[Federal Register Volume 88, Number 24 (Monday, February 6, 2023)]
[Notices]
[Pages 7766-7771]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-02357]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96781; File No. SR-NASDAQ-2022-057]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order
Approving of a Proposed Rule Change, as Modified by Amendment No. 1, To
Adopt Listing Rule 5732 To Provide Listing Standards for Contingent
Value Rights on Nasdaq Global Market
January 31, 2023.
I. Introduction
On October 17, 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 adopt Listing Rule 5732 to provide listing
standards for Contingent Value
[[Page 7767]]
Rights (``CVRs'') on Nasdaq Global Market. The proposed rule change was
published for comment in the Federal Register on November 3, 2022.\3\
On December 15, 2022, the Commission extended the time period within
which to approve the proposed rule change, disapprove the proposed rule
change, or institute proceedings to determine whether to approve or
disapprove the proposed rule change.\4\ On January 26, 2023, the
Exchange filed Amendment No. 1 to the proposed rule change.\5\ The
Commission received no comment letters on the proposed rule change. The
Commission is publishing this notice to solicit comments on the
proposed rule change, as modified by Amendment No. 1, from interested
persons and is approving the proposed rule change, as modified by
Amendment No. 1, on an accelerated basis.
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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. 96176 (October 28,
2022), 87 FR 66337 (``Notice'').
\4\ See Securities Exchange Act Release No. 96509, 87 FR 78166
(December 21, 2022) (extending the time period to February 1, 2023).
\5\ In Amendment No. 1, the Exchange revised the proposal to
clarify that: (1) the Exchange will require the public disclosure of
all the material terms of the CVR before listing; (2) under the CVR
Continued Listing Standards of Nasdaq Proposed Rule 5732(d)(3), the
$1 million market value threshold requirement refers to Publicly
Held Shares; (3) to initially list a CVR under Nasdaq Proposed Rule
5732(a)(4), the issuer's common stock must be compliant with the
listing standards of the national securities exchange upon which the
common stock is listed, irrespective of whether listing a Price-
Based or Event-Based CVR; and (4) in Nasdaq Proposed Rule
5732(d)(4), for Event-Based CVRs, the primary equity security to
which the Event-Based CVR is linked and the issuer's common stock
must remain listed. Amendment No. 1 is available at: https://www.sec.gov/comments/sr-nasdaq-2022-057/srnasdaq2022057.htm. See
also notes 6-7 and accompanying text for definitions of Price-Based
and Event Based CVRs.
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II. Description of the Proposal, as Modified by Amendment No. 1
Nasdaq proposes to adopt Listing Rule 5732 to provide listing
standards for Price-Based and Event-Based Contingent Value Rights (each
a ``CVR'' and collectively, ``CVRs'') on Nasdaq Global Market, which
are unsecured obligations of the issuer providing for a possible cash
payment at maturity.\6\ As discussed in more detail below, CVRs provide
for a possible cash payment for a ``Price-Based CVR'' at maturity based
upon the price performance of an affiliate's equity security or for an
``Event-Based CVR'', within a specified time period, upon the
occurrence of a specified event or events related to the business of
the issuer or an affiliate of the issuer.\7\
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\6\ According to the Exchange, the proposed rule change is based
on Section 703.18 of the NYSE Listed Company Manual, related to
initial listing of CVRs, and the provisions of Section 802.01D
applicable to ``Specialized Securities'', related to continued
listing of CVRs. See Securities Exchange Act Release No. 26072 (May
30, 1990), 55 FR 23166 (June 6, 1990) (SR-NYSE-90-15) (order
approving original listing standards for CVRs (Priced-Based) on the
Exchange); Securities Exchange Act Release No. 86651 (August 13,
2019), 84 FR 42967 (August 19, 2019) (SR-NYSE-2019-14) (order
approving the listing of Event-Based CVRs on the Exchange).
\7\ See Nasdaq Proposed Rule 5732.
