Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Adopt Listing Rule 5732 To Provide Listing Standards for Contingent Value Rights on Nasdaq Global Market, 66337-66339 [2022-23870]
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Federal Register / Vol. 87, No. 212 / Thursday, November 3, 2022 / Notices
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 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–ISE–
2022–23 and should be submitted on or
before November 25, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–23871 Filed 11–2–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96176; File No. SR–
NASDAQ–2022–057]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Proposed Rule Change To
Adopt Listing Rule 5732 To Provide
Listing Standards for Contingent Value
Rights on Nasdaq Global Market
October 28, 2022.
lotter on DSK11XQN23PROD with NOTICES1
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
17, 2022, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to adopt
Listing Rule 5732 to provide listing
standards for Contingent Value Rights
on Nasdaq Global Market.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
15 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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
Nasdaq proposes to adopt Listing Rule
5732 to provide listing standards for
Price-Based and Event-Based Contingent
Value Rights (each a ‘‘CVR’’ and
collectively, ‘‘CVRs’’) on Nasdaq Global
Market, which are unsecured
obligations of the issuer providing for a
possible cash payment at maturity.3 The
Exchange believes that the proposed
rule change will increase competition
by providing an additional listing venue
for CVRs, which can currently be listed
on other securities exchanges. CVRs are
often used to bridge valuation gaps
relating to uncertain future events that
may influence the value of a target
company and, more generally, may be
employed to aid in the completion of
deals by helping to solve certain of the
valuation and closing challenges that
the parties encounter.
Specifically, the cash payment at
maturity for a CVR can be based upon
the price performance of an affiliate’s
equity security (a ‘‘Price-Based CVR’’) or
upon the occurrence of a specified event
or events related to the business of the
issuer or an affiliate of the issuer (an
‘‘Event-Based CVR’’). At maturity, the
holder of a Price-Based CVR is entitled
to a cash payment if the average market
price of the related equity security is
3 The proposed rule change is based on Section
703.18 of the NYSE Listed Company Manual,
related to initial listing of CVRs, and the provisions
of Section 802.01D applicable to ‘‘Specialized
Securities’’, related to continued listing of CVRs.
See Securities Exchange Act Release No. 26072
(May 30, 1990), 55 FR 23166 (June 6, 1990) (SR–
NYSE–90–15) (adopting NYSE rules related to
Price-Based CVRs); Securities Exchange Act Release
No. 86651 (August 13, 2019), 84 FR 42967 (August
19, 2019) (SR–NYSE–2019–14) (adopting NYSE
rules related to Event-Based CVRs).
PO 00000
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66337
less than a pre-set target price. The
target price is established at the time the
Price-Based CVR is issued. Conversely,
should the average market price of the
related equity security equal or exceed
the target price, the Price-Based CVR
would expire worthless. Price-Based
CVRs are generally distributed to
shareholders of an acquired company
who are receiving shares of the acquirer
as acquisition consideration. The PriceBased CVRs provide the acquiree’s
shareholders with some medium-term
protection against poor stock price
performance of the shares of the
acquirer by guaranteeing them a
specified cash payment if the acquirer’s
average stock price is below a specified
level at the time of maturity of the PriceBased CVR.
Event-Based CVRs are also typically
issued to the shareholders of an
acquired entity as consideration in an
acquisition transaction. Event-Based
CVRs entitle their holders to receive a
specified cash payment upon the
occurrence of a specified event or events
related to the business of the issuer or
an affiliate of the issuer prior to the
maturity date of the Event-Based CVR.
The Event-Based CVR provides the
shareholders of the acquiree an
additional interest in the medium-term
performance of the merged entity upon
occurrence of its specified event(s). An
example of a typical Event-Based CVR
occurs in mergers of life sciences
companies, when the CVR payment is
triggered by the receipt of FDA approval
of a new drug application. Another
example of an Event-Based CVR is a
CVR issued in connection with a merger
whose payment triggering event is the
achievement of a specified level of
financial performance by the combined
entity or by a division of the combined
entity representing the assets from the
acquired company. Event-Based CVRs,
which are transferrable, have become
increasingly common in recent years,
especially in connection with mergers of
life sciences companies.
