[Federal Register Volume 87, Number 183 (Thursday, September 22, 2022)]
[Notices]
[Pages 57951-57960]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-20503]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95811; File No. SR-NASDAQ-2022-027]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 
2, To Modify Certain Pricing Limitations for Companies Listing in 
Connection With a Direct Listing With a Capital Raise

September 16, 2022.
    On March 21, 2022, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') 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 allow companies to modify certain pricing 
limitations for companies listing in connection with a Direct Listing 
with a Capital Raise in which the company will sell shares itself in 
the opening auction on the first day of trading on Nasdaq. The proposed 
rule change was published for comment in the Federal Register on April 
8, 2022.\3\ On May 19, 2022, pursuant to Section 19(b)(2) of the 
Act,\4\ the Commission designated a longer period within which to 
either approve or disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\5\
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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. 94592 (April 4, 
2022), 87 FR 20905 (April 8, 2022).
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 94947 (May 19, 
2022), 87 FR 31915 (May 25, 2022). The Commission designated July 7, 
2022, as the date by which it should approve, disapprove, or 
institute proceedings to determine whether to disapprove the 
proposed rule change.
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    On May 23, 2022, the Exchange filed Amendment No. 1 to the proposed 
rule change, which superseded the proposed rule change as originally 
filed. Amendment No. 1 was published for comment in the Federal 
Register on June 2, 2022.\6\ On July 7, 2022, the Commission instituted 
proceedings under Section 19(b)(2)(B) of the Act \7\ to determine 
whether to approve or disapprove the proposed rule change.\8\
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    \6\ See Securities Exchange Act Release No. 94989 (May 26, 
2022), 87 FR 33558 (June 2, 2022).
    \7\ 15 U.S.C. 78s(b)(2)(B).
    \8\ See Securities Exchange Act Release No. 95220 (July 7, 
2022), 87 FR 41780 (July 13, 2022). Comments received on the 
proposal are available on the Commission's website at: https://www.sec.gov/comments/sr-nasdaq-2022-027/srnasdaq2022027.htm.
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    On May 23, 2022, the Exchange filed Amendment No. 1 to the proposed 
rule change, which superseded the proposed rule change as originally 
filed. Amendment No. 1 to the proposed rule change is 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, as modified by Amendment No. 1, from interested 
persons.

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

    The Exchange proposes to modify certain pricing limitations for

[[Page 57952]]

companies listing in connection with a Direct Listing with a Capital 
Raise on the Nasdaq Global Select Market in which the company will sell 
shares itself in the opening auction on the first day of trading on 
Nasdaq. This Amendment No. 2 supersedes the original filing, as 
modified by Amendment No. 1, in its entirety.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at 
the principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

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

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

1. Purpose
    Nasdaq is filing this amendment to SR-NASDAQ-2022-027 \9\ to 
address the issues the Commission raised in the OIP and make other 
modifications to clarify the proposed rule language. This Amendment No. 
2 supersedes and replaces Amendment No. 1 in its entirety.
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    \9\ Securities Exchange Act Release No. 94592 (April 4, 2022), 
87 FR 20905 (April 8, 2022) (the ``Initial Proposal''). On May 23, 
2022, the Exchange filed Amendment No. 1 to the proposed rule 
change, which superseded the proposed rule change as originally 
filed. Securities Exchange Act Release No. 94989 (May 26, 2022), 87 
FR 33558 (June 2, 2022). The Commission issued an Order Instituting 
Proceedings to Determine Whether To Approve or Disapprove the 
Initial Proposal, as modified by Amendment No. 1. See Securities 
Exchange Act Release No. 95220 (July 7, 2022), 87 FR 41780 (July 13, 
2022) (the ``OIP'').
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    In this Amendment No. 2 (the ``Amendment'') Nasdaq proposes to 
modify the Initial Proposal, as modified by Amendment No. 1,\10\ to 
require that a company offering securities for sale in connection with 
a Direct Listing with a Capital Raise must retain an underwriter with 
respect to the primary sales of shares by the company and identify the 
underwriter in its effective registration statement.\11\
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    \10\ Nasdaq submitted Amendment No. 1 in order to: (i) clarify 
Nasdaq's view of the applicability of Securities Act Rule 430A and 
mechanics of complying with the disclosures required under federal 
securities laws by a company listing in connection with a Direct 
Listing with a Capital Raise in circumstances where the actual price 
calculated by the Cross is outside of the price range established by 
the issuer in its effective registration statement; (ii) specify 
that if the company's certification to Nasdaq (that the company does 
not expect that an offering price above the price range would 
materially change the company's previous disclosure in its effective 
registration statement) includes an upside limit, Nasdaq will not 
execute the cross if it results in an offering price above such 
limit; and (iii) make minor technical changes to improve the 
structure, clarity and readability of the proposed rules.
    \11\ Nasdaq believes that this proposal addresses the issues 
raised by the Commission in the OIP related to the potential lack of 
a named underwriter in a Direct Listing with a Capital Raise, as 
explained below. Nasdaq also believes that this proposal addresses 
concerns raised in the comment letter submitted by the Council of 
Institutional Investors (CII), dated August 8, 2022. Nasdaq believes 
that the CII letter raises concerns that are substantively the same 
as the concerns raised by the Commission in the OIP.
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    Also in this Amendment, Nasdaq proposes to modify the Pricing Range 
Limitation, as defined below, such that, provided other requirements 
are satisfied, a Direct Listing with a Capital Raise can be executed in 
the Cross at a price that is above the highest price of the price range 
established by the issuer in its effective registration statement only 
if the execution price is at or below the price that is 80% above the 
highest price of the price range.\12\
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    \12\ Nasdaq believes that this proposal addresses the issues 
raised by the Commission in the OIP related to the usefulness and 
reliability of price range disclosure provided to investors, as 
explained below.
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Description of Proposed Rule, as Amended
    In 2021, Nasdaq adopted Listing Rule IM-5315-2 to permit a company 
to list on the Nasdaq Global Select Market in connection with a primary 
offering in which the company will sell shares itself in the opening 
auction on the first day of trading on the Exchange (a ``Direct Listing 
with a Capital Raise''); \13\ created a new order type (the ``CDL 
Order''), which is used during the Nasdaq Halt Cross (the ``Cross'') 
for the shares offered by the company in a Direct Listing with a 
Capital Raise; and established requirements for disseminating 
information, establishing the opening price and initiating trading 
through the Cross in a Direct Listing with a Capital Raise.\14\ For a 
Direct Listing with a Capital Raise, Nasdaq rules currently require 
that the actual price calculated by the Cross be at or above the lowest 
price and at or below the highest price of the price range established 
by the issuer in its effective registration statement (the ``Pricing 
Range Limitation'').
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    \13\ A Direct Listing with a Capital Raise includes situations 
where either: (i) only the company itself is selling shares in the 
opening auction on the first day of trading; or (ii) the company is 
selling shares and selling shareholders may also sell shares in such 
opening auction.
    \14\ See Securities Exchange Act Release No. 91947 (May 19, 
2021), 86 FR 28169 (May 25, 2021) (the ``Approval Order'').
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    Nasdaq now proposes to modify the Pricing Range Limitation \15\ 
such that, provided other requirements are satisfied, a Direct Listing 
with a Capital Raise can also be executed in the Cross at a price that 
is at or above the price that is as low as 20% below the lowest price 
in the price range established by the issuer in its effective 
registration statement; \16\ or at a price above the highest price of 
such price range but only if the execution price is at or below the 
price that is 80% above the highest price of the price range. 
Specifically, to execute at a price outside of the price range, the 
company's registration statement must contain a sensitivity analysis 
explaining how the company's plans would change if the actual proceeds 
from the offering were less than or exceeded the amount assumed in such 
price range and the company has publicly disclosed and certified to 
Nasdaq that the company does not expect that such price would 
materially change the company's previous disclosure in its effective 
registration statement. Nasdaq also proposes to make related conforming 
changes.
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    \15\ On February 24, 2022, the Commission issued an order 
disapproving a similar proposal by Nasdaq. Securities Exchange Act 
Release No. 94311 (February 24, 2022), 87 FR 11780 (March 2, 2022) 
(the ``Disapproval Order''). Nasdaq believes that this proposal 
addresses the issues raised by the Commission in the Disapproval 
Order.
    \16\ References in this proposal to the price range established 
by the issuer in its effective registration statement are to the 
price range disclosed in the prospectus in such registration 
statement. Separately, as explained in more details below, Nasdaq 
proposes to prescribe that the 20% threshold below the lowest price 
in the price range will be calculated based on the maximum offering 
price set forth in the registration fee table, consistent with the 
Instruction to paragraph (a) of Securities Act Rule 430A.
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Current Direct Listing With a Capital Raise Requirements
    Currently, a Direct Listing with a Capital Raise must begin trading 
on Nasdaq following the initial pricing through the Cross, which is 
described in Rules 4120(c)(9) and 4753.\17\
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    \17\ See Listing Rule IM-5315-2.
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    Currently, in addition to pricing within the Pricing Range 
Limitation,\18\ Rule 4120(c)(9) requires that in the case