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Specifically, under the proposal, at maturity, the holder of a
Price-Based CVR is entitled to a cash payment if the average market
price of the issuer's related affiliate's equity security is less than
a pre-set target price.\8\ The proposal states that the target price is
typically established at the time the Price-Based CVR is issued.\9\
Conversely, should the average market price of the related equity
security equal or exceed the target price, the Price-Based CVR would
expire worthless.\10\ In its proposal, Nasdaq states that Price-Based
CVRs are generally distributed to shareholders of an acquired company
who are receiving shares of the acquirer as acquisition
consideration.\11\ Nasdaq further states that Price-Based CVRs provide
the acquiree's shareholders with some medium-term protection against
poor stock price performance of the shares of the acquirer by
guaranteeing them a specified cash payment if the acquirer's average
stock price is below a specified level at the time of maturity of the
Price-Based CVR.\12\
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\8\ See Nasdaq Proposed Rule 5732.
\9\ See id.
\10\ See id.
\11\ See Notice, supra note 3, 87 FR at 66337.
\12\ See id.
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The Exchange states that Event-Based CVRs are also typically issued
to the shareholders of an acquired entity as consideration in an
acquisition transaction.\13\ Under the proposal, Event-Based CVRs
entitle their holders to receive a cash payment upon the occurrence of
a specified event or events related to the business of the issuer or an
affiliate of the issuer within a specified period of time that is
determined at the time the Event-Based CVR is issued.\14\ In contrast,
should the specified event or events not occur within the specified
time period, the Event-based CVR would expire worthless.\15\ According
to the Exchange, an Event-Based CVR provides the shareholders of the
acquiree an additional interest in the medium-term performance of the
merged entity upon occurrence of its specified event(s).\16\
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\13\ See id.
\14\ See id; Nasdaq Proposed Rule 5732.
\15\ See Nasdaq Proposed Rule 5732.
\16\ See Notice, supra note 3, 87 FR at 66337.
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For initial listing of CVRs on the Nasdaq Global Market, the issuer
must have assets in excess of $100 million, satisfy the requirement of
Nasdaq Rule 5315(f)(3)(A) \17\ or have at least $200 million in global
market capitalization and satisfy the requirement of Rule 5315(f)(2)(A)
and (B) \18\ related to Market Value of Unrestricted Publicly Held
Shares. In order to list a CVR, an issuer of the CVR must not be
considered non-compliant with the listing standards of the national
securities exchange where either: (i) the equity security to whose
price performance a Price-Based CVR is linked or the issuer's common
stock is listed, or (ii) in an Event-Based CVR where the primary equity
security is linked or the issuer's common stock is listed.\19\
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\17\ Specifically, to satisfy Nasdaq Rule 5315(f)(3)(A) a
Company, other than a closed end management investment company, must
aggregate income from continuing operations before income taxes of
at least $11 million over the prior three fiscal years, (ii)
positive income from continuing operations before income taxes in
each of the prior three fiscal years, and (iii) at least $2.2
million income from continuing operations before income taxes in
each of the two most recent fiscal years.
\18\ See Nasdaq Rule 5315(f)(2)(A) and (B) requiring (i) a
Market Value of at least $110 million; or (ii) a Market Value of at
least $100 million, if the Company has stockholders' equity of at
least $110 million.
\19\ See Amendment No. 1, supra note 5, at 3.
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The CVR issue must also have a minimum of 400 holders; a minimum of
1 million CVRs outstanding; a minimum of $4 million market value; a
minimum life of one year; and a minimum $4.00 bid price.\20\ Nasdaq
states that while these distribution and liquidity standards applicable
to CVRs can help to ensure there should be adequate depth, liquidity,
and investor interest to support an exchange listing, the issuer
requirements, that are described above, will provide some minimum level
of indicia that the issuer of a CVR should be able to meet any future
payment obligations to shareholders of Event-Based, as well as Price-
Based, CVRs pursuant to the applicable CVR agreement.\21\
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\20\ See id.
\21\ See Notice, supra note 3, 87 FR at 66338.
