Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Adopt a New Rule Permitting Nasdaq To Halt Trading in a Security and Request Information From the Company Regarding the Number of Unrestricted Publicly Held Shares in Certain Circumstances and in Certain Circumstances Request a Plan To Increase the Number of Unrestricted Publicly Held Shares to an Amount That Is Higher Than the Applicable Publicly Held Shares Requirement, 67974-67976 [2019-26728]
Download as PDF
67974
Federal Register / Vol. 84, No. 239 / Thursday, December 12, 2019 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87677; File No. SR–
NASDAQ–2019–091]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Proposed Rule Change To
Adopt a New Rule Permitting Nasdaq
To Halt Trading in a Security and
Request Information From the
Company Regarding the Number of
Unrestricted Publicly Held Shares in
Certain Circumstances and in Certain
Circumstances Request a Plan To
Increase the Number of Unrestricted
Publicly Held Shares to an Amount
That Is Higher Than the Applicable
Publicly Held Shares Requirement
December 6, 2019.
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 November
22, 2019, 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.
khammond on DSKJM1Z7X2PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to adopt a
new rule permitting Nasdaq to halt
trading in a security and request
information from the company
regarding the number of unrestricted
publicly held shares when Nasdaq
observes unusual trading characteristics
in a security or a company announces
an event that may cause a contraction in
the number of unrestricted publicly
held shares.
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
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
VerDate Sep<11>2014
17:56 Dec 11, 2019
Jkt 250001
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’s listing requirements include
a number of criteria designed to ensure
that a listed security has adequate
liquidity and is thus suitable for listing
and trading on a national securities
exchange. These requirements are
intended to ensure that there are
sufficient shares available for trading to
facilitate proper price discovery in the
secondary market. On July 5, 2019, the
Commission approved Nasdaq’s
proposed changes to enhance its initial
listing standards related to liquidity (the
‘‘Approval Order’’).3 Under the revised
standards, securities subject to resale
restrictions for any reason (‘‘restricted
securities’’) are excluded from the
calculation of publicly held shares for
initial listing purposes.4 Nasdaq
believes that, by excluding securities
that are not freely transferrable or
available for investors to purchase, the
revised standards help the Exchange to
ensure that companies seeking to list on
Nasdaq have sufficient public float,
investor base, and trading interest likely
to generate depth and liquidity.
These changes apply only to a
company’s initial listing, and do not
apply to Nasdaq’s calculation of
publicly held shares for continued
listing purposes.5 Instead, for continued
listing purposes, a company is required
to maintain a minimum number of
publicly held shares, which means
shares not held directly or indirectly by
3 See Securities Exchange Act Release No. 86314
(July 5, 2019), 84 FR 33102 (July 11, 2019)
(approving SR–NASDAQ–2019–009).
4 Rule 5005(a)(37) defines ‘‘Restricted Securities’’
as ‘‘securities that are subject to resale restrictions
for any reason, including, but not limited to,
securities: (1) Acquired directly or indirectly from
the issuer or an affiliate of the issuer in unregistered
offerings such as private placements or Regulation
D offerings; (2) acquired through an employee stock
benefit plan or as compensation for professional
services; (3) acquired in reliance on Regulation S,
which cannot be resold within the United States; (4)
subject to a lockup agreement or a similar
contractual restriction; or (5) considered ‘‘restricted
securities’’ under Rule 144.’’
5 See Approval Order at 33112 (‘‘Nasdaq states
that it is not proposing to change the requirements
for continued listing at this time, and believes that
the proposed heightened initial listing requirements
will result in enhanced liquidity for the companies
that satisfy them on an ongoing basis.’’).
PO 00000
Frm 00064
Fmt 4703
Sfmt 4703
an officer, a director or any person who
is the beneficial owner of more than 10
percent of the total shares outstanding.6
Restricted securities are not excluded
from the calculation of a listed
company’s publicly held shares.
Nasdaq believes that, as a result of the
exclusion of restricted securities from
the liquidity tests upon initial listing,
securities listing on Nasdaq will be
more likely to trade better after listing.
