[Federal Register Volume 83, Number 173 (Thursday, September 6, 2018)]
[Notices]
[Pages 45289-45297]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-19239]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84001; File No. SR-NASDAQ-2018-070]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To List and Trade Corporate 
Non-Convertible Bonds on Nasdaq

August 30, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 27, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') 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 comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange proposes to adopt listing and trading requirements and 
fees for non-convertible corporate bonds.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    Nasdaq is amending its rules to permit the initial and continued 
listing of and trading of non-convertible corporate debt securities 
(referred to herein as ``bonds'' or ``non-convertible bonds'') on 
Nasdaq and to establish fees for listing those bonds. While Nasdaq 
rules currently provide for the initial and continued listing of 
convertible bonds, Nasdaq believes that there may be a demand from 
certain types of investors for Exchange-listed non-convertible bonds. 
Nasdaq also believes that this proposal will improve the public market 
for non-convertible bonds by promoting the fair and orderly operation 
of that market and by increasing the transparency of that market for 
securities that are listed pursuant to this proposal. Nasdaq is 
therefore amending the relevant listing and trading rules accordingly.
Listing Rules
    First, Nasdaq proposes to adopt Rule 5702 to permit the initial 
listing of non-convertible bonds. For non-convertible bonds, Nasdaq 
proposes to require a minimum principal amount outstanding or market 
value of at least $5 million, instead of the minimum $10 million 
principal amount outstanding required for convertible debt under Rule 
5515(b). Nasdaq notes that this requirement is the same as the initial 
listing requirement for bonds on the New York Stock Exchange LLC 
(``NYSE'') and NYSE American LLC (``NYSE American''), which both 
require that the debt issue have an aggregate market value or principal 
amount of no less than $5 million.\3\
---------------------------------------------------------------------------

    \3\ See Section 102.03 of the NYSE Listed Company Manual and 
Section 104 of the NYSE American Company Guide.

---------------------------------------------------------------------------

[[Page 45290]]

    In addition to Rule 5702(a)(1), Nasdaq also proposes to require 
satisfaction of the condition set forth in Rule 5702(a)(2) for non-
convertible bonds to be eligible for listing on the Exchange. This 
condition is that the issuer of the bond must have one class of equity 
security that is listed on Nasdaq, NYSE, or NYSE American. This 
condition is similar to one that NYSE and NYSE American impose.\4\
---------------------------------------------------------------------------

    \4\ See Section 104 of the NYSE American Company Guide; Section 
102.03 of the NYSE Listed Company Manual.
---------------------------------------------------------------------------

    Nasdaq also proposes to add continued listing requirements under 
Rule 5702(b). Proposed Rule 5702(b)(1) would require, for continued 
listing, that a non-convertible bond issuance maintain a market value 
or principal amount outstanding of at least $400,000.\5\ Proposed Rule 
5702(b)(2) would also require an issuer to meet its obligations on the 
listed non-convertible bonds, and Nasdaq proposes to amend Rule 
5810(c)(1) to provide that a determination by the Exchange's Listings 
Qualifications Department that the issuer has failed to meet its 
obligations on the bonds would result in their immediate suspension and 
the commencement of delisting proceedings. Nasdaq notes that these 
proposed continued listing standards for non-convertible bonds are the 
same as the listing requirements for bonds imposed by NYSE American.\6\
---------------------------------------------------------------------------

    \5\ The Exchange proposes to amend Rule 5810(c)(3) to provide 
that a failure to meet the continued listing requirements under Rule 
5702(b)(1) for a period of 30 consecutive business days will 
constitute a deficiency; in the event of a deficiency, the 
Exchange's Listings Qualifications Department will promptly notify 
the deficient issuer and the issuer shall have a period of 180 
calendar days from such notification to regain compliance. 
Compliance will be deemed to be regained by meeting the applicable 
standard for a minimum of 10 consecutive business days, unless the 
Listing Qualifications Department exercises its discretion to extend 
this 10 day period as set forth in Rule 5810(c)(3)(G).
    \6\ See Section 1003(b)(iv) of the NYSE American Company Guide.
---------------------------------------------------------------------------

    In addition to these quantitative requirements for listing non-
convertible bonds, the issuer of listed bonds would also have to comply 
with other requirements that are generally applicable to companies 
listed on Nasdaq pursuant to Rule 5250. Specifically, Rule 5250(a) 
allows Nasdaq to request additional information, either public or non-
public, deemed necessary to make a determination regarding a company's 
continued listing. Rule 5250(b) requires issuers to make public 
disclosure of material information, disclosure of notification of 
deficiency, and disclosure of third party director and nominee 
compensation. Rule 5250(c) requires companies to file all required 
periodic financial reports. Rule 5250(d) requires the distribution of 
annual and interim reports. Rule 5250(e) sets forth various corporate 
events resulting in material changes that trigger the requirement for 
the issuer to submit certain forms to Nasdaq.\7\ Rule 5250(f) requires 
the issuers to pay all applicable fees set forth in the Rule 5900 
series.
---------------------------------------------------------------------------

    \7\ The Exchange proposes to amend Rule 5250(e)(3) to require 
issuers of non-convertible bonds to provide at least 10 calendar 
days advance notice to the Exchange of certain corporate actions, 
including redemptions (full or partial calls), tender offers, 
changes in par value, and changes in identifier (e.g., CUSIP number 
or symbol), by filing the appropriate form as Nasdaq shall 
designate.
---------------------------------------------------------------------------

    In addition to the Exchange's rules that would apply to an issuer 
of non-convertible bonds that list on Nasdaq,\8\ the issuers of those 
bonds would have to register those securities pursuant to Section 12(a) 
of the Act.\9\ Among other things, the issuer is required to disclose 
information about the organization, financial structure, information 
about the nature of the business, certain information about the 
directors, officers and underwriters, material contracts, and balance 
sheets. As part of this proposal, Nasdaq is requiring that the issuer 
must currently list one class of an equity security on either 
Nasdaq,\10\ NYSE, or NYSE American,\11\ and so issuers may already 
disclose this information in connection with the listing of those 
securities. However, Section 12(a) also requires issuers to disclose 
information that is more specific to the security to be listed and 
traded on the Exchange, such as the terms, position, rights, and 
privileges of the different classes of securities outstanding, and the 
terms on which the issuer's securities are to be, and during the 
preceding three years have been, offered to the public or otherwise. 
Given this requirement, Nasdaq's proposal may increase the amount of 
information about non-convertible bonds that will be disclosed by the 
issuer than would otherwise be the case.
---------------------------------------------------------------------------

