[Federal Register Volume 89, Number 61 (Thursday, March 28, 2024)]
[Notices]
[Pages 21629-21636]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06579]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99846; File No. SR-NASDAQ-2023-022]


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 Nos. 2 and 
3, To Create a New, Non-Trading Limited Underwriter Membership Class 
and Impose Related Requirements for Principal Underwriting Activity

March 22, 2024.

I. Introduction

    On July 12, 2023, 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 create a new, non-trading limited underwriter 
membership class and impose related requirements for principal 
underwriting activity in connection with a company applying for initial 
listing on the exchange with a transaction involving an underwriter. 
The proposed rule change was published for comment in the Federal 
Register on July 31, 2023.\3\
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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. 97985 (July 25, 
2023), 88 FR 49508 (``Notice'').
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    On September 12, 2023, pursuant to section 19(b)(2) of the Act,\4\ 
the Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\5\ On September 29, 2023, the Commission instituted proceedings 
under section 19(b)(2)(B) of the Act \6\ to determine whether to 
approve or disapprove the proposed rule change.\7\ On September 29, 
2023, the Exchange filed Amendment No. 1 to the proposed rule change, 
which amended and replaced the proposed rule change in its entirety.\8\ 
On January 22, 2024, the Exchange filed Amendment No. 2 to the proposed 
rule change which amended and replaced the proposed rule change, as 
modified by Amendment No. 1, in its entirety.\9\ On January 26, 2024, 
the Commission extended the time period for approving or disapproving 
the proposal to March 27, 2024.\10\ The proposed rule change, as 
modified by Amendment No. 2, was published for comment in the Federal 
Register on February 23, 2024.\11\ On March 18, 2024, the Exchange 
filed Amendment No. 3 to the proposed rule change.\12\ The Commission 
has received no comment letters on the proposed rule change. The 
Commission is publishing this notice to solicit comments on Amendment 
No. 3 from interested persons and is approving the proposed rule 
change, as modified by Amendment Nos. 2 and 3, on an accelerated basis.
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 98366, 88 FR 63999 
(Sept. 18, 2023). The Commission designated October 29, 2023, as the 
date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to approve or disapprove, 
the proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 98606, 88 FR 68894 
(Oct. 4, 2023).
    \8\ Amendment No. 1 is available at https://www.sec.goc/comments/sr-nasdaq-2023-022/srnasdaq2023022-267740-644342.pdf 
(``Amendment No. 1''). In Amendment No. 1, the Exchange, among other 
things: (i) removed a proposed exemption from registration for 
certain investment banking representatives associated solely with 
Limited Underwriting Members; (ii) removed proposed rule language 
from proposed General 3, Section 1032(a), which provided that any 
person shall be eligible to become associated persons of a Limited 
Underwriting Member; (iii) removed General 4 from the list of rules 
applicable to Limited Underwriting Members in proposed General 3, 
Section 1031(c)(1); and (iv) revised proposed General 3, Section 
1031(c)(2) to clarify that associated persons of Limited 
Underwriting Members shall at all times be properly qualified and 
registered under the Financial Industry Regulatory Authority 
(``FINRA'') rules. Further, the Exchange provided additional reasons 
it is not proposing to apply certain existing rules to Limited 
Underwriting Members.
    \9\ Amendment No. 2 is available at https://www.sec.goc/comments/sr-nasdaq-2023-022/srnasdaq2023022-414859-982462.pdf. In 
Amendment No. 2, the Exchange, among other things: (i) updated the 
numbering in Listing Rule 5210 to account for recently added rule 
language and a related reference to Listing Rule 5210 in proposed 
General 3, Section 1031(b); (ii) excluded General 3, Section 1032 
from the rules the Exchange proposes to apply to Limited 
Underwriting Members (see infra note 14 and accompanying text) under 
proposed General 3, Section 1031(c)(1); (iii) added General 9, 
Section 21 to the rules the Exchange proposes to apply to Limited 
Underwriting Members under proposed General 3, Section 1031(c)(1); 
(iv) updated Equity 7, Section 10 to reflect a recent change in the 
membership fee; and (v) added a statutory basis for the imposition 
of fees. Amendment No. 2 superseded Amendment No. 1, so the changes 
made in Amendment No. 1, unless otherwise amended, are incorporated 
into Amendment No. 2. See supra note 8.
    \10\ See Securities Exchange Act Release No. 99433, 89 FR 6559 
(Feb. 1, 2024).
    \11\ See Securities Exchange Act Release No. 99557 (Feb. 16, 
2024), 89 FR 13779 (``Amendment No. 2'').
    \12\ Amendment No. 3 is available at https://www.sec.gov/comments/sr-nasdaq-2023-022/srnasdaq2023022-447779-1145462.pdf 
(``Amendment No. 3''). In Amendment No. 3, the Exchange modified the 
proposal by: (i) adding back proposed rule language from the 
original proposal to General 3, Section 1031(a)(2) about eligibility 
to become an associated person and modifying the title of General 3, 
Section 1031(a) to reflect that change; (ii) adding back language 
from the original proposal to include General 4 (Registration 
Requirements), which includes registration, qualification, and 
continuing education requirements, to the list of rules applicable 
to Limited Underwriting Members in General 3, Section 1031(c)(1); 
and (iii) excluding General 5, Rule 9400 from the list of rules 
applicable to Limited Underwriting Members in General 3, Section 
1031(c)(1) for the reasons described below. Amendment No. 3 also 
updated the purpose section to reflect the changes described above, 
made other clarifying changes, and added a statutory basis 
explanation for consistency with section 6(b)(2) of the Act.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
Nos. 2 and 3

    The Exchange is proposing to amend its rules to create a new 
limited membership class for underwriters that are FINRA members 
seeking only to serve as a principal underwriter for a company applying 
to list on the Exchange (and not seeking access to transact on the 
Exchange) and require a company applying for initial listing in 
connection with a transaction involving an underwriter to have a 
principal underwriter that is a Member \13\ or a broker or dealer 
admitted to limited underwriting membership in the Exchange (``Limited 
Underwriting Member'').\14\ The Exchange states that

