[Federal Register Volume 76, Number 92 (Thursday, May 12, 2011)]
[Notices]
[Pages 27710-27730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-11610]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64437; File No. SR-BX-2010-059]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order
Granting Approval of Proposed Rule Change and Amendment No. 1 Thereto
and Notice of Filing and Order Granting Accelerated Approval to
Amendment No. 2 Thereto To Create a Listing Market on the Exchange
May 6, 2011.
On August 20, 2010, NASDAQ OMX BX, Inc. (the ``Exchange'' or
``BX'') filed with the Securities and Exchange Commission (the
``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to create a listing market on the Exchange, called
``The BX Venture Market'' (``BX Venture Market''). The proposed rule
change was published for comment in the Federal Register on September
8, 2010.\3\ The Commission subsequently extended the time period in
which to either approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
disapprove the proposed rule change, to December 7, 2010.\4\ The
Commission received three comments in response to the Notice.\5\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 62818 (September 1,
2010), 75 FR 54665 (``Notice'').
\4\ See Securities Exchange Act Release No. 63105 (October 14,
2010), 75 FR 64772 (October 20, 2010).
\5\ See Letters to Elizabeth M. Murphy, Secretary, Commission,
from William F. Galvin, Secretary of the Commonwealth, Commonwealth
of Massachusetts, dated September 28, 2010 (``MSD Letter''); Michael
R. Trocchio, Bingham McCutchen LLP, on behalf of Pink OTC Markets
Inc., dated October 3, 2010 (``Pink OTC Markets Letter''); and Tom
A. Alberg, Managing Director and Founder, Madrona Venture Group,
dated December 1, 2010 (``Madrona Letter'').
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On December 6, 2010, the Exchange submitted Amendment No. 1 to the
proposed rule change.\6\ On December 7, 2010, the Commission instituted
proceedings to determine whether to disapprove the proposed rule
change, as modified by Amendment No. 1.\7\ The Commission thereafter
received eight comments on the proposal.\8\ The Exchange submitted a
response letter to the comments on February 17, 2011.\9\ On March 3,
2011, the Commission issued a notice of designation of longer period
for Commission action on proceedings to determine whether to disapprove
the proposed rule change, as modified by Amendment No. 1.\10\ On May 4,
2011, the Exchange submitted Amendment No. 2 to the proposed rule
change, as described in Items I and II below, which items have been
prepared by the Exchange. The Commission is publishing this notice to
solicit
[[Page 27711]]
comments on Amendment No. 2 from interested persons and is approving
the proposed rule change, as modified by Amendment Nos. 1 and 2, on an
accelerated basis.
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\6\ See Securities Exchange Act Release No. 63597 (December 22,
2010), 75 FR 82098 (December 29, 2010).
\7\ See Securities Exchange Act Release No. 63448 (December 7,
2010), 75 FR 77036 (December 10, 2010) (``Order Instituting
Proceedings'').
\8\ See Letters to Elizabeth M. Murphy, Secretary, Commission,
from James J. Angel, Ph.D., CFA, dated January 14, 2011 (``Angel
Letter''); K. Richard B. Niehoff, Chairman and CEO, United States
OTC Markets, Inc., dated January 20, 2011 (``Niehoff Letter''); Mark
G. Heesen, President, National Venture Capital Association, dated
January 21, 2011 (``NVCA Letter''); Alan F. Eisenberg, Executive
Vice President, Emerging Companies and Business Development,
Biotechnology Industry Organization, dated January 24, 2011 (``BIO
Letter''); Michael R. Trocchio, Bingham McCutchen LLP, on behalf of
OTC Markets Group Inc., dated January 24, 2011 (``OTC Markets Group
Letter''); Rey Ramsey, President and CEO, TechNet, dated January 24,
2011 (``TechNet Letter''); William F. Galvin, Secretary of the
Commonwealth, Commonwealth of Massachusetts, dated January 26, 2011
(``MSD Letter II''); and James McCarthy, Co-Founder, the US Venture
Exchange, dated April 19, 2011 (``McCarthy Letter'').
\9\ See Letter to Elizabeth M. Murphy, Secretary, Commission,
from Joan C. Conley, Senior Vice President and Corporate Secretary,
The NASDAQ OMX Group, dated February 17, 2011 (``BX Response
Letter'').
\10\ See Securities Exchange Act Release No. 64028 (March 3,
2011), 76 FR 13010 (March 9, 2011).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of Amendment No. 2 to the Proposed Rule Change
The Exchange proposes to create a listing market, which will be
called ``the BX Venture Market.'' Following Commission approval, the
Exchange will announce the operational date of the new market in an
Equity Trader Alert and press release. The proposed rules will become
effective on the operational date.
The text of the proposed rule change is available at http://nasdaqomxbx.cchwallstreet.com, at BX's principal office, 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
In connection with the acquisition of the former Boston Stock
Exchange by The NASDAQ OMX Group, Inc., the Exchange discontinued its
listing marketplace and delisted all securities previously listed on
the Exchange.\11\ Since January 2009, the Exchange has operated as a
trading venue only, allowing market participants to trade securities
listed on other national securities exchanges pursuant to unlisted
trading privileges. The Exchange is proposing to begin listing
securities again, through the creation of a new listing market, to be
called ``The BX Venture Market.'' The BX Venture Market will have
minimal quantitative listing standards, but will have qualitative
requirements that are, in many respects, similar to those required for
listing on The NASDAQ Stock Market (``NASDAQ'') and other national
securities exchanges.\12\ The Exchange believes that the name BX
Venture Market will appropriately convey the lower financial standards
required for listing on this market and distinguish the BX Venture
Market from other national securities exchanges. The term ``venture''
is already used to designate the junior market in Canada, the TSX
Venture Market. Moreover, ``venture'' by definition broadly connotes an
undertaking involving some uncertainty or risk in return for the hope
of profit, rather than referring solely to companies that are backed by
venture capital. It is thus a familiar term for a venue designed to
provide an attractive alternative to companies being delisted from
another national securities exchange for failure to meet quantitative
listing standards (including price or other market value measures), as
well as smaller companies contemplating an initial exchange listing.
The Exchange further believes that the proposed listing venue will
provide a transparent, well-regulated marketplace for these companies
and their investors.\13\
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\11\ See Securities Exchange Act Release No. 59265 (January 16,
2009), 74 FR 4790 (January 27, 2009) (approving SR-BSE-2008-36
relating to the delisting of all securities from the Exchange in
connection with the Exchange's discontinuation of trading).
\12\ The Exchange notes that not all qualitative requirements
imposed by other exchanges would be required. See Listing
Requirements, infra, for a full discussion of the proposed
quantitative and qualitative requirements for listing on BX.
\13\ The Exchange will propose in a separate rule filing changes
to the BX Equities Platform to govern trading of, and reporting of
transactions in, these listed securities and introducing and
modifying market data products to permit dissemination of accurate
quotation information and reporting of transactions.
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As discussed in more detail below, the Exchange will operate and
regulate the BX Venture Market through regulatory contracts with FINRA
and the NASDAQ Stock Market LLC, which will be in place prior to the
Market becoming operational. While the Exchange will retain all legal
responsibility for and control of the functions performed by these
entities, it will leverage FINRA's expertise overseeing the over-the-
counter markets, surveillance enhancements provided by the SMARTS
Group,\14\ and the deep experience of the NASDAQ Listing Qualifications
Department to ensure high quality oversight for market activity and
listed companies. Moreover, the Exchange has proposed rules to provide
a clear signal to investors that a company is listed on the BX Venture
Market and to distinguish the BX Venture Market from NASDAQ and other
national securities exchanges. These proposed rules also require a
rigorous vetting procedure before a company may attain a listing, and
heightened scrutiny thereafter of listed Companies. Finally, the
Exchange will not launch the BX Venture Market before approval is
obtained for an arrangement between the Exchange and FINRA to
consolidate and disseminate best quotation and last sale data for BX
Venture Market listed securities and that arrangement is
operational.\15\ All of these matters are discussed more fully below.
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\14\ SMARTS Group, a subsidiary of NASDAQ OMX, is a leading
technology provider of market surveillance solutions to exchanges
and regulators around the world
\15\ The Commission notes that its order in Section VI, infra,
does not contain this condition.
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Listing Requirements
The BX Venture Market would list Common Stock, Preferred Stock,
Ordinary Shares, Shares or Certificates of Beneficial Interest of
Trust, Limited Partnership Interests, American Depositary Receipts
(ADR), American Depositary Shares (ADS), Units, Rights and Warrants. To
be listed on the BX Venture Market, companies will need to meet the
following qualitative listing standards, each of which is equivalent to
the comparable listing standard of NASDAQ or is derived from the
Federal securities laws:
(a) The company must be registered under Section 12(b) of the Act
\16\ and current in its periodic filings with the Commission and, as a
result, subject to the requirements of the Sarbanes-Oxley Act of 2002
\17\ (proposed Rule 5210(a) and 5210(e));
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\16\ 15 U.S.C. 781(b).
\17\ 15 U.S.C. 7201-7266.
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(b) The company must have a fully independent Audit Committee
comprised of at least three members and comply with the requirements of
SEC Rule 10A-3, promulgated under the Act \18\ (proposed Rule 5605(c));
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\18\ 17 CFR 240.10A-3.
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(c) The company must have independent directors make compensation
decisions for executive officers (proposed Rule 5605(d));
(d) The company will be prohibited from taking any corporate action
with the effect of nullifying, restricting or disparately reducing the
per share voting rights of holders of an outstanding class of the
company's common stock registered pursuant to Section 12 of the Act
(proposed Rule 5640);
(e) The company's auditor will be required to be registered with
the Public Company Accounting Oversight
[[Page 27712]]
Board \19\ (proposed Rules 5210(b) and 5250(c)(3));
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\19\ See Section 102 of the Sarbanes-Oxley Act, 15 U.S.C. 7212.
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(f) The company will be required to hold an annual shareholders'
meeting and solicit proxies for each shareholders' meeting (proposed
Rule 5620);
(g) The company will be required to obtain shareholder approval for
the use of equity compensation (proposed Rule 5635);
(h) The company will be required to adopt a code of conduct,
applicable to all directors, officers and employees (proposed Rule
5610);
(i) The company will be required to conduct an appropriate review
and oversight of all related party transactions, to address potential
conflict of interest situations (proposed Rule 5630);
(j) The company will be required to disclose material information
through any Regulation FD compliant method (or combination of methods)
(proposed Rule 5250(b) and IM-5250-1);
(k) The listed securities must be eligible for a Direct
Registration Program operated by a clearing agency registered under
Section 17A of the Act \20\ (proposed Rules 5210(c) and 5255);
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\20\ 15 U.S.C. 78q-1.
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(l) Public ``shells'' would not be allowed to list (proposed Rule
5103(b)); and
(m) The Exchange will conduct a public interest review of the
company and significant persons associated with it (proposed Rules
5205(c) and 5104 and IM-5104-1). A company would not be eligible for
listing if any executive officer, director, promoter, or control person
was involved in any event described in Item 401(f)(2)-(8) of Regulation
S-K that occurred during the prior five years (proposed Rule 5103(a)).
In addition, the BX Venture Market would apply the following
quantitative listing standards, set out in proposed Rules 5505 and 5506
(initial listing) and 5550 (continued listing), which are designed to
assure a minimum level of trading consistent with a public market for
the securities:
(a) 200,000 publicly held shares;
(b) 200 public shareholders, at least 100 of which must be round
lot holders for initial listing, and 200 public shareholders for
continued listing;
(c) A market value of listed securities of at least $2 million for
initial listing and $1 million for continued listing;
(d) Two market makers; and
(e) A minimum initial listing price of $0.25 per share for
securities previously listed on a national securities exchange and
$1.00 per share for securities not previously listed on a national
securities exchange. For continued listing, securities will be required
to maintain a minimum $0.25 per share bid price.
Further, with respect to companies not previously listed on a
national securities exchange, the BX Venture Market will also require
for initial listing that the company have either $1 million
stockholders' equity or $5 million total assets, a one year operating
history, and a plan to maintain sufficient working capital for the
company's planned business for at least twelve months after the first
day of listing.
The Exchange would also require that rights and warrants will only
be eligible for initial and continued listing if the underlying
security is listed on the BX Venture Market or is a covered security,
as described in Section 18(b) of the Securities Act of 1933.\21\
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\21\ 15 U.S.C. 77r(b).
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The proposed listing standards are designed to allow companies that
are being delisted from another national securities exchange for
failure to meet that exchange's quantitative listing requirements the
opportunity to provide their investors with a better regulated, more
transparent trading environment than may otherwise be available in the
over-the-counter markets. The Exchange believes that allowing these
companies to continue trading on a national securities exchange may
enable some institutional investors to continue their ownership stake
in the company, which could provide greater stability to the company's
shareholder base and possibly avoid forced sales by such investors.\22\
The Exchange also believes that the BX Venture Market will provide an
opportunity for smaller, private, venture-backed companies to expand
their capital financing opportunities and go public, and at the same
time, encourage investment in early-stage companies by providing
private equity and venture funders with an exit strategy. In addition,
companies currently traded over-the-counter could view this market as
an aspirational step towards a listing on another national securities
exchange. The Exchange believes that the agreement of such companies to
comply with the Exchange's corporate governance standards and the
application of the Exchange's public interest authority will provide
additional protections to their investors than would be available in
their present trading venue. Moreover, the Exchange believes that a
listing on the BX Venture Market could help such companies raise
capital, in turn promoting job creation within the United States.
Finally, the Exchange believes that the BX Venture Market will be a
more attractive alternative to domestic companies that might otherwise
have considered a listing on non-U.S. junior markets, which generally
have lower listing requirements.
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\22\ Many institutional investors have investment policies that
limit their ownership to securities listed on a national securities
exchange, or that prohibit the ownership of securities that only are
traded in the over-the-counter market.
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Investor Protection Provisions
The Exchange recognizes that the listing requirements for the BX
Venture Market will be lower than those of the NASDAQ Stock Market and
other national securities exchanges, and that the market will,
therefore, attract smaller, less liquid companies, which may create
higher risks for investors. Mindful of these risks and the Exchange's
objective to preserve the quality of and public confidence in its
market, the Exchange has adopted rules to preclude investor confusion
about BX Venture Market listings. The Exchange will also subject
companies and associated individuals to a rigorous review process
before approving a listing, and apply heightened regulatory scrutiny to
listed Companies.
References to Listing. To avoid investor confusion, the listing
rules of the BX Venture Market specify that a BX Venture Market-listed
company must refer to its listing as on the BX Venture Market, unless
otherwise required by applicable rules or regulations. Staff will
review any failure of a company to follow this requirement, and take
appropriate action pursuant to the Rule 5800 Series. A company that
represents itself as listed on the NASDAQ Stock Market or refers to
itself as a NASDAQ listed company will be subject to immediate
delisting pursuant to procedures in the Rule 5800 Series.\23\ To
enforce this prohibition, the Exchange will monitor the press releases
issued by a BX Venture Market-listed company \24\ and will annually
review the company's Web site to determine how the company is referring
to its listing.
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\23\ Proposed Rule 5250(b)(4).
\24\ Pursuant to Proposed Rule 5250, which addresses disclosure
obligations, a listed company that issues a press release in
satisfaction of its disclosure obligations is required to
disseminate the press release over a national newswire service
acceptable to the Exchange.
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Similarly, in describing this listing venue, the Exchange will
refer to it as the BX Venture Market and not as NASDAQ OMX BX. The
Exchange will also prominently include information on its Web site
describing the
[[Page 27713]]
differences between the BX Venture Market and other national securities
exchanges, including NASDAQ.\25\ For example, it will inform users that
BX Venture Market-listed stocks are not ``blue sky'' exempt, are not
NMS securities, and are not subject to the trade-through rule, and
provide side-by-side comparisons of BX Venture Market and NASDAQ Stock
Market features. Marketing materials for the BX Venture Market will
also include a prominent disclaimer explaining that the BX Venture
Market is separate from, and not a tier of, the NASDAQ Stock Market.
