Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To List and Trade Corporate Non-Convertible Bonds on Nasdaq, 45289-45297 [2018-19239]
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Federal Register / Vol. 83, No. 173 / Thursday, September 6, 2018 / Notices
Commission a USPS Request to Add
Priority Mail Contract 464 to
Competitive Product List. Documents
are available at www.prc.gov, Docket
Nos. MC2018–218, CP2018–300.
Elizabeth Reed,
Attorney, Corporate and Postal Business Law.
[FR Doc. 2018–19276 Filed 9–5–18; 8:45 am]
BILLING CODE 7710–12–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84003; File No. SR–
NASDAQ–2018–050]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Designation of a Longer Period for
Commission Action on a Proposed
Rule Change Relating to the First Trust
Senior Loan Fund of First Trust
Exchange Traded Fund IV
daltland on DSKBBV9HB2PROD with NOTICES
August 30, 2018.
On June 27, 2018, The Nasdaq Stock
Market LLC (‘‘Nasdaq’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
modify certain aspects of the First Trust
Senior Loan Fund, the shares of which
have been approved by the Commission
for listing and trading under Nasdaq
Rule 5735. The proposed rule change
was published for comment in the
Federal Register on July 17, 2018.3 The
Commission has received no comment
letters on the proposed rule change.
Section 19(b)(2) of the Act 4 provides
that, within 45 days of the publication
of notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day after
publication of the notice for this
proposed rule change is August 31,
2018. The Commission is extending this
45-day time period.
The Commission finds that it is
appropriate to designate a longer period
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 83618
(July 11, 2018), 83 FR 33277.
4 15 U.S.C. 78s(b)(2).
within which to take action on the
proposed rule change so that it has
sufficient time to consider the proposed
rule change. Accordingly, the
Commission, pursuant to Section
19(b)(2) of the Act,5 designates October
15, 2018, as the date by which the
Commission shall either approve or
disapprove or institute proceedings to
determine whether to disapprove the
proposed rule change (File Number SR–
NASDAQ–2018–050).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–19241 Filed 9–5–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84001; File No. SR–
NASDAQ–2018–070]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Proposed Rule Change To
List and Trade Corporate NonConvertible Bonds on Nasdaq
August 30, 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
27, 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 and
II 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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to adopt
listing and trading requirements and
fees for non-convertible corporate
bonds.
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 15
2 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
1. Purpose
Nasdaq is amending its rules to
permit the initial and continued listing
of and trading of non-convertible
corporate debt securities (referred to
herein as ‘‘bonds’’ or ‘‘non-convertible
bonds’’) on Nasdaq and to establish fees
for listing those bonds. While Nasdaq
rules currently provide for the initial
and continued listing of convertible
bonds, Nasdaq believes that there may
be a demand from certain types of
investors for Exchange-listed nonconvertible bonds. Nasdaq also believes
that this proposal will improve the
public market for non-convertible bonds
by promoting the fair and orderly
operation of that market and by
increasing the transparency of that
market for securities that are listed
pursuant to this proposal. Nasdaq is
therefore amending the relevant listing
and trading rules accordingly.
Listing Rules
First, Nasdaq proposes to adopt Rule
5702 to permit the initial listing of nonconvertible bonds. For non-convertible
bonds, Nasdaq proposes to require a
minimum principal amount outstanding
or market value of at least $5 million,
instead of the minimum $10 million
principal amount outstanding required
for convertible debt under Rule 5515(b).
Nasdaq notes that this requirement is
the same as the initial listing
requirement for bonds on the New York
Stock Exchange LLC (‘‘NYSE’’) and
NYSE American LLC (‘‘NYSE
American’’), which both require that the
debt issue have an aggregate market
value or principal amount of no less
than $5 million.3
5 Id.
6 17
CFR 200.30–3(a)(31).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Section 102.03 of the NYSE Listed Company
Manual and Section 104 of the NYSE American
Company Guide.
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In addition to Rule 5702(a)(1), Nasdaq
also proposes to require satisfaction of
the condition set forth in Rule
5702(a)(2) for non-convertible bonds to
be eligible for listing on the Exchange.
This condition is that the issuer of the
bond must have one class of equity
security that is listed on Nasdaq, NYSE,
or NYSE American. This condition is
similar to one that NYSE and NYSE
American impose.4
Nasdaq also proposes to add
continued listing requirements under
Rule 5702(b). Proposed Rule 5702(b)(1)
would require, for continued listing,
that a non-convertible bond issuance
maintain a market value or principal
amount outstanding of at least
$400,000.5 Proposed Rule 5702(b)(2)
would also require an issuer to meet its
obligations on the listed non-convertible
bonds, and Nasdaq proposes to amend
Rule 5810(c)(1) to provide that a
determination by the Exchange’s
Listings Qualifications Department that
the issuer has failed to meet its
obligations on the bonds would result in
their immediate suspension and the
commencement of delisting
proceedings. Nasdaq notes that these
proposed continued listing standards for
non-convertible bonds are the same as
the listing requirements for bonds
imposed by NYSE American.6
In addition to these quantitative
requirements for listing non-convertible
bonds, the issuer of listed bonds would
also have to comply with other
requirements that are generally
applicable to companies listed on
Nasdaq pursuant to Rule 5250.
Specifically, Rule 5250(a) allows
Nasdaq to request additional
information, either public or nonpublic, deemed necessary to make a
determination regarding a company’s
continued listing. Rule 5250(b) requires
issuers to make public disclosure of
material information, disclosure of
notification of deficiency, and
disclosure of third party director and
4 See Section 104 of the NYSE American
Company Guide; Section 102.03 of the NYSE Listed
Company Manual.
5 The Exchange proposes to amend Rule
5810(c)(3) to provide that a failure to meet the
continued listing requirements under Rule
5702(b)(1) for a period of 30 consecutive business
days will constitute a deficiency; in the event of a
deficiency, the Exchange’s Listings Qualifications
Department will promptly notify the deficient
issuer and the issuer shall have a period of 180
calendar days from such notification to regain
compliance. Compliance will be deemed to be
regained by meeting the applicable standard for a
minimum of 10 consecutive business days, unless
the Listing Qualifications Department exercises its
discretion to extend this 10 day period as set forth
in Rule 5810(c)(3)(G).
6 See Section 1003(b)(iv) of the NYSE American
Company Guide.
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nominee compensation. Rule 5250(c)
requires companies to file all required
periodic financial reports. Rule 5250(d)
requires the distribution of annual and
interim reports. Rule 5250(e) sets forth
various corporate events resulting in
material changes that trigger the
requirement for the issuer to submit
certain forms to Nasdaq.7 Rule 5250(f)
requires the issuers to pay all applicable
fees set forth in the Rule 5900 series.
In addition to the Exchange’s rules
that would apply to an issuer of nonconvertible bonds that list on Nasdaq,8
the issuers of those bonds would have
to register those securities pursuant to
Section 12(a) of the Act.9 Among other
7 The Exchange proposes to amend Rule
5250(e)(3) to require issuers of non-convertible
bonds to provide at least 10 calendar days advance
notice to the Exchange of certain corporate actions,
including redemptions (full or partial calls), tender
offers, changes in par value, and changes in
identifier (e.g., CUSIP number or symbol), by filing
the appropriate form as Nasdaq shall designate.
8 Nasdaq notes that currently, the Rule 5600
Series generally would apply to securities listed in
this proposal. However, subsequent to this
proposal, but prior to listing non-convertible bonds
of issuers that have equity securities listed on NYSE
or NYSE American, Nasdaq plans to submit a
proposal to amend Rule 5615(a)(6) to state that the
Rule 5600 Series does not generally apply to
companies listing only preferred or debt securities
on the Exchange. Under this proposal, companies
listing only non-convertible bonds would be
exempt from the Rules relating to Independent
Directors (Rule 5605(b)), Audit Committee
Requirements (Rule 5605(c)), Compensation
Committee Requirements (Rule 5605(d)),
Independent Director Oversight of Director
Nominations (Rule 5605(e)), Code of Conduct (Rule
5610), Meetings of Shareholders (Rule 5620),
Review of Related Party Transactions (Rule 5630),
Shareholder Approval (Rule 5635), and Voting
Rights (Rule 5640). However, Rule 5615(a)(6) would
state that such companies still must comply with
Rule 5625, pursuant to which an issuer would
provide Nasdaq with prompt notification after an
executive officer of the company becomes aware of
any noncompliance by the company with the
requirements of the Rule 5600 Series. In addition,
this amended Rule would require issuers of listed
non-convertible bonds to comply with Rule 5605(c),
which sets forth the requirements of the company’s
audit committee, including its charter, composition,
responsibilities and authority, to the extent required
by Exchange Act Rule 10A–3. The Rule thereby
would apply the requirements of Rule 10A–3 to the
issuer’s audit committee. The Rule also would
impose on the issuer the obligation to promptly
notify Nasdaq after an executive officer of the issuer
becomes aware of any noncompliance by the issuer
with the requirements of the Rule 5600 series, such
as noncompliance with the audit committee
provisions that are required by Rule 10A–3 and set
forth in Rule 5605(c). Nasdaq also notes that NYSE
and NYSE American have adopted similar
exemptions for both companies that list only
preferred and debt securities. See Section 303A of
the NYSE Listed Company Manual; see also Section
801(g) of the NYSE American Company Guide.
Finally, Nasdaq notes that the foregoing proposal
would not apply to issuers of non-convertible bonds
that have equity securities listed on Nasdaq.
9 Specifically, Section 12(a) requires that, in order
for an exchange member, broker or dealer to effect
a transaction in a security on a national securities
exchange, a registration must be effective ‘‘as to
such security for such exchange.’’ See 15 U.S.C.
78(l)(a).
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things, the issuer is required to disclose
information about the organization,
financial structure, information about
the nature of the business, certain
information about the directors, officers
and underwriters, material contracts,
and balance sheets. As part of this
proposal, Nasdaq is requiring that the
issuer must currently list one class of an
equity security on either Nasdaq,10
NYSE, or NYSE American,11 and so
issuers may already disclose this
information in connection with the
listing of those securities. However,
Section 12(a) also requires issuers to
disclose information that is more
specific to the security to be listed and
traded on the Exchange, such as the
terms, position, rights, and privileges of
the different classes of securities
outstanding, and the terms on which the
issuer’s securities are to be, and during
the preceding three years have been,
offered to the public or otherwise. Given
this requirement, Nasdaq’s proposal
may increase the amount of information
about non-convertible bonds that will be
disclosed by the issuer than would
otherwise be the case.
Nasdaq proposes to amend Rule
5515(b)(4) to change references from the
American Stock Exchange to NYSE
American to reflect the name change of
that exchange.12
Nasdaq also proposes to amend the
definition of a ‘‘substitution listing
event’’ in Rule 5005 to include an
additional event related to the listing of
bonds. Specifically, Rule 5005(a)(40)
will include a change in the obligor of
a listed debt security as a ‘‘substitution
listing event.’’ A Substitution Listing
Event triggers certain reporting
requirements to the Exchange.13 Nasdaq
is proposing to make this change to both
convertible and non-convertible bonds,
10 For purposes of the listing requirement that the
non-convertible bond issuer also list a class of
equity securities on Nasdaq, the issuer may list an
equity security on the Nasdaq Capital Market, the
Nasdaq Global Market, or the Nasdaq Global Select
Market.
11 The Exchange notes that upon the effective date
of the proposal, it only expects to be capable of
listing and trading non-convertible bonds of issuers
that currently list equity securities on Nasdaq. The
Exchange expects to be ready to list and trade bonds
of issuers with equity securities listed on NYSE or
NYSE American by the Second Quarter of 2019.
The Exchange will issue a trader alert at least seven
days in advance of accepting applications to list
and trade bonds of issuers with equity securities
listed on NYSE or NYSE American.
The Exchange proposes to include language to
this effect in the rule text, which it will then
propose to remove after the Exchange begins listing
and trading non-convertible bonds of issuers with
equity securities listed on NYSE and NYSE
American.
12 See Securities Exchange Act Release No. 80283
(Mar. 21, 2017), 82 FR 15244 (Mar. 27, 2017) (SR–
NYSEMKT–2017–14).
13 See Rule 5250(e)(4).
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140.
convertible bonds, as it believes that the
proposed application fee will allow the
Exchange to adequately recoup the
expenses incurred by the Exchange in
processing an issuer’s application to list
those securities.
Nasdaq believes that this proposal
will improve the public debt market by
increasing transparency for nonconvertible bonds that are listed
pursuant to this proposal and the
orderliness of the market for those
securities. For example, Rule 5250(b)(1)
requires listed companies to, except in
unusual circumstances, disclose
promptly to the public through any
Regulation FD compliant method (or
combination of methods) any material
information that would reasonably be
expected to affect the value of their
securities or influence investors’
decisions.18 Nasdaq-listed companies
must notify Nasdaq’s MarketWatch
Department prior to the distribution of
certain material news at least ten
minutes prior to public announcement
of the news when the public release of
the information is made, from 7:00 a.m.
to 8:00 p.m. E.T. As set forth in IM–
5250–1, such events may include: (1)
Financial-related disclosures, including
quarterly or yearly earnings, earnings
restatements, pre-announcements or
guidance; (2) corporate reorganizations
and acquisitions, including mergers,
tender offers, asset transactions and
bankruptcies or receiverships; (3) new
products or discoveries, or
developments regarding customers or
suppliers (e.g., significant developments
in clinical or customer trials, and
receipt or cancellation of a material
contract or order); (4) senior
management changes of a material
nature or a change in control; (5)
resignation or termination of
independent auditors, or withdrawal of
a previously issued audit report; (6)
events regarding the Company’s
securities, such as defaults on senior
securities, calls of securities for
redemption, repurchase plans, stock
splits or changes in dividends, changes
to the rights of security holders, or
public or private sales of additional
securities; (7) significant legal or
regulatory developments; or (8) any
event requiring the filing of a Form
8–K.
Nasdaq’s MarketWatch Department
monitors real time trading in all Nasdaq
securities during the trading day for
price and volume activity. In the event
of certain price and volume movements,
15 See NYSE Listed Company Manual Section
902.08.