For initial listing on the Nasdaq
Global Market, the issuer must have
assets in excess of $100 million, satisfy
the requirement of Nasdaq Rule
5315(f)(3)(A) 4 or have at least $200
million in global market capitalization
and satisfy the requirement of Rule
4 Specifically, to satisfy Nasdaq Rule 5315(f)(3)(A)
a Company, other than a closed end management
investment company, must aggregate income from
continuing operations before income taxes of at
least $11 million over the prior three fiscal years,
(ii) positive income from continuing operations
before income taxes in each of the prior three fiscal
years, and (iii) at least $2.2 million income from
continuing operations before income taxes in each
of the two most recent fiscal years.
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Federal Register / Vol. 87, No. 212 / Thursday, November 3, 2022 / Notices
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5315(f)(2)(A) and (B) 5 related to Market
Value of Unrestricted Publicly Held
Shares. In order to list a CVR, an issuer
of the CVR must not be considered noncompliant with the listing standards of
the national securities exchange where
either the equity security to whose price
performance a Price-Based CVR, or in an
Event-Based CVR, where the primary
equity security is linked or the issuer’s
common stock is listed.
Also, the CVR issue must have a
minimum of 400 holders; a minimum of
1 million CVRs outstanding; a minimum
of $4 million market value; a minimum
life of one year; and a minimum $4.00
bid price. While these distribution and
liquidity standards applicable to CVRs
can help to ensure there should be
adequate depth, liquidity, and investor
interest to support an exchange listing,
the issuer requirements will provide
some minimum level of indicia that the
issuer of a CVR should be able to meet
any future payment obligations to
shareholders of Event-Based, as well as
Price-Based, CVRs pursuant to the
applicable CVR agreement.
Prior to listing a CVR under the
proposed rule, Nasdaq would issue a
circular as described in proposed
Nasdaq Rule 5732(c) reminding its
members that because CVRs have
certain unique characteristics investors
should be afforded an explanation of
such special characteristics and risks
attendant to trading thereof, as well as
the Exchange’s know-your-customer,
suitability, and other rules applicable
thereto. Nasdaq will suggest to its
members that transactions in CVRs be
recommended only to investors whose
accounts have been approved for
options trading or whom the member
firm has otherwise ascertained that
CVRs are suitable for. Like other
financial products with unique features
trading on the Exchange, CVRs combine
features of debt, equity, and securities
derivative instruments. Consequently,
this product may be more complex than
straight stock, bond, or equity warrants.
The Exchange believes distribution of
this information circular will help to
alert members to the special disclosure
and suitability obligations that apply to
CVRs and that are relevant in making
recommendations for investors to
purchase such securities.6
5 See Nasdaq Rule 5315(f)(2)(A) and (B) requiring
(i) a Market Value of at least $110 million; or (ii)
a Market Value of at least $100 million, if the
Company has stockholders’ equity of at least $110
million.
6 In particular, the circular states, among other
things, that it is suggested that transactions in CVRs
be recommended only to investors whose accounts
have been approved for options trading and that
members making recommendations in CVRs should
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While listed, the issuer of an EventBased CVR will be required to make
public disclosure: (i) upon the
occurrence of any event that must occur
as a condition to the issuer’s obligation
to make a cash payment with respect to
the CVR (or if such an event is deemed
to have occurred pursuant to the terms
of the documents governing the CVR); or
(ii) at any such time as it becomes clear
that a condition to the cash payment
with respect to the CVR has not been
met as required by the documents
governing the terms of the CVR.7
Nasdaq will delist a CVR pursuant to
the provisions of the Listing Rule 5800
Series if the CVR fails to maintain any
of the following: (1) at least 100,000
Publicly Held Shares; (2) at least 100
Holders; or (3) at least $1 million Market
Value of Listed Securities. In addition,
Nasdaq would delist the CVR if either
the equity security to whose price
performance a Price-Based CVR is
linked or the issuer’s common stock
does not remain listed. Also, Nasdaq
would delist an Event-Based CVR once
the occurrence of the specified event or
events related to the business of the
issuer or an affiliate of the issuer has
occurred or once it goes beyond the time
that the specified event or events should
have occurred.
