[Federal Register Volume 90, Number 51 (Tuesday, March 18, 2025)]
[Notices]
[Pages 12608-12611]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-04343]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102622; File No. SR-NASDAQ-2024-084)
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Amendment No. 1 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To
Modify Certain Initial Listing Liquidity Requirements
March 12, 2025
I. Introduction
On December 12, 2024, The Nasdaq Stock Market LLC (``Nasdaq'')
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
modify Listing Rules 5405 and 5505 to (1) require that a company
listing on the Nasdaq Global Market or Nasdaq Capital Market in
connection with an initial public offering (``IPO'') satisfy the
applicable minimum Market Value of Unrestricted Publicly Held Shares
requirement solely from the proceeds of the offering; and (2) make
similar changes affecting companies that uplist to Nasdaq Global Market
or Nasdaq Capital Market from the U.S. over-the-counter (``OTC'')
market in conjunction with a public offering. The proposed rule change
was published for comment in the Federal Register on December 30,
2024.\3\ On February 5, 2025, the Exchange filed Amendment No. 1 to the
proposed rule change, which superseded the original proposed rule
change in its entirety.\4\ On February 11, 2025, pursuant to Section
19(b)(2) of the Exchange Act,\5\ 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.\6\
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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. 101978 (Dec. 19,
2024), 89 FR 106717 (Dec. 30, 2024) (``Notice''). Comments on the
proposed rule change are available at: https://www.sec.gov/comments/sr-nasdaq-2024-084/srnasdaq2024084.htm.
\4\ The full text of Amendment No. 1 is available on the
Commission's website at: https://www.sec.gov/comments/sr-nasdaq-2024-084/srnasdaq2024084-565255-1620762.pdf (``Amendment No. 1'').
Amendment No. 1 makes minor changes to improve the clarity and
readability of the proposal and provides that the proposed changes
will become operative 30 days after approval by the Commission.
\5\ 15 U.S.C. 78s(b)(2).
\6\ See Securities Exchange Act Release No. 102389 (Feb. 11,
2025), 90 FR 9771 (Feb. 18, 2025) (designating March 30, 2025, as
the date by which the Commission shall either approve, disapprove,
or institute proceedings to determine whether to disapprove the
proposed rule change).
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The Commission is publishing this notice to solicit comments on the
proposed rule change, as modified by Amendment No. 1, and is approving
the proposed rule change, as modified by Amendment No. 1, on an
accelerated basis.
II. Description of the Proposed Rule Change, as Modified by Amendment
No. 1 7
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\7\ All capitalized terms not otherwise defined in this order
shall have the meanings set forth in the Nasdaq Listing Rules.
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Nasdaq Listing Rules require that a company applying for initial
listing on the Exchange must have a minimum Market Value of
Unrestricted Publicly Held Shares.\8\ For initial listing on the
[[Page 12609]]
Nasdaq Global Market, a company must have a minimum Market Value of
Unrestricted Publicly Held Shares of $8 million under the Income
Standard, $18 million under the Equity Standard, and $20 million under
either the Market Value or Total Assets/Total Revenue Standards.\9\ For
initial listing on the Nasdaq Capital Market, a company must have a
minimum Market Value of Unrestricted Publicly Held Shares of $5 million
under the Net Income Standard, and $15 million under either the Equity
or Market Value of Listed Securities Standards.\10\ In addition, to
qualify for initial listing on Nasdaq Global Market or Nasdaq Capital
Market, a company trading on the OTC market prior to listing must
currently satisfy either a minimum daily trading volume on the OTC
market of 2,000 shares over the past 30 trading days with trading
occurring in at least 50% of those days (the ``ADV Requirement'') or,
alternatively, list in connection with a firm commitment underwritten
public offering of at least $4 million.\11\
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\8\ Unrestricted Publicly Held Shares are shares that are not
held by an officer, director, or 10% shareholder of the company and
which are not subject to resale restrictions of any kind. See Nasdaq
Listing Rule 5005(a)(46). The Exchange states that, like other
liquidity requirements, the Market Value of Unrestricted Publicly
Held Shares standard is meant to ensure that there is sufficient
liquidity to provide price discovery and support an efficient and
orderly market for the company's securities. See Notice at 106718.
\9\ See Nasdaq Listing Rules 5405(b)(1)(C), 5405(b)(2)(C),
5405(b)(3)(B), and 5405(b)(4)(B).
\10\ See Nasdaq Listing Rules 5505(b)(1)(B), 5505(b)(2)(C), and
5505(b)(3)(C).
\11\ See Nasdaq Listing Rules 5405(a) and 5505(a). The Exchange
states that this alternative recognizes that where a company is
listing in connection with a significant firm commitment
underwritten public offering the liquidity characteristics of its
prior trading will change and reflect the offering, just like in an
IPO, and shares in the offering will be the primary source of
liquidity and price discovery upon listing. See Notice at 106718.