[[Page 21630]]

underwriters play a critical role as gatekeepers to the capital markets 
in connection with the trading of newly issued securities and that it 
relies on underwriters to select the selling syndicate and ensure that 
the shares are placed in a way that is reasonably designed to allow 
liquid trading, consistent with Nasdaq's listing requirements, and the 
successful introduction of the company to the market place.\15\ 
According to the Exchange, notwithstanding the important role of 
underwriters, it does not currently require underwriters of companies 
that are going public on the Exchange to be Members of the Exchange, 
and as such, does not have authority to require responses to 
investigative inquiries or to enforce its rules directly against non-
Member underwriters.\16\ The Exchange states that this proposal would 
provide the Exchange with authority to directly obtain information from 
Limited Underwriting Members,\17\ whether pre- or post-initial public 
offering.\18\ The Exchange states that by creating a new, limited 
underwriting membership class, it will provide firms seeking only to 
perform principal underwriting activity on the Exchange (and not 
seeking access to trade via the Nasdaq Market Center) \19\ with the 
option of selecting a membership that is less burdensome (i.e., to 
become a Limited Underwriting Member rather than a Member).\20\
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    \13\ The Exchange defines the term ``member'' or ``Nasdaq 
Member'' (hereinafter referred to as ``Member'') to mean any 
registered broker or dealer that has been admitted to membership in 
the Exchange. See Nasdaq General 1, Section 1(b)(11). See also 
Nasdaq Listing Rule 5005(a)(24) (defining ``Member'' to mean a 
broker or dealer admitted to membership in Nasdaq).
    \14\ See infra note 23. The Exchange states that ``principal 
underwriter'' will have the same definition used in Rule 405 
promulgated under the Securities Act of 1933 (``Securities Act''), 
which is an underwriter in privity of contract with the issuer of 
the securities as to which he is underwriter, and that such 
definition provides that the term ``issuer'' in the definition of 
``principal underwriter'' has the meaning given in Sections 2(4) and 
2(11) of the Securities Act. 17 CFR 230.405. The Exchange states it 
proposes to apply the proposed requirements to a principal 
underwriter because the definition of principal underwriter points 
to the lead underwriter, who is generally responsible for organizing 
the offering, including tasks such as determining allocation of 
shares and the offering price, in conjunction with the issuer. 
Although offerings may require more than one underwriter, or a group 
of underwriters known as an underwriting syndicate, the Exchange 
proposes to focus on the lead underwriters given the substantial 
role they typically play in the offering process. See Amendment No. 
2, supra note 11, at 13780 n.11.
    \15\ See Amendment No. 2, supra note 11, at 13780. The Exchange 
states that it highlighted the important role of underwriters as 
gatekeepers in the initial public offering (``IPO'') process and the 
applicability of market rules and the federal securities laws in its 
recent Equity Regulatory Alert (``Nasdaq Alert''), available at 
https://www.nasdaqtrader.com/MicroNews.aspx?id=ERA2022-9. In the 
Nasdaq Alert, among other things, the Exchange highlighted that 
``Nasdaq members, as well as members of other self-regulatory 
organizations, that underwrite IPOs, and that play other roles in 
the offering process, should expect heightened focus when an IPO 
experiences unusual price movements.'' See also https://www.nyse.com/publicdocs/nyse/markets/nyse/rule-interpretations/2022/NYSER_Reg_Memo_-_Regulatory_Scrutiny_in_Connection_with_IPOs_(2022.11.17_final).pdf; 
https://www.finra.org/rules-guidance/notices/22-25 (similar 
regulatory alerts issued by the New York Stock Exchange and FINRA, 
respectively).
    \16\ See Amendment No. 2, supra note 11, at 13781. The Exchange 
states, however, that it has broad discretionary authority over the 
initial and continued listing of securities in the Exchange and over 
its Members in order to maintain the quality of and public 
confidence in its market, to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of 
trade, and to protect investors and the public interest. According 
to the Exchange, it may request information from companies that are 
going public on the Exchange and from Members who are permitted to 
trade on the Exchange, who are required to respond to those 
requests. The Exchange also states it may request information from 
non-Members, including non-Member underwriters, but they are not 
required to respond to these requests. See id. at 13781 n.17.
    \17\ See infra note 23 and accompanying text.
    \18\ See Amendment No. 2, supra note 11, at 13781 n.17. The 
Exchange explains in its proposal that in the fall of 2022 it 
observed, immediately following the pricing of certain IPOs on the 
Exchange, instances of unusually high price spikes immediately 
followed by dramatic price declines to at or below the offering 
price. This occurred mostly with respect to small cap companies with 
offerings of less than $25 million. According to the Exchange, these 
extreme spikes may occur ``in the opening trade on an exchange or in 
continuous trading on the day of, or days immediately following the 
listing.'' Id. at 13780.
    \19\ The Exchange defines ``Nasdaq Market Center'' to mean the 
automated system for order execution and trade reporting owned and 
operated by Nasdaq. See Nasdaq Equity 1, Section 1(a)(3).
    \20\ The Exchange submitted a revised Membership Application as 
Exhibit 3, in which the Exchange proposes to add a category for 
Limited Underwriting Members and clarify that Limited Underwriting 
Members are not subject to the requirement to provide an NSCC 
account number.
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    The Exchange proposes to amend several of its rules in conjunction 
with the adoption of the new limited underwriting membership class. 
First, the Exchange proposes to amend its Listing Rule 5210 
(Prerequisites for Applying to List on the Nasdaq Stock Market) to 
impose a requirement that each company applying for initial listing in 
connection with a transaction involving an underwriter have a principal 
underwriter that is a Member or Limited Underwriting Member.\21\ In 
proposed Listing Rule 5210(m), the Exchange will also specify that 
``principal underwriter'' shall have the same definition used in Rule 
405 promulgated under the Securities Act.\22\ Second, the Exchange 
proposes to add a definition of ``Limited Underwriting Member'' to 
General 1 (General Provisions), Section 1 to mean a broker or dealer 
admitted to limited underwriting membership in Nasdaq.\23\ Third, as 
discussed in more detail below, the Exchange also proposes to add a 
new, limited underwriting membership rule, proposed Section 1031 to 
General 3 (Membership and Access), within which, the Exchange proposes 
to set forth the rules that will be applicable to Limited Underwriting 
Members and their associated persons, the requirements for persons 
eligible to become Limited Underwriting Members, and rules on Limited 
Underwriting Member access to the Exchange.\24\ Finally, the Exchange 
proposes to amend Equity 7, Section 10 to exempt Limited Underwriting 
Members from being assessed a trading rights fee.\25\ The Exchange 
states that Limited Underwriting Members would not be eligible to trade 
on the Exchange, and accordingly, the Exchange proposes to add language 
to Equity 7, Section 10(a) to specify that Limited Underwriting Members 
would not be charged the monthly trading rights fee.\26\ Under the 
proposal, Limited Underwriting Members would be subject to a $2,000 
application fee (per Equity 7, Section 10(b)) and a $4,000 yearly 
membership fee (per Equity 7, Section 10(a)).\27\
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    \21\ See Amendment No. 2, supra note 11, at 13781. The Exchange 
states that this rule would cross reference the definition of 
``Limited Underwriting Member'' in General 1, Section 1. The 
Exchange further states that this proposed rule change primarily 
impacts membership rules and other non-listing rules, which would 
apply to the underwriters themselves. See id.
    \22\ See id.
    \23\ See id. at 13781-82.
    \24\ See id.
    \25\ See id. at 13782-83. Specifically, the Exchange proposes to 
exempt Limited Underwriting Members from the trading rights fee of 
$1,250 per month that is charged to Members. See id.
    \26\ See id.
    \27\ See id. These are the application and yearly membership 
fees that currently apply to Members.
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    Specifically, as to proposed General 3, Section 1031 requirements 
on eligibility for membership, the Exchange proposes to state in 
General 3, Section 1031(a)(1) that any registered broker or dealer 
shall be eligible for limited underwriting membership in the Exchange, 
except such registered brokers or dealers as are excluded under General 
3, Rule 1002(b) and in General 3, Section 1031(a)(2) that any person 
shall be eligible to become an associated persons of a Limited 
Underwriting Member, except such persons as are excluded under General 
3, Rule 1002(b).\28\ The Exchange states that proposed General 3, 
Section 1031(a) is consistent with the existing rules for persons 
eligible to become Members and associated persons of Members in General 
3, Rule 1002(a).\29\ Further, under the proposal to be eligible for 
membership, Limited Underwriting

