[Federal Register Volume 84, Number 171 (Wednesday, September 4, 2019)]
[Notices]
[Pages 46580-46585]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-19004]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86792; File No. SR-NASDAQ-2019-059]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Adopt Requirements for the 
Nasdaq Capital and Global Markets Applicable to Direct Listings

August 28, 2019.
    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 15, 2019, 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, II, and III 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt requirements for the Nasdaq Capital 
and Global Markets applicable to Direct Listings.
    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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Nasdaq recognizes that some companies that have sold common equity 
securities in private placements, which have not been listed on a 
national securities exchange or traded in the over-the-counter market 
pursuant to FINRA Form 211 immediately prior to the initial pricing, 
may wish to list those securities to allow existing shareholders to 
sell their shares. Nasdaq previously adopted requirements applicable to 
such Direct Listings listing on the Nasdaq Global Select Market \3\ and 
now proposes to adopt requirements for the Nasdaq Global and Capital 
Markets.
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    \3\ Securities Exchange Act Release No. 85156 (February 15, 
2019), 84 FR 5787 (February 22, 2019) (the ``2019 Rule Change''). 
Nasdaq proposes to insert the defined term ``Direct Listing'' into 
the existing language of Listing Rule IM-5315-1 and update the title 
without further modification to that rule section.
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    The proposed Listing Rules IM-5405-1 and IM-5505-1 set forth the 
additional listing requirements for Direct Listings on the Nasdaq 
Global and Capital Markets and describe how the Exchange will calculate 
compliance with the Nasdaq Global and Capital Markets initial listing 
standards related to the requirements based on the price of a security, 
including the bid price, Market Value of Listed Securities and Market 
Value of Unrestricted Publicly Held Shares.\4\
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    \4\ On March 21, 2019, Nasdaq filed with the Commission a 
proposed rule change to revise the initial listing standards related 
to liquidity that, among other changes, added three new definitions 
to define ``restricted securities,'' ``unrestricted publicly held 
shares'' and ``unrestricted securities.'' This rule change was 
approved by the Commission effective July 5, 2019 and operative 
August 5, 2019. See Securities Exchange Act Release No. 86314 (July 
5, 2019), 84 FR 33102 (July 11, 2019).

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[[Page 46581]]

    Nasdaq also proposes to modify Nasdaq Rule 4753 to clarify that the 
securities listed pursuant to Listing Rules IM-5405-1 and IM-5505-1 can 
be launched for trading using the same crossing mechanism available for 
IPOs outlined in Rule 4120(c)(8) and Rule 4753 (the ``IPO Cross'').
    Finally, the proposed Listing Rules IM-5405-1 and IM-5505-1 require 
that such securities must begin trading on Nasdaq following the initial 
pricing through the IPO Cross. To allow such initial pricing, the 
Company must: (i) Have a broker-dealer serving in the role of financial 
advisor to the issuer of the securities being listed, who is willing to 
perform the functions under Rule 4120(c)(8) that are performed by an 
underwriter with respect to an initial public offering and (ii) list 
upon effectiveness of a Securities Act of 1933 registration statement 
filed solely for the purpose of allowing existing shareholders to sell 
their shares.
Calculation of Price-Based Initial Listing Requirements
    Direct Listings are subject to all initial listing requirements 
applicable to equity securities and, subject to applicable exemptions, 
the corporate governance requirements set forth in the Rule 5600 
Series. To provide transparency to the initial listing process, the 
Exchange proposes to adopt Listing Rules IM-5405-1 and IM-5505-1, which 
will state how the Exchange calculates the initial listing requirements 
based on the price of a security, including the bid price, Market Value 
of Listed Securities and Market Value of Unrestricted Publicly Held 
shares for a Direct Listing on the Nasdaq Global and Capital 
Markets.\5\
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    \5\ Substantive provisions of Listing Rules IM-5405-1 and IM-
5505-1 are identical.
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    Unless Nasdaq determines to accept evidence of the security's price 
based on a tender offer by the company or a third party, a third-party 
transaction involving the company's equity securities, or security 
sales by the company, as described in more detail below, under Listing 
Rules IM-5405-1 and IM-5505-1, Nasdaq would generally require that a 
company listing on the Nasdaq Global and Capital Markets through a 
Direct Listing provide Nasdaq an independent third-party valuation (a 
``Valuation'') that meets the requirements of Listing Rules IM-5315-
1(e) and (f).
