Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order Granting Approval of a Proposed Rule Change To Adopt Additional Initial Listing Criteria for Companies Primarily Operating in Jurisdictions That Do Not Provide the PCAOB With the Ability To Inspect Public Accounting Firms, 56338-56344 [2021-21988]
Download as PDF
<![CDATA[
56338
Federal Register / Vol. 86, No. 193 / Friday, October 8, 2021 / Notices
19(b)(3)(A) of the Act 25 and Rule 19b–
4(f)(6) thereunder.26
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act normally does not become operative
for 30 days after the date of its filing.
However, Rule 19b–4(f)(6)(iii) 27 permits
the Commission to designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. The Exchange has requested
that the Commission waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Commission notes that it
recently approved Phlx’s substantially
similar proposal to list and trade
Monday IWM Expirations and
Wednesday IWM Expirations.28 The
Exchange has stated that waiver of the
30-day operative delay will allow the
Exchange to implement the proposal as
a competitive response, permitting the
Exchange to list the same expirations for
series in a multiply-listed option as
another options exchange, at the same
time that such options exchange intends
to list such series. For these reasons, the
Commission believes that the proposed
rule change presents no novel issues
and that waiver of the 30-day operative
delay is consistent with the protection
of investors and the public interest, and
will allow the Exchange to remain
competitive with other exchanges.
Accordingly, the Commission hereby
waives the operative delay and
designates the proposed rule change
operative upon filing.29
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 necessary or appropriate in the
public interest, for the protection of
investors, or 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
change should be approved or
disapproved.
25 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
27 17 CFR 240.19b–4(f)(6)(iii).
28 See supra note 6.
29 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
jspears on DSK121TN23PROD with NOTICES1
26 17
VerDate Sep<11>2014
17:07 Oct 07, 2021
Jkt 256001
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:
• 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–
CboeBZX–2021–069 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–CboeBZX–2021–069. 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–CboeBZX–2021–069 and
should be submitted on or before
October 29, 2021.
Frm 00100
Fmt 4703
[FR Doc. 2021–21993 Filed 10–7–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
PO 00000
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
J. Matthew DeLesDernier,
Assistant Secretary.
Sfmt 4703
[Release No. 34–93256; File No. SR–
NASDAQ–2021–007]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Order
Granting Approval of a Proposed Rule
Change To Adopt Additional Initial
Listing Criteria for Companies
Primarily Operating in Jurisdictions
That Do Not Provide the PCAOB With
the Ability To Inspect Public
Accounting Firms
October 4, 2021.
I. Introduction
On February 1, 2021, The Nasdaq
Stock Market LLC (‘‘Nasdaq’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
adopt additional initial listing criteria
for companies primarily operating in
jurisdictions that do not provide the
Public Company Accounting Oversight
Board (‘‘PCAOB’’) with the ability to
inspect public accounting firms. The
proposed rule change was published for
comment in the Federal Register on
February 16, 2021.3 On March 26, 2021,
pursuant to Section 19(b)(2) of the Act,4
the Commission designated a longer
period within which to approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
disapprove the proposed rule change.5
On May 17, 2021, the Commission
instituted proceedings to determine
whether to approve or disapprove the
30 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 91089
(February 9, 2021), 86 FR 9549 (‘‘Notice’’).
Comments on the proposed rule change can be
found at: https://www.sec.gov/comments/sr-nasdaq2021-007/srnasdaq2021007.htm.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 91413,
86 FR 17263 (April 1, 2021). The Commission
designated May 17, 2021 as the date by which the
Commission shall approve or disapprove, or
institute proceedings to determine whether to
approve or disapprove, the proposed rule change.
1 15
E:\FR\FM\08OCN1.SGM
08OCN1
Federal Register / Vol. 86, No. 193 / Friday, October 8, 2021 / Notices
proposed rule change.6 This order
approves the proposed rule change.
jspears on DSK121TN23PROD with NOTICES1
II. Description of the Proposed Rule
Change
The Exchange states that the
Exchange’s rules, in addition to federal
securities laws, require that a company’s
financial statements included in its
initial registration statement or annual
report be audited by an independent
public accountant that is registered with
the PCAOB.7 According to the
Exchange, the Exchange and investors
rely on the work of auditors to provide
reasonable assurances that the financial
statements provided by a company are
free of material misstatements, and on
the PCAOB’s critical role in overseeing
the quality of the auditor’s work.8 The
Exchange states its belief that accurate
financial statement disclosure is critical
for investors to make informed
investment decisions.9
The Exchange states that the former
Chairman and former Chief Accountant
of the Commission and the former
Chairman of the PCAOB have raised
concerns that national barriers on access
to information can impede effective
regulatory oversight of U.S.-listed
companies with operations in certain
countries, including the PCAOB’s
inability to inspect the audit work and
practices of auditors in those
countries.10 The Exchange states that
similar concerns have been expressed
by members of Congress, the State
Department, and the President’s
Working Group on Financial Markets.11
6 See Securities Exchange Act Release No. 91904,
86 FR 27659 (May 21, 2021).
7 See Notice, supra note 3, at 9549. See also
Nasdaq Rules 5210(b) and 5250(c)(3) (requiring for
initial and continued listing on Nasdaq that
companies must be audited by an independent
public accountant that is registered as a public
accounting firm with the PCAOB); 15 U.S.C. 7212(a)
(Registration with the PCAOB); 17 CFR 210.2–01
(Qualifications of Accountants).
8 See Notice, supra note 3, at 9550.
9 See id.
10 See id. (citing to various statements by former
Commission Chairman Jay Clayton, former
Commission Chief Accountant Wes Bricker, and
former PCAOB Chairman William D. Duhnke III,
available at https://www.sec.gov/news/publicstatement/statement-vital-role-audit-quality-andregulatory-access-audit-and-other; https://
www.sec.gov/news/public-statement/emergingmarket-investments-disclosure-reporting; and
https://www.sec.gov/news/public-statement/
clayton-emerging-markets-roundtable-2020-07-09).
See id. at 9550, n.8.
11 See id. at 9550 (citing to ‘‘Congress Passes
Legislation to De-List Chinese Companies Unless
U.S. Has Access to Audit Workpapers’’ (December
2, 2020), available at https://sherman.house.gov/
media-center/press-releases/congress-passeslegislation-to-de-list-chinese-companies-unless-ushas; Former Commission Chairman Jay Clayton,
‘‘Statement after the Enactment of the Holding
Foreign Companies Accountable Act’’ (December
18, 2020), available at https://www.sec.gov/news/
VerDate Sep<11>2014
17:07 Oct 07, 2021
Jkt 256001
The Exchange states that it shares these
concerns and believes the lack of
transparency from certain markets raises
concerns about the accuracy of
disclosures, accountability, and access
to information, particularly when a
company is based in a jurisdiction that
does not provide the PCAOB with
access to conduct inspections of public
accounting firms that audit Nasdaqlisted companies (‘‘Restrictive
Market’’).12
The Exchange further states that such
concerns can be compounded when a
company from a Restrictive Market lists
on the Exchange through an initial
public offering (‘‘IPO’’) or a business
combination with a small offering size
or a low public float percentage because
such companies may not attract market
attention and develop sufficient public
float, investor base, and trading interest
to provide the depth and liquidity
necessary to promote fair and orderly
trading.13 According to the Exchange,
such securities may trade infrequently,
in a more volatile manner and with a
wider bid-ask spread, all of which may
result in trading at a price that may not
reflect their true market value.14
Furthermore, the Exchange states that
less liquid securities may be more
susceptible to price manipulation and
that, in particular, the risk of price
manipulation due to insider trading is
more acute with respect to a company
that principally administers its business
in a Restrictive Market (‘‘Restrictive
Market Company’’), particularly if a
company’s financial statements contain
undetected material misstatements due
to error or fraud and the PCAOB is
unable to inspect the company’s auditor
to determine if it complied with PCAOB
and Commission rules and professional
standards in connection with its
performance of audits.15 The Exchange
states that risk to investors in such cases
public-statement/clayton-hfcaa-2020-12#_ftn5;
Press Statement of Michael R. Pompeo, Former
Secretary of State, New Nasdaq Restrictions
Affecting Listing of Chinese Companies (June 4,
2020), available at https://2017-2021translations.state.gov/2020/06/04/new-nasdaqrestrictions-affecting-listing-of-chinese-companies/
index.html; President’s Working Group on
Financial Markets: Report on Protecting United
States Investors from Significant Risks from Chinese
Companies (July 24, 2020), available at https://
home.treasury.gov/system/files/136/PWG-Reporton-Protecting-United-States-Investors-fromSignificant-Risks-from-Chinese-Companies.pdf).
See id. at 9550, nn.9–11.
12 See id. at 9550.
13 See id.
14 See id. The Exchange also states that foreign
issuers are more likely to issue a portion of an
offering to investors in their home country, which
raises concerns that such investors will not
contribute to the liquidity of the security in the U.S.
secondary market. See id.
15 See id.
PO 00000
Frm 00101
Fmt 4703
Sfmt 4703
56339
may be compounded because regulatory
investigations into price manipulation,
insider trading, and compliance
concerns may be impeded and investor
protections and remedies may be
limited in such cases due to obstacles
encountered by U.S. authorities in
bringing or enforcing actions against the
companies and insiders.16
Nasdaq states that it believes the U.S.
capital markets can provide Restrictive
Market Companies with access to
additional capital to fund groundbreaking research and technological
advancements and that such companies
provide U.S. investors with
opportunities to diversify their portfolio
by providing exposure to Restrictive
Markets.17 However, Nasdaq further
states that it believes that Restrictive
Market Companies present unique
potential risks to U.S. investors due to
restrictions on the PCAOB’s ability to
inspect the audit work and practices of
auditors in those countries, which
create concerns about the accuracy of
disclosures, accountability, and access
to information.18 Nasdaq states that it
believes its proposal will reduce trading
volatility and price manipulation and
help to ensure that Restrictive Market
Companies have sufficient investor base
and public float to support fair and
orderly trading on the Exchange.19
Specifically, the Exchange proposes to
adopt a definition of ‘‘Restrictive
Market’’ 20 and to apply additional
initial listing requirements to a
Restrictive Market Company listing on
the Exchange in connection with an IPO
or a business combination.21 The
16 See
id.
id. at 9553–54. See also Letter from Jeffrey
S. Davis, Senior Vice President, General Counsel,
Nasdaq, Inc. (April 30, 2021) (‘‘Nasdaq Response
Letter’’), at 2.
18 See Notice, supra note 3, at 9554.
19 See id. See also Nasdaq Response Letter, supra
note 17, at 3.
20 See infra note 24 and accompanying text.
21 The Exchange states that, currently, it may rely
upon its discretionary authority under Nasdaq Rule
5101 to deny initial listing or apply additional or
more stringent criteria when it is concerned that a
small offering size for an IPO may not reflect the
company’s initial valuation or may not ensure
sufficient liquidity to support trading in the
secondary market. Pursuant to Nasdaq Rule 5101,
Nasdaq has broad discretionary authority over the
initial and continued listing of securities in Nasdaq
in order to maintain the quality of and public
confidence in its market, to prevent fraudulent and
manipulative acts and practices, to promote just
and equitable principles of trade, and to protect
investors and the public interest. Nasdaq may use
such discretion to deny initial listing, apply
additional or more stringent criteria for the initial
or continued listing of particular securities, or
suspend or delist particular securities based on any
event, condition, or circumstance that exists or
occurs that makes initial or continued listing of the
securities on Nasdaq inadvisable or unwarranted in
17 See
E:\FR\FM\08OCN1.SGM
Continued
08OCN1
56340
Federal Register / Vol. 86, No. 193 / Friday, October 8, 2021 / Notices
Exchange also proposes to prohibit a
Restrictive Market Company from listing
on the Nasdaq Capital Market in
connection with a Direct Listing,22 but
to allow a Restrictive Market Company
to list on the Nasdaq Global Select
Market or Nasdaq Global Market in
connection with a Direct Listing,
provided that such company meets all
applicable initial listing requirements
for such market.