16 See NYSE American Company Guide Section
141.
17 See Section 902.08 of the NYSE Listed
Company Manual.
18 Nasdaq will determine compliance with the
listing requirements for non-convertible bonds
based upon information it receives directly from
issuers as well as data that it obtains from third
party data providers.
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as both types of securities could
potentially be subject to a change in the
obligor of that bond, which Nasdaq
believes should qualify as a substitution
listing event.
Nasdaq proposes to add fees in
connection with listing non-convertible
bonds. Specifically, Nasdaq proposes to
add Rule 5935 to impose a nonrefundable application fee of $5,000 to
list a class of non-convertible bonds
pursuant to Rule 5702. Nasdaq proposes
to waive this application fee if, in
connection with a company’s
application to list non-convertible
bonds on Nasdaq, the company will be
switching the listing market for such
bonds from NYSE or NYSE American to
Nasdaq. Nasdaq notes that NYSE
American imposes an initial listing fee
of $100 per $1 million principal amount
(or fraction thereof) for listed bonds,
with a minimum fee of $5,000 and a
maximum fee of $10,000,14 while NYSE
imposes an initial listing fee of $25,000
on all listed bonds of NYSE equity
issuers.15
Nasdaq also proposes to add an
annual fee in connection with listing
non-convertible bonds. Nasdaq proposes
to add Rule 5935(b) to state that the
issuer of each class of non-convertible
bonds listed pursuant to Rule 5702 shall
pay to Nasdaq an annual fee of $5,000.
Moreover, the proposed Rule states that
a company that switches its listing
market for its non-convertible bonds
from the New York Stock Exchange or
NYSE American to Nasdaq will not be
liable for the annual fee until January 1
of the calendar year following the
effective date of the non-convertible
bonds listing on Nasdaq. Nasdaq notes
that NYSE American assesses an annual
listing fee of $5,000 for listed bonds and
debentures of companies whose equity
securities are not listed on NYSE
American,16 while NYSE assesses an
annual listing fee of $25,000 for listed
bonds of NYSE equity issuers and
affiliated companies.17
Nasdaq also proposes to clarify rule
text relating to the listing fees for
convertible bonds. Specifically, Rule
5920(a)(2) specifies a fee of $1,000 or
$50 per million dollars face amount of
bonds outstanding, whichever is higher.
Nasdaq proposes to clarify that this is an
entry fee, and that it applies to
convertible bonds only. Nasdaq is not
charging an entry fee for non14 See
NYSE American Company Guide Section
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the MarketWatch Department may
contact a company in order to ascertain
the cause of the unusual market activity.
For non-convertible bonds that are
listed under this proposal, the issuer
will be required to comply with these
disclosure requirements and to update
Nasdaq accordingly on any material
information that would reasonably be
expected to affect the value of their
bonds or influence investors’ decisions.
Depending on the nature of the event
and the company’s views regarding the
business advisability of disclosing the
information, the MarketWatch
Department may work with the
company to accomplish a timely release
of the information. Furthermore,
depending on the materiality of the
information and the anticipated effect of
the information on the price of the
Company’s bonds, the MarketWatch
Department may advise the Company
that a temporary trading halt is
appropriate to allow for full
dissemination of the information and to
maintain an orderly market. For nonconvertible bonds that are listed on
Nasdaq pursuant to this proposal, a
trading halt will be initiated by the
Exchange, pursuant to proposed Rule
4000B(i). In these ways, Nasdaq believes
that the proposal will increase
transparency for bonds that are listed
pursuant to this proposal and the
orderliness of the market for those
bonds.19
Nasdaq also believes that this
proposal will benefit market
participants by making non-convertible
bonds more accessible to certain kinds
of investors. For example, in the
European Union, certain investors, such
as so-called UCITS investment funds,20
may generally only hold 10% of assets
in securities that are not listed on an
19 Nasdaq notes that it also proposes to amend
Rule 5250(e)(3) to require an issuer to provide at
least 10 calendar days advance notice to Nasdaq of
certain corporate actions relating to non-convertible
bonds listed on the Nasdaq Bond Exchange,
including redemptions (full or partial calls), tender
offers, changes in par value, and changes in
identifier (e.g., CUSIP number or symbol), by filing
the appropriate form as designated by Nasdaq.
These disclosures will aid the Listings Qualification
Department in assessing an issuer’s compliance
with the continuing listing standards set forth in
proposed Rule 5702.
20 UCITS (Undertakings for Collective Investment
in Transferable Securities) is a harmonized regime
throughout Europe for the management and sale of
mutual funds. A UCITS fund is essentially a mutual
fund based in the European Union that meets these
requirements and is therefore exempt from national
regulation in individual European countries. Under
UCITS III, a UCITS fund can invest in transferable
securities, such as listed and publicly traded
equities and bonds, deposits and money market
instruments, other mutual funds, and financial
derivative instruments, subject to diversification
requirements.
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exchange or other regulated market
meeting certain standards.
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Trading Rules
In conjunction with its proposal to
adopt rules to list non-convertible bonds
on Nasdaq, the Exchange also proposes
rules that will provide for the trading of
such listed bonds. The Exchange notes
that its proposed non-convertible bond
trading system—to be known as the
‘‘Nasdaq Bond Exchange’’—will offer
Members,21 at its inception, certain core
trading functionality that will be
competitive with NYSE Bonds.
However, the Exchange will reserve
more sophisticated and elaborate
functionality until such time as the
Exchange observes that a sufficient
demand exists for it.22
In many respects, the proposed
trading system and the proposed rules
that govern it are a pared down version
of the NYSE Bonds system and NYSE
Rule 86. That is, like NYSE Bonds, the
Nasdaq Bond Exchange will be an
electronic system for receiving,
processing, executing, and reporting
bids, offers and executions in bonds.
Like NYSE Bonds, the Nasdaq Bond
Exchange will display, match, and
execute buy and sell orders on a price/
time basis. The Exchange, like NYSE
and NYSE American, will also accept
good-for-day limit orders and fill-or-kill
orders, and it will trade bonds of issuers
that have at least one class of equity
securities listed on Nasdaq and NYSE or
NYSE American.23 However, at its
inception, the Nasdaq Bond Exchange
will not have—as does NYSE Bonds—
market makers, sponsored access,
auctions, price collars, or certain order
types (e.g., reserve orders, minimum
quantity orders, good-til-cancelled
orders, and timed orders). The Nasdaq
Bond Exchange also will have only one
trading session each day as opposed to
NYSE Bonds, which has three sessions.
Again, the Exchange may add such
features and functionalities to the
Nasdaq Bond Exchange in the future to
the extent that it determines that a
demand exists for them. The Exchange
observes that users of NYSE Bonds do
not appear to avail themselves of many
of these features and functionalities,
21 A ‘‘Member’’ means any registered broker or
dealer that has been admitted to membership in
Nasdaq. See Rule 0120(i).
22 The Nasdaq Bond Exchange will only trade
non-convertible bonds that are listed on Nasdaq.
23 As noted earlier, at the launch date of the
Nasdaq Bond Exchange, the Exchange expects that
the system will be only capable of trading bonds of
issuers that currently list equity securities on
Nasdaq. The Exchange expects to be ready to list
and trade bonds of issuers with equity securities
listed on NYSE or NYSE American by the Second
Quarter of 2019. See n.11, supra.
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such that the Exchange does not believe
that including them in the Nasdaq Bond
Exchange is necessary for it to compete
with NYSE Bonds.
Order Types
The proposed rules designate the
types of orders that could be entered
into the Nasdaq Bond Exchange.
Initially, Users 24 of the Nasdaq Bond
Exchange will be allowed to enter goodfor-day limit orders (‘‘Nasdaq Bond
Exchange Good for Day Limit Orders’’),
which are orders to buy or sell a stated
quantity of units of bonds at a specified
price or at a better price that, if not
executed or cancelled, will expire at the
end of the trading session on the day on
which they are entered. Users will also
be able to enter a Nasdaq Bond
Exchange Fill-or-Kill All-Or-None Order
(‘‘Nasdaq Bond Exchange FOK–AON
Order’’), which is an order that is to be
executed immediately in its entirety
against one or more contra parties at the
best price available, or if it is not
executed immediately in its entirety, it
is cancelled. All orders on the Nasdaq
Bond Exchange will be displayed and
will be anonymous. The Exchange will
file a proposed rule change with the
Commission and notify its members if
and when additional order types
become available for use.
Trading Units
The minimum unit of trading in the
Nasdaq Bond Exchange is one bond
unless the issuer otherwise specifies a
larger minimum unit of trading in the
bond indenture agreement. The Nasdaq
Bond Exchange will accept and display
bids and offers in bonds priced to three
decimal places, as per market standard.
Order Entry and Execution
To post an order in a particular bond
on the Nasdaq Bond Exchange, a User
will be required to enter certain basic
information including: CUSIP number,
order quantity, order type (i.e., Nasdaq
Bond Exchange Good for Day Limit
Order); price (up to three decimals); and
whether the order is buy or sell.
The Nasdaq Bond Exchange will be an
electronic order-driven matching
system. Nasdaq Bond Exchange orders
submitted by Users will be displayed,
matched, and executed on a price/time
priority basis. Orders that are
marketable at the time of entry will be
matched and executed. An order will be
marketable when it entered the Nasdaq
Bond Exchange system if contra side
interest is available at that price or a
24 Proposed
Rule 4000B defines a ‘‘User’’ as any
Nasdaq Member that has elected, pursuant to the
process described below, to receive access to the
Nasdaq Bond Exchange.
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better price. Nasdaq Bond Exchange
Good for Day Limit Orders that are not
marketable at the time of entry would
post to the Nasdaq Bond Exchange order
‘‘book.’’
The Nasdaq Bond Exchange will
provide an exception to its normal
price/time system to allow Users to
avoid internalizing orders. Users may be
interested in self-match prevention in
order to run multiple strategies at once
that may sit on opposite sides of the
book. Pursuant to the proposed Rule
4000B(h)(1)(C), which the Exchange
adapts from Nasdaq Rule 4757(a)(4),
Nasdaq will permit Users to direct that
orders entered into the Nasdaq Bond
Exchange will not execute against
orders entered under the same MPID. In
addition, the proposed Rule provides
that Users using the FIX order entry
protocol (discussed below) may assign
to orders entered through a specific
order entry port a unique group
identification modifier that will prevent
orders with such modifier from
executing against each other. In such a
case, the proposed Rule states that a
User may elect from the following
options: (i) Regardless of the size of the
interacting orders, cancelling the oldest
order in full; or (ii) regardless of the size
of the interacting orders, cancelling the
most recent of the orders in full. The
foregoing options may be applied to all
orders entered through a specific order
entry port.
An order designated for execution in
the Bond Trading Session may be
cancelled at any time as long as the
order had not been executed.
The Exchange will charge no fees for
posting orders or executing trades on
the Nasdaq Bond Exchange. If the
Exchange decides to charge any such
fees in the future, then the Exchange
will submit a rule filing proposal to that
effect to the Commission.
Clearing
Most orders matched on the Nasdaq
Bond Exchange will be locked-in trades
and will be submitted without an
omnibus account to the National
Securities Clearing Corporation using
Universal Trade Capture and then to the
Depository Trust Company (‘‘DTC’’) for
clearance and settlement. Settlement of
corporate bond trades will be consistent
with current convention, i.e., two day
settlement. Bonds that are not eligible
for settlement at DTC will be settled
manually (‘‘ex-clearing’’) between the
two counterparties.
Bond Trading Session
The Nasdaq Bond Exchange would
have one trading session per trading day
from 8:30 a.m. until 4:00 p.m. E.T. (the
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‘‘Bond Trading Session’’). There will be
no pre-market or post-market session.
Instead, the Nasdaq Bond Exchange will
immediately start processing orders as
they are entered upon opening. Orders
submitted outside of the Bond Trading
Session will not be accepted.
Clearly Erroneous Executions
Bond trades on the Nasdaq Bond
Exchange would be made subject to
Exchange Rule 11890, which governs
the process for addressing clearly
erroneous trades. Within the context of
bond trading on the Nasdaq Bond
Exchange, a ‘‘clearly erroneous
execution’’ will be one where there is an
obvious error in any term, such as price,
unit of trading, or identification of the
bond.’’ 25 A User that receives an
erroneous execution may request the
Exchange review the transaction or the
President of the Exchange, a senior level
employee thereof, or a designated officer
(a ‘‘Senior Official’’) may review an
execution on their own initiative. A
request for review of an execution must
include certain information, including
in pertinent part, information
concerning the time of the transaction,
security symbol, number of bonds,
price, and factual basis for believing that
the trade is clearly erroneous.26 The
request for review would have to be
submitted within 30 minutes of the
trade in question.27 The other party (or
parties) to the trade will be notified of
the request for review.28 Thereafter, an
Exchange official would review the
transaction and would make a
determination as to whether it was
clearly erroneous.29 The reviewer could
make this determination with or
without supporting documentation from
any party to the transaction.30 Pursuant
to proposed Rule 11890(a)(2)(C)(4),
determinations of a clearly erroneous
execution will be made on a case-bycase basis, considering factors that
include, but are not limited to, the
following: (i) Execution price; (ii)
volume and volatility of a bond; (iii)
news released for the issuer or the bond
and/or the related equity security; (iv)
trading halts; (v) corporate actions; (vi)
general market conditions; (vii) the
rating of the bond; (viii) interest and/or
coupon rate; (ix) maturity date; (x) yield
curves; (xi) prior print, if available
within a reasonable time frame; (xii)
executions inconsistent with the trading
pattern of a bond; (xiii) current day’s
25 See
proposed Rule 4000B(b)(2)(C).