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Prior to listing a CVR under the proposed rule, Nasdaq would issue
a circular as described in proposed Nasdaq Rule 5732(c) reminding its
members that because CVRs have certain unique characteristics investors
should be afforded an explanation of such special characteristics and
risks attendant to trading thereof, as well as the Exchange's know-
your-customer, suitability, and other rules applicable thereto.\22\
Nasdaq will suggest to its members that transactions in CVRs be
recommended only to investors whose accounts have been approved for
[[Page 7768]]
options trading or whom the member firm has otherwise ascertained that
CVRs are suitable for.\23\ In its proposal, Nasdaq stated that like
other financial products with unique features trading on the Exchange,
CVRs combine features of debt, equity, and securities derivative
instruments.\24\ Consequently, Nasdaq states this product may be more
complex than straight stock, bond, or equity warrants and that the
distribution of the information circular will help to alert members to
the special disclosure and suitability obligations that apply to CVRs
and that are relevant to making recommendation for investors in
CVRs.\25\
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\22\ See id.; Nasdaq Proposed Rule 5732(c).
\23\ See Notice, supra note 3, 87 FR at 66338.
\24\ See id.
\25\ See Notice, supra note 3, 87 FR at 66338.
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Prior to listing a Contingent Value Right, Nasdaq will require that
all material terms of the Contingent Value Right be publicly
disclosed.\26\ While listed, the issuer of an Event-Based CVR will be
required to make public disclosure: (i) upon the occurrence of any
event that must occur as a condition to the issuer's obligation to make
a cash payment with respect to the CVR (or if such an event is deemed
to have occurred pursuant to the terms of the documents governing the
CVR); or (ii) at any such time as it becomes clear that a condition to
the cash payment with respect to the CVR has not been met as required
by the documents governing the terms of the CVR.\27\
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\26\ See Amendment No. 1, supra note 5, at 3.
\27\ See Nasdaq Rule IM-5250-1. Disclosure of Material
Information, among other things, requires Nasdaq companies to notify
Nasdaq's MarketWatch Department prior to the distribution of certain
material news at least 10 minutes prior to public announcement of
the news when the public release of the information is made from
7:00 a.m. to 8:00 p.m. ET. Trading halts are instituted, among other
reasons, to ensure that material information is fairly and
adequately disseminated to the investing public and the marketplace,
and to provide investors with the opportunity to evaluate the
information in making investment decisions. See also Notice, supra
note 3, 87 FR at 66338,
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Nasdaq will delist a CVR pursuant to the provisions of the Listing
Rule 5800 Series if the CVR fails to maintain any of the following: (1)
at least 100,000 Publicly Held Shares; (2) at least 100 Holders; or (3)
at least $1 million Market Value of Publicly Held Shares.\28\ In
addition, Nasdaq will promptly delist any CVR if the issuer's common
stock, the equity security to whose price performance a Price-Based CVR
is linked, or the primary equity security to which an Event-Based CVR
is linked, ceases to be listed on a national securities exchange.\29\
Also, Nasdaq will delist an Event-Based CVR once the occurrence of the
specified event or events related to the business of the issuer or an
affiliate of the issuer has occurred or once it goes beyond the time
that the specified event or events should have occurred.\30\
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\28\ See Notice, supra note 3, 87 FR at 66338; Nasdaq Proposed
Rule 5732(d); Amendment No. 1, supra note 5, at 3.
\29\ See Amendment No. 1, supra note 5, at 3-4.
\30\ See id.
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The Exchange will rely on its existing trading surveillances,
administered by the Exchange, or the Financial Industry Regulatory
Authority (``FINRA'') on behalf of the Exchange, which are designed to
detect violations of Exchange rules and applicable federal securities
laws.\31\ The Exchange will monitor activity in CVRs to identify and
deter any potential improper trading activity in such securities and
monitor CVRs alongside the common equity securities of the issuer or
its affiliates, as applicable.\32\ In addition, the Exchange will adopt
enhanced surveillance procedures if necessary.\33\ In addition, if the
underlying security is listed and traded on another U.S. national
securities exchange, Nasdaq will communicate as needed and may obtain
information regarding trading from markets and other entities that are
members of Intermarket Surveillance Group.\34\
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\31\ See Notice, supra note 3, 87 FR at 66338.