A. Definition of Restrictive Market
jspears on DSK121TN23PROD with NOTICES1
The Exchange proposes to adopt a
new definition of Restrictive Market in
Nasdaq Rule 5005(a)(37).23 As
proposed, a Restrictive Market will be
defined as a jurisdiction that does not
provide the PCAOB with access to
conduct inspections of public
accounting firms that audit Nasdaqlisted companies.24 Under the proposed
rule, Nasdaq will consider a company’s
business to be principally administered
in a Restrictive Market if: (i) The
company’s books and records are
located in that jurisdiction; (ii) at least
50% of the company’s assets are located
in such jurisdiction; or (iii) at least 50%
of the company’s revenues are derived
from such jurisdiction.25
the opinion of Nasdaq, even though the securities
meet all enumerated criteria for initial or continued
listing on Nasdaq. See Nasdaq Rule 5101.
22 Nasdaq defines ‘‘Direct Listing’’ as the listing
of ‘‘companies that have sold common equity
securities in private placements, which have not
been listed on a national securities exchange or
traded in the over-the-counter market pursuant to
FINRA Form 211 immediately prior to the initial
pricing.’’ See Nasdaq Rule IM–5315–1.
23 The Exchange proposes to renumber current
paragraphs (a)(37) through (a)(46) of Nasdaq Rule
5005 in connection with the addition of the
definition of Restrictive Market. See Notice, supra
note 3, at 9551.
24 See proposed Nasdaq Rule 5005(a)(37). The
Exchange states that the PCAOB maintains a map
of where it can and cannot conduct oversight
activities on its website and publishes a list
identifying the public companies for which a
PCAOB-registered public accounting firm signed
and issued an audit report and is located in a
jurisdiction where obstacles to PCAOB inspections
exist. See Notice, supra note 3, at 9551.
25 See proposed Nasdaq Rule 5005(a)(37). The
term ‘‘Company’’ means the issuer of a security
listed or applying to list on Nasdaq. See Nasdaq
Rule 5005(a)(6). The Exchange provides the
following examples. Company X’s books and
records are located in Country Y, which is not a
Restrictive Market, while 90% of its revenues are
driven from operations in Country Z, which is a
Restrictive Market. Nasdaq would consider
Company X’s business to be principally
administered in Country Z, so Company X would
be considered a Restrictive Market Company.
Alternatively, Company A’s books and records are
located in Country B, which is a Restrictive Market,
but 90% of its revenues are derived from Country
C, which is not a Restrictive Market. Nasdaq would
consider Company A’s business to be principally
administered in Country B, so Company A would
be considered a Restrictive Market Company. See
Notice, supra note 3, at 9551.
VerDate Sep<11>2014
17:07 Oct 07, 2021
Jkt 256001
B. Minimum Offering Size or Public
Float Percentage Requirement for an
IPO
The Exchange proposes to adopt new
Nasdaq Rule 5210(k)(i) to require a
Restrictive Market Company listing its
Primary Equity Security 26 on Nasdaq in
connection with its IPO to offer a
minimum amount of securities in a Firm
Commitment Offering 27 in the U.S. to
Public Holders 28 that (i) will result in
gross proceeds to the Company of at
least $25 million or (ii) will represent at
least 25% of the Company’s postoffering Market Value of Listed
Securities,29 whichever is lower. A
Restrictive Market Company listing on
the Exchange in connection with an IPO
that is subject to the proposed rule
would also need to comply with all
other applicable listing requirements.30
26 Nasdaq Rule 5005(a)(33) defines ‘‘Primary
Equity Security’’ as ‘‘a Company’s first class of
Common Stock, Ordinary Shares, Shares or
Certificates of Beneficial Interest of Trust, Limited
Partnership Interests or American Depositary
Receipts (ADR) or Shares (ADS).’’
27 Nasdaq Rule 5005(a)(17) defines ‘‘Firm
Commitment Offering’’ as ‘‘an offering of securities
by participants in a selling syndicate under an
agreement that imposes a financial commitment on
participants in such syndicate to purchase such
securities.’’
28 Nasdaq Rule 5005(a)(36) defines ‘‘Public
Holders’’ as ‘‘holders of a security that includes
both beneficial holders and holders of record, but
does not include any holder who is, either directly
or indirectly, an Executive Officer, director, or the
beneficial holder of more than 10% of the total
shares outstanding.’’
29 ‘‘Market Value’’ means the consolidated closing
bid price multiplied by the measure to be valued.
See Nasdaq Rule 5000(a)(23). ‘‘Listed Securities’’
means securities listed on Nasdaq or another
national securities exchange. See Nasdaq Rule
5000(a)(22).
30 The Exchange provides the following examples
to illustrate the proposed rule. First, Company X,
which principally administers its business in a
Restrictive Market, is applying to list on Nasdaq
Global Market and has an expected post-offering
Market Value of Listed Securities of $75,000,000.
Since 25% of $75,000,000 is $18,750,000, which is
lower than $25,000,000, pursuant to the
requirements of the proposed rule, Company X
would be eligible to list based on a Firm
Commitment Offering in the U.S. to Public Holders
of at least $18,750,000. Company X would also need
to comply with the other applicable listing
requirements of the Nasdaq Global Market,
including a Market Value of Unrestricted Publicly
Held Shares of at least $8 million. See Notice, supra
note 3, at 9551; Nasdaq Rule 5405(b)(1)(C). See also
Nasdaq Rules 5005(a)(45) (definition of
‘‘Unrestricted Publicly Held Shares’’), 5005(a)(46)
(definition of ‘‘Unrestricted Securities’’), and
5005(a)(37) (definition of ‘‘Restricted Securities’’).
As another example, Company Y, which also
principally administers its business in a Restrictive
Market, is applying to list on the Nasdaq Global
Select Market and its post-offering Market Value of
Listed Securities is expected to be $200,000,000.
Since 25% of $200,000,000 is $50,000,000, which
is higher than $25,000,000, pursuant to the
requirements of the proposed rule, Company Y
would be eligible to list based on a Firm
Commitment Offering in the U.S. to Public Holders
that will result in gross proceeds of at least
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
The Exchange states that it believes this
proposed listing requirement for
Restrictive Market Companies
conducting an IPO will provide greater
support for the company’s price, as
determined through the offering, and
will help assure there will be sufficient
liquidity, U.S. investor interest, and
distribution to support price discovery
once the security is listed.31 In addition,
the Exchange states that the proposal
will help ensure that Restrictive Market
Companies seeking to list on the
Exchange have sufficient investor base
and public float to support fair and
orderly trading on the Exchange.32
The Exchange further states that it has
observed that Restrictive Market
Companies listing on Nasdaq in
connection with an IPO with an offering
size below $25 million or public float
ratio below 25% have a high rate of
compliance concerns.33 The Exchange
states that it believes the proposed
listing requirement for Restrictive
Market Companies conducting an IPO
will mitigate such compliance
concerns.34
$25,000,000. Company Y would also need to
comply with the other applicable listing
requirements of the Nasdaq Global Select Market,
including a Market Value of Unrestricted Publicly
Held Shares of at least $45 million. See Notice,
supra note 3, at 9551–52; Nasdaq Rule 5315(f)(2)(C).
31 See Notice, supra note 3, at 9552.
32 See id.
33 See id. Specifically, the Exchange states that 39
out of 113 Restrictive Market Companies that listed
on Nasdaq through an IPO from January 1, 2015 to
September 30, 2020 would not have qualified under
the requirement in proposed Nasdaq Rule 5210(k)(i)
because they had offering amounts of $25 million
or less. According to Nasdaq, two of these
companies were considered to be Restrictive Market
Companies because they had at least 50% of the
company’s assets located in a Restrictive Market,
and 37 met the definition because they had at least
50% of the company’s revenues derived from a
Restrictive Market. Of those companies that would
not have qualified under the requirement in
proposed Nasdaq Rule 5210(k)(i), twenty, or 51%,
were cited for a compliance issue, which Nasdaq
states is a significantly higher rate than other
Restrictive Market Companies (16%). The Exchange
also states that, during the same period, 25 out of
84 (or 30%) of Restrictive Market Companies that
had a ratio of offering size to Market Value of Listed
Securities of 25% or less failed to comply with one
or more listing standards after listing, which,
according to the Exchange, is a significantly higher
non-compliance rate than for other foreign
companies (11%) and other Restrictive Market
Companies (21%) that had such listings. The
Exchange also found that, during the same period,
35 Restrictive Market Companies would not have
met either the $25 million offering size requirement
or the 25% of the company’s post-offering Market
Value of Listed Securities requirement, and 18 of
those companies were cited for a compliance
concern. See id.
34 See id.
E:\FR\FM\08OCN1.SGM
08OCN1
Federal Register / Vol. 86, No. 193 / Friday, October 8, 2021 / Notices
C. Minimum Market Value of
Unrestricted Publicly Held Shares
Requirement for a Business
Combination
jspears on DSK121TN23PROD with NOTICES1
The Exchange proposes to adopt new
Nasdaq Rule 5210(k)(ii) to require a
Company that is conducting a business
combination, as described in Nasdaq
Rule 5110(a) 35 or IM–5101–2,36 with a
Restrictive Market Company to have a
minimum Market Value of Unrestricted
Publicly Held Shares 37 following the
business combination equal to the lesser
of (i) $25 million or (ii) 25% of postbusiness combination entity’s Market
Value of Listed Securities. A Restrictive
Market Company subject to the
proposed rule would also need to
comply with all other applicable listing
requirements.38
35 Nasdaq Rule 5110(a) (Business Combinations
with non-Nasdaq Entities Resulting in a Change of
Control) sets forth requirements applicable to a
Company that engages in a business combination
with a non-Nasdaq entity, resulting in a change of
control of the Company and potentially allowing
the non-Nasdaq entity to obtain a Nasdaq Listing.
36 Nasdaq Rule IM–5101–2 (Listing of Companies
Whose Business Plan is to Complete One or More
Acquisitions) sets forth requirements applicable to
a Company whose business plan is to complete an
IPO and engage in a merger or acquisition with one
or more unidentified companies within a specific
period of time.
37 Nasdaq Rule 5005(a)(45) defines ‘‘Unrestricted
Publicly Held Shares’’ as Publicly Held Shares that
are Unrestricted Securities. ‘‘Publicly Held Shares’’
means shares not held directly or indirectly by an
officer, director or any person who is the beneficial
owner of more than 10 percent of the total shares
outstanding. See Nasdaq Rule 5005(a)(35).