    \8\ Nasdaq notes that currently, the Rule 5600 Series generally 
would apply to securities listed in this proposal. However, 
subsequent to this proposal, but prior to listing non-convertible 
bonds of issuers that have equity securities listed on NYSE or NYSE 
American, Nasdaq plans to submit a proposal to amend Rule 5615(a)(6) 
to state that the Rule 5600 Series does not generally apply to 
companies listing only preferred or debt securities on the Exchange. 
Under this proposal, companies listing only non-convertible bonds 
would be exempt from the Rules relating to Independent Directors 
(Rule 5605(b)), Audit Committee Requirements (Rule 5605(c)), 
Compensation Committee Requirements (Rule 5605(d)), Independent 
Director Oversight of Director Nominations (Rule 5605(e)), Code of 
Conduct (Rule 5610), Meetings of Shareholders (Rule 5620), Review of 
Related Party Transactions (Rule 5630), Shareholder Approval (Rule 
5635), and Voting Rights (Rule 5640). However, Rule 5615(a)(6) would 
state that such companies still must comply with Rule 5625, pursuant 
to which an issuer would provide Nasdaq with prompt notification 
after an executive officer of the company becomes aware of any 
noncompliance by the company with the requirements of the Rule 5600 
Series. In addition, this amended Rule would require issuers of 
listed non-convertible bonds to comply with Rule 5605(c), which sets 
forth the requirements of the company's audit committee, including 
its charter, composition, responsibilities and authority, to the 
extent required by Exchange Act Rule 10A-3. The Rule thereby would 
apply the requirements of Rule 10A-3 to the issuer's audit 
committee. The Rule also would impose on the issuer the obligation 
to promptly notify Nasdaq after an executive officer of the issuer 
becomes aware of any noncompliance by the issuer with the 
requirements of the Rule 5600 series, such as noncompliance with the 
audit committee provisions that are required by Rule 10A-3 and set 
forth in Rule 5605(c). Nasdaq also notes that NYSE and NYSE American 
have adopted similar exemptions for both companies that list only 
preferred and debt securities. See Section 303A of the NYSE Listed 
Company Manual; see also Section 801(g) of the NYSE American Company 
Guide. Finally, Nasdaq notes that the foregoing proposal would not 
apply to issuers of non-convertible bonds that have equity 
securities listed on Nasdaq.
    \9\ Specifically, Section 12(a) requires that, in order for an 
exchange member, broker or dealer to effect a transaction in a 
security on a national securities exchange, a registration must be 
effective ``as to such security for such exchange.'' See 15 U.S.C. 
78(l)(a).
    \10\ For purposes of the listing requirement that the non-
convertible bond issuer also list a class of equity securities on 
Nasdaq, the issuer may list an equity security on the Nasdaq Capital 
Market, the Nasdaq Global Market, or the Nasdaq Global Select 
Market.
    \11\ The Exchange notes that upon the effective date of the 
proposal, it only expects to be capable of listing and trading non-
convertible bonds of issuers that currently list equity securities 
on Nasdaq. The Exchange expects to be ready to list and trade bonds 
of issuers with equity securities listed on NYSE or NYSE American by 
the Second Quarter of 2019. The Exchange will issue a trader alert 
at least seven days in advance of accepting applications to list and 
trade bonds of issuers with equity securities listed on NYSE or NYSE 
American.
    The Exchange proposes to include language to this effect in the 
rule text, which it will then propose to remove after the Exchange 
begins listing and trading non-convertible bonds of issuers with 
equity securities listed on NYSE and NYSE American.
---------------------------------------------------------------------------

    Nasdaq proposes to amend Rule 5515(b)(4) to change references from 
the American Stock Exchange to NYSE American to reflect the name change 
of that exchange.\12\
---------------------------------------------------------------------------

    \12\ See Securities Exchange Act Release No. 80283 (Mar. 21, 
2017), 82 FR 15244 (Mar. 27, 2017) (SR-NYSEMKT-2017-14).
---------------------------------------------------------------------------

    Nasdaq also proposes to amend the definition of a ``substitution 
listing event'' in Rule 5005 to include an additional event related to 
the listing of bonds. Specifically, Rule 5005(a)(40) will include a 
change in the obligor of a listed debt security as a ``substitution 
listing event.'' A Substitution Listing Event triggers certain 
reporting requirements to the Exchange.\13\ Nasdaq is proposing to make 
this change to both convertible and non-convertible bonds,

[[Page 45291]]

as both types of securities could potentially be subject to a change in 
the obligor of that bond, which Nasdaq believes should qualify as a 
substitution listing event.
---------------------------------------------------------------------------

    \13\ See Rule 5250(e)(4).
---------------------------------------------------------------------------

    Nasdaq proposes to add fees in connection with listing non-
convertible bonds. Specifically, Nasdaq proposes to add Rule 5935 to 
impose a non-refundable application fee of $5,000 to list a class of 
non-convertible bonds pursuant to Rule 5702. Nasdaq proposes to waive 
this application fee if, in connection with a company's application to 
list non-convertible bonds on Nasdaq, the company will be switching the 
listing market for such bonds from NYSE or NYSE American to Nasdaq. 
Nasdaq notes that NYSE American imposes an initial listing fee of $100 
per $1 million principal amount (or fraction thereof) for listed bonds, 
with a minimum fee of $5,000 and a maximum fee of $10,000,\14\ while 
NYSE imposes an initial listing fee of $25,000 on all listed bonds of 
NYSE equity issuers.\15\
---------------------------------------------------------------------------

    \14\ See NYSE American Company Guide Section 140.
    \15\ See NYSE Listed Company Manual Section 902.08.
---------------------------------------------------------------------------

    Nasdaq also proposes to add an annual fee in connection with 
listing non-convertible bonds. Nasdaq proposes to add Rule 5935(b) to 
state that the issuer of each class of non-convertible bonds listed 
pursuant to Rule 5702 shall pay to Nasdaq an annual fee of $5,000. 
Moreover, the proposed Rule states that a company that switches its 
listing market for its non-convertible bonds from the New York Stock 
Exchange or NYSE American to Nasdaq will not be liable for the annual 
fee until January 1 of the calendar year following the effective date 
of the non-convertible bonds listing on Nasdaq. Nasdaq notes that NYSE 
American assesses an annual listing fee of $5,000 for listed bonds and 
debentures of companies whose equity securities are not listed on NYSE 
American,\16\ while NYSE assesses an annual listing fee of $25,000 for 
listed bonds of NYSE equity issuers and affiliated companies.\17\
---------------------------------------------------------------------------

    \16\ See NYSE American Company Guide Section 141.
    \17\ See Section 902.08 of the NYSE Listed Company Manual.
---------------------------------------------------------------------------

    Nasdaq also proposes to clarify rule text relating to the listing 
fees for convertible bonds. Specifically, Rule 5920(a)(2) specifies a 
fee of $1,000 or $50 per million dollars face amount of bonds 
outstanding, whichever is higher. Nasdaq proposes to clarify that this 
is an entry fee, and that it applies to convertible bonds only. Nasdaq 
is not charging an entry fee for non-convertible bonds, as it believes 
that the proposed application fee will allow the Exchange to adequately 
recoup the expenses incurred by the Exchange in processing an issuer's 
application to list those securities.
    Nasdaq believes that this proposal will improve the public debt 
market by increasing transparency for non-convertible bonds that are 
listed pursuant to this proposal and the orderliness of the market for 
those securities. For example, Rule 5250(b)(1) requires listed 
companies to, except in unusual circumstances, disclose promptly to the 
public through any Regulation FD compliant method (or combination of 
methods) any material information that would reasonably be expected to 
affect the value of their securities or influence investors' 
decisions.\18\ Nasdaq-listed companies must notify Nasdaq's MarketWatch 
Department prior to the distribution of certain material news at least 
ten minutes prior to public announcement of the news when the public 
release of the information is made, from 7:00 a.m. to 8:00 p.m. E.T. As 
set forth in IM-5250-1, such events may include: (1) Financial-related 
disclosures, including quarterly or yearly earnings, earnings 
restatements, pre-announcements or guidance; (2) corporate 
reorganizations and acquisitions, including mergers, tender offers, 
asset transactions and bankruptcies or receiverships; (3) new products 
or discoveries, or developments regarding customers or suppliers (e.g., 
significant developments in clinical or customer trials, and receipt or 
cancellation of a material contract or order); (4) senior management 
changes of a material nature or a change in control; (5) resignation or 
termination of independent auditors, or withdrawal of a previously 
issued audit report; (6) events regarding the Company's securities, 
such as defaults on senior securities, calls of securities for 
redemption, repurchase plans, stock splits or changes in dividends, 
changes to the rights of security holders, or public or private sales 
of additional securities; (7) significant legal or regulatory 
developments; or (8) any event requiring the filing of a Form 8-K.
---------------------------------------------------------------------------

