Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 2, To Amend Chapter One of the Listed Company Manual To Modify the Provisions Relating to Direct Listings, 39246-39251 [2020-14013]
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39246
Federal Register / Vol. 85, No. 126 / Tuesday, June 30, 2020 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89148; File No. SR–NYSE–
2019–67]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Proposed Rule Change, as
Modified by Amendment No. 2, To
Amend Chapter One of the Listed
Company Manual To Modify the
Provisions Relating to Direct Listings
June 24, 2020.
On December 11, 2019, New York
Stock Exchange LLC (‘‘NYSE’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) 1 of the Securities Exchange Act
of 1934 (‘‘Act’’) 2 and Rule 19b–4
thereunder,3 a proposed rule change to
amend Chapter One of the Listed
Company Manual to modify the
provisions relating to direct listings. On
December 13, 2019, the Exchange filed
Amendment No. 1 to the proposed rule
change, which amended and replaced
the proposed rule change in its entirety.
The proposed rule change, as modified
by Amendment No. 1, was published for
comment in the Federal Register on
December 30, 2019.4 On February 13,
2020, pursuant to Section 19(b)(2) of the
Exchange Act,5 the Commission
designated a longer period within which
to either approve the proposed rule
change, disapprove the proposed rule
change, or institute proceedings to
determine whether to disapprove the
proposed rule change.6 On March 26,
2020, the Commission instituted
proceedings to determine whether to
approve or disapprove the proposed
rule change, as modified by Amendment
No. 1.7 On June 22, 2020, the Exchange
filed Amendment No. 2 to the proposed
rule change, which superseded the
proposed rule change as modified by
Amendment No. 1, and is described in
Items I and II below, which Items have
been prepared by the Exchange. On June
24, 2020, the Commission extended the
time period for approving or
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
4 See Securities Exchange Act Release No. 87821
(December 20, 2019), 84 FR 72065 (December 30,
2019) (‘‘Notice’’). Comments received on the Notice
are available on the Commission’s website at:
https://www.sec.gov/comments/sr-nyse-2019-67/
srnyse201967.htm.
5 15 U.S.C. 78s(b)(2).
6 See Securities and Exchange Act Release No.
88190 (February 13, 2020), 85 FR 9891 (February
20, 2020).
7 See Securities and Exchange Act Release No.
88485 (March 26, 2020), 85 FR 18292 (April 1,
2020).
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disapproving the proposal for an
additional 60 days.8 The Commission is
publishing this notice to solicit
comments on the proposed rule change,
as modified by Amendment No. 2, from
interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to (1) amend
Chapter One of the Listed Company
Manual (the ‘‘Manual’’) to modify the
provisions relating to direct listings to
permit a primary offering in connection
with a direct listing and to specify how
a direct listing qualifies for initial listing
if it includes both sales of securities by
the company and possible sales by
selling shareholders, (2) modify the
definition of ‘‘Direct Listing’’ in Rule
1.1, (3) add a definition of Issuer Direct
Offering (‘‘IDO’’) Order to Rule 7.31 and
describe how it would participate in a
Direct Listing Auction in Rule 7.35A,
and (4) remove references to Direct
Listing Auctions from Rule 7.35C.9 The
proposed rule change is available on the
Exchange’s website at www.nyse.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
self-regulatory organization 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 those 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 parts of such
statements.
8 See Securities and Exchange Act Release No.
89147 (June 24, 2020).
9 The Exchange has previously filed a proposed
rule change to amend Chapter One of the Manual
to modify the provisions related to direct listings.
See SR–NYSE–2019–67 and Amendment No. 1 to
that filing. Amendment No. 2 to SR–NYSE–2019–
67 proposes to (1) delete from the filing the
proposed amendment to Section 102.01A proposing
to provide additional time under certain
circumstances for companies listing in connection
with a direct listing to meet the initial listing
distribution standards and add provisions
specifying how a direct listing qualifies for listing
if it includes both sales of securities by the
company and possible sales by selling shareholders,
(2) amend Exchange Rules to add the IDO Order
and describe how it would participate in a Direct
Listing Auction for a Primary Direct Floor Listing
and remove references to Direct Listing Auctions
from Rule 7.35C. This Amendment No.2 to SR–
NYSE–2019–67 replaces Amendment No. 1 to SR–
NYSE–2019–67 as originally filed and supersedes
such filing in its entirety.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend (1)
Chapter One of the Manual to modify
the provisions relating to direct listings
to permit a primary offering in
connection with a direct listing and to
specify how a direct listing qualifies for
initial listing if it includes both sales of
securities by the company and possible
sales by selling shareholders, (2) Rule
1.1 (Definitions) to modify the
definition of ‘‘Direct Listing,’’ (3) Rules
7.31 (Orders and Modifiers) and 7.35A
(DMM-Facilitated Core Open and
Trading Halt Auctions) to add a
definition of Issuer Direct Offering
(‘‘IDO’’) Order and describe how it
would participate in a Direct Listing
Auction, and (4) remove references to
Direct Listing Auctions in Rule 7.35C.10
Amendments to the Manual
Section 102.01B of the Manual
includes initial listing requirements for
a company that has not previously had
its common equity securities registered
under the Act, to list its common equity
securities on the Exchange at the time
of effectiveness of a registration
statement filed solely for the purpose of
allowing existing shareholders to sell
their shares (a ‘‘Selling Shareholder
Direct Floor Listing’’).11 To allow a
company to sell shares on its own behalf
in connection with its initial listing
upon effectiveness of a registration
statement, without a traditional
underwritten public offering, the
Exchange proposes to amend Section
102.01B. The proposed change would
allow a company that has not previously
had its common equity securities
registered under the Act, to list its
common equity securities on the
Exchange at the time of effectiveness of
a registration statement pursuant to
which the company itself will sell
10 Trading in all securities on the Exchange,
including any Direct Listing Auctions, is subject to
the Pillar trading rules. The term ‘‘Direct Listing
Auction’’ is defined in Rule 7.35(a)(1)(E) to mean
a Core Open Auction for the first day of trading on
the Exchange of a security that is a Direct Listing.
The term ‘‘Core Open Auction’’ is defined in Rule
7.35(a)(1)(A) to mean the Auction that opens
trading at the beginning of the Core Trading
Session, and for Exchange-listed securities, the term
‘‘Core Trading Session’’ is defined in Rule
7.34(a)(2)(B) to begin for each security with the Core
Open Auction, which can take place during Core
Trading Hours only, which, pursuant to Rule 1.1,
begins at 9:30 a.m. Eastern Time through 4:00 p.m.
Eastern Time.
11 Securities Exchange Act Release No. 82627
(February 2, 2018), 83 FR 5650 (February 8, 2018)
(SR–NYSE–2017–30).
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shares in the opening auction on the
first day of trading on the Exchange (any
such listing in which either (i) only the
company itself is selling shares in the
opening auction on the first day of
trading or (ii) the company is selling
shares and selling shareholders may
also sell shares in such opening auction,
is referred to herein as a ‘‘Primary Direct
Floor Listing’’).
In considering the initial listing of a
company in connection with a Selling
Shareholder Direct Floor Listing,
Section 102.01B currently provides that
the Exchange will determine that such
company has met the applicable $100
million aggregate market value of
publicly-held shares requirement based
on a combination of both (i) an
independent third-party valuation of the
company (a ‘‘Valuation’’) and (ii) the
most recent trading price for the
company’s common stock in a trading
system for unregistered securities
operated by a national securities
exchange or a registered broker-dealer (a
‘‘Private Placement Market’’).12 The
Exchange will attribute a market value
of publicly-held shares to the company
equal to the lesser of (i) the value
calculable based on the Valuation and
(ii) the value calculable based on the
most recent trading price in a Private
Placement Market. Alternatively, in the
absence of any recent trading in a
Private Placement Market, Section
102.01B provides that the Exchange will
determine that such company has met
its market value of publicly-held shares
requirement if the company provides a
Valuation evidencing a market value of
12 Section 102.01B currently provides (and the
Exchange does not propose to amend that
provision) that any Valuation used for this purpose
in connection with a Selling Shareholder Direct
Floor Listing must be provided by an entity that has
significant experience and demonstrable
competence in the provision of such valuations.
The Valuation must be of a recent date as of the
time of the approval of the company for listing and
the evaluator must have considered, among other
factors, the annual financial statements required to
be included in the registration statement, along
with financial statements for any completed fiscal
quarters subsequent to the end of the last year of
audited financials included in the registration
statement. The Exchange will consider any market
factors or factors particular to the listing applicant
that would cause concern that the value of the
company had diminished since the date of the
Valuation and will continue to monitor the
company and the appropriateness of relying on the
Valuation up to the time of listing. In particular, the
Exchange will examine the trading price trends for
the stock in the Private Placement Market over a
period of several months prior to listing and will
only rely on a Private Placement Market price if it
is consistent with a sustained history over that
several month period evidencing a market value in
excess of the Exchange’s market value requirement.
