[Federal Register Volume 87, Number 235 (Thursday, December 8, 2022)]
[Notices]
[Pages 75305-75315]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-26650]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96443; File No. SR-NASDAQ-2022-027]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Amendment No. 3 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment No. 3, To 
Modify Certain Pricing Limitations for Companies Listing in Connection 
With a Direct Listing With a Capital Raise

December 2, 2022.

I. Introduction

    On March 21, 2022, The Nasdaq Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to modify certain pricing 
limitations for companies listing in connection with a direct listing 
in which the company will sell shares itself in the opening auction on 
the first day of trading on the Exchange. 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 Exchange Act,\4\ the 
Commission designated a longer period within which to either approve 
the proposed rule change, 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 (Apr. 4, 
2022), 87 FR 20905 (Apr. 8, 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.
    \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rule change, which superseded the proposed rule change as originally 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

[[Page 75306]]

Exchange Act \7\ to determine whether to approve or disapprove the 
proposed rule change.\8\ On September 16, 2022, the Exchange filed 
Amendment No. 2 to the proposed rule change, which superseded the 
original filing, as modified by Amendment No. 1, in its entirety.\9\ On 
September 27, 2022, the Commission extended the time period for 
approving or disapproving the proposal to December 4, 2022.\10\ On 
November 18, 2022, the Exchange filed Amendment No. 3 to the proposed 
rule change, which superseded the original filing, as modified by 
Amendment Nos. 1 and 2, in its entirety.\11\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as modified by Amendment No. 3, from interested persons and is 
approving the proposed rule change, as modified by Amendment No. 3, on 
an accelerated basis.
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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) (``OIP'').
    \9\ See Securities Exchange Act Release No. 95811 (Sept. 16, 
2022), 87 FR 57951 (Sept. 22, 2022) (``Notice'').
    \10\ See Securities Exchange Act Release No. 95933 (Sept. 27, 
2022), 87 FR 59844 (Oct. 3, 2022).
    \11\ Amendment No. 3 to the proposed rule change revised the 
proposal to: (i) provide that the 20% threshold below and the 80% 
threshold above the Price Range, as described below, will be 
calculated based on the high end of the price range in the 
registration statement at the time of effectiveness; (ii) clarify 
that Nasdaq will make the determination that the security is ready 
to trade, in consultation with the identified underwriter (rather 
than the financial advisor to the issuer); (iii) clarify certain 
conditions in proposed Rule 4120(c)(9)(B)(vii)(d); and (iv) make 
minor technical changes to improve the clarity and readability of 
the proposal. Amendment No. 3 to the proposed rule change is 
available on the Commission's website at www.sec.gov/comments/sr-nasdaq-2022-027/srnasdaq2022027-20151099-319977.pdf (``Amendment No. 
3'').
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II. Description of the Proposal, as Modified by Amendment No. 3

    Nasdaq Listing Rule IM-5315-2 sets forth listing requirements for a 
company that has not previously had its common equity securities 
registered under the Exchange Act to list its common equity securities 
on Nasdaq's Global Select Market at the time of effectiveness of a 
registration statement,\12\ pursuant to 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\ Securities 
qualified for listing under Nasdaq Listing Rule IM-5315-2 must begin 
trading on the Exchange following the initial pricing through the 
mechanism outlined in Nasdaq Rule 4120(c)(9) and Nasdaq Rule 4753 for 
the opening auction, otherwise known as the Nasdaq Halt Cross.\14\ 
Currently, in the case of a Direct Listing with a Capital Raise, the 
Exchange will release the security for trading on the first day of 
listing if, among other things, the actual price calculated by the 
Nasdaq Halt Cross is 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 \15\ (the ``Pricing Range 
Limitation''). As discussed further below, the Exchange will postpone 
and reschedule the offering if the actual price calculated by the 
Nasdaq Halt Cross does not satisfy the Pricing Range Limitation.
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    \12\ The reference to a registration statement refers to a 
registration statement effective under the Securities Act of 1933 
(``Securities Act'').
    \13\ A Direct Listing with a Capital Raise includes listings 
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. See Nasdaq Listing Rule IM-5315-2. See also 
Securities Exchange Act Release No. 91947 (May 19, 2021), 86 FR 
28169 (May 25, 2021) (order approving rules to permit a Direct 
Listing with a Capital Raise and adopting related rules concerning 
how the opening transaction for such listing will be effected) 
(``2021 Order''). The Exchange's rules provide for a company listing 
pursuant to a Direct Listing with a Capital Raise to list only on 
the Nasdaq Global Select Market.
    \14\ See Nasdaq Listing Rule IM-5315-2. ``Nasdaq Halt Cross'' 
means the process for determining the price at which Eligible 
Interest shall be executed at the open of trading for a halted 
security and for executing that Eligible Interest. See Nasdaq Rule 
4753(a)(4). ``Eligible Interest'' means any quotation or any order 
that has been entered into the system and designated with a time-in-
force that would allow the order to be in force at the time of the 
Nasdaq Halt Cross. See Nasdaq Rule 4753(a)(5). Pursuant to Nasdaq 
Rule 4120, the Exchange will halt trading in a security that is the 
subject of an initial public offering (or direct listing), and 
terminate that halt when the Exchange releases the security for 
trading upon certain conditions being met, as discussed further 
below. See Nasdaq Rule 4120(a)(7) and (c)(8). For purposes of this 
order, the opening auction on the first day of trading for a Direct 
Listing with a Capital Raise is referred to as the ``Nasdaq Halt 
Cross'' or the ``opening cross.''
    \15\ The Exchange states that references in the proposal to the 
price range established by the issuer in its effective registration 
statement refer to the price range disclosed in the prospectus in 
such effective registration statement. See Notice, supra note 9, 87 
FR 57952 n.16. Throughout this order, we refer to this price range 
established by the issuer in its effective registration statement as 
the ``disclosed price range.''
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    The Exchange proposes to modify the Pricing Range Limitation to 
provide that the Exchange would release the security for trading if: 
(a) the actual price calculated by the Nasdaq Halt Cross is at or above 
the price that is 20% below the lowest price of the disclosed price 
range; or (b) the actual price calculated by the Nasdaq Halt Cross is 
at or below the price that is 80% above the highest price of the 
disclosed price range (the ``80% Upside Limit''). For the Nasdaq Halt 
Cross to execute at a price outside of the disclosed price range, the 
company would be required to publicly disclose and certify to the 
Exchange that the company does not expect that such price would 
materially change the company's previous disclosure in its effective 
registration statement and that its effective registration statement 
contains a sensitivity analysis explaining how the company's plans 
would change if the actual proceeds from the offering are less than or 
exceed those from prices in the disclosed price range.\16\ The Exchange 
would calculate the 20% threshold below the disclosed price range and 
the 80% Upside Limit based on the high end of the price range in the 
registration statement at the time of effectiveness.\17\ The Exchange 
also proposes to make related changes to conform its rules concerning 
the Nasdaq Halt Cross and listing requirements for Direct Listings with 
a Capital Raise to these modified requirements and to clarify the 
mechanics of the Nasdaq Halt Cross in the context of the opening cross 
for Direct Listings with a Capital Raise.
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    \16\ See proposed Nasdaq Rule 4120(c)(9)(B)(vii)d.2. The 
Exchange proposes additional conditions, as discussed in more detail 
below, before the Nasdaq Halt Cross could proceed, including a Post-
Pricing Period and a requirement that the Price Volatility 
Constraint has been satisfied. See infra notes 73-75 and 
accompanying text and note 49 and accompany text for a description 
of the ``Price Volatility Constraint'' and the ``Post-Pricing 
Period,'' respectively.
    \17\ See proposed Nasdaq Rule 4120(c)(9)(B). If the company 
provides an upper limit in its certification, that price would serve 
as the upper limit of the price range within which the Nasdaq Halt 
Cross could proceed. See proposed Nasdaq Rule 4120(c)(9)(B)(vii)d.2.
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    Currently, Nasdaq Rule 4120(c)(9)(B) states that, notwithstanding 
the provisions of Nasdaq Rule 4120(c)(8)(A) and (c)(9)(A), in the case 
of a Direct Listing with a Capital Raise, for purposes of releasing 
securities for trading on the first day of listing, the Exchange, in 
consultation with the financial advisor to the issuer, will make the 
determination of whether the security is ready to trade. The Exchange 
will release the security for trading if: (i) all market orders 
(including the CDL Order \18\) will be executed in the Nasdaq Halt 
Cross; and (ii) the actual price calculated by the Nasdaq Halt Cross 
complies with the Pricing Range Limitation. The Exchange will postpone 
and reschedule the offering only if either or both of such conditions 
are not