26 See Rule 11890(a)(2).
27 See id.
28 See id.
29 See id.
30 See id.
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trading high/low; (xiv) recent day’s and
week’s trading high/low; (xv) executions
outside the 52 week high/low; (xvi)
effect of a single large order creating
several prints at various prices; and
(xvii) quotes and executions of other
market centers.31
If the reviewer determines that the
execution was not clearly erroneous,
then no corrective action will be taken
in relation to the transaction. If the
reviewer determines that the transaction
were clearly erroneous, the transaction
will be deemed null and void.32 If one
party does not agree with the
determination, then that party may
request further review or an appeal to
the Nasdaq Review Council pursuant to
the procedures set forth in Rule
11890(c). Depending on the outcome of
the appeal, the transaction would either
remain unchanged or be deemed null
and void.33
Nasdaq Bond Exchange System
Disruption or Malfunction or Equipment
Changeover
Rule 11890(b) further provides that, in
the event of any system disruption,
malfunction, or equipment changeover
in the Nasdaq Bond Exchange trading
facility, a Senior Official may, without
the need for a request for review, review
transactions affected by a system
disruption, malfunction, or equipment
changeover and decide if any
transactions are erroneous.34 In such
situations, the Senior Official could
declare the transaction to be unchanged
or null and void, appropriate.35 The
Rule also provides that, absent
extraordinary circumstances, any such
action of the Senior Official shall be
taken within 30 minutes of detection of
the system disruption, malfunction, or
equipment changeover, or an erroneous
transaction resulting from such system
31 The criteria to be used to determine clearly
erroneous executions of non-convertible bonds,
which are set forth in proposed Rule
11890(a)(2)(C)(4), are in lieu of the criteria presently
used to determine clearly erroneous executions of
equity securities, which are set forth in Rule
11890(a)(2)(C)(1)–(C)(3).
32 See Rule 11890(a)(2)(B).
33 The Exchange notes that, pursuant to Article VI
of the By-Laws of the Nasdaq Stock Market, LLC,
at least 20 percent of the Nasdaq Review Council
must consist of representatives of Members of the
Exchange. Although the By-Laws do not specify any
specific categories of Members that must be
represented on the Review Council, the Exchange
expects that the existing Member representatives
will adequately represent the interests of Users in
appeals of clearly erroneous determinations. If it
becomes apparent to the Exchange that roster of the
Nasdaq Review Council does not adequately
represent the interests of Users, then it will, at the
appropriate time, consider nominating one or more
Users to the Council.
34 See Rule 11890(b)(i).
35 See id.
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45293
problem.36 If an erroneous transaction
occurred as a result of a system
disruption, system malfunction, or
equipment changeover, each party to the
erroneous transaction will be notified of
the situation and the specific action as
soon as practicable.37 Thereafter, the
User aggrieved by the action could
appeal such action.38
Halting and Suspending Bond Trading
on the Exchange
Proposed Rule 4000B(i)(1) provides
that the Exchange may halt or suspend
trading in non-convertible bonds listed
on the Nasdaq Bond Exchange when: (1)
In the Exchange’s regulatory capacity, it
is necessary or appropriate to maintain
a fair and orderly market, to protect
investors, or is in the public interest,
due to extraordinary circumstances or
unusual market conditions; (2) a class of
equity that is issued by the same issuer
as the non-convertible bond has been
halted or suspended by, or de-listed
from, the Exchange or by its primary
listing market (NYSE or NYSE
American), as applicable, for regulatory
purposes; (3) news reports have a
material impact on a non-convertible
bond, its issuer, or related stock of its
issuer; or (4) the non-convertible bond
is to be called for redemption or will
mature or become subject to retirement,
and thereafter it will be subject to delisting, in which case the Exchange shall
cease trading the non-convertible bond,
effective not less than 10 days before the
date when such de-listing becomes
effective, pursuant to a de-listing
application that the Exchange submits
to the Commission on Form 25 and
consistent with SEC Rule 12d2–2 39 and
the Act.
Pursuant to proposed Rule
4000B(i)(2), when bond trading is halted
under any of the circumstance described
above, a halt message at the beginning
and end of the halt will be disseminated
to all Nasdaq Bond Market Users. This
trading halt will be referred to as a
‘‘Bond Halt.’’ 40 Upon commencement of
a Bond Halt, all pending orders in the
Nasdaq Bond Exchange will be
cancelled.41 The Nasdaq Bond Exchange
will resume accepting orders and
trading once the Exchange declares an
end to a Bond Halt.42
Dissemination of Trading Information
The Exchange proposes to publicly
disseminate a real-time bond data feed,
36 See
id.
id.
38 See id.
39 See 17 CFR 240.12d2–2.
40 See Rule 4000B(i)(2).
41 See Id.
42 See Id.
37 See
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which will be referred to as ‘‘Nasdaq
Corporates Totalview.’’ 43 The Nasdaq
Corporates Totalview data feed would
reflect all orders in time sequence in the
Nasdaq Bond Exchange order ‘‘book.’’
Because the Nasdaq Bond Exchange will
be a purely order-driven system, the
Exchange would not disseminate any
information on a particular bond if there
are no orders posted in the ‘‘book’’ for
such bond. In addition to the Nasdaq
Bond Exchange order ‘‘book,’’ the data
feed also would include the last sale
price as executions occur. The Nasdaq
Corporates Totalview data feed will be
available on a standalone basis free of
charge to market participants, thirdparty data vendors, and other interested
parties who request access and agree to
the Exchange’s terms. If the Exchange
decides to establish fees for the Nasdaq
Corporates Totalview product at a later
date, it will submit a separate rule filing.
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Access to the Nasdaq Bond Exchange
System
Only Members of the Exchange that
have entered into a written service
agreement with the Exchange (i.e., the
‘‘Nasdaq U.S. Services Agreement’’) and
that elect to receive access to the Nasdaq
Bond Exchange on their Member
application form, will be duly
authorized Users that may receive such
access. Existing Members of the
Exchange will not be required to amend
their Nasdaq U.S. Services Agreements
to become Users and obtain access to
the Nasdaq Bond Exchange; instead,
existing Members simply will be
required to complete a form, attached
hereto as Exhibit 3 [sic], that indicates
their interest in becoming Users and
obtaining access.
Users of the Nasdaq Bond Exchange
will gain access to the system via direct
or indirect electronic linkages utilizing
the Financial Information Exchange or
‘‘FIX’’ protocol. The FIX protocol is
already used and widely accepted by
Nasdaq market participants and will be
used by the Nasdaq Bond Exchange
Users for order entry, modification and
cancellation, and message transmittal
for all non-convertible bonds traded
through the Nasdaq Bond Exchange. All
of the communications protocols will be
publicly available to allow Users and
service bureaus to develop their own
front-end software. Users will have the
ability to establish connectivity to the
43 Pursuant to FINRA Rule 6730(e)(2),
transactions on the Nasdaq Bond Exchange need
not be reported to FINRA’s Trade Reporting and
Compliance Engine because only bonds listed on
Nasdaq, a national securities exchange, may be
traded on the Bond Exchange, and because bond
transaction information will be disseminated
publicly.
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Nasdaq Bond Exchange directly or
through third-party connectivity
providers, including a range of extranets
and service bureaus, as set forth in
General 8 of the Nasdaq Rules.44 The
Exchange will not charge any fees for
FIX port connectivity to the Nasdaq
Bond Exchange or for connectivity to
the Bond Exchange’s disaster recovery
system.45
Reports and Recordkeeping
Users of the Nasdaq Bond Exchange
would have to comply with all relevant
rules of the Exchange and the
Commission in relation to reports and
recordkeeping of transactions on the
Nasdaq Bond Exchange, including Rules
17a–3 and 17a–4 under the Act.46
Regulation
The Exchange will leverage its
existing infrastructure to operate a
national securities exchange in
compliance with Section 6 of the
Exchange Act, and Section 6(b)(7) in
particular,47 to regulate its nonconvertible bonds trading business and
to enforce compliance with its Rules.
Nasdaq’s existing disciplinary rules and
processes, set forth in its Rule 8000 and
9000 Series, will govern the discipline
of Members that participate in corporate
bond trading, just as it does for equities
regulation, and Nasdaq will perform
bond listing regulation as well as realtime surveillance of bond trading as it
does today for equities.
In particular, MarketWatch will
perform real-time surveillance of the
Nasdaq Bond Exchange for the purpose
of maintaining a fair and orderly market
at all times. As it does with Nasdaq’s
equities trading, MarketWatch will
monitor trading on the Nasdaq Bond
Exchange market on a real-time basis to
identify unusual trading patterns and
determine whether particular trading
activity requires further regulatory
investigation. In addition, Nasdaq
Regulation will oversee the process for
determining and implementing trade
44 The Exchange notes that Users that already
purchase FIX port connectivity to the Nasdaq Stock
Exchange will need to obtain one or more
additional FIX ports to connect to the Nasdaq Bond
Exchange.
45 Separately from port connectivity, the
Exchange notes that Users will need to establish
physical connections to the Nasdaq Bond Exchange,
as set forth in General 8 of the Nasdaq Rules. To
the extent that a User already purchases physical
connectivity to the Nasdaq Stock Exchange, that
purchase will also provide for the User to connect
to the Nasdaq Bond Exchange, such that the User
will incur no additional fee for the new connection.
New Users that do not already purchase physical
connectivity to Nasdaq will need to do so, pursuant
to General 8 of the Nasdaq Rules.
46 17 CFR 240.17a–3 and 240.17a–4.
47 15 U.S.C. 78f(b)(7).
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halts and identifying and responding to
unusual market conditions.
System Information
The Nasdaq Bond Exchange will
operate out of the same data center in
Carteret, New Jersey as does the Nasdaq
Stock Market and other exchanges
owned by Nasdaq, Inc., but it will use
equipment that is separate from the
equipment used by those exchanges. In
addition, the Nasdaq Bond Exchange
will have a backup data center that will
be geographically diverse from the
Carteret data center and that will be
designed to resume operations of the
Nasdaq Bond Exchange, in the event of
a system failure, in accordance with the
requirements of Regulation Systems
Compliance and Integrity.48 The Nasdaq
Bond Exchange will use Nasdaq’s
flexible INET technology, which is
easily scalable to higher volumes
through the addition of more equipment
in the data center. The Nasdaq Bond
Exchange will be protected from
unauthorized access through the same
robust firewall protection already in use
at Nasdaq, Inc.’s data centers.
Applicability of Section 11(a) and (b) of
the Act
Section 11(a) of the Act 49 prohibits a
member of a national securities
exchange from effecting transactions on
that exchange for its own account, the
account of an associated person, or an
account over which it or its associated
person exercises investment discretion,
unless an exception applies. This
general prohibition would not impact
trading on the Nasdaq Bond Exchange
because Rule 11a1–4(T) under the Act 50
deems transactions in bonds on a
national securities exchange for a
member’s own account to be consistent
with Section 11(a). Similarly, Section
11(b) of the Act51 and Rule 11b–1
thereunder,52 which pertain to
specialists and market-makers, would
not be implicated because there will be
no specialists or market makers on the
Nasdaq Bond Exchange.
2. Statutory Basis
Nasdaq believes that its proposal is
consistent with Section 6(b) of the Act 53
in general, and furthers the objectives of
Sections 6(b)(4), (b)(5), and (b)(7) of the
Act,54 in particular. As discussed below,
Nasdaq believes the proposal is
consistent with Section 6(b)(4) of the
48 See
17 CFR 242.1001, .1004.
U.S.C. 78k(a).
50 17 CFR 240.11a1–4(T).
51 15 U.S.C. 78k(b).
52 17 CFR 240.11b–1.
53 15 U.S.C. 78f(b).
54 15 U.S.C. 78f(b)(4), (5), and (7).
49 15
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Act 55 in that it provides for the
equitable allocation of reasonable dues,
fees, and other charges, and that it is
consistent with Section 6(b)(5) of the
Act 56 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, and are not designed to
permit unfair discrimination. Finally,
the Exchange believes that the proposal
is consistent with Section 6(b)(7) of the
Act 57 in that it provides a fair procedure
of discipline for those listing and
trading non-convertible bonds on
Nasdaq.
Listing Rules
The Exchange believes that its
proposal to list non-convertible bonds
will improve the quality of the public
market for bonds by improving the
transparency and the orderliness of the
market. As discussed above, an issuer
that lists bonds pursuant to this
proposal will be required to disclose
any material information that would
reasonably be expected to affect the
value of their securities or influence
investors’ decisions, except in unusual
circumstances.58 Through this
requirement, Nasdaq will be able to
evaluate such disclosure to determine if,
among other things, a Bond Halt should
be declared for that security.59 This
proposal, in connection with Nasdaq’s
proposal to trade such bonds, would
also increase the amount of bondspecific information that would
disclosed by issuers in fulfillment of the
requirements of Section 12 of the Act.
Nasdaq also believes that its proposed
listing standards are consistent with the
Act. Nasdaq notes that its proposed
55 15
U.S.C. 78f(b)(4).
U.S.C. 78f(b)(5).
57 15 U.S.C. 78f(b)(7).
58 As noted above, Nasdaq proposes to amend
Rule 5250(e)(3) to require an issuer to provide at
least 10 calendar days advance notice to Nasdaq of
certain corporate actions relating to non-convertible
bonds listed on the Nasdaq Bond Exchange,
including redemptions (full or partial calls), tender
offers, changes in par value, and changes in
identifier (e.g., CUSIP number or symbol), by filing
the appropriate form as designated by Nasdaq. This
proposal is consistent with the Act because it aid
the Listings Qualification Department in assessing
an issuer’s compliance with the continuing listing
standards set forth in proposed Rule 5702.
59 Nasdaq is limiting this proposal to an issuer
that is currently listing one class of an equity
security on either Nasdaq, NYSE, or NYSE
American. While the issuer may be required to
make similar disclosures in connection with its
listed equity security, Nasdaq may not receive such
disclosures if the listing venue for that equity
security is NYSE or NYSE American. As such, this
proposal provides the Exchange with additional
information related to listed companies that it may
otherwise not possess.
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initial listing standards, set forth in Rule
5702(a)—which require a minimum
principal amount outstanding of the
non-convertible bond or a market value
of at least $5 million and the issuer of
the non-convertible bond also having a
class of equity listed on Nasdaq, NYSE,
or NYSE American—are similar to the
initial listing requirements for bonds
listed on NYSE and NYSE American.
