[Federal Register Volume 84, Number 129 (Friday, July 5, 2019)]
[Notices]
[Pages 32245-32246]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-14276]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86246; File No. SR-NASDAQ-2019-017]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Granting Approval of a Proposed Rule Change To Adopt Additional 
Requirements for Listings in Connection With an Offering Under 
Regulation A of the Securities Act

June 28, 2019.

I. Introduction

    On April 5, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to adopt a new initial listing 
requirement for any company applying to list on the Exchange in 
connection with an offering under Regulation A \3\ of the Securities 
Act of 1933 (``Securities Act'').\4\ The proposed rule change was 
published for comment in the Federal Register on April 24, 2019.\5\ The 
Commission received one comment in support of the proposed rule 
change.\6\ On June 7, 2019, pursuant to Section 19(b)(2) of the Act,\7\ 
the Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to approve or disapprove the proposed 
rule change.\8\ This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 230.251-230.263.
    \4\ 15 U.S.C. 77a et seq.
    \5\ See Securities Exchange Act Release No. 85687 (April 18, 
2019), 84 FR 17224 (April 24, 2019) (``Notice'').
    \6\ See Letter from Jeffrey P. Mahoney, General Counsel, Council 
of Institutional Investors, dated May 2, 2019 (``CII Letter''), 
available at https://www.sec.gov/comments/sr-nasdaq-2019-017/srnasdaq2019017-5441017-184816.pdf.
    \7\ 15 U.S.C. 78s(b)(2).
    \8\ See Securities Exchange Act Release No. 86067 (June 7, 
2019), 84 FR 27672 (June 13, 2019). The Commission designated July 
23, 2019, as the date by which the Commission shall approve the 
proposed rule change, disapprove the proposed rule change, or 
institute proceedings to determine whether to approve or disapprove 
the proposed rule change.
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II. Description and Summary of Comment

    The Exchange proposed to adopt a new initial listing requirement 
for companies listing on the Exchange in connection with an offering 
under Regulation A of the Securities Act.\9\ Specifically, the Exchange 
proposed to require any company listing on the Exchange in connection 
with an offering under Regulation A \10\ to have a minimum operating 
history of two years at the time of approval of its initial listing 
application.\11\
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    \9\ The Exchange stated that its staff has also adopted 
heightened review procedures for companies applying to list on the 
Exchange in connection with an offering under Regulation A. See 
Notice, supra note 5, at 17225.
    \10\ Regulation A of the Securities Act was amended in 2015 to 
implement provisions of the Jumpstart Our Business Startups Act. 
Among other things, such amendments provide for an exemption from 
registration under the Securities Act for securities offerings of up 
to $50 million in a 12-month period. See Securities Exchange Act 
Release No. 74578 (March 25, 2015), 80 FR 21805 (April 20, 2015) 
(Amendments for Small and Additional Issues Exemptions Under the 
Securities Act (Regulation A); Final Rule) (``Regulation A Adopting 
Release'').
    \11\ See proposed Rule 5210(j).
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    The Exchange stated in its proposal that it has observed problems 
with certain companies listing on the Exchange in connection with an 
offering under Regulation A.\12\ Nasdaq also noted, among other things, 
that Regulation A offering statements have lighter disclosure 
requirements as compared to a traditional initial public offering on 
Form S-1.\13\
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    \12\ See Notice, supra note 5, at 17225 (citing to Securities 
and Exchange Commission vs. Longfin Corp., Case No. 18-cv-2977 (DLC) 
(S.D.N.Y., filed April 4, 2018), available at https://www.sec.gov/litigation/complaints/2018/comp-pr2018-61.pdf).
    \13\ See id.
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    The Exchange stated that it believes that the proposed new minimum 
two-year operating history requirement will help assure that a company 
listing in connection with an offering under Regulation A has a more 
established business plan and a history of operations upon which 
investors can rely, has been able to fund the initial phase of its 
operations, and will be more likely to be ready for the rigors of being 
a public company, including satisfying the Commission's and Exchange's 
reporting and corporate governance requirements. The Exchange stated 
these are important benefits given the lighter disclosure requirements 
associated with Regulation A offerings.\14\
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    \14\ See id.
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    Nasdaq proposed that this proposed rule change be effective 30 days 
after approval by the Commission, and stated that such 30-day delay 
would allow companies that have substantially completed the Nasdaq 
review process, or are near completion of their offering, a short 
opportunity to complete that offering and list before the new rules 
become effective.\15\
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    \15\ See id.
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    The Commission received one comment letter in support of the Nasdaq 
proposal.\16\ The commenter noted that companies relying on Regulation 
A are subject to less burdensome accounting and disclosure standards 
than companies conducting a traditional initial public offering on Form 
S-1.\17\ The commenter agreed with Nasdaq that its proposal will ``. . 
. help assure that [listed] companies have more established business 
plans and a history of operations upon which investors can rely'' and 
that such more seasoned companies are more likely to be ready for the 
rigors of being a public company.\18\
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    \16\ See CII Letter, supra note 6.
    \17\ See id. at 2.
    \18\ See id. at 3. The commenter also raised additional issues 
that were beyond the scope of the Commission's review of this rule 
proposal.?>[FEDREG][VOL]*[/VOL][NO]*[/NO][DATE]*[/
DATE][NOTICES][NOTICE][PREAMB][AGENCY]*[/AGENCY][SUBJECT]*[/SUBJECT]
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Exchange Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\19\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Exchange Act,\20\ 
which requires, among other things, that the rules of a national 
securities exchange be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
and, in general, to protect investors and the public interest; and are 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \19\ 15 U.S.C. 78f(b). In approving this proposed rule change, 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \20\ 15 U.S.C. 78f(b)(5).
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    The development and enforcement of meaningful listing standards for 
an exchange is of critical importance to financial markets and the 
investing public. Among other things, listing standards provide the 
means for an exchange to screen issuers that seek to become listed, and 
to provide listed status only to those that are bona fide companies 
with sufficient public float, investor base, and trading interest 
likely to generate depth and liquidity sufficient to promote fair and 
orderly markets. Meaningful listing standards also are important given 
investor expectations regarding the nature of securities that have 
achieved an