[[Page 57953]]

of a Direct Listing with a Capital Raise, for purposes of releasing 
securities for trading on the first day of listing, Nasdaq, in 
consultation with the financial advisor to the issuer, will make the 
determination of whether the security is ready to trade. In addition, 
under Rule 4120(c)(9)(B) Nasdaq will release the security for trading 
only if all market orders will be executed in the Cross. If there is 
insufficient buy interest to satisfy the CDL Order and all other market 
orders, or if the Pricing Range Limitation is not satisfied, the Cross 
would not proceed and such security would not begin trading. In such 
event, because the Cross cannot be conducted, the Exchange would 
postpone and reschedule the offering and notify market participants via 
a Trader Update that the Direct Listing with a Capital Raise scheduled 
for that date has been cancelled and any orders for that security that 
have been entered on the Exchange would be cancelled back to the 
entering firms.\19\
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    \18\ See Rule 4120(c)(9)(B).
    \19\ Nasdaq will postpone and reschedule the offering only if 
either or both such conditions are not met.
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Proposed Change to Rule 4120(c)(9)
    While many companies are interested in alternatives to traditional 
IPOs, based on conversations with companies and their advisors Nasdaq 
believes that there may be a reluctance to use the existing Direct 
Listing with a Capital Raise rules because of concerns about the 
Pricing Range Limitation.
    One potential benefit of a Direct Listing with a Capital Raise as 
an alternative to a traditional IPO is that it could maximize the 
chances of more efficient price discovery of the initial public sale of 
securities for issuers and investors. Unlike an IPO where the offering 
price is informed by underwriter engagement with potential investors to 
gauge interest in the offering, but ultimately decided through 
negotiations between the issuer and the underwriters for the offering, 
in a Direct Listing with a Capital Raise the initial sale price is 
determined based on market interest and the matching of buy and sell 
orders in an auction open to all market participants. In that regard, 
in the Approval Order the Commission stated that:

    The opening auction in a Direct Listing with a Capital Raise 
provides for a different price discovery method for IPOs which may 
reduce the spread between the IPO price and subsequent market 
trades, a potential benefit to existing and potential investors. In 
this way, the proposed rule change may result in additional 
investment opportunities while providing companies more options for 
becoming publicly traded.\20\
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    \20\ See Approval Order, 86 FR 28177.

    A successful initial public offering of shares requires sufficient 
investor interest. If an offering cannot be completed due to lack of 
investor interest, there is likely to be a substantial amount of 
negative publicity for the company and the offering may be delayed or 
cancelled. The Pricing Range Limitation imposed on a Direct Listing 
with a Capital Raise (but not on a traditional IPO) increases the 
probability of such a failed offering because the offering cannot 
proceed without some delay not only for the lack of investor interest, 
but also if investor interest is greater than the company, its 
underwriter, and other advisors anticipated. In the Approval Order, the 
Commission noted a frequent academic observation of traditional firm 
commitment underwritten offerings that the IPO price, established 
through negotiation between the underwriters and the issuer, is often 
lower than the price that the issuer could have obtained for the 
securities, based on a comparison of the IPO price to the closing price 
on the first day of trading.\21\ Nasdaq believes that the price range 
in a company's effective registration statement for a Direct Listing 
with a Capital Raise would similarly be determined by the company, its 
underwriter, and other advisors and, therefore, there may be instances 
of offerings where the price determined by the Nasdaq opening auction 
will exceed the highest price of the price range in the company's 
effective registration statement.
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    \21\ See Approval Order, footnote 91.
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    As explained above, under the existing rule a security subject to a 
Direct Listing with a Capital Raise cannot be released for trading by 
Nasdaq if the actual price calculated by the Cross is above the highest 
price of the price range established by the issuer in its effective 
registration statement. In this case, Nasdaq would have to cancel or 
postpone the offering until the company amends its effective 
registration statement. At a minimum, such a delay exposes the company 
to market risk of changing investor sentiment in the event of an 
adverse market event. In addition, as explained above, the 
determination of the public offering price of a traditional IPO is not 
subject to limitations similar to the Pricing Range Limitation for a 
Direct Listing with a Capital Raise, which, in Nasdaq's view, could 
make companies reluctant to use this alternative method of going public 
despite its expected potential benefits. This reluctance could result 
in denying investors and companies the benefits of this different price 
discovery method.
    Accordingly, Nasdaq proposes to modify the Pricing Range Limitation 
such that in the case of the Direct Listing with a Capital Raise, a 
security could be released for trading by Nasdaq if the actual price at 
which the Cross would occur is as much as 20% below the lowest price of 
the price range established by the issuer in its effective registration 
statement. In addition, a security could be released for trading by 
Nasdaq if the actual price at which the Cross would occur was above the 
highest price in the price range established by the issuer in its 
effective registration statement but only if the execution price is at 
or below the price that is 80% above the highest price of the price 
range.\22\ In such cases (whether lower or higher than the price range) 
the company will be required to specify the quantity of shares 
registered in its registration statement, as permitted by Securities 
Act Rule 457,\23\ and that registration statement will be required to 
contain a sensitivity analysis (the company must also certify to Nasdaq 
in that regard) explaining how the company's plans would change if the 
actual proceeds from the offering are less than or exceed the amount 
assumed in the price range established by the issuer in its effective 
registration statement.\24\ In addition, the company will be required 
to publicly disclose and certify to Nasdaq prior to beginning of the 
Display Only Period that the company does not expect that such offering 
price would materially change the company's previous disclosure in its 
effective registration statement. If the company's certification 
submitted to Nasdaq in that regard includes a price limit that is below 
the price that is 80% above the highest price of the price