‘‘Unrestricted Securities’’ means securities that are
not subject to resale restrictions for any reason,
including, but not limited to, securities: (i)
Acquired directly or indirectly from the issuer or
an affiliate of the issuer in unregistered offerings
such as private placements or Regulation D
offerings; (ii) acquired through an employee stock
benefit plan or as compensation for professional
services; (iii) acquired in reliance on Regulation S,
which cannot be resold within the United States;
(iv) subject to a lockup agreement or a similar
contractual restriction; or (v) considered ‘‘restricted
securities’’ under Rule 144. See Nasdaq Rules
5005(a)(46) and (37).
38 The Exchange provides the following examples
to illustrate the proposed rule. First, Company A is
currently listed on the Nasdaq Capital Market and
plans to acquire a company that principally
administers its business in a Restrictive Market, in
accordance with IM–5101–2. Following the
business combination, Company A intends to
transfer to the Nasdaq Global Select Market.
Company A expects the post-business combination
entity to have a Market Value of Listed Securities
of $250,000,000. Since 25% of $250,000,000 is
$62,500,000, which is higher than $25,000,000,
pursuant to the requirements of the proposed rule,
to qualify for listing the post-business combination
entity must have a minimum Market Value of
Unrestricted Publicly Held Shares of at least
$25,000,000. The company would also need to
comply with the other applicable listing
requirements of the Nasdaq Global Select Market,
including a Market Value of Unrestricted Publicly
Held Shares of at least $45,000,000. See Notice,
supra note 3, at 9552; Nasdaq Rule 5315(f)(2)(C). As
another example, Company B is currently listed on
VerDate Sep<11>2014
17:07 Oct 07, 2021
Jkt 256001
The Exchange states that it believes
that a business combination as
described in Nasdaq Rule 5110(a) or
IM–5101–2 involving a Restrictive
Market Company presents similar risks
to U.S. investors as an IPO of a
Restrictive Market Company, and
therefore, Nasdaq believes it is
appropriate to apply similar thresholds
to post-business combination entities to
ensure that a company listing through a
business combination would have
satisfied equivalent standards that apply
to an IPO.39 The Exchange further states
that it believes that the proposed listing
requirement for post-business
combination entities would help to
provide an additional assurance that
there are sufficient freely tradable shares
and investor interest to support fair and
orderly trading on the Exchange when
the target company principally
administers its business in a Restrictive
Market.40
D. Direct Listings of Restrictive Market
Companies
The Exchange proposes to adopt new
Nasdaq Rule 5210(k)(iii) to provide that
a Restrictive Market Company that is
listing its Primary Equity Security on
Nasdaq in connection with a Direct
Listing, as defined in Nasdaq Rule IM–
5315–1,41 would be permitted to list on:
(i) The Nasdaq Global Select Market,
Nasdaq Capital Market and plans to combine with
a non-Nasdaq entity that principally administers its
business in a Restrictive Market, resulting in a
change of control as defined in Nasdaq Rule
5110(a), whereby the non-Nasdaq entity will
become the Nasdaq-listed company. Following the
change of control, Company B expects the listed
company to have a Market Value of Listed
Securities of $50,000,000. Since 25% of
$50,000,000 is $12,500,000, which is lower than
$25,000,000, pursuant to the requirements of the
proposed rule, the listed company must have a
minimum Market Value of Unrestricted Publicly
Held Shares following the change of control of at
least $12,500,000. The post-business combination
company would also need to comply with all other
applicable listing requirements of the Nasdaq
Capital Market, including a Market Value of
Unrestricted Publicly Held Shares of at least $5
million. See Notice, supra note 3, at 9552; Nasdaq
Rule 5505(b)(3)(C).
39 See Notice, supra note 3, at 9553. The
Exchange states that it found that out of seven
business combinations involving Restrictive Market
Companies from 2015 through September 30, 2020,
five would not have qualified under proposed
Nasdaq Rule 5210(k)(ii) to have a minimum Market
Value of Unrestricted Publicly Held Shares
following the business combination of $25 million
or 25% of the post-business combination entity’s
Market Value of Listed Securities, whichever is
lower. The Exchange states that all five of these
companies have been cited for a deficiency after the
completion of their business combination. On the
other hand, Nasdaq states that only one out of the
two business combinations involving Restrictive
Market Companies that would have qualified under
proposed Nasdaq Rule 5210(k)(ii) during such
period was cited for a compliance concern. See id.
40 See id.
41 See supra note 22.
PO 00000
Frm 00103
Fmt 4703
Sfmt 4703
56341
provided that the Company meets all
applicable listing requirements for the
Nasdaq Global Select Market and the
additional requirements of Nasdaq Rule
IM–5315–1, or (ii) the Nasdaq Global
Market, provided that the Company
meets all applicable listing requirements
for the Nasdaq Global Market and the
additional requirements of Nasdaq Rule
IM–5405–1.42 On the other hand,
proposed Nasdaq Rule 5210(k)(iii)
would provide that a Restrictive Market
Company would not be permitted to list
on the Nasdaq Capital Market in
connection with a Direct Listing,
notwithstanding the fact that the
Company may meet the applicable
initial listing requirements for the
Nasdaq Capital Market and the
additional requirements in Nasdaq Rule
IM–5505–1.43
The Exchange’s rules currently set
forth initial listing requirements for
companies listing on the Nasdaq Global
Select Market, Nasdaq Global Market,
and Nasdaq Capital Market,44 and
additional listing requirements for
Companies conducting a Direct Listing
on such markets.45 The Exchange states
that it believes it is appropriate to
permit Restrictive Market Companies to
list through a Direct Listing on the
Nasdaq Global Select Market or Nasdaq
Global Market because such companies
would be subject to the additional
listing requirements set forth in Nasdaq
Rule IM–5315–1 or IM–5405–1,
respectively.46 On the other hand, the
Exchange states that it does not believe
that the additional requirements for
Direct Listing on the Nasdaq Capital
Market, set forth in Nasdaq Rule IM–
5501–1, are sufficient to overcome
concerns regarding sufficient liquidity
and investor interest to support fair and
orderly trading on the Exchange with
respect to Restrictive Market
Companies.47
42 See
Notice, supra note 3, at 9553.
id.
44 See Nasdaq Rules 5315, 5405, and 5505.
45 See Nasdaq Rules IM–5315–1, IM–5405–1, and
IM–5505–1.
46 See Notice, supra note 3, at 9553.
47 See id. As an example, the Exchange states that
the Nasdaq Global Select Market and Nasdaq Global
Market require a company to have at least 1,250,000
and 1.1 million Unrestricted Publicly Held Shares,
respectively, and a Market Value of Unrestricted
Publicly Held Shares of at least $45 million and $8
million, respectively. See Nasdaq Rules 5315(e)(2),
5315(f)(2)(C), 5405(a)(2), and 5405(b)(1)(C). In
contrast, the Nasdaq Capital Market only requires
a company to have at least 1 million Unrestricted
Publicly Held Shares and a Market Value of
Unrestricted Publicly Held Shares of at least $5
million. See Nasdaq Rules 5505(a)(2) and
5505(b)(3)(C); Notice, supra note 3, at 9553, n.34.
43 See
E:\FR\FM\08OCN1.SGM
08OCN1
56342
Federal Register / Vol. 86, No. 193 / Friday, October 8, 2021 / Notices
jspears on DSK121TN23PROD with NOTICES1
III. Discussion and Commission
Findings
The Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange.48 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,49 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.
The Exchange has proposed to adopt
enhanced initial listing standards for
Restrictive Market Companies
conducting an IPO or engaged in a
business combination in order to help
assure the existence of adequate
investor base and public float to support
fair and orderly trading for securities
issued by Restrictive Market Companies
that are listing on the Exchange for the
first time.50 In addition, the Exchange
has proposed to prohibit Direct Listings
on Nasdaq Capital Market of securities
issued by Restrictive Market Companies
due to concerns regarding liquidity and
fair and orderly trading.51 As stated by
the Exchange, listed companies that are
based in jurisdictions that do not
provide the PCAOB with access to
conduct inspections of public
accounting firms that audit Nasdaqlisted companies raise concerns
regarding the accuracy of disclosures,
accountability, and access to
information with respect to such
companies and present unique potential
risks to U.S. investors due to restrictions
on the PCAOB’s ability to inspect the
audit work and practices of auditors in
those countries.52 The Exchange also
states that less liquid securities may be
more susceptible to price manipulation
and that, in particular, the risk of price
manipulation due to insider trading is
more acute with respect to Restrictive
48 15 U.S.C. 78f(b). In approving this proposed
rule change, the Commission has considered the
proposed rule change’s impact on efficiency,
competition, and capital formation. See 15 U.S.C.
78c(f).
49 15 U.S.C. 78f(b)(5).
50 See supra notes 32 and 40 and accompanying
text.
51 See supra note 47 and accompanying text.
52 See supra notes 10–12 and accompanying text.
VerDate Sep<11>2014
17:07 Oct 07, 2021
Jkt 256001
Market Companies, particularly if a
company’s financial statements contain
undetected material misstatements due
to error or fraud and the PCAOB is
unable to inspect the company’s auditor
to determine if it complied with PCAOB
and Commission rules and professional
standards in connection with its
performance of audits.53
Further, the Exchange states that
Nasdaq and investors rely on the work
of auditors to provide reasonable
assurances that the financial statements
provided by a company are free of
material misstatements.54 The Exchange
states that the PCAOB’s inability to
inspect the audit work and practices of
auditors in certain countries weakens
the assurance that the auditor obtained
sufficient appropriate audit evidence to
express its opinion on a company’s
financial statements, and decreases
confidence that the auditor complied
with PCAOB and Commission rules and
professional standards in connection
with the auditor’s performance of
audits.55 Absent reasonable assurances
from an auditor that a company’s
financial statements and related
disclosures are free from material
misstatements, the Exchange states that
there is a risk that a company that
would otherwise not have qualified to
list on Nasdaq may satisfy Nasdaq’s
listing standards by presenting financial
statements that contain undetected
material misstatements.56 The Exchange
therefore believes that the proposed rule
change would provide greater
assurances to investors that a company
truly meets Nasdaq’s financial listing
requirements by imposing heightened
listing criteria on a Restrictive Market
Company, thereby preventing
fraudulent and manipulative acts,
protecting investors, and promoting the
public interest.57
The Commission has consistently
recognized that the development and
enforcement of meaningful listing
standards for an exchange is of critical
importance to financial markets and the
investing public.58 Among other things,
the Commission has stated that listing
standards provide the means for an
exchange to screen issuers that seek to
become listed, and to provide listed
status only to those that are bona fide
companies that have or will have
sufficient public float, investor base,
and trading interest likely to generate
53 See
supra note 15 and accompanying text.
supra note 8 and accompanying text.
55 See Notice, supra note 3, at 9554.
56 See id.
57 See id. See also Nasdaq Response Letter, supra
note 17, at 3.
