Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Apply Additional Initial Listing Criteria for Companies Primarily Operating in Restrictive Markets, 57282-57286 [2020-20259]
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Federal Register / Vol. 85, No. 179 / Tuesday, September 15, 2020 / Notices
publicly. All submissions should refer
to File Number SR–IEX–2020–13 and
should be submitted on or before
October 6, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–20256 Filed 9–14–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–89799; File No. SR–
NASDAQ–2020–027]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Order
Instituting Proceedings To Determine
Whether To Approve or Disapprove a
Proposed Rule Change To Apply
Additional Initial Listing Criteria for
Companies Primarily Operating in
Restrictive Markets
September 9, 2020.
I. Introduction
On May 29, 2020, The Nasdaq Stock
Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to apply additional listing
criteria to companies primarily
operating in a jurisdiction that has
secrecy laws, blocking statutes, national
security laws or other laws or
regulations restricting access to
information by regulators of U.S.-listed
companies. The proposed rule change
was published for comment in the
Federal Register on June 12, 2020.3 On
July 21, 2020, pursuant to Section
19(b)(2) of the Act,4 the Commission
designated a longer period within which
to approve the proposed rule change,
disapprove the proposed rule change, or
institute proceedings to determine
whether to disapprove the proposed
rule change.5
21 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 89027
(June 8, 2020), 85 FR 35962 (‘‘Notice’’). Comments
on the proposed rule change can be found at:
https://www.sec.gov/comments/sr-nasdaq-2020027/srnasdaq2020027.htm.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 89358
(July 21, 2020), 85 FR 45275 (July 27, 2020). The
Commission designated September 10, 2020 as the
date by which the Commission shall approve or
disapprove, or institute proceedings to determine
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The Commission is publishing this
order to solicit comments on the
proposed rule change from interested
persons and to institute proceedings
pursuant to Section 19(b)(2)(B) of the
Act 6 to determine whether to approve
or disapprove the proposed rule change.
II. Exchange’s Description of the
Proposed Rule Change
The Exchange states that in recent
years the lack of transparency from
certain emerging markets has raised
concerns with respect to listed emerging
market companies regarding the
accuracy of disclosures, accountability,
and access to information, particularly
when the companies are based in a
jurisdiction that has secrecy laws,
blocking statutes, national security laws
or other laws or regulations restricting
access to information by regulators of
U.S.-listed companies (‘‘Restrictive
Market’’).7 The Exchange further states
that such concerns can be compounded
when a company lists on the Exchange
through an initial public offering
(‘‘IPO’’) or a business combination with
a small offering size or a low public
float percentage, as the company may
not develop sufficient public float,
investor base, and trading interest to
provide the depth and liquidity
necessary to promote fair and orderly
trading, which may result in a security
that is illiquid.8 The Exchange states
that such securities may trade
infrequently, in a more volatile manner,
and with a wider bid-ask spread, all of
which may lead to trading at a price that
may not reflect true market value.9 In
addition, the Exchange states that less
liquid securities may be more
susceptible to price manipulation and
that, in particular, the risk of price
manipulation due to insider trading is
more acute with respect to a company
that principally administers its business
in a Restrictive Market (‘‘Restrictive
Market Company’’) because regulatory
investigations into price manipulation,
insider trading, and compliance
concerns may be impeded, and,
therefore, investor protections and
remedies may be limited.10 As a result,
the Exchange states that it believes that
Restrictive Market Companies present
unique potential risks to U.S.
investors.11
The Exchange states that it is now
proposing rule changes that it believes
whether to approve or disapprove, the proposed
rule change.
6 15 U.S.C. 78s(b)(2)(B).
7 See Notice, supra note 3, at 35962.
8 See id. at 35962 and 35965.
9 See id. at 35962 and 35965–66.
10 See id. at 35962 and 35966.
11 See id. at 35965.
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will help to ensure that Restrictive
Market Companies have sufficient
investor base and public float to support
fair and orderly trading on the
Exchange.12 Specifically, the Exchange
proposes to adopt a definition of
‘‘Restrictive Market’’ 13 and to apply
additional initial listing requirements to
a Restrictive Market Company listing on
the Exchange in connection with an IPO
or a business combination.14 The
Exchange also proposes to prohibit a
Restrictive Market Company from listing
on the Nasdaq Capital Market in
connection with a Direct Listing,15 but
to allow a Restrictive Market Company
to list on the Nasdaq Global Select
Market or Nasdaq Global Market in
connection with a Direct Listing,
provided that such company meets all
applicable initial listing requirements
for such market.
A. Definition of Restrictive Market
The Exchange proposes to adopt a
new definition of Restrictive Market in
Listing Rule 5005(a)(37).16 As proposed,
a Restrictive Market would mean a
jurisdiction that Nasdaq determines to
have secrecy laws, blocking statutes,
national security laws or other laws or
regulations restricting access to
information by regulators of U.S.-listed
companies in such jurisdiction.17 In
12 See
id.
infra note 17 and accompanying text.
14 The Exchange states that, currently, it may rely
upon its discretionary authority under Nasdaq
Listing Rule 5101 to deny initial listing or apply
additional or more stringent criteria when it is
concerned that a small offering size for an IPO may
not reflect the company’s initial valuation or may
not ensure sufficient liquidity to support trading in
the secondary market. Pursuant to Rule 5101,
Nasdaq has broad discretionary authority over the
initial and continued listing of securities in Nasdaq
in order to maintain the quality of and public
confidence in its market, to prevent fraudulent and
manipulative acts and practices, to promote just
and equitable principles of trade, and to protect
investors and the public interest. Nasdaq may use
such discretion to deny initial listing, apply
additional or more stringent criteria for the initial
or continued listing of particular securities, or
suspend or delist particular securities based on any
event, condition, or circumstance that exists or
occurs that makes initial or continued listing of the
securities on Nasdaq inadvisable or unwarranted in
the opinion of Nasdaq, even though the securities
meet all enumerated criteria for initial or continued
listing on Nasdaq. See Nasdaq Listing Rule 5101.
15 Nasdaq defines ‘‘Direct Listing’’ as the listing
of ‘‘companies that have sold common equity
securities in private placements, which have not
been listed on a national securities exchange or
traded in the over-the-counter market pursuant to
FINRA Form 211 immediately prior to the initial
pricing.’’ See Nasdaq Listing Rule IM–5315–1.
16 The Exchange proposes to renumber current
paragraphs (a)(37) through (a)(46) of Listing Rule
5005 in connection with the addition of the
definition of Restrictive Market. See Notice, supra
note 3, at 35963.
17 See id. at 35962–63; proposed Listing Rule
5005(a)(37).
