[Federal Register Volume 84, Number 242 (Tuesday, December 17, 2019)]
[Notices]
[Pages 69007-69010]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27080]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87716; File No. SR-NASDAQ-2019-089]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To Amend Rule 5815 To Preclude
Stay During Hearing Panel Review of Staff Delisting Determinations in
Certain Circumstances
December 11, 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 November 27, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or the
``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.
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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 amend Exchange Rule 5815 regarding review
of Nasdaq Staff (``Staff'') Delisting Determinations by Hearings
Panels. The proposed change would preclude the stay of a Staff
Delisting Determination during the review period in three specified
circumstances outlined below.
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 administers a series of rules that govern the initial and
continued listing qualifications required of companies listed on the
Exchange.\3\ Newly listing companies must demonstrate compliance with
all initial listing requirements before they are listed. Once listed,
Nasdaq staff (``Staff'') monitors each company to ensure
[[Page 69008]]
continued compliance with the Listing Rules. In the event that a
company fails to maintain compliance with the Listing Rules, Staff will
issue a notification informing the company of the deficiency. Where
allowed by Nasdaq's rules, Staff's notification may provide for a cure
or compliance period, allow the company to submit a plan of compliance
for Staff to review, or state the Staff's determination that the
company should be delisted from the Exchange (a ``Delisting
Determination'').\4\ In instances where the company is allowed a cure
or compliance period, Staff will send a Delisting Determination at the
end of the cure or compliance period if the company has not regained
compliance; in instances where the company is allowed to submit a plan
of compliance, Staff will send a Delisting Determination if Staff does
not accept the company's plan of compliance or if the company does not
timely complete its plan and regain compliance. The Delisting
Determination will inform the company of the factual basis for the
Staff's determination, provide instructions regarding obligations to
disclose the Delisting Determination to the public, and inform the
company of its right for review of the Delisting Determination by a
Hearings Panel.
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\3\ See Nasdaq Rules 5300, 5400, and 5500 Series, outlining
requirements for companies seeking to conduct an initial listing on
Nasdaq Global Select Market, Nasdaq Global Market and Nasdaq Capital
Market, respectively, as well as requirements for continued listing
once an initial listing has been completed.
\4\ See Nasdaq Rule 5810, listing the categories of deficiency
notifications, information contained in deficiency notifications and
Delisting Determinations, company disclosure obligations upon being
informed of a deficiency or delisting, and types of deficiencies and
notifications.
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Nasdaq Rule 5815(a) allows a company to request a written or oral
hearing before a Hearings Panel to review a Delisting Determination,
public reprimand letter or denial of a listing application. Under the
existing rules, this request for a hearing generally will stay the
suspension and delisting action pending the issuance of a written
decision from the Hearings Panel.\5\
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\5\ See Nasdaq Rule 5815(a)(1). In the case of a Delisting
Determination related to the requirements to timely file periodic
reports with the Commission, the delisting action is only stayed for
15 calendar days unless the company specifically requests and the
Hearings Panel grants a further stay.
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The Exchange proposes to amend Rule 5815 to remove the stay
provision in certain situations so that a company's securities will be
suspended from trading on Nasdaq during the pendency of the Hearings
Panel's review. Specifically, removal of the stay provision will apply
to companies that have received a Delisting Determination: In the case
of proposed 5815 (a)(1)(B)(ii)(a), following the completion of a
business combination with an operating company that fails to satisfy
the requirements of Nasdaq Rule IM-5101-2; in the case of proposed 5815
(a)(1)(B)(ii)(b), following a business combination with a non-Nasdaq
entity that results in a change of control under Rule 5110(a) where the
initial listing application has yet to be approved; and in the case of
proposed 5815 (a)(1)(B)(ii)(c), in connection with a company that has
declared bankruptcy or announced liquidation pursuant to rule 5110(b).
After considering the record in the matter, including an oral hearing
if elected by the company, the Hearings Panel can reinstate the company
and allow trading to continue on Nasdaq.\6\
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\6\ The proposed rule change would suspend the security from
trading under proposed Rule 5815(a)(1)(B)(ii), rather than halt
trading in the security pursuant to Nasdaq's authority under Rule
4120(a)(5).