The Exchange will rely on its existing
trading surveillances, administered by
the Exchange, or the Financial Industry
Regulatory Authority (‘‘FINRA’’) on
behalf of the Exchange, which are
designed to detect violations of
Exchange rules and applicable federal
securities laws. The Exchange will
monitor activity in CVRs to identify and
deter any potential improper trading
activity in such securities and monitor
CVRs alongside the common equity
securities of the issuer or its affiliates,
as applicable. In addition, the Exchange
will adopt enhanced surveillance
make a determination that the customer has such
knowledge and experience in financial matters that
the customer may reasonably be expected to be
capable of evaluating the risks and special
characteristics, and is financially able to bear the
risks, of a recommendation to invest in CVRs.
Nasdaq believes these requirements, among others
set forth in the circular, should help to ensure that
members recommend transactions only to those
customers with an understanding of the risks
attendant to the trading of CVRs.
7 IM–5250–1. Disclosure of Material Information,
among other things, requires Nasdaq companies to
notify Nasdaq’s MarketWatch Department prior to
the distribution of certain material news at least ten
minutes prior to public announcement of the news
when the public release of the information is made
from 7:00 a.m. to 8:00 p.m. ET. Trading halts are
instituted, among other reasons, to ensure that
material information is fairly and adequately
disseminated to the investing public and the
marketplace, and to provide investors with the
opportunity to evaluate the information in making
investment decisions.
PO 00000
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procedures if necessary. Since news and
information concerning a company and
its primary equity security or common
stock can have an impact on a
company’s Event-Based CVRs and PriceBased CVRs, the surveillance should
help to monitor the trading activity in
the Event-Based CVRs and Price-Based
CVRs. In addition, if the underlying
security is listed and traded on another
U.S. national securities exchange,
Nasdaq will communicate as needed
and may obtain information regarding
trading from markets and other entities
that are members of ISG.8
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,9 in general, and furthers the
objectives of Section 6(b)(5) of the Act,10
in particular, in that it is designed to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest and is not designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
The proposal to permit the listing of
CVRs under proposed Listing Rule 5732
is designed to protect investors and the
public interest. The purpose of the
proposed rule change is to provide a
transparent regulated market for the
trading of those securities. The listing of
Price-Based CVRs has been permitted
under Section 703.18 of the New York
Stock Exchange LLC (‘‘NYSE’’) Listed
Company Manual (‘‘Section 703.18’’) for
many years, and several years ago NYSE
also amended Section 703.18 to
accommodate Event-Based CVRs.11 The
Exchange notes that, with the exception
of the payment triggering event, EventBased CVRs are identical in structure to
Price-Based CVRs. Listed companies
have been issuing transferable EventBased CVRs as acquisition consideration
for a number of years.12
8 For a list of the current members of ISG, see
www.isgportal.org.
9 15 U.S.C. 78f(b).
10 15 U.S.C. 78f(b)(5).
11 See Securities Exchange Act Release No. 26072
(May 30, 1990), 55 FR 23166 (June 6, 1990) (SR–
NYSE–90–15) (adopting NYSE rules related to
Price-Based CVRs); Securities Exchange Act Release
No. 86651 (August 13, 2019), 84 FR 42967 (August
19, 2019) (SR–NYSE–2019–14) (adopting NYSE
rules related to Event-Based CVRs).
12 See, for example, CVRs listed by Sanofi (cash
payment tied to achieving sales targets of certain
drugs) and Wright Medical Group N.V. (cash
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Federal Register / Vol. 87, No. 212 / Thursday, November 3, 2022 / Notices
The Exchange will distribute a
circular as described in proposed
Listing Rule 5732(c) prior to the
commencement of trading of any CVR
reminding its members that because
CVRs have certain unique
characteristics investors should be
afforded an explanation of such special
characteristics and risks attendant to
trading thereof, as well as the
Exchange’s know-your-customer,
suitability, and other rules applicable
thereto. The Exchange believes that the
distribution of this circular will help
address concerns, among others, that the
complexity of a CVR could lead to
investor confusion and create certain
risks. In addition, the Exchange will
monitor activity in CVRs, to identify
and deter any potential improper
trading activity in such securities and
monitor CVRs together with the
common equity securities of the issuer
or its affiliates, as applicable. The
Exchange also will adopt enhanced
surveillance procedures if necessary.