\32\ See id.
\33\ See id.
\34\ See Notice, supra note 3, 87 FR at 66338, n. 8 and
accompanying text.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\35\ In particular, the
Commission finds that the proposed rule change, as modified by
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\36\
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.
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\35\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\36\ 15 U.S.C. 78f(b)(5).
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The development and enforcement of adequate standards governing the
initial and continued listing of securities on an exchange is an
activity of critical importance to financial markets and the investing
public. Listing standards, among other things, serve as a means for an
exchange to screen issuers and to provide listed status only to bona
fide companies that have or will have sufficient public float, investor
base, and trading interest to provide the depth and liquidity necessary
to promote fair and orderly markets. Meaningful listing standards are
especially important given the expectations of investors regarding the
nature of securities that have achieved an exchange listing and the
role of an exchange in overseeing and assuring compliance with its
listing standards. 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.
For the reasons discussed below, the Commission believes that the
Exchange's proposed listing standards, as modified by Amendment No. 1,
are consistent with the Act and in particular with Section 6(b)(5). The
Exchange, as described above, has proposed to adopt listing standards
for Price-Based CVRs and Event-Based CVRs on NASDAQ Global Market. CVRs
are typically used as consideration offered to the shareholders of the
target company in a business combination transaction, such as a merger
or an exchange offer. As the Commission has previously stated CVRs have
unique characteristics that combine features of debt, equity and
securities derivatives instruments.\37\ The Commission believes that
the Exchange's proposal to establish listing criteria for CVRs should
adequately address the unique concerns raised by the listing of such
securities and should help to ensure that only substantial companies
capable of meeting their financial obligations can list such CVRs on
the Exchange, thereby protecting investors and the public interest
consistent with the Act. The proposal, as modified by Amendment No. 1,
should also, consistent with the Act, aid the Exchange in maintaining
fair and orderly markets for CVRs and
[[Page 7769]]
preventing fraudulent and manipulative acts and practices.
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\37\ See Securities Exchange Act Release No. 86651 (August 13,
2019), 84 FR 42967 (August 19, 2019) (SR-NYSE-2019-14) (order
approving the listing of Event-Based CVRs on the Exchange); See also
Securities Exchange Act Release No. 28072 (May 30, 1990), 55 FR
23166 (June 6, 1990) (SR-NYSE-90-15) (order approving original
listing standards for CVRs (Priced-Based) on the Exchange).
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The Commission believes the Exchange's proposed quantitative
listing standards should help to ensure that only substantial companies
capable of meeting their financial obligations issue CVRs. This is
important in light of the contingent financial obligations created by
these instruments, and should serve to protect investors and the public
interest by ensuring that the companies listing Price-Based CVRs and
Event-Based CVRs are of substantial size, which can help to indicate
such companies have sufficient financial means to meet their settlement
obligations. Specifically, an issuer of a CVR must (1) have assets in
excess of $100 million, (2) must satisfy Rule 5315(f)(3)(A) or have at
least $200,000,000 in global market capitalization, (3) must satisfy
the Market Value of Unrestricted Publicly Held Shares requirement of
Rule 5315(f)(2)(A) and (B) requiring (i) a Market Value of at least
$110 million; or (ii) a Market Value of at least $100 million, if the
Company has stockholders' equity of at least $110 million.\38\
Furthermore, the CVR issue must have a minimum of 400 holders; a
minimum of 1 million CVRs outstanding; a minimum of $4 million market
value; a minimum life of one year; and a minimum $4.00 bid price. The
Commission believes these distribution and liquidity standards
applicable to CVRs can help to ensure adequate depth, liquidity, and
investor interest to support an exchange listing. The Commission also
believes the issuer requirements will provide some minimum level of
indicia that the issuer of a CVR should be able to meet any future
payment obligations to shareholders of CVRs pursuant to the applicable
CVR agreement. Furthermore, the proposed listing standards are
substantially similar to the CVR listing standards on New York Stock
Exchange (``NYSE).\39\
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\38\ See note 17-18, supra, and accompanying text.