[[Page 21631]]

Members shall at all times be members of FINRA and associated persons 
of Limited Underwriting Members shall at all times be properly 
qualified and registered under FINRA rules.\30\
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    \28\ See id.; Amendment No. 3, supra note 12, at 3-4 and 7-8. 
According to the Exchange, General 3, Rule 1002(b) provides, in 
relevant part, that subject to certain exceptions, no registered 
broker or dealer shall be admitted to membership, and no Member 
shall be continued in membership, if such broker, dealer, or Member 
fails or ceases to satisfy the qualification requirements 
established by the Exchange rules, or if such broker, dealer, or 
Member is or becomes subject to a statutory disqualification, or if 
such broker, dealer, or Member fails to file such forms as may be 
required in accordance with such process as the Exchange may 
prescribe. See id. at 13781 n.20; Amendment No. 3, supra note 12, at 
3-4 and 7-8.
    \29\ See Amendment No. 3, supra note 12, at 8.
    \30\ See Amendment No. 2, supra note 11, at 13782. According to 
the Exchange, Limited Underwriting Members would be eligible to 
waive-in to Exchange membership, as provided for in General 3, 
Section 1013(b). Prospective Limited Underwriting Members would need 
to submit a membership application in which they would select 
``Waive-In Membership'' for the application type and ``Limited 
Underwriting Member of NQX'' for the nature of intended activity. 
For ``waive-in'' applicants, the Exchange states it relies 
substantially upon FINRA's determination to approve the applicant 
for FINRA membership when the Exchange evaluates the applicant for 
Exchange membership. See id. at 13782 n.23.
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    Proposed General 3, Section 1031(b) will also provide that (i) a 
limited underwriting membership provides no rights to transact on the 
Exchange and (ii) a limited underwriting membership is solely to allow 
a firm that is not otherwise a Member to serve as a principal 
underwriter for a company seeking to list on the Exchange, as set forth 
in proposed Listing Rule 5210(m).\31\ Proposed General 3, Section 
1031(c)(1) also states that, for purposes of interpreting and applying 
the rules applicable to Limited Underwriting Members (as described 
below), references to ``Member,'' ``Members,'' or ``membership'' shall 
be functionally equivalent to ``Limited Underwriting Member,'' 
``Limited Underwriting Members,'' or ``limited underwriting 
membership,'' respectively.\32\
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    \31\ See id. Proposed Listing Rule 5210(m) applies to companies 
seeking to initially list on the Exchange in connection with a 
transaction involving an underwriter. See also supra notes 21-22 and 
accompanying text.
    \32\ See Amendment No. 2, supra note 11, at 13782.
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    The Exchange proposes to apply a limited ruleset to its newly 
proposed limited underwriting membership class.\33\ Specifically, the 
Exchange proposes to provide in new General 3, Section 1031(c)(1) that 
Limited Underwriting Members and their associated persons are subject 
only to the following rules: \34\ General 1 (General Provisions); 
General 2 (Organization and Administration), with the exception of 
Sections 6(a) and 22; General 3 (Membership and Access), with the 
exception of Section 1032; General 4 (Registration Requirements); 
General 5 (Discipline), with the exception of Rules 8211, 9400, and 
9557; General 9 (Regulation), Sections 1, 20, and 21; and Equity 7, 
Section 10 (Pricing Schedule, Membership Fees).\35\ The Exchange states 
that it proposes to apply only those rules it deems appropriate to a 
firm serving as a principal underwriter, including those rules it deems 
critical to such firms.\36\ The Exchange further states that a firm 
registering as a Limited Underwriting Member on the Exchange would 
remain subject to all applicable rules of the Commission and any other 
self-regulatory organization (``SRO'') of which it is a member, 
including the FINRA.\37\
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    \33\ See id. at 13781. The Exchange states that Members, unlike 
Limited Underwriting Members, are subject to all of the Exchange's 
rules (which includes the limited ruleset applicable to the newly 
proposed limited underwriting membership class). See id. at 13781 
n.21.
    \34\ There are multiple sections and rules under the various 
``General Rules'' numerical provisions. References to ``rules'' 
herein generally include all the sections and rules within the 
applicable General numerical provisions that would apply to Limited 
Underwriter Members with the exceptions noted.
    \35\ See id. at 13781; Amendment No. 3, supra note 12, at 4-5.
    \36\ See Amendment No. 2, supra note 11, at 13781.
    \37\ See id.
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    In its proposal, the Exchange set forth its reasons for including 
the specified rules in General 3, Section 1031(c)(1) that apply to 
Limited Underwriting Members. As to its proposal to apply General 1 to 
Limited Underwriting Members and their associated persons,\38\ the 
Exchange states that General 1 provides defined terms that would be 
applicable to Limited Underwriting Members and will also add a 
definition of ``Limited Underwriting Member'' to General 1.\39\ The 
Exchange also proposes to apply General 2 (with the exception of 
Sections 6(a) and 22) to Limited Underwriting Members and their 
associated persons.\40\ The Exchange states that the rules in General 2 
relate to organization and administration including requirements 
surrounding fees, limitations on affiliations, and a requirement for an 
executive representative, among other obligations.\41\ The Exchange 
proposes to specifically exclude General 2, Sections 6(a) and Section 
22, as General 2, Section 6(a) states that General Equity and Options 
Rules and Equity Rules shall apply to all members and persons 
associated with a member, which, according to the Exchange, is not 
accurate in the case of Limited Underwriting Members, and General 2, 
Section 22 relates to sponsored participants \42\ and client access to 
the Nasdaq Market Center via a Member, which, according to the 
Exchange, is not applicable to underwriting activity.\43\
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    \38\ See id. at 13782.
    \39\ See id.
    \40\ See id.
    \41\ See id.
    \42\ See Nasdaq General 2, Section 22.
    \43\ See Amendment No. 2, supra note 11, at 13782.
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    The Exchange also proposes to subject Limited Underwriting Members 
and their associated persons to General 3 with the exception of Section 
1032.\44\ The Exchange states that General 3 contains membership rules, 
including an obligation to follow specified procedures for applying to 
be a member, making changes to membership, or terminating 
membership.\45\ In addition, the Exchange states that General 4 
specifies registration, qualification, and continuing education 
requirements, including requirements for persons engaged in the 
securities business of a Member, and proposed to apply General 4 to 
Limited Underwriting Members and their associated persons.\46\ The 
Exchange states these requirements apply in the same manner as such 
registration, qualification, and continuing education requirements that 
apply to current Members.\47\ Limited Underwriting Members and their 
associated persons would also be subject to FINRA's registration and 
qualification rules, including, for example, requirements regarding 
relevant examinations for underwriting (Series 79, Investment Banking, 
IB) and supervision of underwriting (Series 79 plus Series 24, 
Investment Banking Principal).\48\
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    \44\ The proposed rule change would also add new Section 1031 to 
General 3, as described above, that is applicable to limited 
underwriting memberships. See supra note 24 and accompanying text. 
The Exchange states that it proposes to specifically exclude General 
3, Section 1032 because such section includes requirements related 
to Nasdaq Market Center Participant registration, which, according 
to the Exchange, is inapplicable to Limited Underwriting Members 
because they are not permitted to transact on the Nasdaq Market 
Center. See Amendment No. 2, supra note 11, at 13782.
    \45\ See Amendment No. 2, supra note 11, at 13781.
    \46\ See Amendment No. 3, supra note 12, at 4-5 and 9-10.
    \47\ See id. at 10.
    \48\ See Amendment No. 2, supra note 11, at 13783. See also 
FINRA Rules 1210 (Registration Requirements) and 1220 (Registration 
Categories).
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    Limited Underwriting Members and their associated persons would 
also have to comply with General 5 (with the exception of Rules 8211, 
9400, and 9557), which, according to the Exchange, is critical to 
subject Limited Underwriting Members to, as it contains the Exchange's 
disciplinary rules.\49\ In particular, the Exchange notes General 5, 
Rule 8210 that provides the Exchange with authority to require 
information