The Exchange believes these measures
will reduce the risks of manipulative or
other improper activity in connection
with CVRs.
Proposed Listing Rule 5732 is
designed to protect investors and the
public interest, as it requires that only
larger, well capitalized companies can
list CVRs. The issuer requirements
under proposed Listing Rule 5732 are
those applied to the initial listing of
common stocks of operating companies
on the Nasdaq Global Select Market,
and, as such, the Exchange believes that
they are sufficiently rigorous to be used
in connection with the listing of CVRs
on Nasdaq Global Market. The Exchange
further believes that issuers that meet
the Global Select Market issuer
qualification requirements are likely to
be substantial companies capable of
meeting their financial obligations
under the terms of a listed CVR. The
Exchange also notes that it will require
issuers of listed CVRs to have at least
$100 million in total assets at the time
of original listing.
Nasdaq will delist a CVR pursuant to
the provisions of the Listing Rule 5800
Series if the CVR fails to maintain any
of the following, which are set forth in
the continued listing requirements of
Listing Rule 5732(d): (1) at least 100,000
Publicly Held Shares; (2) at least 100
Holders; or (3) at least $1 million Market
Value of Listed Securities. In addition,
Nasdaq would delist the CVR if either
the equity security to whose price
payment tied to FDA approval of a certain drug and
achieving revenue milestones), which were both
listed on the Exchange under current Rule 5730. No
similar CVRs are currently listed at the time of this
filing.
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performance a Price-Based CVR is
linked or the issuer’s common stock
does not remain listed. Also, Nasdaq
would delist an Event-Based CVR once
the occurrence of the specified event or
events related to the business of the
issuer or an affiliate of the issuer has
occurred or once it goes beyond the time
that the specified event or events should
have occurred. This is designed to
protect investors and the public interest,
as it ensures that issuers whose CVRs
are listed on the Exchange will meet the
qualitative and quantitative standards
for listing on a national securities
exchange on a continuous basis.
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 rule change will increase
competition by providing an additional
listing venue for CVRs, which can
currently be listed on other securities
exchanges and does not impose any
burden on competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) by order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2022–057 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–2022–057. 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–NASDAQ–2022–057, and
should be submitted on or before
November 25,2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022–23870 Filed 11–2–22; 8:45 am]
BILLING CODE 8011–01–P
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
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CFR 200.30–3(a)(12).
03NON1
]]>Agencies
[Federal Register Volume 87, Number 212 (Thursday, November 3, 2022)]
[Notices]
[Pages 66337-66339]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-23870]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96176; File No. SR-NASDAQ-2022-057]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To Adopt Listing Rule 5732 To
Provide Listing Standards for Contingent Value Rights on Nasdaq Global
Market
October 28, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 17, 2022, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt Listing Rule 5732 to provide listing
standards for Contingent Value Rights on Nasdaq Global Market.
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
Nasdaq proposes to adopt Listing Rule 5732 to provide listing
standards for Price-Based and Event-Based Contingent Value Rights (each
a ``CVR'' and collectively, ``CVRs'') on Nasdaq Global Market, which
are unsecured obligations of the issuer providing for a possible cash
payment at maturity.\3\ The Exchange believes that the proposed rule
change will increase competition by providing an additional listing
venue for CVRs, which can currently be listed on other securities
exchanges. CVRs are often used to bridge valuation gaps relating to
uncertain future events that may influence the value of a target
company and, more generally, may be employed to aid in the completion
of deals by helping to solve certain of the valuation and closing
challenges that the parties encounter.
---------------------------------------------------------------------------
\3\ The proposed rule change is based on Section 703.18 of the
NYSE Listed Company Manual, related to initial listing of CVRs, and
the provisions of Section 802.01D applicable to ``Specialized
Securities'', related to continued listing of CVRs. See Securities
Exchange Act Release No. 26072 (May 30, 1990), 55 FR 23166 (June 6,
1990) (SR-NYSE-90-15) (adopting NYSE rules related to Price-Based
CVRs); Securities Exchange Act Release No. 86651 (August 13, 2019),
84 FR 42967 (August 19, 2019) (SR-NYSE-2019-14) (adopting NYSE rules
related to Event-Based CVRs).
