Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Modify Certain Pricing Limitations for Companies Listing in Connection With a Direct Listing Primary Offering, 54262-54267 [2021-21208]
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Federal Register / Vol. 86, No. 187 / Thursday, September 30, 2021 / Notices
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act.17
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
LOTTER on DSK11XQN23PROD with NOTICES1
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–
BX–2021–040 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–BX–2021–040. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–BX–2021–040, and should
be submitted on or before October 21,
2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–21210 Filed 9–29–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93119; File No. SR–
NASDAQ–2021–045]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Order
Instituting Proceedings To Determine
Whether To Approve or Disapprove a
Proposed Rule Change To Modify
Certain Pricing Limitations for
Companies Listing in Connection With
a Direct Listing Primary Offering
September 24, 2021.
I. Introduction
On June 11, 2021, The Nasdaq Stock
Market LLC (‘‘Nasdaq’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Exchange Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to modify certain pricing
limitations for companies listing in
connection with a direct listing primary
offering in which the company will sell
shares itself in the opening auction on
the first day of trading on the Exchange.
The proposed rule change was
published for comment in the Federal
18 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
17 15
U.S.C. 78s(b)(3)(A)(ii).
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Register on June 30, 2021.3 On August
12, 2021, pursuant to Section 19(b)(2) of
the Exchange Act,4 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.5 This order
institutes proceedings under Section
19(b)(2)(B) of the Exchange Act 6 to
determine whether to approve or
disapprove the proposed rule change.
II. Description of the Proposal
Nasdaq Listing Rule IM–5315–2
provides listing requirements for
Nasdaq’s Global Select Market for a
company that has not previously had its
common equity securities registered
under the Exchange Act to list its
common equity securities on the
Exchange at the time of effectiveness of
a registration statement 7 pursuant to
which the company will sell shares
itself in the opening auction on the first
day of trading on the Exchange (a
‘‘Direct Listing with a Capital Raise’’).8
Securities qualified for listing under
Nasdaq Listing Rule IM–5315–2 must
begin trading on the Exchange following
the initial pricing through the
mechanism outlined in Nasdaq Rule
4120(c)(9) and Nasdaq Rule 4753 for the
opening auction, otherwise known as
the Nasdaq Halt Cross.9 Currently, in
3 See Securities Exchange Act Release No. 92256
(June 24, 2021), 86 FR 34815 (June 30, 2021)
(‘‘Notice’’). Comments received on the proposal are
available on the Commission’s website at: https://
www.sec.gov/comments/sr-nasdaq-2021-045/
srnasdaq2021045.htm.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 92649
(August 12, 2021), 86 FR 46295 (August 18, 2021).
The Commission designated September 28, 2021, as
the date by which it should approve, disapprove,
or institute proceedings to determine whether to
disapprove the proposed rule change.
6 15 U.S.C. 78s(b)(2)(B).
7 The reference to a registration statement refers
to a registration statement effective under the
Securities Act of 1933 (‘‘Securities Act’’).
8 A Direct Listing with a Capital Raise includes
listings where 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. See Nasdaq Listing Rule IM–
5315–2. See also Securities Exchange Act Release
No. 91947 (May 19, 2021), 86 FR 28169 (May 25,
2021) (order approving rules to permit a Direct
Listing with a Capital Raise and adopting related
rules concerning how the opening transaction for
such listing will be effected) (‘‘2021 Order’’). The
Exchange’s rules provide for a company listing
pursuant to a Direct Listing with a Capital Raise to
list only on the Nasdaq Global Select Market.
9 See Nasdaq Listing Rule IM–5315–2. ‘‘Nasdaq
Halt Cross’’ means the process for determining the
price at which Eligible Interest shall be executed at
the open of trading for a halted security and for
executing that Eligible Interest. See Nasdaq Rule
4753(a)(4). ‘‘Eligible Interest’’ means any quotation
or any order that has been entered into the system
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the case of a Direct Listing with a
Capital Raise, the Exchange will release
the security for trading on the first day
of listing if, among other things, the
actual price calculated by the Nasdaq
Halt Cross is at or above the lowest price
and at or below the highest price of the
price range established by the issuer in
its effective registration statement 10 (the
‘‘Pricing Range Limitation’’). The
Exchange has proposed to modify the
Pricing Range Limitation to provide that
the Exchange would release the security
for trading if (a) the actual price
calculated by the Nasdaq Halt Cross is
at or above the price that is 20% below
the lowest price, and at or below the
price that is 20% above the highest
price, of the disclosed price range; or (b)
the actual price calculated by the
Nasdaq Halt Cross is at a price above the
price that is 20% above the highest
price of such price range, provided that
the company has certified to the
Exchange that such price would not
materially change the company’s
previous disclosure in its effective
registration statement.11 The Exchange
would use the high end of the price
range in the prospectus at the time of
effectiveness to measure the permitted
20% deviation from both the high end
(in the case of an increase in the price)
and low end (in the case of a decrease
in the price) of the disclosed price
range.12 The Exchange has also
proposed to make related conforming
changes.
Currently Nasdaq Rule 4120(c)(9)(B)
states that, notwithstanding the
provisions of Nasdaq Rule 4120(c)(8)(A)
and (c)(9)(A), in the case of a Direct
Listing with a Capital Raise, for
purposes of releasing securities for
trading on the first day of listing, the
Exchange, in consultation with the
financial advisor to the issuer, will
make the determination of whether the
security is ready to trade. The Exchange
will release the security for trading if: (i)
All market orders will be executed in
the Nasdaq Halt Cross; and (ii) the
and designated with a time-in-force that would
allow the order to be in force at the time of the
Nasdaq Halt Cross. See Nasdaq Rule 4753(a)(5).
Pursuant to Nasdaq Rule 4120, the Exchange will
halt trading in a security that is the subject of an
initial public offering (or direct listing), and
terminate that halt when the Exchange releases the
security for trading upon certain conditions being
met, as discussed further below. See Nasdaq Rule
4120(a)(7) and (c)(8).
10 The Exchange states that references in the
proposal to the price range established by the issuer
in its effective registration statement refer to the
price range disclosed in the prospectus in such
effective registration statement. See Notice, supra
note 3, 86 FR at 34816 n.5. Throughout this order,
we refer to this as the ‘‘disclosed price range.’’
11 See proposed Nasdaq Rule 4120(c)(9)(C).
12 See id.
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actual price calculated by the Nasdaq
Halt Cross complies with the Pricing
Range Limitation. The Exchange will
postpone and reschedule the offering
only if either or both of such conditions
are not met.13 The Exchange states that
if there is insufficient buy interest to
satisfy the CDL Order 14 and all other
market orders, as required by the rule,
or if the actual price calculated by the
Nasdaq Halt Cross is outside the
disclosed price range, the Nasdaq Halt
Cross would not proceed and such
security would not begin trading.15
According to the Exchange, based on
conversations it has had with
companies and their advisors, the
Exchange believes that some companies
may be reluctant to use the existing
rules for a Direct Listing with a Capital
Raise because of concerns about the
Pricing Range Limitation.16 The
Exchange states that the Pricing Range
Limitation imposed on a Direct Listing
with a Capital Raise (but not on a
traditional IPO) increases the
probability of a failed offering, because
the offering cannot proceed without
some delay not only due to lack of
investor interest, but also if investor
interest is greater than the company and
its advisors anticipated.17 According to
the Exchange, the Exchange believes
that there may be instances of offerings
where the price determined by the
Exchange’s opening auction will exceed
the highest price of the price range
disclosed in the company’s effective
13 See
Nasdaq Rule 4120(c)(9)(B).
‘‘Company Direct Listing Order’’ or ‘‘CDL
Order’’ is a market order that may be entered only
on behalf of the issuer and may be executed only
in the Nasdaq Halt Cross for a Direct Listing with
a Capital Raise. The CDL Order is entered without
a price (with a price later set in accordance with
the requirements of Nasdaq Rule 4120(c)(9)(B)),
must be for the quantity of shares offered by the
issuer as disclosed in its effective registration
statement, must be executed in full in the Nasdaq
Halt Cross, and may not be canceled or modified.
See Nasdaq Rule 4702(b)(16).
15 See Notice, supra note 3, 86 FR at 34816. The
Exchange represents that in such event, because the
Nasdaq Halt Cross cannot be conducted, the
Exchange would postpone and reschedule the
offering and notify participants via a Trader Update
that the Direct Listing with a Capital Raise
scheduled for that date has been cancelled and any
orders for that security that have been entered on
the Exchange would be cancelled back to the
entering firms. See id.
16 See id. The Exchange states that a Direct Listing
with a Capital Raise could maximize the chances
of more efficient price discovery of the initial
public sale of securities for issuers and investors,
because, unlike in a traditional firm commitment
underwritten public offering (‘‘IPO’’) the initial sale
price is determined based on market interest and
the matching of buy and sell orders in an auction
open to all market participants. See id.