[[Page 57954]]

range (the ``Upside Limit''), Nasdaq will not execute the Cross if it 
results in the offering price above such limit. The goal of these 
requirements is to have disclosure that allows investors to see how 
changes in share price ripple through critical elements of the 
disclosure.\25\
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    \22\ In the prior proposal, Nasdaq proposed different 
requirements based on whether the Cross would occur at a price that 
was within 20% of the price range. See Disapproval Order. Nasdaq is 
eliminating this proposed distinction and is proposing herein to 
treat all prices outside of the price range the same.
    \23\ Securities Act Rule 457 permits issuers to register 
securities either by specifying the quantity of shares registered, 
pursuant to Rule 457(a), or the proposed maximum aggregate offering 
amount. Nasdaq proposes to require that companies selling shares 
through a Direct Listing with a Capital Raise will register 
securities by specifying the quantity of shares registered and not a 
maximum offering amount. See also Compliance & Disclosure 
Interpretation of Securities Act Rules #227.03 at https://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm.
    \24\ The price range in the preliminary prospectus included in 
the effective registration statement must be a bona fide price range 
in accordance with Item 501(b)(3) of Regulation S-K.
    \25\ Sensitivity analysis disclosure may include but is not 
limited to: use of proceeds; balance sheet and capitalization; and 
the company's liquidity position after the offering. An example of 
this disclosure could be: We will apply the net proceeds from this 
offering first to repay all borrowings under our credit facility and 
then, to the extent of any proceeds remaining, to general corporate 
purposes.
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    Nasdaq believes that this approach is consistent with SEC Rule 430A 
and question 227.03 of the SEC Staff's Compliance and Disclosure 
Interpretations, which generally allow a company to price a public 
offering 20% outside of the disclosed price range without regard to the 
materiality of the changes to the disclosure contained in the company's 
registration statement. Nasdaq believes such guidance also allows 
deviation above the price range beyond the 20% threshold if such change 
or deviation does not materially change the previous disclosure. 
Accordingly, Nasdaq believes that a company listing in connection with 
a Direct Listing with a Capital Raise can specify the quantity of 
shares registered, as permitted by Securities Act Rule 457, and, when 
an auction prices outside of the disclosed price range, use a Rule 
424(b) prospectus, rather than a post-effective amendment, when either 
(i) the 20% threshold noted in the instructions to Rule 430A is not 
exceeded, regardless of the materiality or non-materiality of resulting 
changes to the registration statement disclosure that would be 
contained in the Rule 424(b) prospectus, or (ii) when there is a 
deviation above the price range beyond the 20% threshold noted in the 
instructions to Rule 430A if such deviation would not materially change 
the previous disclosure, in each case assuming the number of shares 
issued is not increased from the number of shares disclosed in the 
prospectus. For purposes of this rule, the 20% threshold will be 
calculated based on the maximum offering price set forth in the 
registration fee table, consistent with the Instruction to paragraph 
(a) of Securities Act Rule 430A.\26\
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    \26\ Nasdaq believes that applying additional protections 
related to the disclosure requirements in the registration statement 
and the certifications to Nasdaq, as described above, to all 
instances where the Cross is executed outside the disclosed price 
range addresses an issue the Commission raised in the Disapproval 
Order. See footnote 15 above. For brevity, proposed rules define the 
``Price Range'' as the price range established by the issuer in its 
preliminary prospectus included in the effective registration 
statement, including the maximum and the minimum prices of such 
range; and ``DLCR Price Range'' as the price range that includes any 
price that is below the Price Range and at or above the price that 
is 20% below the lowest price of the Price Range, or is above the 
highest price of the Price Range. If the company's certification 
includes an upside limit, the DLCR Price Range is as defined in the 
preceding sentence, but subject to the upper limit provided by the 
company in its certification.
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    Nasdaq notes that the Commission previously stated that while 
Securities Act Rule 430A permits companies to omit specified price-
related information from the prospectus included in the registration 
statement at the time of effectiveness, and later file the omitted 
information with the Commission as specified in the rule, it neither 
prohibits a company from conducting a registered offering at prices 
beyond those that would permit a company to provide pricing information 
through a Securities Act Rule 424(b) prospectus supplement nor absolves 
any company relying on the rule from any liability for potentially 
misleading disclosure under the federal securities laws.\27\ 
Accordingly, the burden of complying with the disclosures required 
under federal securities laws, including providing any disclosure 
necessary to avoid any material misstatements or omissions, remains 
with the issuer. In that regard, Nasdaq believes that the Post-Pricing 
Period, applicable in circumstances where the actual price calculated 
by the Cross is outside of the price range established by the issuer in 
its effective registration statement, as described below, provides the 
company an opportunity, prior to the completion of the offering, to 
provide any necessary additional disclosures that are dependent on the 
price of the offering, if any; and/or determine and confirm to Nasdaq 
that no additional disclosures are required under federal securities 
laws based on the actual price calculated by the Cross.
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    \27\ Securities Exchange Act Release No. 93119 (September 24, 
2021), 86 FR 54262 (September 30, 2021).
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    Nasdaq believes that an underwriter plays an important role in a 
traditional IPO and, therefore, proposes to require that a company 
listing securities on Nasdaq in connection with a Direct Listing with a 
Capital Raise must retain an underwriter with respect to the primary 
sales of shares by the company and identify the underwriter in its 
effective registration statement. Describing the role and 
responsibilities of an underwriter, the Commission recently explained 
that:

[a]s intermediaries between an issuer and the investing public, 
underwriters play a critical role as ``gatekeepers'' to the public 
markets. Historically, in initial public offerings, where the 
investing public might be unfamiliar with a particular issuer, 
financial firms that act as underwriters would lend their well-known 
name to support that issuer's offering. Where public investors may 
not have been inclined to invest with the company seeking to conduct 
a public offering, they could take comfort in the fact that a large, 
well-known financial institution, acting as underwriter, was 
including its name on the first page of the issuer's prospectus . . 
.
    An underwriter's participation in an issuer's offering also 
exposes the underwriter to potential liability under the Securities 
Act. The civil liability provisions of the Securities Act reflect 
the unique position underwriters occupy in the chain of distribution 
of securities and provide strong incentives for underwriters to take 
steps to help ensure the accuracy of disclosure in a registration 
statement. Section 11 of the Securities Act imposes on underwriters, 
among other parties identified in Section 11(a), civil liability for 
any part of the registration statement, at effectiveness, which 
contained an untrue statement of a material fact or omitted to state 
a material fact required to be stated therein or necessary to make 
the statements therein not misleading, to any person acquiring such 
security. Similarly, Section 12(a)(2) imposes liability upon anyone, 
including underwriters, who offers or sells a security, by means of 
a prospectus or oral communication, which includes an untrue 
statement of a material fact or omits to state a material fact 
necessary in order to make the statements, in the light of the 
circumstances under which they were made, not misleading, to any 
person purchasing such security from them. These provisions provide 
significant investor protections to those who acquire securities 
sold pursuant to a registration statement by providing tools to hold 
companies, underwriters, and other parties accountable for 
misstatements and omissions in connection with public offerings of 
securities. As a result, anyone who might be named as a potential 
defendant in these suits has strong incentives to take the necessary 
steps to avoid such liability.
    One defense available to an underwriter in a distribution is the 
``due diligence'' defense, which shields an underwriter from 
liability if it can establish that, after reasonable investigation, 
the underwriter had reasonable ground to believe and did believe, at 
the time the registration statement became effective, that the 
statements therein were true and that there was no omission to state 
a material fact required to be stated therein or necessary to make 
the statements therein not misleading.\28\
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    \28\ Special Purpose Acquisition Companies, Shell Companies, and 
Projections, 87 FR 29,458 (May 13, 2022).