Finally, as required by proposed Rule 5106 and discussed in more detail
later in this filing, the Exchange will require data vendors to
identify when the BX Venture Market is the listing market for a
security with a unique market center identifier, so as to clearly
differentiate those securities from securities listed on NASDAQ or
other exchanges or traded over-the-counter.
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\25\ Rule 5106.
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Automatic Bars to Listing. Proposed Rule 5103 provides for certain
automatic bars to listing. Under that Rule, the Exchange will not
approve for listing or allow the continued listing of ``shell''
Companies.\26\ This prohibition is based on concerns that the investors
in shell companies are unaware of the ultimate business in which they
are investing and that trading in such securities is more susceptible
to market manipulation. The Exchange will also decline to list any
company, and will delist any listed company, that attempts to rely on
an exemption from state securities registration which otherwise may be
available under state law to Companies listed on the Exchange. Finally,
the Exchange will not approve for listing or allow the continued
listing of a company if any executive officer, director, promoter, or
control person was involved in any event that occurred during the prior
five years described under Item 401(f)(2)--(8) of Regulation S-K under
the Act. Such events include criminal convictions and pending charges,
violations of securities laws, and court or administrative actions
barring or limiting the individual from certain security related
activities.\27\
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\26\ Proposed Rule 5103(b) sets forth a number of factors that
the Exchange will consider in determining whether a Company is a
shell, including whether the Company is considered a ``shell
company'' as defined in Rule 12b-2 under the Act, 17 CFR 240.12b-2.
\27\ If a listed Company discloses an event involving an
executive officer, director, promoter, or control person described
under Item 401(f)(2)-(8) of Regulation S-K, the Exchange would
provide the Company with thirty days to remove the executive
officer, director, promoter, or control person. If the Company does
not do so, the Exchange would send a delisting notification to the
Company.
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To enforce these automatic bars, and to identify other public
interest concerns that, while not triggering an automatic bar, may call
for the use of the Exchange's discretionary authority to disapprove a
listing, the Exchange will engage in a rigorous review of listing
applications, which will include background checks of individuals
associated with the company and the assistance of independent qualified
third-party investigators.
Application and Public Interest Review. The listing application
will require provision to the Exchange, and Staff review, of all
reports and documents required to be filed with the Commission or other
regulatory authority, as well as any other information or
documentation, public or non-public, Staff determines is necessary for
its review. Companies must also provide detailed descriptions and
supporting documentation of all pending or prior inquiries,
investigations, lawsuits, litigation, arbitration, hearings or any
other legal or administrative proceedings involving the company, its
executive officers, directors, promoters, and ten percent or greater
shareholders of the company.\28\ The company must, in addition,
disclose any events described under Item 401(f) of Regulation S-K
involving officers, directors, promoters, or control persons; describe
all bridge financings, shelf registrations, Regulation S offerings or
private placements consummated in the prior six months; and provide
copies of any blue sky memoranda.
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\28\ A ten year history of such inquiries, investigations, and
proceedings involving the company will be required; there is no time
limit on the history required for executive officers, directors,
promoters, or controlling shareholders.
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Staff will also review the company's proxy disclosures to screen
for events described pursuant to Item 401(f) of Regulation S-K under
the Act. Moreover, it will conduct background checks of the company and
affiliated individuals. This background investigation will be conducted
by Staff members experienced in such reviews and will make use of
public databases and other resources, such as Lexis-Nexis, the Web-CRD
regulatory database, and web-based search engines, such as Google.\29\
Finally, the Exchange will request review of a company by an
independent qualified third-party investigative firm in appropriate
circumstances, as discussed in more detail below.
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\29\ Proposed Rule 5205(c)(1).
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If the Exchange identifies a regulatory issue that triggers an
automatic bar the application will be disapproved. If the Exchange
identifies a regulatory event described pursuant to Item 401(f)(2)-(8)
of Regulation S-K about an officer, director, promoter, or control
person that occurred more than five years prior; or a history of
regulatory misconduct by a person that is not an officer, director,
promoter, or control person of the company but who has significant
influence on or importance to the company, it will ordinarily exercise
its discretionary authority to deny listing. However, if the Exchange
determines that the information identified may not rise to the level
requiring denial of the listing, or if it identifies any issue that
raises potential public interest concerns about which it seeks
additional information (such as, for example, media accounts of
criminal allegations or improper business practices, or any indication
of financial improprieties) it will refer the company to an independent
qualified third party investigative firm for review. Any decision to
list a company that has been referred to an independent investigative
review based on the regulatory history of an associated individual that
does not trigger an automatic bar, must be approved in writing by the
Chief Regulatory Officer (``CRO'') of the Exchange. The CRO must also
approve the listing of any company with an officer, director, promoter,
or control person who has described a bankruptcy under Item 401(f)(1)
of Regulation S-K. Finally, whenever Staff has identified a past
violation or evasion of a corporate governance standard pursuant to its
review of a formerly exchange-listed company's past corporate
governance activities, but decides not to exercise its discretionary
authority to deny listing, the listing must be approved in writing by
the CRO. Documentation of the CRO's approvals will be maintained with
the Exchange's listing file for the company.
Independent Investigative Assistance. The Exchange will retain a
qualified independent third party investigative firm to assist in its
public interest review process. Staff will make random, regular
referrals to such a firm of at least 10% of applicant companies that
were not previously listed on a national securities exchange.\30\ In
addition, Staff
[[Page 27714]]
will utilize an investigative firm when it would be impractical to
research a regulatory history occurring outside the United States.
Finally, Staff will seek review of a company when its internal review
has uncovered a regulatory issue or potential public interest concern
that does not trigger an automatic bar and Staff has not made a
determination to disapprove the application. While the scope of
investigations will vary based on the reasons for review, they
generally will focus on criminal history, government sanctions and
watchlists, and will also include online and onsite checks of court
records, searches of relevant state and country criminal databases, and
searches of global risk compliance databases covering government
prohibited and barred persons. In appropriate circumstances, such as
where questions are raised related to the legitimacy or appropriateness
of an applicant's business practices, customers, or suppliers, whether
through whistle blower complaints or otherwise, the outside firm would
be asked to make inquiries with respect to those matters.
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\30\ Proposed Rule 5205(d). While the Exchange expects to refer
between 10-20% of such applicant companies, this ratio could change
upon evaluation of the findings provided by the investigative firms.
The Exchange does not expect that random referrals of companies that
have previously been listed on a national securities exchange will
be necessary, but will reevaluate that assumption on an on-going
basis.
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These procedures and determinations shall be followed, as
applicable, whenever a listed company names a new officer, director,
promoter, or control person or describes an event pursuant to Item
401(f) of Regulation S-K under the Act, and whenever Staff, in the
course of its on-going monitoring of listed Companies, identifies a
potential public interest concern. These background procedures would
also apply when a listed company combines or reverse-merges with a non-
listed entity, resulting in a ``change of control'' transaction
pursuant to Listing Rule 5110.\31\
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\31\ If a listed Company combines or reverse merges with a non-
listed entity, resulting in a change of control, the post-merger
company must apply for and meet all initial listing requirements
before listing on the Exchange. Delisting proceedings will be
initiated if an application for listing of the new entity has not
been approved before consummation of the transaction. Rule 5110
includes a non-exclusive list of considerations to be used for
determining whether a change of control has occurred.
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Oversight of Listings and Delistings
Pursuant to an intercompany regulatory services agreement that will
be in place before the BX Venture Market is operational, Staff in
NASDAQ's Listing Qualifications Department will be responsible for
processing listings, conducting on-going compliance monitoring of
listed companies, and implementing delistings. Notwithstanding the
contractual arrangement, the Exchange retains ultimate legal
responsibility for, and control of, these functions. The NASDAQ Listing
Qualifications Department is presently comprised of 33 individuals,
which include 13 continued listing analysts, four initial listing
analysts, and an investigations group. This Staff is extremely
experienced in regulatory analysis: the average person has over ten
years of experience at NASDAQ and several have extensive backgrounds
outside NASDAQ in investigating alleged violations of the Federal
securities laws. The sophisticated technology used by this Department
enables Staff to efficiently review public filings and identify and
prioritize issues that may raise concerns under the listing standards,
including public interest concerns. Among other things, this system is
programmed to identify any quantitative deficiencies arising from the
filings or from trading data, immediately notify the appropriate Staff,
and keep an auditable record of how Staff treated the deficiency.
The proposed rules require, moreover, that the listing process will
at all times be supervised by at least one person with substantial
prior experience supervising such a program at a national securities
exchange with a currently active listing program. The head of the
Exchange's Listing Department, who will have no marketing
responsibilities and will report to NASDAQ OMX's Chief Regulatory
Officer, will be involved in all decisions concerning whether to permit
or deny listing to a company based on a public interest concern. In
addition, the investigations group must be supervised by at least one
person with substantial prior regulatory experience at another national
securities exchange or with an organization, such as the SEC's
Enforcement Division or FINRA, which has securities-related enforcement
responsibilities. Finally, the Exchange's Chief Regulatory Officer will
be required to have had substantial prior regulatory experience with a
national securities exchange or equivalent experience.\32\ This person
will be required to approve the listing of any company where potential
regulatory concerns have been identified, including cases where the
company has disclosed information about an executive officer, director,
promoter, or control person involving an event described under Item
401(f) of Regulation S-K that does not trigger the automatic bar
described above.\33\
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\32\ Proposed Rule 5102.
\33\ Proposed IM 5104-1.
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Should the workload resulting from the new BX Venture Market prove
sufficiently high, the Exchange and NASDAQ have each committed to
hiring additional staff, as necessary. In that regard, the staffing
within Listing Qualifications is now, and will continue to be, reviewed
regularly by NASDAQ's Chief Regulatory Officer and Regulatory Oversight
Committee and will also be reviewed by the Exchange's Regulatory
Oversight Committee.
Quantitative Listing Standards
The Exchange proposes that any company that meets the quantitative
(e.g., financial) requirements for listing on NASDAQ will not be
approved for listing on the BX Venture Market. This will assure that
such companies only become listed on the exchange with higher listing
standards.
Given that the Exchange expects to list companies that do not meet
the quantitative listing requirements of the primary existing national
securities exchanges, it is expected that BX Venture Market-listed
companies will include smaller companies and companies facing business
or other challenges. Thus, the proposed quantitative standards for the
BX Venture Market were deliberately structured to be lower than those
of the other primary exchanges. In that regard, the minimum price
requirement for listing on the BX Venture Market will be $0.25 per
share for a security previously listed on another national securities
exchange and $1.00 per share for a security previously quoted in the
over-the-counter market or listing in connection with its initial
public offering. Until September 30, 2011, the Exchange would consider
any company that was listed on another national securities exchange at
any time since January 1, 2010, to be eligible to list with a $0.25 per
share price. The Exchange believes it appropriate to consider a company
delisted since January 1, 2010, as previously listed on another
national securities exchange because the BX Venture Market would not
have been available to such companies when they were delisted. A number
of companies were delisted during 2010 as a result of difficulties
arising from the financial crisis and this look-back will also allow
these companies, which may have recovered but not yet meet the initial
listing requirements of another exchange, to list on the BX Venture
Market. Furthermore, the Exchange believes it is appropriate to
continue this treatment until September 30, 2011, to assure that such
companies have an adequate opportunity to learn about the BX
[[Page 27715]]
Venture Market and sufficient time to complete their application and
have that application processed by the Exchange. After September 30,
2011, a company will be considered to have been previously listed on a
national securities exchange, and therefore eligible to list with a
$0.25 per share price, only if it was listed on such an exchange at any
time during the three months prior to its listing on the BX Venture
Market. The Exchange believes that this three month period will allow
the company sufficient time to apply for listing on the BX Venture
Market and have its application processed.
For continued listing, a security will be required to maintain a
minimum $0.25 per share bid price.\34\ If the security does not
maintain a minimum $0.25 per share bid price for 20 consecutive trading
days, Exchange Staff would issue a Staff Delisting Determination and
the security would be suspended from trading on the BX Venture
Market.\35\ A company could appeal that determination to a Hearings
Panel, however such an appeal would not stay the suspension of the
security.\36\ During the Hearings Panel process, the security could
regain compliance by achieving a $0.25 per share minimum bid price
while trading on another venue, such as the over-the-counter market,
for ten consecutive days. However, if the company has received three or
more Staff Delisting Determinations for failure to comply with minimum
price requirement in the prior 12 months, the company could only regain
compliance by achieving a closing bid price of $0.25 per share or more
for at least 20 consecutive trading days. The Exchange believes that
this higher requirement for companies that were previously non-
compliant is appropriate to reduce the likelihood of future instances
of non-compliance and the concomitant investor confusion concerning the
ability of the company to remain listed. If the Hearings Panel
determines that the security has satisfied the applicable standard to
regain compliance, the trading halt would be terminated and the
security would resume trading on the Exchange.
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\34\ The Exchange notes there is also no price requirement for
initial or continued listing on the National Stock Exchange or for
continued listing on NYSE Amex and therefore that the proposed
continued listing requirement exceeds the requirement of those
exchanges.
\35\ Proposed Rule 4120(a)(12).
\36\ Proposed Rule 5815(a)(1)(C).
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To be eligible for initial listing, a company not previously listed
on a national securities exchange must have at least a one year
operating history, a minimum of either $1 million in stockholders'
equity or $5 million in total assets, and demonstrate that it has a
plan to maintain sufficient working capital for its business for at
least twelve months after the first day of listing. The Exchange
believes that these requirements will help assure that a company that
was not previously subject to exchange regulation nonetheless has a
credible and sustainable business.
The Exchange believes that the proposed public float, holder and
market maker requirements, together with the minimum market value of
listed securities requirement, will assure sufficient liquidity in
listed securities. In that regard, the Exchange notes that the
shareholder and publicly held shares requirements are comparable to, or
higher than, requirements for listing a preferred stock or secondary
class of common stock on the NASDAQ Capital Market, which require 100
round lot shareholders and 200,000 publicly held shares. The Exchange
is not aware of any difficulties in the trading in securities meeting
these requirements. Further, requiring two market makers will assure
competing quotations for potential buyers and sellers of the securities
listed on the BX Venture Market. Finally, the Exchange believes that
the minimum market value of listed securities requirement will help
assure that the company issuing the securities is of a sufficient size
to generate interest from investors and market participants. While
these proposed standards may be lower than those of other exchanges,
investors will be protected by the fact that securities listed on the
BX Venture Market would be considered penny stocks under Exchange Act
Rule 3a51-1, unless they qualify for an exemption from the definition
of a penny stock.\37\ As such, broker-dealers would be required to pre-
approve their customers for trading in penny stocks and investors will
obtain the disclosures required to be made by broker-dealers in
connection with penny stock transactions, providing them with trade and
market information prior to effecting a transaction. Further, there
will be no ``blue sky'' exemption available under Section 18 of the
Securities Act of 1933,\38\ so companies will be required to satisfy
state law registration requirements and other state laws that regulate
the sale and offering of securities. Because some state laws and
regulations may provide an exemption from certain registration or
``blue sky'' requirements for companies listed on the former Boston
Stock Exchange, based on the higher listing standards previously
applied by that Exchange, proposed Rule 5103(c) would provide that the
Exchange will take action to delist any company listed on the BX
Venture Market that attempts to rely on such an exemption.\39\
Companies will also agree not to rely on any such exemption as a
provision of the BX Venture Market Listing Agreement. Listed companies
will be required to represent to the Exchange that they are not relying
on any such exemption in connection with any securities offering and
will be required to provide the Exchange with copies of any ``blue sky
memoranda'' prepared in connection with the issuance of shares.\40\
These steps will allow the Exchange to assure that the company is not
inappropriately relying on such an exemption.
