Specified Acquisition is
consummated, the holders of the
Subscription Receipts will receive the
shares of common stock for which their
Subscription Receipts are exchangeable.
(g) At the time of initial listing, the
Subscription Receipts must have a price
per Subscription Receipt of at least
$4.00, a minimum Market Value of
Publicly Held Shares of $100 million,
1,100,000 Publicly Held Shares 5 and
400 holders of round lots (i.e., 100
securities).
(h) The sale of the Subscription
Receipts and the issuance of the
common stock of the issuer in exchange
for the Subscription Receipts must both
be registered under the Securities Act.
Listed Subscription Receipts will be
convertible into the primary listed class
of common stock of the listed company
issuing the Subscription Receipts and
will thereafter be subject to all of the
continued listing requirements
applicable to a primary class of common
stock listed on the Nasdaq.
Nasdaq proposes to adopt Rule 5565
to include continued listing standards
applicable to Subscription Receipts. The
Exchange will immediately initiate
suspension and delisting procedures
under the Rule 5800 Series when (i) the
number of publicly held shares is less
than 100,000, (ii) the number of public
holders is less than 100, (iii) the total
market value of the listed Subscription
Receipts is below $15 million over 30
consecutive trading days, (iv) the related
common equity security ceases to be
listed or receives a delisting
determination from Nasdaq staff, or (v)
the issuer announces that the Specified
Acquisition has been terminated.6 An
issuer of Subscription Receipts that fails
these requirements will be issued a
delisting letter under Rule 5810(c)(1)
5 Listing Rule 5005(a)(34) defines publicly held
shares as ‘‘shares not held directly or indirectly by
an officer, director or any person who is the
beneficial owner of more than 10 percent of the
total shares outstanding.’’
6 These requirements are substantially similar to
those in Section 802.01B of the NYSE Listed
Company Manual for the continued listing of
Subscription Receipts.
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and will not be eligible to provide a
plan to regain compliance.
Because the issuer of the Subscription
Receipt is already listing its primary
common stock on Nasdaq, it must
comply with the continued listing
standards for common stock as well as
the corporate governance requirements
applicable to listed companies. In
addition to the foregoing, Subscription
Receipts will be subject to potential
delisting for all of the reasons generally
applicable to operating companies
under the Rule 5800 Series. The
Exchange notes that an issuer of
Subscription Receipts may be subject to
delisting at the time of closing of the
related acquisition pursuant to Rule
5110(a), which requires a company to
meet the initial listing standards
following a business combination with
a non-Nasdaq entity resulting in a
change of control of the listed company
and potentially allowing the nonNasdaq entity to obtain a Nasdaq listing.
Nasdaq proposes to amend Rule
4120(a) and IM–5250–1 to provide that
whenever it halts trading in a security
of a listed company pending
dissemination of material news or
implements any other required
regulatory trading halt, the Exchange
will also halt trading in any listed
Subscription Receipt that is
exchangeable by its terms into the
common stock of such company. The
Exchange will monitor activity in
Subscription Receipts to identify and
deter any potential improper trading
activity in such securities and will
adopt surveillance procedures, and
make any enhancements necessary, to
enable it to monitor Subscription
Receipts alongside the common equity
securities into which they are
convertible. Additionally, the Exchange
will rely on its existing trading
surveillances, administered by the
Exchange, or the Financial Industry
Regulatory Authority (‘‘FINRA’’) on
behalf of the Exchange,7 which are
designed to detect violations of
Exchange rules and applicable federal
securities laws.
Finally, Nasdaq proposes to adopt
fees for Subscription Receipts in
proposed Rule 5920. Specifically,
Nasdaq proposes to charge a $25,000
entry fee, which would include a $5,000
application fee, for the listing of a class
of Subscription Receipts on the Nasdaq
Capital Market. Given their short-term
nature, Nasdaq does not propose to
charge a separate annual fee to list
7 FINRA conducts cross-market surveillances on
behalf of the Exchange pursuant to a regulatory
services agreement. The Exchange is responsible for
FINRA’s performance under this regulatory services
agreement.