\39\ See Section 703.18 of the NYSE Listed Company Manual. See
also Securities Exchange Act Release No. 85812 (May 9, 2019), 84 FR
21861 (May 15, 2019) (SR-NYSE-2019-14) (Notice of Filing of proposed
rule change to permit the listing of Event-Based CVRs on the
Exchange).
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In addition, in order to list a CVR, an issuer of the CVR must not
be considered non-compliant with the listing standards of the national
securities exchange where either: (i) the equity security to whose
price performance a Price-Based CVR is linked or the issuer's common
stock is listed, or (ii) in an Event-Based CVR where the primary equity
security is linked or the issuer's common stock is listed.\40\ The
Commission believes that this requirement protects investors and the
public interest in accordance with Section 6(b)(5) of the Act in that
it would not permit a CVR to be listed on the Exchange if the listed
company is below compliance with listing standards, and therefore
potentially subject to delisting, on the national securities exchange
where its common stock, or equity security linked to the CVR, was
listed.
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\40\ See Amendment No. 1, supra note 5, at 3. The issuer of a
CVR also has to comply with the corporate governance requirements of
the national securities exchange where its common stock or equity
security linked to the CVR is listed. An issuer of a CVR may not be
below compliance with these corporate governance standards, as well
as the quantitative continued listing standards, for its common
stock or equity security on the national securities exchange where
such security is listed at the time of the listing of the CVR. This
should provide additional protections for investors in both Event-
Based and Price-Based CVRs.
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Once listed, Nasdaq will delist a CVR pursuant to the provisions of
the Listing Rule 5800 Series if the CVR fails to maintain any of the
following: (1) at least 100,000 Publicly Held Shares; (2) at least 100
Holders; or (3) at least $1 million Market Value of Publicly Held
Shares. In addition, Nasdaq will promptly delist any CVR if the
issuer's common stock, the equity security to whose price performance a
Price-Based CVR is linked, or the primary equity security to which an
Event-Based CVR is linked, ceases to be listed on a national securities
exchange.\41\ Additionally, Nasdaq would delist an Event-Based CVR once
the occurrence of the specified event or events related to the business
of the issuer or an affiliate of the issuer has occurred or once it
goes beyond the time that the specified event or events should have
occurred. The Commission believes the proposed delisting standards,
which are also substantially similar to those of NYSE,\42\ provide some
indicia of a minimum level of liquidity for continued listing of CVRs.
Further, the requirement that Price-Based CVRs and Event-Based CVRs be
promptly delisted if either the common stock of the issuer of the CVR
or the related linked equity security ceases to be listed on a national
securities exchange is consistent with investor protection and the
public interest in that it helps to ensure that the issuer of the CVR
is meeting the continued quantitative and qualitative listing standards
of a national securities exchange on an ongoing basis while the CVR is
trading on the Exchange. These additional requirements for delisting
also will protect investors by helping to maintain fair and orderly
markets by ensuring that a CVR will not remain listed when the common
stock of the issuer or any linked equity security to a CVR is delisted.
For similar reasons, the requirement to delist an Event-Based CVR, when
the event has occurred or the time period for the event or events has
passed will also further investor protection and fair and orderly
markets since any payout on the CVR should be conditioned on such
events.
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\41\ See Amendment No. 1, supra note 5, at 3-4.
\42\ See Section 703.18 of the NYSE Listed Company Manual.