    Under Listing Rule IM-5315-1(e), any Valuation used for this 
purpose must be provided by an entity that has significant experience 
and demonstrable competence in the provision of such valuations. The 
Valuation must be of a recent date as of the time of the approval of 
the company for listing and the evaluator must have considered, among 
other factors, the annual financial statements required to be included 
in the registration statement, along with financial statements for any 
completed fiscal quarters subsequent to the end of the last year of 
audited financials included in the registration statement. Nasdaq will 
consider any market factors or factors particular to the listing 
applicant that would cause concern that the value of the company had 
diminished since the date of the Valuation and will continue to monitor 
the company and the appropriateness of relying on the Valuation up to 
the time of listing. Nasdaq may withdraw its approval of the listing at 
any time prior to the listing date if it believes that the Valuation no 
longer accurately reflects the company's likely market value.\6\
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    \6\ In addition, under Listing Rule 5101 Nasdaq has broad 
discretionary authority to deny initial listing, apply additional or 
more stringent criteria for the initial or continued listing of 
particular securities, or suspend or delist particular securities 
based on any event, condition, or circumstance that exists or occurs 
that makes initial or continued listing of the securities on Nasdaq 
inadvisable or unwarranted in the opinion of Nasdaq, even though the 
securities meet all enumerated criteria for initial or continued 
listing on Nasdaq.
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    Under Listing Rule IM-5315-1(f), Nasdaq requires that a valuation 
agent will not be considered independent if:
     At the time it provides such Valuation, the valuation 
agent or any affiliated person or persons beneficially own in the 
aggregate as of the date of the valuation, more than 5% of the class of 
securities to be listed, including any right to receive any such 
securities exercisable within 60 days.
     The valuation agent or any affiliated entity has provided 
any investment banking services to the listing applicant within the 12 
months preceding the date of the Valuation. For purposes of this 
provision, ``investment banking services'' includes, without 
limitation, acting as an underwriter in an offering for the issuer; 
acting as a financial adviser in a merger or acquisition; providing 
venture capital, equity lines of credit, PIPEs (private investment, 
public equity transactions), or similar investments; serving as 
placement agent for the issuer; or acting as a member of a selling 
group in a securities underwriting.
     The valuation agent or any affiliated entity has been 
engaged to provide investment banking services to the listing applicant 
in connection with the proposed listing or any related financings or 
other related transactions.
    For a security that has had sustained recent trading in a Private 
Placement Market \7\ prior to listing, Nasdaq will determine a 
company's price, Market Value of Listed Securities and Market Value of 
Unrestricted Publicly Held shares based on the lesser of: (i) The value 
calculable based on the Valuation \8\ and (ii) the value calculable 
based on the most recent trading price in a Private Placement Market.
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    \7\ Nasdaq defines ``Private Placement Market'' in Listing Rule 
5005(a)(34) as a trading system for unregistered securities operated 
by a national securities exchange or a registered broker-dealer.
    \8\ As described in more detail below, under proposed Listing 
Rules IM-5405(a)(3) and IM-5505(a)(3), in lieu of a Valuation, 
Nasdaq may accept certain other compelling evidence of the 
security's price, Market Value of Listed Securities and Market Value 
of Unrestricted Publicly Held Shares.
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    To determine compliance with the price-based requirements and 
suitability for listing on the Exchange, Nasdaq will examine the 
trading price trends for the stock in the Private Placement Market over 
a period of several months prior to listing and will only rely on a 
Private Placement Market price if it is consistent with a sustained 
history over that several month period evidencing a market value in 
excess of Nasdaq's market value requirement. Nasdaq believes that the 
price from such sustained trading in a Private Placement Market for the 
issuer's securities is predictive of the price in the market for the 
common stock that will develop upon listing of the securities on 
Nasdaq.
    Alternatively, in the absence of any recent sustained trading in a 
Private Placement Market over a period of several months,\9\ Nasdaq 
proposes to require that a Valuation must evidence a price, Market 
Value of Listed Securities and Market Value of Unrestricted Publicly 
Held Shares that exceed 200% of the otherwise applicable requirement. 