However, while newly listing
companies must satisfy the revised
initial listing requirements, companies
that were not required to meet those
requirements upon initial listing may
still have restricted securities that are
not freely tradable. In addition, a listed
company may conduct a transaction that
decreases the number of unrestricted
securities in its public float, such as a
reverse stock split, tender offer, stock
buyback, or entering into a contractual
agreement such as a standstill or lockup.
The Exchange believes that the new
initial listing standards do not
sufficiently address these concerns,
which could potentially result in a
security that is illiquid.
Illiquid securities may trade
infrequently and in a more volatile
manner and change hands at a price that
may not reflect their true market value.
Less liquid securities may also be more
susceptible to price manipulation as a
relatively small amount of trading
activity can have an inordinate effect on
market prices. Nasdaq has observed
problems with a small number of listed
companies that have a large number of
restricted securities in their public float.
Such companies may not have sufficient
liquidity to meet investor demand,
particularly upon announcement of
material news, which may result in
unusual trading characteristics, such as
extreme price movements and
unusually large bid-ask spreads.
While Nasdaq’s existing rules allow it
to apply additional and more stringent
criteria to a listed company that satisfies
all of the continued listing requirements
where there are indications that there is
insufficient liquidity in the security to
support fair and orderly trading,7
6 Rule 5005(a)(35) defines ‘‘Publicly Held Shares’’
as ‘‘shares not held directly or indirectly by an
officer, director or any person who is the beneficial
owner of more than 10 percent of the total shares
outstanding. Determinations of beneficial
ownership in calculating publicly held shares shall
be made in accordance with Rule 13d–3 under the
Act.’’
7 Rule 5101 provides, in part, that ‘‘Nasdaq may
use [its broad discretionary authority] to . . . apply
additional or more stringent criteria for the initial
or continued listing of particular securities, or
suspend or delist particular securities based on any
event, condition, or circumstance that exists or
occurs that makes initial or continued listing of the
E:\FR\FM\12DEN1.SGM
12DEN1
Federal Register / Vol. 84, No. 239 / Thursday, December 12, 2019 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
Nasdaq believes that it would enhance
investor protection and the transparency
of Nasdaq’s regulatory process to adopt
a rule specifying certain situations in
which Nasdaq would act in this manner.
Therefore, the Exchange is proposing to
adopt a new Rule 5120, which would
specifically permit Nasdaq to request
information from a company regarding
the number of unrestricted publicly
held shares 8 when Nasdaq observes
unusual trading characteristics of a
security or if a company announces an
event that may cause a contraction in
the number of unrestricted publicly
held shares. Nasdaq may also halt
trading in the security in connection
with such a request pursuant to
Nasdaq’s authority under Rule
4120(a)(5).9 If information provided by
the company, or otherwise obtained by
Nasdaq, indicates that the number of
unrestricted publicly held shares is
below the applicable publicly held
shares requirement for continued listing
of the security, Nasdaq generally will
use its authority under Rule 5101 to
apply more stringent criteria and
request a plan to increase the number of
unrestricted publicly held shares to an
amount that is higher than the
applicable publicly held shares
requirement, as provided in the Rule
5800 Series.10
Under proposed Rule 5120, in
considering whether there are unusual
trading characteristics, Nasdaq may
review volume, price movements,
spread and the presence or absence of
any news. Events that may cause a
contraction in the number of
unrestricted publicly held shares
include reverse stock splits, tender
offers, stock buybacks, or entering into
contractual agreements such as
standstills or lockups. Nasdaq is also
proposing to revise Rule 5810(c)(2)(A) to
correct punctuation within the rule and
add a new subsection (vii) to provide
securities on Nasdaq inadvisable or unwarranted in
the opinion of Nasdaq, even though the securities
meet all enumerated criteria for initial or continued
listing on Nasdaq.’’ See also Approval Order at
33103 (footnote 9).
8 Rule 5005(a)(45) defines ‘‘Unrestricted Publicly
Held Shares’’ as ‘‘the Publicly Held Shares that are
Unrestricted Securities.’’ Rule 5005(a)(46) defines
‘‘Unrestricted Securities’’ as ‘‘securities that are not
Restricted Securities.’’