13 See
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determining whether a Company’s
business is principally administered in
a Restrictive Market, Nasdaq may
consider the geographic locations of the
Company’s: (i) Principal business
segments, operations or assets; (ii) board
and shareholders’ meetings; (iii)
headquarters or principal executive
offices; (iv) senior management and
employees; and (v) books are records.18
The Exchange states that it would
consider these factors holistically,
recognizing that a company’s
headquarters may not be the office from
which it conducts its principal business
activities.19 The Exchange also states
that the proposed definition would
capture both foreign private issuers
based in Restrictive Markets and
companies based in the U.S. or another
jurisdiction that principally administer
their businesses in Restrictive
Markets.20
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B. Minimum Offering Size or Public
Float Percentage Requirement for an
IPO
The Exchange proposes to adopt new
Rule 5210(l)(i) to require a Restrictive
Market Company listing its Primary
Equity Security 21 on Nasdaq in
connection with its IPO to offer a
minimum amount of securities in a Firm
Commitment Offering 22 in the U.S. to
Public Holders 23 that (i) will result in
gross proceeds to the Company of at
least $25 million or (ii) will represent at
least 25% of the Company’s postoffering Market Value of Listed
Securities,24 whichever is lower. A
18 See id. Nasdaq Listing Rule 5005(a)(6) defines
‘‘Company’’ as the issuer of a security listed or
applying to list on Nasdaq.
19 See Notice, supra note 3, at 35963. The
Exchange provides the following example.
Company X’s headquarters are located in Country
Y, while the majority of its senior management,
employees, assets, operations and books and
records are located in Country Z, which is a
Restrictive Market. Nasdaq would consider
Company X’s business to be principally
administered in Country Z. See id.
20 See id. at 35963, n.5.
21 Nasdaq Listing Rule 5005(a)(33) defines
‘‘Primary Equity Security’’ as ‘‘a Company’s first
class of Common Stock, Ordinary Shares, Shares or
Certificates of Beneficial Interest of Trust, Limited
Partnership Interests or American Depositary
Receipts (ADR) or Shares (ADS).’’
22 Nasdaq Listing Rule 5005(a)(17) defines ‘‘Firm
Commitment Offering’’ as ‘‘an offering of securities
by participants in a selling syndicate under an
agreement that imposes a financial commitment on
participants in such syndicate to purchase such
securities.’’
23 Nasdaq Listing Rule 5005(a)(36) defines
‘‘Public Holders’’ as ‘‘holders of a security that
includes both beneficial holders and holders of
record, but does not include any holder who is,
either directly or indirectly, an Executive Officer,
director, or the beneficial holder of more than 10%
of the total shares outstanding.’’
24 ‘‘Market Value’’ means the consolidated closing
bid price multiplied by the measure to be valued.
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Restrictive Market Company listing on
the Exchange in connection with an IPO
that is subject to the proposed rule
would also need comply with all other
applicable listing requirements.25
The Exchange states that it has
observed that Restrictive Market
Companies listing on Nasdaq in
connection with an IPO with an offering
size below $25 million or public float
ratio below 25% have a high rate of
compliance concerns.26 The Exchange
further states that it believes the
proposed listing requirement would
help ensure that Restrictive Market
Companies seeking to list on the
Exchange have sufficient investor base
and public float to support fair and
orderly trading on the Exchange.27
C. Minimum Market Value of
Unrestricted Publicly Held Shares
Requirement for a Business
Combination
The Exchange proposes to adopt new
Rule 5210(l)(ii) to require a Company
that is conducting a business
combination, as described in Nasdaq
See Nasdaq Listing Rule 5000(a)(23). ‘‘Listed
Securities’’ means securities listed on Nasdaq or
another national securities exchange. See Nasdaq
Listing Rule 5000(a)(22).
25 The Exchange provides the following examples
to illustrate the proposed rule. First, Company X,
which principally administers its business in a
Restrictive Market, is applying to list on Nasdaq
Global Market and has an expected post-offering
Market Value of Listed Securities of $75,000,000.
Since 25% of $75,000,000 is $18,750,000, which is
lower than $25,000,000, pursuant to the
requirements of the proposed rule, Company X
would be eligible to list based on a Firm
Commitment Offering in the U.S. to Public Holders
of at least $18,750,000. Company X would also need
to comply with the other applicable listing
requirements of the Nasdaq Global Market,
including a Market Value of Unrestricted Publicly
Held Shares of at least $8 million. See Nasdaq
Listing Rule 5405(b)(1)(C). See also Rule 5005(a)(45)
(definition of ‘‘Unrestricted Publicly Held Shares’’),
Rule 5005(a)(46) (definition of ‘‘Unrestricted
Securities’’), and Rule 5005(a)(37) (definition of
‘‘Restricted Securities’’). As another example,
Company Y, which also principally administers its
business in a Restrictive Market, is applying to list
on the Nasdaq Global Select Market and its postoffering Market Value of Listed Securities is
expected to be $200,000,000. Since 25% of
$200,000,000 is $50,000,000, which is higher than
$25,000,000, pursuant to the requirements of the
proposed rule, Company Y would be eligible to list
based on a Firm Commitment Offering in the U.S.
to Public Holders that will result in gross proceeds
of at least $25,000,000. Company Y would also need
to comply with the other applicable listing
requirements of the Nasdaq Global Select Market,
including a Market Value of Unrestricted Publicly
Held Shares of at least $45 million. See Nasdaq
Listing Rule 5315(f)(2)(C).
26 See Notice, supra note 3, at 35963.
27 See id. at 35963–64.
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Listing Rule 5110(a) 28 or IM–5101–2,29
with a Restrictive Market Company to
have a minimum Market Value of
Unrestricted Publicly Held Shares 30
following the business combination
equal to the lesser of (i) $25 million or
(ii) 25% of post-business combination
entity’s Market Value of Listed
Securities. A Company subject to the
proposed rule would also need comply
with all other applicable listing
requirements.31
28 Nasdaq Listing Rule 5110(a) (Business
Combinations with non-Nasdaq Entities Resulting
in a Change of Control) sets forth requirements
applicable to a Company that engages in a business
combination with a non-Nasdaq entity, resulting in
a change of control of the Company and potentially
allowing the non-Nasdaq entity to obtain a Nasdaq
Listing.
29 Nasdaq Listing Rule IM–5101–2 (Listing of
Companies Whose Business Plan is to Complete
One or More Acquisitions) sets forth requirements
applicable to a Company whose business plan is to
complete an IPO and engage in a merger or
acquisition with one or more unidentified
companies within a specific period of time.
30 Nasdaq Listing Rule 5005(a)(45) defines
‘‘Unrestricted Publicly Held Shares’’ as Publicly
Held Shares that are Unrestricted Securities.
‘‘Publicly Held Shares’’ means shares not held
directly or indirectly by an officer, director or any
person who is the beneficial owner of more than 10
percent of the total shares outstanding. See Nasdaq
Listing Rule 5005(a)(35). ‘‘Unrestricted Securities’’
means securities that are not subject to resale
restrictions for any reason, including, but not
limited to, securities: (i) Acquired directly or
indirectly from the issuer or an affiliate of the issuer
in unregistered offerings such as private placements
or Regulation D offerings; (ii) acquired through an
employee stock benefit plan or as compensation for
professional services; (iii) acquired in reliance on
Regulation S, which cannot be resold within the
United States; (iv) subject to a lockup agreement or
a similar contractual restriction; or (v) considered
‘‘restricted securities’’ under Rule 144. See Nasdaq
Listing Rules 5005(a)(46) and (37).
31 The Exchange provides the following examples
to illustrate the proposed rule. First, Company A is
currently listed on the Nasdaq Capital Market and
plans to acquire a company that principally
administers its business in a Restrictive Market, in
accordance with IM–5101–2. Following the
business combination, Company A intends to
transfer to the Nasdaq Global Select Market.