Thus, to list on the Nasdaq Global Market, the Valuation must evidence 
a minimum bid price of at least $8 per share; Market Value of 
Unrestricted Publicly Held Shares of $16 million under the Income 
Standard; or Market Value of Unrestricted Publicly Held Shares of $36 
million under the Equity Standard; or Market Value of Unrestricted 
Publicly Held Shares of $40 million and Market Value of Listed

[[Page 46582]]

Securities of $150 million under the Market Value Standard; or Market 
Value of Unrestricted Publicly Held Shares of $40 million under the 
Total Assets/Total Revenue Standard.\10\
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    \9\ Limited trading in the Private Placement Market may not be 
sufficient for the Exchange to reach a conclusion that the company 
meets the applicable price-based requirements.
    \10\ See Listing Rules 5405(a) and (b), which generally require 
minimum bid price of at least $4 per share; Market Value of 
Unrestricted Publicly Held Shares of $8 million under the Income 
Standard; or Market Value of Unrestricted Publicly Held Shares of 
$18 million under the Equity Standard; or Market Value of 
Unrestricted Publicly Held Shares of $20 million and Market Value of 
Listed Securities of $75 million under the Market Value Standard; or 
Market Value of Unrestricted Publicly Held Shares of $20 million 
under the Total Assets/Total Revenue Standard.
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    To list on the Nasdaq Capital Market, the Valuation must generally 
evidence a minimum bid price of at least $8 per share; Market Value of 
Unrestricted Publicly Held Shares of $10 million under the Net Income 
Standard; or Market Value of Unrestricted Publicly Held Shares of $30 
million under the Equity Standard; or Market Value of Unrestricted 
Publicly Held Shares of $30 million and Market Value of Listed 
Securities of $100 million under the Market Value Standard.\11\
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    \11\ See Listing Rules 5505(a) and (b), which generally require 
minimum bid price of at least $4 per share; Market Value of 
Unrestricted Publicly Held Shares of $5 million under the Net Income 
Standard; or Market Value of Unrestricted Publicly Held Shares of 
$15 million under the Equity Standard; or Market Value of 
Unrestricted Publicly Held Shares of $15 million and Market Value of 
Listed Securities of $50 million under the Market Value Standard.
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    Nasdaq believes that some companies that are clearly large enough 
to be suitable for listing on the Exchange do not have sustained 
trading in their securities on a Private Placement Market prior to 
going public and that a recent Valuation indicating that the company 
exceeds 200% of the otherwise applicable price-based requirement will 
give a significant degree of comfort that the company will meet the 
applicable price-based requirements upon commencement of trading. 
Nasdaq believes that it is unlikely that any Valuation would reach a 
conclusion that is incorrect to the degree necessary for a company 
using this provision to fail to meet the applicable requirement upon 
listing, in particular because any Valuation used for this purpose must 
be provided by a valuation agent that meets the independence 
requirements of proposed Listing Rule IM-5315-1(f) and has significant 
experience and demonstrable competence in the provision of such 
valuations.
    Nasdaq further believes that in certain unique circumstances a 
company that is clearly large enough to be suitable for listing on the 
Exchange may provide other compelling evidence to demonstrate that it 
meets all applicable price-based requirements without a Valuation. In 
such cases, Nasdaq may accept other compelling evidence of the 
security's price, Market Value of Listed Securities and Market Value of 
Unrestricted Publicly Held Shares, including, a tender offer by the 
company or a third party, a third-party transaction involving the 
company's equity securities, or security sales by the Company.
    In order to be considered compelling evidence of the company's 
value, Nasdaq proposes to require that such transactions were recent, 
occurring within the prior six months, and substantial in size, 
representing sales of at least 20% of the applicable Market Value of 
Unrestricted Publicly Held Shares requirement.\12\ In addition, Nasdaq 
expects such transactions to have been conducted at arm's-length 
requiring that such transactions cannot involve affiliates of the 
company unless such participation is of a de minimis nature, such as 
where any affiliate's participation was less than 5% of the transaction 
(and all affiliates' participation collectively was less than 10% of 
the transaction), such participation was suggested or required by 
unaffiliated investors and where the affiliates did not participate in 
negotiating the economic terms of the transaction. The examples of 
transactions that could constitute compelling evidence are not meant to 
be exhaustive; however, Nasdaq will consider other transactions or 
events as constituting compelling evidence only if such transactions or 
events are substantially similar to those described by this rule.
