Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 2, To Modify Certain Pricing Limitations for Companies Listing in Connection With a Direct Listing Primary Offering, 1797-1804 [2022-00383]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 87, Number 8 (Wednesday, January 12, 2022)]
[Notices]
[Pages 1797-1804]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-00383]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93924; File No. SR-NASDAQ-2021-045]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 
2, To Modify Certain Pricing Limitations for Companies Listing in 
Connection With a Direct Listing Primary Offering

January 6, 2022.
    On June 11, 2021, The Nasdaq Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ a 
proposed rule change to modify certain pricing limitations for 
companies listing in connection with a direct listing primary offering 
in which the company will sell shares itself in the opening auction on 
the first day of trading on the Exchange. The proposed rule change was 
published for comment in the Federal Register on June 30, 2021.\4\ On 
August 12, 2021, pursuant to Section 19(b)(2) of the Act,\5\ the 
Commission designated a longer period within which to either approve or 
disapprove the proposed rule change, or institute proceedings to 
determine whether to disapprove the proposed rule change.\6\ On 
September 24, 2021, the Commission instituted proceedings under Section 
19(b)(2)(B) of the Act \7\ to determine whether to approve or

[[Page 1798]]

disapprove the proposed rule change.\8\ On December 20, 2021, the 
Commission extended the time period for approving or disapproving the 
proposal to February 25, 2022.\9\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 92256 (June 24, 
2021), 86 FR 34815 (June 30, 2021). Comments received on the 
proposal are available on the Commission's website at: https://www.sec.gov/comments/sr-nasdaq-2021-045/srnasdaq2021045.htm.
    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 92649 (August 12, 
2021), 86 FR 46295 (August 18, 2021). The Commission designated 
September 28, 2021, as the date by which it should approve, 
disapprove, or institute proceedings to determine whether to 
disapprove the proposed rule change.
    \7\ 15 U.S.C. 78s(b)(2)(B).
    \8\ See Securities Exchange Act Release No. 93119 (September 24, 
2021), 86 FR 54262 (September 30, 2021).
    \9\ See Securities Exchange Act Release No. 93830 (December 20, 
2021), 86 FR 73071 (December 23, 2021).
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    On December 22, 2021, the Exchange filed Amendment No. 2 to the 
proposed rule change, which superseded the proposed rule change as 
originally filed. Amendment No. 2 to the proposed rule change is 
described in Items I and II below, which Items have been prepared by 
the Exchange. The Commission is publishing this notice to solicit 
comments on the proposed rule change, as modified by Amendment No. 2, 
from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify certain pricing limitations for 
companies listing in connection with a Direct Listing primary offering 
in which the company will sell shares itself in the opening auction on 
the first day of trading on Nasdaq. This Amendment No. 2 supersedes the 
original filing in its entirety.\10\
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    \10\ On December 21, 2021, Nasdaq submitted Amendment No. 1, 
which was subsequently withdrawn.
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    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at 
the principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
Summary of Amendment
    Nasdaq is filing this amendment to SR-NASDAQ-2021-045 \11\ in order 
to address the issues the Commission raised in the OIP and make other 
modifications to clarify the proposed rule language.
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    \11\ Securities Exchange Act Release No. 92256 (June 24, 2021), 
86 FR 34815 (June 30, 2021) (the ``Initial Proposal''). The 
Commission issued an Order Instituting Proceedings to Determine 
Whether To Approve or Disapprove the Initial Proposal. See 
Securities Exchange Act Release No. 93119 (September 24, 2021), 86 
FR 54262 (September 30, 2021) (the ``OIP'').
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    As a preliminary matter, in this Amendment No. 2 (the 