17 See id. The Exchange states that if an offering
cannot be completed due to lack of investor
interest, there is likely to be substantial amount of
negative publicity for the company and the offering
may be delayed or cancelled. See id.
14 A
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54263
registration statement.18 The Exchange
states that, under the existing rule, a
security subject to a Direct Listing with
a Capital Raise cannot be released for
trading by the Exchange if the actual
price calculated by the Nasdaq Halt
Cross is above the highest price of the
disclosed price range.19 The Exchange
further states that, in this case, the
Exchange would have to cancel or
postpone the offering until the company
amends its effective registration
statement, and that, at a minimum, such
a delay exposes the company to market
risk of changing investor sentiment in
the event of an adverse market event.20
In addition, the Exchange states that the
determination of the public offering
price of a traditional IPO is not subject
to limitations similar to the Pricing
Range Limitation for a Direct Listing
with a Capital Raise, which, in the
Exchange’s view, could make
companies reluctant to use this
alternative method of going public
despite its expected potential benefits.21
The Exchange has proposed to modify
the Pricing Range Limitation such that
even if the actual price calculated by the
Nasdaq Halt Cross is outside the
disclosed price range, the Exchange
would release a security for trading if
the actual price at which the Nasdaq
Halt Cross would occur is at or above
the price that is 20% below the lowest
price of the disclosed price range and at
or below the price that is 20% above the
highest price of the disclosed price
range, provided all other necessary
conditions are satisfied, and that the
company has specified the quantity of
shares registered, as permitted by
Securities Act Rule 457.22 In addition,
under the proposal, the Exchange would
release the security for trading, provided
all other necessary conditions are
satisfied, at a price more than 20%
above the highest price of the disclosed
price range, if the company has certified
to the Exchange that such offering price
would not materially change the
company’s previous disclosure in its
effective registration statement.23
The Exchange states that it believes
that its proposed approach is consistent
with Securities Act Rule 430A and staff
guidance, which, according to the
Exchange, generally allow a company to
price a public offering 20% outside of
the disclosed price range without regard
to the materiality of the changes to the
18 See
id.
id. at 34816–17.
20 See id. at 34817.
21 See id.
22 See id. See also infra notes 24 and 26 and
accompanying text.
23 See Notice, supra note 3, 86 FR at 34817.
19 See
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disclosure contained in the company’s
registration statement.24 According to
the Exchange, the Exchange believes
such guidance also allows deviation
above the price range beyond the 20%
threshold if such change or deviation
does not materially change the previous
disclosure.25 The Exchange states that,
accordingly, the Exchange believes that
a company listing in connection with a
Direct Listing with a Capital Raise can
specify the quantity of shares registered,
as permitted by Securities Act Rule 457,
and, when an auction prices outside of
the disclosed price range, use a Rule
424(b) prospectus, rather than a posteffective amendment, when either (i) the
20% threshold noted in Rule 430A is
not exceeded, regardless of the
materiality or non-materiality of
resulting changes to the registration
statement disclosure that would be
contained in the Rule 424(b) prospectus,
or (ii) there is a deviation above the
price range beyond the 20% threshold
noted in Rule 430A if such deviation
would not materially change the
previous disclosure, in each case
assuming the number of shares issued is
not increased from the number of shares
disclosed in the prospectus.26 The
Exchange proposes that the 20%
threshold would be calculated using the
high end of the disclosed price range
and would be measured from either the
high end (in the case of an increase in
the price) or low end (in the case of a
decrease in the price) of that range, and
states that this method of calculation is
consistent with the SEC Staff’s guidance
on Securities Act Rule 430A.27
The Exchange represents that in each
instance of a Direct Listing with a
Capital Raise, the Exchange would issue
an industry wide trader alert 28 to
inform market participants that the
24 See id. The Exchange states that Securities Act
Rule 457 permits issuers to register securities either
by specifying the quantity of shares registered,
pursuant to Rule 457(a), or the proposed maximum
aggregate offering amount, and that the Exchange
expects that companies selling shares through a
Direct Listing with a Capital Raise will register
securities by specifying the quantity of shares
registered and not a maximum offering amount. See
id. at 34817 n.9. The Exchange also states that the
Exchange believes that the proposed modification
of the Pricing Range Limitation is consistent with
the protection of investors, because, according to
the Exchange, this approach is not substantively
different from the pricing of an IPO where an issuer
is permitted to price outside of the disclosed price
range in accordance with the SEC Staff’s guidance.
See id. at 34818.
25 See id. at 34817.
26 See id.
27 See proposed Nasdaq Rule 4120(c)(9)(C);
Notice, supra note 3, 86 FR at 34817.
28 The Exchange states that a trader alert is an
industry-wide, subscription-based free service
provided by the Exchange. See Notice, supra note
3, 86 FR at 34817 n.10.
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auction could price up to 20% below
the lowest price of the price range and
would specify that price. The Exchange
also represents that it would indicate in
such trader alert whether or not there is
an upside limit above which the Nasdaq
Halt Cross could not proceed, based on
the company’s certification.29
According to the Exchange, if there is no
upside limit, the Exchange would
caution market participants about the
use of market orders and explain that,
unlike a limit order, a market order can
be executed at any price determined by
the Nasdaq Halt Cross.30
Nasdaq Listing Rule IM–5315–2
provides that in determining whether a
company listing in connection with a
Direct Listing with a Capital Raise
satisfies the Market Value of
Unrestricted Publicly Held Shares 31 for
initial listing on the Nasdaq Global
Select Market, the Exchange will deem
such company to have met the
applicable requirement 32 if the amount
of the company’s Unrestricted Publicly
Held Shares before the offering, along
with the market value of the shares to
be sold by the company in the
Exchange’s opening auction in the
Direct Listing with a Capital Raise, is at
least $110 million (or $100 million, if
the company has stockholders’ equity of
at least $110 million). For this purpose,
under current rules, the Market Value of
Unrestricted Publicly Held Shares will
be calculated using a price per share
equal to the lowest price of the
disclosed price range.33 The Exchange
states that because the Exchange
proposes to allow the opening auction
to price up to 20% below the lowest
price of the disclosed price range, the
Exchange proposes to make a
conforming change to Nasdaq Listing
Rule IM–5315–2 to provide that the
price used to determine such company’s
compliance with the required Market
Value of Unrestricted Publicly Held
Shares would be the price per share
equal to the price that is 20% below the
lowest price of the disclosed price
range.34 The Exchange further states that
29 See
id. at 34817.
id. The Exchange stated it believes that
investors have become familiar with the approach
of the pricing for a company conducting an IPO
being outside of the price range stated in an
effective registration statement. See id. at 34818.
31 See Nasdaq Listing Rule 5005(a)(23) and (45)
for the definitions of ‘‘Market Value’’ and
‘‘Unrestricted Publicly Held Shares,’’ respectively.
32 See Nasdaq Listing Rule 5315(f)(2).
33 See Nasdaq Listing Rule IM–5315–2. The
Exchange will determine that the company has met
the applicable bid price and market capitalization
requirements based on the same per share price. See
id.
34 See Notice, supra note 3, 86 FR at 34817.
30 See
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this is the minimum price at which the
company could qualify to be listed.35
The Exchange states that any
company listing in connection with a
Direct Listing with a Capital Raise
would continue to be subject to, and
required to meet, all other applicable
initial listing requirements, including
the requirements to have the applicable
number of shareholders and at least
1,250,000 Unrestricted Publicly Held
Shares outstanding at the time of initial
listing, and the requirement to have a
price per share of at least $4.00 at the
time of initial listing.36
Finally, the Exchange has proposed to
amend Nasdaq Rules 4753(a)(3)(A) and
4753(b)(2) to conform the requirements
for disseminating information and
establishing the opening price through
the Nasdaq Halt Cross in a Direct Listing
with a Capital Raise to the proposed
amendment to allow the opening
auction to price as much as 20% below
the lowest price of the disclosed price
range.37 Specifically, the Exchange
proposes changes to Nasdaq Rules
4753(a)(3)(A) and 4753(b)(2) to make
adjustments to the calculation of the
Current Reference Price, which is
disseminated in the Nasdaq Order
Imbalance Indicator,38 and to the
calculation of the price at which the
Nasdaq Halt Cross will execute, for a
Direct Listing with a Capital Raise.
Under these rules currently, where there
are multiple prices that would satisfy
the conditions for determining the price,
the fourth tie-breaker for a Direct Listing
with a Capital Raise is the price that is
closest to the lowest price of the
disclosed price range. The Exchange
states that, to conform these rules to the
proposed modification of the price
range within which the opening auction
would proceed, the Exchange proposes
to modify the fourth tie-breaker for a
Direct Listing with a Capital Raise to use
the price closest to the price that is 20%
below the lowest price of the disclosed
price range.39
35 See
id.
id. at 34818 (citing Nasdaq Listing Rules
5315(e)(1) and (2) and 5315(f)(1)).