The Exchange may withdraw its approval of the
listing at any time prior to the listing date if it
believes that the Valuation no longer accurately
reflects the company’s likely market value.
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publicly-held shares of at least $250
million.
In applying this requirement to a
Primary Direct Floor Listing, the
Exchange is proposing the following:
• A company would qualify for
listing in connection with a Primary
Direct Floor Listing if it will sell at least
$100 million in market value of shares
in the opening auction.
• If a company will sell less than
$100 million in market value of shares
in the opening auction, a company
would qualify for listing in connection
with a Primary Direct Floor Listing if
the aggregate of the market value of
publicly-held shares immediately prior
to listing together with the market value
of shares the 4company will sell in the
opening auction totals at least $250
million with such market value
calculated using a price per share equal
to the lowest price of the price range
established by the issuer in its
registration statement.13
Officers, directors or owners of more
than 10% of the company’s common
stock prior to the opening auction may
purchase shares sold by the company in
the opening auction, provided that such
purchases are not inconsistent with
general anti-manipulation provisions,
Regulation M, and other applicable
securities laws. In addition, in the same
way as for shares of a company listing
following a traditional underwritten
IPO, such an insider owner may
purchase shares sold by other
shareholders or sell its own shares in
the opening auction and in trading after
the opening auction, to the extent not
inconsistent with general antimanipulation provisions, Regulation M,
and other applicable securities laws.
Except as proposed for Primary Direct
Floor Listings, shares held by these
types of inside investors are not
included in calculations of publiclyheld shares for purposes of Exchange
listing rules.14 The Exchange notes that
such investors may acquire in secondary
market trades shares sold by the issuer
in a Primary Direct Floor Listing that
13 For example, if the company is selling five
million shares in the opening auction and there are
45 million shares issued and outstanding
immediately prior to the listing that are eligible for
inclusion as publicly-held shares based on
disclosure in the company’s registration statement,
then the market value of publicly-held shares will
be calculated based on a combined total of 50
million shares. If the lowest price of the price range
disclosed in the company’s registration statement is
$10 per share, the Exchange will attribute to the
company a market value of publicly-held shares of
$500 million.
14 Shares held by directors, officers, or their
immediate families and other concentrated holdings
of 10 percent or more are excluded in calculating
the number of publicly-held shares under NYSE
listing standards.
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39247
were included when calculating
whether the issuer meets the market
value of publicly-held shares initial
listing requirement. However, the
Exchange believes that because of the
enhanced publicly-held shares
requirement for a listing in conjunction
with a Primary Direct Floor Listing,
which is much higher than the
Exchange’s minimum $40 million
requirement for a traditional
underwritten IPO, and the neutral
nature of the opening auction process,
companies using a Primary Direct Floor
Listing would have an adequate public
float and liquid trading market after the
completion of the opening auction.
Any company listing in connection
with a Primary Direct Floor Listing or a
Selling Shareholder Direct Floor Listing
would continue to be subject to and
meet all other applicable initial listing
requirements, including the
requirements of Section 102.01A to have
400 shareholders of round lots and 1.1
million publicly-held shares
outstanding at the time of initial listing,
and the requirement of Section 102.01B
to have a price per share of at least $4.00
at the time of initial listing.
In defining a Selling Shareholder
Direct Listing in the proposed amended
rule text, the Exchange proposes to
include additional text specifying that
the term Selling Shareholder Direct
Listing is only used for listings where
the company is listing without a related
underwritten offering upon
effectiveness of a registration statement
registering only the resale of shares sold
by the company in earlier private
placements. This proposed added text is
intended to clarify the application of the
existing rule and does not substantively
change it.
Amendments to Exchange Rules
Amendment to Definition of ‘‘Direct
Listing’’
Rule 1.1(f) currently defines the term
‘‘Direct Listing’’ to mean a security that
is listed under Footnote (E) to Section
102.01B of the Manual, which currently
only permits a company to list its
common equity securities on the
Exchange at the time of effectiveness of
a registration statement filed solely for
the purpose of allowing existing
shareholders to sell their shares (i.e., a
Selling Shareholder Direct Floor
Listing). Because, as described above,
the Exchange proposes to amend this
Section of the Manual to describe both
a Primary Direct Floor Listing and a
Selling Shareholder Direct Floor Listing,
the Exchange proposes to similarly
amend Rule 1.1(f) to specify that a
Direct Listing can be either a ‘‘Selling
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Shareholder Direct Floor Listing’’ or a
‘‘Primary Direct Floor Listing.’’
Amendment to Rules 7.31, 7.35A, and
7.35C
The Exchange proposes to amend
Rules 7.31 and 7.35A to add a new order
type and describe how that new order
type would participate in a Direct
Listing Auction if a company chooses to
list its common equity securities on the
Exchange pursuant to a Primary Direct
Floor Listing.
Currently, under Rule 7.35A, a Direct
Listing Auction operates similarly to an
IPO Auction, including that the
Exchange does not disseminate Auction
Imbalance Information 15 and a
Designated Market Maker (‘‘DMM’’) may
not effect the auction electronically.16 In
addition, Rule 7.35A establishes how to
determine the Indication Reference
Price for a security that is a Direct
Listing 17 and a requirement for the
DMM facilitating the opening on the
first day of trading of a Direct Listing.18
Because a company would be offering
shares in a Primary Direct Floor Listing,
the Exchange proposes to modify the
procedures for a Direct Listing Auction
that would be used for a Primary Direct
Floor Listing. These procedures would
be applicable to any Primary Direct
Floor Listing, as defined in Section
102.01B of the Manual. As proposed, to
sell its shares in such an Auction, a
company would use a proposed new
order type, the IDO Order. As further
proposed, a Primary Direct Floor Listing
could be effected only if (i) the Auction
Price would be within the price range
specified by the company in its effective
registration statement, and (ii) the full
quantity of the IDO Order, i.e., the
shares that the company seeks to sell in
the Primary Direct Floor Listing, can be
sold within that price range. In addition,
Rule 7.35(c)(3).
Rule 7.35A(c)(1)(C).
17 See Rule 7.35A(d)(2)(A)(iv). Under Rule
7.35A(d), the Indication Reference Price is used by
the DMM to determine whether a pre-opening
indication would be required under that Rule.
Currently, for a security that is a Direct Listing that
has had recent sustained trading in a Private
Placement Market prior to listing, the Indication
Reference Price is most recent transaction price in
that market or, if none, a price determined by the
Exchange in consultation with a financial advisor
to the issuer of such security.
18 See Rule 7.35A(g)(1). Under Rule 7.35A(g), in
addition to the DMM’s responsibility for
determining the Auction Price for Core Open
Auction and selecting an Auction Price at which all
better-priced orders on the side of any imbalance
can be satisfied, a DMM facilitating the opening on
the first day of trading of a Direct Listing that has
not had recent sustained history of trading in a
Private Placement prior to listing, is required to
consult with a financial advisor to the issuer of
such security in order to effect a fair and orderly
opening of such security.
all better-priced sell orders would need
to be satisfied in such Auction as
required by Rule 7.35A(g), and the
shares being sold by the company
would have priority over at-priced
orders.19 Consistent with current rules,
a Direct Listing Auction for a Primary
Direct Floor Listing must be effected
manually by the DMM, and, as provided
for in Rule 7.35A(g), the DMM would be
responsible for determining an Auction
Price, provided that such price must be
within the price range specified in the
effective registration statement.
To effect these changes, the Exchange
proposes to amend Rule 7.31(c)(1) to
add new subparagraph (D) to describe
the Issuer Direct Offering Order, which
would also be referred to as an ‘‘IDO
Order.’’ 20 As proposed, an IDO Order
would be a Limit Order to sell that is to
be traded only in a Direct Listing
Auction for a Primary Direct Floor
Listing. The Exchange also proposes
that:
• Only one IDO Order may be entered
on behalf of the issuer and only one
member organization may enter an IDO
Order on behalf of an issuer (proposed
Rule 7.31(c)(1)(D)(i)); 21
• the limit price of the IDO Order
must be equal to the lowest price of the
price range established by the issuer in
its effective registration statement
(‘‘Primary Direct Floor Listing Auction
Price Range’’) (proposed Rule
7.31(c)(1)(D)(ii));
• the IDO Order must be for the
quantity of shares offered by the issuer,
as disclosed in the prospectus in the
effective registration statement
(proposed Rule 7.31(c)(1)(D)(iii));
• an IDO Order may not be cancelled
or modified (proposed Rule
7.31(c)(1)(D)(iv)); and
• an IDO Order must be executed in
full in the Direct Listing Auction
(proposed Rule 7.31(c)(1)(D)(v)).
15 See
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16 See
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19 Pursuant to Rule 7.35(a)(5), the Auction Price
is the price at which an Auction is conducted. A
sell order is ‘‘better-priced’’ if it is priced lower
than the Auction Price, and includes all sell Market
Orders and Market-on-Open (‘‘MOO’’) Orders. See
Rule 7.35(a)(5)(A). A sell order is ‘‘at-priced’’ if it
is priced equal to the Auction Price. See Rule
7.35(a)(5)(B).