``Amendment'') Nasdaq proposes to clarify how the main provisions of 
Rules 4120(c)(8)(A) and (c)(9)(A) apply to a Direct Listing with a 
Capital Raise by restating the provisions of these rule in a clear and 
direct manner. This change will make the rules easier to understand and 
apply.
    Also in this Amendment, Nasdaq proposes to modify the Initial 
Proposal to require that a Company offering securities for sale in 
connection with a Direct Listing with a Capital Raise must register 
securities by specifying the quantity of shares registered, as 
permitted by Securities Act Rule 457(a). Nasdaq also proposes to 
clarify that the price range in the preliminary prospectus included in 
the effective registration statement must be a bona fide price range in 
accordance with Item 501(b)(3) of Regulation S-K.
    Nasdaq also proposes to revise the certification process described 
in the Initial Proposal such that two certifications would be required 
in certain circumstances. In its initial certification to Nasdaq, which 
would be publicly disclosed and provided to Nasdaq prior to the 
beginning of the Display Only Period, the Company must confirm that its 
registration statement contains a sensitivity analysis explaining how 
the company's plans would change if the actual proceeds from the 
offering exceed or are less than [sic] the amount assumed in the price 
range established by the issuer in its effective registration 
statement.
    Further, Nasdaq proposes to add to the operation of the Cross, in 
certain circumstances, a Post-Pricing Period. Specifically, if the 
actual price calculated by the Cross is not at or above the price that 
is 20% below the lowest price and at or below the price that is 20% 
above the highest price [sic] of the price range established by the 
issuer in its effective registration statement, Nasdaq will initiate a 
brief Post-Pricing Period following the calculation of the actual 
price. In instances where the Post-Pricing Period is triggered, the 
issuer must confirm to Nasdaq during the Post-Pricing Period that no 
additional disclosures are required under federal securities laws based 
on the actual price calculated by the Cross. During the Post-Pricing 
Period no additional orders for the security may be entered in the 
Cross and no existing orders in the Cross may be modified. The Post-
Pricing Period will end and the security will be released for trading 
immediately after the issuer provides such confirmation to Nasdaq. If 
the Company cannot provide the required confirmation, Nasdaq will 
postpone and reschedule the offering.
    In the Amendment, Nasdaq proposes to prohibit market orders (other 
than by the company) from the opening of a Direct Listing with a 
Capital Raise. In addition, Nasdaq undertakes to disseminate, free of 
charge, the Current Reference Price, on a public website, such as 
Nasdaq.com, during the Pre-Launch Period and to indicate whether the 
Current Reference Price is within the price range established by the 
issuer in its effective registration statement. Nasdaq also proposes to 
adopt a new Price Volatility Constraint and disseminate information 
about whether the Price Volatility Constraint has been satisfied, which 
will indicate whether the security may be ready to trade. The Price 
Volatility Constraint requires that the Current Reference Price has not 
deviated by 10% or more from any Current Reference Price within the 
previous 10 minutes. The Pre-Launch Period will continue until the 
Price Volatility Constraint has been satisfied.
    Nasdaq also proposes in this Amendment to impose specific 
requirements on Nasdaq members with respect to a Direct Listing with a 
Capital Raise. These rules will require members to provide to a 
customer, before that customer places an order to be executed in the 
Cross, a notice describing the mechanics of pricing a security subject 
to a Direct Listing with a Capital Raise in the Cross, including 
information regarding the dissemination of the Current Reference Price 
by Nasdaq on a public website such as Nasdaq.com.
    Nasdaq also proposes to provide that it will distribute, at least 
one business day prior to the commencement of trading of a security 
listing in connection with a Direct Listing with a Capital Raise, an 
information circular to its members that describes any special