9 Rule 4120(a)(5) provides that Nasdaq ‘‘may halt
trading in a security listed on Nasdaq when Nasdaq
requests from the issuer information relating to: (A)
Material news; (B) the issuer’s ability to meet
Nasdaq listing qualification requirements, as set
forth in the Listing Rule 5000 Series; or (C) any
other information which is necessary to protect
investors and the public interest.’’
10 The Rule 5800 Series sets forth procedures for
the independent review, suspension, and delisting
of companies that fail to satisfy one or more
standards for initial or continued listing, and thus
are ‘‘deficient’’ with respect to the listing standards.
VerDate Sep<11>2014
17:56 Dec 11, 2019
Jkt 250001
that when Nasdaq requests a plan to
increase the number of publicly held
shares [sic], such plan must generally be
provided to Nasdaq within 45 calendar
days of the date of the request.
The proposed rule would not impose
any burden on companies, which may
not otherwise regularly track or report
the number of their unrestricted
publicly held shares, to determine these
amounts unless Nasdaq observed
unusual trading characteristics or a
change in the company’s total shares
outstanding. As such, Nasdaq believes
that the proposed rule change is finely
tailored to address the Exchange’s
concerns, without imposing an
unnecessary burden on companies.
Finally, Nasdaq is proposing to revise
the phrase ‘‘market value of publicly
held shares’’ to ‘‘Market Value of
Publicly Held Shares’’ in Rules
5810(c)(3)(A)(i) and 5810(c)(3)(A)(ii) to
correct an inadvertent error and clarify
that these references are to the term as
defined in Rule 5005(a).
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,11 in general, and furthers the
objectives of Section 6(b)(5) of the Act,12
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest. The
proposed change will enhance
transparency and ensure that securities
listed on Nasdaq are liquid and have
sufficient freely tradable shares to meet
investor demand, which will reduce
trading volatility and price
manipulation, thereby protecting
investors and the public interest and
supporting fair and orderly trading.
Illiquid securities may trade
infrequently, in a more volatile manner
and with a wider bid-ask spread, all of
which may result in trading at a price
that may not reflect their true market
value. Less liquid securities also may be
more susceptible to price manipulation,
as a relatively small amount of trading
activity can have an inordinate effect on
market prices.
Nasdaq believes that it will protect
investors and the public interest to halt
trading in a security that exhibits
unusual trading characteristics and
request information from the company
regarding its number of unrestricted
publicly held shares in order to
determine whether such unusual
11 15
12 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00065
Fmt 4703
Sfmt 4703
67975
trading characteristics were caused by a
large number of restricted securities.
Nasdaq believes that it also will protect
investors and the public interest to halt
trading in a security and request
information from the company
regarding its number of unrestricted
publicly held shares if the company has
announced a liquidity-reducing event in
order to determine whether a company
has a sufficient number of unrestricted
publicly held shares following such
liquidity-reducing event. The Exchange
believes that these changes will help
Nasdaq to ensure that the security has
enough liquidity to meet investor
demand after the liquidity-reducing
event, which will support fair and
orderly trading.
Nasdaq currently monitors securities
for unusual trading characteristics and
receives notifications from companies
regarding material news and changes in
total shares outstanding. Therefore, the
proposed rule would not require
companies to report unrestricted
publicly held shares to Nasdaq on an
ongoing basis. As such, Nasdaq believes
that the proposed rule change is finely
tailored to address the Exchange’s
concerns, without imposing an
unnecessary burden on companies.