20 The IDO Order would be an Auction-Only
Order. An Auction-Only Order is a Limit or Market
Order that is to be traded only in an auction
pursuant to the Rule 7.35 Series (for AuctionEligible Securities) or routed pursuant to Rule 7.34
(for UTP Securities). See Rule 7.31(c). Rule
7.31(c)(1) specifies the Auction-Only Orders that
are available for a Core Open Auction or Trading
Halt Auction.
21 Because an IDO Order would not be entered by
the DMM, the Exchange proposes to amend the last
sentence Rule 7.31(c) to add the IDO Order to the
list of order types not available to the DMM. The
amended sentence would provide (new text
italicized): ‘‘MOO, MOC, LOC, IDO, and Closing IO
Orders are not available to DMMs.’’
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Next, the Exchange proposes to
amend Rule 7.35A to establish
additional requirements for a DMM
conducting a Direct Listing Auction for
a Primary Direct Floor Listing.
First, the Exchange proposes that the
Indication Reference Price applicable to
a security that is a Primary Direct Floor
Listing would be the lowest price of the
price range established by the issuer in
its effective registration statement. In a
Primary Direct Floor Listing, a company
would be issuing new shares and would
be required to establish a price range for
such securities in its effective
registration statement. Because the
Exchange proposes that a Primary Direct
Floor Listing could not open below the
lowest price of such price range, the
Exchange proposes that the Indication
Reference Price for such security would
be the lowest price of that price range.22
To effect this change, the Exchange
proposes to amend Rule 7.35A(d)(2)(A)
to add new subparagraph (v) that would
provide that, for a security that is a
Primary Direct Floor Listing, the
Indication Reference Price would be the
lowest price of the Primary Direct Floor
Listing Auction Price Range.
Second, the Exchange proposes to
amend Rule 7.35A(g) regarding the
Auction Price that the DMM is
responsible for determining. As noted
above, the Exchange proposes that a
Primary Direct Floor listing must open
at a price within the Primary Direct
Floor Listing Auction Price Range, as set
forth in the effective registration
statement issued by the company. In
addition, the Exchange proposes that
such Auction would be conducted only
if the IDO Order and all better-priced
sell orders can be satisfied at such price.
To effect such changes, proposed Rule
7.35A(g)(2) would provide that a DMM
would not conduct a Direct Listing
Auction for a Primary Direct Floor
Listing if:
• The Auction Price would be below
the lowest price or above the highest
price of the Primary Direct Floor Listing
Auction Price Range (proposed Rule
7.35A(g)(2)(A)); 23 or
• there is insufficient buy interest to
satisfy both the IDO Order and all
better-priced sell orders in full
(proposed Rule 7.35A(g)(2)(B)).
Because the DMM is responsible for
determining the Auction Price, these
proposed rule changes would make the
DMM responsible for determining
22 For example, if the Primary Direct Floor Listing
Auction Price Range is $10.00 to $20.00, the
Indication Reference Price would be $10.00.
23 For example, if the Primary Direct Floor Listing
Auction Price Range is $10.00 to $20.00, the Direct
Listing Auction would not be conducted at a price
below $10.00 or above $20.00.
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whether the Direct Listing Auction can
proceed. If there is insufficient buy
interest and the DMM cannot price the
Auction and satisfy the IDO Order as
required by this proposed rule, the
Direct Listing Auction would not
proceed and such security would not
begin trading. If a Direct Listing Auction
cannot be conducted, the Exchange
would notify market participants via
Trader Update that the Primary Direct
Floor Listing has been cancelled and
any orders for that security that have
been entered on the Exchange,
including the IDO Order, would be
cancelled back to the entering firms.
Third, the Exchange proposes that
when the limit price of the IDO Order
(which is already required to be at the
lowest price in Primary Direct Floor
Listing Price Range) is equal to the
Auction Price, i.e., an at-priced IDO
Order, the IDO Order would have
priority over other orders at that price.
As noted above, under Rule 7.35A(g), all
better-priced interest is guaranteed to
participate in the opening auction for a
Primary Direct Floor Listing. If the IDO
Order is better-priced, i.e., if the Direct
Listing Auction is priced above the limit
price of the IDO Order, the IDO Order
would be a better-priced order
guaranteed to participate in such
Auction. However, under Rule
7.35A(h)(2), at-priced orders are not
guaranteed to participate in an Auction
and are allocated as provided for in Rule
7.35A(h)(2)(A)–(D). Because an IDO
Order must be executed in full in order
for the DMM to conduct the Direct
Listing Auction, the Exchange does not
believe that an at-priced IDO Order
should be subject to the allocation
process specified in Rule 7.35A(h)(2)
because it may result in a partial
execution of the IDO Order. Providing
priority to an at-priced IDO Order
would increase the potential for the IDO
Order to be executed in full, and
therefore for the Primary Direct Floor
Listing to proceed. To effect such
change, the Exchange proposes new
subparagraph (4) in Rule 7.35A(h),
regarding Auction Allocation, to
provide that an IDO Order would be
guaranteed to participate in the Direct
Listing Auction at the Auction Price and
that if the limit price of the IDO Order
is equal to the Auction Price, the IDO
Order would have priority at that price.
Fourth, unlike a Direct Listing
Auction for a Selling Shareholder Direct
Floor Listing, the registration statement
for a Primary Direct Floor Listing would
include a price range within which the
company anticipates selling shares it is
offering. Accordingly, Rules
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7.35A(d)(2)(A)(iv) 24 and 7.35A(g)(1) 25
are not applicable to a Primary Direct
Floor Listing and the Exchange proposes
to provide that the requirements of
those Rules would be applicable only to
a Selling Shareholder Direct Floor
Listing by amending the text of those
Rules to replace the term ‘‘Direct
Listing’’ with the term ‘‘Selling
Shareholder Direct Floor Listing.’’
The Exchange further notes that any
services provided by a financial advisor
to the issuer of a security listing in
connection with a Selling Shareholder
Direct Floor Listing or a Primary Direct
Floor Listing (the ‘‘financial advisor’’)
and the DMM assigned to that security
must provide such services in a manner
that is consistent with all federal
securities laws, including Regulation M
and other anti-manipulation
requirements. For example, when a
financial advisor provides a
consultation to the Exchange as required
by Rule 7.35A(d)(2)(A)(iv), when the
DMM consults with a financial advisor
as required by Rule 7.35A(g)(1), or when
a financial advisor otherwise assists or
consults with the DMM as to pricing or
opening of trading in Selling
Shareholder Direct Floor Listing or
Primary Direct Floor Listing, the
financial advisor and DMM will not act
inconsistent with Regulation M,26 and
other anti-manipulation provisions of
the federal securities laws, or Exchange
Rule 2020.27 The Exchange has retained
the Financial Industry Regulatory
24 Rule 7.35A(d)(2)(A)(iv) currently provides what
the Indication Reference Price will be ‘‘for a
security that is a Direct Listing that has had recent
sustained trading in a Private Placement Market
prior to listing, the most recent transaction price in
that market or, if none, a price determined by the
Exchange in consultation with a financial advisor
to the issuer of such security.’’
25 Rule 7.35A(g)(1) currently provides: ‘‘When
facilitating the opening on the first day of trading
of a Direct Listing that has not had recent sustained
history of trading in a Private Placement prior to
listing, the DMM will consult with a financial
advisor to the issuer of such security in order to
effect a fair and orderly opening of such security.’’
The Exchange proposes a non-substantive
amendment to Rule 7.35A(g)(1) to add the word
‘‘Market’’ after ‘‘Private Placement.’’
26 For example, in connection with the Selling
Shareholder Direct Floor Listing of Spotify
Technology S.A, the Commission’s Division of
Trading and Markets provided a no-action letter
relating to Regulation M that discussed, in part, the
role of the financial advisor and the DMM in such
listing. See Letter from Josephine J. Tao, Assistant
Director, Division of Trading and Markets, United
States Securities and Exchange Commission to Ms.
Dana G. Fleischman, Latham & Watkins LLP, dated
March 23, 2018, available here: https://
www.sec.gov/divisions/marketreg/mr-noaction/
2018/spotify-technology-032318-regm.pdf.
27 Exchange Rule 2020, which is identical to
FINRA Rule 2020, provides that ‘‘[n]o member or
member organization shall effect any transaction in,
or induce the purchase or sale of, any security by
means of any manipulation, deceptive or other
fraudulent device or contrivance’’ (‘‘Rule 2020’’).