---------------------------------------------------------------------------
Specifically, the cash payment at maturity for a CVR can be based
upon the price performance of an affiliate's equity security (a
``Price-Based CVR'') or upon the occurrence of a specified event or
events related to the business of the issuer or an affiliate of the
issuer (an ``Event-Based CVR''). At maturity, the holder of a Price-
Based CVR is entitled to a cash payment if the average market price of
the related equity security is less than a pre-set target price. The
target price is established at the time the Price-Based CVR is issued.
Conversely, should the average market price of the related equity
security equal or exceed the target price, the Price-Based CVR would
expire worthless. Price-Based CVRs are generally distributed to
shareholders of an acquired company who are receiving shares of the
acquirer as acquisition consideration. The Price-Based CVRs provide the
acquiree's shareholders with some medium-term protection against poor
stock price performance of the shares of the acquirer by guaranteeing
them a specified cash payment if the acquirer's average stock price is
below a specified level at the time of maturity of the Price-Based CVR.
Event-Based CVRs are also typically issued to the shareholders of
an acquired entity as consideration in an acquisition transaction.
Event-Based CVRs entitle their holders to receive a specified cash
payment upon the occurrence of a specified event or events related to
the business of the issuer or an affiliate of the issuer prior to the
maturity date of the Event-Based CVR. The Event-Based CVR provides the
shareholders of the acquiree an additional interest in the medium-term
performance of the merged entity upon occurrence of its specified
event(s). An example of a typical Event-Based CVR occurs in mergers of
life sciences companies, when the CVR payment is triggered by the
receipt of FDA approval of a new drug application. Another example of
an Event-Based CVR is a CVR issued in connection with a merger whose
payment triggering event is the achievement of a specified level of
financial performance by the combined entity or by a division of the
combined entity representing the assets from the acquired company.
Event-Based CVRs, which are transferrable, have become increasingly
common in recent years, especially in connection with mergers of life
sciences companies.
For initial listing on the Nasdaq Global Market, the issuer must
have assets in excess of $100 million, satisfy the requirement of
Nasdaq Rule 5315(f)(3)(A) \4\ or have at least $200 million in global
market capitalization and satisfy the requirement of Rule
[[Page 66338]]
5315(f)(2)(A) and (B) \5\ related to Market Value of Unrestricted
Publicly Held Shares. In order to list a CVR, an issuer of the CVR must
not be considered non-compliant with the listing standards of the
national securities exchange where either the equity security to whose
price performance a Price-Based CVR, or in an Event-Based CVR, where
the primary equity security is linked or the issuer's common stock is
listed.
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\4\ Specifically, to satisfy Nasdaq Rule 5315(f)(3)(A) a
Company, other than a closed end management investment company, must
aggregate income from continuing operations before income taxes of
at least $11 million over the prior three fiscal years, (ii)
positive income from continuing operations before income taxes in
each of the prior three fiscal years, and (iii) at least $2.2
million income from continuing operations before income taxes in
each of the two most recent fiscal years.
\5\ See Nasdaq Rule 5315(f)(2)(A) and (B) requiring (i) a Market
Value of at least $110 million; or (ii) a Market Value of at least
$100 million, if the Company has stockholders' equity of at least
$110 million.
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Also, the CVR issue must have a minimum of 400 holders; a minimum
of 1 million CVRs outstanding; a minimum of $4 million market value; a
minimum life of one year; and a minimum $4.00 bid price. While these
distribution and liquidity standards applicable to CVRs can help to
ensure there should be adequate depth, liquidity, and investor interest
to support an exchange listing, the issuer requirements will provide
some minimum level of indicia that the issuer of a CVR should be able
to meet any future payment obligations to shareholders of Event-Based,
as well as Price-Based, CVRs pursuant to the applicable CVR agreement.