    \18\ Nasdaq will determine compliance with the listing 
requirements for non-convertible bonds based upon information it 
receives directly from issuers as well as data that it obtains from 
third party data providers.
---------------------------------------------------------------------------

    Nasdaq's MarketWatch Department monitors real time trading in all 
Nasdaq securities during the trading day for price and volume activity. 
In the event of certain price and volume movements, the MarketWatch 
Department may contact a company in order to ascertain the cause of the 
unusual market activity.
    For non-convertible bonds that are listed under this proposal, the 
issuer will be required to comply with these disclosure requirements 
and to update Nasdaq accordingly on any material information that would 
reasonably be expected to affect the value of their bonds or influence 
investors' decisions. Depending on the nature of the event and the 
company's views regarding the business advisability of disclosing the 
information, the MarketWatch Department may work with the company to 
accomplish a timely release of the information. Furthermore, depending 
on the materiality of the information and the anticipated effect of the 
information on the price of the Company's bonds, the MarketWatch 
Department may advise the Company that a temporary trading halt is 
appropriate to allow for full dissemination of the information and to 
maintain an orderly market. For non-convertible bonds that are listed 
on Nasdaq pursuant to this proposal, a trading halt will be initiated 
by the Exchange, pursuant to proposed Rule 4000B(i). In these ways, 
Nasdaq believes that the proposal will increase transparency for bonds 
that are listed pursuant to this proposal and the orderliness of the 
market for those bonds.\19\
---------------------------------------------------------------------------

    \19\ Nasdaq notes that it also proposes to amend Rule 5250(e)(3) 
to require an issuer to provide at least 10 calendar days advance 
notice to Nasdaq of certain corporate actions relating to non-
convertible bonds listed on the Nasdaq Bond Exchange, including 
redemptions (full or partial calls), tender offers, changes in par 
value, and changes in identifier (e.g., CUSIP number or symbol), by 
filing the appropriate form as designated by Nasdaq. These 
disclosures will aid the Listings Qualification Department in 
assessing an issuer's compliance with the continuing listing 
standards set forth in proposed Rule 5702.
---------------------------------------------------------------------------

    Nasdaq also believes that this proposal will benefit market 
participants by making non-convertible bonds more accessible to certain 
kinds of investors. For example, in the European Union, certain 
investors, such as so-called UCITS investment funds,\20\ may generally 
only hold 10% of assets in securities that are not listed on an

[[Page 45292]]

exchange or other regulated market meeting certain standards.
---------------------------------------------------------------------------

    \20\ UCITS (Undertakings for Collective Investment in 
Transferable Securities) is a harmonized regime throughout Europe 
for the management and sale of mutual funds. A UCITS fund is 
essentially a mutual fund based in the European Union that meets 
these requirements and is therefore exempt from national regulation 
in individual European countries. Under UCITS III, a UCITS fund can 
invest in transferable securities, such as listed and publicly 
traded equities and bonds, deposits and money market instruments, 
other mutual funds, and financial derivative instruments, subject to 
diversification requirements.
---------------------------------------------------------------------------

Trading Rules
    In conjunction with its proposal to adopt rules to list non-
convertible bonds on Nasdaq, the Exchange also proposes rules that will 
provide for the trading of such listed bonds. The Exchange notes that 
its proposed non-convertible bond trading system--to be known as the 
``Nasdaq Bond Exchange''--will offer Members,\21\ at its inception, 
certain core trading functionality that will be competitive with NYSE 
Bonds. However, the Exchange will reserve more sophisticated and 
elaborate functionality until such time as the Exchange observes that a 
sufficient demand exists for it.\22\
---------------------------------------------------------------------------

    \21\ A ``Member'' means any registered broker or dealer that has 
been admitted to membership in Nasdaq. See Rule 0120(i).
    \22\ The Nasdaq Bond Exchange will only trade non-convertible 
bonds that are listed on Nasdaq.
---------------------------------------------------------------------------

    In many respects, the proposed trading system and the proposed 
rules that govern it are a pared down version of the NYSE Bonds system 
and NYSE Rule 86. That is, like NYSE Bonds, the Nasdaq Bond Exchange 
will be an electronic system for receiving, processing, executing, and 
reporting bids, offers and executions in bonds. Like NYSE Bonds, the 
Nasdaq Bond Exchange will display, match, and execute buy and sell 
orders on a price/time basis. The Exchange, like NYSE and NYSE 
American, will also accept good-for-day limit orders and fill-or-kill 
orders, and it will trade bonds of issuers that have at least one class 
of equity securities listed on Nasdaq and NYSE or NYSE American.\23\ 
However, at its inception, the Nasdaq Bond Exchange will not have--as 
does NYSE Bonds--market makers, sponsored access, auctions, price 
collars, or certain order types (e.g., reserve orders, minimum quantity 
orders, good-til-cancelled orders, and timed orders). The Nasdaq Bond 
Exchange also will have only one trading session each day as opposed to 
NYSE Bonds, which has three sessions. Again, the Exchange may add such 
features and functionalities to the Nasdaq Bond Exchange in the future 
to the extent that it determines that a demand exists for them. The 
Exchange observes that users of NYSE Bonds do not appear to avail 
themselves of many of these features and functionalities, such that the 
Exchange does not believe that including them in the Nasdaq Bond 
Exchange is necessary for it to compete with NYSE Bonds.
---------------------------------------------------------------------------

    \23\ As noted earlier, at the launch date of the Nasdaq Bond 
Exchange, the Exchange expects that the system will be only capable 
of trading bonds of issuers that currently list equity securities on 
Nasdaq. The Exchange expects to be ready to list and trade bonds of 
issuers with equity securities listed on NYSE or NYSE American by 
the Second Quarter of 2019. See n.11, supra.
---------------------------------------------------------------------------

Order Types
    The proposed rules designate the types of orders that could be 
entered into the Nasdaq Bond Exchange. Initially, Users \24\ of the 
Nasdaq Bond Exchange will be allowed to enter good-for-day limit orders 
(``Nasdaq Bond Exchange Good for Day Limit Orders''), which are orders 
to buy or sell a stated quantity of units of bonds at a specified price 
or at a better price that, if not executed or cancelled, will expire at 
the end of the trading session on the day on which they are entered. 
Users will also be able to enter a Nasdaq Bond Exchange Fill-or-Kill 
All-Or-None Order (``Nasdaq Bond Exchange FOK-AON Order''), which is an 
order that is to be executed immediately in its entirety against one or 
more contra parties at the best price available, or if it is not 
executed immediately in its entirety, it is cancelled. All orders on 
the Nasdaq Bond Exchange will be displayed and will be anonymous. The 
Exchange will file a proposed rule change with the Commission and 
notify its members if and when additional order types become available 
for use.
---------------------------------------------------------------------------