[[Page 75307]]

met.\19\ The Exchange states that 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 Nasdaq Halt Cross would not 
proceed and such security would not begin trading.\20\
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    \18\ A ``Company Direct Listing Order'' or ``CDL Order'' is a 
market order that may be entered only on behalf of the issuer and 
may be executed only in the Nasdaq Halt Cross for a Direct Listing 
with a Capital Raise. The CDL Order is entered without a price (with 
a price later set in accordance with the requirements of Nasdaq Rule 
4120(c)(9)(B)), must be for the quantity of shares offered by the 
issuer as disclosed in its effective registration statement, must be 
executed in full in the Nasdaq Halt Cross, and may not be cancelled 
or modified. See Nasdaq Rule 4702(b)(16).
    \19\ See Nasdaq Rule 4120(c)(9)(B).
    \20\ See Notice, supra note 9, 87 FR 57953. The Exchange 
represents that in such event, because the Nasdaq Halt Cross cannot 
be conducted, the Exchange would postpone and reschedule the 
offering and notify 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. See id.
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    According to the Exchange, based on conversations it has had with 
companies and their advisors, the Exchange believes that some companies 
may be reluctant to use the existing rules for a Direct Listing with a 
Capital Raise because of concerns about the Pricing Range 
Limitation.\21\ The Exchange states it believes ``that the Pricing 
Range Limitation imposed on a Direct Listing with a Capital Raise (but 
not on a traditional IPO) increases the probability of 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.'' \22\ According to the Exchange, it 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 
Exchange's opening auction will exceed the highest price of the price 
range disclosed in the company's effective registration statement.\23\ 
The Exchange states that, under the existing rule, a security subject 
to a Direct Listing with a Capital Raise cannot be released for trading 
by the Exchange if the actual price calculated by the Nasdaq Halt Cross 
is above the highest price of the disclosed price range.\24\ The 
Exchange further states that, in this case, the Exchange would have to 
cancel or postpone the offering until the company amends its effective 
registration statement, and that, at a minimum, such a delay exposes 
the company to market risk of changing investor sentiment in the event 
of an adverse market event.\25\ In addition, the Exchange states that 
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 the Exchange's view, 
could make companies reluctant to use this alternative method of going 
public despite its expected potential benefits.\26\
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    \21\ See id. The Exchange states that it believes a Direct 
Listing with a Capital Raise could maximize the chances of more 
efficient price discovery of the initial public sale of securities 
for issuers and investors, because, unlike in a traditional firm 
commitment underwritten initial public offering (``IPO''), 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. See id.
    \22\ Id. The Exchange states that 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. See id.
    \23\ See id.
    \24\ See id.
    \25\ See id.
    \26\ See id.
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    The Exchange proposes to modify the Pricing Range Limitation such 
that even if the actual price calculated by the Nasdaq Halt Cross is 
outside the disclosed price range, the Exchange would release a 
security for trading if the actual price at which the Nasdaq Halt Cross 
would occur is as much as 20% below the lowest price of the disclosed 
price range, or up to a price at or below the 80% Upside Limit. For the 
Nasdaq Halt Cross to execute at a price outside of the disclosed price 
range, all other necessary conditions must be satisfied, and the 
company would be required to specify the quantity of shares registered, 
as permitted by Securities Act Rule 457.\27\ In such circumstances, the 
company's registration statement would be required to contain a 
sensitivity analysis 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 disclosed price range, and, as stated above, the 
company would be required to certify to the Exchange that it has met 
this requirement.\28\ In addition, the company would be required to 
publicly disclose and certify to the Exchange prior to the beginning of 
the Display Only Period \29\ that the company does not expect that such 
offering price would materially change the company's previous 
disclosure in its effective registration statement.\30\ If the 
company's certification submitted to Nasdaq in that regard includes an 
upper price limit that is below the 80% Upside Limit, Nasdaq will not 
execute the Nasdaq Halt Cross if it results in an offering price above 
such certified limit.\31\ The Exchange states that 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.\32\
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    \27\ See id. See also infra notes 34 and 36 and accompanying 
text.
    \28\ See Notice, supra note 9, 87 FR 57952.
    \29\ See Nasdaq Rule 4120(c)(7)(A) and proposed Nasdaq Rule 
4120(c)(9)(B)(iii)-(v) for a description of the ``Display Only 
Period.''
    \30\ See Notice, supra note 9, 87 FR 57953.
    \31\ See id. The Exchange proposes to define the ``Price Range'' 
as the price range established by the issuer in its preliminary 
prospectus included in the effective registration statement (i.e., 
the disclosed price range). See proposed Nasdaq Rule 4120(c)(9)(B). 
In addition, the Exchange proposes to define the ``DLCR Price 
Range'' as the price range starting from the price that is at or 
above 20% below the lowest price of the Price Range and continuing 
to a price that is at or below the 80% Upside Limit, or a lower 
upside limit if one is provided by the company in its certification. 
See proposed Nasdaq Rule 4120(c)(9)(B)(vii)d.2.
    \32\ See Notice, supra note 9, 87 FR 57954. The Exchange states 
that in a prior proposal that the Commission disapproved, the 
Exchange proposed different requirements based on whether the Nasdaq 
Halt Cross would occur at a price that was within 20% of the 
disclosed price range, but that the Exchange is eliminating this 
proposed distinction and instead is proposing to treat uniformly all 
instances when the actual price of Nasdaq Halt Cross can occur 
outside of the disclosed price range under its proposal. See id. at 
57953 n.22 (citing Securities Exchange Act Release No. 94311 (Feb. 
24, 2022), 87 FR 11780 (Mar. 2, 2022) (``2022 Order'')).
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    The Exchange states that it believes that its proposed approach can 
be analogized to Securities Act Rule 430A and staff guidance,\33\ 
which, according to the Exchange, 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.\34\ According to the Exchange, it 
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.\35\ The Exchange states 
that, accordingly, it 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,