Company A expects the post-business combination
entity to have a Market Value of Listed Securities
of $250,000,000. Since 25% of $250,000,000 is
$62,500,000, which is higher than $25,000,000,
pursuant to the requirements of the proposed rule,
to qualify for listing the post-business combination
entity must have a minimum Market Value of
Unrestricted Publicly Held Shares of at least
$25,000,000. The company would also need to
comply with the other applicable listing
requirements of the Nasdaq Global Select Market,
including a Market Value of Unrestricted Publicly
Held Shares of at least $45,000,000. See Nasdaq
Listing Rule 5315(f)(2)(C). As another example,
Company B is currently listed on Nasdaq Capital
Market and plans to combine with a non-Nasdaq
entity that principally administers its business in a
Restrictive Market, resulting in a change of control
as defined in Rule 5110(a), whereby the non-Nasdaq
entity will become the Nasdaq-listed company.
Following the change of control, Company B
expects the listed company to have a Market Value
of Listed Securities of $50,000,000. Since 25% of
$50,000,000 is $12,500,000, which is lower than
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The Exchange states that it believes
that a business combination, as
described in Nasdaq Rule 5110(a) or
IM–5101–2, involving a Restrictive
Market Company presents similar risks
to U.S. investors as an IPO of a
Restrictive Market Company and that
the proposed listing requirement will
help to provide an additional assurance
that there are sufficient freely tradable
shares and investor interest to support
fair and orderly trading on the Exchange
when the target company is a Restrictive
Market Company.32
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D. Direct Listings of Restrictive Market
Companies
The Exchange proposes to adopt new
Rule 5210(l)(iii) to provide that a
Restrictive Market Company that is
listing its Primary Equity Security on
Nasdaq in connection with a Direct
Listing, as defined in Listing Rule IM–
5315–1,33 would be permitted to list on:
(i) The Nasdaq Global Select Market,
provided that the Company meets all
applicable listing requirements for the
Nasdaq Global Select Market and the
additional requirements of Listing Rule
IM–5315–1, or (ii) the Nasdaq Global
Market, provided that the Company
meets all applicable listing requirements
for the Nasdaq Global Market and the
additional requirements of Listing Rule
IM–5405–1. On the other hand,
proposed Rule 5210(l)(iii) would
provide that a Restrictive Market
Company would not be permitted to list
on the Nasdaq Capital Market in
connection with a Direct Listing,
notwithstanding the fact that the
Company may meet the applicable
initial listing requirements for the
Nasdaq Capital Market and the
additional requirements in Listing Rule
IM–5505–1.
The Exchange’s rules currently set
forth initial listing requirements for
companies listing on the Nasdaq Global
Select Market, Nasdaq Global Market,
and Nasdaq Capital Market,34 and
additional listing requirements for
Companies conducting a Direct Listing
on such markets.35 The Exchange states
that it believes it is appropriate to
$25,000,000, pursuant to the requirements of the
proposed rule, the listed company must have a
minimum Market Value of Unrestricted Publicly
Held Shares following the change of control of at
least $12,500,000. The post-business combination
company would also need to comply with all other
applicable listing requirements of the Nasdaq
Capital Market, including a Market Value of
Unrestricted Publicly Held Shares of at least $5
million. See Nasdaq Listing Rule 5505(b)(3)(C).
32 See Notice, supra note 3, at 35964.
33 See supra note 15.
34 See Nasdaq Listing Rules 5315, 5405, and 5505.
35 See Nasdaq Listing Rules IM–5315–1, IM–
5405–1, and IM–5501–1.
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permit Restrictive Market Companies to
list through a Direct Listing on the
Nasdaq Global Select Market or Nasdaq
Global Market because such companies
would be subject to the additional
listing requirements set forth in IM–
5315–1 or IM–5405–1, respectively.36
On the other hand, the Exchange states
that it does not believe that the
additional requirements for Direct
Listing on the Nasdaq Capital Market,
set forth in IM–5501–1, are sufficient to
overcome concerns regarding sufficient
liquidity and investor interest to
support fair and orderly trading on the
Exchange with respect to Restrictive
Market Companies.37
III. Summary of the Comment Letters
Received
One commenter stated that it fully
supports the proposed rule change
inasmuch as it seems reasonably
tailored to help ensure full, complete,
and transparent financial and other
disclosure from Restrictive Market
Companies.38 Another commenter
expressed its support for the proposed
rule changes to require Restrictive
Market Companies to have a minimum
offering size or public float percentage
for an IPO and minimum market value
of publicly held shares for a business
combination and agreed that these
requirements should help mitigate the
risks that Restrictive Market Companies
present to U.S. investors.39 However,
this commenter did not support the
proposal to allow Restrictive Market
Companies to list on Nasdaq Global
Select Market or Nasdaq Global Market
in connection with a Direct Listing and
stated its general opposition to any
proposal that would expand the use of
direct listings.40 On the other hand, this
36 See
Notice, supra note 3, at 35965.
id. As an example, the Exchange states that
the Nasdaq Global Select Market and Nasdaq Global
Market require a company to have at least 1,250,000
and 1.1 million Unrestricted Publicly Held Shares,
respectively, and a Market Value of Unrestricted
Publicly Held Shares of at least $45 million and $8
million, respectively. See Nasdaq Listing Rules
5315(e)(2), 5315(f)(2)(c), 5405(a)(2), and
5405(b)(1)(c). In contrast, the Nasdaq Capital Market
requires a company to have at least 1 million
Unrestricted Publicly Held Shares and a Market
Value of Unrestricted Publicly Held Shares of at
least $5 million. See Nasdaq Listing Rules
5505(a)(2) and 5505(b)(3)(C). See also Notice, supra
note 3, at 35965, n.22.
38 See Letter from Annemarie Tierney, Founder
and Principal, Liquid Advisors, Inc. (July 2, 2020),
at 5.
39 See Letter from Jeffrey P. Mahoney, General
Counsel, Council of Institutional Investors (June 25,
2020) (‘‘CII Letter’’), at 4–5.
40 See id. at 5–6. This commenter cited its letter
to the Commission submitted in connection with
File Number SR–NYSE–2019–67, which stated that
‘‘the SEC should take real and substantial steps, on
an urgent basis, to explore establishing a system of
traceable shares before approving a direct listing
37 See
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commenter agreed with the Exchange
that precluding Restrictive Market
Companies from listing through a Direct
Listing on the Nasdaq Capital Market
will help to promote fair and orderly
trading on the secondary market.41
IV. Proceedings To Determine Whether
To Approve or Disapprove SR–
NASDAQ–2020–027 and Grounds for
Disapproval Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 42 to determine
whether the proposed rule change
should be approved or disapproved.
Institution of such proceedings is
appropriate at this time in view of the
legal and policy issues raised by the
proposed rule change. Institution of
proceedings does not indicate that the
Commission has reached any
conclusions with respect to any of the
issues involved. Rather, as described
below, the Commission seeks and
encourages interested persons to
provide additional comment on the
proposed rule change to inform the
Commission’s analysis of whether to
approve or disapprove the proposed
rule change.