58 See infra notes 59–60.
54 See
PO 00000
Frm 00104
Fmt 4703
Sfmt 4703
depth and liquidity sufficient to
promote fair and orderly markets.59
Meaningful listing standards are also
important given investor expectations
regarding the nature of securities that
have achieved an exchange listing, and
the role of an exchange in overseeing its
market and assuring compliance with its
listing standards.60
The Commission has also previously
stated that when the PCAOB is unable
to inspect auditors there is a lack of
transparency with respect to the audit
quality provided by such firms and that
the inability of the PCAOB to inspect
auditors of certain registrants could
generate uncertainty regarding their
financial reporting quality.61 The
Commission has stated that, as a result,
there is uncertainty regarding the
reliability of the financial information of
issuers audited by firms that are not
inspected by the PCAOB, which can
potentially lead to suboptimal
investment decisions by investors.62
Given these heightened risks identified
by the Commission with respect to
issuers audited by firms that the PCAOB
is unable to inspect, the Commission
concludes that the Exchange’s proposal
to impose heightened listing
requirements on companies that
principally administer their business in
a jurisdiction that does not provide the
PCAOB with access to conduct
inspections of public accounting firms
that audit Nasdaq-listed companies (i.e.,
Restrictive Market Companies) is
consistent with the Act and not
59 See, e.g., Securities Exchange Act Release Nos.
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); 65708 (November 8, 2011), 76
FR 70799, 70802 (November 15, 2011) (‘‘SR–
NASDAQ–2011–073 Approval Order’’); 63607
(December 23, 2010), 75 FR 82420, 82422
(December 30, 2010) (‘‘SR–NASDAQ–2010–137
Approval Order’’); and 57785 (May 6, 2008), 73 FR
27597, 27599 (May 13, 2008) (‘‘SR–NYSE–2008–17
Approval Order’’). The Commission has stated that
adequate listing standards, by promoting fair and
orderly markets, are consistent with Section 6(b)(5)
of the 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., Securities Exchange Act
Release Nos. 82627 (February 2, 2018), 83 FR 5650,
5653, n.53 (February 8, 2018) (SR–NYSE–2017–30);
87648 (December 3, 2019), 84 FR 67308, 67314,
n.42 (December 9, 2019) (SR–NASDAQ–2019–059);
and 88716 (April 21, 2020), 85 FR 23393, 23395,
n.22 (April 27, 2020) (SR–NASDAQ–2020–001).
60 See, e.g., SR–NASDAQ–2011–073 Approval
Order, supra note 59, 76 FR at 70802; SR–
NASDAQ–2010–137 Approval Order, supra note
59, 75 FR at 82422; and SR–NYSE–2008–17
Approval Order, supra note 59, 73 FR at 27599.
61 See Holding Foreign Companies Accountable
Act Disclosure, Securities Exchange Act Release No.
91364 (March 18, 2021), 86 FR 17528 (April 5,
2021), at 17534, 17537.
62 See id. at 17534–35.
E:\FR\FM\08OCN1.SGM
08OCN1
Federal Register / Vol. 86, No. 193 / Friday, October 8, 2021 / Notices
jspears on DSK121TN23PROD with NOTICES1
designed to permit unfair
discrimination. Furthermore, the
Commission believes that the objective
criteria proposed by the Exchange for
determining whether a company’s
business is principally administered in
a Restrictive Market 63 should help to
ensure that the Exchange applies the
heightened listing standards to
companies in a manner that is not
designed to permit unfair
discrimination consistent with Section
6(b)(5) of the Act.
With respect to the proposed
heightened initial listing standards, the
Commission believes that the proposed
requirements should allow the
Exchange to more accurately determine
whether a Restrictive Market Company
conducting an IPO or a post-business
combination entity involving a
Restrictive Market Company does not
have adequate distribution and liquidity
and is thus not suitable for listing and
trading on the Exchange. The Exchange
has provided data showing that it has
observed that Restrictive Market
Companies listing on Nasdaq in
connection with an IPO and postbusiness combination entities involving
Restrictive Market Companies that did
not meet the proposed listing
requirements have more noncompliance issues than similar
companies that would have met the
proposed listing requirements.64 The
Commission has previously stated that a
Firm Commitment Offering is designed
to promote appropriate price discovery
and assists in creating a liquid market.65
In addition, the Commission believes
that having a minimum Market Value of
Unrestricted Publicly Held Shares
requirement should allow an exchange
to more accurately determine whether a
security does not have adequate
distribution and liquidity, and should
therefore help to ensure that an
exchange does not list securities that do
not have a sufficient market, with
adequate depth and liquidity, and
without sufficient investor interest to
support an exchange listing.66 Thus, the
Commission concludes that the
proposals to require (i) a Restrictive
Market Company conducting an IPO to
offer a minimum amount of securities in
the U.S. to Public Holders in a Firm
Commitment Offering and (ii) a
company conducting a business
63 See
64 See
supra note 25 and accompanying text.
supra notes 33 and 39 and accompanying
text.
65 See also Securities Exchange Act Release No.
86314 (July 5, 2019), 84 FR 33102 (July 11 2019)
(SR–NASDAQ–2019–009) (Order Approving
Revisions to Nasdaq’s Initial Listing Standards
Related to Liquidity), at 33112.
66 See id. at 33111.
VerDate Sep<11>2014
17:07 Oct 07, 2021
Jkt 256001
combination, as described in Nasdaq
Rule 5110(a) or IM–5101–2, with a
Restrictive Market Company, to have a
minimum Market Value of Unrestricted
Publicly Held Shares following the
business combination, and the proposed
thresholds for such requirements, are
consistent with the requirements of
Section 6(b)(5) of the Act that the rules
of the exchange be designed to prevent
fraudulent and manipulative acts and
practices, promote just and equitable
principles of trade, and protect investors
and the public interest, and not be
designed to permit unfair
discrimination.
One commenter states that the
proposal is insufficient to address the
risk that a company may satisfy
Nasdaq’s listing standards by presenting
financial statements that contain
undetected material misstatements and
that the proposed rules should include
provisions that would prohibit
Restrictive Market Companies,
including companies listed prior to the
effectiveness of the proposal, from
engaging an auditor or an accounting
firm that is located in a jurisdiction that
limits the PCAOB’s ability to inspect the
auditor to assist with the company
audit.67 In addition, this commenter
expresses concerns raised by academics
regarding the vulnerability of U.S.
investors to ‘‘low-ball ‘take private’
transactions’’ in Restricted Market
Companies, where ‘‘[t]he goal is to delist
U.S. shares at a depressed buyout price
and then relist in [a Restricted Market]
at a much loftier valuation.’’ 68 This
commenter states that Nasdaq should
promptly limit the U.S. investor
exposure to potentially unfair takeprivate transactions by adopting
provisions to prevent the initial listing
of Restrictive Market Companies.69 In
response, the Exchange states that,
while the commenter may prefer a
different proposal, the commenter’s
suggested proposal is not the Exchange’s
proposal that is currently before the
Commission.70 The Exchange states
that, instead, to address the concerns
Nasdaq has observed arising from the
67 See Letter from Jeffrey P. Mahoney, General
Counsel, Council of Institutional Investors
(February 18, 2021) (‘‘CII Letter I’’), at 4–5; Letter
from Jeffrey P. Mahoney, General Counsel, Council
of Institutional Investors (May 27, 2021) (‘‘CII Letter
II’’), at 1–4.
68 See CII Letter II, supra note 67, at 3 (citing Jesse
Fried & Matthew J. Schoenfeld, Delisting Chinese
Firms: A Cure Likely Worse than the Disease, Harv.
L. Sch. F. On Corp. Governance (June 9, 2020),
https://corpgov.law.harvard.edu/2020/06/09/
delisting-chinese-firms-a-cure-likely-worse-thanthe-disease/).
69 See id. at 3–4.
70 See Nasdaq Response Letter, supra note 17, at
3.
PO 00000
Frm 00105
Fmt 4703
Sfmt 4703
56343
unique potential risks to U.S. investors
due to restrictions on the PCAOB’s
ability to inspect the audit work and
practices of auditors in Restrictive
Markets, Nasdaq has proposed
heightened liquidity requirements
designed to ensure that Restrictive
Market Companies have sufficient
investor base and public float to support
fair and orderly trading on the
Exchange, which Nasdaq believes, as
structured, are consistent with Section
6(b)(5) of the Act.71
The proposed provisions suggested by
the commenter are not part of Nasdaq’s
proposal, and the Commission must
approve the proposal if it finds that the
proposal is consistent with the Act and
rules thereunder. The Commission
believes the Exchange’s proposal is
reasonably designed to help address
compliance concerns regarding
securities of Restrictive Market
Companies and to help ensure fair and
orderly trading when such companies
list on Nasdaq.
The Commission concludes that it is
consistent with the Act to prohibit
Restrictive Market Companies from
listing on the Nasdaq Capital Market in
connection with a Direct Listing. In
support of its proposal, the Exchange
states that it does not believe the listing
requirements for Direct Listings on the
Nasdaq Capital Market set forth in
Nasdaq’s rules are sufficient to
overcome the risks that Restrictive
Market Companies present with respect
to liquidity.72 Given the heightened
concerns enumerated by the
Commission regarding companies that
cannot be inspected by the PCAOB,73
the Commission believes that the
proposal to prohibit Restrictive Market
Companies from listing on the Nasdaq
Capital Market in connection with a
Direct Listing is consistent with the
requirements of Section 6(b)(5) of the
Act that the rules of the exchange be
designed to prevent fraudulent and
manipulative acts and practices,
promote just and equitable principles of
trade, and protect investors and the
public interest, and not be designed to
permit unfair discrimination.
In sum, the Commission concludes
that the proposed new initial listing
requirements for Restrictive Market
Companies, including the prohibition
on Direct Listings on Nasdaq Capital
Market, will help maintain fair and
orderly markets and are designed to
protect investors and the public interest,
and are not designed to permit unfair
71 See
id.
supra note 47 and accompanying text. See
also Nasdaq Rules 5505 and IM–5505–1.
73 See supra notes 61–62 and accompanying text.
72 See
E:\FR\FM\08OCN1.SGM
08OCN1
56344
Federal Register / Vol. 86, No. 193 / Friday, October 8, 2021 / Notices
discrimination given the risks that
Restricted Market Companies present,
and should help the Exchange in
determining whether a Restricted
Market Company will not have a
sufficient market, with adequate depth
and liquidity, and sufficient investor
interest to support listing on the
Exchange. A Restrictive Market
Company subject to the proposed initial
listing requirements for an IPO or
business combination would also need
to comply with all other applicable
listing requirements for the market tier
on which it is listing.74
Based on the foregoing, the
Commission finds that the proposed
rule change is consistent with the Act.
U.S. Small Business Administration,
409 3rd Street SW, Suite 6050,
Washington, DC 20416, (202) 205–6734.
SUPPLEMENTARY INFORMATION: The notice
of the President’s major disaster
declaration for the State of Michigan,
dated 07/15/2021, is hereby amended to
extend the deadline for filing
applications for physical damages as a
result of this disaster to 11/12/2021.
All other information in the original
declaration remains unchanged.
VII. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,75 that the
proposed rule change (SR–NASDAQ–
2021–007) be, and hereby is, approved.
[FR Doc. 2021–22047 Filed 10–7–21; 8:45 am]
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.76
J. Matthew DeLesDernier,
Assistant Secretary.
[Public Notice 11559]
[FR Doc. 2021–21988 Filed 10–7–21; 8:45 am]
(Catalog of Federal Domestic Assistance
Number 59008)
James Rivera,
Associate Administrator for Disaster
Assistance.
BILLING CODE 8026–03–P
DEPARTMENT OF STATE
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #17039 and #17040;
MICHIGAN Disaster Number MI–00099]
Presidential Declaration Amendment of
a Major Disaster for the State of
Michigan
U.S. Small Business
Administration.
ACTION: Amendment 3.
AGENCY:
This is an amendment of the
Presidential declaration of a major
disaster for the State of Michigan
(FEMA–4607–DR), dated 07/15/2021.