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    \12\ Listing Rule 5405(b) generally requires, for a company 
listing on the Nasdaq Global Market, Market Value of Unrestricted 
Publicly Held Shares of $8 million under the Income Standard; Market 
Value of Unrestricted Publicly Held Shares of $18 million under the 
Equity Standard; Market Value of Unrestricted Publicly Held Shares 
of $20 million under the Market Value Standard; or Market Value of 
Unrestricted Publicly Held Shares of $20 million under the Total 
Assets/Total Revenue Standard. Listing Rule 5505(b) generally 
requires, for a company listing on the Nasdaq Capital Market, Market 
Value of Unrestricted Publicly Held Shares of $5 million under the 
Net Income Standard; Market Value of Unrestricted Publicly Held 
Shares of $15 million under the Equity Standard; or Market Value of 
Unrestricted Publicly Held Shares of $15 million under the Market 
Value Standard.
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    In order to list on Nasdaq based on such evidence without a 
Valuation, Nasdaq proposes to require such evidence to show that the 
security's price, Market Value of Listed Securities and Market Value of 
Unrestricted Publicly Held Shares exceed 250% of the otherwise 
applicable requirement. Thus, to list on the Nasdaq Global Market, the 
compelling evidence provided by the company must show a minimum bid 
price of at least $10 per share; Market Value of Unrestricted Publicly 
Held Shares of $20 million under the Income Standard; or Market Value 
of Unrestricted Publicly Held Shares of $45 million under the Equity 
Standard; or Market Value of Unrestricted Publicly Held Shares of $50 
million and Market Value of Listed Securities of $187.5 million under 
the Market Value Standard; or Market Value of Unrestricted Publicly 
Held Shares of $50 million under the Total Assets/Total Revenue 
Standard.\13\
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    \13\ See Listing Rules 5405(a) and (b), which generally require 
minimum bid price of at least $4 per share; Market Value of 
Unrestricted Publicly Held Shares of $8 million under the Income 
Standard; or Market Value of Unrestricted Publicly Held Shares of 
$18 million under the Equity Standard; or Market Value of 
Unrestricted Publicly Held Shares of $20 million and Market Value of 
Listed Securities of $75 million under the Market Value Standard; or 
Market Value of Unrestricted Publicly Held Shares of $20 million 
under the Total Assets/Total Revenue Standard.
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    To list on the Nasdaq Capital Market, such evidence must show a 
minimum bid price of at least $10 per share; Market Value of 
Unrestricted Publicly Held Shares of $12.5 million under the Net Income 
Standard; or Market Value of Unrestricted Publicly Held Shares of $37.5 
million under the Equity Standard; or Market Value of Unrestricted 
Publicly Held Shares of $37.5 million and Market Value of Listed 
Securities of $125 million under the Market Value Standard.\14\
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    \14\ See Listing Rules 5505(a) and (b), which generally require 
minimum bid price of at least $4 per share; Market Value of 
Unrestricted Publicly Held Shares of $5 million under the Net Income 
Standard; or Market Value of Unrestricted Publicly Held Shares of 
$15 million under the Equity Standard; or Market Value of 
Unrestricted Publicly Held Shares of $15 million and Market Value of 
Listed Securities of $50 million under the Market Value Standard.
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    Nasdaq believes that such recent, substantial in size, arm's-length 
transactions in the Company's securities, with de minimis insider 
participation, indicating the company exceeds 250% of the otherwise 
applicable price-based requirements will give a significant degree of 
comfort that the company will meet the applicable price-based 
requirements upon commencement of trading. In addition, Nasdaq believes 
that the new requirement that such securities must begin trading on 
Nasdaq following the initial pricing through the IPO Cross will help 
assure these securities begin trading close to their inherent value.