Pursuant to Section 19(b)(2)(B) of the
Act,43 the Commission is providing
notice of the grounds for disapproval
under consideration. The Commission is
instituting proceedings to allow for
additional analysis of the proposed rule
change’s consistency with Section
6(b)(5) of the Act, which requires,
among other things, that the rules of a
national securities exchange be
designed to prevent fraudulent and
manipulative acts and practices, to
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 to
protect investors and the public interest,
and not be designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.44
As discussed above, the Exchange
proposes to apply new initial listing
requirements to Restrictive Market
Companies in connection with an IPO to
regime.’’ See Letter from Jeffrey P. Mahoney,
General Counsel, Council of Institutional Investors
(January 16, 2020), at 2–3, available at https://
www.sec.gov/comments/sr-nyse-2019-67/
srnyse201967-6660338-203855.pdf.
41 See CII Letter, supra note 39, at 6.
42 15 U.S.C. 78s(b)(2)(B).
43 Id.
44 15 U.S.C. 78f(b)(5).
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Federal Register / Vol. 85, No. 179 / Tuesday, September 15, 2020 / Notices
require such companies to offer a
minimum amount of securities in a Firm
Commitment Offering in the U.S. to
Public Holders that (i) will result in
gross proceeds to the company of at
least $25 million or (ii) will represent at
least 25% of the company’s postoffering Market Value of Listed
Securities, whichever is lower.45 In
addition, the Exchange proposes to
apply new listing requirements to
companies conducting a business
combination with a Restrictive Market
Company to require such companies to
have a minimum Market Value of
Unrestricted Publicly Held Shares
following the business combination
equal to the lesser of (i) $25 million or
(ii) 25% of post-business combination
entity’s Market Value of Listed
Securities.46 In support of the proposed
requirements, the Exchange states that it
has observed that Restrictive Market
Companies listing on Nasdaq in
connection with an IPO with an offering
size below $25 million or public float
ratio below 25% have a high rate of
compliance concerns and that business
combinations involving Restrictive
Market Companies present similar risks
to U.S. investors.47 However, the
Exchange does not provide any other
data or analysis to support the level at
which the proposed thresholds are set.
The Commission believes there are
questions as to whether the proposed
thresholds are set at levels which are
not designed to permit unfair
discrimination amongst Restrictive
Market Company issuers.
In addition, the Exchange’s proposal
sets forth five factors that the Exchange
‘‘may’’ consider when determining
whether a Company’s business is
principally administered in a Restrictive
Market and the Exchange states that it
will consider these factors
‘‘holistically.’’ 48 The proposal does not
provide how, or if, the Exchange would
apply these five factors when making a
determination of whether a Company’s
business is principally administered in
a Restrictive Market but, instead,
provides the Exchange with broad
discretion in determining so. The
Commission believes there are questions
as to whether such broad discretion
when making a determination of
whether a Company’s business is
principally administered in a Restrictive
Market is not designed to permit unfair
discrimination. Accordingly, the
Commission believes there are questions
45 See
supra Section II.B.
supra Section II.C.
47 See supra notes 26 and 32 and accompanying
text.
48 See supra notes 18–19 and accompanying text.
46 See
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as to whether the proposal is consistent
with Section 6(b)(5) of the Act and its
requirement, among other things, that
the rules of a national securities
exchange not be designed to permit
unfair discrimination.
Under the Commission’s Rules of
Practice, the ‘‘burden to demonstrate
that a proposed rule change is
consistent with the Exchange Act and
the rules and regulations issued
thereunder . . . is on the [SRO] that
proposed the rule change.’’ 49 The
description of a proposed rule change,
its purpose and operation, its effect, and
a legal analysis of its consistency with
applicable requirements must all be
sufficiently detailed and specific to
support an affirmative Commission
finding,50 and any failure of an SRO to
provide this information may result in
the Commission not having a sufficient
basis to make an affirmative finding that
a proposed rule change is consistent
with the Act and the applicable rules
and regulations.51
The Commission is instituting
proceedings to allow for additional
consideration and comment on the
issues raised herein, including as to
whether the proposal is consistent with
the Act.
V. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the issues
identified above, as well as any other
concerns they may have with the
proposal. In particular, the Commission
invites the written views of interested
persons concerning whether the
proposal is consistent with Section
6(b)(5) 52 of the Act or any other
provision of the Act, or the rules and
regulations thereunder. Although there
do not appear to be any issues relevant
to approval or disapproval that would
be facilitated by an oral presentation of
views, data, and arguments, the
Commission will consider, pursuant to
Rule 19b–4 under the Act,53 any request
for an opportunity to make an oral
presentation.54
49 17
CFR 201.700(b)(3).
id.
51 See id.
52 15 U.S.C. 78f(b)(5).
53 17 CFR 240.19b–4.
54 Section 19(b)(2) of the Act, as amended by the
Securities Act Amendments of 1975, Public Law
94–29 (June 4, 1975), grants the Commission
flexibility to determine what type of proceeding—
either oral or notice and opportunity for written
comments—is appropriate for consideration of a
particular proposal by a self-regulatory
organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban
50 See
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57285
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposal should be approved or
disapproved by October 6, 2020. Any
person who wishes to file a rebuttal to
any other person’s submission must file
that rebuttal by October 20, 2020. The
Commission asks that commenters
address the sufficiency of the
Exchange’s statements in support of the
proposal, which are set forth in the
Notice,55 in addition to any other
comments they may wish to submit
about the proposed rule change.
Comments may be submitted by any
of the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2020–027 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2020–027. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
55 See Notice, supra note 3.
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Federal Register / Vol. 85, No. 179 / Tuesday, September 15, 2020 / Notices
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NASDAQ–2020–027 and
should be submitted by October 6, 2020.
Rebuttal comments should be submitted
by October 20, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.56
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–20259 Filed 9–14–20; 8:45 am]
BILLING CODE 8011–01–P
SOCIAL SECURITY ADMINISTRATION
[Docket No: SSA–2020–0048]
Agency Information Collection
Activities: Comment Request
The Social Security Administration
(SSA) publishes a list of information
collection packages requiring clearance
by the Office of Management and
Budget (OMB) in compliance with
Public Law 104–13, the Paperwork
Reduction Act of 1995, effective October
1, 1995. This notice includes a revision
of an OMB-approved information
collection.
SSA is soliciting comments on the
accuracy of the agency’s burden
estimate; the need for the information;
its practical utility; ways to enhance its
quality, utility, and clarity; and ways to
minimize burden on respondents,
including the use of automated
collection techniques or other forms of
information technology. Mail, email, or
fax your comments and
recommendations on the information
collection(s) to the OMB Desk Officer
and SSA Reports Clearance Officer at
the following addresses or fax numbers.
(OMB), Office of Management and
Budget, Attn: Desk Officer for SSA,
Fax: 202–395–6974, Email address:
OIRA_Submission@omb.eop.gov
(SSA), Social Security Administration,
OLCA; Attn: Reports Clearance
Director, 3100 West High Rise, 6401
Security Blvd., Baltimore, MD 21235,
Fax: 410–966–2830, Email address:
OR.Reports.Clearance@ssa.gov
Or you may submit your comments
online through www.regulations.gov,
referencing Docket ID Number [SSA–
2020–0048].
SSA submitted the information
collection below to OMB for clearance.
Your comments regarding this
information collection would be most
useful if OMB and SSA receive them 30
days from the date of this publication.
To be sure we consider your comments,
we must receive them no later than
October 15, 2020. Individuals can obtain
copies of the OMB clearance package by
writing to OR.Reports.Clearance@
ssa.gov.