[[Page 21632]]

from its Members.\50\ The Exchange is proposing to specifically exclude 
General 5, Rules 8211, 9400, and 9557, which the Exchange represents 
are not relevant to underwriting activity because these rules relate, 
respectively, to trading data, expedited client suspension proceedings 
for violations of General 9, Section 53 (concerning disruptive quoting 
and trading), and FINRA carrying or clearing members.\51\ The Exchange 
also states that the excluded rules from General 5 are inapplicable to 
Limited Underwriting Members because such members are not permitted to 
transact on the Exchange.\52\
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    \49\ See Amendment No. 2, supra note 11, at 13783. According to 
the Exchange, General 5, Rule 8001 provides that the Exchange and 
FINRA are parties to the FINRA Regulatory Contract (often referred 
to as a Regulatory Services Agreement (``RSA'')) pursuant to which 
FINRA has agreed to perform certain functions described in the 
Exchange's rules on behalf of the Exchange. The Exchange does not 
anticipate that the proposed rule change would have any material 
impact on the current RSA. See id. at 13782 n.22.
    \50\ See id. at 13782. Nasdaq General 5, Rule 8210 states 
information must be provided by a member or persons associated with 
a member or subject to Nasdaq's jurisdiction ``[f]or the purpose of 
an investigation, complaint, examination or proceeding authorized by 
the Nasdaq By-Laws or Rules, Nasdaq Regulation Department, including 
FINRA staff.'' Nasdaq General 5, Rule 8210(a).
    \51\ See id. at 13782; Amendment No. 3, supra note 12, at 10-11.
    \52\ See Amendment No. 3, supra note 12, at 11.
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    Further, the Exchange proposes to subject Limited Underwriting 
Members and their associated persons to General 9, Sections 1, 20, and 
21.\53\ The Exchange states that it believes it is important to subject 
Limited Underwriting Members to General 9, Section 1, which includes 
general standards by which Members must abide, including the 
requirement to observe just and equitable principles of trade.\54\ The 
Exchange further states that General 9, Sections 20 and 21 require 
Members to establish and maintain a system to supervise the activities 
of each registered representative and associated person that is 
reasonably designed to achieve compliance with applicable securities 
laws and regulations and with applicable Nasdaq rules, to identify 
principals who must establish, maintain, and enforce a system of 
supervisory control policies and procedures that, among other things, 
test that the member's supervisory procedures are reasonably designed 
with respect to the activities of the member and its associated 
persons, and to achieve compliance with applicable securities laws and 
regulations, and with applicable Nasdaq rules.\55\ The Exchange states 
its belief that it is important to apply these provisions on 
supervision, as it would provide the Exchange with authority to assess 
whether a Limited Underwriting Member has an adequate supervisory 
system and written supervisory procedures in place.\56\ The Exchange 
states that it does not propose to apply other sections of General 9, 
except for Sections 1, 20, and 21, to Limited Underwriting Members at 
this time.\57\ The Exchange states that although it acknowledges 
certain other sections of General 9 could be applied to underwriters, 
it is targeting limited inclusion of rules that it deems critical.\58\ 
Finally, the Exchange proposes to include Equity 7, Section 10 in 
General 3, Section 1031(c)(1).\59\ The Exchange states that Equity 7, 
Section 10 includes the membership and application fees applicable to 
Limited Underwriting Members.\60\
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    \53\ See Amendment No. 2, supra note 11, at 13782.
    \54\ See id.
    \55\ See id.
    \56\ See id.
    \57\ See id.
    \58\ See id. The Exchange further states that many of the 
standards in General 9 are FINRA rules that are incorporated by 
reference into the Exchange's rules; therefore, Limited Underwriting 
Members would be subject to such FINRA rules by virtue of their 
FINRA membership. See id. See, e.g., Nasdaq General 9, Section 30 
(incorporating by reference FINRA Rule 4511).
    \59\ See Amendment No. 2, supra note 11, at 13782.
    \60\ See id. The Exchange acknowledges that there are 
additional, existing rules that it could propose to apply to Limited 
Underwriting Members but it is proposing to apply only a narrow 
ruleset, as it does not intend to create comprehensive rules to 
regulate underwriting activity. See id. at 13781-82.
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    The Exchange states that it proposes to avoid applying all those 
Exchange rules not specified in proposed General 3, Section 1031(c)(1) 
to Limited Underwriting Members in an effort to impose minimal burden 
on Limited Underwriting Members, while still allowing the Exchange to 
have regulatory authority over such Members.\61\ The Exchange states 
that the Exchange rules that Limited Underwriting Members would not be 
subject to under the proposal primarily relate to trading activity and 
are, therefore, not relevant to the activities of Limited Underwriting 
Members.\62\ The Exchange states that it proposes to apply a limited 
ruleset, primarily to provide the Exchange with the authority to 
require information directly from the Limited Underwriting Members and 
enhance its tools for oversight with respect to the role the 
underwriter plays in connection with a company listing on the 
Exchange.\63\
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    \61\ See id. at 13782.
    \62\ See id.
    \63\ See id. at 13781. The Exchange represents that it will 
consider whether additional existing rules that are not proposed in 
the limited ruleset for Limited Underwriting Members or new rules 
are warranted as the Exchange gains more experience in applying the 
rules proposed. See id. at 13781-82.
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    The Exchange, in addition to the excluded rules described above, 
has not proposed to apply the following rules to Limited Underwriting 
Members at this time: General 6; General 7; General 8; Equity Rules 
(with the exception of Equity 7, Section 10); and Options Rules.\64\ 
Specifically, the Exchange states that General 6 relates generally to 
FINRA arbitration rules to which the Limited Underwriting Members would 
be subject to directly by virtue of their FINRA membership and that the 
Exchange does not propose to apply General 7 to Limited Underwriting 
Members because it governs consolidated audit trail compliance and 
would not apply to underwriting activity.\65\ The Exchange also states 
that General 8 governs connectivity to the Exchange and would not be 
relevant to Limited Underwriting Members given their lack of access to 
trade on the Exchange, and similarly, the Equities Rules and the 
Options Rules are generally not relevant to the activities of Limited 
Underwriting Members due to their lack of access to trade on the 
Exchange.\66\
---------------------------------------------------------------------------