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Sfmt 4703
39249
Authority, Inc. (‘‘FINRA’’) pursuant to a
regulatory services agreement to
monitor such compliance with
Regulation M and other antimanipulation provisions of the federal
securities laws and Rule 2020.28 To
promote clarity and transparency in
Exchange rules regarding the
consultation requirements of Rules
7.35A(d)(2)(A)(iv) and 7.35A(g)(1), the
Exchange proposes to add Commentary
.10 to Rule 7.35A to provide:
In connection with a Selling Shareholder
Direct Floor Listing, the financial advisor to
the issuer of the security being listed
(‘‘financial advisor’’) and the DMM assigned
to such security are reminded that any
consultation that the financial advisor
provides to the Exchange as required by
paragraph (d)(2)(A)(iv) of this Rule and any
consultation between the DMM and financial
advisor as required by paragraph (g)(1) of this
Rule are to be conducted in a manner that is
consistent with the federal securities laws,
including Regulation M and other antimanipulation requirements.
Finally, the Exchange proposes to
amend Rule 7.35C to remove references
to Direct Listing Auctions. Rule 7.35C
sets forth the procedures for the
Exchange to facilitate an Auction for
one or more securities if a DMM cannot
facilitate an Auction under Rules 7.35A
or 7.35B and specifies how such
Exchange-facilitated Auctions would
function, including for a Direct Listing
Auction. Because of the importance of
the DMM to a Direct Listing Auction,
the Exchange proposes that if a DMM is
unable to manually facilitate a Direct
Listing Auction, the Exchange would
not proceed with either a Selling
Shareholder Direct Floor Listing or a
Primary Direct Floor Listing. To effect
this change, the Exchange proposes to
amend Rule 7.35C(a) to specify that the
Exchange would not facilitate a Direct
Listing Auction and amend Rules
7.35C(a)(3), (b)(1), and (b)(3) to delete
references to a Direct Listing Auction.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Exchange Act,29 in
general, and furthers the objectives of
Section 6(b)(5) of the Exchange Act,30 in
particular in that it is designed to
28 The Exchange expects to issue regulatory
guidance in connection with a company conducting
a Primary Direct Floor Listing. Such regulatory
guidance would include a reminder to member
organizations that activities in connection with a
Primary Direct Floor Listing, like activities in
connection with other listings, must be conducted
in a manner not inconsistent with Regulation M and
other anti-manipulation provisions of the federal
securities laws and Exchange Rule 2020.
29 15 U.S.C. 78f(b).
30 15 U.S.C. 78f(b)(5).
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Federal Register / Vol. 85, No. 126 / Tuesday, June 30, 2020 / Notices
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, 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 is not designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange believes that the
proposed amendment to the Manual is
consistent with the protection of
investors. The proposal would require
that a company in a Primary Direct
Floor Listing (1) sell at least $100
million of its listed securities in the
opening auction, or (2) have an
aggregate market value of publicly-held
shares immediately prior to listing
together with the market value of shares
the company sells in the opening
auction total at least $250 million, with
such market value calculated using a
price per share equal to the lowest price
of the price range established by the
issuer in its registration statement. The
Exchange notes that a company may list
on the NYSE in connection with its
initial public offering with a market
value of publicly-held shares of $40
million and that, in the Exchange’s
experience in listing IPOs, a liquid
trading market develops after listing for
issuers with a much smaller value of
publicly-held shares than the Exchange
anticipates would exist after the
opening auction in a Primary Direct
Floor listing under the proposed market
value of publicly-held shares
requirements. Consequently, the
Exchange believes that these
requirements would provide that any
company conducting a Primary Direct
Floor Listing would be of a suitable size
for Exchange listing and that there
would be sufficient liquidity for the
security to be suitable for auction
market trading.
Officers, directors or owners of more
than 10% of the company’s common
stock prior to the opening auction may
purchase shares sold by the company in
the opening auction, in the event that
such purchases are not inconsistent
with general anti-manipulation
provisions, Regulation M, and other
applicable securities laws. In addition,
in the same way as for shares of a
company listing following a traditional
underwritten IPO, such an insider
owner may purchase shares sold by
other shareholders or sell its own shares
in the opening auction and in trading
after the opening auction, to the extent
not inconsistent with general anti-
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18:18 Jun 29, 2020
Jkt 250001
manipulation provisions, Regulation M,
and other applicable securities laws.
Except as proposed for Primary Direct
Floor Listings, shares held by these
types of inside investors are not
included in calculations of publiclyheld shares for purposes of Exchange
listing rules. The Exchange notes that
after initial listing such investors may
acquire in secondary market trades
shares sold by the issuer in a Primary
Direct Floor Listing that were included
when calculating that issuer’s
compliance with the market value of
publicly-held shares initial listing
requirement. However, the Exchange
believes that because of the enhanced
publicly-held shares requirement for a
listing in conjunction with a Primary
Direct Floor Listing, which is much
higher than the Exchange’s minimum
$40 million requirement for a traditional
underwritten IPO, and the neutral
nature of the opening auction process,
companies using a Primary Direct Floor
Listing will have an adequate public
float and liquid trading market after the
completion of the opening auction.
The Exchange believes that the
proposed amendments to Exchange
Rules to amend the definition of Direct
Listing and Rules 7.31 and 7.35A to
describe how an IDO Order would
participate in a Direct Listing Auction
for a Primary Direct Floor Listing would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because
they would guarantee that, if the Direct
Listing Auction for a Primary Direct
Floor Listing occurs, all shares offered
by the company would participate.
Unlike an IPO, a company undergoing
a Primary Direct Floor Listing would not
have an underwriter to guarantee that a
specified number of shares would be
sold by the company within a price
range established in the company’s
effective registration statement. To
ensure that the Direct Listing Auction is
conducted consistent with an issuer’s
effective registration statement, the
Exchange proposes that the Direct
Listing Auction for a Primary Direct
Floor Listing under Section 102.01B of
the Manual, would not proceed unless
the quantity of shares specified in the
IDO Order would be sold in such
Auction within a price range specified
by the company in its registration
statement. This certainty would be
effected in two ways. First, the proposed
IDO Order would be required to be
equal to the total number of shares
disclosed as being offered by the
company in the prospectus included in
the effective registration statement filed
in connection with its listing. If the IDO
Order cannot be satisfied in full, then
PO 00000
Frm 00091
Fmt 4703
Sfmt 4703
the Direct Listing Auction would not
proceed. Second, the Direct Floor
Auction for a Primary Direct Floor
Listing would be required to be priced
within the range established by the
company in its effective registration
statement.
The Exchange further believes that
these proposed changes would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system because
they are designed to function seamlessly
with the existing process for a DMMfacilitated Direct Listing Auction,
including the requirement that such
Auction be facilitated manually by a
DMM, the process for publishing preopening indications, and the
requirement that all better-priced sell
orders are guaranteed to participate in
such Auction. In addition, the proposed
changes are designed to protect
investors and the public interest
because they would provide an
opportunity for the Primary Direct Floor
Listing to proceed so that the issuer’s
securities can be listed and begin
trading on the secondary market.
Accordingly, the Exchange believes that
it would be consistent with this goal for
an at-priced IDO Order, which must be
satisfied in full, to have priority over
other at-priced orders if the limit price
of the IDO Order is equal to the Auction
Price. Proposed Rule 7.35A(h)(4) would
eliminate the potential for a partial
execution of the IDO Order and provide
greater opportunity for the IDO Order to
be executed in full, thus allowing the
Direct Listing Auction to proceed.
The Exchange believes the proposed
amendments to Rule 7.35C would
remove impediments to and perfect the
mechanism of a fair and orderly market
and a national market system because
the Exchange believes that having the
DMM manually facilitate a Direct
Listing Auction would promote a fair
and orderly auction process for such an
Auction. Therefore, if the DMM is
unavailable to facilitate such Direct
Listing Auction manually, the Exchange
would not proceed with facilitating a
Direct Listing Auction for either a
Selling Shareholder Direct Floor Listing
or a Primary Direct Floor Listing.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change would impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed amendments would not
impose any burden on competition, but
would rather increase competition by
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Federal Register / Vol. 85, No. 126 / Tuesday, June 30, 2020 / Notices
providing new pathways for companies
to access the public markets.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as modified by Amendment No.
2, is consistent with the Act. Comments
may be submitted by any of the
following methods:
khammond on DSKJM1Z7X2PROD with NOTICES
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–
NYSE–2019–67 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–NYSE–2019–67. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
VerDate Sep<11>2014
18:18 Jun 29, 2020
Jkt 250001
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSE–2019–67, and
should be submitted on or before July
21, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–14013 Filed 6–29–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89146; File No. SR–IEX–
2020–07]
Self-Regulatory Organizations:
Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend IEX
Rule 11.190(b)(13) To Discontinue the
Market Maker Peg Order and Make
Conforming Changes
39251
the proposed rule change is available at
the Exchange’s website at
www.iextrading.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
self-regulatory organization 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 statement [sic] may be
examined at the places specified in Item
IV below. The self-regulatory
organization 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
June 24, 2020.
1. Purpose
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on June 15,
2020, the Investors Exchange LLC
(‘‘IEX’’ or the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
The purpose of this proposed rule
change is to amend IEX Rule
11.190(b)(13) (Market Maker Peg Order)
to discontinue the Market Maker Peg
Order and make conforming changes to
other IEX rules.
