[Federal Register Volume 87, Number 235 (Thursday, December 8, 2022)]
[Notices]
[Pages 75305-75315]
[FR Doc No: 2022-26650]

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SECURITIES AND EXCHANGE COMMISSION

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

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

December 2, 2022.

I. Introduction

    On March 21, 2022, The Nasdaq Stock Market LLC (``Nasdaq'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to modify certain pricing
limitations for companies listing in connection with a direct listing
in which the company will sell shares itself in the opening auction on
the first day of trading on the Exchange. The proposed rule change was
published for comment in the Federal Register on April 8, 2022.\3\ On
May 19, 2022, pursuant to Section 19(b)(2) of the Exchange Act,\4\ the
Commission designated a longer period within which to either approve
the proposed rule change, disapprove the proposed rule change, or
institute proceedings to determine whether to disapprove the proposed
rule change.\5\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 94592 (Apr. 4,
2022), 87 FR 20905 (Apr. 8, 2022). Comments received on the proposal
are available on the Commission's website at: https://www.sec.gov/comments/sr-nasdaq-2022-027/srnasdaq2022027.htm.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 94947 (May 19,
2022), 87 FR 31915 (May 25, 2022). The Commission designated July 7,
2022, as the date by which it should approve, disapprove, or
institute proceedings to determine whether to disapprove the
proposed rule change.
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    On May 23, 2022, the Exchange filed Amendment No. 1 to the proposed
rule change, which superseded the proposed rule change as originally
filed. Amendment No. 1 was published for comment in the Federal
Register on June 2, 2022.\6\ On July 7, 2022, the Commission instituted
proceedings under Section 19(b)(2)(B) of the

Exchange Act \7\ to determine whether to approve or disapprove the
proposed rule change.\8\ On September 16, 2022, the Exchange filed
Amendment No. 2 to the proposed rule change, which superseded the
original filing, as modified by Amendment No. 1, in its entirety.\9\ On
September 27, 2022, the Commission extended the time period for
approving or disapproving the proposal to December 4, 2022.\10\ On
November 18, 2022, the Exchange filed Amendment No. 3 to the proposed
rule change, which superseded the original filing, as modified by
Amendment Nos. 1 and 2, in its entirety.\11\ The Commission is
publishing this notice to solicit comments on the proposed rule change,
as modified by Amendment No. 3, from interested persons and is
approving the proposed rule change, as modified by Amendment No. 3, on
an accelerated basis.
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    \6\ See Securities Exchange Act Release No. 94989 (May 26,
2022), 87 FR 33558 (June 2, 2022).
    \7\ 15 U.S.C. 78s(b)(2)(B).
    \8\ See Securities Exchange Act Release No. 95220 (July 7,
2022), 87 FR 41780 (July 13, 2022) (``OIP'').
    \9\ See Securities Exchange Act Release No. 95811 (Sept. 16,
2022), 87 FR 57951 (Sept. 22, 2022) (``Notice'').
    \10\ See Securities Exchange Act Release No. 95933 (Sept. 27,
2022), 87 FR 59844 (Oct. 3, 2022).
    \11\ Amendment No. 3 to the proposed rule change revised the
proposal to: (i) provide that the 20% threshold below and the 80%
threshold above the Price Range, as described below, will be
calculated based on the high end of the price range in the
registration statement at the time of effectiveness; (ii) clarify
that Nasdaq will make the determination that the security is ready
to trade, in consultation with the identified underwriter (rather
than the financial advisor to the issuer); (iii) clarify certain
conditions in proposed Rule 4120(c)(9)(B)(vii)(d); and (iv) make
minor technical changes to improve the clarity and readability of
the proposal. Amendment No. 3 to the proposed rule change is
available on the Commission's website at www.sec.gov/comments/sr-nasdaq-2022-027/srnasdaq2022027-20151099-319977.pdf (``Amendment No.
3'').
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II. Description of the Proposal, as Modified by Amendment No. 3