    Nasdaq believes that these significant investor protections 
provisions are necessary in a Direct Listing with a Capital Raise if an 
offering can price outside the price range established in the issuer's 
effective registration statement, subject to proposed limitations, 
because such provisions

[[Page 57955]]

allow investors to make reasonable pricing decisions with clarity that 
the company's underwriter would face statutory liability, as described 
above. Accordingly, Nasdaq proposes to require that a company listing 
securities on Nasdaq in connection with a Direct Listing with a Capital 
Raise must retain an underwriter with respect to the primary sales of 
shares by the company and identify the underwriter in its effective 
registration statement.
    Nasdaq also believes that the requirement to retain a named 
underwriter, as described above, may mitigate concerns, raised by the 
Commission in the OIP, regarding challenges to bringing claims under 
Section 11 of the Securities Act due to the potential assertion of 
tracing defenses because an underwriter may choose to impose lock-up 
arrangements, as described below.
    As a preliminary matter, Nasdaq notes that in the Approval Order 
the Commission explained that the issue of traceability:

is potentially implicated anytime securities that are not the 
subject of a recently effective registration statement trade in the 
same market as those that are so subject. Where a registration 
statement, at the time of effectiveness, contains an untrue 
statement of a material fact or omits to state a material fact 
required to be stated therein or necessary to make the statements 
therein not misleading, Section 11(a) of the Securities Act provides 
a cause of action to ``any person acquiring such security,'' unless 
it is proved that at the time of the acquisition the person ``knew 
of such untruth or omission.'' In the context of conventional public 
offerings, courts have interpreted this statutory provision to 
permit aftermarket purchasers (i.e., those who acquire their 
securities in secondary market transactions rather than in the 
initial distribution from the issuer or underwriter) to recover 
damages under Section 11, but only if they can trace the acquired 
shares back to the offering covered by the false or misleading 
registration statement. Tracing is not set forth in Section 11 and 
is a judicially-developed doctrine. The application of this doctrine 
and, in particular, the pleading standards and factual proof that 
potential claimants must satisfy vary depending on the particular 
facts of the distribution and judicial district, and may be affected 
by pending litigation.\29\
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    \29\ The Approval order, 86 FR 28176

    The Commission then reaffirmed its position that ``concerns 
regarding shareholders' ability to pursue claims pursuant to Section 11 
of the Securities Act due to traceability issues are not exclusive to 
nor necessarily inherent in a [ ] Direct Listing with a Capital 
Raise.'' The Commission further stated that it ``is not aware of any 
precedent to date in the direct listing context which prohibits 
plaintiffs from pursuing Section 11 claims. The Commission is actively 
monitoring this issue and will be able to respond to such concerns when 
and if they arise.'' \30\ Nasdaq believes that no such precedent exists 
as of the date of this Amendment and that the modifications to the 
Pricing Range Limitation in this proposal do not, in any way, 
exacerbate the tracing issues.
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    \30\ The Approval order, 86 FR 28177
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    However, as stated above, Nasdaq believes that the requirement to 
retain a named underwriter may mitigate traceability concerns that may 
arise in a Direct Listing with a Capital Raise. As in a traditional 
firm commitment underwritten IPO, in which lock-up arrangements are 
often imposed, an underwriter retained in connection with a Direct 
Listing with a Capital Raise, as required by the Amendment, will be 
able to impose lock-up arrangements for the same reasons that make lock 
up agreements common in an IPO.
    Nasdaq also believes that the requirement to retain a named 
underwriter, as described above, mitigates concerns, raised by the 
Commission in the OIP, regarding the usefulness of price range 
disclosure provided to investors in a Securities Act registration 
statement filed in connection with a Direct Listing with a Capital 
Raise. Nasdaq believes that an underwriter retained in connection with 
a Direct Listing with a Capital Raise will perform substantially 
similar functions, including those related to establishing and 
adjusting the price range, to those performed by an underwriter in a 
typical IPO because the underwriter will be subject to similar 
liability and reputational risk.
    To further mitigate concerns regarding the usefulness of price 
range disclosure provided to investors, Nasdaq proposes to require that 
the securities of a company listing in connection with a Direct Listing 
with a Capital Raise cannot price above the Upside Limit. The Upside 
Limit will incentivize the company and its underwriter to set the 
disclosed price range to avoid a failed offering consequences described 
above. The Upside Limit would also help assure that an issuer would 
adjust the price range disclosed in their registration statements prior 
to effectiveness in light of pricing feedback received from market 
analysts and potential investors.
    To determine an appropriate Upside Limit, Nasdaq analyzed operating 
companies IPOs on the Nasdaq Global Select Market and the NYSE for the 
past five years where an IPO opened on an exchange at a price that is 
above the highest price of the price range in the issuer's effective 
registration statement.\31\ This analysis indicated that some IPOs 
opened on an exchange at a price that was more than 100% above the 
highest price of the price range. Based on the same data, more than 
half of these IPOs opened at a price that was 30% or more above the 
highest price of the price range. However, about 90% of these IPOs 
opened at a price that was no more than the Upside Limit. Based on this 
data Nasdaq believes that, on balance, capital formation and investor 
protection goals would be best served by a pricing limitation equal to 
the Upside Limit.
---------------------------------------------------------------------------

    \31\ This data set included over 400 records and covers a period 
from January 2017 to July 2022.
---------------------------------------------------------------------------

    Nasdaq also proposes to adopt a new Price Volatility Constraint and 
disseminate information about whether the Price Volatility Constraint 
has been satisfied, which will indicate whether the security may be 
ready to trade. Prior to releasing a security for trading, Nasdaq 
allows a ``Pre-Launch Period'' of indeterminate length, during which 
price discovery takes place. The Price Volatility Constraint requires 
that the Current Reference Price has not deviated by 10% or more from 
any Current Reference Price during the Pre-Launch Period within the 
previous 10 minutes. The Pre-Launch Period will continue until at least 
five minutes after the Price Volatility Constraint has been satisfied. 
Nasdaq will also introduce the Near Execution Price which is the 
Current Reference Price at the time the Price Volatility Constraint has 
been satisfied; and set the Near Execution Time as such time. This 
change will provide investors with notice that the Cross nears 
execution and allows a period of at least five minutes for investors to 
modify their orders, if needed, based on the Near Execution Price, 
prior to the execution of the Cross and the pricing of the offering. 
Further, to assure that the Near Execution Price is a meaningful 
benchmark for investors, and that the offering price does not deviate 
substantially from the Near Execution Price, Nasdaq proposes to 
require, in addition to other the existing conditions stated in 
proposed Rule 4120(c)(9)(B)(vii), that the Cross may execute only if 
the actual price calculated by the Cross is no more than 10% below or 
above the Near Execution Price (the ``10% Price Collar'').
    Nasdaq notes that imbalance between the buy and sell orders could 
sometimes cause the Current Reference Price to fall outside the 10% 
Price Collar after the Price Volatility Constraint has been satisfied. 
Such price fluctuations could