[[Page 75308]]

and, when an auction prices outside of the disclosed price range, use a 
Securities Act Rule 424(b) prospectus, rather than a post-effective 
amendment, when either: (i) the 20% threshold noted in the Instruction 
to Securities Act 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 Securities Act Rule 
424(b) prospectus, or (ii) there is a deviation above the price range 
beyond the 20% threshold noted in the Instruction to Securities Act 
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.\36\ 
The Exchange states that, for purposes of this rule, the 20% threshold 
and the 80% Upside Limit would be calculated based on the high end of 
the price range in the registration statement at the time of 
effectiveness.\37\
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    \33\ See Amendment No. 3, supra note 11, at 12.
    \34\ See Notice, supra note 9, 87 FR 57954. The Exchange states 
that 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, and 
the Exchange 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 id. at 57953 n.23. The Exchange also 
states that it believes that the proposed modification of the 
Pricing Range Limitation is consistent with the protection of 
investors, because, according to the Exchange, this approach is 
similar to the pricing of an IPO where an issuer is permitted to 
price outside of the disclosed price range in accordance with the 
SEC Staff's guidance. See id. at 57958.
    \35\ See id. at 57954.
    \36\ See id.
    \37\ See Amendment No. 3, supra note 11, at 12-13.
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    The Exchange states that 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.\38\ The Exchange further states 
that, in that regard, the Post-Pricing Period (as defined below), which 
is applicable in circumstances where the actual price calculated by the 
Nasdaq Halt Cross is outside of the disclosed price range, provides the 
company an opportunity, prior to the completion of the offering, to 
provide any additional disclosures that are dependent on the price of 
the offering, if any, or to determine and confirm to the Exchange that 
no additional disclosures are required under federal securities laws 
based on the actual price calculated by the Nasdaq Halt Cross.\39\
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    \38\ See Notice, supra note 9, 87 FR 57954. According to the 
Exchange, 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. See id. (citing Securities Exchange Act Release No. 
93119 (Sept. 24, 2021), 86 FR 54262 (Sept. 30, 2021)).
    \39\ See Notice, supra note 9, 87 FR 57954.
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    The Exchange states 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.\40\ According to the Exchange, the 
role and responsibilities of an underwriter provide significant 
investor protections that are necessary in a Direct Listing with a 
Capital Raise if an offering can price outside the disclosed price 
range, subject to the proposed limitations, because they allow 
investors to make reasonable pricing decisions with clarity that the 
company's underwriter would face statutory liability.\41\ The Exchange 
further states that the requirement to retain a named underwriter may 
mitigate traceability concerns that may arise in a Direct Listing with 
a Capital Raise.\42\ The Exchange states that, 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 will be able to impose lock-up arrangements for 
the same reasons that make lock up agreements common in an IPO.\43\
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    \40\ See id.
    \41\ See id. at 57955.
    \42\ See id.
    \43\ See id.
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    The Exchange also states 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.\44\ The Exchange states that, to 
further mitigate concerns regarding the usefulness of price range 
disclosure provided to investors, the Exchange proposes to require that 
the securities of a company listing in connection with a Direct Listing 
with a Capital Raise cannot price above the 80% Upside Limit in order 
to incentivize the company and its underwriter to set the disclosed 
price range to avoid the consequences of a failed offering.\45\ The 
Exchange states that the 80% Upside Limit would also help assure that 
an issuer would adjust the price range disclosed in its registration 
statement prior to effectiveness in light of pricing feedback received 
from market analysts and potential investors.\46\
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    \44\ See id.
    \45\ See id.
    \46\ See id. To determine an appropriate upside limit, the 
Exchange states that it 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 disclosed price range. 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; more than half of 
these IPOs opened at a price that was 30% or more above the highest 
price of the price range; and about 90% of these IPOs opened at a 
price that was no more than the 80% Upside Limit. See id.
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    The Exchange also proposes to adopt a new ``Price Volatility 
Constraint'' (which has the meaning described below) and disseminate 
information about whether the Price Volatility Constraint has been 
satisfied, which will indicate whether the security may be ready to 
trade.\47\ The Exchange states that prior to releasing a security for 
trading, the Exchange allows a ``Pre-Launch Period'' of indeterminate 
length, during which price discovery takes place.\48\ The ``Price 
Volatility Constraint'' would require 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.\49\ The Pre-
Launch Period would continue until at least five minutes after the 
Price Volatility Constraint has been satisfied.\50\ The Exchange states 
that this change would provide investors with notice that the Nasdaq 
Halt Cross nears execution and allow 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 Nasdaq Halt Cross and 
the pricing of the offering.\51\ The Exchange also states that 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, the Exchange proposes to require that 
the Nasdaq Halt Cross may execute only if the actual price calculated 
by the Nasdaq Halt Cross is no more than 10% below or above the Near 
Execution Price (the ``10% Price Collar''), in addition to the other 
existing conditions stated in proposed Nasdaq Rule 
4120(c)(9)(B)(vii).\52\
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    \47\ See id.
    \48\ See id.
    \49\ See id. See Nasdaq Rule 4753(a)(3) for a description of the 
``Current Reference Price.''
    \50\ See Notice, supra note 9, 87 FR 57955.
    \51\ See id. The Exchange proposes to define ``Near Execution 
Price'' as the Current Reference Price at the time the Price 
Volatility Constraint has been satisfied, and to define the ``Near 
Execution Time'' as such time. See id.
    \52\ See id.

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[[Page 75309]]

    The Exchange states that an imbalance between buy and sell orders 
could sometimes cause the Current Reference Price to fall outside of 
the 10% Price Collar after the Price Volatility Constraint has been 
satisfied.\53\ According to the Exchange, such price fluctuations could 
be temporary and the Current Reference Price may return to and remain 
within the 10% Price Collar, or the price fluctuation could be lasting 
such that the Current Reference Price remains outside of the 10% Price 
Collar.\54\ The Exchange proposes to assess the Current Reference Price 
as compared to the 10% Price Collar 30 minutes after the Near Execution 
Time if the cross has not yet been executed at that time.\55\ If at 
that time the Current Reference Price is outside of the 10% Price 
Collar, all requirements of the Pre-Launch Period would reset and would 
need to be satisfied again.\56\ Alternatively, if at that time the 
Current Reference Price is within the 10% Price Collar, price formation 
would continue without limitations until the Exchange, in consultation 
with the named underwriter to the issuer, makes the determination that 
the security is ready to trade and the conditions in proposed Nasdaq 
Rule 4120(c)(9)(B)(vii) and (viii) are met, at which time the Pre-
Launch Period would end.\57\
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    \53\ See id.
    \54\ See id. at 57955-56.
    \55\ See id. at 57956.
    \56\ See Amendment No. 3, supra note 11, at 21. The Exchange 
states that once the Price Volatility Constraint has been satisfied 
anew, the Current Reference Price at such time would become the 
updated Near Execution Price and such time would become the Near 
Execution Time. See Notice, supra note 9, 87 FR 57956. The Exchange 
further states that this process would continue iteratively if new 
resets are triggered, until the Nasdaq Halt Cross is executed or the 
offering is postponed. See id.
    \57\ See Amendment No. 3, supra note 11, at 21; proposed Nasdaq 
Rule 4120(c)(9)(B)(vii). The Exchange states that if at any time 
more than 30 minutes after the Near Execution Time the Current 
Reference Price falls outside of the 10% Price Collar, all 
requirements of the Pre-Launch Period would reset and would need to 
be satisfied again. See Notice, supra note 9, 87 FR 57956.
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    According to the Exchange, given that there may be a Direct Listing 
with a Capital Raise that could price outside of the disclosed price 
range, subject to the 80% Upside Limit above which the Nasdaq Halt 
Cross could not proceed, the Exchange proposes to enhance transparency 
by providing readily available, real time pricing information to 
investors.\58\ To that end, the Exchange states that it would 
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 disclosed price 
range.\59\ Once the Price Volatility Constraint has been satisfied, the 
Exchange would also disseminate the Near Execution Price, the Near 
Execution Time, and the 30-minute countdown from such time.\60\ The 
Exchange states that, in this way, investors interested in 
participating in the opening auction would be informed when volatility 
has settled to a range that would allow the opening auction to take 
place, would be informed of the price range at which the auction would 
take place, and, if the price remains outside of that range for 30 
minutes, would have at least five minutes to reevaluate their 
investment decision.\61\
---------------------------------------------------------------------------