Similarly, the continued listing
requirement under Rule 5702(b)(1) that
a non-convertible bond maintain a
market value or principal amount of
bonds outstanding of at least $400,000
is similar to the listing requirement for
bonds imposed by NYSE American.
Nasdaq notes that, pursuant to Rule
5702(b)(2), an issuer would also be
required to meet its obligations on the
listed non-convertible bonds, and that
Nasdaq would initiate proceedings
immediately under Rule 5810
(Notification of Deficiency by the
Listing Qualifications Department) if the
issuer were unable to meet its
obligations on its non-convertible
bonds. Nasdaq believes that it is
consistent with the Act to immediately
institute immediate de-listing
proceedings in this instance, rather than
to first afford the issuer a time period
during which it may regain compliance
(i.e., the 180 calendar day period it
proposes to provide when a bond fails
to meet the quantitative requirements
under Rule 5702(b)(1)) because a
violation of a covenant, a default on
interest payments, or another failure of
an issuer to meet its obligations under
a bond indenture, constitutes a breach
of an issuer’s legal obligations to
bondholders, and signals that a bond is
not appropriate for continued listing on
the Exchange.
Nasdaq also believes that the change
to the definition of a ‘‘substitution
listing event’’ to include a change in the
obligor of a listed non-convertible bond
is consistent with the Act. Nasdaq is
proposing to make this change to both
convertible and non-convertible bonds,
as both types of securities could
potentially be subject to a change in the
obligor of that bond, which Nasdaq
believes should qualify as a substitution
listing event.
Likewise, it is consistent with the Act
to amend Rule 5515(b)(4) to change
existing references from the American
Stock Exchange to NYSE American to
ensure that our Rules regarding
convertible debt are current and
accurate with respect to the names of
the exchanges they reference.
Nasdaq believes that the proposed
rule change is consistent with Section
6(b)(4) in that it provides for the
equitable allocation of reasonable dues,
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45295
fees, and other charges among its
members, issuers and other persons
using its facilities. The proposed $5,000
application fee and $5,000 annual fee
will be equally applicable to any issuer
seeking to list non-convertible bonds on
Nasdaq, other than for those issuers that
propose to switch their listings from
NYSE or NYSE American to Nasdaq.
Nasdaq’s proposal to waive the
application fee and the first year’s
annual fee for issuers that switch their
listings to Nasdaq from NYSE or NYSE
American is reasonable and equitable
because such fees will otherwise serve
as disincentives for issuers to switch
their listings, particularly if they have
already paid their annual fees to NYSE
or NYSE American for the year in which
a switch would otherwise occur.60 The
waiver of the application fee is also
equitable because it is Nasdaq’s
experience that less work is required to
process a listing application for a
security that is already listed on another
exchange than it is to process an
application for listing a new security.
The application and annual fees are also
reasonable and equitable because they
will support Nasdaq’s regulatory
program to review and qualify debt
issuances for listing.
The proposed application and annual
fees are competitive with the initial and
annual fees that are currently assessed
by NYSE and NYSE American for the
listing of bonds.61
Nasdaq also notes that the proposed
$5,000 initial listing fee is the same as
the application fee it charges for
convertible bonds. However, Nasdaq
will not charge an entry fee (as it does
for convertible bonds under the
60 Nasdaq notes that it presently waives entry fees
for listing equity securities that transfer to Nasdaq
from another national security exchange. See Rule
5910(a)(7)(i) (Nasdaq Global and Global Select
Markets); Rule 5920(a)(7)(i) (Nasdaq Capital
Market); Rule 5940(a)(5)(i)(Exchange Traded
Products). It also waives a portion of the annual fee
for securities whose listings transfer from a national
securities exchange to Nasdaq on an exclusive
basis. See IM–5900–4. Nasdaq’s rationale for
employing waivers in those instances is similar to
that which Nasdaq asserts for its corporate bond
listing programs. See, e.g., Securities Exchange Act
Release No. 34–70418 (Sept. 16, 2013), 78 FR 57909
(Sept. 20, 2013) (SR–NASDAQ–2013–115).
61 NYSE American charges an initial listing fee for
bonds of $100 per $1 million principal amount (or
fraction thereof) with a minimum fee of $5,000 and
a maximum fee of $10,000. NYSE American also
charges an annual fee of $5,000 for listed bonds and
debentures of companies whose equity securities
are not listed on NYSE American. See NYSE
American Listed Company Guide Sections 140 and
141. Meanwhile, NYSE charges an initial listing fee
of $25,000 and an annual fee of $25,000 for listed
debt of NYSE equity issuers and an initial listing
fee of $45,000 and an annual listing fee of $45,000
for listed debt of non-NYSE equity issuers. See
Section 902.08 of the NYSE Listed Company
Manual.
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proposed amendment to Rule
5920(a)(2)) because Nasdaq believes that
the proposed application fee will allow
the Exchange to adequately recoup its
expenses incurred in processing an
issuer’s application to list those bonds.
Nasdaq proposes a flat $5,000 annual
fee for non-convertible bonds in lieu of
the variable annual fee that Nasdaq
charges to issuers of convertible bonds
($500 or $25 per million dollars face
amount of debentures outstanding,
whichever is greater, pursuant to Rule
5920(c)(B)(2)) because the Exchange
believes that issuers will prefer the
simplicity and predictability of a flat
fee. Moreover, the Exchange expects to
list large issuances of non-convertible
bonds, in which cases the annual fees
for such bonds will be comparable to, if
not lower than, the annual fees that
Nasdaq charges for convertible bonds.
These proposed listing fees for nonconvertible bonds are lower than
Nasdaq’s initial and annual fees for
equity securities, which range from
$50,000—$75,000 for initial listing of
equity securities, and from $32,000—
$45,000 for annual listing of equity
securities.62 Nasdaq competes for the
listing of securities, including bonds,
with NYSE and NYSE American, and
the differential between its proposed
listing fees for non-convertible bonds
and its current listing fees for equity
securities is similar to the differential
for listing debt and equity securities on
NYSE American.63
Nasdaq also believes that the
proposed listing rules are consistent
with Section 6(b)(5) of the Act 64 in that
they serve the interests of the public and
investors by facilitating competition in
the market for listing corporate nonconvertible bonds. The proposed listing
rules also are similar to those of NYSE
and NYSE American, which the
Commission has recognized as being
equitable and adequately protective of
the public interest. Furthermore, the
Exchange believes that the proposed
listing fees are equitable for the reasons
set forth above. Meanwhile, the
proposed waivers of application and
first year annual fees for listings of nonconvertible bonds that switch to Nasdaq
from NYSE or NYSE American are not
unfairly discriminatory because, in
absence of such waivers, issuers that
have already paid such fees to list their
bonds on another exchange would have
a significant disincentive to switch their
62 See
Rule 5920(a)–(c).
e.g. NYSE American Listed Company
Guide Sections 140 and 141 (NYSE American
charges an initial listing fee for common stock that
ranges from $50,000–$75,000 and an annual fee of
between $40,000 and $50,000).
64 15 U.S.C. 78f(b)(5).
63 See,
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16:56 Sep 05, 2018
Jkt 244001
listing to Nasdaq as they would be
required to pay twice for similar listing
services. The proposed waiver of the
application fee for bonds that switch to
Nasdaq from another exchange is fair
because it reflects the fact that less work
is required by Nasdaq to process such
applications than is required to process
applications for newly-listed securities.
Finally, as is discussed above, Nasdaq
already employs similar fee waivers for
listings of equity securities and
exchange traded products.65
Finally, Nasdaq notes that it will
apply the surveillance and enforcement
infrastructure that it utilizes for listings
on its other markets to ensure that
issuers comply with initial and
continuing listing requirements for nonconvertible corporate bonds and that the
Exchange will take fair and appropriate
action under the Nasdaq Rule 5800
Series to address violations of those
listing Rules.
Trading Rules
Nasdaq’s proposal to establish the
Nasdaq Bond Exchange system to trade
non-convertible corporate bonds listed
on Nasdaq is also consistent with the
Act. Nasdaq has designed the Nasdaq
Bond Exchange to operate in accordance
with the Act, the applicable rules of the
Commission and of the Exchange, and
the high standards that Nasdaq believes
to be in evidence at all of Nasdaq, Inc.’s
exchanges. The proposal will offer Users
opportunities to trade non-convertible
bonds through a fair, open, and wellregulated market. The proposal will
promote the interests of the public and
investors by providing for the entry into
the marketplace of a new exchange
venue for trading non-convertible
corporate bonds. Such bonds presently
are tradeable, other than on an over-thecounter basis, only on NYSE and NYSE
American. The Nasdaq Bond Exchange
will introduce competition into this
space, and that competition will spur
innovation, which in turn will benefit
issuers, traders, and investors alike.
The Nasdaq Bond Exchange is also
designed to be a free, open, and fair
marketplace. All Nasdaq Members will
be eligible to become Users simply by
electing to receive access. Moreover,
Nasdaq proposes simple and
straightforward rules to govern the
operation of the Bond Exchange,
including a familiar price-time
allocation methodology, two basic order
types, a single Bond Trading Session
with no after-hours trading, and market
data feed that will be disseminated, for
free, to any member of the public that
requests it and agrees to the Exchange’s
65 See
PO 00000
66 See Securities Exchange Act Release No. 34–
55496 (Mar. 20, 2007), 72 FR 14631 (Mar. 28, 2007).
n.60, supra.
Frm 00091
Fmt 4703
terms and conditions of use. At the
same time, the proposal will also
include provisions that are endemic to
orderly and well-regulated markets,
including authority to impose trading
halts and suspensions, in appropriate
circumstances, and to unwind clearly
erroneous trades pursuant to established
procedures under Nasdaq Rule 11890
and bond-specific criteria adapted from
NYSE Rule 86.
Nasdaq will also leverage the conduct
rules, surveillance technology, and
enforcement infrastructure that it
utilizes with respect to its other markets
to ensure that the Nasdaq Bond
Exchange operates in a fair and orderly
fashion and that Nasdaq prevents,
detects, and addresses fraudulent and
manipulative acts and practices. For
example, Nasdaq’s MarketWatch
Department will surveil the market and
employ its SMARTS technology to
detect suspicious or non-compliant
behavior. Nasdaq’s existing disciplinary
rules, as set forth in the Nasdaq Rule
8000 and 9000 Series, will apply to
Users of the Nasdaq Bond Exchange,
and Nasdaq’s Regulation Department
will, pursuant to these disciplinary
rules, investigate and take fair and
appropriate enforcement action to
address violations of rules relevant to
trading on the Nasdaq Bond Exchange
or the conduct of Users.
Moreover, the proposal provides for
the equitable allocation of reasonable
dues, fees, and other charges among its
members, issuers and other persons
using its facilities. Nasdaq will charge
no fees to trade non-convertible bonds
on the Nasdaq Bond Exchange, to obtain
the FIX ports that are necessary to
connect to the Nasdaq Bond Market, or
to receive the Nasdaq Corporates
Totalview data feed product.
Additionally, to the extent that a User
already purchases physical connectivity
to Nasdaq pursuant to General 8,
Sections 1 and 2 of the Nasdaq Rules,
such a User could utilize its existing
connectivity to connect to the Bond
Exchange without any incurring
additional fees to do so.
Finally, Nasdaq notes that it has
designed the Nasdaq Bond Exchange
system to facilitate transactions in
corporate bonds in a manner that is
similar to, and competitive with, the
existing NYSE Bonds trading system.
The Commission has already deemed
the design of NYSE Bonds to be
consistent with the Act.66 Indeed, much
of the language in proposed Rule 4000B,
which will govern the Nasdaq Bond
Exchange, is adapted from NYSE Rule
Sfmt 4703
E:\FR\FM\06SEN1.SGM
06SEN1
Federal Register / Vol. 83, No. 173 / Thursday, September 6, 2018 / Notices
daltland on DSKBBV9HB2PROD with NOTICES
86, which governs NYSE Bonds. That is,
like NYSE Bonds, the Nasdaq Bond
Exchange will be an electronic system
for receiving, processing, executing, and
reporting bids, offers and executions in
bonds. Like NYSE Bonds, the Nasdaq
Bond Exchange will display, match and
execute buy and sell orders on a price/
time basis. The Exchange, like NYSE,
will also accept good-for-day limit
orders and kill-or-fill orders, and it will
trade bonds of issuers that have at least
one class of equity securities listed on
Nasdaq, NYSE, or NYSE American.67
To the extent that the Nasdaq Bond
Exchange will differ from NYSE Bonds,
these differences will render the Nasdaq
Bond Exchange simpler than NYSE
Bonds. At its inception, the Nasdaq
Bond Exchange will not have—as does
NYSE Bonds—market makers,
sponsored access, auctions, price
collars, or certain order types (e.g.,
reserve orders, minimum quantity
orders, good-til-cancelled orders, and
timed orders). The Nasdaq Bond
Exchange also will have only one
trading session each day as opposed to
NYSE Bonds, which has three sessions.
Although the Nasdaq Bond Exchange
will initially lack these features of NYSE
Bonds, Nasdaq believes that the
platform nevertheless will have the
features it needs to compete effectively
with NYSE Bonds. The Exchange
observes that Users of NYSE Bonds do
not appear to avail themselves of many
of its features and functionalities, such
that the Exchange does not believe that
the Nasdaq Bond Exchange needs these
features and functionalities to compete
with NYSE Bonds. In any event, the
Exchange is committed to adding new
features to the Nasdaq Bond Exchange
in the future to the extent that Nasdaq
determines that a demand exists for
those features and that adding them will
help the Nasdaq Bond Exchange
compete successfully in the
marketplace.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. Rather, the
proposed rule change will promote
competition among exchanges by
allowing Nasdaq to list and trade nonconvertible bonds, which can currently
be listed only on NYSE and NYSE
American. The proposals will have the
pro-competitive effect of spurring
further initiative and innovation among
market centers and market participants.
67 See
n.11, supra.
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16:56 Sep 05, 2018
Jkt 244001
Nasdaq notes that its proposed listing
standards are consistent with the
standards for initial and continued
listing of bonds on NYSE and NYSE
American. If issuers are unsatisfied with
Nasdaq’s listing program or the fees
charged for that program, these issuers
can choose to list on these other
markets.