Foreign Exchange Listings
    For a company transferring from a foreign regulated exchange where 
there is a broad, liquid market for the

[[Page 46583]]

company's shares, or listing on Nasdaq while trading on such exchange, 
Nasdaq will determine that the company has met the applicable price-
based requirements based on the recent trading in such market. Nasdaq 
believes that the price of the issuer's securities from such broad and 
liquid trading is predictive of the price in the market for the common 
stock that will develop upon listing of the securities on Nasdaq. While 
this is consistent with Nasdaq's current practice, Listing Rules IM-
5405-1(a)(4) and IM-5505-1(a)(4) will clarify that a company 
transferring from a foreign regulated exchange where there is a broad, 
liquid market for the company's shares or listing on the Nasdaq Global 
or Capital Markets while trading on such exchange is not subject to the 
new requirements applicable to Direct Listings.
Clarification of the Role of a Financial Advisor in a Direct Listing
    In 2014, Nasdaq first adopted rules to allow the use of the Nasdaq 
IPO Cross to initiate trading in securities that have not been listed 
on a national securities exchange or traded in the over-the-counter 
market pursuant to FINRA Form 211 immediately prior to the initial 
pricing and described the role of financial advisors in that 
process.\15\ At that time, the Exchange added Rule 4120(c)(9) \16\ to 
set forth the process by which trading commences in such securities. 
Under that rule, securities of companies that have not previously been 
listed on a national securities exchange or traded in the over-the-
counter market pursuant to FINRA Form 211 immediately prior to listing 
on Nasdaq can be launched for trading using the IPO Cross. Prior to 
that rule change, securities of companies that were not conducting IPOs 
were released using the Halt Cross outlined in Rule 4120(c)(7), which 
differed from the IPO Cross.\17\
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    \15\ Securities Exchange Act Release No. 71931 (April 11, 2014), 
79 FR 21829 (April 17, 2014) (SR-NASDAQ-2014-032) (the ``2014 Rule 
Change''). Nasdaq stated that ``an advisor, with market knowledge of 
the book and an understanding of the company and its security, would 
be well placed to provide advice on when the security should be 
released for trading.'' The 2014 Rule Change at 21830.
    \16\ In 2014, Nasdaq filed SR-NASDAQ-2014-081 modifying the 
functions that are performed by an underwriter with respect to an 
initial public offering and renumbered certain paragraphs of Rule 
4120. Securities Exchange Act Release No. 73399 (October 21, 2014), 
79 FR 63981 (October 27, 2014) (approving SR-NASDAQ-2014-081). All 
references in this filing are to the renumbered rules, as currently 
in effect.
    \17\ The Halt Cross process has a shorter quoting period (five 
minutes) and provides no ability to extend the quoting period in the 
event trading interest or volatility in the market appears likely to 
have a material impact on the security, unless there is an order 
imbalance as defined in the rule. See the 2014 Rule Change for 
additional details on the differences between the Halt Cross and the 
IPO Cross.
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    The 2014 Rule Change extended the safeguards contained in the IPO 
Cross to securities that have not been listed on a national securities 
exchange or traded in the over-the-counter market pursuant to FINRA 
Form 211 immediately prior to the initial pricing and established that 
a broker-dealer serving in the role of financial advisor to the issuer 
could serve in the same capacity for such securities as the underwriter 
does for IPOs. Specifically, Rule 4120(c)(9) provides that the IPO 
Cross process described in Rules 4120 and 4753 is available to 
securities that have not been listed on a national securities exchange 
or traded in the over-the-counter market pursuant to FINRA Form 211 
immediately prior to the initial pricing where ``a broker-dealer 
serving in the role of financial advisor to the issuer of the 
securities being listed is willing to perform the functions under Rule 
4120(c)(8) that are performed by an underwriter with respect to an 
initial public offering.'' \18\
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    \18\ Subsequent to the 2014 Rule Change, Nasdaq expanded and 
elaborated the functions that are performed by an underwriter with 
respect to an initial public offering. See footnote 16, above. Rule 
4120(c)(9) requires a broker-dealer serving in the role of a 
financial advisor to the issuer of the securities being listed to 
perform all such functions in order for the issuer to utilize the 
IPO Cross for the initial pricing of the security.
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    Rule 4753 provides the definition of Current Reference Price and a 
description of the calculation of the price at which the Nasdaq Halt 
Cross will occur.\19\ In each case, the applicable price could be 
determined based on the issuer's IPO price.\20\ In the absence of an 
IPO price from the underwriter, Nasdaq believes that the only viable 
options are to rely on a price from recent sustained trading the 
Private Placement Market \21\ or one provided by the financial advisor 
to the company.