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Subscription Receipts and Subscription
Receipts would not be included in the
shares considered when calculating
Nasdaq’s All-inclusive Annual Listing
Fee.8 While other securities listed on
Nasdaq may have short terms, such as
warrants, these securities are not
required to have a short defined life and
may have terms that extend for many
years. In fact, no other security that can
be listed on Nasdaq is required, as a
condition for listing, to have a term of
twelve months from issuance or less.
For this reason, Nasdaq believes it is
appropriate to adopt a different fee
schedule for Subscription Receipts,
which recognizes their required shortterm nature.9
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,10 in general, and furthers the
objectives of Section 6(b)(5) of the Act,11
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest.
The Exchange believes that the
proposed listing standard is consistent
with Section 6(b)(5) of the Act in that it
contains requirements in relation to the
listing of Subscription Receipts that
provide adequate protections for
investors and the public interest. In
particular, the Exchange believes that
the quantitative requirements, which
require that Subscription Receipts must
have a price per share of at least $4.00,
a minimum total market value of
publicly held shares of $100 million,
1,100,000 publicly held shares, and 400
holders of round lots (collectively, the
‘‘Distribution Criteria’’), are designed to
protect investors in that they are
identical to the requirements the
Commission recently approved for
NYSE to list Subscription Receipts.12 In
8 See IM–5910–1(e) and IM–5920–1(e), which
impose the All-Inclusive Annual Fee based on total
shares outstanding and define ‘‘total shares
outstanding’’ to mean ‘‘the aggregate number of all
securities outstanding for each class of equity
securities (not otherwise identified in this Rule 5900
Series) listed [on Nasdaq] . . . .’’ (emphasis added).
Because proposed Rule 5920(a)(7) would identify
Subscription Receipts and subject them to a
different fee schedule, the Subscription Receipts
would not be included in total shares outstanding
for this purpose.
9 Nasdaq also proposes to make a non-substantive
change to eliminate a duplicate phrase in Rule
5501.
10 15 U.S.C. 78f(b).
11 15 U.S.C. 78f(b)(5).
12 See Exchange Act Release No. 81856 (October
11, 2017), 82 FR 48296 (October 17, 2017)
(approving SR–NYSE–2017–31).
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Federal Register / Vol. 83, No. 163 / Wednesday, August 22, 2018 / Notices
approving that filing, the Commission
noted that the Distribution Criteria is
the same that currently applies to the
listing of common stock in connection
with an initial public offering under
NYSE listing rules and that the $100
million market value of publicly held
shares requirement is similar to the
requirements for other initial listing of
securities on NYSE, which should help
ensure that a sufficient market, with
adequate depth and liquidity, exists for
the initial listing of Subscription
Receipts.
Similarly, the Exchange believes that
the proposed continued listing
standards for Subscription Receipts are
consistent with the requirements of the
Act and the protection of investors.
Under the proposal, the Exchange will
immediately initiate suspension and
delisting procedures when (i) the
number of publicly held shares is less
than 100,000, (ii) the number of public
holders is less than 100, (iii) the total
market value of listed Subscription
Receipts is below $15 million over 30
consecutive trading days, (iv) the related
common equity security ceases to be
listed or receives a delisting
determination from Nasdaq staff, or (v)
the issuer announces that the Specified
Acquisition has been terminated. In
addition, Subscription Receipts will be
subject to potential delisting for all of
the reasons generally applicable to
operating companies, including those
outlined in the Rule 5800 Series of
Nasdaq’s rules, and may also be subject
to delisting at the time of closing of the
related acquisition pursuant to Rule
5110(a), which requires a company to
meet the initial listing standards
following a business combination with
a non-Nasdaq entity resulting in a
change of control of the listed company
and potentially allowing the nonNasdaq entity to obtain a Nasdaq listing.