    \24\ Proposed Rule 4000B defines a ``User'' as any Nasdaq Member 
that has elected, pursuant to the process described below, to 
receive access to the Nasdaq Bond Exchange.
---------------------------------------------------------------------------

Trading Units
    The minimum unit of trading in the Nasdaq Bond Exchange is one bond 
unless the issuer otherwise specifies a larger minimum unit of trading 
in the bond indenture agreement. The Nasdaq Bond Exchange will accept 
and display bids and offers in bonds priced to three decimal places, as 
per market standard.
Order Entry and Execution
    To post an order in a particular bond on the Nasdaq Bond Exchange, 
a User will be required to enter certain basic information including: 
CUSIP number, order quantity, order type (i.e., Nasdaq Bond Exchange 
Good for Day Limit Order); price (up to three decimals); and whether 
the order is buy or sell.
    The Nasdaq Bond Exchange will be an electronic order-driven 
matching system. Nasdaq Bond Exchange orders submitted by Users will be 
displayed, matched, and executed on a price/time priority basis. Orders 
that are marketable at the time of entry will be matched and executed. 
An order will be marketable when it entered the Nasdaq Bond Exchange 
system if contra side interest is available at that price or a better 
price. Nasdaq Bond Exchange Good for Day Limit Orders that are not 
marketable at the time of entry would post to the Nasdaq Bond Exchange 
order ``book.''
    The Nasdaq Bond Exchange will provide an exception to its normal 
price/time system to allow Users to avoid internalizing orders. Users 
may be interested in self-match prevention in order to run multiple 
strategies at once that may sit on opposite sides of the book. Pursuant 
to the proposed Rule 4000B(h)(1)(C), which the Exchange adapts from 
Nasdaq Rule 4757(a)(4), Nasdaq will permit Users to direct that orders 
entered into the Nasdaq Bond Exchange will not execute against orders 
entered under the same MPID. In addition, the proposed Rule provides 
that Users using the FIX order entry protocol (discussed below) may 
assign to orders entered through a specific order entry port a unique 
group identification modifier that will prevent orders with such 
modifier from executing against each other. In such a case, the 
proposed Rule states that a User may elect from the following options: 
(i) Regardless of the size of the interacting orders, cancelling the 
oldest order in full; or (ii) regardless of the size of the interacting 
orders, cancelling the most recent of the orders in full. The foregoing 
options may be applied to all orders entered through a specific order 
entry port.
    An order designated for execution in the Bond Trading Session may 
be cancelled at any time as long as the order had not been executed.
    The Exchange will charge no fees for posting orders or executing 
trades on the Nasdaq Bond Exchange. If the Exchange decides to charge 
any such fees in the future, then the Exchange will submit a rule 
filing proposal to that effect to the Commission.
Clearing
    Most orders matched on the Nasdaq Bond Exchange will be locked-in 
trades and will be submitted without an omnibus account to the National 
Securities Clearing Corporation using Universal Trade Capture and then 
to the Depository Trust Company (``DTC'') for clearance and settlement. 
Settlement of corporate bond trades will be consistent with current 
convention, i.e., two day settlement. Bonds that are not eligible for 
settlement at DTC will be settled manually (``ex-clearing'') between 
the two counterparties.
Bond Trading Session
    The Nasdaq Bond Exchange would have one trading session per trading 
day from 8:30 a.m. until 4:00 p.m. E.T. (the

[[Page 45293]]

``Bond Trading Session''). There will be no pre-market or post-market 
session. Instead, the Nasdaq Bond Exchange will immediately start 
processing orders as they are entered upon opening. Orders submitted 
outside of the Bond Trading Session will not be accepted.
Clearly Erroneous Executions
    Bond trades on the Nasdaq Bond Exchange would be made subject to 
Exchange Rule 11890, which governs the process for addressing clearly 
erroneous trades. Within the context of bond trading on the Nasdaq Bond 
Exchange, a ``clearly erroneous execution'' will be one where there is 
an obvious error in any term, such as price, unit of trading, or 
identification of the bond.'' \25\ A User that receives an erroneous 
execution may request the Exchange review the transaction or the 
President of the Exchange, a senior level employee thereof, or a 
designated officer (a ``Senior Official'') may review an execution on 
their own initiative. A request for review of an execution must include 
certain information, including in pertinent part, information 
concerning the time of the transaction, security symbol, number of 
bonds, price, and factual basis for believing that the trade is clearly 
erroneous.\26\ The request for review would have to be submitted within 
30 minutes of the trade in question.\27\ The other party (or parties) 
to the trade will be notified of the request for review.\28\ 
Thereafter, an Exchange official would review the transaction and would 
make a determination as to whether it was clearly erroneous.\29\ The 
reviewer could make this determination with or without supporting 
documentation from any party to the transaction.\30\ Pursuant to 
proposed Rule 11890(a)(2)(C)(4), determinations of a clearly erroneous 
execution will be made on a case-by-case basis, considering factors 
that include, but are not limited to, the following: (i) Execution 
price; (ii) volume and volatility of a bond; (iii) news released for 
the issuer or the bond and/or the related equity security; (iv) trading 
halts; (v) corporate actions; (vi) general market conditions; (vii) the 
rating of the bond; (viii) interest and/or coupon rate; (ix) maturity 
date; (x) yield curves; (xi) prior print, if available within a 
reasonable time frame; (xii) executions inconsistent with the trading 
pattern of a bond; (xiii) current day's trading high/low; (xiv) recent 
day's and week's trading high/low; (xv) executions outside the 52 week 
high/low; (xvi) effect of a single large order creating several prints 
at various prices; and (xvii) quotes and executions of other market 
centers.\31\
---------------------------------------------------------------------------

    \25\ See proposed Rule 4000B(b)(2)(C).
    \26\ See Rule 11890(a)(2).
    \27\ See id.
    \28\ See id.
    \29\ See id.
    \30\ See id.
    \31\ The criteria to be used to determine clearly erroneous 
executions of non-convertible bonds, which are set forth in proposed 
Rule 11890(a)(2)(C)(4), are in lieu of the criteria presently used 
to determine clearly erroneous executions of equity securities, 
which are set forth in Rule 11890(a)(2)(C)(1)-(C)(3).
---------------------------------------------------------------------------

    If the reviewer determines that the execution was not clearly 
erroneous, then no corrective action will be taken in relation to the 
transaction. If the reviewer determines that the transaction were 
clearly erroneous, the transaction will be deemed null and void.\32\ If 
one party does not agree with the determination, then that party may 
request further review or an appeal to the Nasdaq Review Council 
pursuant to the procedures set forth in Rule 11890(c). Depending on the 
outcome of the appeal, the transaction would either remain unchanged or 
be deemed null and void.\33\
---------------------------------------------------------------------------

    \32\ See Rule 11890(a)(2)(B).
    \33\ The Exchange notes that, pursuant to Article VI of the By-
Laws of the Nasdaq Stock Market, LLC, at least 20 percent of the 
Nasdaq Review Council must consist of representatives of Members of 
the Exchange. Although the By-Laws do not specify any specific 
categories of Members that must be represented on the Review 
Council, the Exchange expects that the existing Member 
representatives will adequately represent the interests of Users in 
appeals of clearly erroneous determinations. If it becomes apparent 
to the Exchange that roster of the Nasdaq Review Council does not 
adequately represent the interests of Users, then it will, at the 
appropriate time, consider nominating one or more Users to the 
Council.
---------------------------------------------------------------------------