Prior to listing a CVR under the proposed rule, Nasdaq would issue
a circular as described in proposed Nasdaq Rule 5732(c) reminding its
members that because CVRs have certain unique characteristics investors
should be afforded an explanation of such special characteristics and
risks attendant to trading thereof, as well as the Exchange's know-
your-customer, suitability, and other rules applicable thereto. Nasdaq
will suggest to its members that transactions in CVRs be recommended
only to investors whose accounts have been approved for options trading
or whom the member firm has otherwise ascertained that CVRs are
suitable for. Like other financial products with unique features
trading on the Exchange, CVRs combine features of debt, equity, and
securities derivative instruments. Consequently, this product may be
more complex than straight stock, bond, or equity warrants. The
Exchange believes distribution of this information circular will help
to alert members to the special disclosure and suitability obligations
that apply to CVRs and that are relevant in making recommendations for
investors to purchase such securities.\6\
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\6\ In particular, the circular states, among other things, that
it is suggested that transactions in CVRs be recommended only to
investors whose accounts have been approved for options trading and
that members making recommendations in CVRs should make a
determination that the customer has such knowledge and experience in
financial matters that the customer may reasonably be expected to be
capable of evaluating the risks and special characteristics, and is
financially able to bear the risks, of a recommendation to invest in
CVRs. Nasdaq believes these requirements, among others set forth in
the circular, should help to ensure that members recommend
transactions only to those customers with an understanding of the
risks attendant to the trading of CVRs.
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While listed, the issuer of an Event-Based CVR will be required to
make public disclosure: (i) upon the occurrence of any event that must
occur as a condition to the issuer's obligation to make a cash payment
with respect to the CVR (or if such an event is deemed to have occurred
pursuant to the terms of the documents governing the CVR); or (ii) at
any such time as it becomes clear that a condition to the cash payment
with respect to the CVR has not been met as required by the documents
governing the terms of the CVR.\7\
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\7\ IM-5250-1. Disclosure of Material Information, among other
things, requires Nasdaq companies to notify Nasdaq's MarketWatch
Department prior to the distribution of certain material news at
least ten minutes prior to public announcement of the news when the
public release of the information is made from 7:00 a.m. to 8:00
p.m. ET. Trading halts are instituted, among other reasons, to
ensure that material information is fairly and adequately
disseminated to the investing public and the marketplace, and to
provide investors with the opportunity to evaluate the information
in making investment decisions.
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Nasdaq will delist a CVR pursuant to the provisions of the Listing
Rule 5800 Series if the CVR fails to maintain any of the following: (1)
at least 100,000 Publicly Held Shares; (2) at least 100 Holders; or (3)
at least $1 million Market Value of Listed Securities. In addition,
Nasdaq would delist the CVR if either the equity security to whose
price performance a Price-Based CVR is linked or the issuer's common
stock does not remain listed. Also, Nasdaq would delist an Event-Based
CVR once the occurrence of the specified event or events related to the
business of the issuer or an affiliate of the issuer has occurred or
once it goes beyond the time that the specified event or events should
have occurred.
The Exchange will rely on its existing trading surveillances,
administered by the Exchange, or the Financial Industry Regulatory
Authority (``FINRA'') on behalf of the Exchange, which are designed to
detect violations of Exchange rules and applicable federal securities
laws. The Exchange will monitor activity in CVRs to identify and deter
any potential improper trading activity in such securities and monitor
CVRs alongside the common equity securities of the issuer or its
affiliates, as applicable. In addition, the Exchange will adopt
enhanced surveillance procedures if necessary. Since news and
information concerning a company and its primary equity security or
common stock can have an impact on a company's Event-Based CVRs and
Price-Based CVRs, the surveillance should help to monitor the trading
activity in the Event-Based CVRs and Price-Based CVRs. In addition, if
the underlying security is listed and traded on another U.S. national
securities exchange, Nasdaq will communicate as needed and may obtain
information regarding trading from markets and other entities that are
members of ISG.\8\
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\8\ For a list of the current members of ISG, see
www.isgportal.org.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\9\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\10\ in particular, in that it is designed to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest and is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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The proposal to permit the listing of CVRs under proposed Listing
Rule 5732 is designed to protect investors and the public interest. The
purpose of the proposed rule change is to provide a transparent
regulated market for the trading of those securities. The listing of
Price-Based CVRs has been permitted under Section 703.18 of the New
York Stock Exchange LLC (``NYSE'') Listed Company Manual (``Section
703.18'') for many years, and several years ago NYSE also amended
Section 703.18 to accommodate Event-Based CVRs.\11\ The Exchange notes
that, with the exception of the payment triggering event, Event-Based
CVRs are identical in structure to Price-Based CVRs. Listed companies
have been issuing transferable Event-Based CVRs as acquisition
consideration for a number of years.\12\
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\11\ See Securities Exchange Act Release No. 26072 (May 30,
1990), 55 FR 23166 (June 6, 1990) (SR-NYSE-90-15) (adopting NYSE
rules related to Price-Based CVRs); Securities Exchange Act Release
No. 86651 (August 13, 2019), 84 FR 42967 (August 19, 2019) (SR-NYSE-
2019-14) (adopting NYSE rules related to Event-Based CVRs).