The Exchange believes the application
of Rule 5110(a), which requires a
company to meet the initial listing
standards following a business
combination with a non-Nasdaq entity
resulting in a change of control of the
listed company and potentially allowing
the non-Nasdaq entity to obtain a
Nasdaq listing, will help to ensure that
companies that would not otherwise
qualify for original listing on the
Exchange could not list, for example, by
merging with a listed company. Taken
as a whole, Nasdaq believes that these
standards should help ensure that a
sufficient market, with adequate depth
and liquidity, exists for the continued
listing of Subscription Receipts and are
similar to the continued listing
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standards for other securities that have
similar characteristics.
Nasdaq also notes that once the
Specified Acquisition has occurred and
a Subscription Receipt is converted to
common stock, that common stock is
subject to the continued listing
requirements for such common stock
under Rules 5450 or 5550, as applicable.
In addition to the quantitative listing
requirements proposed for Subscription
Receipts, the proposed initial and
continued listing standards also include
additional protections for Subscription
Receipt holders. For example, the issuer
of Subscription Receipts must be a
Nasdaq-listed company that is not
currently non-compliant with any
applicable continued listing standard
and must continue to be listed on the
Exchange throughout the time the
Subscription Receipts are traded on the
Exchange. The proposed rules also
provide that whenever Nasdaq halts
trading in a security of a listed company
pending dissemination of material news
or implements any other required
regulatory trading halt, Nasdaq will also
halt trading in any listed Subscription
Receipt that is exchangeable by its terms
into the common stock of such
company.
Nasdaq believes that these additional
requirements should protect investors
and the public interest, consistent with
Section 6(b)(5) of the Act, by assuring
that information with respect to the
listed company issuing the Subscription
Receipts is publicly available and that
the issuing company is meeting all
continued listing standards, including
corporate governance requirements, of
the Exchange. In addition, these
requirements should help assure that
the Exchange has a listing relationship
with, and direct access to information
from, the issuer of the Subscription
Receipts. Among other things, this
direct relationship the Exchange has
with the listed company issuing the
Subscription Receipts will help to
ensure that the Exchange will receive
information in a timely manner to halt
trading in the Subscription Receipts
when there is a material news, or other
regulatory, trading halt imposed on the
common stock, and other securities, of
the listed company.
There are additional protections for
investors in the proposed standards.
These include that all the proceeds of
the Subscription Receipts offering must
be designated solely for use in
connection with the consummation of a
Specified Acquisition pursuant to a
definitive acquisition agreement, the
material terms of which would be
subject to disclosure. Additionally, the
proceeds of the Subscription Receipts
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42543
offering must also be held in an interestbearing custody account by an
independent custodian and holders will
promptly redeem the Subscription
Receipts for cash, equal to the holder’s
proportionate share of the funds in the
custody account plus any interest
earned, at any time the Specified
Acquisition is terminated or if the
Specified Acquisition does not close
within twelve months from the date of
issuance of the Subscription Receipts
(or such earlier time as specified in the
operative agreements). If the Specified
Acquisition is consummated, the
holders of the Subscription Receipts
will receive the shares of common stock
for which their Subscription Receipts
are exchangeable. Finally, the listing
standards specifically state and remind
issuers that the sale of Subscription
Receipts and the issuance of the
common stock of the issuer in exchange
for the Subscription Receipts must both
be registered under the Securities Act of
1933. This is important because
shareholders, at the time they purchase
a Subscription Receipt, are making an
investment decision to also purchase
the common stock of the merged listed
company should the Specified
Acquisition be consummated within
twelve months or such shorter specified
time period. Therefore, it is important to
have registration and disclosure under
the Securities Act of both the
Subscription Receipt and the related
common stock. Based on the above,
Nasdaq believes that specifically setting
forth the Securities Act registration
requirements in its rules for listing
Subscription Receipts is consistent with
the requirements of Section 6(b)(5) of
the Act to further investor protection
and the public interest.
The Exchange will also monitor
activity in Subscription Receipts to
identify and deter any potential
improper trading activity in such
securities and will adopt surveillance
procedures, and make any
enhancements necessary, to enable it to
monitor Subscription Receipts alongside
the common equity securities into
which they are convertible. Since the
Subscription Receipts are related to, and
represent an interest in, the common
stock of the post-acquisition listed
company, this surveillance should help
to monitor the trading activity in both
the issuer’s listed common stock and the
Subscription Receipts. Nasdaq believes
that these safeguards and standards
should help to ensure that the listing,
and continued listing, of any
Subscription Receipts will be consistent
with investor protection, the public
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Federal Register / Vol. 83, No. 163 / Wednesday, August 22, 2018 / Notices
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interest, and the maintenance of fair and
orderly markets.