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\37\ 17 CFR 240.3a51-1. The Exchange is not seeking an exemption
from the penny stock rules for securities listed on BX, however a
security may be excluded from the definition of a penny stock as a
result of the security having a price in excess of $5 or its issuer
having net tangible assets in excess of $2 million (if the issuer
has been in continuous operation for at least three years) or $5
million (if the issuer has been in continuous operation for less
than three years) or average revenue of at least $6 million for the
last three years. Rule 3a51-1(d) and (g), 17 CFR 240.3a51-1(d) and
(g).
\38\ 15 U.S.C. 77r.
\39\ The Exchange notes that the Massachusetts Securities
Division has requested comment on a proposed change to its
regulations to eliminate its exemption from the registration
requirement for securities listed on the BX Venture Market. See
http://www.sec.state.ma.us/sct/sctnewregs/newregsidx.htm#hearing.
\40\ Proposed Rule 5250(e)(7). The Exchange has proposed to add
these requirements in response to comments submitted on the original
proposal.
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Qualitative Listing Standards
The BX Venture Market corporate governance requirements are
generally comparable to those of the other exchanges. The Exchange
would require that a listed company have an audit committee comprised
of at least three independent directors that also meet the requirements
of SEC Rule 10A-3.\41\ For a director to be considered an independent
director, the company's board would have to determine that the
individual does not have a relationship which, in the board's opinion,
would interfere with the exercise of independent judgment in carrying
out the responsibilities of a director.\42\ The board would be
precluded from finding a director independent based on certain
relationships, including if that director
[[Page 27716]]
is currently an employee of the company or was employed by the company
during the prior three years (including as an executive officer),
accepted certain compensation or payments from the company during the
prior three years, or had a family member with certain affiliations
with the company.\43\
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\41\ 17 CFR 240.10A-3. See proposed Rule 5605(c)(2). Companies
may be eligible for a phase-in or cure period with respect to
certain of these requirements.
\42\ Proposed Rule 5605(a)(2) and IM-5605-1. The proposed
definition of an independent director is identical to NASDAQ's
definition of an independent director.
\43\ Id.
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The audit committee would be required to have a charter setting out
its responsibilities, including the committee's purpose of overseeing
the accounting and financial reporting processes of the company and the
audits of the company's financial statements and the responsibilities
and authority necessary to comply with SEC Rule 10A-3.\44\ The audit
committee, or another independent body of the board, will also be
required to conduct an appropriate review and oversight of any related
party transaction.\45\ The Exchange believes that this requirement will
limit the potential for self-dealing in connection with any related
party transactions.
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\44\ Proposed Rule 5605(c)(1).
\45\ Proposed Rule 5630.
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The Exchange would also require that independent directors make
compensation decisions concerning the chief executive officer and other
executive officers.\46\ Independent directors would be required to meet
on a regular basis in executive sessions.\47\ These requirements for
audit committees, compensation decisions, and executive sessions are
identical to those of NASDAQ and substantially similar to those of the
other national securities exchanges and the Exchange believes they will
serve to empower the independent directors of its listed companies.
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\46\ Proposed Rule 5605(d) and IM-5605-6. A company can satisfy
this requirement by having their independent directors make these
decisions in executive session, or by having independent directors
sit on a compensation committee. If the company chooses to use a
compensation committee and the committee is comprised of at least
three members, one director who is not independent as defined in
Rule 5605(a)(2) and is not a current officer or employee or a Family
Member of an officer or employee, may be appointed to the
compensation committee under exceptional and limited circumstances,
provided the company makes appropriate disclosure. Of course the
Exchange will adopt rules required by Section 952 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act following the
necessary SEC rulemaking related to that provision. See Listing
Standards for Compensation Committees, Release No. 33-9199 (April 6,
2011) (76 FR 18966).
\47\ Proposed Rule 5605(b).
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While the Exchange would require that a listed company have at
least three independent directors to satisfy the audit committee
requirement described above, it would not require that a majority of
the company's board of directors be independent or an independent
nomination committee because the Exchange believes those requirements
could impose significant additional costs on these smaller companies
and therefore discourage companies from pursuing an otherwise
beneficial listing. In that regard, given the significant
responsibilities imposed on audit and compensation committee members,
directors who serve on these committees are sometimes reluctant to
serve on other committees. As such, if the BX Venture Market were to
also require an independent nominations committee, companies may have
to increase the size of their boards and add additional independent
directors. Similarly, requiring that independent directors comprise a
majority of a company's board could also require companies to add
additional independent directors. In each case, the need to add
independent directors would impose additional costs on the company.\48\
Moreover, nothing in the Commission's rules or the Act mandate these
requirements.\49\ However, the Exchange believes that the requirement
for executive sessions of the independent directors will provide a
forum for the independent directors to consider whether the governance
structure of the company is appropriate and raise any concerns,
notwithstanding the lack of a majority independence and nominations
committee requirement.
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\48\ The 2008-2009 Director Compensation Report prepared by the
National Association of Corporate Directors (available from http://www.nacdonline.org/) found that the median total direct compensation
per director was $78,060 for smaller companies (defined as companies
with annual revenues of $50 to $500 million).
\49\ See, e.g., Item 407(a) of Regulation S-K, which requires
disclosure of non-independent directors who serve on nomination
committees, implicitly allowing such service.
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Companies listing on the BX Venture Market will be permitted to
phase in compliance with the audit committee and compensation committee
requirements following their listing. With respect to the audit
committee requirements, a company listing in connection with its
initial public offering would be required to have one independent
director on the committee at the time of listing; a majority of
independent members within 90 days of the date of effectiveness of the
company's registration statement; and all independent members within
one year of the date of effectiveness of the company's registration
statement. For this purpose, a company will be considered to be listing
in conjunction with an initial public offering only if it meets the
conditions in SEC Rule 10A-3(b)(1)(iv)(A), namely that the company was
not, immediately prior to the effective date of its registration
statement, required to file reports with the Commission pursuant to
Section 13(a) or 15(d) of the Act.
With respect to the compensation committee requirement, a company
listing in connection with its initial public offering, upon emerging
from bankruptcy, or that otherwise was not subject to a substantially
similar requirement prior to listing (such as a company only traded in
the over-the-counter market) would be required to have one independent
director on the committee at the time of listing; a majority of
independent members within 90 days of listing; and all independent
members within one year of listing. For this purpose, a company will be
considered to be listing in conjunction with an initial public offering
if immediately prior to listing it does not have a class of common
stock registered under the Act.
A company that transfers to the BX Venture Market from another
national securities exchange with a substantially similar requirement
will be immediately subject to the audit and compensation committee
requirements, provided that the company will be afforded the balance of
any grace period afforded by the other market.
The Exchange will require companies to adopt a code of conduct
applicable to all directors, officers and employees.\50\ Any waivers of
the code for directors or executive officers must be approved by the
board and disclosed. The Exchange believes that this requirement will
help promote the ethical behavior of individuals associated with
companies listed on the BX Venture Market.
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\50\ Proposed Rule 5610.
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In addition, the Exchange will require shareholder approval when a
company adopts or materially amends a stock option or purchase plan or
other equity compensation arrangement pursuant to which stock may be
acquired by officers, directors, employees, or consultants.\51\ The
Exchange would not require shareholder approval for other share
issuances, however, given that the companies expected to list on the
Exchange may have a greater need to issue shares more frequently or
more quickly, due to their expected smaller size and the business
challenges they may be facing. As such, the Exchange believes that the
cost and delay associated with seeking approval for share issuances
would discourage companies from pursuing an otherwise
[[Page 27717]]
beneficial listing.\52\ Nonetheless, the Exchange will require listed
Companies to provide notice of any 5% change in its shares outstanding
and any capital raising transactions,\53\ and the Exchange Staff will
review such issuances for public interest concerns, such as issuances
significantly below the market price or for the benefit of related
parties.
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\51\ Proposed Rule 5635.
\52\ In this regard, the proposed rules are comparable to the
rules of the National Stock Exchange, which require shareholder
approval for equity compensation issuances but not for other share
issuances. See National Stock Exchange Rule 15.6.
\53\ Proposed Rules 5250(e)(1) and (e)(7).
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Appeal Process
Companies denied initial listing or delisted by the Exchange would
be afforded an appeal process similar to that contained in the existing
Rule 4800 Series of the Exchange's rules, which was modeled on the
process available to companies listed on NASDAQ.\54\ The Exchange's
Listing Qualifications Staff only will be able to allow time-limited
exceptions for certain deficiencies from the continued listing
standards, such as the failure to file periodic reports, certain of the
corporate governance requirements and any quantitative deficiency which
does not contain a compliance period.\55\ Other of the continued
listing requirements would provide for automatic compliance periods,
including the market maker, market value of listed securities, and
audit committee requirements, and a determination that an officer,
director, promoter, or control person of a company was involved in any
event that occurred during the prior five years described in Item
401(f)(2)-(8) of Regulation S-K under the Act.\56\ If the company fails
to timely solicit proxies or hold its annual meeting or fails to meet
the minimum price requirement, or if Staff has public interest concerns
in connection with the company, or if a company represents itself as
listed on the NASDAQ Stock Market or refers to itself as a NASDAQ
listed-company, or attempts to rely on an exemption from state
securities registration that otherwise may be available under state law
to companies listed on the Exchange, the Listing Qualifications Staff
will issue an immediate delisting letter to the company.\57\ Any other
deficiency would result in the Listing Qualifications Staff issuing a
Public Reprimand Letter or a delisting notification.\58\ Hearings
Panels composed of individuals not affiliated with the Exchange would
be permitted to grant additional, but limited time to companies that
received a delisting notification, or to reverse a denial of initial
listing. A company could appeal a decision of the Hearings Panel to the
Listing and Hearing Review Council, which is a committee appointed by
the Exchange's Board to act for the Board with respect to listing
decisions.\59\ The Listing and Hearing Review Council decision would be
final, unless it is called for a discretionary review by the Exchange
Board. The compliance periods and discretion to allow a non-compliant
company to remain listed are generally shorter on the BX Venture
Exchange than would be allowed an equivalent company listed on NASDAQ.
For example, a Hearings Panel would only be permitted to grant 90
calendar days for a company to regain compliance with a listing
standard, instead of the 180 calendar days available on NASDAQ.
Similarly, a company that falls below the market value of listed
securities requirement would be provided a 90 calendar day compliance
period, instead of the 180 days available to a NASDAQ company.
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\54\ Nasdaq Listing Rules 5800-5899.
\55\ Proposed Rule 5810(c)(2).
\56\ Proposed Rule 5810(c)(3).
\57\ Proposed Rule 5810(c)(1).
\58\ Proposed Rule 5810(c).
\59\ Section 6.1 of the By-Laws on NASDAQ OMX BX, Inc.
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Oversight of Market Activity
The Exchange represents that it will have in place before the BX
Venture Market is operational a contractual arrangement with FINRA to
regulate market activity on the BX Venture Market, as it does today for
NASDAQ. FINRA's oversight will include review of trading that takes
place on the over-the-counter market in securities listed on the BX
Venture Market. Based on its breadth of experience overseeing the over-
the-counter markets and advanced technology, FINRA will implement
electronic surveillance patterns designed to detect a wide range of
potential issues, including, for example, insider trading, front-
running, fraud, auto-execution manipulation, mid-point cross
manipulation, wash sales, layering, open/close marking, and Reg SHO
clearing fails. FINRA intends to revise a number of its existing
automated surveillance patterns to incorporate NASDAQ OMX BX trading
activity and over-the-counter trading activity in issues eligible for
trading on The BX Venture Market, and will develop and implement
specific automated surveillance patterns to address any rule and
functionality changes resulting from The BX Venture Market initiative.
FINRA will enhance its review process by calibrating surveillance
patterns to detect potential issues that may arise particularly in low
priced, less liquid stocks. In addition, the Exchange and FINRA will
leverage the expertise of SMARTS Group, a leading technology provider
of market surveillance solutions to exchanges and regulators around the
world,\60\ in creating a new suite of quoting and trading patterns to
detect suspicious activity in low priced and less widely traded
securities. Further, FINRA will review the activity of firms on the BX
Venture Market when conducting their reviews of these firms. This
review will include ``focused exams'' concentrated on sales practices
and firm oversight. The review will include any other activities
required to effectively regulate the Market.
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\60\ SMARTS Group is a subsidiary of NASDAQ OMX.
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The Exchange represents that an agreement with FINRA for these
activities will be in place before the BX Venture Market begins
operations. Notwithstanding the contractual arrangement with FINRA, the
Exchange retains ultimate legal responsibility for and control of all
regulatory functions for the Exchange.
The Exchange will monitor real-time trading of securities listed on
the BX Venture Market, and plans to implement a broad suite of realtime
surveillance patterns and functional analysis tools based on the most
up-to-date technology solution, SMARTS.
The Exchange will provide a monthly report to the Directors of the
Division of Trading and Markets and the Office of Compliance,
Inspections and Examinations describing any significant developments on
the BX Venture Market, including companies added or removed from the
market during that period. In addition, the Exchange's Chief Regulatory
Officer will provide quarterly reports to the Directors of the Division
of Trading and Markets and the Office of Compliance, Inspections and
Examinations describing the regulatory activities of the Exchange and
FINRA during the prior quarter. The Exchange will also provide copies
of the Listing Department's procedures manuals and surveillance
procedures used by FINRA and the Exchange to the Commission's Office of
Compliance, Inspections and Examinations. Finally, before the BX
Venture Market is operational, the Exchange will represent, in a letter
to the Staff in the Commission's Office of Compliance Inspections and
Examinations, that it and FINRA have adequate regulatory procedures and
programs in place to effectively regulate the BX Venture Market and its
listing
[[Page 27718]]
program, and adequate procedures and programs in place to effectively
process trades and maintain the confidentiality, integrity, and
availability of the Exchange's systems.
Market Data
The Exchange has committed to broad dissemination of quotation and
last sale information about BX Venture Market listed securities to
ensure that public investors and all market participants have all the
information needed to make informed investing and trading decisions.
Information about securities listed on the BX Venture Market will be
disseminated via several mechanisms. First, BX Venture Market listed
securities will have real-time consolidated market data for both quotes
and trades consistent with that provided by the network processors for
national market system securities. The Exchange notes that operation of
the BX Venture Market will be conditioned by the Commission upon
approval and operation of an arrangement by the Exchange and FINRA to
consolidate and disseminate the best quotation and last sale data for
BX Venture Market listed securities that is made available by BX and
FINRA.\61\ The consolidated market data for BX Venture Market listed
securities will be made available at no charge for the foreseeable
future.\62\ Second, the Exchange will disseminate real-time last sale
data, tick-by-tick details, and best bid and offer quotations and trade
data from the BX execution system.\63\
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\61\ The Commission notes that its order in Section VI, infra,
does not contain this condition.
\62\ The Exchange will, as always, be required to file a
proposed rule change in order to assess a fee for this data in the
future.
\63\ BX Last Sale provides real-time last sale data from the BX
execution systems. BX TotalView provides tick-by-tick details for
all displayable orders in the BX Execution systems, and BX Basic
provides best bid and offer quotations and trade data from the BX
execution system.
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Market data regarding BX Venture Market listed securities will be
disseminated in a manner that facilitates adoption and use of the new
data provided, in that the Exchange will ensure ease and efficiency for
market data vendors and potential recipients. Specifically,
consolidated data will leverage the widespread distribution network and
administrative operations that the Exchange already employs including
existing market data contracts, connectivity ports, transmission lines,
network operations, data message specifications, billing and auditing.