Likewise, the Exchange notes that its
proposed system for trading nonconvertible bonds listed on Nasdaq—the
Nasdaq Bond Exchange—will be
competitive with NYSE Bonds.
Although initially, the Nasdaq Bond
Exchange will have more limited
functionality than does NYSE Bonds,
including with respect to order types,
auctions, the number of trading
sessions, and the use of market makers,
the Exchange believes that the Nasdaq
Bond Exchange will be competitive with
NYSE Bonds because the Exchange has
incorporated into the Nasdaq Bond
Exchange those features of NYSE Bonds
that its Users actually want and need
when trading bonds and it excluded
those they do not actually utilize. That
said, the Exchange will add additional
functionality and features to the Nasdaq
Bond Exchange as demand warrants it
to do so and to the extent that the
Exchange deems it necessary to remain
competitive with NYSE Bonds.
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
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
shall: (a) By order approve or
disapprove such proposed rule change,
or (b) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
PO 00000
Frm 00092
Fmt 4703
Sfmt 9990
45297
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–2018–070 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–2018–070. 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 the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
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–2018–070 and
should be submitted on or before
September 27, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.68
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–19239 Filed 9–5–18; 8:45 am]
BILLING CODE 8011–01–P
68 17
E:\FR\FM\06SEN1.SGM
CFR 200.30–3(a)(12).
06SEN1
]]>Agencies
[Federal Register Volume 83, Number 173 (Thursday, September 6, 2018)]
[Notices]
[Pages 45289-45297]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-19239]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84001; File No. SR-NASDAQ-2018-070]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To List and Trade Corporate
Non-Convertible Bonds on Nasdaq
August 30, 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 27, 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 and II 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt listing and trading requirements and
fees for non-convertible corporate bonds.
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
Nasdaq is amending its rules to permit the initial and continued
listing of and trading of non-convertible corporate debt securities
(referred to herein as ``bonds'' or ``non-convertible bonds'') on
Nasdaq and to establish fees for listing those bonds. While Nasdaq
rules currently provide for the initial and continued listing of
convertible bonds, Nasdaq believes that there may be a demand from
certain types of investors for Exchange-listed non-convertible bonds.
Nasdaq also believes that this proposal will improve the public market
for non-convertible bonds by promoting the fair and orderly operation
of that market and by increasing the transparency of that market for
securities that are listed pursuant to this proposal. Nasdaq is
therefore amending the relevant listing and trading rules accordingly.
Listing Rules
First, Nasdaq proposes to adopt Rule 5702 to permit the initial
listing of non-convertible bonds. For non-convertible bonds, Nasdaq
proposes to require a minimum principal amount outstanding or market
value of at least $5 million, instead of the minimum $10 million
principal amount outstanding required for convertible debt under Rule
5515(b). Nasdaq notes that this requirement is the same as the initial
listing requirement for bonds on the New York Stock Exchange LLC
(``NYSE'') and NYSE American LLC (``NYSE American''), which both
require that the debt issue have an aggregate market value or principal
amount of no less than $5 million.\3\
---------------------------------------------------------------------------
\3\ See Section 102.03 of the NYSE Listed Company Manual and
Section 104 of the NYSE American Company Guide.
---------------------------------------------------------------------------
[[Page 45290]]
In addition to Rule 5702(a)(1), Nasdaq also proposes to require
satisfaction of the condition set forth in Rule 5702(a)(2) for non-
convertible bonds to be eligible for listing on the Exchange. This
condition is that the issuer of the bond must have one class of equity
security that is listed on Nasdaq, NYSE, or NYSE American. This
condition is similar to one that NYSE and NYSE American impose.\4\
---------------------------------------------------------------------------
\4\ See Section 104 of the NYSE American Company Guide; Section
102.03 of the NYSE Listed Company Manual.
---------------------------------------------------------------------------
Nasdaq also proposes to add continued listing requirements under
Rule 5702(b). Proposed Rule 5702(b)(1) would require, for continued
listing, that a non-convertible bond issuance maintain a market value
or principal amount outstanding of at least $400,000.\5\ Proposed Rule
5702(b)(2) would also require an issuer to meet its obligations on the
listed non-convertible bonds, and Nasdaq proposes to amend Rule
5810(c)(1) to provide that a determination by the Exchange's Listings
Qualifications Department that the issuer has failed to meet its
obligations on the bonds would result in their immediate suspension and
the commencement of delisting proceedings. Nasdaq notes that these
proposed continued listing standards for non-convertible bonds are the
same as the listing requirements for bonds imposed by NYSE American.\6\
---------------------------------------------------------------------------
\5\ The Exchange proposes to amend Rule 5810(c)(3) to provide
that a failure to meet the continued listing requirements under Rule
5702(b)(1) for a period of 30 consecutive business days will
constitute a deficiency; in the event of a deficiency, the
Exchange's Listings Qualifications Department will promptly notify
the deficient issuer and the issuer shall have a period of 180
calendar days from such notification to regain compliance.
Compliance will be deemed to be regained by meeting the applicable
standard for a minimum of 10 consecutive business days, unless the
Listing Qualifications Department exercises its discretion to extend
this 10 day period as set forth in Rule 5810(c)(3)(G).
\6\ See Section 1003(b)(iv) of the NYSE American Company Guide.
---------------------------------------------------------------------------
In addition to these quantitative requirements for listing non-
convertible bonds, the issuer of listed bonds would also have to comply
with other requirements that are generally applicable to companies
listed on Nasdaq pursuant to Rule 5250. Specifically, Rule 5250(a)
allows Nasdaq to request additional information, either public or non-
public, deemed necessary to make a determination regarding a company's
continued listing. Rule 5250(b) requires issuers to make public
disclosure of material information, disclosure of notification of
deficiency, and disclosure of third party director and nominee
compensation. Rule 5250(c) requires companies to file all required
periodic financial reports. Rule 5250(d) requires the distribution of
annual and interim reports. Rule 5250(e) sets forth various corporate
events resulting in material changes that trigger the requirement for
the issuer to submit certain forms to Nasdaq.\7\ Rule 5250(f) requires
the issuers to pay all applicable fees set forth in the Rule 5900
series.
---------------------------------------------------------------------------
\7\ The Exchange proposes to amend Rule 5250(e)(3) to require
issuers of non-convertible bonds to provide at least 10 calendar
days advance notice to the Exchange of certain corporate actions,
including redemptions (full or partial calls), tender offers,
changes in par value, and changes in identifier (e.g., CUSIP number
or symbol), by filing the appropriate form as Nasdaq shall
designate.
---------------------------------------------------------------------------
In addition to the Exchange's rules that would apply to an issuer
of non-convertible bonds that list on Nasdaq,\8\ the issuers of those
bonds would have to register those securities pursuant to Section 12(a)
of the Act.\9\ Among other things, the issuer is required to disclose
information about the organization, financial structure, information
about the nature of the business, certain information about the
directors, officers and underwriters, material contracts, and balance
sheets. As part of this proposal, Nasdaq is requiring that the issuer
must currently list one class of an equity security on either
Nasdaq,\10\ NYSE, or NYSE American,\11\ and so issuers may already
disclose this information in connection with the listing of those
securities. However, Section 12(a) also requires issuers to disclose
information that is more specific to the security to be listed and
traded on the Exchange, such as the terms, position, rights, and
privileges of the different classes of securities outstanding, and the
terms on which the issuer's securities are to be, and during the
preceding three years have been, offered to the public or otherwise.
Given this requirement, Nasdaq's proposal may increase the amount of
information about non-convertible bonds that will be disclosed by the
issuer than would otherwise be the case.
---------------------------------------------------------------------------
\8\ Nasdaq notes that currently, the Rule 5600 Series generally
would apply to securities listed in this proposal. However,
subsequent to this proposal, but prior to listing non-convertible
bonds of issuers that have equity securities listed on NYSE or NYSE
American, Nasdaq plans to submit a proposal to amend Rule 5615(a)(6)
to state that the Rule 5600 Series does not generally apply to
companies listing only preferred or debt securities on the Exchange.
Under this proposal, companies listing only non-convertible bonds
would be exempt from the Rules relating to Independent Directors
(Rule 5605(b)), Audit Committee Requirements (Rule 5605(c)),
Compensation Committee Requirements (Rule 5605(d)), Independent
Director Oversight of Director Nominations (Rule 5605(e)), Code of
Conduct (Rule 5610), Meetings of Shareholders (Rule 5620), Review of
Related Party Transactions (Rule 5630), Shareholder Approval (Rule
5635), and Voting Rights (Rule 5640). However, Rule 5615(a)(6) would
state that such companies still must comply with Rule 5625, pursuant
to which an issuer would provide Nasdaq with prompt notification
after an executive officer of the company becomes aware of any
noncompliance by the company with the requirements of the Rule 5600
Series. In addition, this amended Rule would require issuers of
listed non-convertible bonds to comply with Rule 5605(c), which sets
forth the requirements of the company's audit committee, including
its charter, composition, responsibilities and authority, to the
extent required by Exchange Act Rule 10A-3. The Rule thereby would
apply the requirements of Rule 10A-3 to the issuer's audit
committee. The Rule also would impose on the issuer the obligation
to promptly notify Nasdaq after an executive officer of the issuer
becomes aware of any noncompliance by the issuer with the
requirements of the Rule 5600 series, such as noncompliance with the
audit committee provisions that are required by Rule 10A-3 and set
forth in Rule 5605(c). Nasdaq also notes that NYSE and NYSE American
have adopted similar exemptions for both companies that list only
preferred and debt securities. See Section 303A of the NYSE Listed
Company Manual; see also Section 801(g) of the NYSE American Company
Guide. Finally, Nasdaq notes that the foregoing proposal would not
apply to issuers of non-convertible bonds that have equity
securities listed on Nasdaq.
\9\ Specifically, Section 12(a) requires that, in order for an
exchange member, broker or dealer to effect a transaction in a
security on a national securities exchange, a registration must be
effective ``as to such security for such exchange.'' See 15 U.S.C.
78(l)(a).
\10\ For purposes of the listing requirement that the non-
convertible bond issuer also list a class of equity securities on
Nasdaq, the issuer may list an equity security on the Nasdaq Capital
Market, the Nasdaq Global Market, or the Nasdaq Global Select
Market.
\11\ The Exchange notes that upon the effective date of the
proposal, it only expects to be capable of listing and trading non-
convertible bonds of issuers that currently list equity securities
on Nasdaq. The Exchange expects to be ready to list and trade bonds
of issuers with equity securities listed on NYSE or NYSE American by
the Second Quarter of 2019. The Exchange will issue a trader alert
at least seven days in advance of accepting applications to list and
trade bonds of issuers with equity securities listed on NYSE or NYSE
American.
The Exchange proposes to include language to this effect in the
rule text, which it will then propose to remove after the Exchange
begins listing and trading non-convertible bonds of issuers with
equity securities listed on NYSE and NYSE American.
---------------------------------------------------------------------------
Nasdaq proposes to amend Rule 5515(b)(4) to change references from
the American Stock Exchange to NYSE American to reflect the name change
of that exchange.\12\
---------------------------------------------------------------------------
\12\ See Securities Exchange Act Release No. 80283 (Mar. 21,
2017), 82 FR 15244 (Mar. 27, 2017) (SR-NYSEMKT-2017-14).
---------------------------------------------------------------------------
Nasdaq also proposes to amend the definition of a ``substitution
listing event'' in Rule 5005 to include an additional event related to
the listing of bonds. Specifically, Rule 5005(a)(40) will include a
change in the obligor of a listed debt security as a ``substitution
listing event.'' A Substitution Listing Event triggers certain
reporting requirements to the Exchange.\13\ Nasdaq is proposing to make
this change to both convertible and non-convertible bonds,
[[Page 45291]]
as both types of securities could potentially be subject to a change in
the obligor of that bond, which Nasdaq believes should qualify as a
substitution listing event.
---------------------------------------------------------------------------
\13\ See Rule 5250(e)(4).
---------------------------------------------------------------------------
Nasdaq proposes to add fees in connection with listing non-
convertible bonds. Specifically, Nasdaq proposes to add Rule 5935 to
impose a non-refundable application fee of $5,000 to list a class of
non-convertible bonds pursuant to Rule 5702. Nasdaq proposes to waive
this application fee if, in connection with a company's application to
list non-convertible bonds on Nasdaq, the company will be switching the
listing market for such bonds from NYSE or NYSE American to Nasdaq.
Nasdaq notes that NYSE American imposes an initial listing fee of $100
per $1 million principal amount (or fraction thereof) for listed bonds,
with a minimum fee of $5,000 and a maximum fee of $10,000,\14\ while
NYSE imposes an initial listing fee of $25,000 on all listed bonds of
NYSE equity issuers.\15\
---------------------------------------------------------------------------
\14\ See NYSE American Company Guide Section 140.
\15\ See NYSE Listed Company Manual Section 902.08.
---------------------------------------------------------------------------
Nasdaq also proposes to add an annual fee in connection with
listing non-convertible bonds. Nasdaq proposes to add Rule 5935(b) to
state that the issuer of each class of non-convertible bonds listed
pursuant to Rule 5702 shall pay to Nasdaq an annual fee of $5,000.
Moreover, the proposed Rule states that a company that switches its
listing market for its non-convertible bonds from the New York Stock
Exchange or NYSE American to Nasdaq will not be liable for the annual
fee until January 1 of the calendar year following the effective date
of the non-convertible bonds listing on Nasdaq. Nasdaq notes that NYSE
American assesses an annual listing fee of $5,000 for listed bonds and
debentures of companies whose equity securities are not listed on NYSE
American,\16\ while NYSE assesses an annual listing fee of $25,000 for
listed bonds of NYSE equity issuers and affiliated companies.\17\
---------------------------------------------------------------------------
\16\ See NYSE American Company Guide Section 141.
\17\ See Section 902.08 of the NYSE Listed Company Manual.