[[Page 57956]]

be temporary, and the Current Reference Price may return to and remain 
within the 10% Price Collar. The price fluctuation could also be 
lasting such that the Current Reference Price remains outside the 10% 
Price Collar. Given this, Nasdaq proposes to assess the Current 
Reference Price vis-[agrave]-vis the 10% Price Collar 30 minutes after 
the Near Execution Time. If at that time the Current Reference Price is 
outside the 10% Price Collar, all requirements of the Pre-Launch Period 
shall reset and must be satisfied again.\32\ Once the Price Volatility 
Constraint has been satisfied anew, the Current Reference Price at such 
time will become the updated Near Execution Price and such time will 
become the updated Near Execution Time. This process will continue 
iteratively, if new resets are triggered, until the Cross is executed, 
or the offering is postponed.
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    \32\ For the avoidance of doubt, while the Price Volatility 
Constraint cannot initially be satisfied sooner than ten minutes 
after the beginning of the Pre-Launch Period, if it is subsequently 
reset, the Price Volatility Constraint can be satisfied again in 
less than ten minutes because it would look back at prior pricing 
during the Pre-Launch Period (including pricing prior to the reset) 
to determine if the Current Reference Price has deviated by 10% or 
more from any Current Reference Price within the previous 10 
minutes.
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    If the Current Reference Price 30 minutes after the Near Execution 
Time is within the 10% Price Collar, price formation may continue 
without limitations until Nasdaq, in consultation with the financial 
advisor to the issuer, makes the determination that the security is 
ready to trade (and certain existing conditions restated in proposed 
Rule 4120(c)(9)(B)(vii) are met). However, if at any time 30 minutes 
after the Near Execution Time the Current Reference Price is outside 
the 10% Price Collar, all requirements of the Pre-Launch Period shall 
reset and must be satisfied again, in the same manner as described in 
the immediately preceding paragraph.
    Given that, as proposed, there may be a Direct Listing with a 
Capital Raise that could price outside the price range of the company's 
effective registration statement, subject to the Upside Limit above 
which the Cross could not proceed,\33\ Nasdaq proposes to enhance price 
discovery transparency by providing readily available, real time 
pricing information to investors. To that end Nasdaq will disseminate, 
free of charge, the Current Reference Price on a public website, such 
as Nasdaq.com, during the Pre-Launch Period and indicate whether the 
Current Reference Price is within the price range established by the 
issuer in its effective registration statement. Once the Price 
Volatility Constraint has been satisfied, Nasdaq will also disseminate 
the Near Execution Price, the Near Execution Time and the 30-minute 
countdown from such time. The disclosure will indicate that the Near 
Execution Price and the Near Execution Time may be reset, as described 
above, if the security is not released for trading within 30 minutes of 
the Near Execution Time and the Current Reference Price at such time 
(or at any time thereafter) is more than 10% below or more than 10% 
above the Near Execution Price.
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    \33\ In addition to the Upside Limit, if the company's 
certification submitted to Nasdaq pursuant to proposed Listing Rule 
4120(c)(9)(B)(vii)d.2. includes a price limit that is lower than the 
Upside Limit and the actual price calculated by the Cross exceeds 
such lower limit, Nasdaq will postpone and reschedule the offering.
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    In this way, investors interested in participating in the opening 
auction will be informed when volatility has settled to a range that 
will allow the open to take place and they will be informed of the 
price range at which the auction would take place. If the price moves 
outside, and remains outside this range, 30 minutes after the original 
range was set they will be informed of the new range and will have at 
least five minutes to reevaluate their investment decision.\34\
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    \34\ Nasdaq believes that the introduction, as described above, 
of the 10% Price Collar, the Near Execution Price, the Near 
Execution Time, the 30-minute reset and the five minute prohibition 
on executing the Cross after the Price Volatility Constraint has 
been satisfied addresses concerns the Commission raised in the 
Disapproval Order. See footnote 15 above. Specifically, in the 
Disapproval Order, the Commission stated that, as previously 
proposed, ``investors could be misled that the opening cross `nears 
execution' and that the disseminated Current Reference Price will 
likely be close to the opening auction price when, in fact, the 
auction may not occur for a considerable time and the opening 
auction price may differ substantially.'' As revised, the opening 
auction price must remain within 10% of the price publicly announced 
as the Near Execution Price for the auction to occur and investors 
will have enhanced disclosure about the possibility that the Price 
Volatility Constraint could be reset.
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    Nasdaq also proposes to prohibit market orders (other than by the 
Company through its CDL Order) from the opening of a Direct Listing 
with a Capital Raise. This will protect investors by assuring that 
investors only purchase shares at a price at or better than the price 
they affirmatively set, after having the opportunity to review the 
company's effective registration statement including the sensitivity 
analysis describing how the company will use any additional proceeds 
raised. Accordingly, an investor participating in a Direct Listing with 
a Capital Raise will make their initial investment decision prior to 
the launch of the offering by setting the price in their limit order 
above which they will not buy shares in the offering, but will also 
have an opportunity to reevaluate their initial investment decision 
during the price formation process of the Pre-Launch Period based on 
the Near Execution Price. Under the proposed rule, such investor will 
have at least five minutes once the Near Execution Price has been set 
and before the offering may be priced by Nasdaq to modify their order, 
if needed. As described above, all relevant price formation information 
will be disseminated by Nasdaq on a public website in real time.
    In addition, to protect investors and assure that they are informed 
about the attributes of a Direct Listing with a Capital Raise, Nasdaq 
proposes to impose specific requirements on Nasdaq members with respect 
to a Direct Listing with a Capital Raise. These rules will require 
members to provide to a customer, before that customer places an order 
to be executed in the Cross, a notice describing the mechanics of 
pricing a security subject to a Direct Listing with a Capital Raise in 
the Cross, including information regarding the location of the public 
website where Nasdaq will disseminate the Current Reference Price.
    To assure that members have the necessary information to be 
provided to their customers, Nasdaq proposes to distribute, at least 
one business day prior to the commencement of trading of a security 
listing in connection with a Direct Listing with a Capital Raise, an 
information circular to its members that describes any special 
characteristics of the offering, and Nasdaq's rules that apply to the 
initial pricing through the mechanism outlined in Nasdaq Rule 
4120(c)(9)(B) and Nasdaq Rule 4753 for the opening auction, including 
information about the notice they must provide customers and other 
Nasdaq requirements that:
     members use reasonable diligence in regard to the opening 
and maintenance of every account, to know (and retain) the essential 
facts concerning every customer and concerning the authority of each 
person acting on behalf of such customer; and
     members in recommending transactions for a security 
subject to a Direct Listing with a Capital Raise have a reasonable 
basis to believe that: (i) the recommendation is suitable for a 
customer given reasonable inquiry concerning the customer's investment 
objectives, financial situation, needs, and any other information known 
by such members, and (ii) the customer can evaluate the special 
characteristics, and is able to bear the financial risks, of an 
investment in such security.