By leveraging existing data technology and administration, data
regarding BX Venture Market listed securities will become instantly
available through hundreds of market data distributors reaching an
audience of millions of potential users via multiple distribution
channels.
Further, the Exchange is committed to ensuring that BX Venture
Market securities are clearly distinguished, and distinguishable, from
securities listed on the traditional exchanges on those data products
and to end-users of the data. To that end, all market data for BX
Venture Market securities will include a unique data identifier in the
``Market Center'' field to distinguish the security from those listed
on other exchanges and the over-the-counter markets. This Market Center
identifier is already utilized by the Exchange and network processors
on every consolidated and proprietary data feed supplied by the network
processors and by NASDAQ and other national securities exchanges. The
Market Center identifier is utilized by the network processors to
demarcate, for example, NASDAQ (``Q''), NYSE (``N''), Amex (``A''),
Arca (``P''), and OTC stocks. BX Venture Market listed securities would
be identified with its own unique Market Center identifier ``B'' on any
new BX consolidated data feeds and in the BX Venture Market Daily List
data product.\64\ The Daily List data product will be adopted through
an amendment to Rule 7022 in a separate filing with the Commission.
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\64\ At the request of Commission staff, the Exchange assessed
the feasibility of adopting a multi-character market center
identifier, and it concluded that this proposal is infeasible.
Single-character market center identifiers are hard-coded into a
worldwide network of market data distributors and cannot be
modified. The Exchange also investigated without success adopting
other options including root symbol modifiers and lengthy security
symbols.
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The Exchange will require market data distributors, through
distribution agreements and by amendments to its global data policy
document to prominently identify the BX Venture Market as the listing
market, and, where the display of text is not consistent with the
display methodology or user needs of the distributor, to use the Market
Center identifier ``B'' to prominently display the listing market with
quotation and last sale information for BX Venture Market-listed
securities. Every market data vendor that distributes BX Venture Market
data to users must sign a data distribution agreement. These agreements
bind the data vendor to abide by the terms and conditions of data
purchase and usage, including conditions governing data display within
the global data policy document. The requirement to prominently display
the listing market will be a legal obligation backed by contractual
sanctions including termination of the distribution agreement. These
agreements have been used effectively in the past to require the
display of key data elements to customers. The Exchange represents that
these agreements will be in place before the BX Venture Market begins
operations, and that the Market Center identifier will be distributed
and required to be displayed upon the launch of the market.
Market data distributors and data users, including retail
investors, are already familiar with this approach. Data distributors
such as Bloomberg and Thompson Reuters, Internet portals such as Google
and Yahoo, mutual fund complexes and brokers such as Vanguard, Schwab,
and E*Trade, all currently use Market Center identifiers to understand
where a security is listed and display that information on their Web
sites and portals, typically next to the company name. For example, on
Yahoo's Web site, ``NasdaqGS'' is currently displayed next to the name
of all companies listed on The NASDAQ Global Select Market; that
display would read, for BX Venture Market companies, ``BX Venture'' or
``BX Venture Market.'' The requirement that the Market Center
identifier for BX Venture Market listed securities be prominently
displayed by all of these market participants will mean that investors
viewing a quotation or last sale report will be able to clearly
distinguish a stock listed on the BX Venture Market from those listed
on NASDAQ or other markets.
The Exchange will, in connection with the launch of the BX Venture
Market, proactively review the displays of prominent data distributors
and require immediate compliance if they fail to meet the requirements
of the market data agreements. Following the launch of the BX Venture
Market, the Exchange will conduct periodic audits of all market data
vendors to ensure compliance. If a market data vendor does not satisfy
the Exchange's display requirements, the Exchange will take action
against the vendor, up to and including terminating the vendor's
ability to receive data from the Exchange. The Exchange is committed to
working with market participants and the Commission to evaluate, on an
on-going basis, whether this display requirement is effective in
distinguishing BX Venture Market-listed securities from other national
exchange-listed securities in order to reduce investor confusion.
Symbology
The assignment of symbols for companies listed on the BX Venture
[[Page 27719]]
Market will be governed by the existing National Market System Plan for
the Selection and Reservation of Securities Symbols, which is the
exclusive means of allocating and using trading symbols. Pursuant to
that Plan, securities listed on the BX Venture Market, like every other
national securities exchange today, are eligible to have a trading
symbol of one to five characters. This eligibility is important because
the BX Venture Market is intended to afford a listing venue for
companies formerly listed on other national securities exchanges, which
will want to retain their symbols.\65\ In approving the symbology Plan,
the Commission distinguished securities listed on an exchange, which
can trade with a symbol of one to five characters, from those trading
over the counter, which can trade only with a four or five character
symbol, noting that ``[e]xchange listing standards are approved by the
Commission and must include corporate governance requirements that
comply with Rule 10A-3 under the Exchange [sic] Act. Issuers traded on
over-the-counter equity venues (including the OTCBB and Pink Sheets)
are not subject to such listing standards.''\66\
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\65\ The Commission found that allowing all exchanges to utilize
from one to five characters minimizes investor confusion when a
company changes its listing from one venue to another. Securities
Exchange Act Release No. 58904 (November 6, 2008), 73 FR 67218 at
67227 (November 13, 2008) (``The Commission finds that allowing the
automatic portability of a symbol in the event that an issuer
transfers its listing to another exchange will further the purposes
of the Act and should reduce investor confusion by allowing the
symbol already associated with the issuer to continue to be used by
the issuer on the new exchange.''). The Commission also noted that
the portability feature of the plan would promote ``competition
among listing markets, including potential new listing markets.''
Id. at 67224 (emphasis added).
\66\ Id. at 67225 (footnotes omitted). The Exchange notes that
it will have listing standards approved by the Commission, including
corporate governance requirements that comply with Rule 10A-3, and
go far beyond those requirements.
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Although all BX Venture Market listed companies are subject to
listing standards approved by the Commission, and must meet corporate
governance requirements similar to those required for listing on other
national securities exchanges, the Exchange will require Companies not
previously listed on a national securities exchange to adopt a four or
five character ticker symbol as a prerequisite to listing on the BX
Venture Market. Companies that list on the BX Venture Market following
a delisting from another national securities exchange and that traded
on that exchange with a one, two, or three character ticker symbol,
will be permitted to retain their ticker symbol when listing on the BX
Venture Market, provided that the company must, prior to listing on the
BX Venture Market, issue a press release announcing its delisting from
the other exchange and comply with the disclosure requirements of Item
3.01 of Form 8-K.\67\
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\67\ Proposed Rule 5210(j).
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Fees
Companies would be required to submit an application review fee of
$7,500 with their application for listing on the BX Venture Market, and
would be required to pay a $15,000 annual fee for the first class
listed on the Exchange and $5,000 for each additional class. The annual
fee would be pro-rated for a company's first year of their listing. The
application review fee will allow the Exchange to recover some of the
costs associated with the initial review of the company's application,
including staff time and the systems supporting the initial review
process. The annual fee would similarly offset the staff and system
costs of continued monitoring of the company. The proposed application
and annual fees are substantially less than those charged by other
national securities exchanges.\68\ Companies that were previously
listed on NASDAQ would receive a credit, which can only be used to
offset the annual fee, for any annual fees paid to NASDAQ during the
same calendar year that they initially list on the BX Venture Market,
for the months following their delisting from NASDAQ. The Exchange
believes this credit is a reasonable allocation of fees under the Act
because it will avoid a double charge of a company that has paid NASDAQ
a non-refundable fee to provide similar services as those that will be
provided by the Exchange under its annual fee. As such, the Exchange
believes it would be inequitable to charge the company a second fee in
the same year to support the provision of those services. Companies
eligible for a credit would of course undergo the same rigorous initial
listing application process to which all companies seeking a listing on
the Exchange are subject.
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\68\ For example, the initial listing fees for listing common
stock on the NASDAQ Capital Market range from $50,000 to $75,000 and
the annual fees are $27,500; the initial listing fees for listing
common stock on NYSE Amex range from $50,000 to $70,000 and the
annual fees range from $27,500 to $40,000; the initial listing fees
for listing common stock on the New York Stock Exchange range from
$150,000 to $250,000 and the annual fees range from $38,000 to
$500,000. See Nasdaq Rule 5920(a)(1) and (c)(1)(A), NYSE Amex Listed
Company Guide Sections 140 and 141, and NYSE Listed Company Manual
902.03.
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Fees would also be assessed for certain one-time events, such as a
$7,500 fee for substitution listing events, a $2,500 fee for record-
keeping changes, and a $4,000 or $5,000 fee for a written or oral
hearing, respectively. These fees are identical to those charged on
NASDAQ and are designed to recoup the costs of making changes to the
Exchange's systems and distributing those changes to market data users.
Under Proposed Rule 5602, a company considering a specific action
or transaction can request an interpretation from the Exchange, and in
return, the Exchange will prepare a responsive letter as to how the
rules apply to the proposed action or transaction. No company is
required to request an interpretation, and Staff will orally discuss
the application of the Exchange's rules with companies without any
additional charge. However, if the company seeks a written response,
the Exchange proposes to charge a $15,000 fee to recoup the cost of
Staff's time in reviewing and responding to the request.\69\ The
Exchange believes that the fee is appropriate, as the written response
is applicable only to the company that requests it. The Exchange also
believes that the written interpretive process, and the associated fee,
will provide an additional public benefit in that Staff will prepare
anonymous summaries of interpretations, as well as frequently asked
questions based on requests received from companies, including those
withdrawn before a written response is issued. These summaries and
questions will be posted on the Exchange's Web site so that the general
public, practitioners, and other companies can better understand how
the Exchange applies its rules and policies. In this way, the overall
need to request such interpretations is minimized, thus reducing
burdens on companies and Staff alike.
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\69\ No fee would be charged in connection with requests
involving a company's initial listing application given that the
company will pay an application fee.
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Other Changes
As part of the proposed rule change, the Exchange is deleting
portions of the Rule 4000 Series related to the listing and trading of
securities eligible to be listed on the BX Venture Market and
correcting cross-references to those deleted sections. The Exchange is
maintaining those provisions of the Rule 4000 Series applicable to
securities that will not be eligible to be listed on the BX Venture
Market, such as Portfolio Depository Receipts, Index Fund Shares,
[[Page 27720]]
Trust Issued Receipts, Securities Linked to the Performance of Indexes
and Commodities, and Managed Fund Shares, to enable the continued
trading of such securities on the Exchange pursuant to unlisted trading
privileges.
The Exchange is deleting Rule 4430, which provided listing criteria
for limited partnership rollup transactions using language that was
substantially similar to language contained in FINRA Rule 2310.
Instead, the Exchange addresses these issues in proposed Rule 5210(h).
This rule adopts the same approach taken by NASDAQ and NYSE AMEX by
incorporating the FINRA rule by reference.\70\ In this manner, the
Exchange satisfies the requirement of Section 6(b)(9) of the Act,\71\
which requires that the rules of a national securities exchange
prohibit certain limited partnership rollup transactions.
---------------------------------------------------------------------------
\70\ Nasdaq Rule 5210(h) and NYSE Amex Listed Company Guide
Section 126.
\71\ 15 U.S.C. 78f(b)(9).
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The Exchange is also moving the additional requirements applicable
to the listing of securities issued by NASDAQ OMX or its affiliates
from Rule 4370 to Rule 5701.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\72\ in general and with
Section 6(b)(5) of the Act,\73\ in particular in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest. The proposed new listing
venue will advance these goals by allowing qualified issuers to list on
a transparent, well-regulated marketplace with increased transparency
about the trading of these securities, thereby protecting investors and
the public interest and helping to prevent fraudulent and manipulative
acts and practices.
---------------------------------------------------------------------------
\72\ 15 U.S.C. 78f.
\73\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
In addition, the Exchange believes that the proposed market is
consistent with Section 17B of the Act, which codifies Congress'
findings that it is in the public interest and appropriate for the
protection of investors and the maintenance of fair and orderly markets
to improve significantly the information available to brokers, dealers,
investors, and regulators with respect to quotations for and
transactions in penny stocks and that a fully implemented automated
quotation system for penny stocks would meet the information needs of
investors and market participants and would add visibility and
regulatory and surveillance data to that market. Section 17B further
instructs the Commission to facilitate the widespread dissemination of
reliable and accurate last sale and quotation information with respect
to penny stocks, as the Exchange will for securities listed on the BX
Venture Market, through one or more automated quotation systems
operated by a registered securities association or a national
securities exchange, providing reliable pricing information and
reporting of transactions.
Finally, the Exchange believes the fees proposed in this filing are
consistent with Section 6 of the Act,\74\ in general, and with Section
6(b)(4) of the Act,\75\ in particular, in that they provide for the
equitable allocation of reasonable dues, fees and other charges among
members and issuers and other persons using any facility or system
which the Exchange operates or controls. The application and listing
fees are substantially lower than comparable fees on The NASDAQ Stock
Market and other national securities exchanges, commensurate with the
smaller size and resources of the companies the BX Venture Market will
attract. The application review fee and annual fees will allow the
Exchange to recover some of the costs associated with the initial
review of the company's application and monitoring of the company,
including staff time and the systems supporting the review and
monitoring. The fee schedule provides for a credit to offset an annual
fee paid to NASDAQ for any company that lists on the BX Venture Market
after a delisting from NASDAQ during the same calendar year. The
Exchange believes this is a reasonable allocation of fees under the Act
because it would be inequitable to charge a company a second fee in the
same year to support services similar to those it had already paid for
previously.
---------------------------------------------------------------------------
\74\ 15 U.S.C. 78f.
\75\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
Fees are proposed for certain one-time events, such as substitution
listings, recordkeeping changes, and written or oral hearings. These
fees, which are the same as those charged on NASDAQ, offset some of the
Exchange's costs associated with facilitating these events. Fees
charged for a formal, written interpretation of the application of the
Exchange's rules to a specific transaction or event similarly serve to
recoup the cost of staff's time in providing the interpretation. The
Exchange believes these fees are reasonable and fairly allocated. Staff
will orally discuss the application of the Exchange's rules without any
charge, and the Exchange provides written summaries of interpretations,
the answers to frequently asked questions, and other guidance on its
publicly available Web site. If, however, a company voluntarily
requests a written interpretation tailored its unique facts, it is
reasonable to recoup some cost of Staff's time for that process.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received.
III. Discussion
After careful review of the proposal and consideration of the
comment letters,\76\ the Commission finds that the proposed rule change
to establish a new listing market on the Exchange is consistent with
the requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange and, in particular, the
requirements of Section 6 of the Act.\77\ Specifically, the Commission
finds that the proposal is consistent with Section 6(b)(5) of the
Act,\78\ which, among other things, requires that rules of a national
securities exchange to be 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, to protect
investors and the public interest, and to not permit unfair
discrimination between customers, issuers, brokers, or
[[Page 27721]]
dealers.\79\ In addition, the Commission finds that the proposed fees
are consistent with Section 6(b)(4) of the Act,\80\ which requires that
an exchange have rules that provide for the equitable allocation of
reasonable dues, fees, and other charges among its members and issuers
and other persons using its facilities.
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\76\ The Commission received eleven comment letters on the
proposal. Of the comment letters received, five supported the
proposal (Madrona Letter; Angel Letter; NVCA Letter; TechNet Letter;
and BIO Letter), one generally supported the proposal but expressed
several concerns (Niehoff Letter), and five opposed the proposal
(MSD Letter; Pink OTC Markets Letter; OTC Markets Group Letter; MSD
Letter II; and McCarthy Letter).
\77\ 15 U.S.C. 78f.
\78\ 15 U.S.C. 78f(b)(5).
\79\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rules' impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\80\ 15 U.S.C. 78f(b)(4).