For the above reasons, Nasdaq
believes that the proposed initial and
continued listing standards are
consistent with the Act.
Nasdaq also believes that the
proposed fee set forth in Rule 5920 is
consistent with Section 6(b)(4) and
6(b)(5) of the Act in that it is designed
to provide for the equitable allocation of
reasonable dues, fees, and other charges
and is not designed to permit unfair
discrimination among its members and
issuers and other persons using its
facilities. Subscription Receipts are
designed to be used for the limited
purpose of raising capital for an
announced merger transaction and by
their terms must be redeemed within 12
months if the transaction does not close.
While other securities listed on Nasdaq
can have short terms, no other security
that can be listed on Nasdaq is required,
as a condition for listing, to have a term
of twelve months from issuance or less.
As such, Nasdaq believes it is not
unfairly discriminatory under Section
6(b)(5) of the Act as between issuers
listing other types of securities, to
charge a fee that differs from its fee for
other equity securities, which generally
have longer terms or no fixed term, and
that it is equitable and reasonable under
Section 6(b)(4) of the Act to charge a
single $25,000 fee, which includes a
$5,000 application fee, for the listing of
these securities during their lifetime.
This fee is also not unfairly
discriminatory because the same fee
will apply to all issuers seeking to list
Subscription Receipts. Further, Nasdaq
operates in a competitive environment
and its fees are constrained by
competition in the marketplace. Other
venues currently list Subscription
Receipts and if a company believes that
Nasdaq’s fee is unreasonable it can
decide either not to list the Subscription
Receipts or to list them on an alternative
venue.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The purpose
of the proposed rule is to enhance
competition by providing issuers and
investors with an additional type of
listed security that is not currently
available on Nasdaq, but that is
available on another domestic listing
exchange. As such, the Exchange does
not believe the proposed rule change
imposes any burden on competition but
instead will enhance competition.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 13 and
subparagraph (f)(6) of Rule 19b–4
thereunder.14
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2018–059 on the subject line.
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NASDAQ–2018–059, and
should be submitted on or before
September 12, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–18058 Filed 8–21–18; 8:45 am]
BILLING CODE 8011–01–P
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2018–059. This
13 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
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]]>Agencies
[Federal Register Volume 83, Number 163 (Wednesday, August 22, 2018)]
[Notices]
[Pages 42541-42544]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18058]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83861; File No. SR-NASDAQ-2018-059]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Adopt Initial and Continued Listing Standards for Subscription Receipts
and Fees for Their Listing
August 16, 2018.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on August 3, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt initial and continued listing
standards for subscription receipts and fees for their listing.
The text of the proposed rule change is available on the Exchange's
website at https://nasdaq.cchwallstreet.com, at the principal office of
the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to adopt initial and continued listing
standards for the listing of Subscription Receipts on the Nasdaq
Capital Market and fees for their listing.
Subscription Receipts are a financing technique that has been used
for many years by Canadian public companies. Typically, Canadian
companies use Subscription Receipts as a means of providing cash
consideration in merger or acquisition transactions. Subscription
Receipts are sold in a public offering that occurs after the execution
of an acquisition agreement. The proceeds of the Subscription Receipt
offering are held in a custody account and, if the related acquisition
closes, the Subscription Receipt holders receive a specified number of
shares of the issuer. If the acquisition does not close, then the
Subscription Receipts are redeemed for their original purchase price
plus any interest accrued on the custody account. The benefit of
Subscription Receipts to the issuer is that they provide a contingent
form of financing that only becomes permanent if the acquisition is
completed. By contrast, a company financing the cash consideration for
an acquisition by means of a traditional equity or debt offering is at
risk of having incurred unnecessary dilution of its shareholders or
indebtedness if the related acquisition fails to close. Subscription
Receipts provide investors with flexibility to elect to invest in the
post merger company and not in the company in its pre-merger form.