    \58\ See Notice, supra note 9, 87 FR 57956. The Exchange states 
that if the company's certification submitted to the Exchange 
includes a price limit that is lower than the 80% Upside Limit and 
the actual price calculated by the Nasdaq Halt Cross exceeds such 
lower limit, the Exchange would postpone and reschedule the 
offering. See id. at 57956 n.33.
    \59\ See id. at 57956.
    \60\ See id. The Exchange represents that the disclosure would 
indicate that the Near Execution Price and the Near Execution Time 
may be reset 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 any time thereafter) is more than 10% below or more 
than 10% above the Near Execution Price. See id.
    \61\ See id.
---------------------------------------------------------------------------

    The Exchange 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.\62\ The Exchange states that this would 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 would use 
any additional proceeds raised.\63\ The Exchange states that, 
accordingly, an investor participating in a Direct Listing with a 
Capital Raise would make their initial investment decision prior to the 
launch of the offering by setting a price in their limit order above 
which they will not buy shares in the offering, but would also have the 
opportunity to reevaluate their initial investment decision during the 
price formation process of the Pre-Launch Period based on the Near 
Execution Price, and would have at least five minutes once the Near 
Execution Price has been set and before the offering may be priced by 
the Exchange to modify their order, if needed.\64\
---------------------------------------------------------------------------

    \62\ See id.
    \63\ See id.
    \64\ See id.
---------------------------------------------------------------------------

    In addition, the Exchange states that to protect investors and 
assure that they are informed about the attributes of a Direct Listing 
with a Capital Raise, the Exchange proposes to impose specific 
requirements on Nasdaq members with respect to a Direct Listing with a 
Capital Raise.\65\ These rules would require members to provide to a 
customer, before that customer places an order to be executed in the 
Nasdaq Halt Cross, a notice describing the mechanics of pricing a 
security subject to a Direct Listing with a Capital Raise in the Nasdaq 
Halt Cross, including information regarding the location of the public 
website where the Exchange would disseminate the Current Reference 
Price.\66\
---------------------------------------------------------------------------

    \65\ See id.
    \66\ See id.
---------------------------------------------------------------------------

    The Exchange states that to assure that members have the necessary 
information to be provided to their customers, the Exchange 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.\67\ This 
information circular would describe any special characteristics of the 
offering and the Exchange'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 that members must provide to their customers.\68\ This 
information circular would also describe other requirements that: (a) 
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; (b) 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; and (c) members cannot accept 
market orders to

[[Page 75310]]

be executed in the Nasdaq Halt Cross.\69\ The Exchange states that 
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.\70\
---------------------------------------------------------------------------

    \67\ See id. The Exchange states that an information circular is 
an industry-wide, free service provided by the Exchange. See id. at 
57957 n.35.
    \68\ See id. at 57956.
    \69\ See id. at 57956-57; proposed Nasdaq Rule 4120(c)(9)(B)(i).
    \70\ See Notice, supra note 9, 87 FR 57957.
---------------------------------------------------------------------------

    The Exchange represents that in each instance of a Direct Listing 
with a Capital Raise, the Exchange's information circular would inform 
market participants that the auction could price up to 20% below the 
lowest price of the disclosed price range and would specify that price. 
The Exchange also represents that it would indicate in such circular a 
statement that the Nasdaq Halt Cross cannot proceed at a price in 
excess of the 80% Upside Limit and whether or not there is a lower 
price limit above which the Nasdaq Halt Cross could not proceed, based 
on the company's certification.\71\
---------------------------------------------------------------------------

    \71\ See id. The Exchange states that it believes that investors 
have become familiar with the approach of pricing an IPO outside of 
the price range stated in an effective registration statement. See 
id. at 57960.
---------------------------------------------------------------------------

    The Exchange states that 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, 
the Exchange proposes to introduce to the operation of the Nasdaq Halt 
Cross a brief Post-Pricing Period, in circumstances where the actual 
price calculated by the Nasdaq Halt Cross is outside of the disclosed 
price range.\72\ Specifically, in such circumstances, the Exchange 
would initiate a ``Post-Pricing Period'' following the calculation of 
the actual price.\73\ During the Post-Pricing Period, the issuer must 
confirm to the Exchange that no additional disclosures are required 
under the federal securities laws based on the actual price calculated 
by the Nasdaq Halt Cross. Further, during this period no additional 
orders for the security could be entered in the Nasdaq Halt Cross, and 
no existing orders could be modified.\74\ The Exchange states that the 
security would be released for trading immediately following the Post-
Pricing Period.\75\ However, if the company cannot provide the required 
confirmation, then the Exchange would postpone and reschedule the 
offering.\76\
---------------------------------------------------------------------------

    \72\ See id. at 57957.
    \73\ See id.
    \74\ See id.
    \75\ See id.
    \76\ See id.
---------------------------------------------------------------------------

    The Exchange also proposes to clarify several provisions of 
existing rules by restating the provisions of Nasdaq Rule 4120(c)(8)(A) 
and (c)(9)(A) in a clear and direct manner in proposed Nasdaq Rule 
4120(c)(9)(B) without substantively changing the requirements.\77\ 
Specifically, the Exchange proposes to clarify the mechanics of the 
Nasdaq Halt Cross by specifying that the Exchange will initiate a 10-
minute Display Only Period only after the CDL Order has been entered 
and that the Exchange shall select price bands for purposes of applying 
the price validation test in the Nasdaq Halt Cross in connection with a 
Direct Listing with a Capital Raise.\78\ The Exchange proposes to 
clarify that the ``actual price,'' as the term is used in the rule to 
refer to the price calculated by the opening cross, is the Current 
Reference Price at the time the system applies the price validation 
test.\79\
---------------------------------------------------------------------------

    \77\ See id. at 57958.
    \78\ See id. The Exchange would select an upper price band and a 
lower price band with the default for an upper and lower price band 
set at zero. The Exchange represents that if a security does not 
pass the price validation test, the Exchange may select different 
price bands before recommencing the process to release the security 
for trading. See id.
    \79\ See id.
---------------------------------------------------------------------------

    Nasdaq 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 
\80\ for initial listing on the Nasdaq Global Select Market, the 
Exchange will deem such company to have met the applicable requirement 
\81\ 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). For this purpose, under current rules, the Market Value of 
Unrestricted Publicly Held Shares will be calculated using a price per 
share equal to the lowest price of the disclosed price range.\82\ The 
Exchange states that because the Exchange proposes to allow the opening 
auction to price up to 20% below the lowest price of the disclosed 
price range, the Exchange proposes to make a conforming change to 
Nasdaq Listing Rule IM-5315-2 to provide that the price used to 
determine such company's compliance with the required Market Value of 
Unrestricted Publicly Held Shares would be the price per share equal to 
the price that is 20% below the lowest price of the disclosed price 
range.\83\ The Exchange further states that this is the minimum price 
at which the company could sell its shares in the opening transaction 
for a Direct Listing with a Capital Raise and thus assures that the 
company will satisfy the listing requirements at any price at which the 
opening auction successfully executes.\84\
---------------------------------------------------------------------------

    \80\ See Nasdaq Listing Rule 5005(a)(23) and (45) for the 
definitions of ``Market Value'' and ``Unrestricted Publicly Held 
Shares,'' respectively.
    \81\ See Nasdaq Listing Rule 5315(f)(2).
    \82\ See Nasdaq Listing Rule IM-5315-2. The Exchange will 
determine that the company has met the applicable bid price and 
market capitalization requirements based on the same per share 
price. See id.
    \83\ See Notice, supra note 9, 87 FR 57957.
    \84\ See id. The Exchange also proposes to clarify in Nasdaq 
Listing Rule IM-5315-2 that the 20% threshold below the disclosed 
price range will be calculated based on the high end of the price 
range in the registration statement at the time of effectiveness. 
See Amendment No. 3, supra note 11, at 27.
---------------------------------------------------------------------------