The Market Maker Peg order is a onesided displayed limit order that is
designed to simplify market maker
compliance with the continuous quoting
and pricing obligations set forth in IEX
Rule 11.151 by providing quotation
adjusting functionality.8 Only IEX
Members registered as Market Makers
pursuant to IEX Rule 11.150 may use
Market Maker Peg Orders, and use of
such orders is optional.
In addition to its quotation adjusting
functionality, the Market Maker Peg
order is also designed to provide an
effective compliance tool to facilitate
market makers’ compliance with the
requirements of Rule 15c3–5 under the
Act (the ‘‘Market Access Rule’’) 9 and
Regulation SHO.10 Specifically, when
using a Market Maker Peg order, market
makers would have control of order
origination, as required by the Market
Access Rule, while also allowing market
makers to make marking and locate
determinations prior to order entry, as
required by Regulation SHO, while also
facilitating compliance with their
Exchange market making obligations.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Pursuant to the provisions of Section
19(b)(1) under the Act 4 and Rule 19b–
4 thereunder,5 IEX is filing with the
Commission a proposed rule change to
amend IEX Rule 11.190(b)(13) (Market
Maker Peg Order) to discontinue the
Market Maker Peg Order and make
conforming changes. The Exchange has
designated this rule change as ‘‘noncontroversial’’ under Section 19(b)(3)(A)
of the Act 6 and provided the
Commission with the notice required by
Rule 19b–4(f)(6) thereunder.7 The text of
31 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
4 15 U.S.C. 78s(b)(1).
5 17 CFR 240.19b–4.
6 15 U.S.C. 78s(b)(3)(A).
7 17 CFR 240.19b–4.
1 15
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Sfmt 4703
8 See IEX Rule 11.190(b)(13) for a complete
description of the Market Maker Peg order.
9 17 CFR 240.15c3–5.
10 17 CFR 242.200 through 242.204.
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]]>Agencies
[Federal Register Volume 85, Number 126 (Tuesday, June 30, 2020)]
[Notices]
[Pages 39246-39251]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14013]
[[Page 39246]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89148; File No. SR-NYSE-2019-67]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change, as Modified by Amendment No.
2, To Amend Chapter One of the Listed Company Manual To Modify the
Provisions Relating to Direct Listings
June 24, 2020.
On December 11, 2019, New York Stock Exchange LLC (``NYSE'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities
Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ a
proposed rule change to amend Chapter One of the Listed Company Manual
to modify the provisions relating to direct listings. On December 13,
2019, the Exchange filed Amendment No. 1 to the proposed rule change,
which amended and replaced the proposed rule change in its entirety.
The proposed rule change, as modified by Amendment No. 1, was published
for comment in the Federal Register on December 30, 2019.\4\ On
February 13, 2020, pursuant to Section 19(b)(2) of the Exchange Act,\5\
the Commission designated a longer period within which to either
approve the proposed rule change, disapprove the proposed rule change,
or institute proceedings to determine whether to disapprove the
proposed rule change.\6\ On March 26, 2020, the Commission instituted
proceedings to determine whether to approve or disapprove the proposed
rule change, as modified by Amendment No. 1.\7\ On June 22, 2020, the
Exchange filed Amendment No. 2 to the proposed rule change, which
superseded the proposed rule change as modified by Amendment No. 1, and
is described in Items I and II below, which Items have been prepared by
the Exchange. On June 24, 2020, the Commission extended the time period
for approving or disapproving the proposal for an additional 60
days.\8\ The Commission is publishing this notice to solicit comments
on the proposed rule change, as modified by Amendment No. 2, from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ See Securities Exchange Act Release No. 87821 (December 20,
2019), 84 FR 72065 (December 30, 2019) (``Notice''). Comments
received on the Notice are available on the Commission's website at:
https://www.sec.gov/comments/sr-nyse-2019-67/srnyse201967.htm.
\5\ 15 U.S.C. 78s(b)(2).
\6\ See Securities and Exchange Act Release No. 88190 (February
13, 2020), 85 FR 9891 (February 20, 2020).
\7\ See Securities and Exchange Act Release No. 88485 (March 26,
2020), 85 FR 18292 (April 1, 2020).
\8\ See Securities and Exchange Act Release No. 89147 (June 24,
2020).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to (1) amend Chapter One of the Listed
Company Manual (the ``Manual'') to modify the provisions relating to
direct listings to permit a primary offering in connection with a
direct listing and to specify how a direct listing qualifies for
initial listing if it includes both sales of securities by the company
and possible sales by selling shareholders, (2) modify the definition
of ``Direct Listing'' in Rule 1.1, (3) add a definition of Issuer
Direct Offering (``IDO'') Order to Rule 7.31 and describe how it would
participate in a Direct Listing Auction in Rule 7.35A, and (4) remove
references to Direct Listing Auctions from Rule 7.35C.\9\ The proposed
rule change is available on the Exchange's website at www.nyse.com, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.
---------------------------------------------------------------------------
\9\ The Exchange has previously filed a proposed rule change to
amend Chapter One of the Manual to modify the provisions related to
direct listings. See SR-NYSE-2019-67 and Amendment No. 1 to that
filing. Amendment No. 2 to SR-NYSE-2019-67 proposes to (1) delete
from the filing the proposed amendment to Section 102.01A proposing
to provide additional time under certain circumstances for companies
listing in connection with a direct listing to meet the initial
listing distribution standards and add provisions specifying how a
direct listing qualifies for listing if it includes both sales of
securities by the company and possible sales by selling
shareholders, (2) amend Exchange Rules to add the IDO Order and
describe how it would participate in a Direct Listing Auction for a
Primary Direct Floor Listing and remove references to Direct Listing
Auctions from Rule 7.35C. This Amendment No.2 to SR-NYSE-2019-67
replaces Amendment No. 1 to SR-NYSE-2019-67 as originally filed and
supersedes such filing in its entirety.
---------------------------------------------------------------------------
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 self-regulatory organization
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 those 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 parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend (1) Chapter One of the Manual to
modify the provisions relating to direct listings to permit a primary
offering in connection with a direct listing and to specify how a
direct listing qualifies for initial listing if it includes both sales
of securities by the company and possible sales by selling
shareholders, (2) Rule 1.1 (Definitions) to modify the definition of
``Direct Listing,'' (3) Rules 7.31 (Orders and Modifiers) and 7.35A
(DMM-Facilitated Core Open and Trading Halt Auctions) to add a
definition of Issuer Direct Offering (``IDO'') Order and describe how
it would participate in a Direct Listing Auction, and (4) remove
references to Direct Listing Auctions in Rule 7.35C.\10\
---------------------------------------------------------------------------
\10\ Trading in all securities on the Exchange, including any
Direct Listing Auctions, is subject to the Pillar trading rules. The
term ``Direct Listing Auction'' is defined in Rule 7.35(a)(1)(E) to
mean a Core Open Auction for the first day of trading on the
Exchange of a security that is a Direct Listing. The term ``Core
Open Auction'' is defined in Rule 7.35(a)(1)(A) to mean the Auction
that opens trading at the beginning of the Core Trading Session, and
for Exchange-listed securities, the term ``Core Trading Session'' is
defined in Rule 7.34(a)(2)(B) to begin for each security with the
Core Open Auction, which can take place during Core Trading Hours
only, which, pursuant to Rule 1.1, begins at 9:30 a.m. Eastern Time
through 4:00 p.m. Eastern Time.
---------------------------------------------------------------------------
Amendments to the Manual
Section 102.01B of the Manual includes initial listing requirements
for a company that has not previously had its common equity securities
registered under the Act, to list its common equity securities on the
Exchange at the time of effectiveness of a registration statement filed
solely for the purpose of allowing existing shareholders to sell their
shares (a ``Selling Shareholder Direct Floor Listing'').\11\ To allow a
company to sell shares on its own behalf in connection with its initial
listing upon effectiveness of a registration statement, without a
traditional underwritten public offering, the Exchange proposes to
amend Section 102.01B. The proposed change would allow a company that
has not previously had its common equity securities registered under
the Act, to list its common equity securities on the Exchange at the
time of effectiveness of a registration statement pursuant to which the
company itself will sell
[[Page 39247]]
shares in the opening auction on the first day of trading on the
Exchange (any such listing in which either (i) only the company itself
is selling shares in the opening auction on the first day of trading or
(ii) the company is selling shares and selling shareholders may also
sell shares in such opening auction, is referred to herein as a
``Primary Direct Floor Listing'').
---------------------------------------------------------------------------
\11\ Securities Exchange Act Release No. 82627 (February 2,
2018), 83 FR 5650 (February 8, 2018) (SR-NYSE-2017-30).