Incident: Severe Storms, Flooding,
and Tornadoes.
Incident Period: 06/25/2021 through
06/26/2021.
DATES: Issued on 09/29/2021.
Physical Loan Application Deadline
Date: 11/12/2021.
Economic Injury (EIDL) Loan
Application Deadline Date: 04/15/2022.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing and
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A.
Escobar, Office of Disaster Assistance,
jspears on DSK121TN23PROD with NOTICES1
SUMMARY:
74 See
Nasdaq Rule 5000 Series.
U.S.C. 78s(b)(2).
76 17 CFR 200.30–3(a)(12).
75 15
VerDate Sep<11>2014
17:07 Oct 07, 2021
Jkt 256001
Notice is hereby given of the
following determinations: I hereby
determine that certain objects being
imported from abroad pursuant to an
agreement with their foreign owner or
custodian for temporary conservation,
scientific research, and exhibition or
display in the exhibitions
‘‘Transcending Time,’’ ‘‘Mary,’’ and
‘‘Passion for Collecting’’ at the J. Paul
Getty Museum at the Getty Center, Los
Angeles, California, and at possible
additional exhibitions or venues yet to
be determined, are of cultural
significance, and, further, that their
temporary conservation, scientific
research, and exhibition or display
within the United States as
aforementioned is in the national
interest. I have ordered that Public
Notice of these determinations be
published in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Chi
D. Tran, Program Administrator, Office
of the Legal Adviser, U.S. Department of
State (telephone: 202–632–6471; email:
section2459@state.gov). The mailing
address is U.S. Department of State, L/
PD, 2200 C Street NW (SA–5), Suite
5H03, Washington, DC 20522–0505.
SUPPLEMENTARY INFORMATION: The
foregoing determinations were made
pursuant to the authority vested in me
by the Act of October 19, 1965 (79 Stat.
985; 22 U.S.C. 2459), E.O. 12047 of
March 27, 1978, the Foreign Affairs
Reform and Restructuring Act of 1998
PO 00000
Frm 00106
Fmt 4703
Sfmt 9990
Matthew R. Lussenhop,
Acting Assistant Secretary, Bureau of
Educational and Cultural Affairs, Department
of State.
[FR Doc. 2021–21974 Filed 10–7–21; 8:45 am]
BILLING CODE 4710–05–P
DEPARTMENT OF STATE
[Public Notice 11557]
Notice of Determinations; Culturally
Significant Objects Being Imported for
Exhibition—Determinations: ‘‘Hall of
Ancient Egypt’’ Exhibition
Notice is hereby given of the
following determinations: I hereby
determine that certain objects being
imported from abroad pursuant to
agreements with their foreign owner or
custodian for temporary display in the
exhibition ‘‘Hall of Ancient Egypt’’ at
the Houston Museum of Natural
Science, Houston, Texas, and at possible
additional exhibitions or venues yet to
be determined, are of cultural
significance, and, further, that their
temporary exhibition or display within
the United States as aforementioned is
in the national interest. I have ordered
that Public Notice of these
determinations be published in the
Federal Register.
SUMMARY:
Notice of Determinations; Culturally
Significant Objects Being Imported for
Conservation, Scientific Research, and
Display in Three Exhibitions—Nine
Medieval Devotional Objects
SUMMARY:
(112 Stat. 2681, et seq.; 22 U.S.C. 6501
note, et seq.), Delegation of Authority
No. 234 of October 1, 1999, and
Delegation of Authority No. 236–3 of
August 28, 2000.
Chi
D. Tran, Program Administrator, Office
of the Legal Adviser, U.S. Department of
State (telephone: 202–632–6471; email:
section2459@state.gov). The mailing
address is U.S. Department of State, L/
PD, 2200 C Street NW (SA–5), Suite
5H03, Washington, DC 20522–0505.
FOR FURTHER INFORMATION CONTACT:
The
foregoing determinations were made
pursuant to the authority vested in me
by the Act of October 19, 1965 (79 Stat.
985; 22 U.S.C. 2459), E.O. 12047 of
March 27, 1978, the Foreign Affairs
Reform and Restructuring Act of 1998
(112 Stat. 2681, et seq.; 22 U.S.C. 6501
note, et seq.), Delegation of Authority
No. 234 of October 1, 1999, and
Delegation of Authority No. 236–3 of
August 28, 2000.
SUPPLEMENTARY INFORMATION:
Matthew R. Lussenhop,
Acting Assistant Secretary, Bureau of
Educational and Cultural Affairs, Department
of State.
[FR Doc. 2021–21973 Filed 10–7–21; 8:45 am]
BILLING CODE 4710–05–P
E:\FR\FM\08OCN1.SGM
08OCN1
]]>Agencies
[Federal Register Volume 86, Number 193 (Friday, October 8, 2021)]
[Notices]
[Pages 56338-56344]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21988]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93256; File No. SR-NASDAQ-2021-007]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order
Granting Approval of a Proposed Rule Change To Adopt Additional Initial
Listing Criteria for Companies Primarily Operating in Jurisdictions
That Do Not Provide the PCAOB With the Ability To Inspect Public
Accounting Firms
October 4, 2021.
I. Introduction
On February 1, 2021, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to adopt additional initial listing criteria for
companies primarily operating in jurisdictions that do not provide the
Public Company Accounting Oversight Board (``PCAOB'') with the ability
to inspect public accounting firms. The proposed rule change was
published for comment in the Federal Register on February 16, 2021.\3\
On March 26, 2021, pursuant to Section 19(b)(2) of the Act,\4\ the
Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to disapprove the proposed rule
change.\5\ On May 17, 2021, the Commission instituted proceedings to
determine whether to approve or disapprove the
[[Page 56339]]
proposed rule change.\6\ This order approves 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. 91089 (February 9,
2021), 86 FR 9549 (``Notice''). Comments on the proposed rule change
can be found at: https://www.sec.gov/comments/sr-nasdaq-2021-007/srnasdaq2021007.htm.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 91413, 86 FR 17263
(April 1, 2021). The Commission designated May 17, 2021 as the date
by which the Commission shall approve or disapprove, or institute
proceedings to determine whether to approve or disapprove, the
proposed rule change.
\6\ See Securities Exchange Act Release No. 91904, 86 FR 27659
(May 21, 2021).
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The Exchange states that the Exchange's rules, in addition to
federal securities laws, require that a company's financial statements
included in its initial registration statement or annual report be
audited by an independent public accountant that is registered with the
PCAOB.\7\ According to the Exchange, the Exchange and investors rely on
the work of auditors to provide reasonable assurances that the
financial statements provided by a company are free of material
misstatements, and on the PCAOB's critical role in overseeing the
quality of the auditor's work.\8\ The Exchange states its belief that
accurate financial statement disclosure is critical for investors to
make informed investment decisions.\9\
---------------------------------------------------------------------------
\7\ See Notice, supra note 3, at 9549. See also Nasdaq Rules
5210(b) and 5250(c)(3) (requiring for initial and continued listing
on Nasdaq that companies must be audited by an independent public
accountant that is registered as a public accounting firm with the
PCAOB); 15 U.S.C. 7212(a) (Registration with the PCAOB); 17 CFR
210.2-01 (Qualifications of Accountants).
\8\ See Notice, supra note 3, at 9550.
\9\ See id.
---------------------------------------------------------------------------
The Exchange states that the former Chairman and former Chief
Accountant of the Commission and the former Chairman of the PCAOB have
raised concerns that national barriers on access to information can
impede effective regulatory oversight of U.S.-listed companies with
operations in certain countries, including the PCAOB's inability to
inspect the audit work and practices of auditors in those
countries.\10\ The Exchange states that similar concerns have been
expressed by members of Congress, the State Department, and the
President's Working Group on Financial Markets.\11\ The Exchange states
that it shares these concerns and believes the lack of transparency
from certain markets raises concerns about the accuracy of disclosures,
accountability, and access to information, particularly when a company
is based in a jurisdiction that does not provide the PCAOB with access
to conduct inspections of public accounting firms that audit Nasdaq-
listed companies (``Restrictive Market'').\12\
---------------------------------------------------------------------------
\10\ See id. (citing to various statements by former Commission
Chairman Jay Clayton, former Commission Chief Accountant Wes
Bricker, and former PCAOB Chairman William D. Duhnke III, available
at https://www.sec.gov/news/public-statement/statement-vital-role-audit-quality-and-regulatory-access-audit-and-other; https://www.sec.gov/news/public-statement/emerging-market-investments-disclosure-reporting; and https://www.sec.gov/news/public-statement/clayton-emerging-markets-roundtable-2020-07-09). See id. at 9550,
n.8.
\11\ See id. at 9550 (citing to ``Congress Passes Legislation to
De-List Chinese Companies Unless U.S. Has Access to Audit
Workpapers'' (December 2, 2020), available at https://sherman.house.gov/media-center/press-releases/congress-passes-legislation-to-de-list-chinese-companies-unless-us-has; Former
Commission Chairman Jay Clayton, ``Statement after the Enactment of
the Holding Foreign Companies Accountable Act'' (December 18, 2020),
available at https://www.sec.gov/news/public-statement/clayton-hfcaa-2020-12#_ftn5; Press Statement of Michael R. Pompeo, Former
Secretary of State, New Nasdaq Restrictions Affecting Listing of
Chinese Companies (June 4, 2020), available at https://2017-2021-translations.state.gov/2020/06/04/new-nasdaq-restrictions-affecting-listing-of-chinese-companies/; President's Working Group
on Financial Markets: Report on Protecting United States Investors
from Significant Risks from Chinese Companies (July 24, 2020),
available at https://home.treasury.gov/system/files/136/PWG-Report-on-Protecting-United-States-Investors-from-Significant-Risks-from-Chinese-Companies.pdf). See id. at 9550, nn.9-11.
\12\ See id. at 9550.
---------------------------------------------------------------------------
The Exchange further states that such concerns can be compounded
when a company from a Restrictive Market lists on the Exchange through
an initial public offering (``IPO'') or a business combination with a
small offering size or a low public float percentage because such
companies may not attract market attention and develop sufficient
public float, investor base, and trading interest to provide the depth
and liquidity necessary to promote fair and orderly trading.\13\
According to the Exchange, such securities may trade infrequently, in a
more volatile manner and with a wider bid-ask spread, all of which may
result in trading at a price that may not reflect their true market
value.\14\ Furthermore, the Exchange states that less liquid securities
may be more susceptible to price manipulation and that, in particular,
the risk of price manipulation due to insider trading is more acute
with respect to a company that principally administers its business in
a Restrictive Market (``Restrictive Market Company''), particularly if
a company's financial statements contain undetected material
misstatements due to error or fraud and the PCAOB is unable to inspect
the company's auditor to determine if it complied with PCAOB and
Commission rules and professional standards in connection with its
performance of audits.\15\ The Exchange states that risk to investors
in such cases may be compounded because regulatory investigations into
price manipulation, insider trading, and compliance concerns may be
impeded and investor protections and remedies may be limited in such
cases due to obstacles encountered by U.S. authorities in bringing or
enforcing actions against the companies and insiders.\16\
---------------------------------------------------------------------------
\13\ See id.
\14\ See id. The Exchange also states that foreign issuers are
more likely to issue a portion of an offering to investors in their
home country, which raises concerns that such investors will not
contribute to the liquidity of the security in the U.S. secondary
market. See id.
\15\ See id.
\16\ See id.