[[Page 1799]]

characteristics of the offering, and Nasdaq's rules that apply to the 
initial pricing through the mechanism outlined in Nasdaq Rule 
4120(c)(9)(B) and Nasdaq Rule 4753 for the opening auction, including 
information about the notice they must provide customers and other 
Nasdaq rules that:
     Require members to use reasonable diligence in regard to 
the opening and maintenance of every account, to know (and retain) the 
essential facts concerning every customer and concerning the authority 
of each person acting on behalf of such customer; and
     require members in recommending transactions for a 
security subject to a Direct Listing with a Capital Raise to have a 
reasonable basis to believe that: (i) The recommendation is suitable 
for a customer given reasonable inquiry concerning the customer's 
investment objectives, financial situation, needs, and any other 
information known by such members, and (ii) the customer can evaluate 
the special characteristics, and is able to bear the financial risks, 
of an investment in such security.
    Nasdaq also proposes to make minor technical changes to improve the 
clarity of this proposal. Nasdaq believes that this amendment addresses 
the issues raised by the Commission in the OIP. This amendment 
supersedes and replaces the Initial Proposal in its entirety.
Description of Proposed Rule, as Amended
    Nasdaq recently adopted Listing Rule IM-5315-2 to permit a company 
to list in connection with a primary offering in which the company will 
sell shares itself in the opening auction on the first day of trading 
on the Exchange (a ``Direct Listing with a Capital Raise''); \12\ 
created a new order type (the ``CDL Order''), which is used during the 
Nasdaq Halt Cross (the ``Cross'') for the shares offered by the company 
in a Direct Listing with a Capital Raise; and established requirements 
for disseminating information, establishing the opening price and 
initiating trading through the Cross in a Direct Listing with a Capital 
Raise.\13\ For a Direct Listing with a Capital Raise, Nasdaq rules 
currently require that the actual price calculated by the Cross be at 
or above the lowest price and at or below the highest price of the 
price range established by the issuer in its effective registration 
statement (the ``Pricing Range Limitation'').
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    \12\ A Direct Listing with a Capital Raise includes situations 
where either: (i) Only the company itself is selling shares in the 
opening auction on the first day of trading; or (ii) the company is 
selling shares and selling shareholders may also sell shares in such 
opening auction.
    \13\ See Securities Exchange Act Release No. 91947 (May 19, 
2021), 86 FR 28169 (May 25, 2021) (the ``Approval Order'').
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    Nasdaq now proposes to modify the Pricing Range Limitation such 
that a Direct Listing with a Capital Raise can be executed in the Cross 
at a price that is at or above the price that is 20% below the lowest 
price and at or below the price that is 20% above the highest price of 
the price range established by the issuer in its effective registration 
statement.\14\ In addition, Nasdaq proposes to modify the Pricing Range 
Limitation such that a Direct Listing with a Capital Raise can be 
executed in the Cross at a price above the price that is 20% above the 
highest price of such price range, provided that the company's 
registration statement contains a sensitivity analysis explaining how 
the company's plans would change if the actual proceeds from the 
offering exceed the amount assumed in such price range and the company 
has publicly disclosed and certified to Nasdaq that the company does 
not expect that such price would materially change the company's 
previous disclosure in its effective registration statement. Nasdaq 
also proposes to make related conforming changes.
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    \14\ References in this proposal to the price range established 
by the issuer in its effective registration statement are to the 
price range disclosed in the prospectus in such registration 
statement. Separately, as explained in more details below, Nasdaq 
proposes to prescribe that the 20% threshold will be calculated 
using the high end of the price range in the prospectus at the time 
of effectiveness and may be measured from either the high end (in 
the case of an increase in the price) or low end (in the case of a 
decrease in the price) of that range [sic].
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    Listing Rule IM-5315-2 requires that securities listing in 
connection with a Direct Listing with a Capital Raise must begin 
trading on Nasdaq following the initial pricing through the Cross, 
which is described in Rules 4120(c)(9) and 4753. Rule 4120(c)(9) 
requires that in the case of a Direct Listing with a Capital Raise, for 
purposes of releasing securities for trading on the first day of 
listing, Nasdaq, in consultation with the financial advisor to the 
issuer, will make the determination of whether the security is ready to 
trade.
    Currently, in the case of the Direct Listing with a Capital Raise, 
a security is not released for trading by Nasdaq unless the actual 
price calculated by the Cross is at or above the lowest price and at or 
below the highest price of the price range established by the issuer in 
its effective registration statement.\15\ Specifically, under Rule 
4120(c)(9)(B) Nasdaq shall release the security for trading only if: 
(i) All market orders will be executed in the Cross; and (ii) the 
actual price calculated by the Cross complies with the Pricing Range 
Limitation. If there is insufficient buy interest to satisfy the CDL 
Order and all other market orders, as required by the current rule, or 
if the actual price calculated by the Cross is outside the price range 
established by the issuer in its effective registration statement, the 
Cross would not proceed and such security would not begin trading. 
Nasdaq shall postpone and reschedule the offering only if either or 
both such conditions are not met. In such event, because the Cross 
cannot be conducted, the Exchange would postpone and reschedule the 
offering and notify market participants via a Trader Update that the 
Direct Listing with a Capital Raise scheduled for that date has been 
cancelled and any orders for that security that have been entered on 
the Exchange would be cancelled back to the entering firms.
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    \15\ See Rule 4120(c)(9)(B).
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Proposed Change to Rule 4120(c)(9)
    While many companies are interested in alternatives to the 
traditional IPOs, based on conversations with companies and their 
advisors Nasdaq believes that there may be a reluctance to use the 
existing Direct Listing with a Capital Raise rules because of concerns 
about the Pricing Range Limitation.
    One potential benefit of a Direct Listing with a Capital Raise as 
an alternative to a traditional IPO is that it could maximize the 
chances of more efficient price discovery of the initial public sale of 
securities for issuers and investors. Unlike an IPO where the offering 
price is informed by underwriter engagement with potential investors to 
gauge interest in the offering, but ultimately decided through 
negotiations between the issuer and the underwriters for the offering, 
in a Direct Listing with a Capital Raise the initial sale price is 
determined based on market interest and the matching of buy and sell 
orders in an auction open to all market participants. In that regard, 
in the Approval Order the Commission stated that:

    The opening auction in a Direct Listing with a Capital Raise 
provides for a different price discovery method for IPOs which may 
reduce the spread between the IPO price and subsequent market 
trades, a potential benefit to existing and potential investors. In 
this way, the proposed rule change may result in additional 
investment opportunities while providing companies more options for 
becoming publicly traded.\16\
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    \16\ See Approval Order, 86 FR at 28177.


[[Page 1800]]