Nasdaq Bond Exchange System Disruption or Malfunction or Equipment 
Changeover
    Rule 11890(b) further provides that, in the event of any system 
disruption, malfunction, or equipment changeover in the Nasdaq Bond 
Exchange trading facility, a Senior Official may, without the need for 
a request for review, review transactions affected by a system 
disruption, malfunction, or equipment changeover and decide if any 
transactions are erroneous.\34\ In such situations, the Senior Official 
could declare the transaction to be unchanged or null and void, 
appropriate.\35\ The Rule also provides that, absent extraordinary 
circumstances, any such action of the Senior Official shall be taken 
within 30 minutes of detection of the system disruption, malfunction, 
or equipment changeover, or an erroneous transaction resulting from 
such system problem.\36\ If an erroneous transaction occurred as a 
result of a system disruption, system malfunction, or equipment 
changeover, each party to the erroneous transaction will be notified of 
the situation and the specific action as soon as practicable.\37\ 
Thereafter, the User aggrieved by the action could appeal such 
action.\38\
---------------------------------------------------------------------------

    \34\ See Rule 11890(b)(i).
    \35\ See id.
    \36\ See id.
    \37\ See id.
    \38\ See id.
---------------------------------------------------------------------------

Halting and Suspending Bond Trading on the Exchange
    Proposed Rule 4000B(i)(1) provides that the Exchange may halt or 
suspend trading in non-convertible bonds listed on the Nasdaq Bond 
Exchange when: (1) In the Exchange's regulatory capacity, it is 
necessary or appropriate to maintain a fair and orderly market, to 
protect investors, or is in the public interest, due to extraordinary 
circumstances or unusual market conditions; (2) a class of equity that 
is issued by the same issuer as the non-convertible bond has been 
halted or suspended by, or de-listed from, the Exchange or by its 
primary listing market (NYSE or NYSE American), as applicable, for 
regulatory purposes; (3) news reports have a material impact on a non-
convertible bond, its issuer, or related stock of its issuer; or (4) 
the non-convertible bond is to be called for redemption or will mature 
or become subject to retirement, and thereafter it will be subject to 
de-listing, in which case the Exchange shall cease trading the non-
convertible bond, effective not less than 10 days before the date when 
such de-listing becomes effective, pursuant to a de-listing application 
that the Exchange submits to the Commission on Form 25 and consistent 
with SEC Rule 12d2-2 \39\ and the Act.
---------------------------------------------------------------------------

    \39\ See 17 CFR 240.12d2-2.
---------------------------------------------------------------------------

    Pursuant to proposed Rule 4000B(i)(2), when bond trading is halted 
under any of the circumstance described above, a halt message at the 
beginning and end of the halt will be disseminated to all Nasdaq Bond 
Market Users. This trading halt will be referred to as a ``Bond Halt.'' 
\40\ Upon commencement of a Bond Halt, all pending orders in the Nasdaq 
Bond Exchange will be cancelled.\41\ The Nasdaq Bond Exchange will 
resume accepting orders and trading once the Exchange declares an end 
to a Bond Halt.\42\
---------------------------------------------------------------------------

    \40\ See Rule 4000B(i)(2).
    \41\ See Id.
    \42\ See Id.
---------------------------------------------------------------------------

Dissemination of Trading Information
    The Exchange proposes to publicly disseminate a real-time bond data 
feed,

[[Page 45294]]

which will be referred to as ``Nasdaq Corporates Totalview.'' \43\ The 
Nasdaq Corporates Totalview data feed would reflect all orders in time 
sequence in the Nasdaq Bond Exchange order ``book.'' Because the Nasdaq 
Bond Exchange will be a purely order-driven system, the Exchange would 
not disseminate any information on a particular bond if there are no 
orders posted in the ``book'' for such bond. In addition to the Nasdaq 
Bond Exchange order ``book,'' the data feed also would include the last 
sale price as executions occur. The Nasdaq Corporates Totalview data 
feed will be available on a standalone basis free of charge to market 
participants, third-party data vendors, and other interested parties 
who request access and agree to the Exchange's terms. If the Exchange 
decides to establish fees for the Nasdaq Corporates Totalview product 
at a later date, it will submit a separate rule filing.
---------------------------------------------------------------------------

    \43\ Pursuant to FINRA Rule 6730(e)(2), transactions on the 
Nasdaq Bond Exchange need not be reported to FINRA's Trade Reporting 
and Compliance Engine because only bonds listed on Nasdaq, a 
national securities exchange, may be traded on the Bond Exchange, 
and because bond transaction information will be disseminated 
publicly.
---------------------------------------------------------------------------

Access to the Nasdaq Bond Exchange System
    Only Members of the Exchange that have entered into a written 
service agreement with the Exchange (i.e., the ``Nasdaq U.S. Services 
Agreement'') and that elect to receive access to the Nasdaq Bond 
Exchange on their Member application form, will be duly authorized 
Users that may receive such access. Existing Members of the Exchange 
will not be required to amend their Nasdaq U.S. Services Agreements to 
become Users and obtain access to the Nasdaq Bond Exchange; instead, 
existing Members simply will be required to complete a form, attached 
hereto as Exhibit 3 [sic], that indicates their interest in becoming 
Users and obtaining access.
    Users of the Nasdaq Bond Exchange will gain access to the system 
via direct or indirect electronic linkages utilizing the Financial 
Information Exchange or ``FIX'' protocol. The FIX protocol is already 
used and widely accepted by Nasdaq market participants and will be used 
by the Nasdaq Bond Exchange Users for order entry, modification and 
cancellation, and message transmittal for all non-convertible bonds 
traded through the Nasdaq Bond Exchange. All of the communications 
protocols will be publicly available to allow Users and service bureaus 
to develop their own front-end software. Users will have the ability to 
establish connectivity to the Nasdaq Bond Exchange directly or through 
third-party connectivity providers, including a range of extranets and 
service bureaus, as set forth in General 8 of the Nasdaq Rules.\44\ The 
Exchange will not charge any fees for FIX port connectivity to the 
Nasdaq Bond Exchange or for connectivity to the Bond Exchange's 
disaster recovery system.\45\
---------------------------------------------------------------------------

    \44\ The Exchange notes that Users that already purchase FIX 
port connectivity to the Nasdaq Stock Exchange will need to obtain 
one or more additional FIX ports to connect to the Nasdaq Bond 
Exchange.
    \45\ Separately from port connectivity, the Exchange notes that 
Users will need to establish physical connections to the Nasdaq Bond 
Exchange, as set forth in General 8 of the Nasdaq Rules. To the 
extent that a User already purchases physical connectivity to the 
Nasdaq Stock Exchange, that purchase will also provide for the User 
to connect to the Nasdaq Bond Exchange, such that the User will 
incur no additional fee for the new connection. New Users that do 
not already purchase physical connectivity to Nasdaq will need to do 
so, pursuant to General 8 of the Nasdaq Rules.
---------------------------------------------------------------------------

Reports and Recordkeeping
    Users of the Nasdaq Bond Exchange would have to comply with all 
relevant rules of the Exchange and the Commission in relation to 
reports and recordkeeping of transactions on the Nasdaq Bond Exchange, 
including Rules 17a-3 and 17a-4 under the Act.\46\
---------------------------------------------------------------------------

    \46\ 17 CFR 240.17a-3 and 240.17a-4.
---------------------------------------------------------------------------