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    \19\ Rules 4753(a)(3)(A) and 4753(b)(2)(D).
    \20\ Rules 4753(a)(3)(A)(iv)a. and 4753(b)(2)(D)(i). The price 
closest to the ``Issuer's Initial Public Offering Price'' is the 
fourth tie-breaker in these rules, applicable when no single price 
is determined from the three prior tests.
    \21\ As described above, Nasdaq believes that the price from 
such recent sustained trading in a Private Placement Market for the 
issuer's securities is predictive of the price in the market for the 
common stock that will develop upon listing of the securities on 
Nasdaq.
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    Nasdaq has successfully employed, in limited circumstances, the IPO 
Cross for securities that have not been listed on a national securities 
exchange or traded in the over-the-counter market pursuant to FINRA 
Form 211 immediately prior to the initial pricing since 2014 \22\ and 
following the 2019 Rule Change. Nasdaq continues to believe that 
financial advisors to issuers seeking to utilize that process are well 
placed to perform the functions that are currently performed by 
underwriters with respect to an initial public offering.
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    \22\ Among other instances, Nasdaq utilized the IPO Cross for 
the initial pricing of the common stock of American Realty Capital 
Healthcare Trust, Inc. as indicated in the 2014 Rule Change.
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    In the 2019 Rule Change, Nasdaq elaborated on the role of a 
financial advisor to the issuer of a security that is listing under IM-
5315-1.\23\ Nasdaq now proposes to amend Rule 4753 to clarify that 
securities listed pursuant to Listing Rules IM-5405-1 and IM-5505-1 can 
be launched for trading using the IPO Cross, subject to additional 
requirements in the proposed Listing Rules IM-5405-1 and IM-5505-1.
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    \23\ Specifically, Nasdaq amended Rules 4753(a)(3)(A)(iv) and 
4753(b)(2)(D) to state that in the case of the initial pricing of a 
Direct Listing for a security qualifying for listing under Listing 
Rule IM-5315-1, the fourth tie-breaker in calculating each of the 
Current Reference Price disseminated in the Nasdaq Order Imbalance 
Indicator and the price at which the Nasdaq Halt Cross will occur, 
respectively, shall be: (i) For a security that has had recent 
sustained trading in a Private Placement Market prior to listing, 
the most recent transaction price in that market or, (ii) if there 
is not such sustained trading in a Private Placement Market, a price 
determined by the Exchange in consultation with the financial 
advisor to the issuer identified pursuant to Rule 4120(c)(9). See 
2019 Rule Change.
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    Nasdaq also proposes to require that all securities listed under 
Listing Rules IM-5405-1 and IM-5505-1 must begin trading on Nasdaq 
following the initial pricing through the IPO Cross. To that end, 
Nasdaq proposes to cross reference Rule 4120(c)(8) in Listing Rules IM-
5405-1 and IM-5505-1 to require that the company must have a broker-
dealer serving in the role of financial advisor to the issuer of the 
securities being listed, who is willing to perform the functions under 
Rule 4120(c)(8) that are performed by an underwriter with respect to an 
initial public offering. In addition, Nasdaq proposes to require that 
each Company qualified for listing under Listing Rules IM-5405-1 and 
IM-5505-1 must list its securities upon effectiveness of a Securities 
Act of 1933 registration statement filed solely for the purpose of 
allowing existing shareholders to sell their shares.
    Finally, Nasdaq proposes to define ``Direct Listing'' in Listing 
Rule IM-5315-1 and update the title without further modification to 
that rule section. Nasdaq also proposes to update the reference to 
``direct listings under IM-5315-1'' in Listing Rule IM-5900-7 as a 
defined term without changing the substance of this rule.

[[Page 46584]]

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\24\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\25\ in particular, in that it is designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transaction 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.
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    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(5).