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

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

and, when an auction prices outside of the disclosed price range, use a
Securities Act Rule 424(b) prospectus, rather than a post-effective
amendment, when either: (i) the 20% threshold noted in the Instruction
to Securities Act Rule 430A is not exceeded, regardless of the
materiality or non-materiality of resulting changes to the registration
statement disclosure that would be contained in the Securities Act Rule
424(b) prospectus, or (ii) there is a deviation above the price range
beyond the 20% threshold noted in the Instruction to Securities Act
Rule 430A if such deviation would not materially change the previous
disclosure, in each case assuming the number of shares issued is not
increased from the number of shares disclosed in the prospectus.\36\
The Exchange states that, for purposes of this rule, the 20% threshold
and the 80% Upside Limit would be calculated based on the high end of
the price range in the registration statement at the time of
effectiveness.\37\
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    \33\ See Amendment No. 3, supra note 11, at 12.
    \34\ See Notice, supra note 9, 87 FR 57954. The Exchange states
that Securities Act Rule 457 permits issuers to register securities
either by specifying the quantity of shares registered, pursuant to
Rule 457(a), or the proposed maximum aggregate offering amount, and
the Exchange proposes to require that companies selling shares
through a Direct Listing with a Capital Raise will register
securities by specifying the quantity of shares registered and not a
maximum offering amount. See id. at 57953 n.23. The Exchange also
states that it believes that the proposed modification of the
Pricing Range Limitation is consistent with the protection of
investors, because, according to the Exchange, this approach is
similar to the pricing of an IPO where an issuer is permitted to
price outside of the disclosed price range in accordance with the
SEC Staff's guidance. See id. at 57958.
    \35\ See id. at 57954.
    \36\ See id.
    \37\ See Amendment No. 3, supra note 11, at 12-13.
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    The Exchange states that the burden of complying with the
disclosures required under federal securities laws, including providing
any disclosure necessary to avoid any material misstatements or
omissions, remains with the issuer.\38\ The Exchange further states
that, in that regard, the Post-Pricing Period (as defined below), which
is applicable in circumstances where the actual price calculated by the
Nasdaq Halt Cross is outside of the disclosed price range, provides the
company an opportunity, prior to the completion of the offering, to
provide any additional disclosures that are dependent on the price of
the offering, if any, or to determine and confirm to the Exchange that
no additional disclosures are required under federal securities laws
based on the actual price calculated by the Nasdaq Halt Cross.\39\
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    \38\ See Notice, supra note 9, 87 FR 57954. According to the
Exchange, the Commission previously stated that while Securities Act
Rule 430A permits companies to omit specified price-related
information from the prospectus included in the registration
statement at the time of effectiveness, and later file the omitted
information with the Commission as specified in the rule, it neither
prohibits a company from conducting a registered offering at prices
beyond those that would permit a company to provide pricing
information through a Securities Act Rule 424(b) prospectus
supplement nor absolves any company relying on the rule from any
liability for potentially misleading disclosure under the federal
securities laws. See id. (citing Securities Exchange Act Release No.
93119 (Sept. 24, 2021), 86 FR 54262 (Sept. 30, 2021)).
    \39\ See Notice, supra note 9, 87 FR 57954.
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    The Exchange states that an underwriter plays an important role in
a traditional IPO and, therefore, proposes to require that a company
listing securities on Nasdaq in connection with a Direct Listing with a
Capital Raise must retain an underwriter with respect to the primary
sales of shares by the company and identify the underwriter in its
effective registration statement.\40\ According to the Exchange, the
role and responsibilities of an underwriter provide significant
investor protections that are necessary in a Direct Listing with a
Capital Raise if an offering can price outside the disclosed price
range, subject to the proposed limitations, because they allow
investors to make reasonable pricing decisions with clarity that the