[[Page 57957]]

    These member requirements are intended to remind members of their 
obligations to ``know their customers,'' increase transparency of the 
pricing mechanisms of a Direct Listing with a Capital Raise, and help 
assure that investors have sufficient price discovery information.
    In each instance of a Direct Listing with a Capital Raise, Nasdaq's 
information circular \35\ will inform the market participants that the 
auction could price up to 20% below the lowest price of the price range 
in the company's effective registration statement and specify what that 
price is. Nasdaq will also indicate in such circular a statement that 
the Cross cannot proceed at a price in excess of the Upside Limit and 
whether or not there is a lower price limit above which the Cross could 
not proceed, based on the company's certification, as described above. 
Nasdaq will also remind the market participants that Nasdaq prohibits 
market orders (other than by the company) from the opening of a Direct 
Listing with a Capital Raise.
---------------------------------------------------------------------------

    \35\ The information circular is an industry wide free service 
provided by Nasdaq.
---------------------------------------------------------------------------

    To assure that the issuer has the ability, prior to the completion 
of the offering, to provide any necessary additional disclosures that 
are dependent on the price of the offering, Nasdaq proposes to 
introduce to the operation of the Cross a brief Post-Pricing Period, in 
circumstances where the actual price calculated by the Cross is outside 
of the price range established by the issuer in its effective 
registration statement. Specifically, in such circumstances, Nasdaq 
will initiate a Post-Pricing Period following the calculation of the 
actual price. During the Post-Pricing Period the issuer must confirm to 
Nasdaq that no additional disclosures are required under federal 
securities laws based on the actual price calculated by the Cross. 
During the Post-Pricing Period no additional orders for the security 
may be entered in the Cross and no existing orders in the Cross may be 
modified. The security shall be released for trading immediately 
following the Post-Pricing Period. If the company cannot provide the 
required confirmation, then Nasdaq will postpone and reschedule the 
offering.
Proposed Conforming Changes to Listing Rule IM-5315-2
    Listing Rule IM-5315-2 allows a company that has not previously had 
its common equity securities registered under the Act to list its 
common equity securities on the Nasdaq Global Select Market at the time 
of effectiveness of a registration statement pursuant to which the 
company itself will sell shares in the opening auction on the first day 
of trading on the Exchange.
    Listing Rule IM-5315-2 provides that in determining whether a 
company listing in connection with a Direct Listing with a Capital 
Raise satisfies the Market Value of Unrestricted Publicly Held Shares 
\36\ for initial listing on the Nasdaq Global Select Market, the 
Exchange will deem such company to have met the applicable requirement 
if the amount of the company's Unrestricted Publicly Held Shares before 
the offering along with the market value of the shares to be sold by 
the company in the Exchange's opening auction in the Direct Listing 
with a Capital Raise is at least $110 million (or $100 million, if the 
company has stockholders' equity of at least $110 million).
---------------------------------------------------------------------------

    \36\ See Listing Rules 5005(a)(23) and 5005(a)(45).
---------------------------------------------------------------------------

    Listing Rule IM-5315-2 further provides that, for this purpose, the 
Market Value of Unrestricted Publicly Held Shares will be calculated 
using a price per share equal to the lowest price of the price range 
disclosed by the issuer in its effective registration statement.
    Because Nasdaq proposes to allow the opening auction to price up to 
20% below the lowest price of the price range established by the issuer 
in its effective registration statement, Nasdaq proposes to make a 
conforming change to Listing Rule IM-5315-2 to provide that the price 
used to determine such company's compliance with the Market Value of 
Unrestricted Publicly Held Shares is the price per share equal to the 
price that is 20% below the lowest price of the price range disclosed 
by the issuer in its effective registration statement. Nasdaq proposes 
to clarify in Listing Rule IM-5315-2 that the 20% threshold below the 
price range will be calculated based on the maximum offering price set 
forth in the registration fee table. Nasdaq will determine that the 
company has met the applicable bid price and market capitalization 
requirements based on the same per share price. This price is the 
minimum price at which the company could sell its shares in the Direct 
Listing with a Capital Raise transaction and so assures that the 
company will satisfy these requirements at any price at which the 
auction successfully executes.
    Any company listing in connection with a Direct Listing with a 
Capital Raise would continue to be subject to, and required to meet, 
all other applicable initial listing requirements, including the 
requirements to have the applicable number of shareholders and at least 
1,250,000 Unrestricted Publicly Held Shares outstanding at the time of 
initial listing, and the requirement to have a price per share of at 
least $4.00 at the time of initial listing.\37\
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    \37\ See Listing Rules 5315(f)(1), (e)(1) and (2), respectively. 
Rule 5315(f)(1) requires a security to have: (A) at least 550 total 
holders and an average monthly trading volume over the prior 12 
months of at least 1,100,000 shares per month; or (B) at least 2,200 
total holders; or (C) a minimum of 450 round lot holders and at 
least 50% of such round lot holders must each hold unrestricted 
securities with a market value of at least $2,500.
---------------------------------------------------------------------------

Proposed Conforming Changes to Rules 4753(a)(3)(A) and 4753(b)(2)
    Nasdaq proposes to amend Rules 4753(a)(3)(A) and 4753(b)(2) to 
conform the requirements for disseminating information and establishing 
the opening price through the Cross in a Direct Listing with a Capital 
Raise to the proposed amendment to allow the opening auction to price 
as much as 20% below the lowest price of the price range established by 
the issuer in its effective registration statement.
    Specifically, Nasdaq proposes changes to Rules 4753(a)(3)(A) and 
4753(b)(2) to make adjustments to the calculation of the Current 
Reference Price, which is disseminated in the Nasdaq Order Imbalance 
Indicator, in the case of a Direct Listing with a Capital Raise and for 
how the price at which the Cross will execute. These rules currently 
provide that where there are multiple prices that would satisfy the 
conditions for determining a price, the fourth tie-breaker for a Direct 
Listing with a Capital Raise is the price that is closest to the lowest 
price of the price range disclosed by the issuer in its effective 
registration statement.\38\
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    \38\ To illustrate: The bottom of the range is $10. More than 
one price exists within the range under the previous set of tie-
breakers such that both $10.15 and $10.25, satisfy all other 
requirements. The operation of the fourth tie-breaker will result in 
the auction price of $10.15 because it is the price that is closest 
to $10.
---------------------------------------------------------------------------

    To conform these rules to the modification of the Pricing Range 
Limitation change, as described above, Nasdaq proposes to modify the 
fourth tie-breaker for a Direct Listing with a Capital Raise, to use 
the price closest to the price that is 20% below (calculated as 
provided for in Listing Rule IM-5315-2) the lowest price of the price 
range disclosed by the issuer in its effective registration 
statement.\39\
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    \39\ Note that using the price that is 20% below the lowest 
price of the price range disclosed by the issuer in its effective 
registration statement as a tie-breaker (rather than the price 
representing the bottom of the range) does not change the outcome in 
the example in footnote 38 above because $10.15 is the price that is 
closest to either.
---------------------------------------------------------------------------