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The Exchange states that, in the case of a company listing in
conjunction with a public offering, previously issued shares registered
for resale (``Resale Shares''), and not held by an officer, director,
or 10% shareholder of the company, are counted as Unrestricted Publicly
Held Shares in addition to the shares being sold in an offering.\12\
The Exchange also states that it has observed that the companies that
meet the applicable Market Value of Unrestricted Publicly Held Shares
requirement through an IPO by including Resale Shares have experienced
higher volatility on the date of listing than those of similarly
situated companies that meet the requirement with only the proceeds
from the offering.\13\ According to the Exchange, the Resale Shares may
not contribute to liquidity to the same degree as the shares sold in
the public offering.\14\ The Exchange states that, as such, it is
appropriate to modify the rules to exclude the Resale Shares from the
calculation of Market Value of Unrestricted Publicly Held Shares for
the initial listing of companies listing in conjunction with an
IPO.\15\ The Exchange also states that it is appropriate to treat a
company that is uplisting from the OTC market while relying on the
alternative to the ADV Requirement (i.e., listing in connection with a
firm commitment underwritten public offering of a specified size) in a
similar manner because the liquidity in such listings is also expected
to be supported by the offering.\16\
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\12\ See Notice at 106718.
\13\ See id.
\14\ See id.
\15\ See id.
\16\ See id.
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First, the Exchange proposes to modify Nasdaq Listing Rules 5405(b)
and 5505(b) to provide that a company listing in connection with an
IPO, including through the issuance of American Depository Receipts,
must satisfy the applicable Market Value of Unrestricted Publicly Held
Shares requirement for each initial listing standard for primary equity
securities \17\ with the proceeds of that offering.
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\17\ See supra notes 9 and 10.
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Secondly, with respect to a company uplisting from the OTC market,
the Exchange proposes to modify the alternative to the ADV Requirement
in Nasdaq Listing Rules 5405(a)(4) and 5505(a)(5). As revised, a
company relying on this alternative will be required to satisfy the
applicable Market Value of Unrestricted Publicly Held Shares
requirement with only the proceeds from the offering. As a result, the
Exchange also proposes to modify Nasdaq Listing Rules 5405(a)(4) and
5505(a)(5) to increase the size of the required public offering for
this alternative to the ADV Requirement from $4 million to $5 million
for Nasdaq Capital Market applicants and $8 million for Nasdaq Global
Market applicants to align with the minimum Market Value of
Unrestricted Publicly Held Shares requirement for each market.\18\ If
the company qualifies under a standard other than the income standard,
the minimum raise instead will have to satisfy the Market Value of
Unrestricted Publicly Held Shares requirement of the applicable
standard.\19\
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\18\ See id.
\19\ Specifically, for a company listing on the Nasdaq Global
Market under the Equity Standard or the Market Value or Total
Assets/Total Revenue Standards, the required public offering size
will be at least $18 million and $20 million, respectively. See
Nasdaq Listing Rules 5405(b)(2)(C), 5405(b)(3)(B), and
5405(b)(4)(B). Similarly, for a company listing on the Nasdaq
Capital Market under the Equity Standard or the Market Value of
Listed Securities Standard, the required public offering size will
be at least $15 million. See Nasdaq Listing Rules 5505(b)(1)(B) and
5505(b)(2)(C).
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The Exchange states that the proposed changes will become operative
30 days after approval by the Commission.\20\
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\20\ See Amendment No. 1 at 7.
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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 Exchange Act and the rules and regulations
thereunder applicable to a national securities exchange.\21\ 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
Exchange Act,\22\ which requires, among other things, that the rules of
an 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 not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
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\21\ 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).
\22\ 15 U.S.C. 78f(b)(5).
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The development and enforcement of meaningful listing standards for
an exchange is of critical importance to financial markets and the
investing public. Among other things, such listing standards help
ensure that exchange-listed companies will have sufficient public
float, investor base, and trading interest to provide the depth and
liquidity to promote fair and orderly markets.\23\ Meaningful listing
standards also are important given investor expectations regarding the
nature of securities that have achieved an exchange listing, and the
role of an exchange in overseeing its market and assuring compliance
with its listing standards.\24\
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\23\ Adequate listing standards, by promoting fair and orderly
markets, are consistent with Section 6(b)(5) of the Exchange Act, in
that they are, among other things, designed to prevent fraudulent
and manipulative acts and practices, promote just and equitable
principles of trade, and protect investors and the public interest.
See, e.g., Securities Exchange Act Release No. 100816 (Aug. 26,
2024), 89 FR 70674, 70677 n.47 (Aug. 30, 2024) (SR-NASDAQ-2024-019).