---------------------------------------------------------------------------
In considering the initial listing of a company in connection with
a Selling Shareholder Direct Floor Listing, Section 102.01B currently
provides that the Exchange will determine that such company has met the
applicable $100 million aggregate market value of publicly-held shares
requirement based on a combination of both (i) an independent third-
party valuation of the company (a ``Valuation'') and (ii) the most
recent trading price for the company's common stock in a trading system
for unregistered securities operated by a national securities exchange
or a registered broker-dealer (a ``Private Placement Market'').\12\ The
Exchange will attribute a market value of publicly-held shares to the
company equal to the lesser of (i) the value calculable based on the
Valuation and (ii) the value calculable based on the most recent
trading price in a Private Placement Market. Alternatively, in the
absence of any recent trading in a Private Placement Market, Section
102.01B provides that the Exchange will determine that such company has
met its market value of publicly-held shares requirement if the company
provides a Valuation evidencing a market value of publicly-held shares
of at least $250 million.
---------------------------------------------------------------------------
\12\ Section 102.01B currently provides (and the Exchange does
not propose to amend that provision) that any Valuation used for
this purpose in connection with a Selling Shareholder Direct Floor
Listing must be provided by an entity that has significant
experience and demonstrable competence in the provision of such
valuations. The Valuation must be of a recent date as of the time of
the approval of the company for listing and the evaluator must have
considered, among other factors, the annual financial statements
required to be included in the registration statement, along with
financial statements for any completed fiscal quarters subsequent to
the end of the last year of audited financials included in the
registration statement. The Exchange will consider any market
factors or factors particular to the listing applicant that would
cause concern that the value of the company had diminished since the
date of the Valuation and will continue to monitor the company and
the appropriateness of relying on the Valuation up to the time of
listing. In particular, the Exchange will examine the trading price
trends for the stock in the Private Placement Market over a period
of several months prior to listing and will only rely on a Private
Placement Market price if it is consistent with a sustained history
over that several month period evidencing a market value in excess
of the Exchange's market value requirement. The Exchange may
withdraw its approval of the listing at any time prior to the
listing date if it believes that the Valuation no longer accurately
reflects the company's likely market value.
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In applying this requirement to a Primary Direct Floor Listing, the
Exchange is proposing the following:
A company would qualify for listing in connection with a
Primary Direct Floor Listing if it will sell at least $100 million in
market value of shares in the opening auction.
If a company will sell less than $100 million in market
value of shares in the opening auction, a company would qualify for
listing in connection with a Primary Direct Floor Listing if the
aggregate of the market value of publicly-held shares immediately prior
to listing together with the market value of shares the 4company will
sell in the opening auction totals at least $250 million with such
market value calculated using a price per share equal to the lowest
price of the price range established by the issuer in its registration
statement.\13\
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\13\ For example, if the company is selling five million shares
in the opening auction and there are 45 million shares issued and
outstanding immediately prior to the listing that are eligible for
inclusion as publicly-held shares based on disclosure in the
company's registration statement, then the market value of publicly-
held shares will be calculated based on a combined total of 50
million shares. If the lowest price of the price range disclosed in
the company's registration statement is $10 per share, the Exchange
will attribute to the company a market value of publicly-held shares
of $500 million.
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Officers, directors or owners of more than 10% of the company's
common stock prior to the opening auction may purchase shares sold by
the company in the opening auction, provided that such purchases are
not inconsistent with general anti-manipulation provisions, Regulation
M, and other applicable securities laws. In addition, in the same way
as for shares of a company listing following a traditional underwritten
IPO, such an insider owner may purchase shares sold by other
shareholders or sell its own shares in the opening auction and in
trading after the opening auction, to the extent not inconsistent with
general anti-manipulation provisions, Regulation M, and other
applicable securities laws. Except as proposed for Primary Direct Floor
Listings, shares held by these types of inside investors are not
included in calculations of publicly-held shares for purposes of
Exchange listing rules.\14\ The Exchange notes that such investors may
acquire in secondary market trades shares sold by the issuer in a
Primary Direct Floor Listing that were included when calculating
whether the issuer meets the market value of publicly-held shares
initial listing requirement. However, the Exchange believes that
because of the enhanced publicly-held shares requirement for a listing
in conjunction with a Primary Direct Floor Listing, which is much
higher than the Exchange's minimum $40 million requirement for a
traditional underwritten IPO, and the neutral nature of the opening
auction process, companies using a Primary Direct Floor Listing would
have an adequate public float and liquid trading market after the
completion of the opening auction.
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\14\ Shares held by directors, officers, or their immediate
families and other concentrated holdings of 10 percent or more are
excluded in calculating the number of publicly-held shares under
NYSE listing standards.
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Any company listing in connection with a Primary Direct Floor
Listing or a Selling Shareholder Direct Floor Listing would continue to
be subject to and meet all other applicable initial listing
requirements, including the requirements of Section 102.01A to have 400
shareholders of round lots and 1.1 million publicly-held shares
outstanding at the time of initial listing, and the requirement of
Section 102.01B to have a price per share of at least $4.00 at the time
of initial listing.
In defining a Selling Shareholder Direct Listing in the proposed
amended rule text, the Exchange proposes to include additional text
specifying that the term Selling Shareholder Direct Listing is only
used for listings where the company is listing without a related
underwritten offering upon effectiveness of a registration statement
registering only the resale of shares sold by the company in earlier
private placements. This proposed added text is intended to clarify the
application of the existing rule and does not substantively change it.
Amendments to Exchange Rules
Amendment to Definition of ``Direct Listing''
Rule 1.1(f) currently defines the term ``Direct Listing'' to mean a
security that is listed under Footnote (E) to Section 102.01B of the
Manual, which currently only permits a company to list its common
equity securities on the Exchange at the time of effectiveness of a
registration statement filed solely for the purpose of allowing
existing shareholders to sell their shares (i.e., a Selling Shareholder
Direct Floor Listing). Because, as described above, the Exchange
proposes to amend this Section of the Manual to describe both a Primary
Direct Floor Listing and a Selling Shareholder Direct Floor Listing,
the Exchange proposes to similarly amend Rule 1.1(f) to specify that a
Direct Listing can be either a ``Selling
[[Page 39248]]
Shareholder Direct Floor Listing'' or a ``Primary Direct Floor
Listing.''
Amendment to Rules 7.31, 7.35A, and 7.35C
The Exchange proposes to amend Rules 7.31 and 7.35A to add a new
order type and describe how that new order type would participate in a
Direct Listing Auction if a company chooses to list its common equity
securities on the Exchange pursuant to a Primary Direct Floor Listing.
Currently, under Rule 7.35A, a Direct Listing Auction operates
similarly to an IPO Auction, including that the Exchange does not
disseminate Auction Imbalance Information \15\ and a Designated Market
Maker (``DMM'') may not effect the auction electronically.\16\ In
addition, Rule 7.35A establishes how to determine the Indication
Reference Price for a security that is a Direct Listing \17\ and a
requirement for the DMM facilitating the opening on the first day of
trading of a Direct Listing.\18\
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\15\ See Rule 7.35(c)(3).
\16\ See Rule 7.35A(c)(1)(C).
\17\ See Rule 7.35A(d)(2)(A)(iv). Under Rule 7.35A(d), the
Indication Reference Price is used by the DMM to determine whether a
pre-opening indication would be required under that Rule. Currently,
for a security that is a Direct Listing that has had recent
sustained trading in a Private Placement Market prior to listing,
the Indication Reference Price is most recent transaction price in
that market or, if none, a price determined by the Exchange in
consultation with a financial advisor to the issuer of such
security.
\18\ See Rule 7.35A(g)(1). Under Rule 7.35A(g), in addition to
the DMM's responsibility for determining the Auction Price for Core
Open Auction and selecting an Auction Price at which all better-
priced orders on the side of any imbalance can be satisfied, a DMM
facilitating the opening on the first day of trading of a Direct
Listing that has not had recent sustained history of trading in a
Private Placement prior to listing, is required to consult with a
financial advisor to the issuer of such security in order to effect
a fair and orderly opening of such security.
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Because a company would be offering shares in a Primary Direct
Floor Listing, the Exchange proposes to modify the procedures for a
Direct Listing Auction that would be used for a Primary Direct Floor
Listing. These procedures would be applicable to any Primary Direct
Floor Listing, as defined in Section 102.01B of the Manual. As
proposed, to sell its shares in such an Auction, a company would use a
proposed new order type, the IDO Order. As further proposed, a Primary
Direct Floor Listing could be effected only if (i) the Auction Price
would be within the price range specified by the company in its
effective registration statement, and (ii) the full quantity of the IDO
Order, i.e., the shares that the company seeks to sell in the Primary
Direct Floor Listing, can be sold within that price range. In addition,
all better-priced sell orders would need to be satisfied in such
Auction as required by Rule 7.35A(g), and the shares being sold by the
company would have priority over at-priced orders.\19\ Consistent with
current rules, a Direct Listing Auction for a Primary Direct Floor
Listing must be effected manually by the DMM, and, as provided for in
Rule 7.35A(g), the DMM would be responsible for determining an Auction
Price, provided that such price must be within the price range
specified in the effective registration statement.