Regulation
    The Exchange will leverage its existing infrastructure to operate a 
national securities exchange in compliance with Section 6 of the 
Exchange Act, and Section 6(b)(7) in particular,\47\ to regulate its 
non-convertible bonds trading business and to enforce compliance with 
its Rules. Nasdaq's existing disciplinary rules and processes, set 
forth in its Rule 8000 and 9000 Series, will govern the discipline of 
Members that participate in corporate bond trading, just as it does for 
equities regulation, and Nasdaq will perform bond listing regulation as 
well as real-time surveillance of bond trading as it does today for 
equities.
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

    In particular, MarketWatch will perform real-time surveillance of 
the Nasdaq Bond Exchange for the purpose of maintaining a fair and 
orderly market at all times. As it does with Nasdaq's equities trading, 
MarketWatch will monitor trading on the Nasdaq Bond Exchange market on 
a real-time basis to identify unusual trading patterns and determine 
whether particular trading activity requires further regulatory 
investigation. In addition, Nasdaq Regulation will oversee the process 
for determining and implementing trade halts and identifying and 
responding to unusual market conditions.
System Information
    The Nasdaq Bond Exchange will operate out of the same data center 
in Carteret, New Jersey as does the Nasdaq Stock Market and other 
exchanges owned by Nasdaq, Inc., but it will use equipment that is 
separate from the equipment used by those exchanges. In addition, the 
Nasdaq Bond Exchange will have a backup data center that will be 
geographically diverse from the Carteret data center and that will be 
designed to resume operations of the Nasdaq Bond Exchange, in the event 
of a system failure, in accordance with the requirements of Regulation 
Systems Compliance and Integrity.\48\ The Nasdaq Bond Exchange will use 
Nasdaq's flexible INET technology, which is easily scalable to higher 
volumes through the addition of more equipment in the data center. The 
Nasdaq Bond Exchange will be protected from unauthorized access through 
the same robust firewall protection already in use at Nasdaq, Inc.'s 
data centers.
---------------------------------------------------------------------------

    \48\ See 17 CFR 242.1001, .1004.
---------------------------------------------------------------------------

Applicability of Section 11(a) and (b) of the Act
    Section 11(a) of the Act \49\ prohibits a member of a national 
securities exchange from effecting transactions on that exchange for 
its own account, the account of an associated person, or an account 
over which it or its associated person exercises investment discretion, 
unless an exception applies. This general prohibition would not impact 
trading on the Nasdaq Bond Exchange because Rule 11a1-4(T) under the 
Act \50\ deems transactions in bonds on a national securities exchange 
for a member's own account to be consistent with Section 11(a). 
Similarly, Section 11(b) of the Act\51\ and Rule 11b-1 thereunder,\52\ 
which pertain to specialists and market-makers, would not be implicated 
because there will be no specialists or market makers on the Nasdaq 
Bond Exchange.
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78k(a).
    \50\ 17 CFR 240.11a1-4(T).
    \51\ 15 U.S.C. 78k(b).
    \52\ 17 CFR 240.11b-1.
---------------------------------------------------------------------------

2. Statutory Basis
    Nasdaq believes that its proposal is consistent with Section 6(b) 
of the Act \53\ in general, and furthers the objectives of Sections 
6(b)(4), (b)(5), and (b)(7) of the Act,\54\ in particular. As discussed 
below, Nasdaq believes the proposal is consistent with Section 6(b)(4) 
of the

[[Page 45295]]

Act \55\ in that it provides for the equitable allocation of reasonable 
dues, fees, and other charges, and that it is consistent with Section 
6(b)(5) of the Act \56\ in that it is designed to promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general to protect investors and the public interest, and are not 
designed to permit unfair discrimination. Finally, the Exchange 
believes that the proposal is consistent with Section 6(b)(7) of the 
Act \57\ in that it provides a fair procedure of discipline for those 
listing and trading non-convertible bonds on Nasdaq.
---------------------------------------------------------------------------

    \53\ 15 U.S.C. 78f(b).
    \54\ 15 U.S.C. 78f(b)(4), (5), and (7).
    \55\ 15 U.S.C. 78f(b)(4).
    \56\ 15 U.S.C. 78f(b)(5).
    \57\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

Listing Rules
    The Exchange believes that its proposal to list non-convertible 
bonds will improve the quality of the public market for bonds by 
improving the transparency and the orderliness of the market. As 
discussed above, an issuer that lists bonds pursuant to this proposal 
will be required to disclose any material information that would 
reasonably be expected to affect the value of their securities or 
influence investors' decisions, except in unusual circumstances.\58\ 
Through this requirement, Nasdaq will be able to evaluate such 
disclosure to determine if, among other things, a Bond Halt should be 
declared for that security.\59\ This proposal, in connection with 
Nasdaq's proposal to trade such bonds, would also increase the amount 
of bond-specific information that would disclosed by issuers in 
fulfillment of the requirements of Section 12 of the Act.
---------------------------------------------------------------------------

    \58\ As noted above, Nasdaq proposes to amend Rule 5250(e)(3) to 
require an issuer to provide at least 10 calendar days advance 
notice to Nasdaq of certain corporate actions relating to non-
convertible bonds listed on the Nasdaq Bond Exchange, including 
redemptions (full or partial calls), tender offers, changes in par 
value, and changes in identifier (e.g., CUSIP number or symbol), by 
filing the appropriate form as designated by Nasdaq. This proposal 
is consistent with the Act because it aid the Listings Qualification 
Department in assessing an issuer's compliance with the continuing 
listing standards set forth in proposed Rule 5702.
    \59\ Nasdaq is limiting this proposal to an issuer that is 
currently listing one class of an equity security on either Nasdaq, 
NYSE, or NYSE American. While the issuer may be required to make 
similar disclosures in connection with its listed equity security, 
Nasdaq may not receive such disclosures if the listing venue for 
that equity security is NYSE or NYSE American. As such, this 
proposal provides the Exchange with additional information related 
to listed companies that it may otherwise not possess.
---------------------------------------------------------------------------