Disability Update Report—20 CFR
404.1589–404.1595 and 416.988–
416.996–0960–0511. As part of our
statutory requirements, SSA
periodically uses Form SSA–455, the
Disability Update Report, to evaluate
current Title II disability beneficiaries’
and Title XVI disability payment
recipients’ continued eligibility for
disability payments. Specifically, SSA
uses the form to determine if: (1) There
is enough evidence to warrant referring
the respondent for a full medical
Continuing Disability Review (CDR); (2)
the respondent’s impairments are still
present and indicative of no medical
improvement, precluding the need for a
full medical CDR; or (3) the respondent
has unresolved work-related issues. SSA
mails Form SSA–455 to specific
disability recipients, whom we select as
possibly qualifying for the full medical
CDR process. SSA pre-fills the form
with data specific to the disability
recipient, except for the sections we ask
the recipients to complete. When SSA
receives the completed form, we scan it
into SSA’s system. This allows us to
gather the information electronically,
and enables SSA to process the returned
forms through automated decision logic
to decide the proper course of action to
take. The respondents are recipients of
Title II and Title XVI Social Security
disability payments.
Type of Request: Revision of an OMBapproved information collection.
Modality of
completion
Number of
respondents
Frequency of
response
Average
burden per
response
(minutes)
Estimated total
annual burden
(hours)
Average
theoretical
hourly cost
amount
(dollars)*
Average
wait time in
field office
(minutes) **
Total annual
opportunity
cost
(dollars) ***
SSA–455 ......................
1,300,000
1
15
325,000
$10.73 *
24 **
$9,066,850 ***
* We based this figure on average DI payments based on SSA’s current FY 2020 data (https://www.ssa.gov/legislation/2020Fact
%20Sheet.pdf).
** We based this figure on the average FY 2020 wait times for field offices, based on SSA’s current management information data.
*** This figure does not represent actual costs that SSA is imposing on recipients of Social Security payments to complete this application;
rather, these are theoretical opportunity costs for the additional time respondents will spend to complete the application. There is no actual
charge to respondents to complete the application.
Dated: September 10, 2020.
Naomi Sipple,
Reports Clearance Officer, Social Security
Administration.
[FR Doc. 2020–20299 Filed 9–14–20; 8:45 am]
jbell on DSKJLSW7X2PROD with NOTICES
BILLING CODE 4191–02–P
DEPARTMENT OF STATE
[Public Notice 11200]
Certification Pursuant to the
Department of State, Foreign
Operations, and Related Programs
Appropriations Act, 2020
By virtue of the authority vested in
me as Secretary of State pursuant to
section 7041(a)(l) of the Department of
State, Foreign Operations, and Related
Programs Appropriations Act, 2020
(Div. G, Pub.L. 1 16–94), I hereby certify
that the Government of Egypt is
56 17
sustaining the strategic relationship
with the United States and meeting its
obligations under the 1979 Egypt-Israel
Peace Treaty.
This determination shall be published
in the Federal Register and, along with
the accompanying Memorandum of
Justification, shall be reported to
Congress.
Dated: August 17, 2020.
Michael R. Pompeo,
Secretary of State.
[FR Doc. 2020–20211 Filed 9–14–20; 8:45 am]
BILLING CODE 4710–31–P
CFR 200.30–3(a)(57).
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]]>Agencies
[Federal Register Volume 85, Number 179 (Tuesday, September 15, 2020)]
[Notices]
[Pages 57282-57286]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-20259]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89799; File No. SR-NASDAQ-2020-027]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To Apply Additional Initial Listing Criteria for
Companies Primarily Operating in Restrictive Markets
September 9, 2020.
I. Introduction
On May 29, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to apply additional listing criteria to companies
primarily operating in a jurisdiction that has secrecy laws, blocking
statutes, national security laws or other laws or regulations
restricting access to information by regulators of U.S.-listed
companies. The proposed rule change was published for comment in the
Federal Register on June 12, 2020.\3\ On July 21, 2020, pursuant to
Section 19(b)(2) of the Act,\4\ the Commission designated a longer
period within which to approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
disapprove the proposed rule change.\5\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 89027 (June 8,
2020), 85 FR 35962 (``Notice''). Comments on the proposed rule
change can be found at: https://www.sec.gov/comments/sr-nasdaq-2020-027/srnasdaq2020027.htm.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 89358 (July 21,
2020), 85 FR 45275 (July 27, 2020). The Commission designated
September 10, 2020 as the date by which the Commission shall approve
or disapprove, or institute proceedings to determine whether to
approve or disapprove, the proposed rule change.
---------------------------------------------------------------------------
The Commission is publishing this order to solicit comments on the
proposed rule change from interested persons and to institute
proceedings pursuant to Section 19(b)(2)(B) of the Act \6\ to determine
whether to approve or disapprove the proposed rule change.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
II. Exchange's Description of the Proposed Rule Change
The Exchange states that in recent years the lack of transparency
from certain emerging markets has raised concerns with respect to
listed emerging market companies regarding the accuracy of disclosures,
accountability, and access to information, particularly when the
companies are based in a jurisdiction that has secrecy laws, blocking
statutes, national security laws or other laws or regulations
restricting access to information by regulators of U.S.-listed
companies (``Restrictive Market'').\7\ The Exchange further states that
such concerns can be compounded when a company lists on the Exchange
through an initial public offering (``IPO'') or a business combination
with a small offering size or a low public float percentage, as the
company may not develop sufficient public float, investor base, and
trading interest to provide the depth and liquidity necessary to
promote fair and orderly trading, which may result in a security that
is illiquid.\8\ The Exchange states that such securities may trade
infrequently, in a more volatile manner, and with a wider bid-ask
spread, all of which may lead to trading at a price that may not
reflect true market value.\9\ In addition, the Exchange states that
less liquid securities may be more susceptible to price manipulation
and that, in particular, the risk of price manipulation due to insider
trading is more acute with respect to a company that principally
administers its business in a Restrictive Market (``Restrictive Market
Company'') because regulatory investigations into price manipulation,
insider trading, and compliance concerns may be impeded, and,
therefore, investor protections and remedies may be limited.\10\ As a
result, the Exchange states that it believes that Restrictive Market
Companies present unique potential risks to U.S. investors.\11\
---------------------------------------------------------------------------
\7\ See Notice, supra note 3, at 35962.
\8\ See id. at 35962 and 35965.
\9\ See id. at 35962 and 35965-66.
\10\ See id. at 35962 and 35966.
\11\ See id. at 35965.
---------------------------------------------------------------------------
The Exchange states that it is now proposing rule changes that it
believes will help to ensure that Restrictive Market Companies have
sufficient investor base and public float to support fair and orderly
trading on the Exchange.\12\ Specifically, the Exchange proposes to
adopt a definition of ``Restrictive Market'' \13\ and to apply
additional initial listing requirements to a Restrictive Market Company
listing on the Exchange in connection with an IPO or a business
combination.\14\ The Exchange also proposes to prohibit a Restrictive
Market Company from listing on the Nasdaq Capital Market in connection
with a Direct Listing,\15\ but to allow a Restrictive Market Company to
list on the Nasdaq Global Select Market or Nasdaq Global Market in
connection with a Direct Listing, provided that such company meets all
applicable initial listing requirements for such market.