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Calculation of Price-Based Initial Listing Requirements
    The proposed rule change to require a Valuation and describe how 
Nasdaq will calculate compliance with the price-based requirements for 
listing on the Nasdaq Global and Capital Markets is designed to protect 
investors and the public interest because any company relying solely on 
a Valuation will have to demonstrate that the company exceeds 200% of 
the otherwise applicable price-based requirement, which will give a 
significant degree of comfort that upon commencement of trading the 
company will meet the applicable price-based requirements.\26\ In 
addition, establishing independence standards for the party providing a 
Valuation will ensure that the entity providing a Valuation for 
purposes of listing on Nasdaq will have a significant level of 
independence from the listing applicant and thereby enhance the 
reliability of such Valuation.
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    \26\ See footnotes 13 and 14 above.
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    Finally, in addition to the proposed new requirements, Direct 
Listings are subject to all initial listing requirements applicable to 
equity securities and, subject to applicable exemptions, the corporate 
governance requirements set forth in the Rule 5600 Series. Nasdaq's 
existing requirements are designed to protect investors and serve to 
help assure that securities listed on Nasdaq have sufficient investor 
interest and will trade in a liquid manner. As such, Nasdaq believes 
these provisions protect investors and the public interest in 
accordance with Section 6(b)(5) of the Exchange Act.
    The proposed rule change also protects investors and the public 
interest by requiring that there be sustained recent trading in the 
Private Placement Market in order for a Direct Listing to rely on such 
price to demonstrate compliance with the applicable price-based 
requirements. Nasdaq believes that the price from such sustained 
trading in the Private Placement Market for the issuer's securities is 
predictive of the price in the market for the common stock that will 
develop upon listing of the securities on Nasdaq and that qualifying a 
company based on such trading price helps assure that the company 
satisfies Nasdaq's requirements. In the absence of recent sustained 
trading in the Private Placement Market, the requirement to demonstrate 
that the company exceeds 200% of the otherwise applicable price-based 
requirement, similarly helps assure that the company satisfies Nasdaq's 
requirement by imposing a standard that is double the otherwise 
applicable standard.\27\
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    \27\ See footnotes 13 and 14, above.
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    The proposed rule change to allow a company in certain unique 
circumstances to list without a Valuation is designed to protect 
investors and the public interest because it requires such company to 
produce compelling evidence that the security's price, Market Value of 
Listed Securities and Market Value of Unrestricted Publicly Held Shares 
exceed 250% of the otherwise applicable requirement. Moreover, in order 
to be considered compelling, such evidence of the company's value must 
be based on a tender offer by the company or a third party or on a 
transaction in company's securities, such as a third-party transaction 
involving the company's equity securities, or security sales by the 
company. In addition, such transactions must be recent, occurring 
within the prior six months, and substantial in size, representing 
sales of at least 20% of the applicable Market Value of Unrestricted 
Publicly Held Shares requirement which helps assure that the company 
satisfies the applicable price-based requirement upon commencement of 
trading on Nasdaq.
    The proposed rule change also protects investors and the public 
interest by requiring that for a company to demonstrate compliance with 
the applicable price-based requirements based on security sales by the 
company, such transactions, in addition to being recent and substantial 
in size, must also have been conducted at arm's-length. To that end, 
Nasdaq proposes to require that such transactions cannot involve 
affiliates of the company unless such participation is of a de minimis 
nature, such as where any affiliate's participation was less than 5% of 
the transaction (and all affiliates' participation collectively was 
less than 10% of the transaction), such participation was suggested or 
required by unaffiliated investors and where the affiliates did not 
participate in negotiating the economic terms of the transaction.
    The proposed requirement that a company that lists on the Nasdaq 
Global or Capital Markets through a Direct Listing must list at the 
time of effectiveness of a registration statement filed under the 
Securities Act of 1933 solely for the purpose of allowing existing 
shareholders to sell their shares is designed to protect investors and 
the public interest, because it will ensure such companies satisfy the 
rigorous disclosure requirements under the Securities Act of 1933 and 
are subject to review by Commission staff.