\24\ See, e.g., Securities Exchange Act Release No. 86314 (July
5, 2019), 84 FR 33102 (July 11, 2019) (SR-NASDAQ-2019-009) (Order
Granting Accelerated Approval of a Proposed Rule Change, as Modified
by Amendment No. 3, To Revise the Exchange's Initial Listing
Standards Related to Liquidity). See also Securities Exchange Act
Release No. 81856 (Oct. 11, 2017), 82 FR 48296, 48298 (Oct. 17,
2017) (SR-NYSE-2017-31) (Notice of Filing of Amendment No. 1 and
Order Granting Accelerated Approval of a Proposed Rule Change, as
Modified by Amendment No. 1, To Amend the Listed Company Manual To
Adopt Initial and Continued Listing Standards for Subscription
Receipts) (stating that ``[a]dequate standards are especially
important given the expectations of investors regarding exchange
trading and the imprimatur of listing on a particular market'' and
that ``[o]nce a security has been approved for initial listing,
maintenance criteria allow an exchange to monitor the status and
trading characteristics of that issue . . . so that fair and orderly
markets can be maintained'').
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[[Page 12610]]
The Exchange has proposed to make more rigorous certain of its
initial listing standards for the Nasdaq Global Market and Nasdaq
Capital Market to help assure that an adequate level of liquidity
exists for securities that are listing on the Exchange for the first
time. Specifically, the Exchange proposes that a company listing in
connection with an IPO, including through the issuance of American
Depository Receipts, must satisfy the applicable minimum Market Value
of Unrestricted Publicly Held Shares requirement with only the proceeds
from the offering. The Exchange also proposes that a company uplisting
from the OTC market based on the minimum required size of its firm
commitment underwritten public offering, rather than the ADV
Requirement, must satisfy this requirement with only the proceeds from
that offering.
The Exchange's initial listing standards currently do not exclude
Resale Shares from the calculation of Market Value of Unrestricted
Publicly Held Shares. According to the Exchange, companies that list on
the Exchange for the first time through an IPO and meet the applicable
Market Value of Unrestricted Publicly Held Shares requirement by
relying on Resale Shares experience higher volatility than companies
that meet such requirement based on the proceeds of the offering and
Resale Shares may not contribute to liquidity of companies' securities
to the same extent as shares included in the public offering.\25\ The
Exchange also states that companies uplisting from the OTC market while
relying on the alternative to the ADV Requirement do so with the
expectation that liquidity of the companies' securities will be
supported by the offering.\26\
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\25\ See supra notes 14-15 and accompanying text.
\26\ See supra note 18 and accompanying text.
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The proposed amendments to exclude Resale Shares from the
calculation of these initial listing requirements pertaining to the
Market Value of Unrestricted Publicly Held Shares and, with respect to
a company uplisting from the OTC market, the size of a company's firm
commitment underwritten public offering should allow the Exchange to
better determine whether a security has adequate liquidity and thus is
suitable for listing and trading on the Exchange. Accordingly, the
amendments to the Exchange's initial listing standards should help to
ensure that the Exchange lists only securities with a sufficient
market, with adequate depth and liquidity, and with sufficient investor
interest to support an exchange listing.\27\
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\27\ The Commission received one comment letter that was
generally supportive of the proposal. See Letter from Damon D.
Testaverde, Chairman of Network 1 Financial Securities, Inc., dated
Jan. 21, 2025 (``Network 1 Letter''). This commenter also
recommended additional changes to the Exchange's listing standards
and raised other areas of concerns for the Commission's
consideration. See id. These additional recommendations are not
before the Commission in the proposal being considered herein. In
approving this proposal, the Commission is finding the proposal
before us consistent with the Exchange Act.
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For these reasons, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Exchange Act.
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 the proposed rule change, as modified by
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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-NASDAQ-2024-084 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-2024-084. 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,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 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-2024-084, and should
be submitted on or before April 8, 2025.
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. The changes in Amendment No. 1 provide
greater clarity to the proposal. These changes include (1) elaborating
on the relevant Market Value of Unrestricted Publicly Held Shares
requirements that a company uplisting from the OTC market to the Nasdaq
Global Market or Nasdaq Capital Market in connection with a public
offering will be subject to; and (2) clarifying, in the example
regarding companies that are subject to higher initial listing
standards than companies impacted by the proposed change, that the
example refers to a Direct Listing in which a company's security has
not had sustained recent trading in a Private Placement Market prior to
listing.\28\ This clarification and additional information assists the
Commission in evaluating the proposal and determining that the proposal
is consistent with the Act. Further, Amendment No. 1 does not modify
the operation or meaning of the proposed changes, which were published
for comment in the Federal Register.\29\ Accordingly, the Commission
finds good cause, pursuant to Section 19(b)(2) of the Act,\30\ to
approve the proposed rule change, as
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modified by Amendment No. 1, on an accelerated basis.
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\28\ See Amendment No. 1 at 7, 10.
\29\ See supra note 3.
\30\ 15 U.S.C. 78s(b)(2).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\31\ that the proposed rule change (SR-NASDAQ-2024-084),
as modified by Amendment No. 1, be, and it hereby is, approved on an
accelerated basis.
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\31\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-04343 Filed 3-17-25; 8:45 am]
BILLING CODE 8011-01-P