37 See proposed Nasdaq Rules 4753(a)(3)(A)(iv)c.
and 4753(b)(2)(D)(iii).
38 See Nasdaq Rule 4753(a)(3) for a description of
the ‘‘Current Reference Price’’ and the ‘‘Order
Imbalance Indicator.’’
39 See Notice, supra note 3, 86 FR at 34818. One
commenter stated its general support for the
proposal, including the proposed modifications to
the pricing limitations in the opening auction of a
Direct Listing with a Capital Raise. See Letter from
Evan Damast, Global Head of Equity and Fixed
Income Syndicate, Morgan Stanley (July 21, 2021).
Another commenter stated in support of the
proposal that it continues to support innovation in
the capital markets that allow more transparency,
fairness, and confidence of capital flows between
investors and issuers, and that the proposed price
36 See
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LOTTER on DSK11XQN23PROD with NOTICES1
III. Proceedings To Determine Whether
To Approve or Disapprove SR–
NASDAQ–2021–045 and Grounds for
Disapproval Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act to
determine whether the proposal should
be approved or disapproved.40
Institution of such proceedings is
appropriate at this time in view of the
legal and policy issues raised by the
proposed rule change, as discussed
below. Institution of disapproval
proceedings does not indicate that the
Commission has reached any
conclusions with respect to any of the
issues involved.
Pursuant to Section 19(b)(2)(B) of the
Exchange Act, the Commission is
providing notice of the grounds for
disapproval under consideration. The
Commission is instituting proceedings
to allow for additional analysis and
input concerning the proposed rule
change’s consistency with the Exchange
Act and, in particular, with Section
6(b)(5) 41 of the Exchange 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 remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest; and
are not designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.42
The Commission has consistently
recognized the importance of national
securities exchange listing standards.
Among other things, such listing
standards help ensure that exchangelisted companies will have sufficient
public float, investor base, and trading
interest to provide the depth and
liquidity necessary to promote fair and
orderly markets.43
flexibility would allow IPOs to be completed more
seamlessly and provide both investor protections
and issuer benefits. See Letter from Burke Dempsey,
EVP Head of Investment Banking, Wedbush
Securities Inc. (August 9, 2021). This commenter
also stated that it believes the proposal would
stimulate a vibrant ecosystem of data and analytics
and fintech companies to further refine IPO pricing
accuracy and broaden investor participation, thus
improving capital intermediation for U.S. markets.
See id.
40 15 U.S.C. 78s(b)(2)(B).
41 15 U.S.C. 78f(b)(5).
42 Id.
43 The Commission has stated in approving
national securities exchange listing requirements
that the development and enforcement of adequate
standards governing the listing of securities on an
exchange is an activity of critical importance to the
financial markets and the investing public. In
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The Exchange is proposing to modify
the rules concerning the opening
transaction on the first day of trading for
a Direct Listing with a Capital Raise so
that the opening transaction is not
constrained by the Pricing Range
Limitation, which limits the price of the
opening transaction to the price range
disclosed in the issuer’s effective
registration statement. Instead, the
proposal would allow the opening
transaction to proceed at a price up to
20% above or below the disclosed price
range or at a price higher than 20%
above the disclosed price range if the
issuer certifies that the offering price
would not materially change the issuer’s
disclosures in its effective registration
statement.
The Exchange, in support of its
proposal, states that the proposed
modification to the pricing limitation is
consistent with the protection of
investors because this approach ‘‘is not
substantively different’’ from the pricing
flexibility provided to firm commitment
underwritten IPOs.44 The relevance of
this comparison is unclear, particularly
given the difference in timing of the
determination of the IPO price, relative
to the initiation of trading, between a
firm commitment underwritten IPO and
a Direct Listing with a Capital Raise. In
a firm commitment underwritten IPO,
the IPO price is determined prior to the
time of sale to the underwriters and
initial investors, which takes place in
advance of the opening transaction on
the Exchange. In contrast, in a Direct
Listing with a Capital Raise, the IPO
price is the opening price determined
addition, once a security has been approved for
initial listing, maintenance criteria allow an
exchange to monitor the status and trading
characteristics of that issue to ensure that it
continues to meet the exchange’s standards for
market depth and liquidity so that fair and orderly
markets can be maintained. See, e.g., 2021 Order,
supra note 8, 86 FR at 28172 n.47; Securities
Exchange Act Release Nos. 90768 (December 22,
2020), 85 FR 85807, 85811 n.55 (December 29,
2020) (SR–NYSE–2019–67) (‘‘NYSE 2020 Order’’);
82627 (February 2, 2018), 83 FR 5650, 5653 n.53
(February 8, 2018) (SR–NYSE–2017–30) (‘‘NYSE
2018 Order’’); 81856 (October 11, 2017), 82 FR
48296, 48298 (October 17, 2017) (SR–NYSE–2017–
31); 81079 (July 5, 2017), 82 FR 32022, 32023 (July
11, 2017) (SR–NYSE–2017–11). The Commission
has stated that adequate listing standards, by
promoting fair and orderly markets, are consistent
with Section 6(b)(5) of the Exchange Act, in that
they are, among other things, designed to prevent
fraudulent and manipulative acts and practices,
promote just and equitable principles of trade, and
protect investors and the public interest. See, e.g.,
2021 Order, supra note 8, 86 FR at 28172 n.47;
NYSE 2020 Order, 85 FR at 85811 n.55; NYSE 2018
Order, 83 FR at 5653 n.53; Securities Exchange Act
Release Nos. 87648 (December 3, 2019), 84 FR
67308, 67314 n.42 (December 9, 2019) (SR–
NASDAQ–2019–059); 88716 (April 21, 2020), 85 FR
23393, 23395 n.22 (April 27, 2020) (SR–NASDAQ–
2020–001).
44 See Notice, supra note 3, 86 FR at 34818.
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54265
through the Nasdaq Halt Cross, which
does not occur until after the Exchange
receives bids to purchase the securities.
The Exchange has not clearly addressed
the differences in how information
about the final offering price is
communicated to investors in each type
of offering or any differences in what
information investors have at the time of
their investment decisions about the
final offering price or how much this
price might deviate from the disclosed
price range. Therefore, we have
concerns about whether the Exchange
has adequately justified why its
proposal is consistent with the
protection of investors under Section
6(b)(5) and other relevant provisions of
the Exchange Act, given the differing
circumstances of a Direct Listing with a
Capital Raise, as compared to a firm
commitment underwritten IPO.
Further, in the context of a firm
commitment underwritten IPO, if a
determination is made following
effectiveness of the related registration
statement to price the offering outside of
the disclosed price range, the issuer and
underwriters have the ability, prior to
the completion of the offering, to
provide any necessary additional
disclosures that are dependent on the
price of the offering. In contrast, under
the proposal, the Exchange would
release a security for trading in a Direct
Listing with a Capital Raise if the price
calculated by the Nasdaq Halt Cross is
within 20% of the disclosed price range
(or more than 20% above the disclosed
price range if the company provides the
required certification). Under the
Exchange’s proposal, it is unclear how
companies would be able to disclose
any additional material information
related to the final offering price prior
to the time of sale. In support of its
proposal, the Exchange asserts that
companies can ‘‘generally . . . price a
public offering 20% outside of the
[disclosed price range] without regard to
the materiality of the changes to the
disclosure contained in the company’s
registration statement.’’ 45 While
Securities Act Rule 430A permits
companies to omit specified pricerelated information from the prospectus
included in the registration statement at
the time of effectiveness, and later file
the omitted information with the
Commission as specified in the rule, it
neither prohibits a company from
conducting a registered offering at
prices beyond those that would permit
a company to provide pricing
information through a Securities Act
Rule 424(b) prospectus supplement nor
absolves any company relying on the
45 See
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LOTTER on DSK11XQN23PROD with NOTICES1
rule from any liability for potentially
misleading disclosure under the federal
securities laws.46 The Exchange has not
explained how an issuer would be able,
under the proposed rule, to provide any
disclosure necessary to avoid any
material misstatements or omissions,
including what methods an issuer may
use to provide such disclosures to
potential purchasers.47 In contrast, in a
firm commitment underwritten IPO, the
issuer has control over the timing of its
initial sale, and can delay the offering,
if necessary, to convey any additional
material information necessary to
provide accurate disclosure. The
Exchange has not explained how the
potential inability of an issuer to convey
important material pricing information
to investors in a timely manner under
its proposal would be consistent with
the investor protection requirements
under Section 6(b)(5) of the Exchange
Act.