Nasdaq has received inquiries from market participants about the
possibility of the use of Subscription Receipts as a fundraising
alternative for listed companies. As a result of this interest, the
Exchange is now proposing to adopt listing standards for Subscription
Receipts. Under the proposed rule, Nasdaq will initially list
Subscription Receipts on the Capital Market pursuant to proposed Rule
5520 if they meet the following requirements: \3\
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\3\ As described in more detail below, these requirements are
each either identical or substantially similar to those in Section
102.08 of the NYSE Listed Company Manual for the initial listing of
Subscription Receipts.
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(a) The security that the Subscription Receipts are exchangeable
for must be listed on the Nasdaq Global Select, Global or Capital
Market.
(b) The issuer of the Subscription Receipts must not have received
a Staff Delisting Determination with respect to the security the
Subscription Receipts are exchangeable for and must not have been
notified about a deficiency in any continued listing standard with
respect to the issuer of the Subscription Receipts or the security the
Subscription Receipts are exchangeable for, except with respect to a
corporate governance requirement where the issuer has received a grace
period under Rule 5810(c)(3)(E).\4\
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\4\ Rule 5810(c)(3)(E) provides a grace period for a company to
regain compliance if the company fails to meet the majority board
independence or the audit committee composition requirements due to
one vacancy, or fails to meet the audit committee composition
requirements because an audit committee member ceases to be
independent for reasons outside of her control. The grace period is
until the earlier of the company's next annual shareholders meeting
or one year from the event that caused the deficiency to cure the
deficiency. However, if the company's next annual shareholders'
meeting is held sooner than 180 days after the event that caused the
deficiency, then the company has 180 days from the event that caused
the deficiency to cure it.
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(c) The proceeds of the Subscription Receipts offering must be
designated solely for use in connection with the consummation of a
specified acquisition that is the subject of a binding acquisition
agreement (the ``Specified Acquisition'').
(d) The proceeds of the Subscription Receipts offering must be held
in an interest-bearing custody account by an independent custodian.
(e) The Subscription Receipts will promptly be redeemed for cash
(i) at any
[[Page 42542]]
time the Specified Acquisition is terminated, or (ii) if the Specified
Acquisition does not close within twelve months from the date of
issuance of the Subscription Receipts, or such earlier time as is
specified in the operative agreements. If the Subscription Receipts are
redeemed, the holders will receive cash payments equal to their
proportionate share of the funds in the custody account, including any
interest earned on those funds.
(f) If the Specified Acquisition is consummated, the holders of the
Subscription Receipts will receive the shares of common stock for which
their Subscription Receipts are exchangeable.
(g) At the time of initial listing, the Subscription Receipts must
have a price per Subscription Receipt of at least $4.00, a minimum
Market Value of Publicly Held Shares of $100 million, 1,100,000
Publicly Held Shares \5\ and 400 holders of round lots (i.e., 100
securities).
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\5\ Listing Rule 5005(a)(34) defines publicly held shares as
``shares not held directly or indirectly by an officer, director or
any person who is the beneficial owner of more than 10 percent of
the total shares outstanding.''
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(h) The sale of the Subscription Receipts and the issuance of the
common stock of the issuer in exchange for the Subscription Receipts
must both be registered under the Securities Act.
Listed Subscription Receipts will be convertible into the primary
listed class of common stock of the listed company issuing the
Subscription Receipts and will thereafter be subject to all of the
continued listing requirements applicable to a primary class of common
stock listed on the Nasdaq.
Nasdaq proposes to adopt Rule 5565 to include continued listing
standards applicable to Subscription Receipts. The Exchange will
immediately initiate suspension and delisting procedures under the Rule
5800 Series when (i) the number of publicly held shares is less than
100,000, (ii) the number of public holders is less than 100, (iii) the
total market value of the listed Subscription Receipts is below $15
million over 30 consecutive trading days, (iv) the related common
equity security ceases to be listed or receives a delisting
determination from Nasdaq staff, or (v) the issuer announces that the
Specified Acquisition has been terminated.\6\ An issuer of Subscription
Receipts that fails these requirements will be issued a delisting
letter under Rule 5810(c)(1) and will not be eligible to provide a plan
to regain compliance.