---------------------------------------------------------------------------
Nasdaq also proposes to clarify rule text relating to the listing
fees for convertible bonds. Specifically, Rule 5920(a)(2) specifies a
fee of $1,000 or $50 per million dollars face amount of bonds
outstanding, whichever is higher. Nasdaq proposes to clarify that this
is an entry fee, and that it applies to convertible bonds only. Nasdaq
is not charging an entry fee for non-convertible bonds, as it believes
that the proposed application fee will allow the Exchange to adequately
recoup the expenses incurred by the Exchange in processing an issuer's
application to list those securities.
Nasdaq believes that this proposal will improve the public debt
market by increasing transparency for non-convertible bonds that are
listed pursuant to this proposal and the orderliness of the market for
those securities. For example, Rule 5250(b)(1) requires listed
companies to, except in unusual circumstances, disclose promptly to the
public through any Regulation FD compliant method (or combination of
methods) any material information that would reasonably be expected to
affect the value of their securities or influence investors'
decisions.\18\ Nasdaq-listed companies must notify Nasdaq's MarketWatch
Department prior to the distribution of certain material news at least
ten minutes prior to public announcement of the news when the public
release of the information is made, from 7:00 a.m. to 8:00 p.m. E.T. As
set forth in IM-5250-1, such events may include: (1) Financial-related
disclosures, including quarterly or yearly earnings, earnings
restatements, pre-announcements or guidance; (2) corporate
reorganizations and acquisitions, including mergers, tender offers,
asset transactions and bankruptcies or receiverships; (3) new products
or discoveries, or developments regarding customers or suppliers (e.g.,
significant developments in clinical or customer trials, and receipt or
cancellation of a material contract or order); (4) senior management
changes of a material nature or a change in control; (5) resignation or
termination of independent auditors, or withdrawal of a previously
issued audit report; (6) events regarding the Company's securities,
such as defaults on senior securities, calls of securities for
redemption, repurchase plans, stock splits or changes in dividends,
changes to the rights of security holders, or public or private sales
of additional securities; (7) significant legal or regulatory
developments; or (8) any event requiring the filing of a Form 8-K.
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\18\ Nasdaq will determine compliance with the listing
requirements for non-convertible bonds based upon information it
receives directly from issuers as well as data that it obtains from
third party data providers.
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Nasdaq's MarketWatch Department monitors real time trading in all
Nasdaq securities during the trading day for price and volume activity.
In the event of certain price and volume movements, the MarketWatch
Department may contact a company in order to ascertain the cause of the
unusual market activity.
For non-convertible bonds that are listed under this proposal, the
issuer will be required to comply with these disclosure requirements
and to update Nasdaq accordingly on any material information that would
reasonably be expected to affect the value of their bonds or influence
investors' decisions. Depending on the nature of the event and the
company's views regarding the business advisability of disclosing the
information, the MarketWatch Department may work with the company to
accomplish a timely release of the information. Furthermore, depending
on the materiality of the information and the anticipated effect of the
information on the price of the Company's bonds, the MarketWatch
Department may advise the Company that a temporary trading halt is
appropriate to allow for full dissemination of the information and to
maintain an orderly market. For non-convertible bonds that are listed
on Nasdaq pursuant to this proposal, a trading halt will be initiated
by the Exchange, pursuant to proposed Rule 4000B(i). In these ways,
Nasdaq believes that the proposal will increase transparency for bonds
that are listed pursuant to this proposal and the orderliness of the
market for those bonds.\19\
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\19\ Nasdaq notes that it also proposes to amend Rule 5250(e)(3)
to require an issuer to provide at least 10 calendar days advance
notice to Nasdaq of certain corporate actions relating to non-
convertible bonds listed on the Nasdaq Bond Exchange, including
redemptions (full or partial calls), tender offers, changes in par
value, and changes in identifier (e.g., CUSIP number or symbol), by
filing the appropriate form as designated by Nasdaq. These
disclosures will aid the Listings Qualification Department in
assessing an issuer's compliance with the continuing listing
standards set forth in proposed Rule 5702.
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Nasdaq also believes that this proposal will benefit market
participants by making non-convertible bonds more accessible to certain
kinds of investors. For example, in the European Union, certain
investors, such as so-called UCITS investment funds,\20\ may generally
only hold 10% of assets in securities that are not listed on an
[[Page 45292]]
exchange or other regulated market meeting certain standards.
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\20\ UCITS (Undertakings for Collective Investment in
Transferable Securities) is a harmonized regime throughout Europe
for the management and sale of mutual funds. A UCITS fund is
essentially a mutual fund based in the European Union that meets
these requirements and is therefore exempt from national regulation
in individual European countries. Under UCITS III, a UCITS fund can
invest in transferable securities, such as listed and publicly
traded equities and bonds, deposits and money market instruments,
other mutual funds, and financial derivative instruments, subject to
diversification requirements.
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Trading Rules
In conjunction with its proposal to adopt rules to list non-
convertible bonds on Nasdaq, the Exchange also proposes rules that will
provide for the trading of such listed bonds. The Exchange notes that
its proposed non-convertible bond trading system--to be known as the
``Nasdaq Bond Exchange''--will offer Members,\21\ at its inception,
certain core trading functionality that will be competitive with NYSE
Bonds. However, the Exchange will reserve more sophisticated and
elaborate functionality until such time as the Exchange observes that a
sufficient demand exists for it.\22\
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\21\ A ``Member'' means any registered broker or dealer that has
been admitted to membership in Nasdaq. See Rule 0120(i).
\22\ The Nasdaq Bond Exchange will only trade non-convertible
bonds that are listed on Nasdaq.
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In many respects, the proposed trading system and the proposed
rules that govern it are a pared down version of the NYSE Bonds system
and NYSE Rule 86. That is, like NYSE Bonds, the Nasdaq Bond Exchange
will be an electronic system for receiving, processing, executing, and
reporting bids, offers and executions in bonds. Like NYSE Bonds, the
Nasdaq Bond Exchange will display, match, and execute buy and sell
orders on a price/time basis. The Exchange, like NYSE and NYSE
American, will also accept good-for-day limit orders and fill-or-kill
orders, and it will trade bonds of issuers that have at least one class
of equity securities listed on Nasdaq and NYSE or NYSE American.\23\
However, at its inception, the Nasdaq Bond Exchange will not have--as
does NYSE Bonds--market makers, sponsored access, auctions, price
collars, or certain order types (e.g., reserve orders, minimum quantity
orders, good-til-cancelled orders, and timed orders). The Nasdaq Bond
Exchange also will have only one trading session each day as opposed to
NYSE Bonds, which has three sessions. Again, the Exchange may add such
features and functionalities to the Nasdaq Bond Exchange in the future
to the extent that it determines that a demand exists for them. The
Exchange observes that users of NYSE Bonds do not appear to avail
themselves of many of these features and functionalities, such that the
Exchange does not believe that including them in the Nasdaq Bond
Exchange is necessary for it to compete with NYSE Bonds.
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\23\ As noted earlier, at the launch date of the Nasdaq Bond
Exchange, the Exchange expects that the system will be only capable
of trading bonds of issuers that currently list equity securities on
Nasdaq. The Exchange expects to be ready to list and trade bonds of
issuers with equity securities listed on NYSE or NYSE American by
the Second Quarter of 2019. See n.11, supra.
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Order Types
The proposed rules designate the types of orders that could be
entered into the Nasdaq Bond Exchange. Initially, Users \24\ of the
Nasdaq Bond Exchange will be allowed to enter good-for-day limit orders
(``Nasdaq Bond Exchange Good for Day Limit Orders''), which are orders
to buy or sell a stated quantity of units of bonds at a specified price
or at a better price that, if not executed or cancelled, will expire at
the end of the trading session on the day on which they are entered.
Users will also be able to enter a Nasdaq Bond Exchange Fill-or-Kill
All-Or-None Order (``Nasdaq Bond Exchange FOK-AON Order''), which is an
order that is to be executed immediately in its entirety against one or
more contra parties at the best price available, or if it is not
executed immediately in its entirety, it is cancelled. All orders on
the Nasdaq Bond Exchange will be displayed and will be anonymous. The
Exchange will file a proposed rule change with the Commission and
notify its members if and when additional order types become available
for use.
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\24\ Proposed Rule 4000B defines a ``User'' as any Nasdaq Member
that has elected, pursuant to the process described below, to
receive access to the Nasdaq Bond Exchange.
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Trading Units
The minimum unit of trading in the Nasdaq Bond Exchange is one bond
unless the issuer otherwise specifies a larger minimum unit of trading
in the bond indenture agreement. The Nasdaq Bond Exchange will accept
and display bids and offers in bonds priced to three decimal places, as
per market standard.
Order Entry and Execution
To post an order in a particular bond on the Nasdaq Bond Exchange,
a User will be required to enter certain basic information including:
CUSIP number, order quantity, order type (i.e., Nasdaq Bond Exchange
Good for Day Limit Order); price (up to three decimals); and whether
the order is buy or sell.
The Nasdaq Bond Exchange will be an electronic order-driven
matching system. Nasdaq Bond Exchange orders submitted by Users will be
displayed, matched, and executed on a price/time priority basis. Orders
that are marketable at the time of entry will be matched and executed.
An order will be marketable when it entered the Nasdaq Bond Exchange
system if contra side interest is available at that price or a better
price. Nasdaq Bond Exchange Good for Day Limit Orders that are not
marketable at the time of entry would post to the Nasdaq Bond Exchange
order ``book.''
The Nasdaq Bond Exchange will provide an exception to its normal
price/time system to allow Users to avoid internalizing orders. Users
may be interested in self-match prevention in order to run multiple
strategies at once that may sit on opposite sides of the book. Pursuant
to the proposed Rule 4000B(h)(1)(C), which the Exchange adapts from
Nasdaq Rule 4757(a)(4), Nasdaq will permit Users to direct that orders
entered into the Nasdaq Bond Exchange will not execute against orders
entered under the same MPID. In addition, the proposed Rule provides
that Users using the FIX order entry protocol (discussed below) may
assign to orders entered through a specific order entry port a unique
group identification modifier that will prevent orders with such
modifier from executing against each other. In such a case, the
proposed Rule states that a User may elect from the following options:
(i) Regardless of the size of the interacting orders, cancelling the
oldest order in full; or (ii) regardless of the size of the interacting
orders, cancelling the most recent of the orders in full. The foregoing
options may be applied to all orders entered through a specific order
entry port.
An order designated for execution in the Bond Trading Session may
be cancelled at any time as long as the order had not been executed.
The Exchange will charge no fees for posting orders or executing
trades on the Nasdaq Bond Exchange. If the Exchange decides to charge
any such fees in the future, then the Exchange will submit a rule
filing proposal to that effect to the Commission.
Clearing
Most orders matched on the Nasdaq Bond Exchange will be locked-in
trades and will be submitted without an omnibus account to the National
Securities Clearing Corporation using Universal Trade Capture and then
to the Depository Trust Company (``DTC'') for clearance and settlement.
Settlement of corporate bond trades will be consistent with current
convention, i.e., two day settlement. Bonds that are not eligible for
settlement at DTC will be settled manually (``ex-clearing'') between
the two counterparties.
Bond Trading Session
The Nasdaq Bond Exchange would have one trading session per trading
day from 8:30 a.m. until 4:00 p.m. E.T. (the
[[Page 45293]]
``Bond Trading Session''). There will be no pre-market or post-market
session. Instead, the Nasdaq Bond Exchange will immediately start
processing orders as they are entered upon opening. Orders submitted
outside of the Bond Trading Session will not be accepted.
Clearly Erroneous Executions
Bond trades on the Nasdaq Bond Exchange would be made subject to
Exchange Rule 11890, which governs the process for addressing clearly
erroneous trades. Within the context of bond trading on the Nasdaq Bond
Exchange, a ``clearly erroneous execution'' will be one where there is
an obvious error in any term, such as price, unit of trading, or
identification of the bond.'' \25\ A User that receives an erroneous
execution may request the Exchange review the transaction or the
President of the Exchange, a senior level employee thereof, or a
designated officer (a ``Senior Official'') may review an execution on
their own initiative. A request for review of an execution must include
certain information, including in pertinent part, information
concerning the time of the transaction, security symbol, number of
bonds, price, and factual basis for believing that the trade is clearly
erroneous.\26\ The request for review would have to be submitted within
30 minutes of the trade in question.\27\ The other party (or parties)
to the trade will be notified of the request for review.\28\
Thereafter, an Exchange official would review the transaction and would
make a determination as to whether it was clearly erroneous.\29\ The
reviewer could make this determination with or without supporting
documentation from any party to the transaction.\30\ Pursuant to
proposed Rule 11890(a)(2)(C)(4), determinations of a clearly erroneous
execution will be made on a case-by-case basis, considering factors
that include, but are not limited to, the following: (i) Execution
price; (ii) volume and volatility of a bond; (iii) news released for
the issuer or the bond and/or the related equity security; (iv) trading
halts; (v) corporate actions; (vi) general market conditions; (vii) the
rating of the bond; (viii) interest and/or coupon rate; (ix) maturity
date; (x) yield curves; (xi) prior print, if available within a
reasonable time frame; (xii) executions inconsistent with the trading
pattern of a bond; (xiii) current day's trading high/low; (xiv) recent
day's and week's trading high/low; (xv) executions outside the 52 week
high/low; (xvi) effect of a single large order creating several prints
at various prices; and (xvii) quotes and executions of other market
centers.\31\
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\25\ See proposed Rule 4000B(b)(2)(C).
\26\ See Rule 11890(a)(2).
\27\ See id.
\28\ See id.
\29\ See id.
\30\ See id.
\31\ The criteria to be used to determine clearly erroneous
executions of non-convertible bonds, which are set forth in proposed
Rule 11890(a)(2)(C)(4), are in lieu of the criteria presently used
to determine clearly erroneous executions of equity securities,
which are set forth in Rule 11890(a)(2)(C)(1)-(C)(3).