    The Exchange states that 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.\85\ The Exchange also proposes to amend Nasdaq Listing Rule 
IM-5315-2 to specify that a company offering securities for sale in 
connection with a Direct Listing with a Capital Raise must register 
securities by specifying the quantity of shares registered, as 
permitted by Securities Act Rule 457(a), and that securities qualified 
for listing under Nasdaq Listing Rule IM-5315-2 must satisfy the 
additional requirements of Nasdaq Rule 4120(c)(9)(B).\86\
---------------------------------------------------------------------------

    \85\ See Notice, supra note 9, 87 FR 57957 (citing Nasdaq 
Listing Rules 5315(e)(1) and (2) and 5315(f)(1)).
    \86\ See proposed Nasdaq Listing Rule IM-5315-2.
---------------------------------------------------------------------------

    Finally, the Exchange proposes to amend Nasdaq Rules 4753(a)(3)(A) 
and 4753(b)(2) to conform the requirements for disseminating 
information and establishing the opening price through the Nasdaq Halt 
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 disclosed price range.\87\ Specifically, the 
Exchange

[[Page 75311]]

proposes changes to Nasdaq 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,\88\ and to the 
calculation of the price at which the Nasdaq Halt Cross will execute, 
for a Direct Listing with a Capital Raise. Under these rules currently, 
where there are multiple prices that would satisfy the conditions for 
determining the 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 
disclosed price range. The Exchange states that, to conform these rules 
to the proposed modification of the price range within which the 
opening auction would proceed, the Exchange 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 the lowest price of the 
disclosed price range.\89\
---------------------------------------------------------------------------

    \87\ See proposed Nasdaq Rules 4753(a)(3)(A)(iv)c. and 
4753(b)(2)(D)(iii).
    \88\ See Nasdaq Rule 4753(a)(3) for a description of the ``Order 
Imbalance Indicator.''
    \89\ See Notice, supra note 9, 87 FR 57957.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    The Commission finds that the proposed rule change, as modified by 
Amendment No. 3, is consistent with the requirements of the Exchange 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\90\ In particular, the Commission finds that the 
proposed rule change, as modified by Amendment No. 3, is consistent 
with Section 6(b)(5) of the Exchange Act,\91\ which requires, among 
other things, that the rules of a national securities exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, 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; and are not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \90\ 15 U.S.C. 78f(b). In approving this proposed rule change, 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \91\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission has consistently recognized the importance and 
significance of national securities exchange listing standards. Among 
other things, such listing standards help ensure that exchange-listed 
companies will have sufficient public float, investor base, and trading 
interest to provide the depth and liquidity necessary to promote fair 
and orderly markets.\92\
---------------------------------------------------------------------------

    \92\ The Commission has stated in approving national securities 
exchange listing requirements that the development and enforcement 
of adequate standards governing the listing of securities on an 
exchange is an activity of critical importance to the financial 
markets and the investing public. In addition, once a security has 
been approved for initial listing, maintenance criteria allow an 
exchange to monitor the status and trading characteristics of that 
issue to ensure that it continues to meet the exchange's standards 
for market depth and liquidity so that fair and orderly markets can 
be maintained. See, e.g., 2021 Order, supra note 13, 86 FR 28169; 
Securities Exchange Act Release Nos. 90768 (Dec. 22, 2020), 85 FR 
85807, 85811 n.55 (Dec. 29, 2020) (SR-NYSE-2019-67) (``NYSE 2020 
Order''); 82627 (Feb. 2, 2018), 83 FR 5650, 5653 n.53 (Feb. 8, 2018) 
(SR-NYSE-2017-30) (``NYSE 2018 Order''); 81856 (Oct. 11, 2017), 82 
FR 48296, 48298 (Oct. 17, 2017) (SR-NYSE-2017-31); 81079 (July 5, 
2017), 82 FR 32022, 32023 (July 11, 2017) (SR-NYSE-2017-11). The 
Commission has stated that adequate listing standards, by promoting 
fair and orderly markets, are consistent with Section 6(b)(5) of the 
Exchange Act, in that they are, among other things, designed to 
prevent fraudulent and manipulative acts and practices, promote just 
and equitable principles of trade, and protect investors and the 
public interest. See, e.g., NYSE 2020 Order, 85 FR 85811 n.55; NYSE 
2018 Order, 83 FR 5653 n.53; Securities Exchange Act Release Nos. 
87648 (Dec. 3, 2019), 84 FR 67308, 67314 n.42 (Dec. 9, 2019) (SR-
NASDAQ-2019-059); 88716 (Apr. 21, 2020), 85 FR 23393, 23395 n.22 
(Apr. 27, 2020) (SR-NASDAQ-2020-001).
---------------------------------------------------------------------------

    The Exchange's listing standards currently provide the Exchange 
with discretion to list a company on Nasdaq's Global Select Market in 
connection with a Direct Listing with a Capital Raise, which provides 
companies with the option, without a firm commitment underwritten 
offering, of selling shares to raise capital alone or in conjunction 
with shares by selling shareholders.\93\ The Exchange proposes to 
modify its rules concerning pricing limitations for the opening auction 
on the first day of trading for a Direct Listing with a Capital Raise. 
Instead of the current Pricing Range Limitation, which limits the price 
of the opening transaction to the price range disclosed in the issuer's 
effective registration statement,\94\ the proposal would allow the 
opening auction to proceed at a price up to either 20% below or 80% 
above the disclosed price range if certain additional conditions are 
met. The Exchange also proposes changes to the opening procedures for a 
Direct Listing with a Capital Raise to accommodate the proposed changes 
to the Pricing Range Limitation.
---------------------------------------------------------------------------

    \93\ See Nasdaq Listing Rule IM-5315-2. See also 2021 Order, 
supra note 13. The Exchange's listing standards also allow for 
direct listings in connection with the sale of shares by selling 
shareholders only. See Nasdaq Listing Rules IM-5315-1, IM-5405-1, 
and IM-5505-1.
    \94\ The Commission previously approved Nasdaq's proposal to 
allow Direct Listing with a Capital Raise on Nasdaq's Global Select 
Market as long as the opening transaction occurred within the 
Pricing Range Limitation. See 2021 Order, supra note 13, 86 FR 28169 
(order approving rules to permit a Direct Listing with a Capital 
Raise and adopting related rules concerning how the opening 
transaction for such listing will be effected).
---------------------------------------------------------------------------

    As explained further below, the following aspects of the proposal, 
as modified by Amendment No. 3, demonstrate that the Exchange's 
proposal is consistent with the protection of investors and the public 
interest under Section 6(b)(5) of the Exchange Act as well as the 
maintenance of fair and orderly markets: (i) by modifying the Pricing 
Range Limitation such that, provided other requirements are satisfied, 
a Direct Listing with a Capital Raise can be executed in the opening 
cross at a price that is above the highest price of the disclosed price 
range only if the execution price is at or below the 80% Upside Limit; 
(ii) by adding conditions that must be satisfied before the opening 
cross could proceed at a price outside of the disclosed price range 
that provide some assurance that issuers are complying with the 
disclosure requirements under federal securities laws, including 
conditions that require an issuer to provide a certification to Nasdaq 
and include a sensitivity analysis in its registration statement, and 
the addition of a Post-Pricing Period; (iii) by adding procedures that 
help to inform investors that the security may be ready to trade and 
ensure that the opening price cannot deviate by more than 10% from the 
Near Execution Price after investors are informed the opening cross 
nears execution and of the Near Execution Price; (iv) by requiring 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; and (v) by making clarifying 
changes regarding calculation of the 20% threshold below the disclosed 
price range.
    The Commission discusses below the Exchange's proposed 
modifications to Direct Listings with a Capital Raise. First, the 
Commission addresses the modifications to the Pricing Range Limitation, 
and the certification process and other conditions, that would allow a 
Direct Listing with a Capital Raise to execute in the Nasdaq Halt Cross 
at a price that is outside the disclosed price range (i.e., up to 20% 
below the lowest price in the disclosed price range or no higher than 
the 80% Upside Limit). Second, the Commission addresses the inclusion 
of the Price Volatility Constraint and the 10% Price Collar.