We also have concerns that the
Exchange has not explained how the
proposal is consistent with or would
operate in conjunction with Item
501(b)(3) of Regulation S–K, which
requires non-reporting issuers to
disclose a bona fide price range.48
Under Item 501(b)(3), an issuer
conducting a Direct Listing with a
Capital Raise would be required to
disclose a bona fide price range. We are
concerned that if the actual IPO price
could fall outside of the disclosed price
range, potentially with no upside limit,
investors may not have adequate
information to inform efficient price
discovery. The Exchange has not
explained how this would be consistent
with the investor protection
requirements under Section 6(b)(5) and
other relevant provisions of the
Exchange Act.
46 See Securities Act Release No. 7168 (May 11,
1995) at n.32. (‘‘While no post-effective amendment
is required to be filed, issuers continue to be
responsible for evaluating the effect of a volume
change or price deviation on the accuracy and
completeness of disclosure made to investors.’’)
47 For purposes of Sections 12(a)(2) and 17(a)(2)
of the Securities Act, information conveyed to
purchasers only after the time of sale will not be
taken into account for purposes of determining
whether a prospectus or oral statement, or a
statement, respectively, included an untrue
statement of a material fact or omitted to state a
material fact necessary in order to make the
statements, in the light of the circumstances under
which they were made, not misleading at the time
of sale. See Securities Act Rule 159.
48 Instruction 1(A) to Item 501(b)(3) of Regulation
S–K provides that if a preliminary prospectus is
circulated and the registrant is not subject to the
reporting requirements of Sections 13(a) or 15(d) of
the Exchange Act, the registrant must provide a
‘‘bona fide estimate of the range of the maximum
offering price and the maximum number of
securities offered.’’ 17 CFR 229.501(b)(3),
Instruction 1(A) to paragraph 501(b)(3).
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In addition, the Exchange’s proposal
provides that the actual price at which
the Nasdaq Halt Cross may proceed may
be over 20% higher than the disclosed
price range, if the company has certified
to the Exchange that such offering price
would not materially change the
company’s previous disclosure in its
effective registration statement. The
Exchange has not explained when such
certification would occur and, in
particular, if the certification would
occur prior to the start of the process for
opening the security on the first day of
trading under Nasdaq Rule 4120(c)(8) or
before market orders can be entered by
investors.49 If certification would occur
prior to the time the expected opening
price in the Nasdaq Halt Cross is
calculated, it is unclear how the
company would be able to certify, in
advance of knowing the expected
opening price, that the opening price
would not materially change the
company’s previous disclosure. The
Exchange also has not explained what
information would be included in the
certification, including whether the
certification would contain a
representation about the potential
opening price on the first day of trading
on the Exchange and if it would contain
detail about the factors that the
company relied upon to make its
materiality determination. Further, in
addition to the lack of clarity in the
proposal on the timing of the
certification and the information that
will be required, the Exchange has not
explained what would happen if there
were material developments relating to
the company between the time the
issuer makes its certification and the
opening of trading. Given the potential
that material news arising after a
certification could impact the
company’s disclosure, it is unclear how
the process as proposed would allow
the company to meet its obligations
under the federal securities laws. As a
result, the proposed certification
process raises concerns about the
proposed rule change’s consistency with
investor protection and the public
interest, and other relevant provisions,
under Section 6(b)(5) of the Exchange
Act.
The Exchange proposes to use the
high end of the price range disclosed in
the prospectus for purposes of
calculating the permissible 20%
deviation from both the high and low
49 Under Nasdaq Rule 4120(c)(8), market
participants may enter orders in a security that is
the subject of an IPO beginning at 4:00 a.m. The
process for opening the IPO begins with the
commencement of a 10 minute Display Only Period
followed by a Pre-Launch Period of indeterminate
duration. See Nasdaq Rule 4120(c)(8).
PO 00000
Frm 00118
Fmt 4703
Sfmt 4703
end of the disclosed price range.50 This
proposed provision, however, is not
supported by the specific provisions of
Securities Act Rule 430A. Specifically,
the Instruction to paragraph (a) of
Securities Act Rule 430A states, in part,
that ‘‘any deviation from the low or high
end of the [offering price] range may be
reflected in the form of prospectus filed
with the Commission pursuant to Rule
424(b)(1) . . . if, in the aggregate, the
changes in volume and price represent
no more than a 20% change in the
maximum aggregate offering price set
forth in the ‘Calculation of Registration
Fee’ table in the effective registration
statement.’’ 51 The proposal therefore
raises investor protection concerns,
among others, under Section 6(b)(5) of
the Exchange Act.
Finally, the proposed rules would
specify that the revised pricing
limitation would apply ‘‘provided that
the Company specifies the quantity of
shares registered, as permitted by
Securities Act Rule 457.’’ 52 The
Exchange states that it ‘‘expects that
companies selling shares through a
Direct Listing with a Capital Raise will
register securities by specifying the
quantity of shares registered and not a
maximum offering amount.’’ 53 Given
this stated ‘‘expectation’’ and the lack of
a specific citation to Securities Act Rule
457(a) in proposed Nasdaq Rule
4120(c)(9)(C), it is not clear whether the
Exchange would require companies in
all cases to register a specified amount
of securities pursuant to Securities Act
Rule 457(a) 54 in order for proposed
Nasdaq Rule 4120(c)(9)(C) to apply.
Further, it is not clear whether a
company selling shares through a Direct
Listing with a Capital Raise could
instead choose to register securities by
the proposed maximum aggregate
offering amount, as permitted by
Securities Act Rule 457(o), provided
that the company agreed that the
opening transaction on the first day of
trading would proceed pursuant to
Nasdaq Rule 4120(c)(9)(B) and its use of
the Pricing Range Limitation. To the
extent that the opening transaction on
the first day of trading for a Direct
Listing with a Capital Raise could
50 The Exchange states that this part of its
proposal, which it is requesting the Commission to
approve under the Exchange Act, is consistent with
SEC Staff guidance. See Notice, supra note 3, 86 FR
at 34817.
51 See 17 CFR 230.430A, Instruction to paragraph
(a).
52 See proposed Nasdaq Rule 4120(c)(9)(C).
53 Notice, supra note 3, 86 FR at 34817 n.9.
54 Securities Act Rule 457 permits issuers to
register securities either by specifying the quantity
of shares registered, pursuant to Rule 457(a), or the
proposed maximum aggregate offering amount,
pursuant to Rule 457(o).
E:\FR\FM\30SEN1.SGM
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Federal Register / Vol. 86, No. 187 / Thursday, September 30, 2021 / Notices
proceed under either Nasdaq Rule
4120(c)(9)(B) (utilizing the existing
Pricing Range Limitation) or Nasdaq
Rule 4120(c)(9)(C) (utilizing the
modified pricing limitation), the
Exchange has not explained how it
would be consistent with the Exchange
Act for the Exchange to use, in both
contexts, the price that is 20% below
the lowest price of the disclosed price
range for purposes of Nasdaq Listing
Rule IM–5315–2 and Nasdaq Rules
4753(a)(3)(A) and 4753(b)(2).55
The Commission notes that, 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 self-regulatory organization [‘SRO’]
that proposed the rule change.’’ 56 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,57 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 Exchange Act and the
applicable rules and regulations.58
For these reasons, the Commission
believes it is appropriate to institute
proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act 59 to
determine whether the proposal should
be approved or disapproved.
LOTTER on DSK11XQN23PROD with NOTICES1
IV. Commission’s Solicitation of
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 view of interested
persons concerning whether the
proposal is consistent with Section
6(b)(5) or any other provision of the
55 The proposal would modify Nasdaq Listing
Rule IM–5315–2, regarding the price used to
determine a company’s compliance with the initial
listing requirements concerning the Market Value of
Publicly Held Shares, bid price, and market
capitalization, and would modify the fourth tiebreaker in Nasdaq Rule 4753(a)(3)(A), regarding the
calculation of the Current Reference Price as
disseminated in the Nasdaq Order Imbalance
Indicator, and Nasdaq Rule 4753(b)(2), regarding
the calculation of the price at which the Nasdaq
Halt Cross will execute.
56 Rule 700(b)(3), Commission Rules of Practice,
17 CFR 201.700(b)(3).
57 See id.
58 See id.
59 15 U.S.C. 78s(b)(2)(B).
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Exchange 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, any request for an
opportunity to make an oral
presentation.60
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposal should be approved or
disapproved by October 21, 2021. Any
person who wishes to file a rebuttal to
any other person’s submission must file
that rebuttal by November 4, 2021.
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–2021–045 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–2021–045. 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
60 Section 19(b)(2) of the Exchange 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 selfregulatory organization. See Securities Act
Amendments of 1975, Senate Comm. on Banking,
Housing & Urban Affairs, S. Rep. No. 75, 94th
Cong., 1st Sess. 30 (1975).