    \64\ See id. at 13783.
    \65\ See id.
    \66\ See id. The Exchange states that although Limited 
Underwriting Members could access the Exchange via other means, such 
as trading through another Member, Limited Underwriting Members 
would have no direct access to trade on the Exchange. See id.
---------------------------------------------------------------------------

    Finally, the Exchange is proposing to make the proposed rule change 
described herein operative 60 days after publication of the 
Commission's approval order of SR-NASDAQ-2023-022 in the Federal 
Register, as this delay will allow time for firms involved with 
upcoming IPOs to become Limited Underwriting Members, if they choose, 
and for companies planning IPOs to select alternative underwriters if 
their current firm is not, and does not intend to become, a Member or 
Limited Underwriting Member.\67\
---------------------------------------------------------------------------

    \67\ See id.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment Nos. 2 and 3, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\68\ Specifically, the 
Commission finds that the proposed rule change, as modified by 
Amendment Nos. 2 and 3, is consistent with section 6 of the Act. In 
particular, the Commission finds that the proposal, as modified by 
Amendment Nos. 2 and 3, is consistent with section 6(b)(5) \69\ of the 
Act, which requires, among other

[[Page 21633]]

things, that the Exchange's rules be designed to prevent fraudulent and 
manipulative acts and practices, promote just and equitable principles 
of trade, 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 and brokers, or 
dealers.\70\ Further, the Commission finds that the proposed rule 
change, as amended, is consistent with (i) section 6(b)(1) of the 
Act,\71\ which requires, among other things, that a national securities 
exchange be able to comply and enforce compliance by its members and 
persons associated with its members, with the provisions of the Act, 
the rules and regulation thereunder, and the rules of the exchange, 
(ii) section 6(b)(2) of the Act \72\ which requires that exchange rules 
provide that any registered broker or dealer or natural person 
associated with a registered broker or dealer may become a member of 
such exchange and any person may become associated with a member 
thereof, and (iii) sections 6(b)(6) \73\ and 6(b)(7) \74\ of the Act, 
which require, among other things, that a national securities exchange 
provide appropriate discipline for violations of the Act, rules and 
regulations thereunder and exchange rules and fair procedures for the 
disciplining of members and persons associated with its members and the 
prohibition or limitation by the exchange of any person with respect to 
access to services offered by the exchange or a member thereof.\75\
---------------------------------------------------------------------------

    \68\ In approving this proposed rule change, as modified by 
Amendment Nos. 2 and 3, the Commission has considered the proposed 
rule change's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \69\ 15 U.S.C. 78f(b)(5).
    \70\ See id. In addition, the Commission finds that the proposed 
rule change as to the applicable fees is consistent with section 
6(b)(4) of the Act that requires the Exchange's rules to provide for 
the equitable allocation of reasonable dues, fees, and other charges 
among its members and issuers and other persons using its 
facilities. 15 U.S.C. 78f(b)(4).
    \71\ 15 U.S.C. 78f(b)(1).
    \72\ 15 U.S.C. 78f(b)(2).
    \73\ 15 U.S.C. 78f(b)(6).
    \74\ 15 U.S.C. 78f(b)(7).
    \75\ The Commission previously found that the provisions on 
Nasdaq Member voting for the Exchange Board of Directors ``including 
that twenty percent of the directors be `Member Representative 
Directors' and the means by which they are elected by members 
provides for the fair representation of members in the selection of 
directors and the administration of the Exchange consistent with the 
requirement of section 6(b)(3) of the Act.'' See Securities Exchange 
Act Release No. 53128 (Jan. 13, 2006), 71 FR 3550, 3553 (Jan. 23, 
2006) (Commission order approving Nasdaq for registration as a 
national securities exchange) (``Nasdaq Exchange Registration 
Order''). The By-Laws of Nasdaq apply to Limited Underwriting 
Members as they do to current Members. See, e.g., Nasdaq By-Laws 
Article 1(t) (defining ``Nasdaq Member'' as ``any registered broker 
or dealer that has been admitted to membership in the national 
security exchange operated by the Company''). Limited Underwriting 
Members would therefore also have the right to nominate, and vote 
for, candidates for election as Member Representative Directors 
under the By-Laws, as do current Members. See id. Article II (Annual 
Election of Member Representative Directors and Other Actions by 
Nasdaq Members). Given that the existing By-Law provisions apply 
equally to Limited Underwriting Members, the proposal is similarly 
consistent with section 6(b)(3) of the Act.
---------------------------------------------------------------------------

    The proposal, as modified by Amendment Nos. 2 and 3, amends the 
rules of the Exchange to provide for a new limited underwriting 
membership class and would require companies applying to initially list 
on the Exchange in connection with a transaction involving an 
underwriter to use a principal underwriter that is either a Member or 
Limited Underwriting Member of the Exchange.\76\ The Exchange has 
proposed to add Section 1031 to General 3 (Membership and Access) that 
sets forth the requirements applicable to Limited Underwriting Members 
including certain limitations on Limited Underwriting Members.\77\ In 
particular, a limited underwriting membership provides no rights to 
trade on the Exchange and such limited underwriting membership is 
solely for the purpose of allowing a firm that is not otherwise a 
Member to serve as a principal underwriter for a company seeking to 
initially list on the Exchange.\78\ A Limited Underwriting Member is 
defined to mean a broker or dealer admitted to limiting underwriting 
membership in the Exchange.\79\ As described above, similar to the 
existing eligibility requirements for Members and their associated 
persons, General 3, Section 1031(a) provides that any registered broker 
or dealer is eligible for a limited underwriting membership and any 
person shall be eligible to become an associated person of a Limited 
Underwriting Member, except for those registered broker or dealers or 
persons that are excluded under General 3, Rule 1002(b).\80\ These 
provisions on eligibility are consistent with the Act, including 
section 6(b)(2) of the Act, which requires the rules of an exchange to 
provide that any registered broker or dealer or natural person 
associated with a broker or dealer may become a member of such exchange 
or associated with a member thereof subject to the provisions of 
section 6(c) of the Act.\81\
---------------------------------------------------------------------------