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Companies Whose Business Plan Is To Complete One or More Acquisitions
and Business Combinations With non-Nasdaq Entities Resulting in a
Change of Control
Under Listing Rule IM-5101-02, Nasdaq will permit the listing of a
company whose business plan is to complete an initial public offering
and engage in a merger or acquisition with one or more unidentified
companies within a specific period of time. Such a company is required
to keep the proceeds of its initial public offering in an escrow
account and, until the company has completed one or more business
combinations having an aggregate fair market value of at least 80% of
the value of the escrow account, must meet the requirements for initial
listing following each business combination.\7\ Nasdaq Staff may, after
having reviewed such a company, determine that the combined company
does not meet the initial listing requirements and, in such a case,
will issue a Delisting Determination.
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\7\ See Nasdaq Rule IM-5101-2.
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Similarly, a Nasdaq-listed company must apply for initial listing
on the Exchange in connection with a transaction whereby the company
combines with a non-Nasdaq entity, resulting in a change of control of
the company and potentially allowing the non-Nasdaq entity to obtain a
Nasdaq listing.\8\ If the company's application for initial listing has
not been approved prior to consummation of the transaction, Nasdaq will
issue a Delisting Determination.\9\
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\8\ See Nasdaq Rule 5110(a).
\9\ Nasdaq Staff provides written notice to a company if it
determines that a transaction, as then proposed, will result in a
change of control pursuant to Listing Rule 5110(a). In this
notification, Nasdaq Staff advises the company that the combined
entity will be required to submit an initial listing application and
listing agreement prior to consummating the transaction, satisfy all
initial inclusion criteria immediately upon consummation of the
transaction and pay all required fees. Upon receipt of this
notification, the company may appeal Staff's determination that
Listing Rule 5110(a) is applicable to the transaction. As such, a
company would only be subject to suspension under the proposed rule
if it does not contest the applicability of Rule 5110(a), or if the
Panel has already concluded that the rule is applicable, and if the
company does not satisfy the initial inclusion requirements upon
consummation of the transaction. See Nasdaq FAQ 413, available at
https://listingcenter.nasdaq.com/Material_Search.aspx?materials=413&mcd=LQ&criteria=2.
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In each case, under existing Nasdaq rules, if a company requests
review by a Hearings Panel, the Delisting Determination is stayed
during the pendency of such review and the company's shares will
continue to trade on the Exchange. The proposed rule change will modify
the rules so that suspension of the company's shares is not stayed in
connection with a Delisting Determination for the following reasons.
For both categories of companies outlined above, the Exchange
believes immediate suspension is appropriate and necessary in order to
prevent a company from listing shares on the Exchange despite it having
never established compliance with the Exchange's initial listing
requirements. In each case, the company that must satisfy the initial
listing requirements is effectively a new business entity and, as a
result, is required by Nasdaq's rules to demonstrate compliance with
the Exchange's initial listing standards. To allow such companies to
trade on the Exchange without first demonstrating compliance with the
initial listing standards misleads the investing public by giving the
appearance that the company has met the standards imposed by Nasdaq.
Moreover, the company could then use the benefits of its Nasdaq listing
and trading to achieve compliance with the initial listing requirements
it does not satisfy.\10\
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\10\ In 2011, the Securities and Exchange Commission noted that
``. . . the 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 exchange listing, and the role of an exchange in overseeing its
market and assuring compliance with its listing standards.''
Securities Exchange Act Release No. 65708 (November 8, 2011), 76 FR
70799 at 70802 (November 15, 2011) (approving SR-NASDAQ-2011-073).
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Nasdaq believes that adopting this rule change will align the
process for listing a company following a business combination (with an
acquisition
[[Page 69009]]
company or following a business combination resulting in a change of
control) with the process for other companies that must meet the
initial listing requirements before they are allowed to list and trade
on Nasdaq.
Bankruptcy
Under Nasdaq Rule 5110(b), Staff may use its discretionary
authority to delist a company's listing in the event it has filed for
protection under the federal bankruptcy laws, or comparable foreign
laws, or has announced that liquidation has been authorized by its
board of directors, even if the company's securities otherwise meet all
requirements for continued listing on the Exchange.\11\ The proposed
rule change will modify the rules so that suspension in trading in the
company's shares is not stayed when a company has requested an appeal
after received a Delisting Determination for these reasons.