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\6\ These requirements are substantially similar to those in
Section 802.01B of the NYSE Listed Company Manual for the continued
listing of Subscription Receipts.
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Because the issuer of the Subscription Receipt is already listing
its primary common stock on Nasdaq, it must comply with the continued
listing standards for common stock as well as the corporate governance
requirements applicable to listed companies. In addition to the
foregoing, Subscription Receipts will be subject to potential delisting
for all of the reasons generally applicable to operating companies
under the Rule 5800 Series. The Exchange notes that an issuer of
Subscription Receipts may be subject to delisting at the time of
closing of the related acquisition pursuant to Rule 5110(a), which
requires a company to meet the initial listing standards following a
business combination with a non-Nasdaq entity resulting in a change of
control of the listed company and potentially allowing the non-Nasdaq
entity to obtain a Nasdaq listing.
Nasdaq proposes to amend Rule 4120(a) and IM-5250-1 to provide that
whenever it halts trading in a security of a listed company pending
dissemination of material news or implements any other required
regulatory trading halt, the Exchange will also halt trading in any
listed Subscription Receipt that is exchangeable by its terms into the
common stock of such company. The Exchange will monitor activity in
Subscription Receipts to identify and deter any potential improper
trading activity in such securities and will adopt surveillance
procedures, and make any enhancements necessary, to enable it to
monitor Subscription Receipts alongside the common equity securities
into which they are convertible. Additionally, the Exchange will rely
on its existing trading surveillances, administered by the Exchange, or
the Financial Industry Regulatory Authority (``FINRA'') on behalf of
the Exchange,\7\ which are designed to detect violations of Exchange
rules and applicable federal securities laws.
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\7\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
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Finally, Nasdaq proposes to adopt fees for Subscription Receipts in
proposed Rule 5920. Specifically, Nasdaq proposes to charge a $25,000
entry fee, which would include a $5,000 application fee, for the
listing of a class of Subscription Receipts on the Nasdaq Capital
Market. Given their short-term nature, Nasdaq does not propose to
charge a separate annual fee to list Subscription Receipts and
Subscription Receipts would not be included in the shares considered
when calculating Nasdaq's All-inclusive Annual Listing Fee.\8\ While
other securities listed on Nasdaq may have short terms, such as
warrants, these securities are not required to have a short defined
life and may have terms that extend for many years. In fact, no other
security that can be listed on Nasdaq is required, as a condition for
listing, to have a term of twelve months from issuance or less. For
this reason, Nasdaq believes it is appropriate to adopt a different fee
schedule for Subscription Receipts, which recognizes their required
short-term nature.\9\
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\8\ See IM-5910-1(e) and IM-5920-1(e), which impose the All-
Inclusive Annual Fee based on total shares outstanding and define
``total shares outstanding'' to mean ``the aggregate number of all
securities outstanding for each class of equity securities (not
otherwise identified in this Rule 5900 Series) listed [on Nasdaq] .
. . .'' (emphasis added). Because proposed Rule 5920(a)(7) would
identify Subscription Receipts and subject them to a different fee
schedule, the Subscription Receipts would not be included in total
shares outstanding for this purpose.
\9\ Nasdaq also proposes to make a non-substantive change to
eliminate a duplicate phrase in Rule 5501.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\11\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed listing standard is
consistent with Section 6(b)(5) of the Act in that it contains
requirements in relation to the listing of Subscription Receipts that
provide adequate protections for investors and the public interest. In
particular, the Exchange believes that the quantitative requirements,
which require that Subscription Receipts must have a price per share of
at least $4.00, a minimum total market value of publicly held shares of
$100 million, 1,100,000 publicly held shares, and 400 holders of round
lots (collectively, the ``Distribution Criteria''), are designed to
protect investors in that they are identical to the requirements the
Commission recently approved for NYSE to list Subscription
Receipts.\12\ In
[[Page 42543]]
approving that filing, the Commission noted that the Distribution
Criteria is the same that currently applies to the listing of common
stock in connection with an initial public offering under NYSE listing
rules and that the $100 million market value of publicly held shares
requirement is similar to the requirements for other initial listing of
securities on NYSE, which should help ensure that a sufficient market,
with adequate depth and liquidity, exists for the initial listing of
Subscription Receipts.