    \76\ See supra notes 13 and 14 and accompanying text.
    \77\ See supra note 24.
    \78\ See supra note 31.
    \79\ See supra note 23.
    \80\ See supra note 28.
    \81\ 15 U.S.C. 78f(b)(2) and 15 U.S.C. 78f(c).
---------------------------------------------------------------------------

    In its proposal, as modified by Amendment Nos. 2 and 3, the 
Exchange seeks to apply certain of its rules as set forth in General 1 
through General 9 to Limited Underwriting Members while excluding the 
application of others.\82\ The Exchange seeks to apply only specific 
rules to Limited Underwriter Members that fall under areas related to 
general provision definitions and standards, organization and 
administration, membership and access, registration requirements, 
discipline, regulation, and membership fees.\83\ As stated by the 
Exchange, it proposes to apply only those rules it believes are 
appropriate to a firm serving as a principal underwriter, and will, 
among other things, provide the Exchange with authority to require 
information from such underwriters thereby aiding in its oversight of 
its market and helping to ensure fair and orderly markets.\84\ The 
Exchange has also stated that firms registering as a Limited 
Underwriting Members would still be subject to all applicable rules of 
the Commission and any other SRO of which it is a member, including 
FINRA.\85\
---------------------------------------------------------------------------

    \82\ See proposed Nasdaq General 3, Section 1031(c)(1).
    \83\ See supra notes 33-35.
    \84\ See supra note 63.
    \85\ See supra note 37. Proposed General 3, Section 1031(c)(2) 
would require a Limited Underwriting Member to, at all times, be a 
member of FINRA. See supra note 30.
---------------------------------------------------------------------------

    Specifically, among others, the Exchange has proposed to apply 
General 1 to Limited Underwriting Members because it contains defined 
terms and standards that currently apply to Members that are equally 
applicable to Limited Underwriting Members as well.\86\ The Exchange 
also proposes to subject Limited Underwriting Members to General 2 
(with the exception of sections 6(a) and 22) because it relates to 
organization and administration including, among others, limitations on 
affiliations \87\ and requirements to have an exchange 
representative.\88\ The Exchange is applying General 3 (with the 
exception of Section 1032 that applies to members who trade on Nasdaq's 
Market Center) because

[[Page 21634]]

General 3 contains membership rules, including an obligation to follow 
specified procedures for applying to be a member, making changes to 
membership, or terminating membership.\89\
---------------------------------------------------------------------------

    \86\ See supra notes 38-39 and accompanying text.
    \87\ General 2, Section 4 states that no member or person 
associated with a member shall be the beneficial owner of greater 
than twenty percent (20%) of the then-outstanding voting securities 
of the Nasdaq Stock Market, Inc. The Commission previously has 
stated that ownership and voting restrictions are consistent with 
the Act and that these ownership limitations should minimize the 
potential that a person could improperly interfere with or restrict 
the ability of the Commission or the Exchange to effectively carry 
out their regulatory oversight responsibilities under the Act. See 
Nasdaq Exchange Registration Order, supra note 75, at 3551-52. For 
the same reasons, the Commission believes it is appropriate to apply 
General 2, Section 4 to the limited underwriting membership class.
    \88\ See supra notes 40-41 and accompanying text.
    \89\ See supra notes 44-45.
---------------------------------------------------------------------------

    General 4, which includes registration, qualification, and 
continuing education requirements for Members and persons engaged in 
the securities business of a Member, would also apply to Limited 
Underwriting Members and their associated persons.\90\ General 4 would 
apply in the same manner as it applies to current Members and their 
associated persons.\91\ Under the proposal, Limited Underwriting 
Members must at all times be members of FINRA and their associated 
persons shall at all times be properly qualified and registered under 
FINRA rules.\92\ Associated persons of Limited Underwriting Members 
would therefore also be subject to FINRA's registration and 
qualification requirements that includes examination requirements for 
persons involved in underwriting and supervision of underwriting as 
well as FINRA continuing education requirements.\93\
---------------------------------------------------------------------------

    \90\ See supra note 46.
    \91\ See Amendment No. 3, supra note 12, at 10.
    \92\ See proposed General 3, Section 1031(c).
    \93\ See supra note 48 and accompanying text.
---------------------------------------------------------------------------

    The Exchange has additionally proposed to subject Limited 
Underwriting Members to General 5 which contains the Exchange's 
disciplinary rules,\94\ with the exception of Rules 8211 (submission of 
trading data), 9400 (expedited client suspension proceedings for 
violations of General 9, Section 53 concerning disruptive quoting and 
trading activity), and 9557 (procedures for regulating activities on 
FINRA carrying and clearing members).\95\ General 5, Rule 8210 
provides, among other things, the Exchange with authority to require 
information from Exchange Members, persons associated with Exchange 
Members, and persons subject to the Exchange's jurisdiction for ``the 
purpose of an investigation, complaint, examination or proceeding 
authorized by the Nasdaq By-Laws or Rules, Nasdaq Regulation Department 
including FINRA staff.'' \96\ General 5, Rule 9000 Series also 
provides, among other things, the process and procedural requirements 
for review of disciplinary matters including the opportunity for a 
hearing.
---------------------------------------------------------------------------

    \94\ See supra notes 49-52.
    \95\ See supra note 51.
    \96\ See supra note 50. In its filing, the Exchange states that 
while it may request information from non-Members, including non-
Member underwriters, they are not required to respond to these 
requests unlike companies going public on the Exchange and Members. 
See supra note 16 and accompanying text.
---------------------------------------------------------------------------

    The disciplinary rules that will be applicable to Limited 
Underwriting Members and their associated persons (with the exception 
of Rules 8211, 9400, and 9557 that are not relevant to the new 
membership type as described above) \97\ are the same as those that 
apply to existing Members of the Exchange and associated persons of 
such Members. The Commission previously found that the Exchange's 
disciplinary rules are consistent with the requirements of sections 
6(b)(6) and 6(b)(7) of the Act in that they provide a fair procedure 
for the disciplining of members and persons associated with 
members.\98\ For similar reasons, the Commission believes that, 
consistent with the requirements of sections 6(b)(6) and 6(b)(7),\99\ 
the Exchange's disciplinary rules and procedures should provide a fair 
procedure for the disciplining of Limited Underwriting Members and 
persons associated with such members, and for prohibiting or limiting 
access with respect to services offered by the Exchange. The Commission 
also believes for similar reasons as previously found, consistent with 
the requirements of section 6(b)(1) of the Act,\100\ that the proposed 
rules should provide the Exchange with the ability to enforce 
compliance as to Limited Underwriting Members and their associated 
persons with the provisions of the Act, the rules and regulations 
thereunder, and the rules of the Exchange.\101\
---------------------------------------------------------------------------

    \97\ See supra notes 49-52 and accompanying text.
    \98\ See Nasdaq Exchange Registration Order, supra note 75, at 
3558. Any changes to the disciplinary rules since the original 
approval would have had to be submitted to the Commission under 
section 19(b) of the Act and be consistent with the Act, in 
particular with Section 6.
    \99\ See 15 U.S.C. 78(b)(6) and (7).
    \100\ See 15 U.S.C. 78(b)(1).
    \101\ See Nasdaq Exchange Registration Order, supra note 75, at 
3558.
---------------------------------------------------------------------------