The Commission has previously
opined on the importance of meaningful
listing standards for the protection of
investors and the public interest.13 In
particular, the Commission stated:
Among other things, listing standards
provide the means for an exchange to screen
issuers that seek to become listed, and to
provide listed status only to those that are
bona fide companies with sufficient public
float, investor base, and trading interest
likely to generate depth and liquidity
sufficient to promote fair and orderly
markets. Meaningful listing standards also
are important given investor expectations
regarding the nature of securities that have
achieved an exchange listing, and the role of
an exchange in overseeing its market and
assuring compliance with its listing
standards.14
Further, the Exchange believes that
this proposal is not designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
While the proposed changes will only
apply to securities exhibiting unusual
trading characteristics and companies
which announce an event that may
cause a contraction in the number of
unrestricted publicly held shares of a
listed security, they will apply equally
13 Securities Exchange Act Release No. 65708
(November 8, 2011), 76 FR 70799 (November 15,
2011) (approving SR–Nasdaq–2011–073 adopting
additional listing requirements for companies
applying to list after consummation of a ‘‘reverse
merger’’ with a shell company).
14 Id. at 70802.
E:\FR\FM\12DEN1.SGM
12DEN1
67976
Federal Register / Vol. 84, No. 239 / Thursday, December 12, 2019 / Notices
to all such securities listed on Nasdaq
and the Exchange believes that evidence
of unusual trading characteristics is a
non-discriminatory reason to apply
additional criteria to these securities.
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. All
companies and securities listed on
Nasdaq will be affected in the same
manner by these changes, across all
market tiers. To the extent that
companies prefer listing on a market
with these proposed listing standards,
other exchanges can choose to adopt
similar enhancements to their
requirements. As such, these changes
are neither intended to, nor expected to,
impose any burden on competition
between exchanges.
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
khammond on DSKJM1Z7X2PROD with NOTICES
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:
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–2019–091. 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–2019–091 and
should be submitted on or before
January 2, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–26728 Filed 12–11–19; 8:45 am]
BILLING CODE 8011–01–P
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2019–091 on the subject line.
VerDate Sep<11>2014
17:56 Dec 11, 2019
Jkt 250001
15 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00066
Fmt 4703
Sfmt 4703
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87678; File No. SR–
CboeEDGX–2019–029]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc; Notice of
Withdrawal of a Proposed Rule Change
To Amend the Fee Schedule Assessed
on Members To Establish a Monthly
Trading Rights Fee
December 6, 2019.
On April 29, 2019, Cboe EDGX
Exchange, Inc. (‘‘EDGX’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’),1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend the EDGX Fee Schedule to
establish a monthly Trading Rights Fee
to be assessed on Members. The
proposed rule change was immediately
effective upon filing with the
Commission pursuant to Section
19(b)(3)(A) of the Act.3 The proposed
rule change was published for comment
in the Federal Register on May 16,
2019.4 On June 28, 2019, the
Commission temporarily suspended the
proposed rule change and instituted
proceedings to determine whether to
approve or disapprove the proposed
rule change.5 In response to the EDGX
OIP, the Commission received three
comment letters, including a response
letter from the Exchange.6 On November
12, 2019, pursuant to Section 19(b)(2) of
the Act,7 the Commission designated a
longer period within which to approve
or disapprove the proposed rule
change.8 On November 21, 2019, the
Exchange withdrew the proposed rule
change (SR–CboeEDGX–2019–029).
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 See Securities Exchange Act Release No. 85838
(May 10, 2019), 84 FR 22174.
5 See Securities Exchange Act Release No. 86231,
84 FR 32233 (July 05, 2019) (‘‘EDGX OIP’’).
6 See Letters from Theodore R. Lazo, Managing
Director and Associate General Counsel, SIFMA,
dated July 26, 2019; Tyler Gellasch, Executive
Director, Healthy Markets, dated July 26, 2019; and
Rebecca Tenuta, Counsel, Cboe Global Markets,
dated August 9, 2019.
7 15 U.S.C. 78s(b)(2).
8 See Securities Exchange Act Release No. 87498,
84 FR 63688 (November 18, 2019). The Commission
designated January 11, 2020, as the date by which
the Commission would approve or disapprove the
proposed rule change.