---------------------------------------------------------------------------
Nasdaq states that it believes the U.S. capital markets can provide
Restrictive Market Companies with access to additional capital to fund
ground-breaking research and technological advancements and that such
companies provide U.S. investors with opportunities to diversify their
portfolio by providing exposure to Restrictive Markets.\17\ However,
Nasdaq further states that it believes that Restrictive Market
Companies present unique potential risks to U.S. investors due to
restrictions on the PCAOB's ability to inspect the audit work and
practices of auditors in those countries, which create concerns about
the accuracy of disclosures, accountability, and access to
information.\18\ Nasdaq states that it believes its proposal will
reduce trading volatility and price manipulation and help to ensure
that Restrictive Market Companies have sufficient investor base and
public float to support fair and orderly trading on the Exchange.\19\
---------------------------------------------------------------------------
\17\ See id. at 9553-54. See also Letter from Jeffrey S. Davis,
Senior Vice President, General Counsel, Nasdaq, Inc. (April 30,
2021) (``Nasdaq Response Letter''), at 2.
\18\ See Notice, supra note 3, at 9554.
\19\ See id. See also Nasdaq Response Letter, supra note 17, at
3.
---------------------------------------------------------------------------
Specifically, the Exchange proposes to adopt a definition of
``Restrictive Market'' \20\ and to apply additional initial listing
requirements to a Restrictive Market Company listing on the Exchange in
connection with an IPO or a business combination.\21\ The
[[Page 56340]]
Exchange also proposes to prohibit a Restrictive Market Company from
listing on the Nasdaq Capital Market in connection with a Direct
Listing,\22\ but to allow a Restrictive Market Company to list on the
Nasdaq Global Select Market or Nasdaq Global Market in connection with
a Direct Listing, provided that such company meets all applicable
initial listing requirements for such market.
---------------------------------------------------------------------------
\20\ See infra note 24 and accompanying text.
\21\ The Exchange states that, currently, it may rely upon its
discretionary authority under Nasdaq Rule 5101 to deny initial
listing or apply additional or more stringent criteria when it is
concerned that a small offering size for an IPO may not reflect the
company's initial valuation or may not ensure sufficient liquidity
to support trading in the secondary market. Pursuant to Nasdaq Rule
5101, Nasdaq has broad discretionary authority over the initial and
continued listing of securities in Nasdaq in order to maintain the
quality of and public confidence in its market, to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, and to protect investors and the
public interest. Nasdaq may use such discretion to deny initial
listing, apply additional or more stringent criteria for the initial
or continued listing of particular securities, or suspend or delist
particular securities based on any event, condition, or circumstance
that exists or occurs that makes initial or continued listing of the
securities on Nasdaq inadvisable or unwarranted in the opinion of
Nasdaq, even though the securities meet all enumerated criteria for
initial or continued listing on Nasdaq. See Nasdaq Rule 5101.
\22\ Nasdaq defines ``Direct Listing'' as the listing of
``companies that have sold common equity securities in private
placements, which have not been listed on a national securities
exchange or traded in the over-the-counter market pursuant to FINRA
Form 211 immediately prior to the initial pricing.'' See Nasdaq Rule
IM-5315-1.
---------------------------------------------------------------------------
A. Definition of Restrictive Market
The Exchange proposes to adopt a new definition of Restrictive
Market in Nasdaq Rule 5005(a)(37).\23\ As proposed, a Restrictive
Market will be defined as a jurisdiction that does not provide the
PCAOB with access to conduct inspections of public accounting firms
that audit Nasdaq-listed companies.\24\ Under the proposed rule, Nasdaq
will consider a company's business to be principally administered in a
Restrictive Market if: (i) The company's books and records are located
in that jurisdiction; (ii) at least 50% of the company's assets are
located in such jurisdiction; or (iii) at least 50% of the company's
revenues are derived from such jurisdiction.\25\
---------------------------------------------------------------------------
\23\ The Exchange proposes to renumber current paragraphs
(a)(37) through (a)(46) of Nasdaq Rule 5005 in connection with the
addition of the definition of Restrictive Market. See Notice, supra
note 3, at 9551.
\24\ See proposed Nasdaq Rule 5005(a)(37). The Exchange states
that the PCAOB maintains a map of where it can and cannot conduct
oversight activities on its website and publishes a list identifying
the public companies for which a PCAOB-registered public accounting
firm signed and issued an audit report and is located in a
jurisdiction where obstacles to PCAOB inspections exist. See Notice,
supra note 3, at 9551.
\25\ See proposed Nasdaq Rule 5005(a)(37). The term ``Company''
means the issuer of a security listed or applying to list on Nasdaq.
See Nasdaq Rule 5005(a)(6). The Exchange provides the following
examples. Company X's books and records are located in Country Y,
which is not a Restrictive Market, while 90% of its revenues are
driven from operations in Country Z, which is a Restrictive Market.
Nasdaq would consider Company X's business to be principally
administered in Country Z, so Company X would be considered a
Restrictive Market Company. Alternatively, Company A's books and
records are located in Country B, which is a Restrictive Market, but
90% of its revenues are derived from Country C, which is not a
Restrictive Market. Nasdaq would consider Company A's business to be
principally administered in Country B, so Company A would be
considered a Restrictive Market Company. See Notice, supra note 3,
at 9551.
---------------------------------------------------------------------------
B. Minimum Offering Size or Public Float Percentage Requirement for an
IPO
The Exchange proposes to adopt new Nasdaq Rule 5210(k)(i) to
require a Restrictive Market Company listing its Primary Equity
Security \26\ on Nasdaq in connection with its IPO to offer a minimum
amount of securities in a Firm Commitment Offering \27\ in the U.S. to
Public Holders \28\ that (i) will result in gross proceeds to the
Company of at least $25 million or (ii) will represent at least 25% of
the Company's post-offering Market Value of Listed Securities,\29\
whichever is lower. A Restrictive Market Company listing on the
Exchange in connection with an IPO that is subject to the proposed rule
would also need to comply with all other applicable listing
requirements.\30\ The Exchange states that it believes this proposed
listing requirement for Restrictive Market Companies conducting an IPO
will provide greater support for the company's price, as determined
through the offering, and will help assure there will be sufficient
liquidity, U.S. investor interest, and distribution to support price
discovery once the security is listed.\31\ In addition, the Exchange
states that the proposal will help ensure that Restrictive Market
Companies seeking to list on the Exchange have sufficient investor base
and public float to support fair and orderly trading on the
Exchange.\32\
---------------------------------------------------------------------------
\26\ Nasdaq Rule 5005(a)(33) defines ``Primary Equity Security''
as ``a Company's first class of Common Stock, Ordinary Shares,
Shares or Certificates of Beneficial Interest of Trust, Limited
Partnership Interests or American Depositary Receipts (ADR) or
Shares (ADS).''
\27\ Nasdaq Rule 5005(a)(17) defines ``Firm Commitment
Offering'' as ``an offering of securities by participants in a
selling syndicate under an agreement that imposes a financial
commitment on participants in such syndicate to purchase such
securities.''
\28\ Nasdaq Rule 5005(a)(36) defines ``Public Holders'' as
``holders of a security that includes both beneficial holders and
holders of record, but does not include any holder who is, either
directly or indirectly, an Executive Officer, director, or the
beneficial holder of more than 10% of the total shares
outstanding.''
\29\ ``Market Value'' means the consolidated closing bid price
multiplied by the measure to be valued. See Nasdaq Rule 5000(a)(23).
``Listed Securities'' means securities listed on Nasdaq or another
national securities exchange. See Nasdaq Rule 5000(a)(22).
\30\ The Exchange provides the following examples to illustrate
the proposed rule. First, Company X, which principally administers
its business in a Restrictive Market, is applying to list on Nasdaq
Global Market and has an expected post-offering Market Value of
Listed Securities of $75,000,000. Since 25% of $75,000,000 is
$18,750,000, which is lower than $25,000,000, pursuant to the
requirements of the proposed rule, Company X would be eligible to
list based on a Firm Commitment Offering in the U.S. to Public
Holders of at least $18,750,000. Company X would also need to comply
with the other applicable listing requirements of the Nasdaq Global
Market, including a Market Value of Unrestricted Publicly Held
Shares of at least $8 million. See Notice, supra note 3, at 9551;
Nasdaq Rule 5405(b)(1)(C). See also Nasdaq Rules 5005(a)(45)
(definition of ``Unrestricted Publicly Held Shares''), 5005(a)(46)
(definition of ``Unrestricted Securities''), and 5005(a)(37)
(definition of ``Restricted Securities''). As another example,
Company Y, which also principally administers its business in a
Restrictive Market, is applying to list on the Nasdaq Global Select
Market and its post-offering Market Value of Listed Securities is
expected to be $200,000,000. Since 25% of $200,000,000 is
$50,000,000, which is higher than $25,000,000, pursuant to the
requirements of the proposed rule, Company Y would be eligible to
list based on a Firm Commitment Offering in the U.S. to Public
Holders that will result in gross proceeds of at least $25,000,000.
Company Y would also need to comply with the other applicable
listing requirements of the Nasdaq Global Select Market, including a
Market Value of Unrestricted Publicly Held Shares of at least $45
million. See Notice, supra note 3, at 9551-52; Nasdaq Rule
5315(f)(2)(C).
\31\ See Notice, supra note 3, at 9552.
\32\ See id.
---------------------------------------------------------------------------
The Exchange further states that it has observed that Restrictive
Market Companies listing on Nasdaq in connection with an IPO with an
offering size below $25 million or public float ratio below 25% have a
high rate of compliance concerns.\33\ The Exchange states that it
believes the proposed listing requirement for Restrictive Market
Companies conducting an IPO will mitigate such compliance concerns.\34\
---------------------------------------------------------------------------
\33\ See id. Specifically, the Exchange states that 39 out of
113 Restrictive Market Companies that listed on Nasdaq through an
IPO from January 1, 2015 to September 30, 2020 would not have
qualified under the requirement in proposed Nasdaq Rule 5210(k)(i)
because they had offering amounts of $25 million or less. According
to Nasdaq, two of these companies were considered to be Restrictive
Market Companies because they had at least 50% of the company's
assets located in a Restrictive Market, and 37 met the definition
because they had at least 50% of the company's revenues derived from
a Restrictive Market. Of those companies that would not have
qualified under the requirement in proposed Nasdaq Rule 5210(k)(i),
twenty, or 51%, were cited for a compliance issue, which Nasdaq
states is a significantly higher rate than other Restrictive Market
Companies (16%). The Exchange also states that, during the same
period, 25 out of 84 (or 30%) of Restrictive Market Companies that
had a ratio of offering size to Market Value of Listed Securities of
25% or less failed to comply with one or more listing standards
after listing, which, according to the Exchange, is a significantly
higher non-compliance rate than for other foreign companies (11%)
and other Restrictive Market Companies (21%) that had such listings.
The Exchange also found that, during the same period, 35 Restrictive
Market Companies would not have met either the $25 million offering
size requirement or the 25% of the company's post-offering Market
Value of Listed Securities requirement, and 18 of those companies
were cited for a compliance concern. See id.
\34\ See id.