    The Exchange has also proposed to subject Limited Underwriting 
Members to General 9, Sections 1, 20, and 21. General 9, Section 1 
includes general standards by which Members must abide, such as 
requiring Members to observe high standards of commercial honor and 
just and equitable principles of trade. General 9, Section 20 requires 
Members to establish and maintain a system to supervise the activities 
of each registered representative and associated person. General 9, 
Section 21 requires, among other things, for Members to test that their 
supervisory procedures are reasonably designed to achieve compliance 
with applicable securities laws and regulations and applicable Exchange 
rules and requires an annual certification as to those procedures and 
processes.\102\ As the Exchange states, applying provisions related to 
supervision would provide the Exchange with authority to assess whether 
a Limited Underwriting Member has an adequate supervisory system and 
written supervisory procedures in place as to its activities.\103\ 
Further, applying standards of just and equitable principles of trade 
to Limited Underwriting Members is consistent with the requirements in 
section 6(b)(5) of the Act which states rules of the exchange must be 
designed to promote such principles.\104\
---------------------------------------------------------------------------

    \102\ See supra note 55. The Exchange's General 9, Sections 20 
and 21 incorporate by reference several FINRA rules on these 
matters. Although the Exchange acknowledges that certain other 
sections of General 9 could apply to underwriters, the Exchange 
states it has excluded the other rules in General 9 because it is 
targeting limited inclusion of the rules it deems critical. The 
Exchange further noted that many of the standards in General 9 are 
FINRA rules that are incorporated by reference into the Exchanges 
rules and therefore Limited Underwriting Members would be subject to 
such FINRA rules as a result of their FINRA membership. See supra 
note 58.
    \103\ See supra note 56.
    \104\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange has also proposed to exclude certain rules in addition 
to the ones discussed above.\105\ As the Exchange described in its 
proposal and above, many of the excluded rules are not relevant to 
underwriting activities of Limited Underwriting Members because these 
rules apply to those Members that have trading rights on the Exchange 
in Nasdaq's Market Center \106\ and Limited Underwriting Members would 
have no rights to directly transact on the Exchange.\107\ As to the 
exclusion of General 6, as the Exchanges states, these rules generally 
relate to FINRA arbitration rules and Limited Underwriting Member 
activities would be subject to such arbitration rules by virtue of 
being FINRA members.\108\
---------------------------------------------------------------------------

    \105\ See supra note 66 and accompanying text.
    \106\ See Nasdaq General 7 and General 8 (governing consolidated 
audit trail and connectivity requirements, respectively); Equity 
Rules and Options Rules (with the exception of Equity 7, Section 
10). See also supra notes 64-66 and accompanying text.
    \107\ See supra note 62. See also Amendment No. 2, supra note 
11, at 13784. Limited Underwriting Members could access the Exchange 
via other means, such as trading through another Member but have no 
direct access to trade on the Exchange. See supra note 66.
    \108\ See supra note 65.
---------------------------------------------------------------------------

    The Exchange states it is proposing a limited ruleset to apply the 
rules it believes are most critical, including providing the Exchange 
authority to require information directly from

[[Page 21635]]

Limited Underwriting Members, to enhance its oversight and deter 
potential violative conduct.\109\ The Commission believes that the 
application of only specific Exchange rules to Limited Underwriting 
Members and the exclusion of certain other rules, as proposed by the 
Exchange, are reasonable and strikes the appropriate balance between 
regulating Limited Underwriting Members and not imposing a burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act.\110\ The limited ruleset is consistent with the purpose of 
a limited underwriting membership that does not confer any access to 
trading on the Exchange and only permits such member to act as a 
principal underwriter for a company applying to initially list on the 
Exchange.\111\
---------------------------------------------------------------------------

    \109\ See supra note 63. See also Amendment No. 2, supra note 
11, at 13783. The Exchange represented that as it adopts new rules 
over time, it also would consider whether to apply such rules to 
Limited Underwriting Members. See supra note 63.
    \110\ 15 U.S.C. 78f(b)(8).
    \111\ See proposed General 3, Section 1031(b). The Exchange has 
represented that it would consider whether additional existing rules 
that are not proposed in the limited ruleset for Limited 
Underwriting Members or new rules are warranted as the Exchange 
gains more experience in applying the rules proposed. The Exchange 
acknowledged that there are other existing rules that it could 
propose to apply to the new class of limited underwriting 
membership, but stated it is only proposing a narrow rule set to 
enhance its oversight with respect to the role the underwriter plays 
in connection with a company listing on the Exchange. See supra note 
63.
---------------------------------------------------------------------------

    Further, as described above, in conjunction with the new limited 
underwriting membership class, proposed Listing Rule 5210(m) will 
require a company to use, as a prerequisite for applying for initial 
listing on the Exchange with an underwriter, a principal underwriter 
that is either a Member or Limited Underwriting Member. The Commission 
has previously stated that listing standards provide the means for an 
exchange to screen issuers that seek to become listed, and to provide 
listed status only to those that are bona fide companies with 
sufficient public float, investor base, and trading interest to provide 
the depth and liquidity necessary to promote fair and orderly 
markets.\112\ As the Exchange states, it relies on underwriters to 
ensure shares are placed in a way that is reasonably designed to allow 
liquid trading,\113\ and the proposal will allow it to require 
responses from underwriters that currently are not Members of the 
Exchange in response to investigative inquires.\114\ The requirement in 
Listing Rule 5210(m) can help to support the Exchange in determining a 
company's suitability for listing in order to, among other things, 
prevent fraudulent and manipulative acts and practices and maintain 
fair and orderly markets.
---------------------------------------------------------------------------

    \112\ See, e.g., Securities Exchange Act Release Nos. 95220 
(July 7, 2022), 87 FR 41780, 41785 (July 13, 2022) (SR-NASDAQ-2022-
027) (order approving direct listing with a capital raise); 86314 
(July 5, 2019), 84 FR 33102, 33110 (July 11, 2019) (SR-NASDAQ-2019-
009) (order approving revisions to initial listing standard 
calculations related to liquidity).
    \113\ See supra note 15. See also Securities Exchange Act 
Release No. 86314 (July 5, 2019) 84 FR 33102, 33111 (July 11, 2019) 
(stating that the proposal ``should allow the Exchange to more 
accurately determine whether a security has adequate distribution 
and liquidity and is thus suitable for listing and trading on the 
Exchange'').
    \114\ See supra notes 16-18.
---------------------------------------------------------------------------

    As described above, the proposal should provide greater 
transparency and certainty with respect to the ability of, and the 
manner in which, the Exchange is able to obtain information necessary 
to meet its regulatory obligations and ensure fair and orderly markets 
in connection with the listing of securities of a company applying for 
initial listing on the Exchange with a transaction involving an 
underwriter. Based on the above, the Commission finds that the proposed 
rule change is reasonably designed, consistent with section 6(b)(5) of 
the Act, among others, to prevent fraudulent and manipulative and 
practices, promote just and equitable principles of trade, and, in 
general, protect investors and the public interest.\115\
---------------------------------------------------------------------------