    Nasdaq also believes that its proposed listing standards are 
consistent with the Act. Nasdaq notes that its proposed initial listing 
standards, set forth in Rule 5702(a)--which require a minimum principal 
amount outstanding of the non-convertible bond or a market value of at 
least $5 million and the issuer of the non-convertible bond also having 
a class of equity listed on Nasdaq, NYSE, or NYSE American--are similar 
to the initial listing requirements for bonds listed on NYSE and NYSE 
American. Similarly, the continued listing requirement under Rule 
5702(b)(1) that a non-convertible bond maintain a market value or 
principal amount of bonds outstanding of at least $400,000 is similar 
to the listing requirement for bonds imposed by NYSE American. Nasdaq 
notes that, pursuant to Rule 5702(b)(2), an issuer would also be 
required to meet its obligations on the listed non-convertible bonds, 
and that Nasdaq would initiate proceedings immediately under Rule 5810 
(Notification of Deficiency by the Listing Qualifications Department) 
if the issuer were unable to meet its obligations on its non-
convertible bonds. Nasdaq believes that it is consistent with the Act 
to immediately institute immediate de-listing proceedings in this 
instance, rather than to first afford the issuer a time period during 
which it may regain compliance (i.e., the 180 calendar day period it 
proposes to provide when a bond fails to meet the quantitative 
requirements under Rule 5702(b)(1)) because a violation of a covenant, 
a default on interest payments, or another failure of an issuer to meet 
its obligations under a bond indenture, constitutes a breach of an 
issuer's legal obligations to bondholders, and signals that a bond is 
not appropriate for continued listing on the Exchange.
    Nasdaq also believes that the change to the definition of a 
``substitution listing event'' to include a change in the obligor of a 
listed non-convertible bond is consistent with the Act. Nasdaq is 
proposing to make this change to both convertible and non-convertible 
bonds, as both types of securities could potentially be subject to a 
change in the obligor of that bond, which Nasdaq believes should 
qualify as a substitution listing event.
    Likewise, it is consistent with the Act to amend Rule 5515(b)(4) to 
change existing references from the American Stock Exchange to NYSE 
American to ensure that our Rules regarding convertible debt are 
current and accurate with respect to the names of the exchanges they 
reference.
    Nasdaq believes that the proposed rule change is consistent with 
Section 6(b)(4) in that it provides for the equitable allocation of 
reasonable dues, fees, and other charges among its members, issuers and 
other persons using its facilities. The proposed $5,000 application fee 
and $5,000 annual fee will be equally applicable to any issuer seeking 
to list non-convertible bonds on Nasdaq, other than for those issuers 
that propose to switch their listings from NYSE or NYSE American to 
Nasdaq. Nasdaq's proposal to waive the application fee and the first 
year's annual fee for issuers that switch their listings to Nasdaq from 
NYSE or NYSE American is reasonable and equitable because such fees 
will otherwise serve as disincentives for issuers to switch their 
listings, particularly if they have already paid their annual fees to 
NYSE or NYSE American for the year in which a switch would otherwise 
occur.\60\ The waiver of the application fee is also equitable because 
it is Nasdaq's experience that less work is required to process a 
listing application for a security that is already listed on another 
exchange than it is to process an application for listing a new 
security. The application and annual fees are also reasonable and 
equitable because they will support Nasdaq's regulatory program to 
review and qualify debt issuances for listing.
---------------------------------------------------------------------------

    \60\ Nasdaq notes that it presently waives entry fees for 
listing equity securities that transfer to Nasdaq from another 
national security exchange. See Rule 5910(a)(7)(i) (Nasdaq Global 
and Global Select Markets); Rule 5920(a)(7)(i) (Nasdaq Capital 
Market); Rule 5940(a)(5)(i)(Exchange Traded Products). It also 
waives a portion of the annual fee for securities whose listings 
transfer from a national securities exchange to Nasdaq on an 
exclusive basis. See IM-5900-4. Nasdaq's rationale for employing 
waivers in those instances is similar to that which Nasdaq asserts 
for its corporate bond listing programs. See, e.g., Securities 
Exchange Act Release No. 34-70418 (Sept. 16, 2013), 78 FR 57909 
(Sept. 20, 2013) (SR-NASDAQ-2013-115).
---------------------------------------------------------------------------

    The proposed application and annual fees are competitive with the 
initial and annual fees that are currently assessed by NYSE and NYSE 
American for the listing of bonds.\61\
---------------------------------------------------------------------------

    \61\ NYSE American charges an initial listing fee for bonds of 
$100 per $1 million principal amount (or fraction thereof) with a 
minimum fee of $5,000 and a maximum fee of $10,000. NYSE American 
also charges an annual fee of $5,000 for listed bonds and debentures 
of companies whose equity securities are not listed on NYSE 
American. See NYSE American Listed Company Guide Sections 140 and 
141. Meanwhile, NYSE charges an initial listing fee of $25,000 and 
an annual fee of $25,000 for listed debt of NYSE equity issuers and 
an initial listing fee of $45,000 and an annual listing fee of 
$45,000 for listed debt of non-NYSE equity issuers. See Section 
902.08 of the NYSE Listed Company Manual.
---------------------------------------------------------------------------

    Nasdaq also notes that the proposed $5,000 initial listing fee is 
the same as the application fee it charges for convertible bonds. 
However, Nasdaq will not charge an entry fee (as it does for 
convertible bonds under the

[[Page 45296]]

proposed amendment to Rule 5920(a)(2)) because Nasdaq believes that the 
proposed application fee will allow the Exchange to adequately recoup 
its expenses incurred in processing an issuer's application to list 
those bonds. Nasdaq proposes a flat $5,000 annual fee for non-
convertible bonds in lieu of the variable annual fee that Nasdaq 
charges to issuers of convertible bonds ($500 or $25 per million 
dollars face amount of debentures outstanding, whichever is greater, 
pursuant to Rule 5920(c)(B)(2)) because the Exchange believes that 
issuers will prefer the simplicity and predictability of a flat fee. 
Moreover, the Exchange expects to list large issuances of non-
convertible bonds, in which cases the annual fees for such bonds will 
be comparable to, if not lower than, the annual fees that Nasdaq 
charges for convertible bonds.
    These proposed listing fees for non-convertible bonds are lower 
than Nasdaq's initial and annual fees for equity securities, which 
range from $50,000--$75,000 for initial listing of equity securities, 
and from $32,000--$45,000 for annual listing of equity securities.\62\ 
Nasdaq competes for the listing of securities, including bonds, with 
NYSE and NYSE American, and the differential between its proposed 
listing fees for non-convertible bonds and its current listing fees for 
equity securities is similar to the differential for listing debt and 
equity securities on NYSE American.\63\
---------------------------------------------------------------------------

    \62\ See Rule 5920(a)-(c).
    \63\ See, e.g. NYSE American Listed Company Guide Sections 140 
and 141 (NYSE American charges an initial listing fee for common 
stock that ranges from $50,000-$75,000 and an annual fee of between 
$40,000 and $50,000).
---------------------------------------------------------------------------

    Nasdaq also believes that the proposed listing rules are consistent 
with Section 6(b)(5) of the Act \64\ in that they serve the interests 
of the public and investors by facilitating competition in the market 
for listing corporate non-convertible bonds. The proposed listing rules 
also are similar to those of NYSE and NYSE American, which the 
Commission has recognized as being equitable and adequately protective 
of the public interest. Furthermore, the Exchange believes that the 
proposed listing fees are equitable for the reasons set forth above. 
Meanwhile, the proposed waivers of application and first year annual 
fees for listings of non-convertible bonds that switch to Nasdaq from 
NYSE or NYSE American are not unfairly discriminatory because, in 
absence of such waivers, issuers that have already paid such fees to 
list their bonds on another exchange would have a significant 
disincentive to switch their listing to Nasdaq as they would be 
required to pay twice for similar listing services. The proposed waiver 
of the application fee for bonds that switch to Nasdaq from another 
exchange is fair because it reflects the fact that less work is 
required by Nasdaq to process such applications than is required to 
process applications for newly-listed securities. Finally, as is 
discussed above, Nasdaq already employs similar fee waivers for 
listings of equity securities and exchange traded products.\65\
---------------------------------------------------------------------------

    \64\ 15 U.S.C. 78f(b)(5).
    \65\ See n.60, supra.
---------------------------------------------------------------------------