company's underwriter would face statutory liability.\41\ The Exchange
further states that the requirement to retain a named underwriter may
mitigate traceability concerns that may arise in a Direct Listing with
a Capital Raise.\42\ The Exchange states that, as in a traditional firm
commitment underwritten IPO, in which lock-up arrangements are often
imposed, an underwriter retained in connection with a Direct Listing
with a Capital Raise will be able to impose lock-up arrangements for
the same reasons that make lock up agreements common in an IPO.\43\
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    \40\ See id.
    \41\ See id. at 57955.
    \42\ See id.
    \43\ See id.
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    The Exchange also states that an underwriter retained in connection
with a Direct Listing with a Capital Raise will perform substantially
similar functions, including those related to establishing and
adjusting the price range, to those performed by an underwriter in a
``typical'' IPO because the underwriter will be subject to similar
liability and reputational risk.\44\ The Exchange states that, to
further mitigate concerns regarding the usefulness of price range
disclosure provided to investors, the Exchange proposes to require that
the securities of a company listing in connection with a Direct Listing
with a Capital Raise cannot price above the 80% Upside Limit in order
to incentivize the company and its underwriter to set the disclosed
price range to avoid the consequences of a failed offering.\45\ The
Exchange states that the 80% Upside Limit would also help assure that
an issuer would adjust the price range disclosed in its registration
statement prior to effectiveness in light of pricing feedback received
from market analysts and potential investors.\46\
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    \44\ See id.
    \45\ See id.
    \46\ See id. To determine an appropriate upside limit, the
Exchange states that it analyzed operating companies IPOs on the
Nasdaq Global Select Market and the NYSE for the past five years
where an IPO opened on an exchange at a price that is above the
highest price of the disclosed price range. This analysis indicated
that: some IPOs opened on an exchange at a price that was more than
100% above the highest price of the price range; more than half of
these IPOs opened at a price that was 30% or more above the highest
price of the price range; and about 90% of these IPOs opened at a
price that was no more than the 80% Upside Limit. See id.
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    The Exchange also proposes to adopt a new ``Price Volatility
Constraint'' (which has the meaning described below) and disseminate
information about whether the Price Volatility Constraint has been
satisfied, which will indicate whether the security may be ready to
trade.\47\ The Exchange states that prior to releasing a security for
trading, the Exchange allows a ``Pre-Launch Period'' of indeterminate
length, during which price discovery takes place.\48\ The ``Price
Volatility Constraint'' would require that the Current Reference Price
has not deviated by 10% or more from any Current Reference Price during
the Pre-Launch Period within the previous 10 minutes.\49\ The Pre-
Launch Period would continue until at least five minutes after the
Price Volatility Constraint has been satisfied.\50\ The Exchange states
that this change would provide investors with notice that the Nasdaq
Halt Cross nears execution and allow a period of at least five minutes
for investors to modify their orders, if needed, based on the Near
Execution Price, prior to the execution of the Nasdaq Halt Cross and
the pricing of the offering.\51\ The Exchange also states that to
assure that the Near Execution Price is a meaningful benchmark for
investors and that the offering price does not deviate substantially
from the Near Execution Price, the Exchange proposes to require that
the Nasdaq Halt Cross may execute only if the actual price calculated
by the Nasdaq Halt Cross is no more than 10% below or above the Near
Execution Price (the ``10% Price Collar''), in addition to the other
existing conditions stated in proposed Nasdaq Rule
4120(c)(9)(B)(vii).\52\
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    \47\ See id.
    \48\ See id.
    \49\ See id. See Nasdaq Rule 4753(a)(3) for a description of the
``Current Reference Price.''
    \50\ See Notice, supra note 9, 87 FR 57955.
    \51\ See id. The Exchange proposes to define ``Near Execution
Price'' as the Current Reference Price at the time the Price
Volatility Constraint has been satisfied, and to define the ``Near
Execution Time'' as such time. See id.
    \52\ See id.