PO 00000
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54267
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NASDAQ–2021–045 and
should be submitted on or before
October 21, 2021. Rebuttal comments
should be submitted by November 4,
2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.61
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–21208 Filed 9–29–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
34386; 812–15183]
Optimum Fund Trust, et al.; Notice of
Application
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice.
AGENCY:
Notice of an application under
Section 6(c) of the Investment Company
Act of 1940 (‘‘Act’’) for an exemption
from Section 15(c) of the Act.
APPLICANTS: Optimum Fund Trust,
Delaware Group Adviser Funds,
Delaware Group Cash Reserve, Delaware
Group Equity Funds I, Delaware Group
Equity Funds II, Delaware Group Equity
Funds IV, Delaware Group Equity Funds
V, Delaware Group Foundation Funds,
Delaware Group Global & International
Funds, Delaware Group Government
Fund, Delaware Group Income Funds,
Delaware Group Limited-Term
Government Funds, Delaware Group
State Tax-Free Income Trust, Delaware
Group Tax Free Fund, Delaware Pooled
Trust, Delaware VIP Trust, Voyageur
Insured Funds, Voyageur Intermediate
Tax Free Funds, Voyageur Mutual
Funds, Voyageur Mutual Funds II,
Voyageur Mutual Funds III, and
Voyageur Tax Free Funds (each, a
‘‘Trust’’), each a Delaware statutory trust
registered under the Act as an open-end
management investment company
61 17
E:\FR\FM\30SEN1.SGM
CFR 200.30–3(a)(57).
30SEN1
]]>Agencies
[Federal Register Volume 86, Number 187 (Thursday, September 30, 2021)]
[Notices]
[Pages 54262-54267]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21208]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93119; File No. SR-NASDAQ-2021-045]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To Modify Certain Pricing Limitations for
Companies Listing in Connection With a Direct Listing Primary Offering
September 24, 2021.
I. Introduction
On June 11, 2021, The Nasdaq Stock Market LLC (``Nasdaq'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to modify certain pricing
limitations for companies listing in connection with a direct listing
primary offering in which the company will sell shares itself in the
opening auction on the first day of trading on the Exchange. The
proposed rule change was published for comment in the Federal Register
on June 30, 2021.\3\ On August 12, 2021, pursuant to Section 19(b)(2)
of the Exchange Act,\4\ 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.\5\ This order institutes
proceedings under Section 19(b)(2)(B) of the Exchange Act \6\ to
determine whether to approve or disapprove the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 92256 (June 24,
2021), 86 FR 34815 (June 30, 2021) (``Notice''). Comments received
on the proposal are available on the Commission's website at:
https://www.sec.gov/comments/sr-nasdaq-2021-045/srnasdaq2021045.htm.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 92649 (August 12,
2021), 86 FR 46295 (August 18, 2021). The Commission designated
September 28, 2021, as the date by which it should approve,
disapprove, or institute proceedings to determine whether to
disapprove the proposed rule change.
\6\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposal
Nasdaq Listing Rule IM-5315-2 provides listing requirements for
Nasdaq's Global Select Market for a company that has not previously had
its common equity securities registered under the Exchange Act to list
its common equity securities on the Exchange at the time of
effectiveness of a registration statement \7\ pursuant to which the
company will sell shares itself in the opening auction on the first day
of trading on the Exchange (a ``Direct Listing with a Capital
Raise'').\8\ Securities qualified for listing under Nasdaq Listing Rule
IM-5315-2 must begin trading on the Exchange following the initial
pricing through the mechanism outlined in Nasdaq Rule 4120(c)(9) and
Nasdaq Rule 4753 for the opening auction, otherwise known as the Nasdaq
Halt Cross.\9\ Currently, in
[[Page 54263]]
the case of a Direct Listing with a Capital Raise, the Exchange will
release the security for trading on the first day of listing if, among
other things, the actual price calculated by the Nasdaq Halt Cross is
at or above the lowest price and at or below the highest price of the
price range established by the issuer in its effective registration
statement \10\ (the ``Pricing Range Limitation''). The Exchange has
proposed to modify the Pricing Range Limitation to provide that the
Exchange would release the security for trading if (a) the actual price
calculated by the Nasdaq Halt Cross is at or above the price that is
20% below the lowest price, and at or below the price that is 20% above
the highest price, of the disclosed price range; or (b) the actual
price calculated by the Nasdaq Halt Cross is at a price above the price
that is 20% above the highest price of such price range, provided that
the company has certified to the Exchange that such price would not
materially change the company's previous disclosure in its effective
registration statement.\11\ The Exchange would use the high end of the
price range in the prospectus at the time of effectiveness to measure
the permitted 20% deviation from both the high end (in the case of an
increase in the price) and low end (in the case of a decrease in the
price) of the disclosed price range.\12\ The Exchange has also proposed
to make related conforming changes.
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\7\ The reference to a registration statement refers to a
registration statement effective under the Securities Act of 1933
(``Securities Act'').
\8\ A Direct Listing with a Capital Raise includes listings
where 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. See Nasdaq Listing Rule IM-5315-2. See also
Securities Exchange Act Release No. 91947 (May 19, 2021), 86 FR
28169 (May 25, 2021) (order approving rules to permit a Direct
Listing with a Capital Raise and adopting related rules concerning
how the opening transaction for such listing will be effected)
(``2021 Order''). The Exchange's rules provide for a company listing
pursuant to a Direct Listing with a Capital Raise to list only on
the Nasdaq Global Select Market.
\9\ See Nasdaq Listing Rule IM-5315-2. ``Nasdaq Halt Cross''
means the process for determining the price at which Eligible
Interest shall be executed at the open of trading for a halted
security and for executing that Eligible Interest. See Nasdaq Rule
4753(a)(4). ``Eligible Interest'' means any quotation or any order
that has been entered into the system and designated with a time-in-
force that would allow the order to be in force at the time of the
Nasdaq Halt Cross. See Nasdaq Rule 4753(a)(5). Pursuant to Nasdaq
Rule 4120, the Exchange will halt trading in a security that is the
subject of an initial public offering (or direct listing), and
terminate that halt when the Exchange releases the security for
trading upon certain conditions being met, as discussed further
below. See Nasdaq Rule 4120(a)(7) and (c)(8).
\10\ The Exchange states that references in the proposal to the
price range established by the issuer in its effective registration
statement refer to the price range disclosed in the prospectus in
such effective registration statement. See Notice, supra note 3, 86
FR at 34816 n.5. Throughout this order, we refer to this as the
``disclosed price range.''
\11\ See proposed Nasdaq Rule 4120(c)(9)(C).
\12\ See id.
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Currently Nasdaq Rule 4120(c)(9)(B) states that, notwithstanding
the provisions of Nasdaq Rule 4120(c)(8)(A) and (c)(9)(A), in the case
of a Direct Listing with a Capital Raise, for purposes of releasing
securities for trading on the first day of listing, the Exchange, in
consultation with the financial advisor to the issuer, will make the
determination of whether the security is ready to trade. The Exchange
will release the security for trading if: (i) All market orders will be
executed in the Nasdaq Halt Cross; and (ii) the actual price calculated
by the Nasdaq Halt Cross complies with the Pricing Range Limitation.
The Exchange will postpone and reschedule the offering only if either
or both of such conditions are not met.\13\ The Exchange states that if
there is insufficient buy interest to satisfy the CDL Order \14\ and
all other market orders, as required by the rule, or if the actual
price calculated by the Nasdaq Halt Cross is outside the disclosed
price range, the Nasdaq Halt Cross would not proceed and such security
would not begin trading.\15\
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\13\ See Nasdaq Rule 4120(c)(9)(B).
\14\ A ``Company Direct Listing Order'' or ``CDL Order'' is a
market order that may be entered only on behalf of the issuer and
may be executed only in the Nasdaq Halt Cross for a Direct Listing
with a Capital Raise. The CDL Order is entered without a price (with
a price later set in accordance with the requirements of Nasdaq Rule
4120(c)(9)(B)), must be for the quantity of shares offered by the
issuer as disclosed in its effective registration statement, must be
executed in full in the Nasdaq Halt Cross, and may not be canceled
or modified. See Nasdaq Rule 4702(b)(16).
\15\ See Notice, supra note 3, 86 FR at 34816. The Exchange
represents that in such event, because the Nasdaq Halt Cross cannot
be conducted, the Exchange would postpone and reschedule the
offering and notify participants via a Trader Update that the Direct
Listing with a Capital Raise scheduled for that date has been
cancelled and any orders for that security that have been entered on
the Exchange would be cancelled back to the entering firms. See id.