---------------------------------------------------------------------------
\12\ See id.
\13\ See infra note 17 and accompanying text.
\14\ The Exchange states that, currently, it may rely upon its
discretionary authority under Nasdaq Listing Rule 5101 to deny
initial listing or apply additional or more stringent criteria when
it is concerned that a small offering size for an IPO may not
reflect the company's initial valuation or may not ensure sufficient
liquidity to support trading in the secondary market. Pursuant to
Rule 5101, Nasdaq has broad discretionary authority over the initial
and continued listing of securities in Nasdaq in order to maintain
the quality of and public confidence in its market, to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, and to protect investors and the
public interest. Nasdaq may use such discretion to deny initial
listing, apply additional or more stringent criteria for the initial
or continued listing of particular securities, or suspend or delist
particular securities based on any event, condition, or circumstance
that exists or occurs that makes initial or continued listing of the
securities on Nasdaq inadvisable or unwarranted in the opinion of
Nasdaq, even though the securities meet all enumerated criteria for
initial or continued listing on Nasdaq. See Nasdaq Listing Rule
5101.
\15\ Nasdaq defines ``Direct Listing'' as the listing of
``companies that have sold common equity securities in private
placements, which have not been listed on a national securities
exchange or traded in the over-the-counter market pursuant to FINRA
Form 211 immediately prior to the initial pricing.'' See Nasdaq
Listing Rule IM-5315-1.
---------------------------------------------------------------------------
A. Definition of Restrictive Market
The Exchange proposes to adopt a new definition of Restrictive
Market in Listing Rule 5005(a)(37).\16\ As proposed, a Restrictive
Market would mean a jurisdiction that Nasdaq determines to have secrecy
laws, blocking statutes, national security laws or other laws or
regulations restricting access to information by regulators of U.S.-
listed companies in such jurisdiction.\17\ In
[[Page 57283]]
determining whether a Company's business is principally administered in
a Restrictive Market, Nasdaq may consider the geographic locations of
the Company's: (i) Principal business segments, operations or assets;
(ii) board and shareholders' meetings; (iii) headquarters or principal
executive offices; (iv) senior management and employees; and (v) books
are records.\18\ The Exchange states that it would consider these
factors holistically, recognizing that a company's headquarters may not
be the office from which it conducts its principal business
activities.\19\ The Exchange also states that the proposed definition
would capture both foreign private issuers based in Restrictive Markets
and companies based in the U.S. or another jurisdiction that
principally administer their businesses in Restrictive Markets.\20\
---------------------------------------------------------------------------
\16\ The Exchange proposes to renumber current paragraphs
(a)(37) through (a)(46) of Listing Rule 5005 in connection with the
addition of the definition of Restrictive Market. See Notice, supra
note 3, at 35963.
\17\ See id. at 35962-63; proposed Listing Rule 5005(a)(37).
\18\ See id. Nasdaq Listing Rule 5005(a)(6) defines ``Company''
as the issuer of a security listed or applying to list on Nasdaq.
\19\ See Notice, supra note 3, at 35963. The Exchange provides
the following example. Company X's headquarters are located in
Country Y, while the majority of its senior management, employees,
assets, operations and books and records are located in Country Z,
which is a Restrictive Market. Nasdaq would consider Company X's
business to be principally administered in Country Z. See id.
\20\ See id. at 35963, n.5.
---------------------------------------------------------------------------
B. Minimum Offering Size or Public Float Percentage Requirement for an
IPO
The Exchange proposes to adopt new Rule 5210(l)(i) to require a
Restrictive Market Company listing its Primary Equity Security \21\ on
Nasdaq in connection with its IPO to offer a minimum amount of
securities in a Firm Commitment Offering \22\ in the U.S. to Public
Holders \23\ that (i) will result in gross proceeds to the Company of
at least $25 million or (ii) will represent at least 25% of the
Company's post-offering Market Value of Listed Securities,\24\
whichever is lower. A Restrictive Market Company listing on the
Exchange in connection with an IPO that is subject to the proposed rule
would also need comply with all other applicable listing
requirements.\25\
---------------------------------------------------------------------------
\21\ Nasdaq Listing Rule 5005(a)(33) defines ``Primary Equity
Security'' as ``a Company's first class of Common Stock, Ordinary
Shares, Shares or Certificates of Beneficial Interest of Trust,
Limited Partnership Interests or American Depositary Receipts (ADR)
or Shares (ADS).''
\22\ Nasdaq Listing Rule 5005(a)(17) defines ``Firm Commitment
Offering'' as ``an offering of securities by participants in a
selling syndicate under an agreement that imposes a financial
commitment on participants in such syndicate to purchase such
securities.''
\23\ Nasdaq Listing Rule 5005(a)(36) defines ``Public Holders''
as ``holders of a security that includes both beneficial holders and
holders of record, but does not include any holder who is, either
directly or indirectly, an Executive Officer, director, or the
beneficial holder of more than 10% of the total shares
outstanding.''
\24\ ``Market Value'' means the consolidated closing bid price
multiplied by the measure to be valued. See Nasdaq Listing Rule
5000(a)(23). ``Listed Securities'' means securities listed on Nasdaq
or another national securities exchange. See Nasdaq Listing Rule
5000(a)(22).
\25\ The Exchange provides the following examples to illustrate
the proposed rule. First, Company X, which principally administers
its business in a Restrictive Market, is applying to list on Nasdaq
Global Market and has an expected post-offering Market Value of
Listed Securities of $75,000,000. Since 25% of $75,000,000 is
$18,750,000, which is lower than $25,000,000, pursuant to the
requirements of the proposed rule, Company X would be eligible to
list based on a Firm Commitment Offering in the U.S. to Public
Holders of at least $18,750,000. Company X would also need to comply
with the other applicable listing requirements of the Nasdaq Global
Market, including a Market Value of Unrestricted Publicly Held
Shares of at least $8 million. See Nasdaq Listing Rule
5405(b)(1)(C). See also Rule 5005(a)(45) (definition of
``Unrestricted Publicly Held Shares''), Rule 5005(a)(46) (definition
of ``Unrestricted Securities''), and Rule 5005(a)(37) (definition of
``Restricted Securities''). As another example, Company Y, which
also principally administers its business in a Restrictive Market,
is applying to list on the Nasdaq Global Select Market and its post-
offering Market Value of Listed Securities is expected to be
$200,000,000. Since 25% of $200,000,000 is $50,000,000, which is
higher than $25,000,000, pursuant to the requirements of the
proposed rule, Company Y would be eligible to list based on a Firm
Commitment Offering in the U.S. to Public Holders that will result
in gross proceeds of at least $25,000,000. Company Y would also need
to comply with the other applicable listing requirements of the
Nasdaq Global Select Market, including a Market Value of
Unrestricted Publicly Held Shares of at least $45 million. See
Nasdaq Listing Rule 5315(f)(2)(C).
---------------------------------------------------------------------------
The Exchange states that it has observed that Restrictive Market
Companies listing on Nasdaq in connection with an IPO with an offering
size below $25 million or public float ratio below 25% have a high rate
of compliance concerns.\26\ The Exchange further states that it
believes the proposed listing requirement would help ensure that
Restrictive Market Companies seeking to list on the Exchange have
sufficient investor base and public float to support fair and orderly
trading on the Exchange.\27\
---------------------------------------------------------------------------
\26\ See Notice, supra note 3, at 35963.