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\12\ See Exchange Act Release No. 81856 (October 11, 2017), 82
FR 48296 (October 17, 2017) (approving SR-NYSE-2017-31).
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Similarly, the Exchange believes that the proposed continued
listing standards for Subscription Receipts are consistent with the
requirements of the Act and the protection of investors. Under the
proposal, the Exchange will immediately initiate suspension and
delisting procedures when (i) the number of publicly held shares is
less than 100,000, (ii) the number of public holders is less than 100,
(iii) the total market value of listed Subscription Receipts is below
$15 million over 30 consecutive trading days, (iv) the related common
equity security ceases to be listed or receives a delisting
determination from Nasdaq staff, or (v) the issuer announces that the
Specified Acquisition has been terminated. In addition, Subscription
Receipts will be subject to potential delisting for all of the reasons
generally applicable to operating companies, including those outlined
in the Rule 5800 Series of Nasdaq's rules, and may also be subject to
delisting at the time of closing of the related acquisition pursuant to
Rule 5110(a), which requires a company to meet the initial listing
standards following a business combination with a non-Nasdaq entity
resulting in a change of control of the listed company and potentially
allowing the non-Nasdaq entity to obtain a Nasdaq listing. The Exchange
believes the application of Rule 5110(a), which requires a company to
meet the initial listing standards following a business combination
with a non-Nasdaq entity resulting in a change of control of the listed
company and potentially allowing the non-Nasdaq entity to obtain a
Nasdaq listing, will help to ensure that companies that would not
otherwise qualify for original listing on the Exchange could not list,
for example, by merging with a listed company. Taken as a whole, Nasdaq
believes that these standards should help ensure that a sufficient
market, with adequate depth and liquidity, exists for the continued
listing of Subscription Receipts and are similar to the continued
listing standards for other securities that have similar
characteristics.
Nasdaq also notes that once the Specified Acquisition has occurred
and a Subscription Receipt is converted to common stock, that common
stock is subject to the continued listing requirements for such common
stock under Rules 5450 or 5550, as applicable. In addition to the
quantitative listing requirements proposed for Subscription Receipts,
the proposed initial and continued listing standards also include
additional protections for Subscription Receipt holders. For example,
the issuer of Subscription Receipts must be a Nasdaq-listed company
that is not currently non-compliant with any applicable continued
listing standard and must continue to be listed on the Exchange
throughout the time the Subscription Receipts are traded on the
Exchange. The proposed rules also provide that whenever Nasdaq halts
trading in a security of a listed company pending dissemination of
material news or implements any other required regulatory trading halt,
Nasdaq will also halt trading in any listed Subscription Receipt that
is exchangeable by its terms into the common stock of such company.
Nasdaq believes that these additional requirements should protect
investors and the public interest, consistent with Section 6(b)(5) of
the Act, by assuring that information with respect to the listed
company issuing the Subscription Receipts is publicly available and
that the issuing company is meeting all continued listing standards,
including corporate governance requirements, of the Exchange. In
addition, these requirements should help assure that the Exchange has a
listing relationship with, and direct access to information from, the
issuer of the Subscription Receipts. Among other things, this direct
relationship the Exchange has with the listed company issuing the
Subscription Receipts will help to ensure that the Exchange will
receive information in a timely manner to halt trading in the
Subscription Receipts when there is a material news, or other
regulatory, trading halt imposed on the common stock, and other
securities, of the listed company.