---------------------------------------------------------------------------
[[Page 56341]]
C. Minimum Market Value of Unrestricted Publicly Held Shares
Requirement for a Business Combination
The Exchange proposes to adopt new Nasdaq Rule 5210(k)(ii) to
require a Company that is conducting a business combination, as
described in Nasdaq Rule 5110(a) \35\ or IM-5101-2,\36\ with a
Restrictive Market Company to have a minimum Market Value of
Unrestricted Publicly Held Shares \37\ following the business
combination equal to the lesser of (i) $25 million or (ii) 25% of post-
business combination entity's Market Value of Listed Securities. A
Restrictive Market Company subject to the proposed rule would also need
to comply with all other applicable listing requirements.\38\
---------------------------------------------------------------------------
\35\ Nasdaq Rule 5110(a) (Business Combinations with non-Nasdaq
Entities Resulting in a Change of Control) sets forth requirements
applicable to a Company that engages in a business combination with
a non-Nasdaq entity, resulting in a change of control of the Company
and potentially allowing the non-Nasdaq entity to obtain a Nasdaq
Listing.
\36\ Nasdaq Rule IM-5101-2 (Listing of Companies Whose Business
Plan is to Complete One or More Acquisitions) sets forth
requirements applicable to a Company whose business plan is to
complete an IPO and engage in a merger or acquisition with one or
more unidentified companies within a specific period of time.
\37\ Nasdaq Rule 5005(a)(45) defines ``Unrestricted Publicly
Held Shares'' as Publicly Held Shares that are Unrestricted
Securities. ``Publicly Held Shares'' means shares not held directly
or indirectly by an officer, director or any person who is the
beneficial owner of more than 10 percent of the total shares
outstanding. See Nasdaq Rule 5005(a)(35). ``Unrestricted
Securities'' means securities that are not subject to resale
restrictions for any reason, including, but not limited to,
securities: (i) Acquired directly or indirectly from the issuer or
an affiliate of the issuer in unregistered offerings such as private
placements or Regulation D offerings; (ii) acquired through an
employee stock benefit plan or as compensation for professional
services; (iii) acquired in reliance on Regulation S, which cannot
be resold within the United States; (iv) subject to a lockup
agreement or a similar contractual restriction; or (v) considered
``restricted securities'' under Rule 144. See Nasdaq Rules
5005(a)(46) and (37).
\38\ The Exchange provides the following examples to illustrate
the proposed rule. First, Company A is currently listed on the
Nasdaq Capital Market and plans to acquire a company that
principally administers its business in a Restrictive Market, in
accordance with IM-5101-2. Following the business combination,
Company A intends to transfer to the Nasdaq Global Select Market.
Company A expects the post-business combination entity to have a
Market Value of Listed Securities of $250,000,000. Since 25% of
$250,000,000 is $62,500,000, which is higher than $25,000,000,
pursuant to the requirements of the proposed rule, to qualify for
listing the post-business combination entity must have a minimum
Market Value of Unrestricted Publicly Held Shares of at least
$25,000,000. The company would also need to comply with the other
applicable listing requirements of the Nasdaq Global Select Market,
including a Market Value of Unrestricted Publicly Held Shares of at
least $45,000,000. See Notice, supra note 3, at 9552; Nasdaq Rule
5315(f)(2)(C). As another example, Company B is currently listed on
Nasdaq Capital Market and plans to combine with a non-Nasdaq entity
that principally administers its business in a Restrictive Market,
resulting in a change of control as defined in Nasdaq Rule 5110(a),
whereby the non-Nasdaq entity will become the Nasdaq-listed company.
Following the change of control, Company B expects the listed
company to have a Market Value of Listed Securities of $50,000,000.
Since 25% of $50,000,000 is $12,500,000, which is lower than
$25,000,000, pursuant to the requirements of the proposed rule, the
listed company must have a minimum Market Value of Unrestricted
Publicly Held Shares following the change of control of at least
$12,500,000. The post-business combination company would also need
to comply with all other applicable listing requirements of the
Nasdaq Capital Market, including a Market Value of Unrestricted
Publicly Held Shares of at least $5 million. See Notice, supra note
3, at 9552; Nasdaq Rule 5505(b)(3)(C).
---------------------------------------------------------------------------
The Exchange states that it believes that a business combination as
described in Nasdaq Rule 5110(a) or IM-5101-2 involving a Restrictive
Market Company presents similar risks to U.S. investors as an IPO of a
Restrictive Market Company, and therefore, Nasdaq believes it is
appropriate to apply similar thresholds to post-business combination
entities to ensure that a company listing through a business
combination would have satisfied equivalent standards that apply to an
IPO.\39\ The Exchange further states that it believes that the proposed
listing requirement for post-business combination entities would help
to provide an additional assurance that there are sufficient freely
tradable shares and investor interest to support fair and orderly
trading on the Exchange when the target company principally administers
its business in a Restrictive Market.\40\
---------------------------------------------------------------------------
\39\ See Notice, supra note 3, at 9553. The Exchange states that
it found that out of seven business combinations involving
Restrictive Market Companies from 2015 through September 30, 2020,
five would not have qualified under proposed Nasdaq Rule 5210(k)(ii)
to have a minimum Market Value of Unrestricted Publicly Held Shares
following the business combination of $25 million or 25% of the
post-business combination entity's Market Value of Listed
Securities, whichever is lower. The Exchange states that all five of
these companies have been cited for a deficiency after the
completion of their business combination. On the other hand, Nasdaq
states that only one out of the two business combinations involving
Restrictive Market Companies that would have qualified under
proposed Nasdaq Rule 5210(k)(ii) during such period was cited for a
compliance concern. See id.
\40\ See id.
---------------------------------------------------------------------------
D. Direct Listings of Restrictive Market Companies
The Exchange proposes to adopt new Nasdaq Rule 5210(k)(iii) to
provide that a Restrictive Market Company that is listing its Primary
Equity Security on Nasdaq in connection with a Direct Listing, as
defined in Nasdaq Rule IM-5315-1,\41\ would be permitted to list on:
(i) The Nasdaq Global Select Market, provided that the Company meets
all applicable listing requirements for the Nasdaq Global Select Market
and the additional requirements of Nasdaq Rule IM-5315-1, or (ii) the
Nasdaq Global Market, provided that the Company meets all applicable
listing requirements for the Nasdaq Global Market and the additional
requirements of Nasdaq Rule IM-5405-1.\42\ On the other hand, proposed
Nasdaq Rule 5210(k)(iii) would provide that a Restrictive Market
Company would not be permitted to list on the Nasdaq Capital Market in
connection with a Direct Listing, notwithstanding the fact that the
Company may meet the applicable initial listing requirements for the
Nasdaq Capital Market and the additional requirements in Nasdaq Rule
IM-5505-1.\43\
---------------------------------------------------------------------------
\41\ See supra note 22.
\42\ See Notice, supra note 3, at 9553.
\43\ See id.
---------------------------------------------------------------------------
The Exchange's rules currently set forth initial listing
requirements for companies listing on the Nasdaq Global Select Market,
Nasdaq Global Market, and Nasdaq Capital Market,\44\ and additional
listing requirements for Companies conducting a Direct Listing on such
markets.\45\ The Exchange states that it believes it is appropriate to
permit Restrictive Market Companies to list through a Direct Listing on
the Nasdaq Global Select Market or Nasdaq Global Market because such
companies would be subject to the additional listing requirements set
forth in Nasdaq Rule IM-5315-1 or IM-5405-1, respectively.\46\ On the
other hand, the Exchange states that it does not believe that the
additional requirements for Direct Listing on the Nasdaq Capital
Market, set forth in Nasdaq Rule IM-5501-1, are sufficient to overcome
concerns regarding sufficient liquidity and investor interest to
support fair and orderly trading on the Exchange with respect to
Restrictive Market Companies.\47\
---------------------------------------------------------------------------
\44\ See Nasdaq Rules 5315, 5405, and 5505.
\45\ See Nasdaq Rules IM-5315-1, IM-5405-1, and IM-5505-1.
\46\ See Notice, supra note 3, at 9553.
\47\ See id. As an example, the Exchange states that the Nasdaq
Global Select Market and Nasdaq Global Market require a company to
have at least 1,250,000 and 1.1 million Unrestricted Publicly Held
Shares, respectively, and a Market Value of Unrestricted Publicly
Held Shares of at least $45 million and $8 million, respectively.
See Nasdaq Rules 5315(e)(2), 5315(f)(2)(C), 5405(a)(2), and
5405(b)(1)(C). In contrast, the Nasdaq Capital Market only requires
a company to have at least 1 million Unrestricted Publicly Held
Shares and a Market Value of Unrestricted Publicly Held Shares of at
least $5 million. See Nasdaq Rules 5505(a)(2) and 5505(b)(3)(C);
Notice, supra note 3, at 9553, n.34.
---------------------------------------------------------------------------
[[Page 56342]]
III. Discussion and Commission Findings
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\48\ In
particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\49\ 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.
---------------------------------------------------------------------------
\48\ 15 U.S.C. 78f(b). In approving this proposed rule change,
the Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\49\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange has proposed to adopt enhanced initial listing
standards for Restrictive Market Companies conducting an IPO or engaged
in a business combination in order to help assure the existence of
adequate investor base and public float to support fair and orderly
trading for securities issued by Restrictive Market Companies that are
listing on the Exchange for the first time.\50\ In addition, the
Exchange has proposed to prohibit Direct Listings on Nasdaq Capital
Market of securities issued by Restrictive Market Companies due to
concerns regarding liquidity and fair and orderly trading.\51\ As
stated by the Exchange, listed companies that are based in
jurisdictions that do not provide the PCAOB with access to conduct
inspections of public accounting firms that audit Nasdaq-listed
companies raise concerns regarding the accuracy of disclosures,
accountability, and access to information with respect to such
companies and present unique potential risks to U.S. investors due to
restrictions on the PCAOB's ability to inspect the audit work and
practices of auditors in those countries.\52\ The Exchange also states
that less liquid securities may be more susceptible to price
manipulation and that, in particular, the risk of price manipulation
due to insider trading is more acute with respect to Restrictive Market
Companies, particularly if a company's financial statements contain
undetected material misstatements due to error or fraud and the PCAOB
is unable to inspect the company's auditor to determine if it complied
with PCAOB and Commission rules and professional standards in
connection with its performance of audits.\53\
---------------------------------------------------------------------------
\50\ See supra notes 32 and 40 and accompanying text.
\51\ See supra note 47 and accompanying text.
\52\ See supra notes 10-12 and accompanying text.
\53\ See supra note 15 and accompanying text.
---------------------------------------------------------------------------
Further, the Exchange states that Nasdaq and investors rely on the
work of auditors to provide reasonable assurances that the financial
statements provided by a company are free of material
misstatements.\54\ The Exchange states that the PCAOB's inability to
inspect the audit work and practices of auditors in certain countries
weakens the assurance that the auditor obtained sufficient appropriate
audit evidence to express its opinion on a company's financial
statements, and decreases confidence that the auditor complied with
PCAOB and Commission rules and professional standards in connection
with the auditor's performance of audits.\55\ Absent reasonable
assurances from an auditor that a company's financial statements and
related disclosures are free from material misstatements, the Exchange
states that there is a risk that a company that would otherwise not
have qualified to list on Nasdaq may satisfy Nasdaq's listing standards
by presenting financial statements that contain undetected material
misstatements.\56\ The Exchange therefore believes that the proposed
rule change would provide greater assurances to investors that a
company truly meets Nasdaq's financial listing requirements by imposing
heightened listing criteria on a Restrictive Market Company, thereby
preventing fraudulent and manipulative acts, protecting investors, and
promoting the public interest.\57\
---------------------------------------------------------------------------
\54\ See supra note 8 and accompanying text.