\27\ See id. at 35963-64.
---------------------------------------------------------------------------
C. Minimum Market Value of Unrestricted Publicly Held Shares
Requirement for a Business Combination
The Exchange proposes to adopt new Rule 5210(l)(ii) to require a
Company that is conducting a business combination, as described in
Nasdaq Listing Rule 5110(a) \28\ or IM-5101-2,\29\ with a Restrictive
Market Company to have a minimum Market Value of Unrestricted Publicly
Held Shares \30\ following the business combination equal to the lesser
of (i) $25 million or (ii) 25% of post-business combination entity's
Market Value of Listed Securities. A Company subject to the proposed
rule would also need comply with all other applicable listing
requirements.\31\
---------------------------------------------------------------------------
\28\ Nasdaq Listing Rule 5110(a) (Business Combinations with
non-Nasdaq Entities Resulting in a Change of Control) sets forth
requirements applicable to a Company that engages in a business
combination with a non-Nasdaq entity, resulting in a change of
control of the Company and potentially allowing the non-Nasdaq
entity to obtain a Nasdaq Listing.
\29\ Nasdaq Listing Rule IM-5101-2 (Listing of Companies Whose
Business Plan is to Complete One or More Acquisitions) sets forth
requirements applicable to a Company whose business plan is to
complete an IPO and engage in a merger or acquisition with one or
more unidentified companies within a specific period of time.
\30\ Nasdaq Listing Rule 5005(a)(45) defines ``Unrestricted
Publicly Held Shares'' as Publicly Held Shares that are Unrestricted
Securities. ``Publicly Held Shares'' means shares not held directly
or indirectly by an officer, director or any person who is the
beneficial owner of more than 10 percent of the total shares
outstanding. See Nasdaq Listing Rule 5005(a)(35). ``Unrestricted
Securities'' means securities that are not subject to resale
restrictions for any reason, including, but not limited to,
securities: (i) Acquired directly or indirectly from the issuer or
an affiliate of the issuer in unregistered offerings such as private
placements or Regulation D offerings; (ii) acquired through an
employee stock benefit plan or as compensation for professional
services; (iii) acquired in reliance on Regulation S, which cannot
be resold within the United States; (iv) subject to a lockup
agreement or a similar contractual restriction; or (v) considered
``restricted securities'' under Rule 144. See Nasdaq Listing Rules
5005(a)(46) and (37).
\31\ The Exchange provides the following examples to illustrate
the proposed rule. First, Company A is currently listed on the
Nasdaq Capital Market and plans to acquire a company that
principally administers its business in a Restrictive Market, in
accordance with IM-5101-2. Following the business combination,
Company A intends to transfer to the Nasdaq Global Select Market.
Company A expects the post-business combination entity to have a
Market Value of Listed Securities of $250,000,000. Since 25% of
$250,000,000 is $62,500,000, which is higher than $25,000,000,
pursuant to the requirements of the proposed rule, to qualify for
listing the post-business combination entity must have a minimum
Market Value of Unrestricted Publicly Held Shares of at least
$25,000,000. The company would also need to comply with the other
applicable listing requirements of the Nasdaq Global Select Market,
including a Market Value of Unrestricted Publicly Held Shares of at
least $45,000,000. See Nasdaq Listing Rule 5315(f)(2)(C). As another
example, Company B is currently listed on Nasdaq Capital Market and
plans to combine with a non-Nasdaq entity that principally
administers its business in a Restrictive Market, resulting in a
change of control as defined in Rule 5110(a), whereby the non-Nasdaq
entity will become the Nasdaq-listed company. Following the change
of control, Company B expects the listed company to have a Market
Value of Listed Securities of $50,000,000. Since 25% of $50,000,000
is $12,500,000, which is lower than $25,000,000, pursuant to the
requirements of the proposed rule, the listed company must have a
minimum Market Value of Unrestricted Publicly Held Shares following
the change of control of at least $12,500,000. The post-business
combination company would also need to comply with all other
applicable listing requirements of the Nasdaq Capital Market,
including a Market Value of Unrestricted Publicly Held Shares of at
least $5 million. See Nasdaq Listing Rule 5505(b)(3)(C).
---------------------------------------------------------------------------
[[Page 57284]]
The Exchange states that it believes that a business combination,
as described in Nasdaq Rule 5110(a) or IM-5101-2, involving a
Restrictive Market Company presents similar risks to U.S. investors as
an IPO of a Restrictive Market Company and that the proposed listing
requirement will help to provide an additional assurance that there are
sufficient freely tradable shares and investor interest to support fair
and orderly trading on the Exchange when the target company is a
Restrictive Market Company.\32\
---------------------------------------------------------------------------
\32\ See Notice, supra note 3, at 35964.
---------------------------------------------------------------------------
D. Direct Listings of Restrictive Market Companies
The Exchange proposes to adopt new Rule 5210(l)(iii) to provide
that a Restrictive Market Company that is listing its Primary Equity
Security on Nasdaq in connection with a Direct Listing, as defined in
Listing Rule IM-5315-1,\33\ would be permitted to list on: (i) The
Nasdaq Global Select Market, provided that the Company meets all
applicable listing requirements for the Nasdaq Global Select Market and
the additional requirements of Listing Rule IM-5315-1, or (ii) the
Nasdaq Global Market, provided that the Company meets all applicable
listing requirements for the Nasdaq Global Market and the additional
requirements of Listing Rule IM-5405-1. On the other hand, proposed
Rule 5210(l)(iii) would provide that a Restrictive Market Company would
not be permitted to list on the Nasdaq Capital Market in connection
with a Direct Listing, notwithstanding the fact that the Company may
meet the applicable initial listing requirements for the Nasdaq Capital
Market and the additional requirements in Listing Rule IM-5505-1.
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\33\ See supra note 15.
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The Exchange's rules currently set forth initial listing
requirements for companies listing on the Nasdaq Global Select Market,
Nasdaq Global Market, and Nasdaq Capital Market,\34\ and additional
listing requirements for Companies conducting a Direct Listing on such
markets.\35\ The Exchange states that it believes it is appropriate to
permit Restrictive Market Companies to list through a Direct Listing on
the Nasdaq Global Select Market or Nasdaq Global Market because such
companies would be subject to the additional listing requirements set
forth in IM-5315-1 or IM-5405-1, respectively.\36\ On the other hand,
the Exchange states that it does not believe that the additional
requirements for Direct Listing on the Nasdaq Capital Market, set forth
in IM-5501-1, are sufficient to overcome concerns regarding sufficient
liquidity and investor interest to support fair and orderly trading on
the Exchange with respect to Restrictive Market Companies.\37\
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\34\ See Nasdaq Listing Rules 5315, 5405, and 5505.
\35\ See Nasdaq Listing Rules IM-5315-1, IM-5405-1, and IM-5501-
1.
\36\ See Notice, supra note 3, at 35965.
\37\ See id. As an example, the Exchange states that the Nasdaq
Global Select Market and Nasdaq Global Market require a company to
have at least 1,250,000 and 1.1 million Unrestricted Publicly Held
Shares, respectively, and a Market Value of Unrestricted Publicly
Held Shares of at least $45 million and $8 million, respectively.