[[Page 75312]]

Third, the Commission addresses the Exchange's proposed requirement 
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 and addresses concerns about 
Section 11 liability and how requiring an underwriter may mitigate such 
concerns. Finally, the Commission discusses additional clarifications 
to the proposal. As discussed throughout this order, the Commission 
concludes that the Exchange has met its burden to demonstrate that its 
proposal is consistent with the Exchange Act, and therefore finds the 
proposed rule change is consistent with the requirements of the 
Exchange Act.

A. Modification of Pricing Range Limitation and Required Certification

    The Exchange proposes to modify its rules concerning pricing 
restrictions for the opening auction on the first day of trading for a 
Direct Listing with a Capital Raise. Provided that other requirements 
are satisfied, a Direct Listing with a Capital Raise will be able to be 
executed in the Nasdaq Halt Cross at a price that is at or above the 
price that is as low as 20% below the lowest price in the disclosed 
price range, or at a price that is as high as 80% above the highest 
price of the disclosed price range (i.e., at or below the 80% Upside 
Limit).
    In all such cases where the execution price would be outside of the 
disclosed 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, and that registration statement 
will be required to contain a sensitivity analysis 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 disclosed price 
range. The company must certify to Nasdaq that the registration 
statement contains the required sensitivity analysis.\95\ The company 
will also be required to publicly disclose and certify to Nasdaq prior 
to the 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 80% Upside Limit, Nasdaq will not execute 
the Nasdaq Halt Cross if it results in an offering price above such 
limit.
---------------------------------------------------------------------------

    \95\ As the Exchange states, the sensitivity analysis would 
allow investors to see how changes in the share price ripple through 
critical elements of a company's disclosure.
---------------------------------------------------------------------------

    The Exchange also proposes to require that the securities of a 
company listing in connection with a Direct Listing with a Capital 
Raise cannot price above the 80% Upside Limit (i.e., at a price that is 
more than 80% above the highest price of the disclosed price range). 
The Exchange believes this will incentivize the company and its named 
underwriter to take steps to help ensure the accuracy of the disclosed 
price range so as to avoid the consequences of a failed offering. In 
the OIP, the Commission asked questions about the potential usefulness 
and reliability of the price range disclosure in the registration 
statement if issuers could price up to 20% below and anywhere above the 
disclosed price range.\96\ The changes that the Exchange made 
subsequent to the OIP, including the imposition of the 80% Upside Limit 
and the named underwriter requirement, is a reasonable response to 
address these concerns, and eliminates the open-ended nature of the 
original proposal that would have allowed the opening to occur at any 
price above the high end of the disclosed price range, with no 
limitations.
---------------------------------------------------------------------------

    \96\ See OIP, supra note 8. One commenter raised similar 
concerns. See Letter from Jeffrey P. Mahoney, General Counsel, 
Council of Institutional Investors (Aug. 8, 2022) (``CII Letter 
I'').
---------------------------------------------------------------------------

    The Exchange's current rules for a Direct Listing with a Capital 
Raise require it to postpone and reschedule the offering if the opening 
auction price does not fall at or within the disclosed price range, so 
that issuers are able to update any disclosures if necessary before 
proceeding with an offering outside of the disclosed price range. 
Likewise, the Exchange's proposal to expand the Pricing Range 
Limitation for Direct Listings with a Capital Raise would not allow the 
Nasdaq Halt Cross to proceed if the company is unable to provide Nasdaq 
with the required certifications about the adequacy of the disclosure 
to allow the opening cross to execute at a price that is up to 20% 
below the low end of the disclosed price range or is up to the 80% 
Upside Limit. If the issuer could not provide the required 
certifications, the Exchange would postpone and reschedule the 
offering.
    Additionally, any time the opening price calculated by the Nasdaq 
Halt Cross is outside the disclosed price range (i.e., either up to 20% 
below the low end of the disclosed price range or above the high end of 
the disclosed price range up to the 80% Upside Limit) the issuer would 
have to confirm during the Post-Pricing Period that no additional 
disclosures are required under the federal securities laws. Because no 
orders may be entered or modified during the Post-Pricing Period, the 
opening price cannot change during the issuer's confirmation process on 
the disclosure. We believe these provisions, taken together, will 
provide an opportunity for an issuer to meet its disclosure obligations 
under the federal securities laws prior to the Nasdaq Halt Cross 
proceeding if the opening cross executes at a price that is up to 20% 
below the low end of the disclosed price range or is up to the 80% 
Upside Limit. Issuers also must comply with separate disclosure 
obligations under the federal securities laws, and compliance with the 
specific requirements of Nasdaq's proposed listing standards may not be 
sufficient to comply with the federal securities laws. In particular, 
an issuer using Rule 430A to omit pricing-related information would 
need to consider whether a post-effective amendment to a registration 
statement containing a price range would be required if a change in 
price materially alters the disclosure in the registration statement at 
effectiveness. In addition, for purposes of Securities Act Sections 
12(a)(2) and 17(a)(2), information delivered to purchasers after the 
time of sale is not taken into account in determining whether there 
were material misstatements or omissions.\97\ The Commission has 
interpreted Section 12(a)(2) and Section 17(a)(2) as reflecting a core 
concept of the Securities Act--that materially accurate and complete 
information regarding an issuer and the securities being sold should be 
available to investors at the time of the contract of sale, when they 
make their investment decisions.\98\ Based on the above, the Commission 
believes that this aspect of the proposal is consistent with the 
investor protection and public interest provisions under Section 
6(b)(5) of the Exchange Act.\99\
---------------------------------------------------------------------------

    \97\ See Securities Act Rule 159. See also Securities Exchange 
Act Release No. 93119 (Sept. 23, 2021), 86 FR 54262, 54266 n.47 
(Sept. 30, 2021).
    \98\ See Securities Offering Reform Proposing Release, 
Securities Act Release No. 8501 (Nov. 3, 2004) (proposing current 
Rule 159 as an interpretation of Section 12(a)(2) and Section 
17(a)(2)) and Securities Offering Reform Adopting Release, 
Securities Act Release No. 8591 (Aug. 3, 2005) (adopting Rule 159 as 
proposed).
    \99\ See OIP, supra note 8.