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    A successful initial public offering of shares requires sufficient 
investor interest. If an offering cannot be completed due to lack of 
investor interest, there is likely to be a substantial amount of 
negative publicity for the company and the offering may be delayed or 
cancelled. The Pricing Range Limitation imposed on a Direct Listing 
with a Capital Raise (but not on a traditional IPO) increases the 
probability of such a failed offering because the offering cannot 
proceed without some delay not only for the lack of investor interest, 
but also if investor interest is greater than the company and its 
advisors anticipated. In the Approval Order, the Commission noted a 
frequent academic observation of traditional firm commitment 
underwritten offerings that the IPO price, established through 
negotiation between the underwriters and the issuer, is often lower 
than the price that the issuer could have obtained for the securities, 
based on a comparison of the IPO price to the closing price on the 
first day of trading.\17\ Nasdaq believes that the price range in a 
company's effective registration statement for a Direct Listing with a 
Capital Raise would similarly be determined by the company and its 
advisors and, therefore, there may be instances of offerings where the 
price determined by the Nasdaq opening auction will exceed the highest 
price of the price range in the company's effective registration 
statement.
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    \17\ See Approval Order, footnote 91.
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    As explained above, under the existing rule a security subject to a 
Direct Listing with a Capital Raise cannot be released for trading by 
Nasdaq if the actual price calculated by the Cross is above the highest 
price of the price range established by the issuer in its effective 
registration statement. In this case, Nasdaq would have to cancel or 
postpone the offering until the company amends its effective 
registration statement. At a minimum, such a delay exposes the company 
to market risk of changing investor sentiment in the event of an 
adverse market event. In addition, as explained above, the 
determination of the public offering price of a traditional IPO is not 
subject to limitations similar to the Pricing Range Limitation for a 
Direct Listing with a Capital Raise, which, in Nasdaq's view, could 
make companies reluctant to use this alternative method of going public 
despite its expected potential benefits.
    Accordingly, Nasdaq proposes to modify the Pricing Range Limitation 
such that in the case of the Direct Listing with a Capital Raise, a 
security shall not be released for trading by Nasdaq unless the actual 
price at which the Cross would occur is at or above the price that is 
20% below the lowest price of the price range established by the issuer 
in its effective registration statement and at or below the price that 
is 20% above the highest price of the price range. In other words, 
Nasdaq would release the security for trading, provided all other 
necessary conditions are satisfied, even if the actual price calculated 
by the Cross is outside the price range established by the issuer in 
its effective registration statement; provided however that the actual 
price cannot be more than 20% below the lowest price or more than 20% 
above the highest price of such range; and the company specified the 
quantity of shares registered, as permitted by Securities Act Rule 457, 
as explained below. In addition, there would be no limitation on 
releasing the security for trading at a price above the price that is 
20% above the highest price of the price range established by the 
issuer in its effective registration statement if the company publicly 
disclosed and has certified to Nasdaq prior to beginning of the Display 
Only Period that the company does not expect that such offering price 
would materially change the company's previous disclosure in its 
effective registration statement and the company's registration 
statement contains a sensitivity analysis explaining how the company's 
plans would change if the actual proceeds from the offering exceed the 
amount assumed in the price range established by the issuer in its 
effective registration statement.\18\ The goal of the requirement is to 
have disclosure that allows investors to see how changes in share price 
ripple through critical elements of the disclosure.\19\
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    \18\ The price range in the preliminary prospectus included in 
the effective registration statement is [sic] a bona fide price 
range in accordance with Item 501(b)(3) of Regulation S-K.
    \19\ Sensitivity analysis disclosure may include but is not 
limited to: Use of proceeds; balance sheet and capitalization; and 
the company's liquidity position after the offering. An example of 
this disclosure could be: We will apply the net proceeds from this 
offering first to repay all borrowings under our credit facility and 
then, to the extent of any proceeds remaining, to general corporate 
purposes.
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    Nasdaq believes that this approach is consistent with SEC Rule 430A 
and question 227.03 of the SEC Staff's Compliance and Disclosure 
Interpretations, which generally allow a company to price a public 
offering 20% outside of the disclosed price range without regard to the 
materiality of the changes to the disclosure contained in the company's 
registration statement.\20\ Nasdaq believes such guidance also allows 
deviation above the price range beyond the 20% threshold if such change 
or deviation does not materially change the previous disclosure. 
Accordingly, Nasdaq believes that a company listing in connection with 
a Direct Listing with a Capital Raise can specify the quantity of 
shares registered, as permitted by Securities Act Rule 457, and, when 
an auction prices outside of the disclosed price range, use a Rule 
424(b) prospectus, rather than a post-effective amendment, when either 
(i) the 20% threshold noted in Rule 430A is not exceeded, regardless of 
the materiality or non-materiality of resulting changes to the 
registration statement disclosure that would be contained in the Rule 
424(b) prospectus, or (ii) when there is a deviation above the price 
range beyond the 20% threshold noted in Rule 430A if such deviation 
would not materially change the previous disclosure, in each case 
assuming the number of shares issued is not increased from the number 
of shares disclosed in the prospectus. For purposes of this rule, the 
20% threshold will be calculated based on the maximum offering price 
set forth in the registration fee table, consistent with the 
Instruction to paragraph (a) of Securities Act Rule 430 [sic].
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    \20\ Securities Act Rule 457 permits issuers to register 
securities either by specifying the quantity of shares registered, 
pursuant to Rule 457(a), or the proposed maximum aggregate offering 
amount. Nasdaq proposes to require that companies selling shares 
through a Direct Listing with a Capital Raise will register 
securities by specifying the quantity of shares registered and not a 
maximum offering amount. See also Compliance & Disclosure 
Interpretation of Securities Act Rules #227.03 at https://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm.
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    Finally, given that, as proposed, there may be a Direct Listing 
with a Capital Raise that could price outside the price range of the 
company's effective registration statement and that there may be no 
upside limit above which the Cross could not proceed, Nasdaq proposes 
to enhance price discovery transparency by providing readily available, 
real time pricing information to investors. To that end Nasdaq will 
disseminate, free of charge, the Current Reference Price on a public 
website, such as Nasdaq.com, during the Pre-Launch Period (as described 
in the Proposal) and indicate whether the Current Reference Price is 
within the price range established by the issuer in its effective 
registration statement. Nasdaq also proposes to adopt a new Price 
Volatility Constraint and disseminate information about whether the 
Price Volatility Constraint has been