See Nasdaq Listing Rules 5315(e)(2), 5315(f)(2)(c), 5405(a)(2), and
5405(b)(1)(c). In contrast, the Nasdaq Capital Market requires a
company to have at least 1 million Unrestricted Publicly Held Shares
and a Market Value of Unrestricted Publicly Held Shares of at least
$5 million. See Nasdaq Listing Rules 5505(a)(2) and 5505(b)(3)(C).
See also Notice, supra note 3, at 35965, n.22.
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III. Summary of the Comment Letters Received
One commenter stated that it fully supports the proposed rule
change inasmuch as it seems reasonably tailored to help ensure full,
complete, and transparent financial and other disclosure from
Restrictive Market Companies.\38\ Another commenter expressed its
support for the proposed rule changes to require Restrictive Market
Companies to have a minimum offering size or public float percentage
for an IPO and minimum market value of publicly held shares for a
business combination and agreed that these requirements should help
mitigate the risks that Restrictive Market Companies present to U.S.
investors.\39\ However, this commenter did not support the proposal to
allow Restrictive Market Companies to list on Nasdaq Global Select
Market or Nasdaq Global Market in connection with a Direct Listing and
stated its general opposition to any proposal that would expand the use
of direct listings.\40\ On the other hand, this commenter agreed with
the Exchange that precluding Restrictive Market Companies from listing
through a Direct Listing on the Nasdaq Capital Market will help to
promote fair and orderly trading on the secondary market.\41\
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\38\ See Letter from Annemarie Tierney, Founder and Principal,
Liquid Advisors, Inc. (July 2, 2020), at 5.
\39\ See Letter from Jeffrey P. Mahoney, General Counsel,
Council of Institutional Investors (June 25, 2020) (``CII Letter''),
at 4-5.
\40\ See id. at 5-6. This commenter cited its letter to the
Commission submitted in connection with File Number SR-NYSE-2019-67,
which stated that ``the SEC should take real and substantial steps,
on an urgent basis, to explore establishing a system of traceable
shares before approving a direct listing regime.'' See Letter from
Jeffrey P. Mahoney, General Counsel, Council of Institutional
Investors (January 16, 2020), at 2-3, available at https://www.sec.gov/comments/sr-nyse-2019-67/srnyse201967-6660338-203855.pdf.
\41\ See CII Letter, supra note 39, at 6.
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IV. Proceedings To Determine Whether To Approve or Disapprove SR-
NASDAQ-2020-027 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \42\ to determine whether the proposed rule
change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change. Institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to provide
additional comment on the proposed rule change to inform the
Commission's analysis of whether to approve or disapprove the proposed
rule change.
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\42\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\43\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of the proposed rule change's consistency with Section 6(b)(5)
of the Act, which requires, among other things, that the rules of a
national securities exchange be designed to prevent fraudulent and
manipulative acts and practices, to 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 to protect
investors and the public interest, and not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.\44\
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\43\ Id.
\44\ 15 U.S.C. 78f(b)(5).
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As discussed above, the Exchange proposes to apply new initial
listing requirements to Restrictive Market Companies in connection with
an IPO to
[[Page 57285]]
require such companies to offer a minimum amount of securities in a
Firm Commitment Offering in the U.S. to Public Holders that (i) will
result in gross proceeds to the company of at least $25 million or (ii)
will represent at least 25% of the company's post-offering Market Value
of Listed Securities, whichever is lower.\45\ In addition, the Exchange
proposes to apply new listing requirements to companies conducting a
business combination with a Restrictive Market Company to require such
companies to have a minimum Market Value of Unrestricted Publicly Held
Shares following the business combination equal to the lesser of (i)
$25 million or (ii) 25% of post-business combination entity's Market
Value of Listed Securities.\46\ In support of the proposed
requirements, the Exchange states that it has observed that Restrictive
Market Companies listing on Nasdaq in connection with an IPO with an
offering size below $25 million or public float ratio below 25% have a
high rate of compliance concerns and that business combinations
involving Restrictive Market Companies present similar risks to U.S.
investors.\47\ However, the Exchange does not provide any other data or
analysis to support the level at which the proposed thresholds are set.
The Commission believes there are questions as to whether the proposed
thresholds are set at levels which are not designed to permit unfair
discrimination amongst Restrictive Market Company issuers.
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\45\ See supra Section II.B.
\46\ See supra Section II.C.
\47\ See supra notes 26 and 32 and accompanying text.
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In addition, the Exchange's proposal sets forth five factors that
the Exchange ``may'' consider when determining whether a Company's
business is principally administered in a Restrictive Market and the
Exchange states that it will consider these factors ``holistically.''
\48\ The proposal does not provide how, or if, the Exchange would apply
these five factors when making a determination of whether a Company's
business is principally administered in a Restrictive Market but,
instead, provides the Exchange with broad discretion in determining so.
The Commission believes there are questions as to whether such broad
discretion when making a determination of whether a Company's business
is principally administered in a Restrictive Market is not designed to
permit unfair discrimination. Accordingly, the Commission believes
there are questions as to whether the proposal is consistent with
Section 6(b)(5) of the Act and its requirement, among other things,
that the rules of a national securities exchange not be designed to
permit unfair discrimination.
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\48\ See supra notes 18-19 and accompanying text.
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Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the Exchange
Act and the rules and regulations issued thereunder . . . is on the
[SRO] that proposed the rule change.'' \49\ The description of a
proposed rule change, its purpose and operation, its effect, and a
legal analysis of its consistency with applicable requirements must all
be sufficiently detailed and specific to support an affirmative
Commission finding,\50\ and any failure of an SRO to provide this
information may result in the Commission not having a sufficient basis
to make an affirmative finding that a proposed rule change is
consistent with the Act and the applicable rules and regulations.\51\
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\49\ 17 CFR 201.700(b)(3).
\50\ See id.
\51\ See id.
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The Commission is instituting proceedings to allow for additional
consideration and comment on the issues raised herein, including as to
whether the proposal is consistent with the Act.
V. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal is
consistent with Section 6(b)(5) \52\ of the Act or any other provision
of the Act, or the rules and regulations thereunder. Although there do
not appear to be any issues relevant to approval or disapproval that
would be facilitated by an oral presentation of views, data, and
arguments, the Commission will consider, pursuant to Rule 19b-4 under
the Act,\53\ any request for an opportunity to make an oral
presentation.\54\
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\52\ 15 U.S.C. 78f(b)(5).
\53\ 17 CFR 240.19b-4.
\54\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal should be approved or
disapproved by October 6, 2020. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
October 20, 2020. The Commission asks that commenters address the
sufficiency of the Exchange's statements in support of the proposal,
which are set forth in the Notice,\55\ in addition to any other
comments they may wish to submit about the proposed rule change.
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\55\ See Notice, supra note 3.
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Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NASDAQ-2020-027 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2020-027. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from
[[Page 57286]]
comment submissions. You should submit only information that you wish
to make available publicly. All submissions should refer to File Number
SR-NASDAQ-2020-027 and should be submitted by October 6, 2020. Rebuttal
comments should be submitted by October 20, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\56\
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\56\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-20259 Filed 9-14-20; 8:45 am]
BILLING CODE 8011-01-P