2 17
E:\FR\FM\12DEN1.SGM
12DEN1
Agencies
[Federal Register Volume 84, Number 239 (Thursday, December 12, 2019)]
[Notices]
[Pages 67974-67976]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-26728]
[[Page 67974]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87677; File No. SR-NASDAQ-2019-091]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To Adopt a New Rule Permitting
Nasdaq To Halt Trading in a Security and Request Information From the
Company Regarding the Number of Unrestricted Publicly Held Shares in
Certain Circumstances and in Certain Circumstances Request a Plan To
Increase the Number of Unrestricted Publicly Held Shares to an Amount
That Is Higher Than the Applicable Publicly Held Shares Requirement
December 6, 2019.
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 November 22, 2019, 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 a new rule permitting Nasdaq to halt
trading in a security and request information from the company
regarding the number of unrestricted publicly held shares when Nasdaq
observes unusual trading characteristics in a security or a company
announces an event that may cause a contraction in the number of
unrestricted publicly held shares.
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's listing requirements include a number of criteria designed
to ensure that a listed security has adequate liquidity and is thus
suitable for listing and trading on a national securities exchange.
These requirements are intended to ensure that there are sufficient
shares available for trading to facilitate proper price discovery in
the secondary market. On July 5, 2019, the Commission approved Nasdaq's
proposed changes to enhance its initial listing standards related to
liquidity (the ``Approval Order'').\3\ Under the revised standards,
securities subject to resale restrictions for any reason (``restricted
securities'') are excluded from the calculation of publicly held shares
for initial listing purposes.\4\ Nasdaq believes that, by excluding
securities that are not freely transferrable or available for investors
to purchase, the revised standards help the Exchange to ensure that
companies seeking to list on Nasdaq have sufficient public float,
investor base, and trading interest likely to generate depth and
liquidity.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 86314 (July 5,
2019), 84 FR 33102 (July 11, 2019) (approving SR-NASDAQ-2019-009).
\4\ Rule 5005(a)(37) defines ``Restricted Securities'' as
``securities that are subject to resale restrictions for any reason,
including, but not limited to, securities: (1) Acquired directly or
indirectly from the issuer or an affiliate of the issuer in
unregistered offerings such as private placements or Regulation D
offerings; (2) acquired through an employee stock benefit plan or as
compensation for professional services; (3) acquired in reliance on
Regulation S, which cannot be resold within the United States; (4)
subject to a lockup agreement or a similar contractual restriction;
or (5) considered ``restricted securities'' under Rule 144.''
---------------------------------------------------------------------------
These changes apply only to a company's initial listing, and do not
apply to Nasdaq's calculation of publicly held shares for continued
listing purposes.\5\ Instead, for continued listing purposes, a company
is required to maintain a minimum number of publicly held shares, which
means shares not held directly or indirectly by an officer, a director
or any person who is the beneficial owner of more than 10 percent of
the total shares outstanding.\6\ Restricted securities are not excluded
from the calculation of a listed company's publicly held shares.
---------------------------------------------------------------------------
\5\ See Approval Order at 33112 (``Nasdaq states that it is not
proposing to change the requirements for continued listing at this
time, and believes that the proposed heightened initial listing
requirements will result in enhanced liquidity for the companies
that satisfy them on an ongoing basis.'').
\6\ Rule 5005(a)(35) defines ``Publicly Held Shares'' as
``shares not held directly or indirectly by an officer, director or
any person who is the beneficial owner of more than 10 percent of
the total shares outstanding. Determinations of beneficial ownership
in calculating publicly held shares shall be made in accordance with
Rule 13d-3 under the Act.''
---------------------------------------------------------------------------
Nasdaq believes that, as a result of the exclusion of restricted
securities from the liquidity tests upon initial listing, securities
listing on Nasdaq will be more likely to trade better after listing.
However, while newly listing companies must satisfy the revised initial
listing requirements, companies that were not required to meet those
requirements upon initial listing may still have restricted securities
that are not freely tradable. In addition, a listed company may conduct
a transaction that decreases the number of unrestricted securities in
its public float, such as a reverse stock split, tender offer, stock
buyback, or entering into a contractual agreement such as a standstill
or lockup. The Exchange believes that the new initial listing standards
do not sufficiently address these concerns, which could potentially
result in a security that is illiquid.