[[Page 1801]]

satisfied, which will indicate whether the security may be ready to 
trade. The Price Volatility Constraint requires that the Current 
Reference Price has not deviated by 10% or more from any Current 
Reference Price within the previous 10 minutes. The Pre-Launch Period 
will continue until the Price Volatility Constraint has been satisfied. 
This change will provide investors with notice that the Cross nears 
execution.
    Nasdaq also proposes to prohibit market orders (other than by the 
Company through its CDL Order) from the opening of a Direct Listing 
with a Capital Raise. This will assure that investors only purchase 
shares at a price at or better than the price they affirmatively set, 
after having the opportunity to review the Company's effective 
registration statement including the sensitivity analysis describing 
how the Company will use any additional proceeds raised.
    In addition, to protect investors and assure that they are informed 
about the attributes of a Direct Listing with a Capital Raise, Nasdaq 
proposes to impose specific requirements on Nasdaq members with respect 
to a Direct Listing with a Capital Raise. These rules will require 
members to provide to a customer, before that customer places an order 
to be executed in the Cross, a notice describing the mechanics of 
pricing a security subject to a Direct Listing with a Capital Raise in 
the Cross, including information regarding the location of the public 
website where Nasdaq will disseminate the Current Reference Price.
    To assure that members have the necessary information to be 
provided to their customers, Nasdaq proposes to distribute, at least 
one business day prior to the commencement of trading of a security 
listing in connection with a Direct Listing with a Capital Raise, an 
information circular to its members that describes any special 
characteristics of the offering, and Nasdaq's rules that apply to the 
initial pricing through the mechanism outlined in Nasdaq Rule 
4120(c)(9)(B) and Nasdaq Rule 4753 for the opening auction, including 
information about the notice they must provide customers and other 
Nasdaq rules that:
     Require members to use reasonable diligence in regard to 
the opening and maintenance of every account, to know (and retain) the 
essential facts concerning every customer and concerning the authority 
of each person acting on behalf of such customer; and
     require members in recommending transactions for a 
security subject to a Direct Listing with a Capital Raise to have a 
reasonable basis to believe that: (i) The recommendation is suitable 
for a customer given reasonable inquiry concerning the customer's 
investment objectives, financial situation, needs, and any other 
information known by such members, and (ii) the customer can evaluate 
the special characteristics, and is able to bear the financial risks, 
of an investment in such security.
    These member requirements are intended to remind members of their 
obligations to ``know their customers,'' increase transparency of the 
pricing mechanisms of a Direct Listing with a Capital Raise, and help 
assure that investors have sufficient price discovery information.
    In each instance of a Direct Listing with a Capital Raise, Nasdaq's 
information circular \21\ will inform the market participants that the 
auction could price up to 20% below the lowest price of the price range 
in the company's effective registration statement and specify what that 
price is. Nasdaq will also indicate in such circular whether or not 
there is an upside limit above which the Cross could not proceed, based 
on the company's certification, as described above. Nasdaq will also 
remind the market participants that Nasdaq prohibits market orders 
(other than by the Company) from the opening of a Direct Listing with a 
Capital Raise.
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    \21\ The Information circular is an industry wide free service 
provided by Nasdaq.
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    To assure that the issuer has the ability, prior to the completion 
of the offering, to provide any necessary additional disclosures that 
are dependent on the price of the offering, Nasdaq proposes to 
introduce to the operation of the Cross a brief Post-Pricing Period, in 
circumstances where the actual price calculated by the Cross is above 
the price that is 20% above the highest price of the price range 
established by the issuer in its effective registration statement. 
Specifically, in such circumstances, Nasdaq will initiate a Post-
Pricing Period following the calculation of the actual price. During 
the Post-Pricing Period the issuer must confirm to Nasdaq that no 
additional disclosures are required under federal securities laws based 
on the actual price calculated by the Cross. During the Post-Pricing 
Period no additional orders for the security may be entered in the 
Cross and no existing orders in the Cross may be modified. The security 
shall be released for trading immediately following the Post-Pricing 
Period. If the Company cannot provide the required confirmation, then 
Nasdaq will postpone and reschedule the offering.
Proposed Conforming Changes to Listing Rule IM-5315-2
    Listing Rule IM-5315-2 allows a company that has not previously had 
its common equity securities registered under the Act to list its 
common equity securities on the Nasdaq Global Select Market at the time 
of effectiveness of a registration statement pursuant to which the 
company itself will sell shares in the opening auction on the first day 
of trading on the Exchange.
    Listing Rule IM-5315-2 provides that in determining whether a 
company listing in connection with a Direct Listing with a Capital 
Raise satisfies the Market Value of Unrestricted Publicly Held Shares 
\22\ for initial listing on the Nasdaq Global Select Market, the 
Exchange will deem such company to have met the applicable requirement 
if the amount of the company's Unrestricted Publicly Held Shares before 
the offering along with the market value of the shares to be sold by 
the company in the Exchange's opening auction in the Direct Listing 
with a Capital Raise is at least $110 million (or $100 million, if the 
company has stockholders' equity of at least $110 million).
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    \22\ See Listing Rules 5005(a)(23) and 5005(a)(45).
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    Listing Rule IM-5315-2 further provides that, for this purpose, the 
Market Value of Unrestricted Publicly Held Shares will be calculated 
using a price per share equal to the lowest price of the price range 
disclosed by the issuer in its effective registration statement.
    Because Nasdaq proposes to allow the opening auction to price up to 
20% below the lowest price of the price range established by the issuer 
in its effective registration statement, Nasdaq proposes to make a 
conforming change to Listing Rule IM-5315-2 to provide that the price 
used to determine such company's compliance with the Market Value of 
Unrestricted Publicly Held Shares is the price per share equal to the 
price that is 20% below the lowest price of the price range disclosed 
by the issuer in its effective registration statement as this is the 
minimum price at which the company could qualify to be listed. Nasdaq 
will determine that the company has met the applicable bid price and 
market capitalization requirements based on the same per share price.
    Any company listing in connection with a Direct Listing with a 
Capital Raise would continue to be subject to, and required to meet, 
all other applicable initial listing requirements, including the 
requirements to have the

