[Federal Register Volume 84, Number 216 (Thursday, November 7, 2019)]
[Notices]
[Pages 60130-60132]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24257]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87445; File No. SR-NASDAQ-2019-060]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Amendment No. 1 and Order Instituting Proceedings
To Determine Whether To Approve or Disapprove a Proposed Rule Change,
as Modified by Amendment No. 1, To Amend Rules 4120 and 4753
November 1, 2019.
I. Introduction
On July 18, 2019, The Nasdaq Stock Market LLC (``Exchange'' or
``Nasdaq'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend Rules 4120 and 4753 to permit the
Exchange to declare a regulatory halt in a security that traded in the
over-the-counter (``OTC'') market prior to the initial pricing on the
Exchange and to allow for the initial pricing of such a security
through the IPO Cross. The proposed rule change was published for
comment in the Federal Register on August 6, 2019.\3\ On September 19,
2019, pursuant to Section 19(b)(2) of the Act,\4\ 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 disapprove the proposed rule change.\5\ On
September 19, 2019, the Exchange also filed Amendment No. 1 to the
proposed rule change, which amended and superseded the proposed rule
change as originally filed.\6\ The Commission received no comment
letters on the proposed rule change. The Commission is publishing this
notice and order to solicit comments on the proposed rule change, as
modified by Amendment No. 1, from interested persons and to institute
proceedings pursuant to Section 19(b)(2)(B) of the Act \7\ to determine
whether to approve or disapprove the proposed rule change, as modified
by Amendment No. 1.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 86537 (July 31,
2019), 84 FR 38321.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 87012, 84 FR 50490
(September 25, 2019). The Commission designated November 4, 2019 as
the date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\6\ In Amendment No. 1, the Exchange revised the proposal to:
(1) Clarify that when a security previously traded in the OTC market
is initially priced using the IPO Cross, the fourth tie-breaker for
each of the Current Reference Price disseminated in the Nasdaq Order
Imbalance Indicator and the price at which the cross will occur will
be the price that is closest to the most recent transaction price in
the OTC market; (2) specify that, for purposes of this proposed rule
change, the use of the term ``regulatory halt'' refers to Nasdaq's
authority to halt trading in a security under Rule 4120(a)(7); (3)
clarify that, currently, a security that traded in the OTC market
immediately prior to listing on Nasdaq is released for initial
trading on Nasdaq through the Opening Cross under Rule 4752(d) and,
pursuant to the proposal, if such an issuer does not retain a
financial advisor, the initial pricing will continue to be effected
through the Opening Cross; (4) include additional justification in
support of the proposed rule change; and (5) make technical and
conforming changes. Amendment No. 1 is available at https://www.sec.gov/comments/sr-nasdaq-2019-060/srnasdaq2019060-6163792-192369.pdf.
\7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposal
Currently, a security that traded in the OTC market immediately
prior to listing on the Exchange is released for initial trading on the
Exchange by utilizing the Opening Cross pursuant to Rule
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4752(d).\8\ The Exchange proposes to amend Rule 4120 to permit the
Exchange to declare a regulatory halt \9\ in a security that traded in
the OTC market prior to its initial pricing on the Exchange.\10\ The
Exchange also proposes to amend Rules 4120 and 4753 to allow for the
initial pricing on the Exchange of such a security through the IPO
Cross (described in Rules 4120(c)(8) and 4753) if a broker-dealer
serving in the role of financial advisor to the issuer is willing to
perform the functions under Rule 4120(c)(8) that are performed by an
underwriter in an initial public offering.\11\ If the issuer does not
retain a financial advisor, the initial pricing on the Exchange of such
a security will continue to be effected through the Opening Cross.\12\
Moreover, the Exchange proposes to adopt Rules 4753(a)(3)(A)(iv)(e) and
4753(b)(2)(D)(v) to provide that, in the case of the initial pricing of
a security that traded in the OTC market pursuant to FINRA Form 211
immediately prior to its initial pricing, the fourth tie-breaker used
in calculating each of the Current Reference Price disseminated in the
Nasdaq Order Imbalance Indicator for purposes of the IPO Cross and the
price at which the IPO Cross will occur will be the price that is
closest to the most recent transaction price in the OTC market.\13\
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\8\ See Amendment 1, supra note 6, at 4 n.4.
\9\ For purposes of this proposed rule change, the term
``regulatory halt'' refers to Nasdaq's authority to halt trading in
a security under Rule 4120(a)(7). See id. at 4 n.3.
\10\ The Exchange states that its proposal would facilitate a
more orderly start to trading by permitting the Exchange to declare
a regulatory halt in a security that traded in the OTC market prior
to its initial pricing on the Exchange, before trading on the
Exchange begins, which the Exchange believes would avoid potential
price disparities or anomalies that may occur during any unlisted
trading privileges (``UTP'') trading before the first transaction on
the primary listing exchange. See id. at 7.