There are additional protections for investors in the proposed
standards. These include that all the proceeds of the Subscription
Receipts offering must be designated solely for use in connection with
the consummation of a Specified Acquisition pursuant to a definitive
acquisition agreement, the material terms of which would be subject to
disclosure. Additionally, the proceeds of the Subscription Receipts
offering must also be held in an interest-bearing custody account by an
independent custodian and holders will promptly redeem the Subscription
Receipts for cash, equal to the holder's proportionate share of the
funds in the custody account plus any interest earned, at any time the
Specified Acquisition is terminated or if the Specified Acquisition
does not close within twelve months from the date of issuance of the
Subscription Receipts (or such earlier time as specified in the
operative agreements). If the Specified Acquisition is consummated, the
holders of the Subscription Receipts will receive the shares of common
stock for which their Subscription Receipts are exchangeable. Finally,
the listing standards specifically state and remind issuers that the
sale of Subscription Receipts and the issuance of the common stock of
the issuer in exchange for the Subscription Receipts must both be
registered under the Securities Act of 1933. This is important because
shareholders, at the time they purchase a Subscription Receipt, are
making an investment decision to also purchase the common stock of the
merged listed company should the Specified Acquisition be consummated
within twelve months or such shorter specified time period. Therefore,
it is important to have registration and disclosure under the
Securities Act of both the Subscription Receipt and the related common
stock. Based on the above, Nasdaq believes that specifically setting
forth the Securities Act registration requirements in its rules for
listing Subscription Receipts is consistent with the requirements of
Section 6(b)(5) of the Act to further investor protection and the
public interest.
The Exchange will also monitor activity in Subscription Receipts to
identify and deter any potential improper trading activity in such
securities and will adopt surveillance procedures, and make any
enhancements necessary, to enable it to monitor Subscription Receipts
alongside the common equity securities into which they are convertible.
Since the Subscription Receipts are related to, and represent an
interest in, the common stock of the post-acquisition listed company,
this surveillance should help to monitor the trading activity in both
the issuer's listed common stock and the Subscription Receipts. Nasdaq
believes that these safeguards and standards should help to ensure that
the listing, and continued listing, of any Subscription Receipts will
be consistent with investor protection, the public
[[Page 42544]]
interest, and the maintenance of fair and orderly markets.
For the above reasons, Nasdaq believes that the proposed initial
and continued listing standards are consistent with the Act.
Nasdaq also believes that the proposed fee set forth in Rule 5920
is consistent with Section 6(b)(4) and 6(b)(5) of the Act in that it is
designed to provide for the equitable allocation of reasonable dues,
fees, and other charges and is not designed to permit unfair
discrimination among its members and issuers and other persons using
its facilities. Subscription Receipts are designed to be used for the
limited purpose of raising capital for an announced merger transaction
and by their terms must be redeemed within 12 months if the transaction
does not close. While other securities listed on Nasdaq can have short
terms, no other security that can be listed on Nasdaq is required, as a
condition for listing, to have a term of twelve months from issuance or
less. As such, Nasdaq believes it is not unfairly discriminatory under
Section 6(b)(5) of the Act as between issuers listing other types of
securities, to charge a fee that differs from its fee for other equity
securities, which generally have longer terms or no fixed term, and
that it is equitable and reasonable under Section 6(b)(4) of the Act to
charge a single $25,000 fee, which includes a $5,000 application fee,
for the listing of these securities during their lifetime. This fee is
also not unfairly discriminatory because the same fee will apply to all
issuers seeking to list Subscription Receipts. Further, Nasdaq operates
in a competitive environment and its fees are constrained by
competition in the marketplace. Other venues currently list
Subscription Receipts and if a company believes that Nasdaq's fee is
unreasonable it can decide either not to list the Subscription Receipts
or to list them on an alternative venue.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The purpose of the proposed
rule is to enhance competition by providing issuers and investors with
an additional type of listed security that is not currently available
on Nasdaq, but that is available on another domestic listing exchange.
As such, the Exchange does not believe the proposed rule change imposes
any burden on competition but instead will enhance competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \13\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\14\
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\13\ 15 U.S.C. 78s(b)(3)(A)(iii).
\14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NASDAQ-2018-059 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2018-059. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2018-059, and should be submitted
on or before September 12, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-18058 Filed 8-21-18; 8:45 am]
BILLING CODE 8011-01-P