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

    \58\ See Notice, supra note 9, 87 FR 57956. The Exchange states
that if the company's certification submitted to the Exchange
includes a price limit that is lower than the 80% Upside Limit and
the actual price calculated by the Nasdaq Halt Cross exceeds such
lower limit, the Exchange would postpone and reschedule the
offering. See id. at 57956 n.33.
    \59\ See id. at 57956.
    \60\ See id. The Exchange represents that the disclosure would
indicate that the Near Execution Price and the Near Execution Time
may be reset if the security is not released for trading within 30
minutes of the Near Execution Time and the Current Reference Price
at such time (or any time thereafter) is more than 10% below or more
than 10% above the Near Execution Price. See id.
    \61\ See id.
---------------------------------------------------------------------------

    The Exchange also proposes to prohibit market orders (other than by
the company through its CDL Order) from the opening of a Direct Listing
with a Capital Raise.\62\ The Exchange states that this would protect
investors by assuring that investors only purchase shares at a price at
or better than the price they affirmatively set, after having the
opportunity to review the company's effective registration statement,
including the sensitivity analysis describing how the company would use
any additional proceeds raised.\63\ The Exchange states that,
accordingly, an investor participating in a Direct Listing with a
Capital Raise would make their initial investment decision prior to the
launch of the offering by setting a price in their limit order above
which they will not buy shares in the offering, but would also have the
opportunity to reevaluate their initial investment decision during the
price formation process of the Pre-Launch Period based on the Near
Execution Price, and would have at least five minutes once the Near
Execution Price has been set and before the offering may be priced by
the Exchange to modify their order, if needed.\64\
---------------------------------------------------------------------------

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

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

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

    The Exchange states that to assure that members have the necessary
information to be provided to their customers, the Exchange proposes to
distribute, at least one business day prior to the commencement of
trading of a security listing in connection with a Direct Listing with
a Capital Raise, an information circular to its members.\67\ This
information circular would describe any special characteristics of the
offering and the Exchange's rules that apply to the initial pricing
through the mechanism outlined in Nasdaq Rule 4120(c)(9)(B) and Nasdaq
Rule 4753 for the opening auction, including information about the
notice that members must provide to their customers.\68\ This
information circular would also describe other requirements that: (a)
members use reasonable diligence in regard to the opening and
maintenance of every account, to know (and retain) the essential facts
concerning every customer, and concerning the authority of each person
acting on behalf of such customer; (b) members in recommending
transactions for a security subject to a Direct Listing with a Capital
Raise have a reasonable basis to believe that (i) the recommendation is
suitable for a customer given reasonable inquiry concerning the
customer's investment objectives, financial situation, needs, and any
other information known by such members, and (ii) the customer can
evaluate the special characteristics, and is able to bear the financial
risks, of an investment in such security; and (c) members cannot accept
market orders to

be executed in the Nasdaq Halt Cross.\69\ The Exchange states that
these member requirements are intended to remind members of their
obligations to ``know their customers,'' increase transparency of the
pricing mechanisms of a Direct Listing with a Capital Raise, and help
assure that investors have sufficient price discovery information.\70\
---------------------------------------------------------------------------

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

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

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

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

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

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

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

    Nasdaq Listing Rule IM-5315-2 provides that in determining whether
a company listing in connection with a Direct Listing with a Capital
Raise satisfies the Market Value of Unrestricted Publicly Held Shares
\80\ for initial listing on the Nasdaq Global Select Market, the
Exchange will deem such company to have met the applicable requirement
\81\ if the amount of the company's Unrestricted Publicly Held Shares
before the offering, along with the market value of the shares to be
sold by the company in the Exchange's opening auction in the Direct
Listing with a Capital Raise, is at least $110 million (or $100
million, if the company has stockholders' equity of at least $110
million). For this purpose, under current rules, the Market Value of
Unrestricted Publicly Held Shares will be calculated using a price per
share equal to the lowest price of the disclosed price range.\82\ The
Exchange states that because the Exchange proposes to allow the opening
auction to price up to 20% below the lowest price of the disclosed
price range, the Exchange proposes to make a conforming change to
Nasdaq Listing Rule IM-5315-2 to provide that the price used to
determine such company's compliance with the required Market Value of
Unrestricted Publicly Held Shares would be the price per share equal to
the price that is 20% below the lowest price of the disclosed price
range.\83\ The Exchange further states that this is the minimum price
at which the company could sell its shares in the opening transaction
for a Direct Listing with a Capital Raise and thus assures that the
company will satisfy the listing requirements at any price at which the
opening auction successfully executes.\84\
---------------------------------------------------------------------------