    Finally, Nasdaq notes that it will apply the surveillance and 
enforcement infrastructure that it utilizes for listings on its other 
markets to ensure that issuers comply with initial and continuing 
listing requirements for non-convertible corporate bonds and that the 
Exchange will take fair and appropriate action under the Nasdaq Rule 
5800 Series to address violations of those listing Rules.
Trading Rules
    Nasdaq's proposal to establish the Nasdaq Bond Exchange system to 
trade non-convertible corporate bonds listed on Nasdaq is also 
consistent with the Act. Nasdaq has designed the Nasdaq Bond Exchange 
to operate in accordance with the Act, the applicable rules of the 
Commission and of the Exchange, and the high standards that Nasdaq 
believes to be in evidence at all of Nasdaq, Inc.'s exchanges. The 
proposal will offer Users opportunities to trade non-convertible bonds 
through a fair, open, and well-regulated market. The proposal will 
promote the interests of the public and investors by providing for the 
entry into the marketplace of a new exchange venue for trading non-
convertible corporate bonds. Such bonds presently are tradeable, other 
than on an over-the-counter basis, only on NYSE and NYSE American. The 
Nasdaq Bond Exchange will introduce competition into this space, and 
that competition will spur innovation, which in turn will benefit 
issuers, traders, and investors alike.
    The Nasdaq Bond Exchange is also designed to be a free, open, and 
fair marketplace. All Nasdaq Members will be eligible to become Users 
simply by electing to receive access. Moreover, Nasdaq proposes simple 
and straightforward rules to govern the operation of the Bond Exchange, 
including a familiar price-time allocation methodology, two basic order 
types, a single Bond Trading Session with no after-hours trading, and 
market data feed that will be disseminated, for free, to any member of 
the public that requests it and agrees to the Exchange's terms and 
conditions of use. At the same time, the proposal will also include 
provisions that are endemic to orderly and well-regulated markets, 
including authority to impose trading halts and suspensions, in 
appropriate circumstances, and to unwind clearly erroneous trades 
pursuant to established procedures under Nasdaq Rule 11890 and bond-
specific criteria adapted from NYSE Rule 86.
    Nasdaq will also leverage the conduct rules, surveillance 
technology, and enforcement infrastructure that it utilizes with 
respect to its other markets to ensure that the Nasdaq Bond Exchange 
operates in a fair and orderly fashion and that Nasdaq prevents, 
detects, and addresses fraudulent and manipulative acts and practices. 
For example, Nasdaq's MarketWatch Department will surveil the market 
and employ its SMARTS technology to detect suspicious or non-compliant 
behavior. Nasdaq's existing disciplinary rules, as set forth in the 
Nasdaq Rule 8000 and 9000 Series, will apply to Users of the Nasdaq 
Bond Exchange, and Nasdaq's Regulation Department will, pursuant to 
these disciplinary rules, investigate and take fair and appropriate 
enforcement action to address violations of rules relevant to trading 
on the Nasdaq Bond Exchange or the conduct of Users.
    Moreover, the proposal provides for the equitable allocation of 
reasonable dues, fees, and other charges among its members, issuers and 
other persons using its facilities. Nasdaq will charge no fees to trade 
non-convertible bonds on the Nasdaq Bond Exchange, to obtain the FIX 
ports that are necessary to connect to the Nasdaq Bond Market, or to 
receive the Nasdaq Corporates Totalview data feed product. 
Additionally, to the extent that a User already purchases physical 
connectivity to Nasdaq pursuant to General 8, Sections 1 and 2 of the 
Nasdaq Rules, such a User could utilize its existing connectivity to 
connect to the Bond Exchange without any incurring additional fees to 
do so.
    Finally, Nasdaq notes that it has designed the Nasdaq Bond Exchange 
system to facilitate transactions in corporate bonds in a manner that 
is similar to, and competitive with, the existing NYSE Bonds trading 
system. The Commission has already deemed the design of NYSE Bonds to 
be consistent with the Act.\66\ Indeed, much of the language in 
proposed Rule 4000B, which will govern the Nasdaq Bond Exchange, is 
adapted from NYSE Rule

[[Page 45297]]

86, which governs NYSE Bonds. That is, like NYSE Bonds, the Nasdaq Bond 
Exchange will be an electronic system for receiving, processing, 
executing, and reporting bids, offers and executions in bonds. Like 
NYSE Bonds, the Nasdaq Bond Exchange will display, match and execute 
buy and sell orders on a price/time basis. The Exchange, like NYSE, 
will also accept good-for-day limit orders and kill-or-fill orders, and 
it will trade bonds of issuers that have at least one class of equity 
securities listed on Nasdaq, NYSE, or NYSE American.\67\
---------------------------------------------------------------------------

    \66\ See Securities Exchange Act Release No. 34-55496 (Mar. 20, 
2007), 72 FR 14631 (Mar. 28, 2007).
    \67\ See n.11, supra.
---------------------------------------------------------------------------

    To the extent that the Nasdaq Bond Exchange will differ from NYSE 
Bonds, these differences will render the Nasdaq Bond Exchange simpler 
than NYSE Bonds. At its inception, the Nasdaq Bond Exchange will not 
have--as does NYSE Bonds--market makers, sponsored access, auctions, 
price collars, or certain order types (e.g., reserve orders, minimum 
quantity orders, good-til-cancelled orders, and timed orders). The 
Nasdaq Bond Exchange also will have only one trading session each day 
as opposed to NYSE Bonds, which has three sessions. Although the Nasdaq 
Bond Exchange will initially lack these features of NYSE Bonds, Nasdaq 
believes that the platform nevertheless will have the features it needs 
to compete effectively with NYSE Bonds. The Exchange observes that 
Users of NYSE Bonds do not appear to avail themselves of many of its 
features and functionalities, such that the Exchange does not believe 
that the Nasdaq Bond Exchange needs these features and functionalities 
to compete with NYSE Bonds. In any event, the Exchange is committed to 
adding new features to the Nasdaq Bond Exchange in the future to the 
extent that Nasdaq determines that a demand exists for those features 
and that adding them will help the Nasdaq Bond Exchange compete 
successfully in the marketplace.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Rather, the proposed rule 
change will promote competition among exchanges by allowing Nasdaq to 
list and trade non-convertible bonds, which can currently be listed 
only on NYSE and NYSE American. The proposals will have the pro-
competitive effect of spurring further initiative and innovation among 
market centers and market participants.
    Nasdaq notes that its proposed listing standards are consistent 
with the standards for initial and continued listing of bonds on NYSE 
and NYSE American. If issuers are unsatisfied with Nasdaq's listing 
program or the fees charged for that program, these issuers can choose 
to list on these other markets.
    Likewise, the Exchange notes that its proposed system for trading 
non-convertible bonds listed on Nasdaq--the Nasdaq Bond Exchange--will 
be competitive with NYSE Bonds. Although initially, the Nasdaq Bond 
Exchange will have more limited functionality than does NYSE Bonds, 
including with respect to order types, auctions, the number of trading 
sessions, and the use of market makers, the Exchange believes that the 
Nasdaq Bond Exchange will be competitive with NYSE Bonds because the 
Exchange has incorporated into the Nasdaq Bond Exchange those features 
of NYSE Bonds that its Users actually want and need when trading bonds 
and it excluded those they do not actually utilize. That said, the 
Exchange will add additional functionality and features to the Nasdaq 
Bond Exchange as demand warrants it to do so and to the extent that the 
Exchange deems it necessary to remain competitive with NYSE Bonds.

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

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2018-070 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2018-070. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (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 website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-2018-070 and should be submitted 
on or before September 27, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\68\
---------------------------------------------------------------------------

    \68\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-19239 Filed 9-5-18; 8:45 am]
 BILLING CODE 8011-01-P