    Finally, the proposal to rely on the price from the existing 
trading market for a company transferring from a foreign regulated 
exchange or listing on Nasdaq while trading on such exchange is 
consistent with the protection of investors because the price from the 
broad and liquid trading market for the issuer's securities is 
predictive of the price in the market for the common stock that will 
develop upon listing of the securities on Nasdaq. This provision 
applies only where there is a broad, liquid market for the company's 
shares in its country of origin and is designed to clarify that a 
company transferring from a foreign regulated exchange or listing on 
Nasdaq while trading on such exchange that satisfies Listing Rules IM-
5405-1(a)(4) or IM-5505-1(a)(4) is not subject to the new requirements 
applicable to Direct Listings. Enhancing transparency around this 
requirement will promote just and equitable principles of trade, foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transaction in securities, remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system and protect investors and the public interest.\28\
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    \28\ Provisions of Listing Rules IM-5405-1(a)(4) and IM-5505-
1(a)(4) are identical to Listing Rule IM-5315-1(c) applicable to 
Direct Listings on the Nasdaq Global Select Market, which was 
adopted in the 2019 Rule Change.
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Clarification of the Role of a Financial Advisor in a Direct Listing
    Nasdaq believes that the proposed rule change to modify the fourth 
tie-breaker used in calculating the Current Reference Price 
disseminated in the Nasdaq Order Imbalance Indicator and the price at 
which the Nasdaq Halt

[[Page 46585]]

Cross will occur, protects investors and the public interest. The 2019 
Rule Change established that, in using the IPO Cross to initiate the 
initial trading in the company's securities, the Current Reference 
Price and price at which the Nasdaq Halt Cross will occur may be based 
on the most recent transaction price in a Private Placement Market 
where the security has had recent sustained trading in such a market 
over several months; otherwise the price will be determined by the 
Exchange in consultation with a financial advisor to the issuer. The 
proposed rule change simply provides that in addition to the initial 
pricing of a security listing under Listing Rules IM-5315-1 the same 
process will occur for securities listing under IM-5405-1 or IM-5505-1.
    Where there has been sustained recent trading on a Private 
Placement Market over several months, Nasdaq believes the most recent 
price from such trading is predictive of the price that will develop 
upon listing of the securities on Nasdaq. Where there has not been such 
sustained recent trading, Nasdaq notes that financial advisors have 
been performing the functions of the underwriter in the IPO Cross on a 
limited basis since 2014 and following the 2019 Rule Change and have 
market knowledge of buying and selling interest and an understanding of 
the company and its security. As such, Nasdaq believes that the rule 
change will promote fair and orderly markets because these mechanisms 
of establishing the Current Reference Price and the price at which the 
Nasdaq Halt Cross will occur will help protect against volatility in 
the pricing and initial trading of the securities covered by the 
proposed rule change.
    Similarly, the proposed requirement that a company that lists on 
the Nasdaq Global or Capital Markets through a Direct Listing must 
begin trading of the company's securities following the initial pricing 
through the IPO Cross will promote fair and orderly markets by 
protecting against volatility in the pricing and initial trading of 
unseasoned securities covered by the proposed rule change. Accordingly, 
Nasdaq believes these changes, as required by Section 6(b)(5) of the 
Exchange Act, are reasonably designed to protect investors and the 
public interest and promote just and equitable principles of trade for 
the opening of securities listing in connection with a Direct Listing 
on the Nasdaq Global or Capital Markets.
    Finally, Nasdaq believes that the proposed rule change to update 
the title of Listing Rule IM-5315-1, to insert the defined term 
``Direct Listing'' into the existing language of this rule and to 
update the reference to ``direct listings under IM-5315-1'' in Listing 
Rule IM-5900-7 using a defined term, does not change the substance of 
these rules and protects investors and the public interest by 
clarifying the applicability of these rules and making it easier to 
understand.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
    The proposed rule change to adopt Listing Rules IM-5405-1 and IM-
5505-1 is designed to provide transparency to the mechanism of listing 
securities in connection with a Direct Listing on the Nasdaq Global or 
Capital Markets that is appropriately protective of investors and is 
not designed to limit the ability of the issuers of those securities to 
list them on any other national securities exchange.
    In addition, the proposed change is designed to extend the 
availability of the IPO Cross to securities listing on Nasdaq under IM-
5405-1 or IM-5505-1 and thus will have no impact on competition.

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

    No written comments were either solicited or received.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date 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-2019-059 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-2019-059. 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 such filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-059, and should be submitted on 
or before September 25, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-19004 Filed 9-3-19; 8:45 am]
 BILLING CODE 8011-01-P