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[[Page 75313]]

B. Price Volatility Constraint and 10% Price Collar

    The Exchange also proposes to establish a Price Volatility 
Constraint, which would require that the Current Reference Price not 
deviate by 10% or more from any Current Reference Price in the previous 
10 minutes, as a condition to the opening auction in a Direct Listing 
with a Capital Raise. Specifically, the Exchange's proposal provides 
that ``[t]he Pre-Launch Period shall continue until at least 5 minutes 
after the Price Volatility Constraint has been satisfied.'' \100\ The 
Exchange also proposes to introduce the Near Execution Price, which is 
the Current Reference Price at the time the Price Volatility Constraint 
has been satisfied, and to set the Near Execution Time as such time. 
The Exchange states that this will provide investors with notice that 
the Nasdaq Halt Cross nears execution and will allow a period of at 
least five minutes for investors to modify orders prior to the 
execution of the opening cross and the pricing of the offering. 
Finally, the Exchange proposes to require that, in addition to other 
conditions (as stated in proposed Nasdaq Rule 4120(c)(9)(B)(vii)), the 
opening cross may execute only if the actual price calculated by the 
Nasdaq Halt Cross is no more than 10% above or below the Near Execution 
Price.
---------------------------------------------------------------------------

    \100\ Proposed Nasdaq Rule 4120(c)(9)(B)(vii).
---------------------------------------------------------------------------

    The requirement that the Pre-Launch Period will continue for at 
least five minutes after the Price Volatility Constraint has been 
satisfied will allow for a period during which investors can modify 
their orders, if needed, based on the Near Execution Price, prior to 
the execution of the opening cross. After the Near Execution Price is 
set, the Current Reference Price may change because buy and sell orders 
can continue to come in, or be cancelled. If the security is not 
released for trading within 30 minutes and the Current Reference Price 
is outside the 10% Price Collar at the end of the 30-minute countdown 
or at any time thereafter, the Price Volatility Constraint will reset 
and all requirements of the Pre-Launch Period must be satisfied. If 
however, the Current Reference Price at the end of the 30-minute 
countdown is within the 10% Price Collar, price formation may continue 
until such time that Nasdaq, in consultation with the named 
underwriter, makes the determination that the security is ready to 
trade.\101\
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    \101\ Proposed Nasdaq Rule 4120(c)(9)(B)(vii) states the 
security shall be released for trading when Nasdaq, in consultation 
with the named underwriter, makes the determination that the 
security is ready to trade and the conditions in proposed Nasdaq 
Rule 4120(c)(9)(B)(vii)(a), (b), (c), and (d) are met. Among the 
conditions is that the actual price calculated by the Nasdaq Halt 
Cross is within the 10% Price Collar. See supra notes 45-59 and 
accompanying discussion.
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    Nasdaq also proposes to enhance price discovery by providing 
readily available, real-time pricing information to investors by 
disseminating, free of charge, the Current Reference Price on a public 
website, such as Nasdaq.com, during the Pre-Launch Period and 
indicating whether the Current Reference Price is within the price 
range established by the issuer in its effective registration 
statement. Nasdaq will also disseminate the Near Execution Price, the 
Near Execution Time, and the 30-minute countdown from such time. Nasdaq 
also proposes to distribute, at least one day prior to the commencement 
of trading of the security, an information circular to its members 
describing 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.
    As described above, the opening process for Direct Listings with a 
Capital Raise would include the dissemination of the Near Execution 
Price, establishment of the Near Execution Time, and the protections 
provided by the 10% Price Collar that ensures the opening price cannot 
deviate by more than 10% from the disseminated Near Execution Price. 
These proposed provisions should address any potential concerns that, 
when the Exchange disseminates information that the Price Volatility 
Constraint has been satisfied, investors could be misled about the 
opening auction price and that the opening cross nears execution at a 
time when buy and sell orders are still coming in because such orders 
could change the opening price and could cause the auction to not occur 
for a considerable time.\102\
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    \102\ See, e.g., 2022 Order, supra note 32, 87 FR 11780 (Mar. 2, 
2022) (order disapproving proposed rule change, in part, due to 
potential for opening process to mislead investors about opening 
time and price). See also supra note 31.
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    Further, the Commission believes that the information Nasdaq 
proposes to make publicly available prior to the opening could help to 
provide investors with useful information relating to the pricing of 
the security and help to inform investors in making decisions about 
entering, modifying, or cancelling orders to participate in the opening 
cross. The requirement that investors cannot enter market orders and 
therefore will have to enter a limit price to their order will also 
provide a cap to an investor's financial obligation should its buy 
order be executed in the Nasdaq Halt Cross and prevent the buy order 
from executing at a price higher than the investor anticipated. Based 
on the above, the Commission finds these procedures are consistent with 
the protection of investors, the public interest, and the other 
requirements of Section 6(b)(5) of the Exchange Act.

C. Addition of Named Underwriter Requirement in a Direct Listing With a 
Capital Raise and Securities Act Section 11 Standing

    Given the broad definition of ``underwriter'' in the Securities 
Act,\103\ parties, such as the issuers' financial advisor, may, 
depending on the facts and circumstances including the nature and 
extent of that party's activities, be deemed a statutory underwriter 
with respect to a direct listing, with attendant underwriter 
liabilities. In the OIP, the Commission asked several questions about 
potential issues related to the lack of a named underwriter (as opposed 
to a statutory underwriter) in a Direct Listing with a Capital Raise 
where an offering can price outside of the range established by the 
issuer in its effective registration statement.\104\ The Commission 
questioned whether a party who may meet the statutory underwriter 
definition but is not named as an underwriter would review and 
adequately conduct due diligence on the information contained in the 
registration statement for a Direct Listing with a Capital Raise where 
the opening price is executed outside of the disclosed price range. The 
Commission also stated that permitting Direct Listings with a Capital 
Raise could potentially result in increased regulatory arbitrage if and 
to the extent that issuers and intermediaries, including financial 
advisors, are not subject to equivalent liability standards in the 
direct listings context as they

[[Page 75314]]