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A. Benefits of the BX Venture Market
As noted above, the Exchange believes that the BX Venture Market
will provide a transparent, well-regulated marketplace for companies
being delisted from another national securities exchange for failure to
meet quantitative listing standards and for smaller companies
contemplating an initial exchange listing.\81\ In addition, the
Exchange notes that the BX Venture Market could make it easier for
smaller, private, venture-backed companies and companies that currently
trade in the over-the-counter market to raise capital, thereby,
according to the Exchange, promoting job creation.\82\
---------------------------------------------------------------------------
\81\ See Amendment No. 2.
\82\ Id.
---------------------------------------------------------------------------
In the Order Instituting Proceedings, the Commission asked whether
commenters agree with the Exchange's contention that a BX listing could
help companies raise capital and thus promote job creation within the
United States. Five commenters supported this statement,\83\ while one
commenter disagreed.\84\ Commenters in support asserted that, because
of the lower listing standards of the BX Venture Market, this market
will be particularly valuable to smaller and emerging companies that
wish to make a public offering but are unable to meet the quantitative
listing standards of other national securities exchanges.\85\ A few
commenters also expressed their belief that the BX Venture Market would
attract companies and capital that might otherwise be drawn to foreign
markets.\86\ Three commenters opined that the BX Venture Market would
attract companies that would otherwise transfer to, or remain on, the
Pink Sheets or the OTC Bulletin Board, where there is less regulation
and transparency.\87\ The commenter who disagreed with the Exchange's
statement believed that the over-the-counter market currently provides
a robust solution for companies that are unable to meet the listing
standards of a national securities exchange, and that the BX Venture
Market seeks to occupy a niche that is already well-served by the over-
the-counter market.\88\
---------------------------------------------------------------------------
\83\ See Madrona Letter, supra note 5 at 1-2; TechNet Letter,
supra note 8 at 1; BIO Letter, supra note 8 at 2; NVCA Letter, supra
note 8 at 2-3; and Angel Letter, supra note 8 at 3-4. See also
Niehoff Letter, supra note 8 at 3.
\84\ See OTC Markets Group Letter, supra note 8.
\85\ See Madrona Letter, supra note 5 at 1; TechNet Letter,
supra note 8 at 1; BIO Letter, supra note 8 at 1-2; and NVCA Letter,
supra note 8 at 1-2.
\86\ See Madrona Letter, supra note 5 at 2. See also Angel
Letter, supra note 8 at 8 (stating that companies voluntarily ``go
dark'' and that the SEC has made it easier for foreign issuers to
deregister from U.S. markets) and Niehoff Letter, supra note 8 at 3
(stating that foreign second and third tier markets have yielded
positive acceptance and economic results for U.S. issuers that have
sought foreign marketplaces for their listings).
\87\ See TechNet Letter, supra note 8 at 1. See also NVCA
Letter, supra note 8 at 3 and Angel Letter, supra note 8 at 10. One
commenter specifically stated that the ``Commission should quickly
approve experiments like [the BX Venture Market] in the small-cap
sector because of the crisis in capital formation indicated by the
dramatic drop in the number of exchange-listed U.S. companies.''
Angel Letter, supra note 8 at 1.
\88\ See OTC Markets Group Letter, supra note 8 at 2.
---------------------------------------------------------------------------
The Commission believes the BX Venture Market could offer a number
of benefits to smaller issuers and those who seek to invest in them.
The BX Venture Market would provide small companies with an alternative
to being quoted on the over-the-counter market by offering these
companies the opportunity to list their securities on an exchange, in
an environment that offers the potential of enhanced liquidity,
transparency and oversight. Moreover, providing an alternative to the
over-the-counter market could also facilitate competition for the
quotation/listing of securities of smaller issuers.\89\ The
availability of an exchange listing, and the prospect of more efficient
secondary market trading in the securities of smaller issuers, could
facilitate their ability to raise capital and invest in the growth of
their businesses.
---------------------------------------------------------------------------
\89\ The Commission notes that such companies could determine
not to pursue a listing on the BX Venture Market if they determine
that the over-the-counter market better serves their needs. In
addition, the Commission notes that securities of small companies
could continue to be traded over-the-counter, even if listed on the
BX Venture Market.
---------------------------------------------------------------------------
As discussed more fully below,\90\ the Commission believes the
Exchange has appropriately addressed the potential risks associated
with the listing of smaller issuers on an exchange by, among other
things, providing for more rigorous vetting of listing applicants,
enhanced surveillance of trading in BX-listed securities, and clear
disclosure to investors that BX-listed securities differ from other
exchange-listed securities.
---------------------------------------------------------------------------
\90\ See Section III.C, infra.
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B. Listing Standards
The Commission believes that, among other things, listing standards
must be designed to assure that only bona fide companies with
substantial public float, investor base, and trading interest will be
listed. The development and enforcement of adequate listing standards
governing the initial and continued listing of securities on an
exchange are activities of critical importance to the financial markets
and the investing public.\91\ Listing standards serve as a means for an
exchange to screen issuers and to provide listed status only to bona
fide companies that have, or in the case of an initial public offering
will have, sufficient public float, investor base, and trading interest
to provide the depth and liquidity necessary to promote fair and
orderly markets.\92\ Adequate standards are especially important given
the expectations of investors regarding exchange trading and the
imprimatur of listing on a particular market.\93\ Once a security has
been approved for initial listing, continued listing standards allow an
exchange to monitor the status and trading characteristics of that
security to ensure that it continues to meet the exchange's standards
for market depth and liquidity so that fair and orderly markets can be
maintained, and so that only companies suitable for listing remain
listed on a national securities exchange.
---------------------------------------------------------------------------
\91\ See, e.g., Securities Exchange Act Release No. 61912 (April
15, 2010), 75 FR 21094, 21094 (April 22, 2010) (SR-NYSE-2010-15).
\92\ See id.
\93\ See id.
---------------------------------------------------------------------------
While the BX Venture Market would have quantitative listing
standards that are lower than those of any other national securities
exchange with an active listings program, the Commission notes that the
Exchange proposes to adopt a number of enhanced vetting, surveillance/
examination, and disclosure requirements.\94\ As discussed in more
detail below, the Commission views these enhanced requirements as being
a necessary and integral part of the BX Venture Market proposal.\95\
Accordingly, for the reasons discussed below, the Commission finds that
the BX Venture Market listing standards, when viewed in conjunction
with the Exchange's enhanced vetting, surveillance/examination, and
disclosure requirements, are consistent with the Act.
---------------------------------------------------------------------------
\94\ See Section III.C, infra.
\95\ See id.
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[[Page 27722]]
1. Quantitative Standards
In the Order Instituting Proceedings, the Commission asked whether
the proposed initial and continued listing standards and the delisting
process for the BX listing market are sufficiently designed to prevent
the listing of stocks that are of a type that historically have been
prone to fraudulent schemes. One commenter stated that the BX Venture
Market will be a listing market for penny stocks because of the
proposed minimum bid price requirements.\96\ In its response, the
Exchange noted that its listed penny stocks will not be exempt from the
Commission's penny stock rules,\97\ and stated its belief that its
regulatory program will provide appropriate and adequate oversight.\98\
Another commenter also expressed concern regarding the level of certain
quantitative listing standards of the BX Venture Market.\99\
---------------------------------------------------------------------------
\96\ See MSD Letter, supra note 5 at 2. See also MSD Letter II,
supra note 8 at 1-2.
\97\ See 15 U.S.C. 78o(h) and 17 CFR 240.15g-1-100.
\98\ See BX Response Letter, supra note 9 at 4.
\99\ See McCarthy Letter, supra note 8 at 2.
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The Commission believes that the proposed quantitative listing
standards, while lower than those of any other national securities
exchange with an active listings program, are reasonably designed to
help ensure that a fair and orderly market be maintained. As proposed,
the minimum bid price per share for the initial listing of securities
not previously listed on a national securities exchange is $1.00,\100\
while the minimum bid price for securities previously listed on a
national securities exchange is $0.25.\101\ For purposes of the initial
bid price requirement, a company will be considered to have been
previously listed on another national securities exchange if it was
listed on such an exchange at any time during the three months before
its listing on the BX Venture Market, or in the case of a company that
applies to list prior to September 30, 2011, if it was listed on
another national securities exchange at any time between January 1,
2010 and September 30, 2011.\102\
---------------------------------------------------------------------------
\100\ See BX Rule 5505(a)(5).
\101\ See BX Rule 5506(a)(4).
\102\ See BX Rule 5506(b).
---------------------------------------------------------------------------
With respect to the definition of ``previously listed on a national
securities exchange,'' one commenter stated that ``[w]e do not
understand why the Exchange suggests a three year and nine month look-
back for initially determining whether a security was previously listed
on another exchange, and only a three-month look-back when making such
a determination after September 30, 2011.'' \103\ The Commission notes
that, subsequent to this comment, the Exchange shortened the look-back
period, which will now begin on January 1, 2010. The Exchange believes
that this look-back period is appropriate because the BX Venture Market
would not have been available to such companies when they were
delisted.\104\ Further, the Exchange stated that it is appropriate to
continue this treatment until September 30, 2011 because it will give
such companies an adequate opportunity to learn about the BX Venture
Market, complete their applications, and have their applications
processed by the Exchange.\105\ Additionally, the Exchange stated that
the three-month look-back as period after September 30, 2011 is
appropriate because it will allow a company sufficient time to apply
for listing on the BX Venture Market and have its application
processed.\106\
---------------------------------------------------------------------------
\103\ OTC Markets Letter, supra note 8 at 8.
\104\ See Amendment No. 2. The Exchange also stated that a
number of companies were delisted in 2010 as a result of the
financial crisis, and this look-back will allow these companies,
which may have recovered but not yet meet the initial listing
requirements of another exchange, to list on the BX Venture Market.
See id.
\105\ See id.
\106\ See id.
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For continued listing, all securities will be required to maintain
a minimum bid price of at least $0.25 per share.\107\ With respect to
the bid price requirement for continued listing on the Exchange, the
Commission notes that if the security does not maintain a minimum $0.25
per share bid price for 20 consecutive trading days, Exchange staff
would issue a Staff Delisting Determination to inform the company that
its securities are immediately subject to suspension and delisting from
the Exchange.\108\ While a company could appeal that determination to a
Hearings Panel,\109\ such an appeal would not stay the suspension of
the security.\110\ The Hearings Panel may determine that the company
has regained compliance if the security maintains a closing bid price
of $0.25 per share or more for at least 10 consecutive trading days on
the over-the-counter market, prior to the Hearings Panel's
Decision.\111\ In addition, companies that have previously failed to
comply with the minimum bid price requirement would have stricter
requirements for achieving compliance. Specifically, for a company that
has received three or more Staff Delisting Determinations for failure
to comply with the minimum bid price requirement in the prior 12
months, the Hearings Panel would determine that the company has
regained compliance only if the security maintains a closing bid price
of $0.25 per share or more for at least 20 consecutive trading days
prior to the Hearings Panel's decision.\112\ The Commission believes
that this higher requirement for companies that were previously non-
compliant is appropriate to reduce the likelihood of future instances
of non-compliance and the potential investor confusion concerning the
ability of the company to remain listed.
---------------------------------------------------------------------------
\107\ See BX Rule 5550(d).
\108\ See BX Rule 5810(c)(1).
\109\ The Hearings Panel is an independent panel made up of at
least two persons who are not employees or otherwise affiliated with
the Exchange or its affiliates, and who have been authorized by the
Exchange's Board of Directors. See BX Rule 5805(d).
\110\ See BX Rule 5815(a)(1)(C).
\111\ See BX Rule 5815(c)(1)(F).
\112\ See Id.
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The Commission also notes that, according to the Exchange, the
securities listed on the BX Venture Market would be considered penny
stocks under Rule 3a51-1 under the Act, unless they qualify for one of
the exceptions from the definition of a penny stock as set forth in
Rule 3a51-1.\113\ As such, broker-dealers would be required to pre-
approve their customers for trading in penny stocks and investors will
obtain the disclosures required to be made by broker-dealers in
connection with penny stock transactions, providing them with trade and
market information prior to effecting a transaction.\114\ Further,
there will be no ``blue sky'' exemption available under Section 18 of
the Securities Act of 1933 for BX Venture Market-listed
securities,\115\ so companies will be required to satisfy state law
registration requirements and other state laws that regulate the sale
and offering of securities. Because some state laws and regulations may
provide an exemption from certain registration or ``blue sky''
requirements for companies listed on the former Boston Stock Exchange,
based on the higher listing standards previously applied by that
Exchange, BX Rule 5103(c) would provide that the Exchange will not
list, and will delist any BX Venture Market-
[[Page 27723]]
listed company that attempts to rely on such an exemption. Finally, as
discussed in more detail below,\116\ the Commission notes that the
Exchange will have in place enhanced vetting, due diligence, and
surveillance procedures designed to limit the initial or continued
listing of companies that may be more prone to manipulation or fraud.
---------------------------------------------------------------------------
\113\ 17 CFR 240.3a51-1. The Exchange noted that it is not
seeking an exemption from the penny stock rules for securities
listed on the BX Venture Market: However, a security is not a penny
stock if it has a price in excess of $5 or if its issuer has net
tangible assets in excess of $2 million (if the issuer has been in
continuous operation for at least three years) or $5 million (if the
issuer has been in continuous operation for less than three years)
or average revenue of at least $6 million for the last three years.
See Amendment No. 2 (citing Rule 3a51-1(d) and (g), 17 CFR 240.3a51-
1(d) and (g)).
\114\ See Amendment No. 2.
\115\ 15 U.S.C. 77r.
\116\ See Section III.C, infra.
---------------------------------------------------------------------------
Furthermore, the Commission notes that the BX Venture Market would
be an alternative to the over-the-counter market and could provide
important benefits to small companies who otherwise would not qualify
for an exchange listing. In particular, the Exchange's proposed listing
standards would be higher than the requirements for quoting on the OTC
Bulletin Board, which does not have any listing requirements per
se,\117\ but only requires companies to remain current in their filings
with the Commission or other applicable regulatory authorities. For
example, as the Exchange notes, the agreement of BX-listed companies to
comply with the Exchange's corporate governance standards and the
application of the Exchange's public interest authority could provide
additional protections to investors than the protections available at
their present trading venue.\118\ The Commission also notes that
trading in BX-listed securities would be subject to regulation by the
Exchange through its trading rules and surveillance authority.
---------------------------------------------------------------------------
\117\ The OTC Bulletin Board is not a registered national
securities exchange and is therefore not subject to the requirements
of Section 6 or Section 19 of the Act.
\118\ See Amendment No. 2.
---------------------------------------------------------------------------
2. Qualitative Listing Standards
In the Order Instituting Proceedings, the Commission asked whether
the proposed corporate governance standards for the BX listing market
are sufficiently designed to assure an appropriate level of corporate
governance. One commenter expressed support for the proposed corporate
governance rules for BX-listed companies and stated that requiring
small and emerging companies to have majority independent boards would
be inappropriate and impose unnecessary costs upon these companies and
their shareholders.\119\ This commenter also expressed support for not
requiring shareholder approvals for capital raising activities and
stated that small companies frequently need to raise money without the
expense and delay associated with a shareholder vote in order to thrive
and react to opportunities.\120\
---------------------------------------------------------------------------
\119\ See NVCA Letter, supra note 8 at 2.
\120\ See id. at 2-3.