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If the reviewer determines that the execution was not clearly
erroneous, then no corrective action will be taken in relation to the
transaction. If the reviewer determines that the transaction were
clearly erroneous, the transaction will be deemed null and void.\32\ If
one party does not agree with the determination, then that party may
request further review or an appeal to the Nasdaq Review Council
pursuant to the procedures set forth in Rule 11890(c). Depending on the
outcome of the appeal, the transaction would either remain unchanged or
be deemed null and void.\33\
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\32\ See Rule 11890(a)(2)(B).
\33\ The Exchange notes that, pursuant to Article VI of the By-
Laws of the Nasdaq Stock Market, LLC, at least 20 percent of the
Nasdaq Review Council must consist of representatives of Members of
the Exchange. Although the By-Laws do not specify any specific
categories of Members that must be represented on the Review
Council, the Exchange expects that the existing Member
representatives will adequately represent the interests of Users in
appeals of clearly erroneous determinations. If it becomes apparent
to the Exchange that roster of the Nasdaq Review Council does not
adequately represent the interests of Users, then it will, at the
appropriate time, consider nominating one or more Users to the
Council.
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Nasdaq Bond Exchange System Disruption or Malfunction or Equipment
Changeover
Rule 11890(b) further provides that, in the event of any system
disruption, malfunction, or equipment changeover in the Nasdaq Bond
Exchange trading facility, a Senior Official may, without the need for
a request for review, review transactions affected by a system
disruption, malfunction, or equipment changeover and decide if any
transactions are erroneous.\34\ In such situations, the Senior Official
could declare the transaction to be unchanged or null and void,
appropriate.\35\ The Rule also provides that, absent extraordinary
circumstances, any such action of the Senior Official shall be taken
within 30 minutes of detection of the system disruption, malfunction,
or equipment changeover, or an erroneous transaction resulting from
such system problem.\36\ If an erroneous transaction occurred as a
result of a system disruption, system malfunction, or equipment
changeover, each party to the erroneous transaction will be notified of
the situation and the specific action as soon as practicable.\37\
Thereafter, the User aggrieved by the action could appeal such
action.\38\
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\34\ See Rule 11890(b)(i).
\35\ See id.
\36\ See id.
\37\ See id.
\38\ See id.
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Halting and Suspending Bond Trading on the Exchange
Proposed Rule 4000B(i)(1) provides that the Exchange may halt or
suspend trading in non-convertible bonds listed on the Nasdaq Bond
Exchange when: (1) In the Exchange's regulatory capacity, it is
necessary or appropriate to maintain a fair and orderly market, to
protect investors, or is in the public interest, due to extraordinary
circumstances or unusual market conditions; (2) a class of equity that
is issued by the same issuer as the non-convertible bond has been
halted or suspended by, or de-listed from, the Exchange or by its
primary listing market (NYSE or NYSE American), as applicable, for
regulatory purposes; (3) news reports have a material impact on a non-
convertible bond, its issuer, or related stock of its issuer; or (4)
the non-convertible bond is to be called for redemption or will mature
or become subject to retirement, and thereafter it will be subject to
de-listing, in which case the Exchange shall cease trading the non-
convertible bond, effective not less than 10 days before the date when
such de-listing becomes effective, pursuant to a de-listing application
that the Exchange submits to the Commission on Form 25 and consistent
with SEC Rule 12d2-2 \39\ and the Act.
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\39\ See 17 CFR 240.12d2-2.
---------------------------------------------------------------------------
Pursuant to proposed Rule 4000B(i)(2), when bond trading is halted
under any of the circumstance described above, a halt message at the
beginning and end of the halt will be disseminated to all Nasdaq Bond
Market Users. This trading halt will be referred to as a ``Bond Halt.''
\40\ Upon commencement of a Bond Halt, all pending orders in the Nasdaq
Bond Exchange will be cancelled.\41\ The Nasdaq Bond Exchange will
resume accepting orders and trading once the Exchange declares an end
to a Bond Halt.\42\
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\40\ See Rule 4000B(i)(2).
\41\ See Id.
\42\ See Id.
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Dissemination of Trading Information
The Exchange proposes to publicly disseminate a real-time bond data
feed,
[[Page 45294]]
which will be referred to as ``Nasdaq Corporates Totalview.'' \43\ The
Nasdaq Corporates Totalview data feed would reflect all orders in time
sequence in the Nasdaq Bond Exchange order ``book.'' Because the Nasdaq
Bond Exchange will be a purely order-driven system, the Exchange would
not disseminate any information on a particular bond if there are no
orders posted in the ``book'' for such bond. In addition to the Nasdaq
Bond Exchange order ``book,'' the data feed also would include the last
sale price as executions occur. The Nasdaq Corporates Totalview data
feed will be available on a standalone basis free of charge to market
participants, third-party data vendors, and other interested parties
who request access and agree to the Exchange's terms. If the Exchange
decides to establish fees for the Nasdaq Corporates Totalview product
at a later date, it will submit a separate rule filing.
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\43\ Pursuant to FINRA Rule 6730(e)(2), transactions on the
Nasdaq Bond Exchange need not be reported to FINRA's Trade Reporting
and Compliance Engine because only bonds listed on Nasdaq, a
national securities exchange, may be traded on the Bond Exchange,
and because bond transaction information will be disseminated
publicly.
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Access to the Nasdaq Bond Exchange System
Only Members of the Exchange that have entered into a written
service agreement with the Exchange (i.e., the ``Nasdaq U.S. Services
Agreement'') and that elect to receive access to the Nasdaq Bond
Exchange on their Member application form, will be duly authorized
Users that may receive such access. Existing Members of the Exchange
will not be required to amend their Nasdaq U.S. Services Agreements to
become Users and obtain access to the Nasdaq Bond Exchange; instead,
existing Members simply will be required to complete a form, attached
hereto as Exhibit 3 [sic], that indicates their interest in becoming
Users and obtaining access.
Users of the Nasdaq Bond Exchange will gain access to the system
via direct or indirect electronic linkages utilizing the Financial
Information Exchange or ``FIX'' protocol. The FIX protocol is already
used and widely accepted by Nasdaq market participants and will be used
by the Nasdaq Bond Exchange Users for order entry, modification and
cancellation, and message transmittal for all non-convertible bonds
traded through the Nasdaq Bond Exchange. All of the communications
protocols will be publicly available to allow Users and service bureaus
to develop their own front-end software. Users will have the ability to
establish connectivity to the Nasdaq Bond Exchange directly or through
third-party connectivity providers, including a range of extranets and
service bureaus, as set forth in General 8 of the Nasdaq Rules.\44\ The
Exchange will not charge any fees for FIX port connectivity to the
Nasdaq Bond Exchange or for connectivity to the Bond Exchange's
disaster recovery system.\45\
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\44\ The Exchange notes that Users that already purchase FIX
port connectivity to the Nasdaq Stock Exchange will need to obtain
one or more additional FIX ports to connect to the Nasdaq Bond
Exchange.
\45\ Separately from port connectivity, the Exchange notes that
Users will need to establish physical connections to the Nasdaq Bond
Exchange, as set forth in General 8 of the Nasdaq Rules. To the
extent that a User already purchases physical connectivity to the
Nasdaq Stock Exchange, that purchase will also provide for the User
to connect to the Nasdaq Bond Exchange, such that the User will
incur no additional fee for the new connection. New Users that do
not already purchase physical connectivity to Nasdaq will need to do
so, pursuant to General 8 of the Nasdaq Rules.
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Reports and Recordkeeping
Users of the Nasdaq Bond Exchange would have to comply with all
relevant rules of the Exchange and the Commission in relation to
reports and recordkeeping of transactions on the Nasdaq Bond Exchange,
including Rules 17a-3 and 17a-4 under the Act.\46\
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\46\ 17 CFR 240.17a-3 and 240.17a-4.
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Regulation
The Exchange will leverage its existing infrastructure to operate a
national securities exchange in compliance with Section 6 of the
Exchange Act, and Section 6(b)(7) in particular,\47\ to regulate its
non-convertible bonds trading business and to enforce compliance with
its Rules. Nasdaq's existing disciplinary rules and processes, set
forth in its Rule 8000 and 9000 Series, will govern the discipline of
Members that participate in corporate bond trading, just as it does for
equities regulation, and Nasdaq will perform bond listing regulation as
well as real-time surveillance of bond trading as it does today for
equities.
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\47\ 15 U.S.C. 78f(b)(7).
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In particular, MarketWatch will perform real-time surveillance of
the Nasdaq Bond Exchange for the purpose of maintaining a fair and
orderly market at all times. As it does with Nasdaq's equities trading,
MarketWatch will monitor trading on the Nasdaq Bond Exchange market on
a real-time basis to identify unusual trading patterns and determine
whether particular trading activity requires further regulatory
investigation. In addition, Nasdaq Regulation will oversee the process
for determining and implementing trade halts and identifying and
responding to unusual market conditions.
System Information
The Nasdaq Bond Exchange will operate out of the same data center
in Carteret, New Jersey as does the Nasdaq Stock Market and other
exchanges owned by Nasdaq, Inc., but it will use equipment that is
separate from the equipment used by those exchanges. In addition, the
Nasdaq Bond Exchange will have a backup data center that will be
geographically diverse from the Carteret data center and that will be
designed to resume operations of the Nasdaq Bond Exchange, in the event
of a system failure, in accordance with the requirements of Regulation
Systems Compliance and Integrity.\48\ The Nasdaq Bond Exchange will use
Nasdaq's flexible INET technology, which is easily scalable to higher
volumes through the addition of more equipment in the data center. The
Nasdaq Bond Exchange will be protected from unauthorized access through
the same robust firewall protection already in use at Nasdaq, Inc.'s
data centers.
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\48\ See 17 CFR 242.1001, .1004.
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Applicability of Section 11(a) and (b) of the Act
Section 11(a) of the Act \49\ prohibits a member of a national
securities exchange from effecting transactions on that exchange for
its own account, the account of an associated person, or an account
over which it or its associated person exercises investment discretion,
unless an exception applies. This general prohibition would not impact
trading on the Nasdaq Bond Exchange because Rule 11a1-4(T) under the
Act \50\ deems transactions in bonds on a national securities exchange
for a member's own account to be consistent with Section 11(a).
Similarly, Section 11(b) of the Act\51\ and Rule 11b-1 thereunder,\52\
which pertain to specialists and market-makers, would not be implicated
because there will be no specialists or market makers on the Nasdaq
Bond Exchange.
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\49\ 15 U.S.C. 78k(a).
\50\ 17 CFR 240.11a1-4(T).
\51\ 15 U.S.C. 78k(b).
\52\ 17 CFR 240.11b-1.
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2. Statutory Basis
Nasdaq believes that its proposal is consistent with Section 6(b)
of the Act \53\ in general, and furthers the objectives of Sections
6(b)(4), (b)(5), and (b)(7) of the Act,\54\ in particular. As discussed
below, Nasdaq believes the proposal is consistent with Section 6(b)(4)
of the
[[Page 45295]]
Act \55\ in that it provides for the equitable allocation of reasonable
dues, fees, and other charges, and that it is consistent with Section
6(b)(5) of the Act \56\ 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, and are not
designed to permit unfair discrimination. Finally, the Exchange
believes that the proposal is consistent with Section 6(b)(7) of the
Act \57\ in that it provides a fair procedure of discipline for those
listing and trading non-convertible bonds on Nasdaq.
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\53\ 15 U.S.C. 78f(b).
\54\ 15 U.S.C. 78f(b)(4), (5), and (7).
\55\ 15 U.S.C. 78f(b)(4).
\56\ 15 U.S.C. 78f(b)(5).
\57\ 15 U.S.C. 78f(b)(7).
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Listing Rules
The Exchange believes that its proposal to list non-convertible
bonds will improve the quality of the public market for bonds by
improving the transparency and the orderliness of the market. As
discussed above, an issuer that lists bonds pursuant to this proposal
will be required to disclose any material information that would
reasonably be expected to affect the value of their securities or
influence investors' decisions, except in unusual circumstances.\58\
Through this requirement, Nasdaq will be able to evaluate such
disclosure to determine if, among other things, a Bond Halt should be
declared for that security.\59\ This proposal, in connection with
Nasdaq's proposal to trade such bonds, would also increase the amount
of bond-specific information that would disclosed by issuers in
fulfillment of the requirements of Section 12 of the Act.
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\58\ As noted above, Nasdaq proposes to amend Rule 5250(e)(3) to
require an issuer to provide at least 10 calendar days advance
notice to Nasdaq of certain corporate actions relating to non-
convertible bonds listed on the Nasdaq Bond Exchange, including
redemptions (full or partial calls), tender offers, changes in par
value, and changes in identifier (e.g., CUSIP number or symbol), by
filing the appropriate form as designated by Nasdaq. This proposal
is consistent with the Act because it aid the Listings Qualification
Department in assessing an issuer's compliance with the continuing
listing standards set forth in proposed Rule 5702.
\59\ Nasdaq is limiting this proposal to an issuer that is
currently listing one class of an equity security on either Nasdaq,
NYSE, or NYSE American. While the issuer may be required to make
similar disclosures in connection with its listed equity security,
Nasdaq may not receive such disclosures if the listing venue for
that equity security is NYSE or NYSE American. As such, this
proposal provides the Exchange with additional information related
to listed companies that it may otherwise not possess.
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Nasdaq also believes that its proposed listing standards are
consistent with the Act. Nasdaq notes that its proposed initial listing
standards, set forth in Rule 5702(a)--which require a minimum principal
amount outstanding of the non-convertible bond or a market value of at
least $5 million and the issuer of the non-convertible bond also having
a class of equity listed on Nasdaq, NYSE, or NYSE American--are similar
to the initial listing requirements for bonds listed on NYSE and NYSE
American. Similarly, the continued listing requirement under Rule
5702(b)(1) that a non-convertible bond maintain a market value or
principal amount of bonds outstanding of at least $400,000 is similar
to the listing requirement for bonds imposed by NYSE American. Nasdaq
notes that, pursuant to Rule 5702(b)(2), an issuer would also be
required to meet its obligations on the listed non-convertible bonds,
and that Nasdaq would initiate proceedings immediately under Rule 5810
(Notification of Deficiency by the Listing Qualifications Department)
if the issuer were unable to meet its obligations on its non-
convertible bonds. Nasdaq believes that it is consistent with the Act
to immediately institute immediate de-listing proceedings in this
instance, rather than to first afford the issuer a time period during
which it may regain compliance (i.e., the 180 calendar day period it
proposes to provide when a bond fails to meet the quantitative
requirements under Rule 5702(b)(1)) because a violation of a covenant,
a default on interest payments, or another failure of an issuer to meet
its obligations under a bond indenture, constitutes a breach of an
issuer's legal obligations to bondholders, and signals that a bond is
not appropriate for continued listing on the Exchange.