would be in traditional firm commitment underwritten IPOs.\105\
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    \103\ Section 2(a)(11) of the Securities Act defines 
``underwriter'' to mean ``any person who has purchased from an 
issuer with a view to, or offers or sells for an issuer in 
connection with, the distribution of any security, or participates 
or has a direct or indirect participation in any such undertaking, 
or participates or has a participation in the direct or indirect 
underwriting of any such undertaking.''
    \104\ See OIP, supra note 8. One commenter stated it was 
concerned, consistent with the statements in the OIP, about the lack 
of a named underwriter in a Direct Listing with a Capital Raise 
where the offering could price outside of the range established by 
the issuer in its effective registration statement and stated it 
also had concerns about challenges to bringing claims under Section 
11 of Securities Act due to potential tracing issues. See CII Letter 
I, at 4.
    \105\ See OIP, supra note 8.
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    In the proposed rule change as modified by Amendment No. 3, the 
Exchange proposes to require that a company offering securities for 
sale in connection with a Direct Listing with a Capital Raise retain an 
underwriter with respect to the primary sales of shares by the company 
and identify the underwriter in its effective registration 
statement.\106\ The Exchange states that it believes that underwriters 
provide significant investor protections that are necessary in a Direct 
Listing with a Capital Raise where an offering can price outside of the 
range established by the issuer in its effective registration 
statement.\107\ For example, the Exchange states that underwriters are 
exposed to potential Securities Act liability, which provides a strong 
incentive for them to take steps to help ensure the accuracy of 
disclosure in a registration statement.\108\ The Exchange states that 
it ``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 allow investors to make reasonable pricing decisions with 
clarity that the company's underwriter would face statutory 
liability.'' \109\ Earlier in the amended proposal, the Exchange notes 
the Commission's recent explanation that ``[t]he 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.'' \110\ 
Accordingly, the Exchange proposes to require named underwriters for 
listings of securities on the Exchange in connection with a Direct 
Listing with a Capital Raise.
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    \106\ See Amendment No. 3, supra note 11, at 54.
    \107\ See id. at 16.
    \108\ See id. at 15.
    \109\ Id. at 16.
    \110\ Id. at 15 (quoting Special Purpose Acquisition Companies, 
Shell Companies, and Projections, Securities Exchange Act Release 
No. 94546 (Mar. 30, 2022), 87 FR 29458 (May 13, 2022)).
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    The Commission believes that the Exchange's proposed requirement 
that a company conducting a Direct Listing with a Capital Raise must 
retain and name an underwriter will help address the investor 
protection concerns discussed in the OIP that can arise in a Direct 
Listing with a Capital Raise that prices outside of the disclosed price 
range. With respect to disclosure, for example, for an offering to 
proceed at a price outside of the disclosed price range, the Exchange's 
proposal would require the company to initially provide certifications 
to the Exchange and publicly disclose that the company does not expect 
that such a price would materially change its effective registration 
statement disclosure. The company's registration statement also would 
need to contain a sensitivity analysis 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 disclosed price range. In 
addition, the company would be required to certify to the Exchange that 
no additional disclosures are required under the federal securities 
laws based on the actual price. The required presence of named 
underwriters who are subject to Securities Act liability should help 
ensure the accuracy of these disclosures that potential investors 
receive in a Direct Listing with a Capital Raise. This disclosure 
includes information, such as the use of proceeds and the required 
sensitivity analysis, that becomes even more important when an offering 
prices outside of the range established by the company in its 
registration statement. Investors should also benefit from the 
knowledge that underwriters with Securities Act liability are required 
as companies consider the certifications they must provide the Exchange 
with respect to the impact of price changes on their registration 
statement disclosure and on their obligation to provide additional 
disclosures under the federal securities laws.
    The Commission also asked questions in the OIP about shareholders' 
ability to pursue claims under Section 11 of the Securities Act due to 
potential traceability issues.\111\ The Exchange states that it 
believes that the requirement to retain a named underwriter in a Direct 
Listing with a Capital Raise may mitigate traceability concerns because 
the underwriter ``will be able to impose lock-up arrangements for the 
same reasons that make lock up agreements common in an IPO.'' The 
Commission agrees that the requirement to retain a named underwriter 
may help mitigate traceability concerns. However, the actual impact of 
the named underwriter requirement is far from certain, particularly 
because tracing is a judicially-developed doctrine and there is limited 
judicial precedent addressing tracing requirements in the context of 
direct listings. In addition, because of the many factors that go into 
an underwriter's decision to request or require lock-up arrangements in 
public offerings, whether, and if so to what extent, underwriters in 
Direct Listings with a Capital Raise would impose lock-up arrangements 
on all company shareholders is unclear. Although the Commission's 
findings in this order are based on the specific proposed rule change 
filed with the Commission, including how the proposed rule operates 
under the circumstances discussed in this order, the Commission 
recognizes that, over time, those circumstances may change. Some of the 
circumstances that may change involve tracing and may include 
developments in case law involving tracing in the direct listing 
context.
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    \111\ See OIP, supra note 8. One commenter raised similar 
concerns. See CII Letter I and Letter from Jeffrey P. Mahoney, 
General Counsel, Council of Institutional Investors (Oct. 19, 2022) 
(``CII Letter II''). This commenter also stated that the Exchange 
does not address how its proposal ``might alleviate the poor 
corporate governance practices that appear endemic to companies that 
become public through a direct listing.'' CII Letter II. As the 
Commission stated previously, the Commission does not believe that 
investors will be precluded from raising concerns about governance 
structures in the context of direct listings; to the extent a 
company's corporate governance practices are of sufficient concern 
to investors, they may be able to influence companies' governance 
practices through signaling their unwillingness to purchase a 
company's shares through a direct listing. In this way, investors 
may be able to persuade companies to adopt preferred governance 
provisions, whether the company becomes listed through a direct 
listing or a firm commitment IPO. See 2021 Order, supra note 13, 86 
FR 28177.
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    In view of the totality of the Exchange's proposal, including the 
requirement that a company seeking to conduct a Direct Listing with a 
Capital Raise retain and name an underwriter, the Commission does not 
expect any such tracing challenges in this context to be of such 
magnitude as to render the proposal inconsistent with the Exchange 
Act.\112\ The Commission therefore concludes that the proposed rule 
change, as modified by Amendment No. 3, is consistent with the 
protection of investors and the public interest under Section 6(b)(5) 
of the Exchange Act.
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    \112\ See Securities Exchange Act Release No. 90768 (Dec. 22, 
2020), 85 FR 85807, 85816 (Dec. 29, 2020) (SR-NYSE-2019-67) (order 
setting aside action by delegated authority and approving a proposed 
rule change to modify the provisions relating to direct listings). 
See also 2021 Order, supra note 13, 86 FR 28176.
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D. Additional Clarifications

    In the OIP, the Commission asked questions about how the Exchange 
would calculate the 20% threshold below the disclosed price range and 
whether the minimum price at which the opening auction could occur 
would be the same as the per share price for purposes of evaluating 
whether the issuer satisfies the applicable Market

[[Page 75315]]

Value of Publicly Held Shares requirement and other applicable bid 
price and market capitalization requirements.\113\ Subsequently, the 
Exchange revised its proposal to provide that the 20% threshold below 
the disclosed price range, along with the 80% threshold used to 
determine the 80% Upper Limit, would be calculated based on the high 
end of the price range in the registration statement at the time of 
effectiveness.\114\ In addition, the Exchange made clarifying changes 
to specify how the 20% threshold will be calculated for purposes of the 
listing standards and opening cross procedures.\115\ The Commission 
finds that these changes will help ensure that the calculations are 
consistent throughout Nasdaq's rules and set forth a clear process for 
how the Exchange will calculate the 20% and 80% thresholds, thereby 
specifying for investors and market participants the lowest and highest 
price outside of the disclosed price range at which the opening cross 
can occur, consistent with the protection of investors and the public 
interest under Section 6(b)(5) of the Exchange Act.
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    \113\ See OIP, supra note 8.
    \114\ See proposed Nasdaq Rule 4120(c)(9)(B). See also Amendment 
No. 3, supra note 11, at 43. Under the Exchange's original proposal, 
the 20% threshold would have been calculated based on the maximum 
offering price set forth in the registration fee table, consistent 
with the Instruction to paragraph (a) of the Securities Act.
    \115\ See proposed Nasdaq Rule 4753(a)(3)(A)(iv)c. and 
(b)(2)(D)(iii), and proposed Nasdaq Listing Rule IM-5315-2.
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IV. Solicitation of Comments on Amendment No. 3 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 3 
to the proposed rule change is consistent with the Exchange 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 December 29, 2022.

V. Accelerated Approval of the Proposal, as Modified by Amendment No. 3

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 3, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
3 in the Federal Register. The Commission notes that the original 
proposal, Amendment No. 1, and Amendment No. 2 were published for 
comment in the Federal Register.\116\ By amending the proposal to 
provide that the 20% threshold below and the 80% threshold above the 
disclosed price range will be calculated based on the high end of the 
price range in the registration statement at the time of effectiveness, 
the Exchange removed reference to the maximum offering price set forth 
in the registration fee table. This change will provide a 
straightforward and clear way for investors and market participants to 
calculate the 20% and 80% thresholds that set forth the lowest and 
highest price (outside the disclosed price range) at which the opening 
auction can occur. Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Exchange Act,\117\ to approve the 
proposed rule change, as modified by Amendment No. 3, on an accelerated 
basis.
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    \116\ See supra notes 3, 6, and 9.
    \117\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 3, is consistent with the 
Exchange Act and the rules and regulations thereunder applicable to a 
national securities exchange.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\118\ that the proposed rule change (SR-NASDAQ-2022-027), 
as modified by Amendment No. 3 thereto, be, and it hereby is, approved 
on an accelerated basis.
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    \118\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\119\
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    \119\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-26650 Filed 12-7-22; 8:45 am]
BILLING CODE 8011-01-P