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\19\ Pursuant to Rule 7.35(a)(5), the Auction Price is the price
at which an Auction is conducted. A sell order is ``better-priced''
if it is priced lower than the Auction Price, and includes all sell
Market Orders and Market-on-Open (``MOO'') Orders. See Rule
7.35(a)(5)(A). A sell order is ``at-priced'' if it is priced equal
to the Auction Price. See Rule 7.35(a)(5)(B).
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To effect these changes, the Exchange proposes to amend Rule
7.31(c)(1) to add new subparagraph (D) to describe the Issuer Direct
Offering Order, which would also be referred to as an ``IDO Order.''
\20\ As proposed, an IDO Order would be a Limit Order to sell that is
to be traded only in a Direct Listing Auction for a Primary Direct
Floor Listing. The Exchange also proposes that:
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\20\ The IDO Order would be an Auction-Only Order. An Auction-
Only Order is a Limit or Market Order that is to be traded only in
an auction pursuant to the Rule 7.35 Series (for Auction-Eligible
Securities) or routed pursuant to Rule 7.34 (for UTP Securities).
See Rule 7.31(c). Rule 7.31(c)(1) specifies the Auction-Only Orders
that are available for a Core Open Auction or Trading Halt Auction.
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Only one IDO Order may be entered on behalf of the issuer
and only one member organization may enter an IDO Order on behalf of an
issuer (proposed Rule 7.31(c)(1)(D)(i)); \21\
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\21\ Because an IDO Order would not be entered by the DMM, the
Exchange proposes to amend the last sentence Rule 7.31(c) to add the
IDO Order to the list of order types not available to the DMM. The
amended sentence would provide (new text italicized): ``MOO, MOC,
LOC, IDO, and Closing IO Orders are not available to DMMs.''
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the limit price of the IDO Order must be equal to the
lowest price of the price range established by the issuer in its
effective registration statement (``Primary Direct Floor Listing
Auction Price Range'') (proposed Rule 7.31(c)(1)(D)(ii));
the IDO Order must be for the quantity of shares offered
by the issuer, as disclosed in the prospectus in the effective
registration statement (proposed Rule 7.31(c)(1)(D)(iii));
an IDO Order may not be cancelled or modified (proposed
Rule 7.31(c)(1)(D)(iv)); and
an IDO Order must be executed in full in the Direct
Listing Auction (proposed Rule 7.31(c)(1)(D)(v)).
Next, the Exchange proposes to amend Rule 7.35A to establish
additional requirements for a DMM conducting a Direct Listing Auction
for a Primary Direct Floor Listing.
First, the Exchange proposes that the Indication Reference Price
applicable to a security that is a Primary Direct Floor Listing would
be the lowest price of the price range established by the issuer in its
effective registration statement. In a Primary Direct Floor Listing, a
company would be issuing new shares and would be required to establish
a price range for such securities in its effective registration
statement. Because the Exchange proposes that a Primary Direct Floor
Listing could not open below the lowest price of such price range, the
Exchange proposes that the Indication Reference Price for such security
would be the lowest price of that price range.\22\ To effect this
change, the Exchange proposes to amend Rule 7.35A(d)(2)(A) to add new
subparagraph (v) that would provide that, for a security that is a
Primary Direct Floor Listing, the Indication Reference Price would be
the lowest price of the Primary Direct Floor Listing Auction Price
Range.
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\22\ For example, if the Primary Direct Floor Listing Auction
Price Range is $10.00 to $20.00, the Indication Reference Price
would be $10.00.
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Second, the Exchange proposes to amend Rule 7.35A(g) regarding the
Auction Price that the DMM is responsible for determining. As noted
above, the Exchange proposes that a Primary Direct Floor listing must
open at a price within the Primary Direct Floor Listing Auction Price
Range, as set forth in the effective registration statement issued by
the company. In addition, the Exchange proposes that such Auction would
be conducted only if the IDO Order and all better-priced sell orders
can be satisfied at such price. To effect such changes, proposed Rule
7.35A(g)(2) would provide that a DMM would not conduct a Direct Listing
Auction for a Primary Direct Floor Listing if:
The Auction Price would be below the lowest price or above
the highest price of the Primary Direct Floor Listing Auction Price
Range (proposed Rule 7.35A(g)(2)(A)); \23\ or
---------------------------------------------------------------------------
\23\ For example, if the Primary Direct Floor Listing Auction
Price Range is $10.00 to $20.00, the Direct Listing Auction would
not be conducted at a price below $10.00 or above $20.00.
---------------------------------------------------------------------------
there is insufficient buy interest to satisfy both the IDO
Order and all better-priced sell orders in full (proposed Rule
7.35A(g)(2)(B)).
Because the DMM is responsible for determining the Auction Price,
these proposed rule changes would make the DMM responsible for
determining
[[Page 39249]]
whether the Direct Listing Auction can proceed. If there is
insufficient buy interest and the DMM cannot price the Auction and
satisfy the IDO Order as required by this proposed rule, the Direct
Listing Auction would not proceed and such security would not begin
trading. If a Direct Listing Auction cannot be conducted, the Exchange
would notify market participants via Trader Update that the Primary
Direct Floor Listing has been cancelled and any orders for that
security that have been entered on the Exchange, including the IDO
Order, would be cancelled back to the entering firms.
Third, the Exchange proposes that when the limit price of the IDO
Order (which is already required to be at the lowest price in Primary
Direct Floor Listing Price Range) is equal to the Auction Price, i.e.,
an at-priced IDO Order, the IDO Order would have priority over other
orders at that price. As noted above, under Rule 7.35A(g), all better-
priced interest is guaranteed to participate in the opening auction for
a Primary Direct Floor Listing. If the IDO Order is better-priced,
i.e., if the Direct Listing Auction is priced above the limit price of
the IDO Order, the IDO Order would be a better-priced order guaranteed
to participate in such Auction. However, under Rule 7.35A(h)(2), at-
priced orders are not guaranteed to participate in an Auction and are
allocated as provided for in Rule 7.35A(h)(2)(A)-(D). Because an IDO
Order must be executed in full in order for the DMM to conduct the
Direct Listing Auction, the Exchange does not believe that an at-priced
IDO Order should be subject to the allocation process specified in Rule
7.35A(h)(2) because it may result in a partial execution of the IDO
Order. Providing priority to an at-priced IDO Order would increase the
potential for the IDO Order to be executed in full, and therefore for
the Primary Direct Floor Listing to proceed. To effect such change, the
Exchange proposes new subparagraph (4) in Rule 7.35A(h), regarding
Auction Allocation, to provide that an IDO Order would be guaranteed to
participate in the Direct Listing Auction at the Auction Price and that
if the limit price of the IDO Order is equal to the Auction Price, the
IDO Order would have priority at that price.
Fourth, unlike a Direct Listing Auction for a Selling Shareholder
Direct Floor Listing, the registration statement for a Primary Direct
Floor Listing would include a price range within which the company
anticipates selling shares it is offering. Accordingly, Rules
7.35A(d)(2)(A)(iv) \24\ and 7.35A(g)(1) \25\ are not applicable to a
Primary Direct Floor Listing and the Exchange proposes to provide that
the requirements of those Rules would be applicable only to a Selling
Shareholder Direct Floor Listing by amending the text of those Rules to
replace the term ``Direct Listing'' with the term ``Selling Shareholder
Direct Floor Listing.''
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\24\ Rule 7.35A(d)(2)(A)(iv) currently provides what the
Indication Reference Price will be ``for a security that is a Direct
Listing that has had recent sustained trading in a Private Placement
Market prior to listing, the most recent transaction price in that
market or, if none, a price determined by the Exchange in
consultation with a financial advisor to the issuer of such
security.''
\25\ Rule 7.35A(g)(1) currently provides: ``When facilitating
the opening on the first day of trading of a Direct Listing that has
not had recent sustained history of trading in a Private Placement
prior to listing, the DMM will consult with a financial advisor to
the issuer of such security in order to effect a fair and orderly
opening of such security.'' The Exchange proposes a non-substantive
amendment to Rule 7.35A(g)(1) to add the word ``Market'' after
``Private Placement.''