[[Page 1802]]

applicable number of shareholders and at least 1,250,000 Unrestricted 
Publicly Held Shares outstanding at the time of initial listing, and 
the requirement to have a price per share of at least $4.00 at the time 
of initial listing.\23\
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    \23\ See Listing Rules 5315(f)(1), (e)(1) and (2), respectively. 
Rule 5315(f)(1) requires a security to have: (A) At least 550 total 
holders and an average monthly trading volume over the prior 12 
months of at least 1,100,000 shares per month; or (B) at least 2,200 
total holders; or (C) a minimum of 450 round lot holders and at 
least 50% of such round lot holders must each hold unrestricted 
securities with a market value of at least $2,500.
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Proposed Conforming Changes to Rules 4753(a)(3)(A) and 4753(b)(2)
    Nasdaq proposes to amend Rules 4753(a)(3)(A) and 4753(b)(2) to 
conform the requirements for disseminating information and establishing 
the opening price through the Cross in a Direct Listing with a Capital 
Raise to the proposed amendment to allow the opening auction to price 
as much as 20% below the lowest price of the price range established by 
the issuer in its effective registration statement.
    Specifically, Nasdaq proposes changes to Rules 4753(a)(3)(A) and 
4753(b)(2) to make adjustments to the calculation of the Current 
Reference Price, which is disseminated in the Nasdaq Order Imbalance 
Indicator, in the case of a Direct Listing with a Capital Raise and for 
how the price at which the Cross will execute. These rules currently 
provide that where there are multiple prices that would satisfy the 
conditions for determining a price, the fourth tie-breaker for a Direct 
Listing with a Capital Raise is the price that is closest to the lowest 
price of the price range disclosed by the issuer in its effective 
registration statement.\24\
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    \24\ To illustrate: The bottom of the range is $10. More than 
one price exists within the range under the previous set of tie-
breakers such that both $10.15 and $10.25, satisfy all other 
requirements. The operation of the fourth tie-breaker will result in 
the auction price of $10.15 because it is the price that is closest 
to $10.
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    To conform these rules to the modification of the Pricing Range 
Limitation change, as described above, Nasdaq proposes to modify the 
fourth tie-breaker for a Direct Listing with a Capital Raise, to use 
the price closest to the price that is 20% below the lowest price of 
the price range disclosed by the issuer in its effective registration 
statement.\25\
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    \25\ Note that using the price that is 20% below the lowest 
price of the price range disclosed by the issuer in its effective 
registration statement as a tie-breaker (rather than the price 
representing the bottom of the range) does not change the outcome in 
the example in footnote 24 above because $10.15 is the price that is 
closest to either.
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    Lastly, Nasdaq proposes to clarify several provisions of the 
existing rules without changing them. Specifically, Nasdaq proposes to 
clarify the mechanics of the Cross by specifying that Nasdaq will 
initiate a 10-minute Display Only Period only after the CDL Order had 
been entered. This clarification simply states what is already implied 
by the rule because the Cross and the offering may not proceed without 
the company's order to sell the securities in a Direct Listing with a 
Capital Raise. Similarly, Nasdaq proposes to clarify without changing 
the existing rule that Nasdaq shall select price bands for purposes of 
applying the price validation test in the Cross in connection with a 
Direct Listing with a Capital Raise. Under the price validation test, 
the System compares the Expected Price with the actual price calculated 
by the Cross to ascertain that the difference, if any, is within the 
price bands. Nasdaq shall select an upper price band and a lower price 
band. The default for an upper and a lower price band is set at zero. 
If a security does not pass the price validation test, Nasdaq may, but 
is not required to, select different price bands before recommencing 
the process to release the security for trading.\26\ Nasdaq also 
proposes to clarify that the ``actual price,'' as the term is used in 
the rule, is the Current Reference Price at the time the system applies 
the price bands test.
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    \26\ This function is provided by the underwriter in an IPO and 
by a Financial Advisor in a Direct Listing. The Commission 
previously approved Nasdaq performing this function. See Approval 
Order.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\27\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\28\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest.
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    \27\ 15 U.S.C. 78f(b).
    \28\ 15 U.S.C. 78f(b)(5).
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    Nasdaq believes that the proposed amendment to modify the Pricing 
Range Limitation is consistent with the protection of investors because 
this approach is similar to the pricing of an IPO where an issuer is 
permitted to price outside of the price range disclosed by the issuer 
in its effective registration statement in accordance with the SEC's 
Staff guidance, as described above.\29\ Specifically, Nasdaq believes 
that a company listing in connection with a Direct Listing with a 
Capital Raise can specify the quantity of shares registered, as 
permitted by Securities Act Rule 457, and, when an auction prices 
outside of the disclosed price range, use a Rule 424(b) prospectus, 
rather than a post-effective amendment, when either (i) the 20% 
threshold noted in Rule 430A is not exceeded, regardless of the 
materiality or non-materiality of resulting changes to the registration 
statement disclosure that would be contained in the Rule 424(b) 
prospectus, or (ii) when there is a deviation above the price range 
beyond the 20% threshold noted in Rule 430A if such deviation would not 
materially change the previous disclosure, in each case assuming the 
number of shares issued is not increased from the number of shares 
disclosed in the prospectus. As a result, Nasdaq will allow the Cross 
to take place as low as 20% below the lowest price of the price range 
disclosed by the issuer in its effective registration statement, but no 
lower, and so this is the minimum price at which the company could be 
listed. In addition, to better inform investors and market 
participants, Nasdaq will issue an industry wide circular to inform the 
participants that the auction could price up to 20% below the lowest 
price of the price range in the company's effective registration 
statement and specify what that price is. Nasdaq will also indicate in 
such circular whether or not there is an upside limit above which the 
Cross could not proceed, based on the company's certification, as 
described above. Nasdaq will also remind the market participants that 
Nasdaq prohibits market orders (other than by the Company) from the 
opening of a Direct Listing with a Capital Raise.
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    \29\ In a recent speech, SEC Chair Gary Gensler emphasized that 
an overarching principle of regulation is that like activities ought 
to be treated alike. See https://www.sec.gov/news/speech/gensler-healthy-markets-association-conference-120921.
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    To assure that the issuer has the ability, prior to the completion 
of the offering, to provide any necessary additional disclosures that 
are dependent on the price of the offering, Nasdaq proposes to 
introduce to the operation of the Cross a brief Post-Pricing Period, in 
circumstances where the actual price calculated by the Cross is above 
the price that is 20% above the highest price of the price range 
established by the issuer in its effective registration statement. 
Specifically, in such circumstances, Nasdaq will initiate a Post-
Pricing Period following the calculation of the actual price. During 
the Post-Pricing Period the issuer must