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According to the Exchange, based on conversations it has had with
companies and their advisors, the Exchange believes that some companies
may be reluctant to use the existing rules for a Direct Listing with a
Capital Raise because of concerns about the Pricing Range
Limitation.\16\ The Exchange states that the Pricing Range Limitation
imposed on a Direct Listing with a Capital Raise (but not on a
traditional IPO) increases the probability of a failed offering,
because the offering cannot proceed without some delay not only due to
lack of investor interest, but also if investor interest is greater
than the company and its advisors anticipated.\17\ According to the
Exchange, the Exchange believes that there may be instances of
offerings where the price determined by the Exchange's opening auction
will exceed the highest price of the price range disclosed in the
company's effective registration statement.\18\ The Exchange states
that, under the existing rule, a security subject to a Direct Listing
with a Capital Raise cannot be released for trading by the Exchange if
the actual price calculated by the Nasdaq Halt Cross is above the
highest price of the disclosed price range.\19\ The Exchange further
states that, in this case, the Exchange would have to cancel or
postpone the offering until the company amends its effective
registration statement, and that, at a minimum, such a delay exposes
the company to market risk of changing investor sentiment in the event
of an adverse market event.\20\ In addition, the Exchange states that
the determination of the public offering price of a traditional IPO is
not subject to limitations similar to the Pricing Range Limitation for
a Direct Listing with a Capital Raise, which, in the Exchange's view,
could make companies reluctant to use this alternative method of going
public despite its expected potential benefits.\21\
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\16\ See id. The Exchange states that a Direct Listing with a
Capital Raise could maximize the chances of more efficient price
discovery of the initial public sale of securities for issuers and
investors, because, unlike in a traditional firm commitment
underwritten public offering (``IPO'') the initial sale price is
determined based on market interest and the matching of buy and sell
orders in an auction open to all market participants. See id.
\17\ See id. The Exchange states that if an offering cannot be
completed due to lack of investor interest, there is likely to be
substantial amount of negative publicity for the company and the
offering may be delayed or cancelled. See id.
\18\ See id.
\19\ See id. at 34816-17.
\20\ See id. at 34817.
\21\ See id.
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The Exchange has proposed to modify the Pricing Range Limitation
such that even if the actual price calculated by the Nasdaq Halt Cross
is outside the disclosed price range, the Exchange would release a
security for trading if the actual price at which the Nasdaq Halt Cross
would occur is at or above the price that is 20% below the lowest price
of the disclosed price range and at or below the price that is 20%
above the highest price of the disclosed price range, provided all
other necessary conditions are satisfied, and that the company has
specified the quantity of shares registered, as permitted by Securities
Act Rule 457.\22\ In addition, under the proposal, the Exchange would
release the security for trading, provided all other necessary
conditions are satisfied, at a price more than 20% above the highest
price of the disclosed price range, if the company has certified to the
Exchange that such offering price would not materially change the
company's previous disclosure in its effective registration
statement.\23\
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\22\ See id. See also infra notes 24 and 26 and accompanying
text.
\23\ See Notice, supra note 3, 86 FR at 34817.
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The Exchange states that it believes that its proposed approach is
consistent with Securities Act Rule 430A and staff guidance, which,
according to the Exchange, generally allow a company to price a public
offering 20% outside of the disclosed price range without regard to the
materiality of the changes to the
[[Page 54264]]
disclosure contained in the company's registration statement.\24\
According to the Exchange, the Exchange believes such guidance also
allows deviation above the price range beyond the 20% threshold if such
change or deviation does not materially change the previous
disclosure.\25\ The Exchange states that, accordingly, the Exchange
believes that a company listing in connection with a Direct Listing
with a Capital Raise can specify the quantity of shares registered, as
permitted by Securities Act Rule 457, and, when an auction prices
outside of the disclosed price range, use a Rule 424(b) prospectus,
rather than a post-effective amendment, when either (i) the 20%
threshold noted in Rule 430A is not exceeded, regardless of the
materiality or non-materiality of resulting changes to the registration
statement disclosure that would be contained in the Rule 424(b)
prospectus, or (ii) there is a deviation above the price range beyond
the 20% threshold noted in Rule 430A if such deviation would not
materially change the previous disclosure, in each case assuming the
number of shares issued is not increased from the number of shares
disclosed in the prospectus.\26\ The Exchange proposes that the 20%
threshold would be calculated using the high end of the disclosed price
range and would be measured from either the high end (in the case of an
increase in the price) or low end (in the case of a decrease in the
price) of that range, and states that this method of calculation is
consistent with the SEC Staff's guidance on Securities Act Rule
430A.\27\
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\24\ See id. The Exchange states that Securities Act Rule 457
permits issuers to register securities either by specifying the
quantity of shares registered, pursuant to Rule 457(a), or the
proposed maximum aggregate offering amount, and that the Exchange
expects that companies selling shares through a Direct Listing with
a Capital Raise will register securities by specifying the quantity
of shares registered and not a maximum offering amount. See id. at
34817 n.9. The Exchange also states that the Exchange believes that
the proposed modification of the Pricing Range Limitation is
consistent with the protection of investors, because, according to
the Exchange, this approach is not substantively different from the
pricing of an IPO where an issuer is permitted to price outside of
the disclosed price range in accordance with the SEC Staff's
guidance. See id. at 34818.
\25\ See id. at 34817.
\26\ See id.
\27\ See proposed Nasdaq Rule 4120(c)(9)(C); Notice, supra note
3, 86 FR at 34817.
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The Exchange represents that in each instance of a Direct Listing
with a Capital Raise, the Exchange would issue an industry wide trader
alert \28\ to inform market participants that the auction could price
up to 20% below the lowest price of the price range and would specify
that price. The Exchange also represents that it would indicate in such
trader alert whether or not there is an upside limit above which the
Nasdaq Halt Cross could not proceed, based on the company's
certification.\29\ According to the Exchange, if there is no upside
limit, the Exchange would caution market participants about the use of
market orders and explain that, unlike a limit order, a market order
can be executed at any price determined by the Nasdaq Halt Cross.\30\
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\28\ The Exchange states that a trader alert is an industry-
wide, subscription-based free service provided by the Exchange. See
Notice, supra note 3, 86 FR at 34817 n.10.
\29\ See id. at 34817.
\30\ See id. The Exchange stated it believes that investors have
become familiar with the approach of the pricing for a company
conducting an IPO being outside of the price range stated in an
effective registration statement. See id. at 34818.
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Nasdaq Listing Rule IM-5315-2 provides that in determining whether
a company listing in connection with a Direct Listing with a Capital
Raise satisfies the Market Value of Unrestricted Publicly Held Shares
\31\ for initial listing on the Nasdaq Global Select Market, the
Exchange will deem such company to have met the applicable requirement
\32\ if the amount of the company's Unrestricted Publicly Held Shares
before the offering, along with the market value of the shares to be
sold by the company in the Exchange's opening auction in the Direct
Listing with a Capital Raise, is at least $110 million (or $100
million, if the company has stockholders' equity of at least $110
million). For this purpose, under current rules, the Market Value of
Unrestricted Publicly Held Shares will be calculated using a price per
share equal to the lowest price of the disclosed price range.\33\ The
Exchange states that because the Exchange proposes to allow the opening
auction to price up to 20% below the lowest price of the disclosed
price range, the Exchange proposes to make a conforming change to
Nasdaq Listing Rule IM-5315-2 to provide that the price used to
determine such company's compliance with the required Market Value of
Unrestricted Publicly Held Shares would be the price per share equal to
the price that is 20% below the lowest price of the disclosed price
range.\34\ The Exchange further states that this is the minimum price
at which the company could qualify to be listed.\35\
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\31\ See Nasdaq Listing Rule 5005(a)(23) and (45) for the
definitions of ``Market Value'' and ``Unrestricted Publicly Held
Shares,'' respectively.
\32\ See Nasdaq Listing Rule 5315(f)(2).
\33\ See Nasdaq Listing Rule IM-5315-2. The Exchange will
determine that the company has met the applicable bid price and
market capitalization requirements based on the same per share
price. See id.
\34\ See Notice, supra note 3, 86 FR at 34817.
\35\ See id.
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The Exchange states that any company listing in connection with a
Direct Listing with a Capital Raise would continue to be subject to,
and required to meet, all other applicable initial listing
requirements, including the requirements to have the applicable number
of shareholders and at least 1,250,000 Unrestricted Publicly Held
Shares outstanding at the time of initial listing, and the requirement
to have a price per share of at least $4.00 at the time of initial
listing.\36\
---------------------------------------------------------------------------
\36\ See id. at 34818 (citing Nasdaq Listing Rules 5315(e)(1)
and (2) and 5315(f)(1)).