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In addition, the proposed rule change would require that, prior to
listing a Price-Based or Event-Based CVR, an issuer be required to
publicly disclose all material terms of the CVR.\43\ The proposed rule
change would also require the issuer of an Event-Based CVR to make
public disclosure, in accordance with the provisions of Rule 5250(b)
and IM-5250-1, upon the occurrence of any event that must occur as a
condition to the issuer's obligation to make a cash payment with
respect to the CVR (or if such an event is deemed to have occurred
pursuant to the terms of the documents governing the CVR) or at any
such time as it becomes clear that a condition to the cash payment with
respect to the CVR has not been met as required by the documents
governing the terms of the CVR.\44\ The Commission believes that these
disclosure requirements should help to protect investors and the public
interest by ensuring that investors have sufficient information to make
investment decisions relating to CVRs. The Commission further believes
that the requirement to publicly disclose whether a specified event has
occurred or failed to occur should help to protect investors and
prevent fraudulent manipulative acts and practices by ensuring that
investors and market participants will have access to important
information needed to trade, and make investment decisions in, the CVRs
and that such information will be publicly available to all investors
at the same time.\45\ Notification to the Exchange, in accordance with
the requirements of Nasdaq Rule 5250(b) and Nasdaq Rule IM-5250-1, will
also provide the Exchange with the information necessary for it to
determine whether a temporary trading halt may be appropriate for an
Event-
[[Page 7770]]
Based or Price-Based CVR in order to ensure fair and orderly
markets.\46\
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\43\ See Amendment No. 1, supra note 5, at 3.
\44\ See Notice, supra note 3, 87 FR at 66338; Nasdaq Proposed
Rule 5732(b).
\45\ Nasdaq Rule 5250 requires listed companies to disclose any
material information that would reasonably be expected to affect the
value of its securities or influence investor decisions.
\46\ Notifications of material news to the Exchange at least 10
minutes prior to its release to the public when the information is
released between 7:00 a.m. to 8:00 p.m. ET allows Nasdaq to
determine if a trading halt is necessary in accordance with Nasdaq
Rule IM-5250-1. As stated by Nasdaq, trading halts ``ensure that
material information is fairly and adequately disseminated to the
investing public and the marketplace, and to provide investors with
the opportunity to evaluate the information in making an investment
decision.'' See Notice, supra note 3, 87 FR at 66338 n. 7.
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Under the Exchange's proposal, as described above, Event-Based CVRs
must be based upon the occurrence of a specified event or events
related to the business of the issuer or an affiliate of the issuer.
The Commission believes that requiring an Event-Based CVR to be related
to the business of the issuer or an affiliate of the issuer is an
essential requirement that will help to ensure that the company will
have the information necessary to determine if the required events have
occurred or not occurred within any required time frames under the
terms of the CVR and make timely required public disclosure.\47\
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\47\ The Commission notes that under the Exchange's rules,
Priced-Based CVRs are similarly related to the performance of an
affiliate's equity security.
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The Exchange's proposed rule for listing CVRs also addresses the
additional regulatory concerns raised by these products. Like other
financial products with unique features trading on the Exchange, as
noted above, CVRs combine features of debt, equity, and securities
derivative instruments. As a result, this product may be more complex
than straight stock, bond, or equity warrants. The Exchange has
proposed to distribute an information circular apprising member firms
of the special characteristics, risks, and suitability obligations
associated with CVRs.\48\ The Commission believes distribution of this
information circular will help to alert members to the special
characteristics, risks, disclosure and suitability obligations that
apply to CVRs and the attendant requirements of members when making
recommendations to investors to purchase CVRs.\49\
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\48\ See Nasdaq Proposed Rule 5732(c).
\49\ For example, the circular states, among other things, that
it is suggested that transactions in CVRs be recommended only to
investors whose accounts have been approved for options trading and
that members recommending transactions in CVRs should have a
reasonable basis for believing, at the time of making the
recommendation, that the customer has such knowledge and experience
in financial matters that the customer may reasonably be expected to
be capable of evaluating the risks and special characteristics, and
is financially able to bear the risks, of a recommendation to invest
in CVRs. See id.