---------------------------------------------------------------------------
The Commission believes that the proposed qualitative listing
requirements strike a reasonable balance between protecting the
interests of investors and recognizing that smaller and emerging
companies, with fewer resources, are likely to list on the BX Venture
Market. The Commission notes that, although the Exchange would not
require that a majority of the company's board of directors be
independent or an independent nomination committee, the Exchange's
listing rules impose independence requirements designed to help assure
that certain key decisions of smaller companies are made by independent
directors. Specifically, the BX Rules provide the independent directors
with significant responsibilities, as well as an opportunity to meet
separately from other directors. For example, independent directors
must have regularly scheduled meetings at which only independent
directors are present (``executive sessions'').\121\ In addition, the
audit committee must be fully independent,\122\ and compensation of the
executive officers of the company must be determined, or recommended to
the board for determination, either by independent directors
constituting a majority of the board's independent directors in a vote
in which only independent directors participate, or a compensation
committee comprised solely of independent directors.\123\ These
provisions are designed to help lessen the potential of independent
directors being dominated or overly influenced by other directors.
---------------------------------------------------------------------------
\121\ See BX Rule 5605(b).
\122\ See BX Rule 5605(c)(2). In addition, BX Rule 5605(c)(2)
requires that each member of the audit committee must meet the
criteria for independence set forth in Rule 10A-3(b)(1) under the
Act (subject to the exemptions provided in Rule 10A-3(c) under the
Act). See id. BX Rule 5605(c)(2)(B), which is identical to Nasdaq
Capital Market Rule 5605(c)(2)(B), provides an exception to this
independence requirement under exceptional and limited
circumstances.
\123\ See BX Rule 5605(d). The chief executive officer may not
be present during the voting or deliberations on the chief executive
officer's compensation. See id. BX Rule 5605(d)(3), which is
identical to Nasdaq Capital Market Rule 5605(d)(3), provides an
exception to this independence requirement under exceptional and
limited circumstances.
---------------------------------------------------------------------------
One commenter objected to the proposed rules that allow BX Venture
Market-listed companies to phase-in compliance with independent audit
committee and compensation committee requirements.\124\ The commenter
stated that BX-listed companies should be required to comply
immediately with the proposed independent director requirements for the
audit and compensation committees and that the Exchange's failure to
require full compliance with these requirements prior to listing will
likely result in some investors purchasing securities of companies that
have inadequate audit standards or corporate governance practices.\125\
In response, the Exchange stated that the proposed phase-in periods are
identical to the rules of other national securities exchanges \126\ and
were permitted by the Commission's rulemaking regarding audit
committees.\127\ The Exchange also explained that the proposed phase-in
provisions acknowledge the difficulty emerging companies have in
recruiting independent directors.\128\
---------------------------------------------------------------------------
\124\ See Pink OTC Markets Letter, supra note 5 at 5-6 and OTC
Markets Group Letter, supra note 8 at 6.
\125\ See OTC Markets Group Letter, supra note 8 at 6.
\126\ See BX Response Letter, supra note 9 at 6 (citing Nasdaq
Rule 5615(b) and NYSE Listed Company Manual Section 303A.00).
\127\ See id. (referring to Rule 10A-3(b)(1)(iv)(A), 17 CFR
240.10A-3(b)(1)(iv)(A)).
\128\ See id.
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The Commission notes that the phase-in provisions for audit and
compensation committees are substantially similar to those of Nasdaq
and other national securities exchanges \129\ and acknowledges the
difficulty emerging companies have in recruiting independent directors.
In addition, the Commission notes that, while the Exchange will require
shareholder approval when a company adopts or materially amends a stock
option or purchase plan or other equity compensation arrangement
pursuant to which stock may be acquired by officers, directors,
employees, or consultants,\130\ the Exchange would not require
shareholder approval for other share issuances. The Exchange believes
that the companies expected to list on the Exchange may have a greater
need to issue shares more frequently or more quickly, due to their
expected smaller size and the business challenges they may be
facing.\131\ However, the Commission notes that the Exchange will
require listed Companies to provide notice of any 5% change in its
shares outstanding and any capital raising transactions,\132\ and the
Exchange Staff
[[Page 27724]]
will review such issuances for public interest concerns, including
issuances significantly below the market price or for the benefit of
related parties.\133\
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\129\ See e.g., Nasdaq Rule 5615(b) and NYSE Listed Company
Manual Section 303A.00.
\130\ See BX Rule 5635.
\131\ See Amendment No. 2. The Exchange states that the proposed
rules are comparable to the rules of the National Stock Exchange,
which require shareholder approval for equity compensation issuances
but not for other share issuances. See National Stock Exchange Rule
15.6.
\132\ See BX Rule 5250(e)(1) and (7).
\133\ See Amendment No. 2.
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C. Enhanced Vetting, Surveillance/Examinations, and Disclosure
1. Vetting of Prospective Issuers
The Commission believes that the Exchange's proposed vetting and
due diligence process of prospective issuers are reasonably designed to
reduce the risk of listing companies that might be more prone to fraud
and manipulation and that might erode investor confidence in the
market. The Commission notes that the Exchange will employ the staff in
Nasdaq's Listing Qualifications Department to apply and enforce its
listing standards pursuant to a regulatory contract \134\ and that the
rules of the BX Venture Market require capable, experienced persons to
supervise the staff in Nasdaq's Listing Qualifications Department.\135\
BX Rules further require that the Exchange's Chief Regulatory Officer
have substantial prior regulatory experience with a national securities
exchange or equivalent experience.\136\
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\134\ See BX Rule 5102. In addition to review of companies
seeking an initial listing, the Listing Qualifications Department
will also monitor compliance with all listing standards on an on-
going basis through the regular review of public filings, Form 8-K
disclosures, press releases, market data, and closing bid price. See
id.
\135\ See id. Notwithstanding the contractual agreement with
Nasdaq, the Exchange stated that it retains ultimate legal
responsibility for, and control of, these functions. See id.
\136\ See id.
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In connection with the initial listing process, the BX Rules would
require applicant companies to disclose, among other things, current
and past actions and proceedings involving the company, current
executive officers, directors, promoters, and ten percent or greater
shareholders,\137\ any events described under Item 401(f) of Regulation
S-K involving officers, directors, promoters and control persons, and
to furnish additional documentation.\138\ The Exchange will not approve
for initial listing, or allow the continued listing, of a company if an
executive officer, director, promoter, or control person of the company
was involved in any event described under Item 401(f)(2)-(8) of
Regulation S-K \139\ that occurred during the prior five years (``the
automatic bar'').\140\ The Exchange also will not approve for initial
listing, or allow the continued listing, of shell companies.\141\
Moreover, even if the company satisfies the Exchange's listing
requirements, the Exchange will still have the discretionary authority
to deny listing to or to delist a security when necessary to preserve
and strengthen the quality of and public confidence in its market.\142\
The Commission notes that the Exchange can use its discretionary
authority only to deny listing, apply additional or more stringent
criteria for initial or continued listing, or suspend or delist
securities.\143\
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\137\ See BX Rule 5205(b). BX Rules provide that an applicant
company must provide descriptions and supporting documentations of
all pending or prior actions and proceedings involving current
executive officers, directors, promoters, and ten percent or greater
shareholders of the company, and all actions and proceedings
commenced within the past 10 years involving the company, its
predecessors and subsidiaries. See id.
\138\ See id.
\139\ These events include criminal convictions and pending
charges, violations of securities laws, and court or administrative
actions barring or suspending a person from engaging in certain
securities-related activities.
\140\ See BX Rule 5103(a).
\141\ See BX Rule 5103(b).
\142\ See BX Rule 5104.
\143\ See id.
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The Commission emphasizes that the Exchange does not have the
discretionary authority to approve the initial listing of securities
that do not meet the enumerated listing standards, or to maintain the
listing of securities that stay below the continued listing
standards.\144\ If the Exchange exercises discretion to permit the
listing of a company after it has discovered that an executive officer,
director, promoter, or control person of the company was involved in an
event described under Item 401(f) of Regulation S-K that does not rise
to the level of an automatic bar (such as if the event occurred more
than five years prior), or a past corporate governance issue of the
company,\145\ the decision to list such a company must be approved in
writing by the Exchange's Chief Regulatory Officer.\146\
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\144\ See id.
\145\ The Exchange's review for past corporate governance issues
may include activities taking place while the company is listed on
the Exchange or an exchange that imposes corporate governance
requirements, as well as activities taking place after a formerly
listed company is no longer listed on the Exchange or such an
exchange. See BX Rule IM-5104-3. The Exchange may take appropriate
action if it determines that there have been violations or evasions
of such corporate governance standards. See id.
\146\ See BX Rule IM-5104-1 and 3.
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The Commission notes that one commenter noted the importance of
screening prospective listed companies in light of the failure of the
former American Stock Exchange Emerging Company Marketplace.\147\ This
commenter then suggested that the Exchange should conduct background
checks and other similar review of potential listing companies and not
be permitted to merely rely on the documents presented by an issuer
during the listing process.\148\ As discussed below, the Exchange will
review documents other than those presented by an issuer during the
listing process. Specifically, the Exchange would review the applicant
company's public filings and proxy disclosures, and conduct background
investigations of its executive officers, directors, promoters, and
control persons using publicly available databases and other public
resources, such as Lexis-Nexis and the Web-CRD regulatory database, and
web-based search engines.\149\ Moreover, the Exchange will engage
independent qualified third party investigative firms when it uncovers
a regulatory issue or potential public interest concern that does not
trigger an automatic bar to listing and the Exchange has determined to
not exercise its discretionary authority to deny the listing, or when
it would be impractical for the Exchange to research a regulatory
history that occurred outside of the United States.\150\ For example,
if the Exchange becomes aware of media accounts of criminal allegations
or improper business practices, or indication of financial impropriety,
the Exchange will engage an independent qualified third party
investigative firm.\151\ The Exchange also will make random, regular
referrals of at least 10% of the applicants that were not previously
listed on a national securities exchange to the independent qualified
third party investigative firm.\152\ Any decision to list a company
that has been referred to third party review must be approved in
writing by the Exchange's Chief Regulatory Officer.\153\
---------------------------------------------------------------------------
\147\ See Pink OTC Markets Letter, supra note 5 at 6-7
(referring to the American Stock Exchange Emerging Company
Marketplace that the American Stock Exchange operated from 1992 to
1995). See also OTC Markets Letter, supra note 8 at 3.
\148\ See Pink OTC Markets Letter, supra note 5 at 6-7.
\149\ See BX Rule 5205(c). The Exchange also will conduct
background investigations, as applicable, whenever a new executive
officer, director, promoter, or control person becomes associated
with a BX Venture Market-listed company; whenever a BX Venture
Market-listed company makes a disclosure of an event described under
Item 401(f) of Regulation S-K; and whenever the staff in the Listing
Qualifications Department, in the course of its on-going monitoring
of listed companies, identifies a potential public interest concern.
See BX Rule 5205(e).
\150\ See BX Rule 5205(c) and (d).
\151\ See BX Rule 5205(c).
\152\ See BX Rule 5205(d).
\153\ See BX Rule 5205(c).
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In sum, the Commission believes that the proposed vetting and due
diligence measures are reasonably designed to reduce the risk of
fraudulent and
[[Page 27725]]
manipulative behavior with respect to the listing and/or trading of BX-
listed securities.
2. Surveillance/Examination
The Commission believes that strong and effective surveillance and
examination programs are vital, particularly with respect to BX Venture
Market-listed securities, which are subject to listing standards that
are lower than those of any national securities exchange with an active
listings program. Under the proposal, the Exchange will monitor real-
time trading of securities listed on the BX Venture Market.\154\ The
Exchange would contract with FINRA to regulate market activity of BX-
listed securities (e.g., to implement surveillance patterns to detect
possible insider trading, front-running, fraud, auto-execution
manipulation, mid-point cross manipulation, wash sales, layering, open/
close marking, and Reg SHO clearing fails),\155\ but the Exchange would
retain ultimate legal responsibility for, and control of, all
regulatory functions for the Exchange.\156\ The Commission expects the
Exchange to ensure that it and FINRA have effective regulatory programs
relating to BX Venture Market-listed securities before the BX Venture
Market begins operations. Also, the Exchange committed to represent in
a letter to the staff in the Commission's Office of Compliance
Inspections and Examinations, before the operation of the Exchange,
that it and FINRA have adequate regulatory procedures and programs in
place to effectively regulate the BX Venture Market and its listing
program, and adequate procedures and programs in place to effectively
process trades and maintain the confidentiality, integrity, and
availability of the Exchange's systems.\157\
---------------------------------------------------------------------------
\154\ See BX Rule 5105.
\155\ See BX Rule 5105 and Amendment No. 2. The Exchange stated
that it will have in place, before the BX Venture Market is
operational, a contractual agreement with FINRA to regulate market
activity on the Exchange. See BX Rule 5105 and Amendment No. 2.
\156\ See BX Rule 5105 and Amendment No. 2.
\157\ See Amendment No. 2.
---------------------------------------------------------------------------
The Commission notes that one commenter stated that there have been
significant problems in the penny stock market, including boiler room
sales practices by brokerages and market manipulation (including the
spreading of false rumors) by stock promoters and brokerages that hold
a block of a given stock.\158\ This commenter is also concerned that
new technology has given stock manipulators powerful tools to distort
the market and swindle retail investors.\159\ As such, this commenter
stated that extreme caution is warranted when any party proposes to
establish a new market to trade penny stocks.\160\ The commenter also
expressed concern that the proposed BX rules will not prevent penny
stock promoters or boiler room brokerages from asserting that
securities they are offering and selling are exempt from state
registration because they are listed on the Boston Stock Exchange.\161\
In addition, this commenter stated that twelve states have registration
exemptions for securities listed on the Boston Stock Exchange, which
were predicated on the protections provided by the higher listing
standards of that exchange.\162\ The Commission acknowledges these
comments and notes that BX stated that its regulatory program will
have: (i) Surveillance patterns revised to incorporate trading activity
of BX Venture Market-listed securities on the Exchange and on the over-
the-counter market; (ii) specific automated surveillance patterns to
address any rule and functionality changes resulting from the BX
Venture Market initiative; and (iii) calibrated surveillance patterns
to detect potential issues that may arise particularly in low-priced,
less liquid stocks.\163\ Moreover, the regulatory program will include
review of the activity of firms on the BX Venture Market.\164\ The
review will include ``focused exams'' concentrated on sales practices
and firm oversight, as well as any other activities required to
effectively regulate the market.\165\ As stated above, the Exchange
represented that a regulatory program for these activities will be in
place before the BX Venture Market begins operations.\166\ Further, the
Commission notes, in addition to Commission oversight and oversight by
the Exchange and FINRA, under Section 18 of the Securities Act of 1933,
``the securities commission (or any agency or office performing like
functions) of any State shall retain jurisdiction under the laws of
such State to investigate and bring enforcement actions with respect to
fraud or deceit, or unlawful conduct by a broker or dealer, in
connection with securities or securities transactions.'' \167\
---------------------------------------------------------------------------
\158\ See MSD Letter, supra note 5 at 3 and MSD Letter II, supra
note 8 at 2.
\159\ See MSD Letter II, supra note 8 at 2.
\160\ See MSD Letter, supra note 5 at 3 and MSD Letter II, supra
note 8 at 2.
\161\ See MSD Letter, supra note 5 at 2.
\162\ See id. The Exchange noted that the Massachusetts
Securities Division has requested comment on a proposed rule change
to its regulations to eliminate the exemption from the registration
requirements for securities listed on the BX Venture Market. See
Amendment No. 2.
\163\ See BX Rule 5105 and Amendment No. 2.
\164\ See BX Rule 5105.
\165\ See id.
\166\ See BX Rule 5105 and Amendment No. 2.
\167\ 15 U.S.C. 77r(c)(1).