\12\ See, for example, CVRs listed by Sanofi (cash payment tied
to achieving sales targets of certain drugs) and Wright Medical
Group N.V. (cash payment tied to FDA approval of a certain drug and
achieving revenue milestones), which were both listed on the
Exchange under current Rule 5730. No similar CVRs are currently
listed at the time of this filing.
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[[Page 66339]]
The Exchange will distribute a circular as described in proposed
Listing Rule 5732(c) prior to the commencement of trading of any CVR
reminding its members that because CVRs have certain unique
characteristics investors should be afforded an explanation of such
special characteristics and risks attendant to trading thereof, as well
as the Exchange's know-your-customer, suitability, and other rules
applicable thereto. The Exchange believes that the distribution of this
circular will help address concerns, among others, that the complexity
of a CVR could lead to investor confusion and create certain risks. In
addition, the Exchange will monitor activity in CVRs, to identify and
deter any potential improper trading activity in such securities and
monitor CVRs together with the common equity securities of the issuer
or its affiliates, as applicable. The Exchange also will adopt enhanced
surveillance procedures if necessary. The Exchange believes these
measures will reduce the risks of manipulative or other improper
activity in connection with CVRs.
Proposed Listing Rule 5732 is designed to protect investors and the
public interest, as it requires that only larger, well capitalized
companies can list CVRs. The issuer requirements under proposed Listing
Rule 5732 are those applied to the initial listing of common stocks of
operating companies on the Nasdaq Global Select Market, and, as such,
the Exchange believes that they are sufficiently rigorous to be used in
connection with the listing of CVRs on Nasdaq Global Market. The
Exchange further believes that issuers that meet the Global Select
Market issuer qualification requirements are likely to be substantial
companies capable of meeting their financial obligations under the
terms of a listed CVR. The Exchange also notes that it will require
issuers of listed CVRs to have at least $100 million in total assets at
the time of original listing.
Nasdaq will delist a CVR pursuant to the provisions of the Listing
Rule 5800 Series if the CVR fails to maintain any of the following,
which are set forth in the continued listing requirements of Listing
Rule 5732(d): (1) at least 100,000 Publicly Held Shares; (2) at least
100 Holders; or (3) at least $1 million Market Value of Listed
Securities. In addition, Nasdaq would delist the CVR if either the
equity security to whose price performance a Price-Based CVR is linked
or the issuer's common stock does not remain listed. Also, Nasdaq would
delist an Event-Based CVR once the occurrence of the specified event or
events related to the business of the issuer or an affiliate of the
issuer has occurred or once it goes beyond the time that the specified
event or events should have occurred. This is designed to protect
investors and the public interest, as it ensures that issuers whose
CVRs are listed on the Exchange will meet the qualitative and
quantitative standards for listing on a national securities exchange on
a continuous basis.
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 rule change will
increase competition by providing an additional listing venue for CVRs,
which can currently be listed on other securities exchanges and does
not impose any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
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-2022-057 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-2022-057. 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-NASDAQ-2022-057, and should be submitted
on or before November 25, 2022.
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\13\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-23870 Filed 11-2-22; 8:45 am]
BILLING CODE 8011-01-P