    Lastly, Nasdaq proposes to clarify several provisions of the 
existing rules

[[Page 57958]]

by restating the provisions of Rules 4120(c)(8)(A) and (c)(9)(A) in a 
clear and direct manner without substantively changing them. 
Specifically, Nasdaq proposes to clarify the mechanics of the Cross by 
specifying that Nasdaq will initiate a 10-minute Display Only Period 
only after the CDL Order had been entered. This clarification simply 
states what is already implied by the rule because the Cross and the 
offering may not proceed without the company's order to sell the 
securities in a Direct Listing with a Capital Raise. Similarly, Nasdaq 
proposes to clarify without changing the existing rule that Nasdaq 
shall select price bands for purposes of applying the price validation 
test in the Cross in connection with a Direct Listing with a Capital 
Raise. Under the price validation test, the System compares the 
Expected Price with the actual price calculated by the Cross to 
ascertain that the difference, if any, is within the price bands. 
Nasdaq shall select an upper price band and a lower price band. The 
default for an upper and a lower price band is set at zero. If a 
security does not pass the price validation test, Nasdaq may, but is 
not required to, select different price bands before recommencing the 
process to release the security for trading.\40\ Nasdaq also proposes 
to clarify that the ``actual price,'' as the term is used in the rule, 
is the Current Reference Price at the time the system applies the price 
bands test.
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    \40\ This function is provided by the underwriter in an IPO and 
by a Financial Advisor in a Direct Listing when the company is not 
selling shares in a primary offering. The Commission previously 
approved Nasdaq performing this function. See Approval Order.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\41\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\42\ 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.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78f(b).
    \42\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Nasdaq believes that the proposed amendment to modify the Pricing 
Range Limitation is consistent with the protection of investors because 
this approach is similar to the pricing of an IPO where an issuer is 
permitted to price outside of the price range disclosed by the issuer 
in its effective registration statement in accordance with the SEC's 
Staff guidance, as described above.\43\ Specifically, Nasdaq believes 
that a company listing in connection with a Direct Listing with a 
Capital Raise can specify the quantity of shares registered, as 
permitted by Securities Act Rule 457, and, when an auction prices 
outside of the disclosed price range, use a Rule 424(b) prospectus, 
rather than a post-effective amendment, when either (i) the 20% 
threshold noted in the instructions to Rule 430A is not exceeded, 
regardless of the materiality or non-materiality of resulting changes 
to the registration statement disclosure that would be contained in the 
Rule 424(b) prospectus, or (ii) when there is a deviation above the 
price range beyond the 20% threshold noted in the instructions to Rule 
430A if such deviation would not materially change the previous 
disclosure, in each case assuming the number of shares issued is not 
increased from the number of shares disclosed in the prospectus. As a 
result, Nasdaq will allow the Cross to take place as low as 20% below 
the lowest price of the price range disclosed by the issuer in its 
effective registration statement, but no lower, and so this is the 
minimum price at which the company could be listed. In addition, to 
better inform investors and market participants, Nasdaq will issue an 
industry wide circular to inform the participants that the auction 
could price up to 20% below the lowest price of the price range in the 
company's effective registration statement and specify what that price 
is. Nasdaq will also indicate in such circular that the Cross cannot 
proceed at a price in excess of the Upside Limit and whether or not 
there is a lower price limit above which the Cross could not proceed, 
based on the company's certification, as described above. Nasdaq will 
also remind the market participants that Nasdaq prohibits market orders 
(other than by the company) from the opening of a Direct Listing with a 
Capital Raise.
---------------------------------------------------------------------------

    \43\ In a recent speech, SEC Chair Gary Gensler emphasized that 
an overarching principle of regulation is that like activities ought 
to be treated alike. See https://www.sec.gov/news/speech/gensler-healthy-markets-association-conference-120921.
---------------------------------------------------------------------------

    To assure that the issuer has the ability, prior to the completion 
of the offering, to provide any necessary additional disclosures that 
are dependent on the price of the offering, Nasdaq proposes to 
introduce to the operation of the Cross a brief Post-Pricing Period, in 
circumstances where the actual price calculated by the Cross is at or 
above the price that is 20% below the lowest price and below the lowest 
price of the price range established by the issuer in its effective 
registration statement; or is above the highest price of the price 
range established by the issuer in its effective registration statement 
but below the Upside Limit (and below the high end price limit, if any, 
set in the company's certification submitted to Nasdaq pursuant to 
proposed Listing Rule 4120(c)(9)(B)(vii)d.2., if any). Specifically, in 
such circumstances, Nasdaq will initiate a Post-Pricing Period 
following the calculation of the actual price. During the Post-Pricing 
Period the issuer must confirm to Nasdaq that no additional disclosures 
are required under federal securities laws based on the actual price 
calculated by the Cross, with such confirmation ending the Post-Pricing 
Period. During the Post-Pricing Period no additional orders for the 
security may be entered in the Cross and no existing orders in the 
Cross may be modified. The security shall be released for trading 
immediately following the Post-Pricing Period. If the company cannot 
provide the required confirmation, then Nasdaq will postpone and 
reschedule the offering. Nasdaq believes that this modification is 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market 
because it will help assure that a company listing in connection with a 
Direct Listing with a Capital Raise complies with the disclosure 
requirements under federal securities laws and that investors receive 
all required information.
    Nasdaq believes that the proposal to allow a Direct Listing with a 
Capital Raise to price above the price range of the company's effective 
registration statement but below the Upside Limit is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market investors 
because this approach is similar to, but more stringent than, that of 
pricing a traditional IPO. In addition, to protect investors Nasdaq 
proposes to enhance price discovery transparency by providing readily 
available, real time pricing information to investors. To that end 
Nasdaq will disseminate, free of charge, the Current Reference Price on 
a public website (such as Nasdaq.com) during the Pre-Launch Period and 
indicate whether the Current Reference Price is within the price range 
established by the issuer in its effective registration statement.
    Nasdaq believes that a proposed requirement that a company offering 
securities for sale in connection with a

[[Page 57959]]