---------------------------------------------------------------------------
The Exchange also committed to providing a monthly report to the
Directors of the Division of Trading and Markets and Office of
Compliance Inspections and Examinations describing any significant
developments on the BX Venture Market, including companies added to or
removed from the market during that period.\168\ In addition, the
Exchange's Chief Regulatory Officer will provide quarterly reports to
the Directors of the Division of Trading and Markets and Office of
Compliance Inspections and Examinations describing the regulatory
activities of the Exchange and FINRA during the prior quarter.\169\ The
Exchange also stated that it will provide copies of the Listing
Department's procedures manuals and surveillance procedures used by
FINRA and the Exchange to the Commission's Office of Compliance
Inspections and Examinations.\170\
---------------------------------------------------------------------------
\168\ See BX Rule 5105 and Amendment No. 2.
\169\ See BX Rule 5105.
\170\ See Amendment No. 2.
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3. Disclosure of BX-listed Securities
The Commission believes that it is important to reduce the
likelihood of investor confusion regarding the BX Venture Market. Three
commenters expressed concern that investors would confuse BX Venture
Market-listed securities with Nasdaq-listed securities.\171\ One
commenter believed that ticker symbols for BX Venture Market-listed
securities should differentiate such securities from other securities
that meet the higher listing standards typically associated with
listing on a national securities exchange.\172\ This commenter
suggested that BX-listed securities should only use four or five
character ticker symbols because shorter symbols are typically used by
exchanges with higher listing standards than the BX Venture
Market.\173\ Further, this commenter stated that if BX-listed
securities are permitted to use symbols with three or fewer characters,
those securities would be precluded from trading in the over-the-
counter market because the OTCBB and Pink's OTC systems are
programmatically limited to trading four
[[Page 27726]]
or five character symbols.\174\ This commenter reiterated these issues
in a subsequent letter, and expressed concern that shorter ticker
symbols would reduce the amount of over-the-counter market trading
volume in BX-listed securities and result in a decrease in competition
for execution of investor orders.\175\ A second commenter disagreed and
contended that ticker symbols no longer say anything to the investor
about the nature of the company and changing symbols can cause
confusion.\176\ However, this commenter stated that it is reasonable to
require BX-listed securities to use only four or five character symbols
until the industry technology can handle shorter ticker symbols.\177\
---------------------------------------------------------------------------
\171\ See MSD Letter, supra note 5 at 3, MSD Letter II, supra
note 8 at 2, Pink OTC Markets Letter, supra note 5 at 4-5, and
Niehoff Letter, supra note 8 at 1-2.
\172\ See Pink OTC Markets Letter, supra note 5 at 2 and OTC
Markets Group Letter, supra note 8 at 5.
\173\ See Pink OTC Markets Letter, supra note 5 at 2.
\174\ See id. at 2-3.
\175\ See OTC Markets Group Letter, supra note 8 at 5-6.
\176\ See Angel Letter, supra note 8 at 11.
\177\ See id.
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With respect to the comments regarding ticker symbols, the Exchange
stated that the BX Venture Market is a national securities exchange and
a party to the existing National Market System Plan for the Selection
and Reservation of Securities Symbols (``Symbology Plan''), and as such
is eligible to trade symbols of one to five characters.\178\ The
Exchange explained that this eligibility is important because the BX
Venture Market is intended to afford a listing venue to former
exchange-listed companies that would want to retain their symbols.\179\
The Exchange stated its belief that its proposed data vendor display
requirement is a far more effective means of communicating the listing
market to investors.\180\ Further, the Exchange stated that BX Venture
Market-listed securities should not be limited to four or five
characters because firms can quote or trade securities on either the
Exchange or in the over-the-counter market until their technology is
updated, and listed companies that believe this hurts their liquidity
can elect to change their symbol.\181\
---------------------------------------------------------------------------
\178\ See BX Response Letter, supra note 9 at 7.
\179\ See id.
\180\ See id. at 8.
\181\ See id. at note 28.
---------------------------------------------------------------------------
As noted in Section II above, the Exchange proposes different
ticker symbol requirements, depending on whether the company was
previously listed on a national securities exchange. Specifically, the
Exchange would prohibit companies that were not previously listed on a
national securities exchange from utilizing one to three character
ticker symbols.\182\ Companies that were delisted from a national
securities exchange before listing on BX could retain their one to
three character ticker symbols, provided that the company must, prior
to listing on the BX Venture Market, issue a press release announcing
its delisting from the other exchange and comply with the disclosure
requirements of Item 3.01 of Form 8-K.\183\ The Commission believes
that such approach is not inconsistent with the Act. As the Exchange
noted, this approach is permitted under the Symbology Plan.\184\ In
addition, as stated above, although certain companies might be
permitted to retain their one to three character ticker symbols when
listing on the BX Venture Market, in order to inform investors, such
companies would be required to issue a press release announcing its
delisting and comply with the disclosure requirements of Form 8-K.\185\
The Commission acknowledges the comments that companies with ticker
symbols of less than four characters cannot trade on the OTCBB or the
Pink OTC system because they are programmatically limited to four or
five character symbols; \186\ however, the Commission notes that
companies that believe this limitation hurts their liquidity can elect
to not list on the BX Venture Market, or, as the Exchange noted in the
BX Response Letter, change their symbol.\187\
---------------------------------------------------------------------------
\182\ See BX Rule 5210(j).
\183\ See id.
\184\ See Securities Exchange Act Release No. 58904 (November 6,
2008), 73 FR 67218 (November 13, 2008) (order approving the National
Market System Plan for the Selection and Reservation of Securities
Symbols).
\185\ See BX Rule 5210(j).
\186\ See Pink OTC Markets Letter, supra note 5 at 2-3.
\187\ See BX Response Letter, supra note 9 at note 28.
---------------------------------------------------------------------------
While the Exchange is not substantially changing the ticker symbol
length a BX Venture Market-listed company can use,\188\ the Exchange
has proposed several other measures intended to reduce the likelihood
that investors will believe securities listed on the BX Venture Market
are of the same caliber as securities listed on other national
securities exchanges. In particular, the Exchange proposes specific
rules to differentiate securities of the BX Venture Market from those
of the NASDAQ Stock Market, which is also owned by the NASDAQ OMX
Group. Toward that end, the listing rules of the BX Venture Market
specify that a BX Venture Market-listed company must refer to its
listing as on the BX Venture Market, unless otherwise required by
applicable rules or regulations, and that such company must never
represent that it is listed on The NASDAQ Stock Market.\189\ To enforce
this prohibition, the Exchange has committed to monitor the press
releases issued by BX Venture Market-listed companies and to annually
review each company's Web site to determine how each company is
referring to its listing.\190\ A BX Venture Market-listed company that
refers to itself as listed on the NASDAQ Stock Market or on NASDAQ will
be subject to immediate delisting.\191\
---------------------------------------------------------------------------
\188\ As stated above, the Exchange, however, will prohibit
companies not previously listed on a national securities exchange
from utilizing a one to three character ticker symbol.
\189\ See BX Rule 5250(b)(4).
\190\ See Amendment No. 2.
\191\ See BX Rule 5250(b)(4).
---------------------------------------------------------------------------
Additionally, in describing the BX Venture Market, the Exchange
will refer to itself as the BX Venture Market, and not as NASDAQ OMX
BX, in its communications and marketing literature.\192\ The Exchange
will also include information prominently on its Web site describing
the differences between the BX Venture Market and other national
securities exchanges, including Nasdaq.\193\ For example, the
Exchange's Web site will inform users in a prominent manner that BX
Venture Market-listed securities are not ``blue sky'' exempt, are not
NMS securities, and are not subject to the Commission's trade-through
rule.\194\ The Exchange's Web site also will provide side-by-side
comparisons of BX Venture Market and NASDAQ Stock Market features.\195\
Additionally, marketing materials for the BX Venture Market will
include a prominent disclaimer explaining that BX Venture Market is
separate from, and not a tier of, the NASDAQ Stock Market.\196\
Further, in order to prevent regulatory arbitrage, the Exchange
proposes that any company that meets the quantitative (e.g., financial)
requirements for listing on any tier of the NASDAQ Stock Market will
not be approved for listing on the BX Venture Market.\197\
Specifically, it is appropriate for the Exchange to restrict such
companies from listing on the BX Venture Market to reduce the
likelihood of a company listing on the Exchange to benefit from lower
quantitative listing standards when such companies are of sufficient
size that it should comply with the higher Nasdaq listing standards.
---------------------------------------------------------------------------
\192\ See BX Rule 5106 and Amendment No. 2.
\193\ See BX Rule 5106 and Amendment No. 2.
\194\ 17 CFR 242.611. See Amendment No. 2.
\195\ See id.
\196\ See BX Rule 5106.
\197\ See BX Rule 5210(i).
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The Exchange will disseminate information about securities listed
on the BX Venture Market via several
[[Page 27727]]
mechanisms to ensure broad dissemination of quotation and last sale
information.\198\ The Exchange committed to ensuring that BX Venture
Market-listed securities are clearly distinguished, and
distinguishable, from securities listed on the traditional exchanges on
its data products and to end-users of the data.\199\ The Exchange
stated that all market data for BX Venture Market-listed securities
will include a unique data identifier in the ``Market Center'' field to
distinguish the security from those listing on other exchanges and the
over-the-counter markets (``Market Center Identifier'').\200\ The
Exchange represented that it will require that market data distributors
use the Market Center Identifier to prominently identify the listing
market with quotation and last sale information for BX Venture Market-
listed securities through its distribution agreements and by amendments
to its global market data policy document.\201\ Specifically, the
Exchange will require market data distributors to prominently identify
the BX Venture Market as the listing market, and where the display of
text is not consistent with the display methodology or user needs of
the distributor, to use ``B''.\202\
---------------------------------------------------------------------------
\198\ See Amendment No. 2.
\199\ See BX Rule 5106.
\200\ See Amendment No. 2. The Exchange stated that BX Venture
Market-listed securities would be identified with its own unique
Market Center Identifier (``B'') on any new consolidated data feeds
and in the BX Venture Market Daily List data product. See id. The
Exchange stated that the Daily List will be adopted in a separate
filing with the Commission. See id. The Commission notes that
approval of the BX Venture Market in no way prejudges or determines
what action the Commission may take with respect to any data product
not previously approved by the Commission.
\201\ See BX Rule 5106 and Amendment No. 2.
\202\ See BX Rule 5106 and Amendment No. 2.
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The Commission believes that the measures described above that are
designed to help clarify the differences between the BX Venture Market
and the NASDAQ Stock Market should aid in reducing the potential for
investor confusion. For example, as stated above, the Exchange stated
that it will require market data distributors to prominently display
the listing market for BX Venture Market-listed securities through its
distribution agreements and its global market data policy document and
that these agreements and amendments will be in place before the BX
Venture Market begins operations.\203\ The Exchange also represented
that the Market Center Identifier will be distributed by the Exchange
and displayed by the data vendors upon launch of the market.\204\ To
assure compliance with this requirement, the Exchange stated that it
will proactively review the displays of prominent data distributors in
connection with the launch of the market and the displays of all data
distributors periodically after the launch, and require immediate
compliance if any displays fail to meet the requirements of the market
data agreements.\205\ The Exchange further stated that if a market data
vendor does not satisfy this display requirement, the Exchange will
take action against the vendor, up to and including terminating the
vendor's ability to receive data from the Exchange.\206\ Lastly, the
Exchange has stated that it is committed to working with market
participants and the Commission to evaluate, on an on-going basis,
whether the display requirement described above is effective in
distinguishing BX Venture Market-listed securities from those listed on
another national securities exchange in order to reduce investor
confusion.\207\
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\203\ See BX Rule 5106 and Amendment No. 2.
\204\ See BX Rule 5106.
\205\ See BX Rule 5106 and Amendment No. 2.
\206\ See BX Rule 5106 and Amendment No. 2.
\207\ See Amendment No. 2.
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The Commission recognizes the reputational tradeoff associated with
distinguishing the BX Venture Market from Nasdaq. If the BX Venture
Market were to fail, Nasdaq would not suffer as much reputational
damage as investors and issuers would not necessarily associate a BX
Venture Market failure with Nasdaq. As a result, Nasdaq may not have as
much incentive to ensure that the BX Venture Market is a success than
if Nasdaq had more reputation capital on the line. While considering
this tradeoff, the Commission believes that Nasdaq has sufficient
incentives, absent this reputational risk, to ensure that the BX
Venture Market is a success, and that avoiding the risk of investor
confusion is a priority.
D. Review Process
The Commission believes that the proposed deficiency notification,
delisting, and appeals procedures strike a balance between the
Exchange's obligation to protect investors and their confidence in the
market, with its parallel obligation to perfect the mechanism of a free
and open market. The measures by which a company may return to
compliance with continued listing standards are explicitly delineated,
providing transparency to the process and potentially fostering
investor confidence in the integrity of the markets.
The Commission further notes that the compliance periods and
discretion to allow a non-compliant company to remain listed are
generally shorter on the BX Venture Market than what would be allowed a
company listed on other exchanges, including Nasdaq. For example, a
Hearings Panel would be permitted to grant only 90 calendar days for a
company to regain compliance with a listing standard,\208\ instead of
the 180 calendar days available on Nasdaq.\209\ Similarly, a company
that falls below the market value of listed securities requirement
would be provided a 90 calendar day compliance period,\210\ instead of
the 180 days available to a Nasdaq company.\211\ The Commission
believes that these shorter timelines will serve to protect investors,
given that the securities listed on the BX Venture Market are subject
to lower listing standards than other exchange-listed securities.
---------------------------------------------------------------------------
\208\ See BX Rule 5815(c)(1)(A).
\209\ See Nasdaq Rule 5815(c)(1)(A).
\210\ See BX Rule 5810(c)(3)(B).
\211\ See Nasdaq Rule 5810(c)(3)(C).
---------------------------------------------------------------------------
One commenter suggested that the Exchange should increase the
amount of time a company has to regain compliance with BX listing
standards from 90 to 180 days because it will allow companies that are
trading publicly for the first time to learn the nuances of the market
and to adjust to the market.\212\ The Commission believes that the
compliance period timeframe proposed by the Exchange is appropriate.
The Commission notes that the listing standards of the BX Venture
Market are substantially lower than the listing standards of other
national securities exchanges. The Commission believes that the lower-
tier and smaller companies likely to trade on the BX Venture Market
warrant careful monitoring and, for reasons of investor protection,
believes that such companies cannot be permitted to not meet listing
standards for a lengthy period of time. The Commission believes that 90
calendar days is sufficient to determine whether BX-listed companies
have the resources and capability to attain compliance with listing
standards.
---------------------------------------------------------------------------
\212\ See BIO Letter, supra note 8 at 3.
---------------------------------------------------------------------------
Overall, the Commission believes that the proposed appeals process
is reasonable and affords adequate due process to issuers, while at the
same time bringing efficiency to the listing and delisting processes.
Among other things, the process provides companies with the right to
appeal a staff determination to deny initial or continued listing to a
Hearings Panel.\213\ The company has the right to appeal an
[[Page 27728]]
adverse Hearings Panel decision to the Listing Council.\214\ All
decisions of the Listing Council, as well as certain Hearings Panel
decisions also will be subject to review at the discretion of the
Exchange Board.\215\
---------------------------------------------------------------------------
\213\ See BX Rule 5815.
\214\ See BX Rule 5820.
\215\ See BX Rule 5825.
---------------------------------------------------------------------------
E. Fees
In response to the proposed fees, one commenter stated that a
market targeted to smaller companies, with listing requirements and
listing costs tailored to their current economic reality, would open a
door that has been closed for many venture-backed companies.\216\ After
considering this comment, the Commission finds that the proposed fees
are consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange.
Specifically, the Commission finds that the proposal is consistent with
Sections 6(b)(4) and (b)(5) of the Act,\217\ which require, among other
things, that the rules of an exchange (i) provide for the equitable
allocation of reasonable dues, fees, and other charges among its
members and issuers and other persons using its facilities, and (ii)
are not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
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\216\ See Madrona Letter, supra note 5 at 1.