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

    The Exchange states that any company listing in connection with a
Direct Listing with a Capital Raise would continue to be subject to,
and required to meet, all other applicable initial listing
requirements, including the requirements to have the applicable number
of shareholders and at least 1,250,000 Unrestricted Publicly Held
Shares outstanding at the time of initial listing, and the requirement
to have a price per share of at least $4.00 at the time of initial
listing.\85\ The Exchange also proposes to amend Nasdaq Listing Rule
IM-5315-2 to specify that a company offering securities for sale in
connection with a Direct Listing with a Capital Raise must register
securities by specifying the quantity of shares registered, as
permitted by Securities Act Rule 457(a), and that securities qualified
for listing under Nasdaq Listing Rule IM-5315-2 must satisfy the
additional requirements of Nasdaq Rule 4120(c)(9)(B).\86\
---------------------------------------------------------------------------

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

    Finally, the Exchange proposes to amend Nasdaq Rules 4753(a)(3)(A)
and 4753(b)(2) to conform the requirements for disseminating
information and establishing the opening price through the Nasdaq Halt
Cross in a Direct Listing with a Capital Raise to the proposed
amendment to allow the opening auction to price as much as 20% below
the lowest price of the disclosed price range.\87\ Specifically, the
Exchange

proposes changes to Nasdaq Rules 4753(a)(3)(A) and 4753(b)(2) to make
adjustments to the calculation of the Current Reference Price, which is
disseminated in the Nasdaq Order Imbalance Indicator,\88\ and to the
calculation of the price at which the Nasdaq Halt Cross will execute,
for a Direct Listing with a Capital Raise. Under these rules currently,
where there are multiple prices that would satisfy the conditions for
determining the price, the fourth tie-breaker for a Direct Listing with
a Capital Raise is the price that is closest to the lowest price of the
disclosed price range. The Exchange states that, to conform these rules
to the proposed modification of the price range within which the
opening auction would proceed, the Exchange proposes to modify the
fourth tie-breaker for a Direct Listing with a Capital Raise to use the
price closest to the price that is 20% below the lowest price of the
disclosed price range.\89\
---------------------------------------------------------------------------

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

III. Discussion and Commission Findings

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

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

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

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

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

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

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

Third, the Commission addresses the Exchange's proposed requirement
that a company offering securities for sale in connection with a Direct
Listing with a Capital Raise must retain an underwriter with respect to
the primary sales of shares by the company and identify the underwriter
in its effective registration statement and addresses concerns about
Section 11 liability and how requiring an underwriter may mitigate such
concerns. Finally, the Commission discusses additional clarifications
to the proposal. As discussed throughout this order, the Commission
concludes that the Exchange has met its burden to demonstrate that its
proposal is consistent with the Exchange Act, and therefore finds the
proposed rule change is consistent with the requirements of the
Exchange Act.

A. Modification of Pricing Range Limitation and Required Certification

    The Exchange proposes to modify its rules concerning pricing
restrictions for the opening auction on the first day of trading for a
Direct Listing with a Capital Raise. Provided that other requirements
are satisfied, a Direct Listing with a Capital Raise will be able to be
executed in the Nasdaq Halt Cross at a price that is at or above the
price that is as low as 20% below the lowest price in the disclosed
price range, or at a price that is as high as 80% above the highest
price of the disclosed price range (i.e., at or below the 80% Upside
Limit).
    In all such cases where the execution price would be outside of the
disclosed price range, the company will be required to specify the
quantity of shares registered in its registration statement, as
permitted by Securities Act Rule 457, and that registration statement
will be required to contain a sensitivity analysis explaining how the
company's plans would change if the actual proceeds from the offering
are less than or exceed the amount assumed in the disclosed price
range. The company must certify to Nasdaq that the registration
statement contains the required sensitivity analysis.\95\ The company
will also be required to publicly disclose and certify to Nasdaq prior
to the beginning of the Display Only Period that the company does not
expect that such offering price would materially change the company's
previous disclosure in its effective registration statement. If the
company's certification submitted to Nasdaq in that regard includes a
price limit that is below the 80% Upside Limit, Nasdaq will not execute
the Nasdaq Halt Cross if it results in an offering price above such
limit.
---------------------------------------------------------------------------