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The Exchange has represented that it will also monitor activity in
CVRs to identify and deter any potential improper trading activity in
such securities and will monitor CVRs alongside the common equity
securities of the issuer or its affiliates, as applicable.\50\ The
Exchange states it will adopt enhanced surveillance procedures to do so
if necessary.\51\ Since news and information concerning a company and
the linked equity security and issuer's common stock can have an impact
on the company's CVRs, this surveillance should help to monitor the
trading activity in the CVRs. To the extent the common equity security
is traded on another national securities exchange, these procedures are
expected to ensure proper coordination.\52\ The Commission believes
that these safeguards and standards should help to ensure that the
listing, and continued listing, of any CVRs on the Exchange will be
consistent with investor protection, the public interest, and the
maintenance of fair and orderly markets. In this regard, the Commission
expects the Exchange to thoroughly review any potential listing of
Price-Based and Event-Based CVRs to ensure that its listing standards
have been met and continue to be met, as well as to monitor trading in
the Event-Based and Price-Based CVRs and related common stock or equity
security of the issuer.
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\50\ As noted above, the Exchange will rely on its existing
trading surveillances, administered by the Exchange, or the FINRA on
behalf of the Exchange, which are designed to detect violations of
Exchange rules and applicable federal securities laws. See Note 31,
supra.
\51\ See Notice, supra note 3, 87 FR at 66338.
\52\ See Note 34, supra, and accompanying text.
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Based on the above, the Commission believes the proposed rule
change, as modified by Amendment no. 1, is reasonable and should
provide for the listing of CVRs with baseline investor protection and
other standards. The Commission believes, as discussed above, that the
Exchange has developed sufficient standards to allow the listing of
both Price-Based CVRs and Event Based CVRs on the Exchange and finds
the proposal consistent with the requirements set forth under the Act,
and in particular, Section 6(b)(5).
IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to submit written data, views, and
arguments concerning whether Amendment No. 1 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-2022-057 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-2022-057. 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 the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2022-057, and should be submitted
on or before February 27, 2023.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the thirtieth day
after the date of publication of notice of the filing of Amendment No.
1 in the Federal Register. As discussed above, in Amendment No. 1, the
Exchange revised the proposal to clarify that: (1) the Exchange will
require the public
[[Page 7771]]
disclosure of all the material terms of the CVR before listing the CVR;
(2) under the CVR Continued Listing Standards of Proposed Rule
5732(d)(3), the $1 million market value threshold requirement refers to
Publicly Held Shares; (3) to initially list a CVR under Proposed Rule
5732(a)(4), the issuer's common stock must be compliant with the
listing standards of the national securities exchange upon which the
common stock is listed, irrespective of whether listing a Price-Based
or Event-Based CVR; and (4) in Proposed Rule 5732(d)(4), for Event-
Based CVRs, the primary equity security to which the Event-Based CVR is
linked and the issuer's common stock must remain listed.
The Commission believes that Amendment No. 1 does not raise any
novel regulatory issues from the original proposal, which was subject
to a full notice and comment period during which no comments were
received. Rather, Amendment No. 1 strengthens the original proposal by
requiring the material terms of the CVR to be publicly disclosed prior
to the Exchange listing of a CVR which will increase transparency to
investors in CVRs and potential investors seeking to make an informed
investment decision. In addition, the change to the continued listing
standards to require the market value standard to include only Publicly
Held Shares strengthens the requirements for continued listing in the
original proposal and can help in ensuring adequate liquidity for
continued listing of CVRs. Finally, the changes in Amendment No. 1
applicable to Nasdaq Proposed Rules 5732(a)(4) and (d)(4) provide
additional specificity and clarity regarding the circumstances in which
the Exchange would list and delist a CVR, which will provide additional
protections for potential investors and current investors in CVRs.
Accordingly, the Commission finds good cause, pursuant to Section
19(b)(2) of the Act,\53\ to approve the proposed rule change, as
modified by Amendment No. 1, on an accelerated basis.
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\53\ 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. 1, is consistent with the 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
Act,\54\ that the proposed rule change (SR-NASDAQ-2022-57), as modified
by Amendment No. 1, be, and hereby is, approved.
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\54\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\55\
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\55\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-02357 Filed 2-3-23; 8:45 am]
BILLING CODE 8011-01-P