Nasdaq also believes that the change to the definition of a
``substitution listing event'' to include a change in the obligor of a
listed non-convertible bond is consistent with the Act. Nasdaq is
proposing to make this change to both convertible and non-convertible
bonds, as both types of securities could potentially be subject to a
change in the obligor of that bond, which Nasdaq believes should
qualify as a substitution listing event.
Likewise, it is consistent with the Act to amend Rule 5515(b)(4) to
change existing references from the American Stock Exchange to NYSE
American to ensure that our Rules regarding convertible debt are
current and accurate with respect to the names of the exchanges they
reference.
Nasdaq believes that the proposed rule change is consistent with
Section 6(b)(4) in that it provides for the equitable allocation of
reasonable dues, fees, and other charges among its members, issuers and
other persons using its facilities. The proposed $5,000 application fee
and $5,000 annual fee will be equally applicable to any issuer seeking
to list non-convertible bonds on Nasdaq, other than for those issuers
that propose to switch their listings from NYSE or NYSE American to
Nasdaq. Nasdaq's proposal to waive the application fee and the first
year's annual fee for issuers that switch their listings to Nasdaq from
NYSE or NYSE American is reasonable and equitable because such fees
will otherwise serve as disincentives for issuers to switch their
listings, particularly if they have already paid their annual fees to
NYSE or NYSE American for the year in which a switch would otherwise
occur.\60\ The waiver of the application fee is also equitable because
it is Nasdaq's experience that less work is required to process a
listing application for a security that is already listed on another
exchange than it is to process an application for listing a new
security. The application and annual fees are also reasonable and
equitable because they will support Nasdaq's regulatory program to
review and qualify debt issuances for listing.
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\60\ Nasdaq notes that it presently waives entry fees for
listing equity securities that transfer to Nasdaq from another
national security exchange. See Rule 5910(a)(7)(i) (Nasdaq Global
and Global Select Markets); Rule 5920(a)(7)(i) (Nasdaq Capital
Market); Rule 5940(a)(5)(i)(Exchange Traded Products). It also
waives a portion of the annual fee for securities whose listings
transfer from a national securities exchange to Nasdaq on an
exclusive basis. See IM-5900-4. Nasdaq's rationale for employing
waivers in those instances is similar to that which Nasdaq asserts
for its corporate bond listing programs. See, e.g., Securities
Exchange Act Release No. 34-70418 (Sept. 16, 2013), 78 FR 57909
(Sept. 20, 2013) (SR-NASDAQ-2013-115).
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The proposed application and annual fees are competitive with the
initial and annual fees that are currently assessed by NYSE and NYSE
American for the listing of bonds.\61\
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\61\ NYSE American charges an initial listing fee for bonds of
$100 per $1 million principal amount (or fraction thereof) with a
minimum fee of $5,000 and a maximum fee of $10,000. NYSE American
also charges an annual fee of $5,000 for listed bonds and debentures
of companies whose equity securities are not listed on NYSE
American. See NYSE American Listed Company Guide Sections 140 and
141. Meanwhile, NYSE charges an initial listing fee of $25,000 and
an annual fee of $25,000 for listed debt of NYSE equity issuers and
an initial listing fee of $45,000 and an annual listing fee of
$45,000 for listed debt of non-NYSE equity issuers. See Section
902.08 of the NYSE Listed Company Manual.
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Nasdaq also notes that the proposed $5,000 initial listing fee is
the same as the application fee it charges for convertible bonds.
However, Nasdaq will not charge an entry fee (as it does for
convertible bonds under the
[[Page 45296]]
proposed amendment to Rule 5920(a)(2)) because Nasdaq believes that the
proposed application fee will allow the Exchange to adequately recoup
its expenses incurred in processing an issuer's application to list
those bonds. Nasdaq proposes a flat $5,000 annual fee for non-
convertible bonds in lieu of the variable annual fee that Nasdaq
charges to issuers of convertible bonds ($500 or $25 per million
dollars face amount of debentures outstanding, whichever is greater,
pursuant to Rule 5920(c)(B)(2)) because the Exchange believes that
issuers will prefer the simplicity and predictability of a flat fee.
Moreover, the Exchange expects to list large issuances of non-
convertible bonds, in which cases the annual fees for such bonds will
be comparable to, if not lower than, the annual fees that Nasdaq
charges for convertible bonds.
These proposed listing fees for non-convertible bonds are lower
than Nasdaq's initial and annual fees for equity securities, which
range from $50,000--$75,000 for initial listing of equity securities,
and from $32,000--$45,000 for annual listing of equity securities.\62\
Nasdaq competes for the listing of securities, including bonds, with
NYSE and NYSE American, and the differential between its proposed
listing fees for non-convertible bonds and its current listing fees for
equity securities is similar to the differential for listing debt and
equity securities on NYSE American.\63\
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\62\ See Rule 5920(a)-(c).
\63\ See, e.g. NYSE American Listed Company Guide Sections 140
and 141 (NYSE American charges an initial listing fee for common
stock that ranges from $50,000-$75,000 and an annual fee of between
$40,000 and $50,000).
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Nasdaq also believes that the proposed listing rules are consistent
with Section 6(b)(5) of the Act \64\ in that they serve the interests
of the public and investors by facilitating competition in the market
for listing corporate non-convertible bonds. The proposed listing rules
also are similar to those of NYSE and NYSE American, which the
Commission has recognized as being equitable and adequately protective
of the public interest. Furthermore, the Exchange believes that the
proposed listing fees are equitable for the reasons set forth above.
Meanwhile, the proposed waivers of application and first year annual
fees for listings of non-convertible bonds that switch to Nasdaq from
NYSE or NYSE American are not unfairly discriminatory because, in
absence of such waivers, issuers that have already paid such fees to
list their bonds on another exchange would have a significant
disincentive to switch their listing to Nasdaq as they would be
required to pay twice for similar listing services. The proposed waiver
of the application fee for bonds that switch to Nasdaq from another
exchange is fair because it reflects the fact that less work is
required by Nasdaq to process such applications than is required to
process applications for newly-listed securities. Finally, as is
discussed above, Nasdaq already employs similar fee waivers for
listings of equity securities and exchange traded products.\65\
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\64\ 15 U.S.C. 78f(b)(5).
\65\ See n.60, supra.
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Finally, Nasdaq notes that it will apply the surveillance and
enforcement infrastructure that it utilizes for listings on its other
markets to ensure that issuers comply with initial and continuing
listing requirements for non-convertible corporate bonds and that the
Exchange will take fair and appropriate action under the Nasdaq Rule
5800 Series to address violations of those listing Rules.
Trading Rules
Nasdaq's proposal to establish the Nasdaq Bond Exchange system to
trade non-convertible corporate bonds listed on Nasdaq is also
consistent with the Act. Nasdaq has designed the Nasdaq Bond Exchange
to operate in accordance with the Act, the applicable rules of the
Commission and of the Exchange, and the high standards that Nasdaq
believes to be in evidence at all of Nasdaq, Inc.'s exchanges. The
proposal will offer Users opportunities to trade non-convertible bonds
through a fair, open, and well-regulated market. The proposal will
promote the interests of the public and investors by providing for the
entry into the marketplace of a new exchange venue for trading non-
convertible corporate bonds. Such bonds presently are tradeable, other
than on an over-the-counter basis, only on NYSE and NYSE American. The
Nasdaq Bond Exchange will introduce competition into this space, and
that competition will spur innovation, which in turn will benefit
issuers, traders, and investors alike.
The Nasdaq Bond Exchange is also designed to be a free, open, and
fair marketplace. All Nasdaq Members will be eligible to become Users
simply by electing to receive access. Moreover, Nasdaq proposes simple
and straightforward rules to govern the operation of the Bond Exchange,
including a familiar price-time allocation methodology, two basic order
types, a single Bond Trading Session with no after-hours trading, and
market data feed that will be disseminated, for free, to any member of
the public that requests it and agrees to the Exchange's terms and
conditions of use. At the same time, the proposal will also include
provisions that are endemic to orderly and well-regulated markets,
including authority to impose trading halts and suspensions, in
appropriate circumstances, and to unwind clearly erroneous trades
pursuant to established procedures under Nasdaq Rule 11890 and bond-
specific criteria adapted from NYSE Rule 86.
Nasdaq will also leverage the conduct rules, surveillance
technology, and enforcement infrastructure that it utilizes with
respect to its other markets to ensure that the Nasdaq Bond Exchange
operates in a fair and orderly fashion and that Nasdaq prevents,
detects, and addresses fraudulent and manipulative acts and practices.
For example, Nasdaq's MarketWatch Department will surveil the market
and employ its SMARTS technology to detect suspicious or non-compliant
behavior. Nasdaq's existing disciplinary rules, as set forth in the
Nasdaq Rule 8000 and 9000 Series, will apply to Users of the Nasdaq
Bond Exchange, and Nasdaq's Regulation Department will, pursuant to
these disciplinary rules, investigate and take fair and appropriate
enforcement action to address violations of rules relevant to trading
on the Nasdaq Bond Exchange or the conduct of Users.
Moreover, the proposal provides for the equitable allocation of
reasonable dues, fees, and other charges among its members, issuers and
other persons using its facilities. Nasdaq will charge no fees to trade
non-convertible bonds on the Nasdaq Bond Exchange, to obtain the FIX
ports that are necessary to connect to the Nasdaq Bond Market, or to
receive the Nasdaq Corporates Totalview data feed product.
Additionally, to the extent that a User already purchases physical
connectivity to Nasdaq pursuant to General 8, Sections 1 and 2 of the
Nasdaq Rules, such a User could utilize its existing connectivity to
connect to the Bond Exchange without any incurring additional fees to
do so.
Finally, Nasdaq notes that it has designed the Nasdaq Bond Exchange
system to facilitate transactions in corporate bonds in a manner that
is similar to, and competitive with, the existing NYSE Bonds trading
system. The Commission has already deemed the design of NYSE Bonds to
be consistent with the Act.\66\ Indeed, much of the language in
proposed Rule 4000B, which will govern the Nasdaq Bond Exchange, is
adapted from NYSE Rule
[[Page 45297]]
86, which governs NYSE Bonds. That is, like NYSE Bonds, the Nasdaq Bond
Exchange will be an electronic system for receiving, processing,
executing, and reporting bids, offers and executions in bonds. Like
NYSE Bonds, the Nasdaq Bond Exchange will display, match and execute
buy and sell orders on a price/time basis. The Exchange, like NYSE,
will also accept good-for-day limit orders and kill-or-fill orders, and
it will trade bonds of issuers that have at least one class of equity
securities listed on Nasdaq, NYSE, or NYSE American.\67\
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\66\ See Securities Exchange Act Release No. 34-55496 (Mar. 20,
2007), 72 FR 14631 (Mar. 28, 2007).
\67\ See n.11, supra.
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To the extent that the Nasdaq Bond Exchange will differ from NYSE
Bonds, these differences will render the Nasdaq Bond Exchange simpler
than NYSE Bonds. At its inception, the Nasdaq Bond Exchange will not
have--as does NYSE Bonds--market makers, sponsored access, auctions,
price collars, or certain order types (e.g., reserve orders, minimum
quantity orders, good-til-cancelled orders, and timed orders). The
Nasdaq Bond Exchange also will have only one trading session each day
as opposed to NYSE Bonds, which has three sessions. Although the Nasdaq
Bond Exchange will initially lack these features of NYSE Bonds, Nasdaq
believes that the platform nevertheless will have the features it needs
to compete effectively with NYSE Bonds. The Exchange observes that
Users of NYSE Bonds do not appear to avail themselves of many of its
features and functionalities, such that the Exchange does not believe
that the Nasdaq Bond Exchange needs these features and functionalities
to compete with NYSE Bonds. In any event, the Exchange is committed to
adding new features to the Nasdaq Bond Exchange in the future to the
extent that Nasdaq determines that a demand exists for those features
and that adding them will help the Nasdaq Bond Exchange compete
successfully in the marketplace.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. Rather, the proposed rule
change will promote competition among exchanges by allowing Nasdaq to
list and trade non-convertible bonds, which can currently be listed
only on NYSE and NYSE American. The proposals will have the pro-
competitive effect of spurring further initiative and innovation among
market centers and market participants.
Nasdaq notes that its proposed listing standards are consistent
with the standards for initial and continued listing of bonds on NYSE
and NYSE American. If issuers are unsatisfied with Nasdaq's listing
program or the fees charged for that program, these issuers can choose
to list on these other markets.
Likewise, the Exchange notes that its proposed system for trading
non-convertible bonds listed on Nasdaq--the Nasdaq Bond Exchange--will
be competitive with NYSE Bonds. Although initially, the Nasdaq Bond
Exchange will have more limited functionality than does NYSE Bonds,
including with respect to order types, auctions, the number of trading
sessions, and the use of market makers, the Exchange believes that the
Nasdaq Bond Exchange will be competitive with NYSE Bonds because the
Exchange has incorporated into the Nasdaq Bond Exchange those features
of NYSE Bonds that its Users actually want and need when trading bonds
and it excluded those they do not actually utilize. That said, the
Exchange will add additional functionality and features to the Nasdaq
Bond Exchange as demand warrants it to do so and to the extent that the
Exchange deems it necessary to remain competitive with NYSE Bonds.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NASDAQ-2018-070 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-2018-070. 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 the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. 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-2018-070 and should be submitted
on or before September 27, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\68\
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\68\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-19239 Filed 9-5-18; 8:45 am]
BILLING CODE 8011-01-P