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

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

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

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

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

---------------------------------------------------------------------------

B. Price Volatility Constraint and 10% Price Collar

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

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

    The requirement that the Pre-Launch Period will continue for at
least five minutes after the Price Volatility Constraint has been
satisfied will allow for a period during which investors can modify
their orders, if needed, based on the Near Execution Price, prior to
the execution of the opening cross. After the Near Execution Price is
set, the Current Reference Price may change because buy and sell orders
can continue to come in, or be cancelled. If the security is not
released for trading within 30 minutes and the Current Reference Price
is outside the 10% Price Collar at the end of the 30-minute countdown
or at any time thereafter, the Price Volatility Constraint will reset
and all requirements of the Pre-Launch Period must be satisfied. If
however, the Current Reference Price at the end of the 30-minute
countdown is within the 10% Price Collar, price formation may continue
until such time that Nasdaq, in consultation with the named
underwriter, makes the determination that the security is ready to
trade.\101\
---------------------------------------------------------------------------

    \101\ Proposed Nasdaq Rule 4120(c)(9)(B)(vii) states the
security shall be released for trading when Nasdaq, in consultation
with the named underwriter, makes the determination that the
security is ready to trade and the conditions in proposed Nasdaq
Rule 4120(c)(9)(B)(vii)(a), (b), (c), and (d) are met. Among the
conditions is that the actual price calculated by the Nasdaq Halt
Cross is within the 10% Price Collar. See supra notes 45-59 and
accompanying discussion.
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    Nasdaq also proposes to enhance price discovery by providing
readily available, real-time pricing information to investors by
disseminating, free of charge, the Current Reference Price on a public
website, such as Nasdaq.com, during the Pre-Launch Period and
indicating whether the Current Reference Price is within the price
range established by the issuer in its effective registration
statement. Nasdaq will also disseminate the Near Execution Price, the
Near Execution Time, and the 30-minute countdown from such time. Nasdaq
also proposes to distribute, at least one day prior to the commencement
of trading of the security, an information circular to its members
describing any special characteristics of the offering and Nasdaq's
rules that apply to the initial pricing through the mechanism outlined
in Nasdaq Rule 4120(c)(9)(B) and Nasdaq Rule 4753 for the opening
auction.
    As described above, the opening process for Direct Listings with a
Capital Raise would include the dissemination of the Near Execution
Price, establishment of the Near Execution Time, and the protections
provided by the 10% Price Collar that ensures the opening price cannot
deviate by more than 10% from the disseminated Near Execution Price.
These proposed provisions should address any potential concerns that,
when the Exchange disseminates information that the Price Volatility
Constraint has been satisfied, investors could be misled about the
opening auction price and that the opening cross nears execution at a
time when buy and sell orders are still coming in because such orders
could change the opening price and could cause the auction to not occur
for a considerable time.\102\
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    \102\ See, e.g., 2022 Order, supra note 32, 87 FR 11780 (Mar. 2,
2022) (order disapproving proposed rule change, in part, due to
potential for opening process to mislead investors about opening
time and price). See also supra note 31.
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    Further, the Commission believes that the information Nasdaq
proposes to make publicly available prior to the opening could help to
provide investors with useful information relating to the pricing of
the security and help to inform investors in making decisions about
entering, modifying, or cancelling orders to participate in the opening
cross. The requirement that investors cannot enter market orders and
therefore will have to enter a limit price to their order will also
provide a cap to an investor's financial obligation should its buy
order be executed in the Nasdaq Halt Cross and prevent the buy order
from executing at a price higher than the investor anticipated. Based
on the above, the Commission finds these procedures are consistent with
the protection of investors, the public interest, and the other
requirements of Section 6(b)(5) of the Exchange Act.

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

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

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

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

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

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 3
to the proposed rule change is consistent with the Exchange Act.
Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-NASDAQ-2022-027 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2022-027. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2022-027, and should be submitted
on or before December 29, 2022.

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

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

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

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