Direct Listing with a Capital Raise must retain an underwriter with 
respect to the primary sales of shares by the company and identify the 
underwriter in its effective registration statement is designed to 
protect investors and the public interest because these provisions 
provide significant investor protections to those who acquire 
securities sold pursuant to a registration statement by providing tools 
to hold underwriters accountable for misstatements and omissions in 
connection with a Direct Listing with a Capital Raise.
    Nasdaq believes that the requirement that the securities of a 
company listing in connection with a Direct Listing with a Capital 
Raise cannot price above the Upside Limit is designed to protect 
investors and the public interest because it would incentivize the 
company and its underwriter to avoid a failed offering by taking steps 
to help ensure the accuracy of price range disclosure in a registration 
statement. In addition, as described above, an underwriter has strong 
incentives to take the necessary steps to avoid statutory liability.
    Nasdaq believes that the provision prohibiting market orders (other 
than by the company) from the opening of a Direct Listing with a 
Capital Raise is designed to protect investors because this provision 
will assure that investors only purchase shares at a price that is at, 
or better than, the price they affirmatively set, after having the 
opportunity to review the company's effective registration statement 
including the sensitivity analysis describing how the company will use 
any additional proceeds raised.
    Nasdaq also proposes to adopt a new Price Volatility Constraint and 
disseminate information about whether the Price Volatility Constraint 
has been satisfied, which will indicate whether the security may be 
ready to trade. The Price Volatility Constraint requires that the 
Current Reference Price has not deviated by 10% or more from any 
Current Reference Price within the previous 10 minutes. The Pre-Launch 
Period will continue until at least five minutes after the Price 
Volatility Constraint has been satisfied. Nasdaq will also introduce 
the Near Execution Price which is the Current Reference Price at the 
time the Price Volatility Constraint has been satisfied; and set the 
Near Execution Time at such time. This change will provide investors 
with notice that the Cross nears execution and a period of at least 
five minutes to modify their orders, if needed, based on the Near 
Execution Price, prior to the execution of the Cross and the pricing of 
the offering. Further, to help assure that the offering price does not 
deviate substantially from the Near Execution Price, Nasdaq proposes to 
require, in addition to other conditions described above, that the 
Cross may execute only if the actual price calculated by the Cross is 
within the 10% Price Collar. Nasdaq believes that these changes are 
designed to protect investors and the public interest because an 
investor participating in a Direct Listing with a Capital Raise will 
make their initial investment decision prior to the launch of the 
offering by setting the price in their limit order above which they 
will not buy shares in the offering, but will also have an opportunity 
to reevaluate their initial investment decision during the price 
formation process of the Pre-Launch Period based on the Near Execution 
Price. Under the proposed rule, such investor will have at least five 
minutes once the Near Execution Price has been set and before the 
offering may be priced by Nasdaq to modify their order, if needed. 
While the auction may take longer than this five minute period to 
complete, investors are protected during this time because the Price 
Volatility Constraint will reset if the actual price calculated by the 
Cross is more than 10% below or above the Near Execution Price. Once 
the Price Volatility Constraint has been satisfied, Nasdaq proposes to 
disseminate the Near Execution Price and the Near Execution Time on a 
public website, such as Nasdaq.com.
    Nasdaq believes that the proposal to reset the Price Volatility 
Constraint, the Near Execution Price and the Near Execution Time in the 
circumstances described above is designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market investors because in certain circumstances an 
imbalance between the buy and sell orders could sometimes cause the 
Current Reference Price to fall outside the 10% Price Collar after the 
Price Volatility Constraint has been satisfied. These provisions will 
protect investors by increasing the information available to them in 
connection with the price formation process during the opening auction.
    To protect investors and increase transparency, Nasdaq also 
proposes to disseminate on a public website, such as Nasdaq.com, the 
30-minute countdown from the Near Execution Time and indicate that the 
Near Execution Price and the Near Execution Time may be reset, as 
described above, if the security is not released for trading within 30 
minutes of the Near Execution Time and the Current Reference Price at 
such time (or at any time thereafter) is outside the 10% Price Collar.
    In addition, to protect investors and assure that they are informed 
about the attributes of a Direct Listing with a Capital Raise, Nasdaq 
proposes to impose specific requirements on Nasdaq members with respect 
to a Direct Listing with a Capital Raise. These rules will require 
members to provide to a customer, before that customer places an order 
to be executed in the Cross, a notice describing the mechanics of 
pricing a security subject to a Direct Listing with a Capital Raise in 
the Cross, including information regarding the dissemination of the 
Current Reference Price on a public website such as Nasdaq.com.
    To assure that members have the necessary information to be 
provided to their customers, Nasdaq proposes to distribute, at least 
one business day prior to the commencement of trading of a security 
listing in connection with a Direct Listing with a Capital Raise, an 
information circular to its members that describes any special 
characteristics of the offering, and Nasdaq's rules that apply to the 
initial pricing through the mechanism outlined in Nasdaq Rule 
4120(c)(9)(B) and Nasdaq Rule 4753 for the opening auction, including 
information about the notice they must provide customers and other 
Nasdaq requirements that:
     members use reasonable diligence in regard to the opening 
and maintenance of every account, to know (and retain) the essential 
facts concerning every customer and concerning the authority of each 
person acting on behalf of such customer; and
     members in recommending transactions for a security 
subject to a Direct Listing with a Capital Raise have a reasonable 
basis to believe that: (i) the recommendation is suitable for a 
customer given reasonable inquiry concerning the customer's investment 
objectives, financial situation, needs, and any other information known 
by such members, and (ii) the customer can evaluate the special 
characteristics, and is able to bear the financial risks, of an 
investment in such security.
    These member requirements are consistent with the protection of 
investors because they are designed to remind members of its 
obligations to ``know their customers,'' increase transparency of the 
pricing mechanisms of a Direct Listing with a Capital Raise, and help 
assure that investors have sufficient price discovery information.
    Nasdaq believes that the Commission Staff has already concluded 
that pricing up to 20% below the lowest price and at a price above the 
highest price of the

[[Page 57960]]

price range in the company's effective registration statement is 
appropriate for a company conducting an initial public offering 
notwithstanding it being outside of the range stated in an effective 
registration statement, and investors have become familiar with this 
approach at least since the Commission Staff last revised Compliance 
and Disclosure Interpretation 227.03 in January 2009.\44\ Allowing 
Direct Listings with a Capital Raise to similarly price up to 20% below 
the lowest price and at a price above the highest price of the price 
range in the company's effective registration statement but below the 
Upside Limit would be consistent with Chair Gensler's recent call to 
treat ``like cases alike.'' \45\
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    \44\ https://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm.
    \45\ See https://www.sec.gov/news/speech/gensler-healthy-markets-association-conference-120921.
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    Nasdaq believes that the proposed amendments to Listing Rule IM-
5315-2 and Rules 4753(a)(3)(A) and 4753(b)(2) to conform these rules to 
the modification of the Pricing Range Limitation is consistent with the 
protection of investors. These amendments would simply substitute 
Nasdaq's reliance on the price equal to the lowest price of the price 
range disclosed by the issuer in its effective registration statement 
to the price that is 20% below such lowest price, making it more 
difficult to meet the requirements. In the case of Listing Rule IM-
5315-2, a company listing in connection with a Direct Listing with a 
Capital Raise would still need to meet all applicable initial listing 
requirements based on the price that is 20% below the lowest price of 
the price range disclosed by the issuer in its effective registration 
statement. In the case of the Rules 4753(a)(3)(A) and 4753(b)(2) such 
price, which is the minimum price at which the Cross will occur, will 
serve as the fourth tie-breaker where there are multiple prices that 
would satisfy the conditions for determining the auction price, as 
described above. Nasdaq believes that this proposal to resolve a 
potential tie among the prices that satisfy all other requirements in 
the Cross, by choosing the price that is closest to the price that is 
20% below the range, is consistent with Section 6(b)(5) of the Act 
because it is designed to protect investors by providing them with the 
most advantageous offering price among possible alternative prices.
    Nasdaq also believes that the proposal, by eliminating an 
impediment to companies using a Direct Listing with a Capital Raise, 
will help removing potential impediments to free and open markets 
consistent with Section 6(b)(5) of the Exchange Act while also 
supporting capital formation.
    Finally, Nasdaq believes that the proposal to clarify several 
provisions of the existing rules without changing them is designed to 
remove impediments to and perfect the mechanism of a free and open 
market because such changes make the rules easier to understand and 
apply without changing their substance.

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 amendments would 
not impose any burden on competition, but would rather increase 
competition. Nasdaq believes that allowing listing venues to improve 
their rules enhances competition among exchanges. Nasdaq also believes 
that this proposed change will give issuers interested in this pathway 
to access the capital markets additional flexibility in becoming a 
public company, and in that way promote competition among service 
providers, such as underwriters and other advisors, to such companies.

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. 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-2022-027 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-2022-027. 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-2022-027, and should be submitted 
on or before October 13, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\46\
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    \46\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-20503 Filed 9-21-22; 8:45 am]
BILLING CODE 8011-01-P