---------------------------------------------------------------------------
Finally, the Exchange has proposed to amend Nasdaq Rules
4753(a)(3)(A) and 4753(b)(2) to conform the requirements for
disseminating information and establishing the opening price through
the Nasdaq Halt Cross in a Direct Listing with a Capital Raise to the
proposed amendment to allow the opening auction to price as much as 20%
below the lowest price of the disclosed price range.\37\ Specifically,
the Exchange proposes changes to Nasdaq Rules 4753(a)(3)(A) and
4753(b)(2) to make adjustments to the calculation of the Current
Reference Price, which is disseminated in the Nasdaq Order Imbalance
Indicator,\38\ and to the calculation of the price at which the Nasdaq
Halt Cross will execute, for a Direct Listing with a Capital Raise.
Under these rules currently, where there are multiple prices that would
satisfy the conditions for determining the price, the fourth tie-
breaker for a Direct Listing with a Capital Raise is the price that is
closest to the lowest price of the disclosed price range. The Exchange
states that, to conform these rules to the proposed modification of the
price range within which the opening auction would proceed, the
Exchange proposes to modify the fourth tie-breaker for a Direct Listing
with a Capital Raise to use the price closest to the price that is 20%
below the lowest price of the disclosed price range.\39\
---------------------------------------------------------------------------
\37\ See proposed Nasdaq Rules 4753(a)(3)(A)(iv)c. and
4753(b)(2)(D)(iii).
\38\ See Nasdaq Rule 4753(a)(3) for a description of the
``Current Reference Price'' and the ``Order Imbalance Indicator.''
\39\ See Notice, supra note 3, 86 FR at 34818. One commenter
stated its general support for the proposal, including the proposed
modifications to the pricing limitations in the opening auction of a
Direct Listing with a Capital Raise. See Letter from Evan Damast,
Global Head of Equity and Fixed Income Syndicate, Morgan Stanley
(July 21, 2021). Another commenter stated in support of the proposal
that it continues to support innovation in the capital markets that
allow more transparency, fairness, and confidence of capital flows
between investors and issuers, and that the proposed price
flexibility would allow IPOs to be completed more seamlessly and
provide both investor protections and issuer benefits. See Letter
from Burke Dempsey, EVP Head of Investment Banking, Wedbush
Securities Inc. (August 9, 2021). This commenter also stated that it
believes the proposal would stimulate a vibrant ecosystem of data
and analytics and fintech companies to further refine IPO pricing
accuracy and broaden investor participation, thus improving capital
intermediation for U.S. markets. See id.
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[[Page 54265]]
III. Proceedings To Determine Whether To Approve or Disapprove SR-
NASDAQ-2021-045 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act to determine whether the proposal
should be approved or disapproved.\40\ Institution of such proceedings
is appropriate at this time in view of the legal and policy issues
raised by the proposed rule change, as discussed below. Institution of
disapproval proceedings does not indicate that the Commission has
reached any conclusions with respect to any of the issues involved.
---------------------------------------------------------------------------
\40\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B) of the Exchange Act, the Commission
is providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis and input concerning the proposed rule change's consistency
with the Exchange Act and, in particular, with Section 6(b)(5) \41\ of
the Exchange 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 remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest; and are not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.\42\
---------------------------------------------------------------------------
\41\ 15 U.S.C. 78f(b)(5).
\42\ Id.
---------------------------------------------------------------------------
The Commission has consistently recognized the importance of
national securities exchange listing standards. Among other things,
such listing standards help ensure that exchange-listed companies will
have sufficient public float, investor base, and trading interest to
provide the depth and liquidity necessary to promote fair and orderly
markets.\43\
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\43\ The Commission has stated in approving national securities
exchange listing requirements that the development and enforcement
of adequate standards governing the listing of securities on an
exchange is an activity of critical importance to the financial
markets and the investing public. In addition, once a security has
been approved for initial listing, maintenance criteria allow an
exchange to monitor the status and trading characteristics of that
issue to ensure that it continues to meet the exchange's standards
for market depth and liquidity so that fair and orderly markets can
be maintained. See, e.g., 2021 Order, supra note 8, 86 FR at 28172
n.47; Securities Exchange Act Release Nos. 90768 (December 22,
2020), 85 FR 85807, 85811 n.55 (December 29, 2020) (SR-NYSE-2019-67)
(``NYSE 2020 Order''); 82627 (February 2, 2018), 83 FR 5650, 5653
n.53 (February 8, 2018) (SR-NYSE-2017-30) (``NYSE 2018 Order'');
81856 (October 11, 2017), 82 FR 48296, 48298 (October 17, 2017) (SR-
NYSE-2017-31); 81079 (July 5, 2017), 82 FR 32022, 32023 (July 11,
2017) (SR-NYSE-2017-11). The Commission has stated that adequate
listing standards, by promoting fair and orderly markets, are
consistent with Section 6(b)(5) of the Exchange Act, in that they
are, among other things, designed to prevent fraudulent and
manipulative acts and practices, promote just and equitable
principles of trade, and protect investors and the public interest.
See, e.g., 2021 Order, supra note 8, 86 FR at 28172 n.47; NYSE 2020
Order, 85 FR at 85811 n.55; NYSE 2018 Order, 83 FR at 5653 n.53;
Securities Exchange Act Release Nos. 87648 (December 3, 2019), 84 FR
67308, 67314 n.42 (December 9, 2019) (SR-NASDAQ-2019-059); 88716
(April 21, 2020), 85 FR 23393, 23395 n.22 (April 27, 2020) (SR-
NASDAQ-2020-001).
---------------------------------------------------------------------------
The Exchange is proposing to modify the rules concerning the
opening transaction on the first day of trading for a Direct Listing
with a Capital Raise so that the opening transaction is not constrained
by the Pricing Range Limitation, which limits the price of the opening
transaction to the price range disclosed in the issuer's effective
registration statement. Instead, the proposal would allow the opening
transaction to proceed at a price up to 20% above or below the
disclosed price range or at a price higher than 20% above the disclosed
price range if the issuer certifies that the offering price would not
materially change the issuer's disclosures in its effective
registration statement.
The Exchange, in support of its proposal, states that the proposed
modification to the pricing limitation is consistent with the
protection of investors because this approach ``is not substantively
different'' from the pricing flexibility provided to firm commitment
underwritten IPOs.\44\ The relevance of this comparison is unclear,
particularly given the difference in timing of the determination of the
IPO price, relative to the initiation of trading, between a firm
commitment underwritten IPO and a Direct Listing with a Capital Raise.
In a firm commitment underwritten IPO, the IPO price is determined
prior to the time of sale to the underwriters and initial investors,
which takes place in advance of the opening transaction on the
Exchange. In contrast, in a Direct Listing with a Capital Raise, the
IPO price is the opening price determined through the Nasdaq Halt
Cross, which does not occur until after the Exchange receives bids to
purchase the securities. The Exchange has not clearly addressed the
differences in how information about the final offering price is
communicated to investors in each type of offering or any differences
in what information investors have at the time of their investment
decisions about the final offering price or how much this price might
deviate from the disclosed price range. Therefore, we have concerns
about whether the Exchange has adequately justified why its proposal is
consistent with the protection of investors under Section 6(b)(5) and
other relevant provisions of the Exchange Act, given the differing
circumstances of a Direct Listing with a Capital Raise, as compared to
a firm commitment underwritten IPO.
---------------------------------------------------------------------------
\44\ See Notice, supra note 3, 86 FR at 34818.
---------------------------------------------------------------------------
Further, in the context of a firm commitment underwritten IPO, if a
determination is made following effectiveness of the related
registration statement to price the offering outside of the disclosed
price range, the issuer and underwriters have the ability, prior to the
completion of the offering, to provide any necessary additional
disclosures that are dependent on the price of the offering. In
contrast, under the proposal, the Exchange would release a security for
trading in a Direct Listing with a Capital Raise if the price
calculated by the Nasdaq Halt Cross is within 20% of the disclosed
price range (or more than 20% above the disclosed price range if the
company provides the required certification). Under the Exchange's
proposal, it is unclear how companies would be able to disclose any
additional material information related to the final offering price
prior to the time of sale. In support of its proposal, the Exchange
asserts that companies can ``generally . . . price a public offering
20% outside of the [disclosed price range] without regard to the
materiality of the changes to the disclosure contained in the company's
registration statement.'' \45\ While Securities Act Rule 430A permits
companies to omit specified price-related information from the
prospectus included in the registration statement at the time of
effectiveness, and later file the omitted information with the
Commission as specified in the rule, it neither prohibits a company
from conducting a registered offering at prices beyond those that would
permit a company to provide pricing information through a Securities
Act Rule 424(b) prospectus supplement nor absolves any company relying
on the
[[Page 54266]]
rule from any liability for potentially misleading disclosure under the
federal securities laws.\46\ The Exchange has not explained how an
issuer would be able, under the proposed rule, to provide any
disclosure necessary to avoid any material misstatements or omissions,
including what methods an issuer may use to provide such disclosures to
potential purchasers.\47\ In contrast, in a firm commitment
underwritten IPO, the issuer has control over the timing of its initial
sale, and can delay the offering, if necessary, to convey any
additional material information necessary to provide accurate
disclosure. The Exchange has not explained how the potential inability
of an issuer to convey important material pricing information to
investors in a timely manner under its proposal would be consistent
with the investor protection requirements under Section 6(b)(5) of the
Exchange Act.