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\11\ Nasdaq Rule 5110(b) also requires a company emerging from
bankruptcy protection to demonstrate compliance with the Exchange's
initial listing standards in order to be listed on the Exchange.
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Nasdaq believes that it is appropriate to eliminate the stay during
the pendency of the Hearings Panel's review where Nasdaq Staff has
determined to delist a company in bankruptcy proceedings. In these
cases, the company has acknowledged its serious financial straits and,
in Nasdaq's experience, there is generally no residual equity for the
current stockholders. Continued trading of the company's shares during
the duration of the Hearings Panel's review is inadvisable in light of
these facts and could create investor confusion about the company's
ability to satisfy Nasdaq's listing requirements.\12\ Instead, Nasdaq
believes it would better enhance investor protection if the company's
shares were suspended during the review process.
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\12\ Rule 5110(b) requires a company emerging from bankruptcy
protection to demonstrate compliance with the Exchange's initial
listing standards in order to continue to be listed on the Exchange.
Of 37 Delisting Determinations related to bankruptcy between 2016
and 2018, only one company remained listed and demonstrated
compliance with the initial listing requirements upon emerging from
bankruptcy.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\13\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\14\ in particular, 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, by preventing companies that have not demonstrated compliance
with the Exchange's initial listing standards, and companies that have
sought bankruptcy protection, from trading on the Exchange during the
pendency of the Hearings Panel's review of a Delisting Determination.
Nasdaq believes that allowing such companies to continue trading on the
Exchange is confusing to investors and raises investor protection
concerns.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
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In the case of companies whose business plan is to complete one or
more acquisitions and companies that complete a business combinations
with a non-Nasdaq entity resulting in a change in control, allowing
continued trading on the Exchange would permit companies that are
effectively new entities to be listed without having completed the
standard vetting process conducted by the Exchange of all new listed
companies and demonstrating compliance with all initial listing
requirements. Likewise, due to the uncertainty of the outcome, and the
limited information provided during bankruptcy proceedings, continued
listing of a company's shares on the Exchange during such proceedings
exposes investors to increased risk. The proposed rule will protect
investors by preventing continued trading in such company's securities
until an independent Hearings Panel reviews the Delisting Determination
and determines that continued trading on Nasdaq is appropriate.
The proposed rule change is also consistent with Section 6(b)(7) of
the Act in that it provides a fair procedure for the prohibition or
limitation by the Exchange of any person with respect to access to
services offered. Under the proposed rule change, companies whose
business plan is to complete one or more acquisitions or a business
combination with a non-Nasdaq entity resulting in a change of control
would be treated the same as any other company that is applying for
listing on The Nasdaq Stock Market. No company may trade on The Nasdaq
Stock Market until it demonstrates compliance with the listings
qualifications rules of the Exchange. This standard is applied to new
companies and companies that previously traded on the Exchange but have
now undergone a change in business status that requires demonstration
of compliance with the Exchange's listing rules.
In the case of a company undergoing bankruptcy, the proposed rule
change is fair because the company's shares will be suspended only for
the duration of an independent Hearing Panel's consideration of the
company's appeal. The proposed rule would not immediately delist a
company's shares. A company subject to a Delisting Determination
pursuant to bankruptcy would be given an opportunity to present its
case to an impartial Hearings Panel. Once the Hearings Panel has issued
a written decision, the company's shares may then resume trading if the
Hearings Panel deems it appropriate. Fairness requirements do not
mandate continued trading, only the ability to have an impartial
Hearings Panel review the Staff's Delisting Determination. Limitations
on trading during the pendency of the Hearings Panel's review is
appropriate in light of the need to protect prospective investors.
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 would be
applied equally to all listed companies whose business plan is to
complete one or more acquisitions, that complete a business
combinations with a non-Nasdaq entity resulting in a change in control,
or that seek bankruptcy protection. In addition, the proposed rule
change will align the process for listing a new company following a
business combination with an acquisition company or following a
business combination resulting in a change of control with the process
for other newly listing companies, which must meet the initial listing
requirements prior to being listed.
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
[[Page 69010]]
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-2019-089 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-2019-089. 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-2019-089, and should be submitted
on or before January 7, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-27080 Filed 12-16-19; 8:45 am]
BILLING CODE 8011-01-P