Illiquid securities may trade infrequently and in a more volatile
manner and change hands at a price that may not reflect their true
market value. Less liquid securities may also be more susceptible to
price manipulation as a relatively small amount of trading activity can
have an inordinate effect on market prices. Nasdaq has observed
problems with a small number of listed companies that have a large
number of restricted securities in their public float. Such companies
may not have sufficient liquidity to meet investor demand, particularly
upon announcement of material news, which may result in unusual trading
characteristics, such as extreme price movements and unusually large
bid-ask spreads.
While Nasdaq's existing rules allow it to apply additional and more
stringent criteria to a listed company that satisfies all of the
continued listing requirements where there are indications that there
is insufficient liquidity in the security to support fair and orderly
trading,\7\
[[Page 67975]]
Nasdaq believes that it would enhance investor protection and the
transparency of Nasdaq's regulatory process to adopt a rule specifying
certain situations in which Nasdaq would act in this manner. Therefore,
the Exchange is proposing to adopt a new Rule 5120, which would
specifically permit Nasdaq to request information from a company
regarding the number of unrestricted publicly held shares \8\ when
Nasdaq observes unusual trading characteristics of a security or if a
company announces an event that may cause a contraction in the number
of unrestricted publicly held shares. Nasdaq may also halt trading in
the security in connection with such a request pursuant to Nasdaq's
authority under Rule 4120(a)(5).\9\ If information provided by the
company, or otherwise obtained by Nasdaq, indicates that the number of
unrestricted publicly held shares is below the applicable publicly held
shares requirement for continued listing of the security, Nasdaq
generally will use its authority under Rule 5101 to apply more
stringent criteria and request a plan to increase the number of
unrestricted publicly held shares to an amount that is higher than the
applicable publicly held shares requirement, as provided in the Rule
5800 Series.\10\
---------------------------------------------------------------------------
\7\ Rule 5101 provides, in part, that ``Nasdaq may use [its
broad discretionary authority] to . . . apply additional or more
stringent criteria for the initial or continued listing of
particular securities, or suspend or delist particular securities
based on any event, condition, or circumstance that exists or occurs
that makes initial or continued listing of the securities on Nasdaq
inadvisable or unwarranted in the opinion of Nasdaq, even though the
securities meet all enumerated criteria for initial or continued
listing on Nasdaq.'' See also Approval Order at 33103 (footnote 9).
\8\ Rule 5005(a)(45) defines ``Unrestricted Publicly Held
Shares'' as ``the Publicly Held Shares that are Unrestricted
Securities.'' Rule 5005(a)(46) defines ``Unrestricted Securities''
as ``securities that are not Restricted Securities.''
\9\ Rule 4120(a)(5) provides that Nasdaq ``may halt trading in a
security listed on Nasdaq when Nasdaq requests from the issuer
information relating to: (A) Material news; (B) the issuer's ability
to meet Nasdaq listing qualification requirements, as set forth in
the Listing Rule 5000 Series; or (C) any other information which is
necessary to protect investors and the public interest.''
\10\ The Rule 5800 Series sets forth procedures for the
independent review, suspension, and delisting of companies that fail
to satisfy one or more standards for initial or continued listing,
and thus are ``deficient'' with respect to the listing standards.
---------------------------------------------------------------------------
Under proposed Rule 5120, in considering whether there are unusual
trading characteristics, Nasdaq may review volume, price movements,
spread and the presence or absence of any news. Events that may cause a
contraction in the number of unrestricted publicly held shares include
reverse stock splits, tender offers, stock buybacks, or entering into
contractual agreements such as standstills or lockups. Nasdaq is also
proposing to revise Rule 5810(c)(2)(A) to correct punctuation within
the rule and add a new subsection (vii) to provide that when Nasdaq
requests a plan to increase the number of publicly held shares [sic],
such plan must generally be provided to Nasdaq within 45 calendar days
of the date of the request.
The proposed rule would not impose any burden on companies, which
may not otherwise regularly track or report the number of their
unrestricted publicly held shares, to determine these amounts unless
Nasdaq observed unusual trading characteristics or a change in the
company's total shares outstanding. As such, Nasdaq believes that the
proposed rule change is finely tailored to address the Exchange's
concerns, without imposing an unnecessary burden on companies.