\11\ Rule 4120(c)(9) currently provides that the IPO Cross
process is available for the initial pricing of a security that has
not been listed on a national securities exchange or traded in the
OTC 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 is willing to perform the functions
under Rule 4120(c)(8) that are performed by an underwriter with
respect to an initial public offering. The Exchange states that the
IPO Cross will be a better mechanism to open trading in securities
that traded in the OTC market given that these companies may attract
significant interest upon listing on the Exchange from investors who
previously could not invest in such securities, and that it will be
beneficial to allow significant financial advisor involvement in
determining when to launch trading. See id. at 8-9.
\12\ See id. at 4 n.4.
\13\ The Exchange states that the most recent transaction price
in the OTC market is predictive of the price that will develop upon
the listing of the security on the Exchange. See id. at 8. This
proposed change to the fourth tie-breaker will not affect the
pricing of a security if the issuer does not retain a financial
advisor. See id. at 4 n.5.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-
NASDAQ-2019-060, as Modified by Amendment No. 1, and Grounds for
Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \14\ to determine whether the proposed rule
change, as modified by Amendment No. 1, should be approved or
disapproved. Institution of proceedings is appropriate at this time in
view of the legal and policy issues raised by the proposal, as
discussed below. Institution of proceedings does not indicate that the
Commission has reached any conclusions with respect to any of the
issues involved. Rather, as described below, the Commission seeks and
encourages interested persons to provide additional comment on the
proposed rule change, as modified by Amendment No. 1.
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\14\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\15\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of, and input from commenters with respect to, the consistency
of the proposal with Section 6(b)(5) of the Act.\16\ Section 6(b)(5) of
the Act requires that the rules of a national securities exchange be
designed, among other things, 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.
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\15\ Id.
\16\ 15 U.S.C. 78f(b)(5).
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As discussed above, the proposal would allow the Exchange to
declare a regulatory halt in a security that traded in the OTC market
prior to its initial pricing on the Exchange. The proposal would also
allow the Exchange to use the IPO Cross to initially price such a
security provided that a broker-dealer serving in the role of financial
advisor to the issuer 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 would establish the fourth tie-breaker
used in calculating the Current Reference Price and the IPO Cross
price. Currently, the functions performed by an underwriter with
respect to an initial public offering under Rule 4120(c)(8) include,
for example, providing notice to the Exchange that the security is
ready to trade, selecting price bands for the price validation test,
and determining to postpone and reschedule the initial public offering.
The underwriter functions under Rule 4120(c)(8) currently also apply to
a broker-dealer serving in the role of financial advisor to the issuer
of a security that has not been listed on a national securities
exchange or traded in the OTC market pursuant to FINRA Form 211
immediately prior to its initial pricing on the Exchange, if the IPO
Cross is used for the initial pricing of such a security on the
Exchange. In the current proposal, the Exchange states that the IPO
Cross will be a better mechanism to open trading in securities that
traded in the OTC market given that these companies may attract
significant interest upon listing on the Exchange from investors who
previously could not invest in a security that was traded in the OTC
market, and it would be beneficial to allow significant financial
advisor involvement in determining when to launch trading.\17\ The
Commission seeks commenters' views on the sufficiency and merit of the
Exchange's statements in support of the proposal, which are set forth
in Amendment No. 1,\18\ in addition to any other comments they may wish
to submit about the proposed rule change.
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\17\ See Amendment 1, supra note 6, at 8-9.
\18\ See Amendment 1, supra note 6.
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IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their data, views, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposed rule
change, as modified by Amendment No. 1, is consistent with Section
6(b)(5) or any other provision of the Act, or the rules and regulations
thereunder. Although there does not appear to be any issues relevant to
approval or disapproval which would be facilitated by an oral
presentation of data, views, and arguments, the Commission will
consider, pursuant to Rule 19b-4 under the Act,\19\ any request for an
opportunity to make an oral presentation.\20\
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\19\ 17 CFR 240.19b-4.
\20\ Section 19(b)(2) of the Act, as amended by the Securities
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants to
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is
appropriate for consideration of a particular proposal by a self-
regulatory organization. See Securities Acts Amendments of 1975,
Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75,
94th Cong., 1st Sess. 30 (1975).
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[[Page 60132]]
Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change, as modified by
Amendment No. 1, should be approved or disapproved by November 29,
2019. Any person who wishes to file a rebuttal to any other person's
submission must file that rebuttal by December 12, 2019.
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 No. SR-NASDAQ-2019-060 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 No. SR-NASDAQ-2019-060. The 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 No. SR-NASDAQ-2019-060 and should be submitted by
November 29, 2019. Rebuttal comments should be submitted by December
12, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-24257 Filed 11-6-19; 8:45 am]
BILLING CODE 8011-01-P