---------------------------------------------------------------------------
\45\ See id. at 34817.
\46\ See Securities Act Release No. 7168 (May 11, 1995) at n.32.
(``While no post-effective amendment is required to be filed,
issuers continue to be responsible for evaluating the effect of a
volume change or price deviation on the accuracy and completeness of
disclosure made to investors.'')
\47\ For purposes of Sections 12(a)(2) and 17(a)(2) of the
Securities Act, information conveyed to purchasers only after the
time of sale will not be taken into account for purposes of
determining whether a prospectus or oral statement, or a statement,
respectively, included an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they were
made, not misleading at the time of sale. See Securities Act Rule
159.
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We also have concerns that the Exchange has not explained how the
proposal is consistent with or would operate in conjunction with Item
501(b)(3) of Regulation S-K, which requires non-reporting issuers to
disclose a bona fide price range.\48\ Under Item 501(b)(3), an issuer
conducting a Direct Listing with a Capital Raise would be required to
disclose a bona fide price range. We are concerned that if the actual
IPO price could fall outside of the disclosed price range, potentially
with no upside limit, investors may not have adequate information to
inform efficient price discovery. The Exchange has not explained how
this would be consistent with the investor protection requirements
under Section 6(b)(5) and other relevant provisions of the Exchange
Act.
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\48\ Instruction 1(A) to Item 501(b)(3) of Regulation S-K
provides that if a preliminary prospectus is circulated and the
registrant is not subject to the reporting requirements of Sections
13(a) or 15(d) of the Exchange Act, the registrant must provide a
``bona fide estimate of the range of the maximum offering price and
the maximum number of securities offered.'' 17 CFR 229.501(b)(3),
Instruction 1(A) to paragraph 501(b)(3).
---------------------------------------------------------------------------
In addition, the Exchange's proposal provides that the actual price
at which the Nasdaq Halt Cross may proceed may be over 20% higher than
the disclosed price range, if the company has certified to the Exchange
that such offering price would not materially change the company's
previous disclosure in its effective registration statement. The
Exchange has not explained when such certification would occur and, in
particular, if the certification would occur prior to the start of the
process for opening the security on the first day of trading under
Nasdaq Rule 4120(c)(8) or before market orders can be entered by
investors.\49\ If certification would occur prior to the time the
expected opening price in the Nasdaq Halt Cross is calculated, it is
unclear how the company would be able to certify, in advance of knowing
the expected opening price, that the opening price would not materially
change the company's previous disclosure. The Exchange also has not
explained what information would be included in the certification,
including whether the certification would contain a representation
about the potential opening price on the first day of trading on the
Exchange and if it would contain detail about the factors that the
company relied upon to make its materiality determination. Further, in
addition to the lack of clarity in the proposal on the timing of the
certification and the information that will be required, the Exchange
has not explained what would happen if there were material developments
relating to the company between the time the issuer makes its
certification and the opening of trading. Given the potential that
material news arising after a certification could impact the company's
disclosure, it is unclear how the process as proposed would allow the
company to meet its obligations under the federal securities laws. As a
result, the proposed certification process raises concerns about the
proposed rule change's consistency with investor protection and the
public interest, and other relevant provisions, under Section 6(b)(5)
of the Exchange Act.
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\49\ Under Nasdaq Rule 4120(c)(8), market participants may enter
orders in a security that is the subject of an IPO beginning at 4:00
a.m. The process for opening the IPO begins with the commencement of
a 10 minute Display Only Period followed by a Pre-Launch Period of
indeterminate duration. See Nasdaq Rule 4120(c)(8).
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The Exchange proposes to use the high end of the price range
disclosed in the prospectus for purposes of calculating the permissible
20% deviation from both the high and low end of the disclosed price
range.\50\ This proposed provision, however, is not supported by the
specific provisions of Securities Act Rule 430A. Specifically, the
Instruction to paragraph (a) of Securities Act Rule 430A states, in
part, that ``any deviation from the low or high end of the [offering
price] range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b)(1) . . . if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the `Calculation of
Registration Fee' table in the effective registration statement.'' \51\
The proposal therefore raises investor protection concerns, among
others, under Section 6(b)(5) of the Exchange Act.
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\50\ The Exchange states that this part of its proposal, which
it is requesting the Commission to approve under the Exchange Act,
is consistent with SEC Staff guidance. See Notice, supra note 3, 86
FR at 34817.
\51\ See 17 CFR 230.430A, Instruction to paragraph (a).
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Finally, the proposed rules would specify that the revised pricing
limitation would apply ``provided that the Company specifies the
quantity of shares registered, as permitted by Securities Act Rule
457.'' \52\ The Exchange states that it ``expects that companies
selling shares through a Direct Listing with a Capital Raise will
register securities by specifying the quantity of shares registered and
not a maximum offering amount.'' \53\ Given this stated ``expectation''
and the lack of a specific citation to Securities Act Rule 457(a) in
proposed Nasdaq Rule 4120(c)(9)(C), it is not clear whether the
Exchange would require companies in all cases to register a specified
amount of securities pursuant to Securities Act Rule 457(a) \54\ in
order for proposed Nasdaq Rule 4120(c)(9)(C) to apply. Further, it is
not clear whether a company selling shares through a Direct Listing
with a Capital Raise could instead choose to register securities by the
proposed maximum aggregate offering amount, as permitted by Securities
Act Rule 457(o), provided that the company agreed that the opening
transaction on the first day of trading would proceed pursuant to
Nasdaq Rule 4120(c)(9)(B) and its use of the Pricing Range Limitation.
To the extent that the opening transaction on the first day of trading
for a Direct Listing with a Capital Raise could
[[Page 54267]]
proceed under either Nasdaq Rule 4120(c)(9)(B) (utilizing the existing
Pricing Range Limitation) or Nasdaq Rule 4120(c)(9)(C) (utilizing the
modified pricing limitation), the Exchange has not explained how it
would be consistent with the Exchange Act for the Exchange to use, in
both contexts, the price that is 20% below the lowest price of the
disclosed price range for purposes of Nasdaq Listing Rule IM-5315-2 and
Nasdaq Rules 4753(a)(3)(A) and 4753(b)(2).\55\
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\52\ See proposed Nasdaq Rule 4120(c)(9)(C).
\53\ Notice, supra note 3, 86 FR at 34817 n.9.
\54\ Securities Act Rule 457 permits issuers to register
securities either by specifying the quantity of shares registered,
pursuant to Rule 457(a), or the proposed maximum aggregate offering
amount, pursuant to Rule 457(o).
\55\ The proposal would modify Nasdaq Listing Rule IM-5315-2,
regarding the price used to determine a company's compliance with
the initial listing requirements concerning the Market Value of
Publicly Held Shares, bid price, and market capitalization, and
would modify the fourth tie-breaker in Nasdaq Rule 4753(a)(3)(A),
regarding the calculation of the Current Reference Price as
disseminated in the Nasdaq Order Imbalance Indicator, and Nasdaq
Rule 4753(b)(2), regarding the calculation of the price at which the
Nasdaq Halt Cross will execute.
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The Commission notes that, 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 self-regulatory organization [`SRO'] that
proposed the rule change.'' \56\ 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,\57\
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 Exchange Act and the
applicable rules and regulations.\58\
---------------------------------------------------------------------------
\56\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\57\ See id.
\58\ See id.
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For these reasons, the Commission believes it is appropriate to
institute proceedings pursuant to Section 19(b)(2)(B) of the Exchange
Act \59\ to determine whether the proposal should be approved or
disapproved.
---------------------------------------------------------------------------
\59\ 15 U.S.C. 78s(b)(2)(B).
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IV. Commission's Solicitation of 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
view of interested persons concerning whether the proposal is
consistent with Section 6(b)(5) or any other provision of the Exchange
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, any request for
an opportunity to make an oral presentation.\60\
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\60\ Section 19(b)(2) of the Exchange 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 21, 2021. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
November 4, 2021.
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-2021-045 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-2021-045. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2021-045 and should be submitted
on or before October 21, 2021. Rebuttal comments should be submitted by
November 4, 2021.
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\61\ 17 CFR 200.30-3(a)(57).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\61\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-21208 Filed 9-29-21; 8:45 am]
BILLING CODE 8011-01-P