[[Page 1803]]

confirm to Nasdaq that no additional disclosures are required under 
federal securities laws based on the actual price calculated by the 
Cross. During the Post-Pricing Period no additional orders for the 
security may be entered in the Cross and no existing orders in the 
Cross may be modified. The security shall be released for trading 
immediately following the Post-Pricing Period. If the Company cannot 
provide the required confirmation, then Nasdaq will postpone and 
reschedule the offering. Nasdaq believes that this modification is 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market 
because it will help assure that a company listing in connection with a 
Direct Listing with a Capital Raise complies with the disclosure 
requirements under federal securities laws.
    Nasdaq believes that the proposal to allow a Direct Listing with a 
Capital Raise to price above any price above the price range of the 
company's effective registration statement is designed to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market investors because this approach 
is similar to that of pricing a traditional IPO. In addition, to 
protect investors Nasdaq proposes to enhance price discovery 
transparency by providing readily available, real time pricing 
information to investors. To that end Nasdaq will disseminate, free of 
charge, the Current Reference Price on a public website (such as 
Nasdaq.com) during the Pre-Launch Period and indicate whether the 
Current Reference Price is within the price range established by the 
issuer in its effective registration statement. Nasdaq also proposes to 
adopt a new Price Volatility Constraint and disseminate information 
about whether the Price Volatility Constraint has been satisfied, which 
will indicate whether the security may be ready to trade. The Price 
Volatility Constraint requires that the Current Reference Price has not 
deviated by 10% or more from any Current Reference Price within the 
previous 10 minutes. The Pre-Launch Period will continue until the 
Price Volatility Constraint has been satisfied. This change will 
provide investors with notice that the Cross nears execution.
    Nasdaq believes that the provision prohibiting market orders (other 
than by the Company) from the opening of a Direct Listing with a 
Capital Raise is designed to protect investors because this provision 
will assure that investors only purchase shares at a price that is at, 
or better than, the price they affirmatively set, after having the 
opportunity to review the Company's effective registration statement 
including the sensitivity analysis describing how the Company will use 
any additional proceeds raised.
    In addition, to protect investors and assure that they are informed 
about the attributes of a Direct Listing with a Capital Raise, Nasdaq 
proposes to impose specific requirements on Nasdaq members with respect 
to a Direct Listing with a Capital Raise. These rules will require 
members to provide to a customer, before that customer places an order 
to be executed in the Cross, a notice describing the mechanics of 
pricing a security subject to a Direct Listing with a Capital Raise in 
the Cross, including information regarding the dissemination of the 
Current Reference Price on a public website such as Nasdaq.com.
    To assure that members have the necessary information to be 
provided to their customers, Nasdaq proposes to distribute, at least 
one business day prior to the commencement of trading of a security 
listing in connection with a Direct Listing with a Capital Raise, an 
information circular to its members that describes any special 
characteristics of the offering, and Nasdaq's rules that apply to the 
initial pricing through the mechanism outlined in Nasdaq Rule 
4120(c)(9)(B) and Nasdaq Rule 4753 for the opening auction, including 
information about the notice they must provide customers and other 
Nasdaq rules that:
     Require members to use reasonable diligence in regard to 
the opening and maintenance of every account, to know (and retain) the 
essential facts concerning every customer and concerning the authority 
of each person acting on behalf of such customer; and
     require members in recommending transactions for a 
security subject to a Direct Listing with a Capital Raise to have a 
reasonable basis to believe that: (i) The recommendation is suitable 
for a customer given reasonable inquiry concerning the customer's 
investment objectives, financial situation, needs, and any other 
information known by such members, and (ii) the customer can evaluate 
the special characteristics, and is able to bear the financial risks, 