Finally, Nasdaq is proposing to revise the phrase ``market value of
publicly held shares'' to ``Market Value of Publicly Held Shares'' in
Rules 5810(c)(3)(A)(i) and 5810(c)(3)(A)(ii) to correct an inadvertent
error and clarify that these references are to the term as defined in
Rule 5005(a).
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\11\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\12\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest. The proposed change will enhance transparency and ensure that
securities listed on Nasdaq are liquid and have sufficient freely
tradable shares to meet investor demand, which will reduce trading
volatility and price manipulation, thereby protecting investors and the
public interest and supporting fair and orderly trading. Illiquid
securities may trade infrequently, in a more volatile manner and with a
wider bid-ask spread, all of which may result in trading at a price
that may not reflect their true market value. Less liquid securities
also may be more susceptible to price manipulation, as a relatively
small amount of trading activity can have an inordinate effect on
market prices.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Nasdaq believes that it will protect investors and the public
interest to halt trading in a security that exhibits unusual trading
characteristics and request information from the company regarding its
number of unrestricted publicly held shares in order to determine
whether such unusual trading characteristics were caused by a large
number of restricted securities. Nasdaq believes that it also will
protect investors and the public interest to halt trading in a security
and request information from the company regarding its number of
unrestricted publicly held shares if the company has announced a
liquidity-reducing event in order to determine whether a company has a
sufficient number of unrestricted publicly held shares following such
liquidity-reducing event. The Exchange believes that these changes will
help Nasdaq to ensure that the security has enough liquidity to meet
investor demand after the liquidity-reducing event, which will support
fair and orderly trading.
Nasdaq currently monitors securities for unusual trading
characteristics and receives notifications from companies regarding
material news and changes in total shares outstanding. Therefore, the
proposed rule would not require companies to report unrestricted
publicly held shares to Nasdaq on an ongoing basis. As such, Nasdaq
believes that the proposed rule change is finely tailored to address
the Exchange's concerns, without imposing an unnecessary burden on
companies.
The Commission has previously opined on the importance of
meaningful listing standards for the protection of investors and the
public interest.\13\ In particular, the Commission stated:
---------------------------------------------------------------------------
\13\ Securities Exchange Act Release No. 65708 (November 8,
2011), 76 FR 70799 (November 15, 2011) (approving SR-Nasdaq-2011-073
adopting additional listing requirements for companies applying to
list after consummation of a ``reverse merger'' with a shell
company).
Among other things, listing standards provide the means for an
exchange to screen issuers that seek to become listed, and to
provide listed status only to those that are bona fide companies
with sufficient public float, investor base, and trading interest
likely to generate depth and liquidity sufficient to promote fair
and orderly markets. Meaningful listing standards also are important
given investor expectations regarding the nature of securities that
have achieved an exchange listing, and the role of an exchange in
overseeing its market and assuring compliance with its listing
standards.\14\
---------------------------------------------------------------------------
\14\ Id. at 70802.
Further, the Exchange believes that this proposal is not designed
to permit unfair discrimination between customers, issuers, brokers, or
dealers. While the proposed changes will only apply to securities
exhibiting unusual trading characteristics and companies which announce
an event that may cause a contraction in the number of unrestricted
publicly held shares of a listed security, they will apply equally
[[Page 67976]]
to all such securities listed on Nasdaq and the Exchange believes that
evidence of unusual trading characteristics is a non-discriminatory
reason to apply additional criteria to these securities.
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. All companies and securities
listed on Nasdaq will be affected in the same manner by these changes,
across all market tiers. To the extent that companies prefer listing on
a market with these proposed listing standards, other exchanges can
choose to adopt similar enhancements to their requirements. As such,
these changes are neither intended to, nor expected to, impose any
burden on competition between exchanges.
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-2019-091 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-2019-091. 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-2019-091 and should be submitted
on or before January 2, 2020.
---------------------------------------------------------------------------
\15\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-26728 Filed 12-11-19; 8:45 am]
BILLING CODE 8011-01-P