\217\ 15 U.S.C. 78f(b)(4) and (b)(5).
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The Commission believes that the proposal does not unfairly
discriminate between issuers as all companies will be subject to the
same fee schedule. The Commission believes that the proposed fees are
reasonable, given the regulatory expenses of the Exchange and the types
of companies expected to list on the Exchange. The Commission notes
that the Exchange has committed to enhanced vetting, examination,
surveillance and disclosure requirements, all of which require
additional expenses. In addition, the Commission expects the Exchange
to maintain its commitment of resources to its regulatory oversight of
the listing process and its ongoing compliance review of listed
companies under its regulatory program.
According to the Exchange, the application review fee will allow
the Exchange to recover some of the costs associated with the initial
review of the company's application, including staff time and the
systems supporting the initial review process.\218\ Similarly, the
annual fee would offset the staff and system costs of continued
monitoring of the company.\219\ In addition, the Commission notes that
the proposed application and annual fees are less than those charged by
other national securities exchanges.\220\ Also, the Exchange states
that fees for certain one-time events (i.e., a $7,500 fee for
substitution listing events, a $2,500 fee for record-keeping changes,
and a $4,000 or $5,000 fee for a written or oral hearing, respectively)
will allow it to recover some of the costs associated with facilitating
these events.\221\ The Exchange further proposes a $15,000 fee for
written interpretations of Exchange rules, and states that the fee for
written interpretations of Exchange rules is intended to recoup the
cost of Exchange staff's time in reviewing and responding to the
request and that no such fee would be charged in connection with
requests involving a company's initial listing application, given that
the company will pay an application fee.\222\
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\218\ See Amendment No. 2. The Exchange proposed a $7,500
initial listing fee, and a $15,000 annual fee for the first class of
securities listed on the Exchange and a $5,000 annual fee for each
additional class of securities listed on the Exchange. See BX Rule
5910.
\219\ See Amendment No. 2.
\220\ For example, the Exchange noted that the initial listing
fees for listing common stock on the NASDAQ Capital Market range
from $50,000 to $75,000 and the annual fees are $27,500; the initial
listing fees for listing common stock on NYSE Amex range from
$50,000 to $70,000 and the annual fees range from $27,500 to
$40,000; the initial listing fees for listing common stock on the
New York Stock Exchange range from $150,000 to $250,000 and the
annual fees range from $38,000 to $500,000. See Amendment No, 2
(citing Nasdaq Rule 5920(a)(1) and (c)(1)(A), NYSE Amex Listed
Company Guide Sections 140 and 141, and NYSE Listed Company Manual
902.02 and 902.03).
\221\ See BX Rules 5815(a)(3) and 5910 and Amendment No. 2.
\222\ See BX Rule 5602 and Amendment No. 2. See also Securities
Exchange Act Release No. 61669 (March 5, 2010), 75 FR 11958 (March
12, 2010) (SR-NASDAQ-2009-081) (order granting approval of Nasdaq's
proposed rule change to modify the fee for written interpretations
of Nasdaq listing rules to $15,000).
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The Commission notes that companies that were previously listed on
Nasdaq would receive a credit, which could be used only to offset the
annual fee, for any annual fees paid to Nasdaq during the same calendar
year that they initially list on the BX Venture Market, for the months
following their delisting from Nasdaq.\223\ The Exchange believes that
this credit is reasonable because it will avoid double charging
companies that have paid Nasdaq a non-refundable fee to provide similar
services as those that the Exchange will provide under its annual
fee.\224\ In approving this fee credit, the Commission notes its
expectation that a rigorous and independent review by the Exchange of
compliance with the listing standards will be conducted for any former
Nasdaq-listed company that is eligible for a credit, just as for any
company that lists on the BX Venture Market.
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\223\ See Amendment No. 2.
\224\ See id.
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F. Market Data
Currently, NMS securities listed on national securities exchanges
are subject to a consolidated trade reporting plan,\225\ so that all
trades are disseminated in a single data stream. Likewise, because all
trades in non-NMS securities today occur in the over-the-counter
market, complete trade data is collected and distributed by FINRA.
Since there currently is no joint SRO trade reporting plan for non-NMS
securities, trades on the BX Venture Market and any other exchange that
might trade BX Venture Market-listed securities pursuant to unlisted
trading privileges (``UTP'') could be reported separately from the
over-the-counter trade data disseminated by FINRA. For similar reasons,
quotation data could be disseminated separately by BX and any UTP
exchange.
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\225\ See 17 CFR 242.608.
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In the Order Instituting Proceedings, the Commission asked whether
BX sufficiently addressed how quotations and transactions reports
relating to BX-listed securities will be disseminated. The Commission
was concerned that the proposal could result in fragmentation of
pricing information relating to these securities and undermine the
ability of investors to receive best execution. One commenter stated
that fragmentation of pricing data was a valid concern.\226\ Another
commenter stated that market data for BX-listed securities must be
disseminated in a manner that makes clear that BX-listed securities are
not NMS securities and that they do not meet the higher listing
standards for exchange-listed securities.\227\ This commenter stated
that in order to prevent investor confusion between NMS securities and
BX-listed securities, quotations and transaction reports for BX-listed
securities should not be disseminated under any NMS plan and should not
be commingled with NMS data.\228\ Further, this commenter stated that
it would be inappropriate for market data of BX-listed securities to be
distributed under the Nasdaq UTP plan.\229\ Another commenter stated
that BX must clarify how market data
[[Page 27729]]
products will be engaged to ensure broad dissemination of quotation and
last sale information and suggested that the Commission require the
consolidation of market place quotation and last sale data for BX
Venture Market-listed securities from the BX execution system and the
over-the-counter market.\230\ However, a third commenter believed that
the proposal could provide a good experiment in the dissemination of
market data outside the existing NMS plans, in which Nasdaq OMX
directly markets the data to market participants.\231\
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\226\ See Niehoff Letter, supra note 8 at 2-3.
\227\ See Pink OTC Markets Letter, supra note 5 at 2-3 and OTC
Markets Group Letter, supra note 8 at 6-7.
\228\ See Pink OTC Markets Letter, supra note 5 at 3. See also
OTC Markets Letter, supra note 8 at 7.
\229\ See Pink OTC Markets Letter, supra note 5 at 3. See also
OTC Markets Letter, supra note 8 at 7.
\230\ See Niehoff Letter, supra note 8 at 2.
\231\ See Angel Letter, supra note 8 at 10.
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In response, the Exchange stated that it ``is committed to ensuring
that quotations and transaction information for listed securities
occurring on The BX Venture Market * * * are consolidated fully with
the same information from OTC quoting and trading that FINRA
supervises.'' \232\ Additionally, in response to comments that market
data for BX Venture Market-listed securities must be disseminated in a
manner that makes clear that these securities are not NMS securities
and that they do not meet the higher listing standards for exchange-
listed securities, the Exchange proposed restrictions on the use of one
to three character ticker symbols, as discussed above.\233\
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\232\ BX Response Letter, supra note 9 at 9.
\233\ See Section III.C.3, infra.
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With respect to the trading of BX Venture Market-listed securities,
the Commission notes that until other exchanges have appropriate
trading rules and oversight mechanisms for transactions in second-tier
securities, other exchanges will not be able to extend UTP to BX-listed
securities.\234\ The Commission notes, however, that until other
exchanges trade BX Venture Market-listed securities on a UTP basis, BX
Venture Market-listed securities could trade not only on BX, but also
over-the-counter, thus increasing the competition for orders in these
securities, as these securities previously were only able to trade
over-the-counter or not at all.
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\234\ See 17 CFR 240.12f-5. Rule 12f-5 provides that ``[a]
national securities exchange shall not extend unlisted trading
privileges to any security unless the national securities exchange
has in effect a rule or rules providing for transactions in the
class or type of security to which the exchange extends unlisted
trading privileges.'' Id. Specifically, the Commission noted that
Rule 12f-5 ``is intended to preserve a benefit of Commission review
of UTP applications,'' referring to the fact that the Commission
previously reviewed each UTP application to ensure, among other
things, that the applicant exchange had proper trading rules in
place to provide a fair and orderly market in each security named,
and had sufficient standards for regulatory oversight of each
security to provide for the protection of investors. See Securities
Exchange Act Release Nos. 35323 (February 2, 1995), 60 FR 7718 at
7719, 7722 (February 9, 1995); 35637 (April 21, 1995), 60 FR 20891
at 20892, 20895 (April 28, 1995). Here, the Exchange proposed
listing standards that are substantially lower than those of any
other listings market, but the Exchange also proposed to adopt a
number of enhanced surveillance, oversight and disclosure
requirements. As discussed previously, the Commission views these
enhanced requirements as being a necessary and integral part of the
BX Venture Market proposal. Since these enhanced requirements
address concerns associated with the listing of securities that do
not meet the listing requirements of other national securities
exchanges and since Rule 12f-5 requires any exchange seeking to
trade securities on a UTP basis to have in effect rules that provide
for transactions in those securities, the Commission believes that
any national securities exchange wishing to extend UTP to a BX
Venture Market-listed security would also need to supplement their
surveillance, oversight and disclosure requirements in order to
comply with Rule 12f-5.
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G. Margin
BX-listed securities may be less liquid and more volatile than
securities listed on another national securities exchange. In
anticipation of the BX Venture Market, the Commission notes that FINRA
has issued Regulatory Notice 11-15 (``FINRA Notice''),\235\ which
reminds its members to consider the risks associated with low-priced
equity securities \236\ when extending credit in a strategy-based or
portfolio margin account.\237\ According to the FINRA Notice, ``[p]rice
volatility is more often associated with low-priced, rather than
higher-priced, equity securities. Low-priced equity securities tend to
trade with bid and ask spreads that make up a greater percentage of the
security's price. This is especially true for newer companies whose
stock is priced low and whose earnings may be more volatile. In
addition, due to lower volumes, low priced equity securities can
experience large price swings during a given trading day, which
translates into greater price risk. Further, low-priced equity
securities may be removed from an index, which can increase the
volatility and exacerbate the price risk.'' \238\
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\235\ Low-Priced Equity Securities, FINRA Regulatory Notice 11-
15 (April 2011) (``FINRA Notice'').
\236\ The BX Venture Market may likely have low-priced equity
securities listed on its exchange.
\237\ As equity securities listed on a national securities
exchange, the securities traded on the BX Venture Market would meet
the definition of ``margin security'' under the Federal Reserve
Board's Regulation T, which specifies initial margin requirements.
See 12 CFR 220.2. However, in extending credit to customers in a
margin account, broker-dealers also must comply with SRO margin
requirements (including maintenance margin requirements). See, e.g.,
FINRA Rule 4210.
\238\ FINRA Notice.
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The FINRA Notice also states that ``[f]irms should take into
account volatility and concentrated positions in a single customer
account and across all customer accounts, as well as the daily volume
and market capitalization of each security when imposing ``house''
maintenance margin requirements. Firms should also consider the
fundamental business drivers and financial performance of the issuer in
setting house requirements. Increased maintenance margin requirements
can help to ensure that the equity in each customer account is
sufficient to cover any large variances in the price of a security.''
\239\ Further, the Notice states that ``FINRA believes that a best
practice is for firms to pay close attention to low-priced equity
securities when considering the dollar amount of credit to be extended
to any one customer. Similarly, in a portfolio margin account, FINRA
believes that a best practice is for firms to subject low-priced or
concentrated positions to heightened review and daily monitoring,
subjected to higher margin requirements, where appropriate, and to
include such positions in exception reporting to senior management.''
\240\ Finally, the FINRA Notice reminds members that, pursuant to the
SEC's net capital rule, Rule 15c3-1,\241\ ``if markets can absorb only
a limited number of shares of a security for which a ready market
exists (a marketplace blockage), the non-marketable portion in the
proprietary or other accounts of a broker dealer is subject to a 100
percent deduction to net capital, and is treated as a non-allowable
asset.'' \242\ As such, the FINRA Notice reminds firms that when
dealing with low-priced equity securities that are thinly traded or
concentrated, a firm may be required to impose heightened house margin
requirements, where appropriate, and value the securities
conservatively, in accordance with FINRA's margin requirements.\243\
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\239\ Id.
\240\ Id.
\241\ 17 CFR 240.15c3-1.
\242\ See FINRA Notice, supra note 235; see also Letter from
Michael A. Macchiaroli, Assistant Director, Division of Market
Regulation, Commission, dated October 5, 1987 to Edward Kwalwasser,
Esq., NYSE and Mr. Thomas R. Cassella, NASD; and FINRA
Interpretation Rule 15c3-1(c)(2)(vii)/01 in FINRA's Interpretations
of Financial and Operational Rules. These interpretations may be
found at FINRA's Web site at: http://www.finra.org/Industry/Regulation/Guidance/FOR/index.htm.
\243\ See FINRA Rule 4210.
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IV. 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
[[Page 27730]]
may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-BX-2010-059 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BX-2010-059. This file
number should be included on the subject line if e-mail 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 Web site (http://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 Web site 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
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; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make publicly available. All
submissions should refer to File Number SR-BX-2010-059 and should be
submitted on or before June 2, 2011.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 2
Amendment No. 2 revised the proposed rule change, as modified by
Amendment No. 1, to, among other things: (1) Explain the process of
reviewing companies for initial listing, including conducting
background checks on companies and associated individuals, and the use
of third-party investigative firms; (2) clarify the Exchange's
discretionary authority to deny listing to or delist companies based on
regulatory concerns; (3) add provisions relating to the internal
structure and experience of those charged with oversight of the listing
program; (4) describe market oversight activities for BX Venture
Market-listed securities; (5) detail the use of market center
identifiers to distinguish companies listed on the BX Venture Market;
(6) add restrictions on ticker symbol length; and (7) clarify the
consolidation of BX Venture Market data with over-the-counter
information for the same securities. These amendments clarify aspects
of the proposal, are responsive to commenters' concerns about investor
protection and brand confusion, and strengthen the listing standards of
the BX Venture Market. Accordingly, the Commission also finds good
cause, pursuant to Section 19(b)(2) of the Act,\244\ for approving the
proposed rule change, as modified by Amendment No. 2, prior to the 30th
day after the date of publication of notice in the Federal Register.
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\244\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\245\ that the proposed rule change (SR-BX-2010-059), as modified
by Amendment Nos. 1 and 2, be, and hereby is, approved on an
accelerated basis.
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\245\ 15 U.S.C. 78s(b)(2).
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It is further ordered that operation of the BX Venture Market is
conditioned on the satisfaction of the requirements below:
A. Market Data Display. BX must update its global market data
policy document and must enter into amended data distribution
agreements to require data vendors to prominently identify the listing
market for BX Venture Market-listed securities before the market begins
operations. In addition, BX must represent in a letter to the staff in
the Commission's Division of Trading and Markets that such policy
document and agreements have been amended and that the provisions in
such documents that require data vendors to prominently identify or
display the listing market for BX-listed securities will be effective
with respect to all vendors that distribute BX-listed securities data
at the time the BX Venture Market begins operations.
B. Regulatory Services Agreement. Before the BX Venture Market
begins operations, BX and FINRA must enter into a regulatory services
agreement relating to regulatory activities to be conducted by FINRA as
described above.
C. Examination by the Commission. BX must have, and represent in a
letter to the staff in the Commission's Office of Compliance
Inspections and Examinations that it and FINRA have, adequate
regulatory procedures and programs in place to effectively regulate the
BX Venture Market and its listing program, and adequate procedures and
programs in place to effectively process trades and maintain the
confidentiality, integrity, and availability of the Exchange's systems,
before the BX Venture Market begins operations.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\246\
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\246\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-11610 Filed 5-11-11; 8:45 am]
BILLING CODE 8011-01-P