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The Exchange further notes that any services provided by a
financial advisor to the issuer of a security listing in connection
with a Selling Shareholder Direct Floor Listing or a Primary Direct
Floor Listing (the ``financial advisor'') and the DMM assigned to that
security must provide such services in a manner that is consistent with
all federal securities laws, including Regulation M and other anti-
manipulation requirements. For example, when a financial advisor
provides a consultation to the Exchange as required by Rule
7.35A(d)(2)(A)(iv), when the DMM consults with a financial advisor as
required by Rule 7.35A(g)(1), or when a financial advisor otherwise
assists or consults with the DMM as to pricing or opening of trading in
Selling Shareholder Direct Floor Listing or Primary Direct Floor
Listing, the financial advisor and DMM will not act inconsistent with
Regulation M,\26\ and other anti-manipulation provisions of the federal
securities laws, or Exchange Rule 2020.\27\ The Exchange has retained
the Financial Industry Regulatory Authority, Inc. (``FINRA'') pursuant
to a regulatory services agreement to monitor such compliance with
Regulation M and other anti-manipulation provisions of the federal
securities laws and Rule 2020.\28\ To promote clarity and transparency
in Exchange rules regarding the consultation requirements of Rules
7.35A(d)(2)(A)(iv) and 7.35A(g)(1), the Exchange proposes to add
Commentary .10 to Rule 7.35A to provide:
---------------------------------------------------------------------------
\26\ For example, in connection with the Selling Shareholder
Direct Floor Listing of Spotify Technology S.A, the Commission's
Division of Trading and Markets provided a no-action letter relating
to Regulation M that discussed, in part, the role of the financial
advisor and the DMM in such listing. See Letter from Josephine J.
Tao, Assistant Director, Division of Trading and Markets, United
States Securities and Exchange Commission to Ms. Dana G. Fleischman,
Latham & Watkins LLP, dated March 23, 2018, available here: https://www.sec.gov/divisions/marketreg/mr-noaction/2018/spotify-technology-032318-regm.pdf.
\27\ Exchange Rule 2020, which is identical to FINRA Rule 2020,
provides that ``[n]o member or member organization shall effect any
transaction in, or induce the purchase or sale of, any security by
means of any manipulation, deceptive or other fraudulent device or
contrivance'' (``Rule 2020'').
\28\ The Exchange expects to issue regulatory guidance in
connection with a company conducting a Primary Direct Floor Listing.
Such regulatory guidance would include a reminder to member
organizations that activities in connection with a Primary Direct
Floor Listing, like activities in connection with other listings,
must be conducted in a manner not inconsistent with Regulation M and
other anti-manipulation provisions of the federal securities laws
and Exchange Rule 2020.
In connection with a Selling Shareholder Direct Floor Listing,
the financial advisor to the issuer of the security being listed
(``financial advisor'') and the DMM assigned to such security are
reminded that any consultation that the financial advisor provides
to the Exchange as required by paragraph (d)(2)(A)(iv) of this Rule
and any consultation between the DMM and financial advisor as
required by paragraph (g)(1) of this Rule are to be conducted in a
manner that is consistent with the federal securities laws,
---------------------------------------------------------------------------
including Regulation M and other anti-manipulation requirements.
Finally, the Exchange proposes to amend Rule 7.35C to remove
references to Direct Listing Auctions. Rule 7.35C sets forth the
procedures for the Exchange to facilitate an Auction for one or more
securities if a DMM cannot facilitate an Auction under Rules 7.35A or
7.35B and specifies how such Exchange-facilitated Auctions would
function, including for a Direct Listing Auction. Because of the
importance of the DMM to a Direct Listing Auction, the Exchange
proposes that if a DMM is unable to manually facilitate a Direct
Listing Auction, the Exchange would not proceed with either a Selling
Shareholder Direct Floor Listing or a Primary Direct Floor Listing. To
effect this change, the Exchange proposes to amend Rule 7.35C(a) to
specify that the Exchange would not facilitate a Direct Listing Auction
and amend Rules 7.35C(a)(3), (b)(1), and (b)(3) to delete references to
a Direct Listing Auction.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Exchange Act,\29\ in general, and furthers the
objectives of Section 6(b)(5) of the Exchange Act,\30\ in particular in
that it is designed to
[[Page 39250]]
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, 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 is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78f(b).
\30\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed amendment to the Manual is
consistent with the protection of investors. The proposal would require
that a company in a Primary Direct Floor Listing (1) sell at least $100
million of its listed securities in the opening auction, or (2) have an
aggregate market value of publicly-held shares immediately prior to
listing together with the market value of shares the company sells in
the opening auction total at least $250 million, with such market value
calculated using a price per share equal to the lowest price of the
price range established by the issuer in its registration statement.
The Exchange notes that a company may list on the NYSE in connection
with its initial public offering with a market value of publicly-held
shares of $40 million and that, in the Exchange's experience in listing
IPOs, a liquid trading market develops after listing for issuers with a
much smaller value of publicly-held shares than the Exchange
anticipates would exist after the opening auction in a Primary Direct
Floor listing under the proposed market value of publicly-held shares
requirements. Consequently, the Exchange believes that these
requirements would provide that any company conducting a Primary Direct
Floor Listing would be of a suitable size for Exchange listing and that
there would be sufficient liquidity for the security to be suitable for
auction market trading.
Officers, directors or owners of more than 10% of the company's
common stock prior to the opening auction may purchase shares sold by
the company in the opening auction, in the event that such purchases
are not inconsistent with general anti-manipulation provisions,
Regulation M, and other applicable securities laws. In addition, in the
same way as for shares of a company listing following a traditional
underwritten IPO, such an insider owner may purchase shares sold by
other shareholders or sell its own shares in the opening auction and in
trading after the opening auction, to the extent not inconsistent with
general anti-manipulation provisions, Regulation M, and other
applicable securities laws. Except as proposed for Primary Direct Floor
Listings, shares held by these types of inside investors are not
included in calculations of publicly-held shares for purposes of
Exchange listing rules. The Exchange notes that after initial listing
such investors may acquire in secondary market trades shares sold by
the issuer in a Primary Direct Floor Listing that were included when
calculating that issuer's compliance with the market value of publicly-
held shares initial listing requirement. However, the Exchange believes
that because of the enhanced publicly-held shares requirement for a
listing in conjunction with a Primary Direct Floor Listing, which is
much higher than the Exchange's minimum $40 million requirement for a
traditional underwritten IPO, and the neutral nature of the opening
auction process, companies using a Primary Direct Floor Listing will
have an adequate public float and liquid trading market after the
completion of the opening auction.
The Exchange believes that the proposed amendments to Exchange
Rules to amend the definition of Direct Listing and Rules 7.31 and
7.35A to describe how an IDO Order would participate in a Direct
Listing Auction for a Primary Direct Floor Listing would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because they would guarantee that, if the
Direct Listing Auction for a Primary Direct Floor Listing occurs, all
shares offered by the company would participate.
Unlike an IPO, a company undergoing a Primary Direct Floor Listing
would not have an underwriter to guarantee that a specified number of
shares would be sold by the company within a price range established in
the company's effective registration statement. To ensure that the
Direct Listing Auction is conducted consistent with an issuer's
effective registration statement, the Exchange proposes that the Direct
Listing Auction for a Primary Direct Floor Listing under Section
102.01B of the Manual, would not proceed unless the quantity of shares
specified in the IDO Order would be sold in such Auction within a price
range specified by the company in its registration statement. This
certainty would be effected in two ways. First, the proposed IDO Order
would be required to be equal to the total number of shares disclosed
as being offered by the company in the prospectus included in the
effective registration statement filed in connection with its listing.
If the IDO Order cannot be satisfied in full, then the Direct Listing
Auction would not proceed. Second, the Direct Floor Auction for a
Primary Direct Floor Listing would be required to be priced within the
range established by the company in its effective registration
statement.
The Exchange further believes that these proposed changes would
remove impediments to and perfect the mechanism of a free and open
market and a national market system because they are designed to
function seamlessly with the existing process for a DMM-facilitated
Direct Listing Auction, including the requirement that such Auction be
facilitated manually by a DMM, the process for publishing pre-opening
indications, and the requirement that all better-priced sell orders are
guaranteed to participate in such Auction. In addition, the proposed
changes are designed to protect investors and the public interest
because they would provide an opportunity for the Primary Direct Floor
Listing to proceed so that the issuer's securities can be listed and
begin trading on the secondary market. Accordingly, the Exchange
believes that it would be consistent with this goal for an at-priced
IDO Order, which must be satisfied in full, to have priority over other
at-priced orders if the limit price of the IDO Order is equal to the
Auction Price. Proposed Rule 7.35A(h)(4) would eliminate the potential
for a partial execution of the IDO Order and provide greater
opportunity for the IDO Order to be executed in full, thus allowing the
Direct Listing Auction to proceed.
The Exchange believes the proposed amendments to Rule 7.35C would
remove impediments to and perfect the mechanism of a fair and orderly
market and a national market system because the Exchange believes that
having the DMM manually facilitate a Direct Listing Auction would
promote a fair and orderly auction process for such an Auction.
Therefore, if the DMM is unavailable to facilitate such Direct Listing
Auction manually, the Exchange would not proceed with facilitating a
Direct Listing Auction for either a Selling Shareholder Direct Floor
Listing or a Primary Direct Floor Listing.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed amendments
would not impose any burden on competition, but would rather increase
competition by
[[Page 39251]]
providing new pathways for companies to access the public markets.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Amendment No. 2, 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-NYSE-2019-67 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-NYSE-2019-67. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSE-2019-67, and should be submitted on
or before July 21, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14013 Filed 6-29-20; 8:45 am]
BILLING CODE 8011-01-P