\55\ See Notice, supra note 3, at 9554.
\56\ See id.
\57\ See id. See also Nasdaq Response Letter, supra note 17, at
3.
---------------------------------------------------------------------------
The Commission has consistently recognized that the development and
enforcement of meaningful listing standards for an exchange is of
critical importance to financial markets and the investing public.\58\
Among other things, the Commission has stated that listing standards
provide the means for an exchange to screen issuers that seek to become
listed, and to provide listed status only to those that are bona fide
companies that have or will have sufficient public float, investor
base, and trading interest likely to generate depth and liquidity
sufficient to promote fair and orderly markets.\59\ Meaningful listing
standards are also important given investor expectations regarding the
nature of securities that have achieved an exchange listing, and the
role of an exchange in overseeing its market and assuring compliance
with its listing standards.\60\
---------------------------------------------------------------------------
\58\ See infra notes 59-60.
\59\ See, e.g., Securities Exchange Act Release Nos. 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); 65708 (November 8, 2011), 76 FR 70799, 70802
(November 15, 2011) (``SR-NASDAQ-2011-073 Approval Order''); 63607
(December 23, 2010), 75 FR 82420, 82422 (December 30, 2010) (``SR-
NASDAQ-2010-137 Approval Order''); and 57785 (May 6, 2008), 73 FR
27597, 27599 (May 13, 2008) (``SR-NYSE-2008-17 Approval Order'').
The Commission has stated that adequate listing standards, by
promoting fair and orderly markets, are consistent with Section
6(b)(5) of the 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., Securities Exchange Act Release Nos.
82627 (February 2, 2018), 83 FR 5650, 5653, n.53 (February 8, 2018)
(SR-NYSE-2017-30); 87648 (December 3, 2019), 84 FR 67308, 67314,
n.42 (December 9, 2019) (SR-NASDAQ-2019-059); and 88716 (April 21,
2020), 85 FR 23393, 23395, n.22 (April 27, 2020) (SR-NASDAQ-2020-
001).
\60\ See, e.g., SR-NASDAQ-2011-073 Approval Order, supra note
59, 76 FR at 70802; SR-NASDAQ-2010-137 Approval Order, supra note
59, 75 FR at 82422; and SR-NYSE-2008-17 Approval Order, supra note
59, 73 FR at 27599.
---------------------------------------------------------------------------
The Commission has also previously stated that when the PCAOB is
unable to inspect auditors there is a lack of transparency with respect
to the audit quality provided by such firms and that the inability of
the PCAOB to inspect auditors of certain registrants could generate
uncertainty regarding their financial reporting quality.\61\ The
Commission has stated that, as a result, there is uncertainty regarding
the reliability of the financial information of issuers audited by
firms that are not inspected by the PCAOB, which can potentially lead
to suboptimal investment decisions by investors.\62\ Given these
heightened risks identified by the Commission with respect to issuers
audited by firms that the PCAOB is unable to inspect, the Commission
concludes that the Exchange's proposal to impose heightened listing
requirements on companies that principally administer their business in
a jurisdiction that does not provide the PCAOB with access to conduct
inspections of public accounting firms that audit Nasdaq-listed
companies (i.e., Restrictive Market Companies) is consistent with the
Act and not
[[Page 56343]]
designed to permit unfair discrimination. Furthermore, the Commission
believes that the objective criteria proposed by the Exchange for
determining whether a company's business is principally administered in
a Restrictive Market \63\ should help to ensure that the Exchange
applies the heightened listing standards to companies in a manner that
is not designed to permit unfair discrimination consistent with Section
6(b)(5) of the Act.
---------------------------------------------------------------------------
\61\ See Holding Foreign Companies Accountable Act Disclosure,
Securities Exchange Act Release No. 91364 (March 18, 2021), 86 FR
17528 (April 5, 2021), at 17534, 17537.
\62\ See id. at 17534-35.
\63\ See supra note 25 and accompanying text.
---------------------------------------------------------------------------
With respect to the proposed heightened initial listing standards,
the Commission believes that the proposed requirements should allow the
Exchange to more accurately determine whether a Restrictive Market
Company conducting an IPO or a post-business combination entity
involving a Restrictive Market Company does not have adequate
distribution and liquidity and is thus not suitable for listing and
trading on the Exchange. The Exchange has provided data showing that it
has observed that Restrictive Market Companies listing on Nasdaq in
connection with an IPO and post-business combination entities involving
Restrictive Market Companies that did not meet the proposed listing
requirements have more non-compliance issues than similar companies
that would have met the proposed listing requirements.\64\ The
Commission has previously stated that a Firm Commitment Offering is
designed to promote appropriate price discovery and assists in creating
a liquid market.\65\ In addition, the Commission believes that having a
minimum Market Value of Unrestricted Publicly Held Shares requirement
should allow an exchange to more accurately determine whether a
security does not have adequate distribution and liquidity, and should
therefore help to ensure that an exchange does not list securities that
do not have a sufficient market, with adequate depth and liquidity, and
without sufficient investor interest to support an exchange
listing.\66\ Thus, the Commission concludes that the proposals to
require (i) a Restrictive Market Company conducting an IPO to offer a
minimum amount of securities in the U.S. to Public Holders in a Firm
Commitment Offering and (ii) a company conducting a business
combination, as described in Nasdaq Rule 5110(a) or IM-5101-2, with a
Restrictive Market Company, to have a minimum Market Value of
Unrestricted Publicly Held Shares following the business combination,
and the proposed thresholds for such requirements, are consistent with
the requirements of Section 6(b)(5) of the Act that the rules of the
exchange be designed to prevent fraudulent and manipulative acts and
practices, promote just and equitable principles of trade, and protect
investors and the public interest, and not be designed to permit unfair
discrimination.
---------------------------------------------------------------------------
\64\ See supra notes 33 and 39 and accompanying text.
\65\ See also Securities Exchange Act Release No. 86314 (July 5,
2019), 84 FR 33102 (July 11 2019) (SR-NASDAQ-2019-009) (Order
Approving Revisions to Nasdaq's Initial Listing Standards Related to
Liquidity), at 33112.
\66\ See id. at 33111.
---------------------------------------------------------------------------
One commenter states that the proposal is insufficient to address
the risk that a company may satisfy Nasdaq's listing standards by
presenting financial statements that contain undetected material
misstatements and that the proposed rules should include provisions
that would prohibit Restrictive Market Companies, including companies
listed prior to the effectiveness of the proposal, from engaging an
auditor or an accounting firm that is located in a jurisdiction that
limits the PCAOB's ability to inspect the auditor to assist with the
company audit.\67\ In addition, this commenter expresses concerns
raised by academics regarding the vulnerability of U.S. investors to
``low-ball `take private' transactions'' in Restricted Market
Companies, where ``[t]he goal is to delist U.S. shares at a depressed
buyout price and then relist in [a Restricted Market] at a much loftier
valuation.'' \68\ This commenter states that Nasdaq should promptly
limit the U.S. investor exposure to potentially unfair take-private
transactions by adopting provisions to prevent the initial listing of
Restrictive Market Companies.\69\ In response, the Exchange states
that, while the commenter may prefer a different proposal, the
commenter's suggested proposal is not the Exchange's proposal that is
currently before the Commission.\70\ The Exchange states that, instead,
to address the concerns Nasdaq has observed arising from the unique
potential risks to U.S. investors due to restrictions on the PCAOB's
ability to inspect the audit work and practices of auditors in
Restrictive Markets, Nasdaq has proposed heightened liquidity
requirements designed to ensure that Restrictive Market Companies have
sufficient investor base and public float to support fair and orderly
trading on the Exchange, which Nasdaq believes, as structured, are
consistent with Section 6(b)(5) of the Act.\71\
---------------------------------------------------------------------------
\67\ See Letter from Jeffrey P. Mahoney, General Counsel,
Council of Institutional Investors (February 18, 2021) (``CII Letter
I''), at 4-5; Letter from Jeffrey P. Mahoney, General Counsel,
Council of Institutional Investors (May 27, 2021) (``CII Letter
II''), at 1-4.
\68\ See CII Letter II, supra note 67, at 3 (citing Jesse Fried
& Matthew J. Schoenfeld, Delisting Chinese Firms: A Cure Likely
Worse than the Disease, Harv. L. Sch. F. On Corp. Governance (June
9, 2020), https://corpgov.law.harvard.edu/2020/06/09/delisting-chinese-firms-a-cure-likely-worse-than-the-disease/).
\69\ See id. at 3-4.
\70\ See Nasdaq Response Letter, supra note 17, at 3.
\71\ See id.
---------------------------------------------------------------------------
The proposed provisions suggested by the commenter are not part of
Nasdaq's proposal, and the Commission must approve the proposal if it
finds that the proposal is consistent with the Act and rules
thereunder. The Commission believes the Exchange's proposal is
reasonably designed to help address compliance concerns regarding
securities of Restrictive Market Companies and to help ensure fair and
orderly trading when such companies list on Nasdaq.
The Commission concludes that it is consistent with the Act to
prohibit Restrictive Market Companies from listing on the Nasdaq
Capital Market in connection with a Direct Listing. In support of its
proposal, the Exchange states that it does not believe the listing
requirements for Direct Listings on the Nasdaq Capital Market set forth
in Nasdaq's rules are sufficient to overcome the risks that Restrictive
Market Companies present with respect to liquidity.\72\ Given the
heightened concerns enumerated by the Commission regarding companies
that cannot be inspected by the PCAOB,\73\ the Commission believes that
the proposal to prohibit Restrictive Market Companies from listing on
the Nasdaq Capital Market in connection with a Direct Listing is
consistent with the requirements of Section 6(b)(5) of the Act that the
rules of the exchange be designed to prevent fraudulent and
manipulative acts and practices, promote just and equitable principles
of trade, and protect investors and the public interest, and not be
designed to permit unfair discrimination.
---------------------------------------------------------------------------
\72\ See supra note 47 and accompanying text. See also Nasdaq
Rules 5505 and IM-5505-1.
\73\ See supra notes 61-62 and accompanying text.
---------------------------------------------------------------------------
In sum, the Commission concludes that the proposed new initial
listing requirements for Restrictive Market Companies, including the
prohibition on Direct Listings on Nasdaq Capital Market, will help
maintain fair and orderly markets and are designed to protect investors
and the public interest, and are not designed to permit unfair
[[Page 56344]]
discrimination given the risks that Restricted Market Companies
present, and should help the Exchange in determining whether a
Restricted Market Company will not have a sufficient market, with
adequate depth and liquidity, and sufficient investor interest to
support listing on the Exchange. A Restrictive Market Company subject
to the proposed initial listing requirements for an IPO or business
combination would also need to comply with all other applicable listing
requirements for the market tier on which it is listing.\74\
---------------------------------------------------------------------------
\74\ See Nasdaq Rule 5000 Series.
---------------------------------------------------------------------------
Based on the foregoing, the Commission finds that the proposed rule
change is consistent with the Act.
VII. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\75\ that the proposed rule change (SR-NASDAQ-2021-007) be, and
hereby is, approved.
---------------------------------------------------------------------------
\75\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\76\
---------------------------------------------------------------------------
\76\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-21988 Filed 10-7-21; 8:45 am]
BILLING CODE 8011-01-P