    \115\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Finally, as is described above, the Exchange has proposed to apply 
Equity 7, Section 10 to Limited Underwriting Members, as this section 
includes the membership and application fees applicable to Limited 
Underwriting Members.\116\ The Exchange has proposed to exempt Limited 
Underwriting Members from the trading rights fee of $1,250 per month 
that is normally charged to Members because such Limited Underwriting 
Members have no direct trading rights on the Exchange.\117\ Limited 
Underwriting Members would be subject to same $2,000 application fee 
(per Equity 7, Section 10(b)) and $4,000 yearly membership fee (per 
Equity 7, Section 10(a)) as other Members are currently charged.\118\ 
The Commission believes that the proposed fees applicable to Limited 
Underwriting Members, in addition to the exclusion of the member 
trading fee, is consistent with Section 6(b)(4) in that it provides for 
the equitable allocation of reasonable dues, fees, and other charges 
among its members.\119\
---------------------------------------------------------------------------

    \116\ See supra note 25.
    \117\ See supra notes 25-26.
    \118\ See supra note 27.
    \119\ 15 U.S.C. 78f(b)(4). The Exchange has also proposed to 
delay implementation of its proposal until sixty days after 
publication of the Commission's approval order of the filing 
discussed herein. See supra note 67. This appears to be reasonable 
to allow underwriters representing companies that have applied, or 
about to apply, to list to become a Limited Underwriting Member or 
Member if not already a Member or in the alternative allow a company 
to select an alternative underwriter if such underwriter firm 
chooses not to become a Limited Underwriting Member or Member.
---------------------------------------------------------------------------

    For the forgoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment Nos. 2 and 3, is consistent with 
the Act.

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 Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NASDAQ-2023-022 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-2023-022. 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 (https://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,

[[Page 21636]]

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. Do 
not include personal identifiable information in submissions; you 
should submit only information that you wish to make available 
publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection. 
All submissions should refer to file number SR-NASDAQ-2023-022 and 
should be submitted on or before April 18, 2024.

V. Accelerated Approval of the Proposed Rule Change, as Modified by 
Amendment Nos. 2 and 3

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment Nos. 2 and 3, prior to the thirtieth 
day after the date of publication of notice of the filing of Amendment 
Nos. 2 and 3 in the Federal Register. In Amendment No. 2, the Exchange 
amended the proposal to, among other things, (i) exclude Section 1032 
of General 3, a new provision, from the rules the Exchange proposes to 
apply to Limited Underwriting Members under General 3, Section 1031(c); 
(ii) add General 9, Section 21 to the rules the Exchange proposes to 
apply to Limited Underwriting Members under General 3, Section 1031(c); 
(iii) update existing rule language in Equity 7, Section 10 to reflect 
changes in current text; (iv) remove a proposed exemption from 
registration for certain banking representatives associated with 
Limited Underwriting Members; and (v) add language to General 3, 
Section 1031(c)(2) to clarify that associated persons of Limited 
Underwriting Members shall at all times be properly qualified and 
registered under FINRA rules.\120\ Amendment No. 2 also made some 
numbering updates, provided additional rationale for the inclusion and 
exclusion of certain rules, and provided additional language in the 
statutory basis.\121\ Amendment No. 2 was published for comment in the 
Federal Register and no comments were received.\122\
---------------------------------------------------------------------------

    \120\ See supra note 9.
    \121\ See id. Amendment No. 2 also removed proposed rule 
language from proposed General 3, Section 1032(a), which provided 
that any person shall be eligible to become an associated persons of 
a Limited Underwriting Member, and removed General 4 from the list 
of rules applicable to Limited Underwriting Members in proposed 
General 3, General 1031(c)(1). As discussed below, these provisions 
were put back into the proposal in Amendment No. 3. Additionally, 
some of the changes described in Amendment No. 2 were originally 
proposed in Amendment No. 1 but included in Amendment No. 2 since 
Amendment No. 2 superseded Amendment No. 1. See supra notes 8 and 
11.
    \122\ See supra note 11. The Commission notes that the full 21-
day comment period has already ended.
---------------------------------------------------------------------------

    In its Amendment No. 3, the Exchange added back proposed rule 
language to General 3, Section 1032(a)(2) that was in the original 
proposal about the eligibility of any person to become an associated 
person of a Limited Underwriting Member, except such persons as are 
excluded under General 3, Rule 1002(b).\123\ In Amendment No. 3, the 
Exchange also provided additional language on the consistency of 
General 3, Section 1032(a)(1) and (a)(2) with the requirements of 
section 6(b)(2) of the Act.\124\ In Amendment No. 3, the Exchange also 
amended the proposal to add General 4 (Registration Requirements) back 
into the list of rules that a Limited Underwriting Member and their 
associated persons must comply with, as originally proposed.\125\ The 
proposed rule language changes to the proposal, as described above, are 
identical to provisions that were in the original proposal and 
published for comment.\126\ No comments were received in response to 
that Notice. Amendment No. 3 also excluded General 5, Rule 9400 from 
the list of rules that Limited Underwriting Members must comply with 
because that rule relates to expedited procedures for certain trading 
activity and Limited Underwriting Members have no trading rights on the 
Exchange.\127\ Amendment No. 3 also provided updates and other 
clarifying changes to, and justification for, the proposed rule change 
in addition to adding the provisions described above.\128\
---------------------------------------------------------------------------

    \123\ See supra note 28.
    \124\ See Amendment No. 3, supra note 12, at 12-13.
    \125\ See supra notes 35 and 46.
    \126\ See Notice, supra note 3. As noted above, these provisions 
were removed from the proposal in Amendment No. 2. See Amendment No. 
2, supra note 11.
    \127\ See supra note 51.
    \128\ See Amendment No. 3, supra note 12.
---------------------------------------------------------------------------

    The Commission believes Amendment Nos. 2 and 3 will help to 
strengthen the Exchange proposal and support its consistency with the 
Act. Amendment Nos. 2 and 3 assist the Commission in evaluating the 
Exchange's proposal and in determining that it is consistent with the 
Act. Amendment Nos. 2 and 3 also have raised no new or novel issues. 
Accordingly, the Commission finds good cause, pursuant to section 
19(b)(2) of the Act,\129\ to approve the proposed rule change, as 
modified by Amendment Nos. 2 and 3, on an accelerated basis.
---------------------------------------------------------------------------

    \129\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\130\ that the proposed rule change (SR-NASDAQ-2023-022), as 
modified by Amendment Nos. 2 and 3, be, and hereby is, approved on an 
accelerated basis.
---------------------------------------------------------------------------

    \130\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\131\
---------------------------------------------------------------------------

    \131\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06579 Filed 3-27-24; 8:45 am]
BILLING CODE 8011-01-P