of an investment in such security.
    These member requirements are consistent with the protection of 
investors because they are designed to remind members of its 
obligations to ``know their customers,'' increase transparency of the 
pricing mechanisms of a Direct Listing with a Capital Raise, and help 
assure that investors have sufficient price discovery information.
    Nasdaq believes that the Commission Staff has already concluded 
that pricing up to 20% below the lowest price and at a price above the 
highest price of the price range in the company's effective 
registration statement is appropriate for a company conducting an 
initial public offering notwithstanding it being outside of the range 
stated in an effective registration statement, and investors have 
become familiar with this approach at least since the Commission Staff 
last revised Compliance and Disclosure Interpretation 227.03 in January 
2009.\30\ Allowing Direct Listings with a Capital Raise to similarly 
price up to 20% below the lowest price and at a price above the highest 
price of the price range in the company's effective registration 
statement would be consistent with Chair Gensler's recent call to treat 
``like cases alike.'' \31\
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    \30\ https://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm.
    \31\ See https://www.sec.gov/news/speech/gensler-healthy-markets-association-conference-120921.
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    Nasdaq believes that the proposed amendments to Listing Rule IM-
5315-2 and Rules 4753(a)(3)(A) and 4753(b)(2) to conform these rules to 
the modification of the Pricing Range Limitation is consistent with the 
protection of investors. These amendments would simply substitute 
Nasdaq's reliance on the price equal to the lowest price of the price 
range disclosed by the issuer in its effective registration statement 
to the price that is 20% below such lowest price. In the case of 
Listing Rule IM-5315-2, a company listing in connection with a Direct 
Listing with a Capital Raise would still need to meet all applicable 
initial listing requirements based on the price that is 20% below the 
lowest price of the price range disclosed by the issuer in its 
effective registration statement. In the case of the Rules 
4753(a)(3)(A) and 4753(b)(2) such price, which is the minimum price at 
which the Cross will occur, will serve as the fourth tie-breaker where 
there are multiple prices that would satisfy the conditions for 
determining the auction price, as described above. Nasdaq believes that 
this proposal to resolve a potential tie among the prices that satisfy 
all other requirements in the Cross, by choosing the price that is 
closest to the price that is 20% below the range, is consistent with 
Section 6(b)(5) of the Act because it is designed to protect investors 
by providing them with the most advantageous offering price among 
possible alternative prices.

[[Page 1804]]

    Nasdaq also believes that the proposal, by eliminating an 
impediment to companies using a Direct Listing with a Capital Raise, 
will help removing potential impediments to free and open markets 
consistent with Section 6(b)(5) of the Exchange Act while also 
supporting capital formation.
    Finally, Nasdaq believes that the proposal to clarify several 
provisions of the existing rules without changing them is designed to 
remove impediments to and perfect the mechanism of a free and open 
market because such changes make the rules easier to understand and 
apply without changing their substance.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed amendments would 
not impose any burden on competition, but would rather increase 
competition. Nasdaq believes that allowing listing venues to improve 
their rules enhances competition among exchanges. Nasdaq also believes 
that this proposed change will give issuers interested in this pathway 
to access the capital markets additional flexibility in becoming a 
public company, and in that way promote competition among service 
providers, such as underwriters and other advisors, to such companies.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as modified by Amendment No. 2, is consistent with the Act. 
Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2021-045 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2021-045. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-2021-045, and should be submitted 
on or before February 2, 2022.
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    \32\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-00383 Filed 1-11-22; 8:45 am]
BILLING CODE 8011-01-P