[[Page 32246]]

exchange listing, and the role of an exchange in overseeing its market 
and assuring compliance with its listing standards.\21\
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    \21\ See, e.g., Securities Exchange Act Release Nos. 65708 
(November 8, 2011), 76 FR 70799 (November 15, 2011) (SR-Nasdaq-2011-
073) (order approving a proposal to adopt additional listing 
requirements for companies applying to list after consummation of a 
``reverse merger'' with a shell company), and 57785 (May 6, 2008), 
73 FR 27597 (May 13, 2008) (SR-NYSE-2008-17) (order approving a 
proposal to adopt new initial and continued listing standards to 
list securities of special purpose acquisition companies).
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    The Commission believes the proposed two-year minimum operating 
history requirement for companies that seek to list on the Exchange in 
connection with an offering under Regulation A of the Securities Act is 
reasonably designed to address the Exchange's concerns regarding 
maturity and preparedness for listing of these types of issuers. 
Regulation A allows companies to raise money from the public in 
securities offerings of up to $50 million with the filing of Form 1-A 
but with somewhat more limited disclosure requirements than what is 
required in a registration statement on Form S-1 for an initial public 
offering.\22\ For example, Form 1-A requires less disclosure about the 
compensation of officers and directors and less detailed management 
discussion and analysis of the issuer's liquidity and capital resources 
and results of operations.\23\ The Commission further notes that 
Regulation A issuers tend to be smaller companies in earlier stages of 
development.\24\ As a general matter, early-stage ventures may be 
relying on the development of a new business, product, or service that 
may or may not find a market, unlike a mature business that is more 
likely to have a track record of revenue or income.
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    \22\ See Regulation A Adopting Release, supra note 10.
    \23\ See id. at 21889. The Commission notes that a company that 
conducts an offering under Regulation A at the same time as listing 
can include balance sheets for its last two fiscal years, with no 
interim financial statements, whereas a company that conducts an 
initial public offering on Form S-1 at the time of listing would be 
required to have interim financial statements dated no later than 
134 days prior to effectiveness of the Form S-1 and at the time of 
listing See Notice, supra note 5, at 17225.
    \24\ See Securities Exchange Act Release No. 86129 (June 18, 
2019), 84 FR 30460, 30492-93 (June 26, 2019) (File No. S7-08-19) 
(Concept Release on Harmonization of Securities Offering 
Exemptions).
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    The Commission believes, based on the factors discussed above, that 
the proposed operating history requirement may help to ensure that a 
company listing in connection with a Regulation A offering is more 
seasoned, and thus more likely to be ready for the rigors of being a 
public, exchange-listed and traded, company, and that therefore the 
requirement would be consistent with the investor protection provisions 
of Section 6(b)(5) of the Exchange Act. The Commission notes that, as 
Nasdaq stated in its proposal, the additional two-year operating 
history requirement can help to assure that a company listing in 
connection with a Regulation A offering will be more likely to have a 
developed business plan upon which investors can rely, was able to 
successfully fund its initial phase of operations, and may be more 
likely to be better prepared to satisfy public company requirements, 
including reporting and corporate governance requirements.
    While capital formation and access to markets is very important, 
the Commission notes that the additional listing requirement applies to 
a small subset of companies applying to list in connection with a 
Regulation A offering and that the Exchange has identified a reasonable 
requirement that it believes will help it to ensure the suitability of 
such companies for an Exchange listing, consistent with the 
requirements of Section 6(b)(5) of the Exchange Act. Finally, the 
Commission would expect Nasdaq to review its experience with the new 
initial listing standard for Regulation A listed companies and consider 
whether the adoption of the new rule has addressed the concerns 
identified by Nasdaq and propose any appropriate changes, if necessary, 
to its listing standards.
    For the reasons discussed above, the Commission believes that 
Nasdaq's proposal will further the purposes of Section 6(b)(5) of the 
Exchange Act by, among other things, protecting investors and the 
public interest, and preventing fraudulent and manipulative acts and 
practices, as well as promoting fair and orderly markets under the 
Exchange Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\25\ that the proposed rule change (SR-NASDAQ-2019-017) 
be, and it hereby is, approved.
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    \25\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-14276 Filed 7-3-19; 8:45 am]
BILLING CODE 8011-01-P?>