[Federal Register Volume 86, Number 99 (Tuesday, May 25, 2021)]
[Notices]
[Pages 28169-28178]
[FR Doc No: 2021-10968]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91947; File No. SR-NASDAQ-2020-057]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order
Approving a Proposed Rule Change, as Modified by Amendment No. 2, To
Allow Companies To List in Connection With a Direct Listing With a
Primary Offering in Which the Company Will Sell Shares Itself in the
Opening Auction on the First Day of Trading on Nasdaq and To Explain
How the Opening Transaction for Such a Listing Will Be Effected

May 19, 2021.

I. Introduction

    On September 4, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(``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 allow companies to list in
connection with a primary offering in which the company will sell
shares itself in the opening auction on the first day of trading on the
Exchange and to explain how the opening transaction for such a listing
will be effected. The proposed rule change was published for comment in
the Federal Register on September 21, 2020.\3\ On November 4, 2020,
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\ On December 17, 2020, the Commission instituted proceedings
under Section 19(b)(2)(B) of the Exchange Act \6\ to determine whether
to approve or disapprove the proposed rule change.\7\ On February 22,
2021, the Exchange filed Amendment No. 1 to the proposed rule change,
which superseded the proposed rule change as originally filed.\8\ The
proposed rule change, as modified by Amendment No. 1, was published for
comment in the Federal Register on March 2, 2021.\9\ On March 17, 2021,
the Commission extended the time period for approving or disapproving
the proposal to May 19, 2021.\10\ On April 30, 2021, the Exchange filed
Amendment No. 2 to the proposed rule change, which superseded the
proposed rule change, as modified by Amendment No. 1.\11\ The
Commission is approving the proposed rule change, as modified by
Amendment No. 2.
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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. 89878 (September 15,
2020), 85 FR 59349 (September 21, 2020). Comments received on the
proposal are available on the Commission's website at: https://www.sec.gov/comments/sr-nasdaq-2020-057/srnasdaq2020057.htm.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 90331 (November 4,
2020), 85 FR 71708 (November 10, 2020).
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 90717 (December 17,
2020), 85 FR 84025 (December 23, 2020) (``Order Instituting
Proceedings'' or ``OIP'').
    \8\ Amendment No. 1 to the proposed rule change revised the
proposal to (1) add to the requirements that must be satisfied
before a security can be released for trading in the cross that the
actual price calculated by the cross must be 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;
(2) revise the fourth tie-breaker used in calculating the Current
Reference Price (as defined below) to provide that this tie-breaker
will be the price that is closest to the lowest price of the price
range disclosed by the issuer in its effective registration
statement; (3) revise the price to be used by Nasdaq for purposes of
qualifying a security for listing to provide that Nasdaq will use a
price per share equal to the lowest price in the price range
disclosed by the issuer in its effective registration statement to
determine whether the company has met the applicable Market Value of
Unrestricted Publicly Held Shares (as defined below), bid price, and
market capitalization requirements; (4) add that, notwithstanding
the provisions of Rule 4120(c)(8)(A), Nasdaq, in consultation with
the financial advisor to the issuer, will make the determination of
whether the security is ready to trade as described in Rule
4120(c)(8)(A), and Nasdaq will make the determination of whether to
postpone or reschedule the offering, but will do so only if there is
insufficient buy interest to satisfy the CDL Order and all other
market orders, or if the actual price calculated by the cross is
outside the price range established by the issuer in its effective
registration statement; and (5) make minor technical changes to
improve the clarity of the proposal. Amendment No. 1 to the proposed
rule change is available on the Commission's website at https://www.sec.gov/comments/sr-nasdaq-2020-057/srnasdaq2020057-8400450-229459.pdf.
    \9\ See Securities Exchange Act Release No. 91205 (February 24,
2021), 86 FR 12245 (March 2, 2021) (``Notice'').
    \10\ See Securities Exchange Act Release No. 91345 (March 17,
2021), 86 FR 15530 (March 23, 2021).
    \11\ Amendment No. 2 to the proposed rule change revised the
proposal to (1) clarify Nasdaq's intent in Amendment No. 1 that in a
Direct Listing with a Capital Raise, Nasdaq alone would make a
determination of whether to postpone and reschedule the offering,
and would not postpone and reschedule if (i) all market orders will
be executed in the cross, and (ii) the actual price calculated by
the 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; and (2) make minor technical and
conforming changes to improve the clarity of the proposal. Because
the changes in Amendment No. 2 to the proposed rule change do not
materially alter the substance of the proposed rule change or make
conforming or technical amendments, Amendment No. 2. is not subject
to notice and comment. Amendment No. 2 to the proposed rule change
is available on the Commission's website at https://www.sec.gov/comments/sr-nasdaq-2020-057/srnasdaq2020057-8746216-237241.pdf.
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II. Description of the Proposal, as Modified by Amendment No. 2

    Listing Rule IM-5315-1 provides additional listing requirements for
listing a company that has not previously had its common equity
securities registered under the Exchange Act on the Nasdaq Global
Select Market at the time of effectiveness of a registration statement
\12\ filed solely for the purpose of allowing existing shareholders to
sell their shares (a ``Selling Shareholder Direct Listing''). To allow
a company to also sell shares on its own behalf in connection with its
initial listing upon effectiveness of a registration statement, without
a traditional underwritten public offering, the Exchange has proposed
to adopt Listing Rule IM-5315-2. This proposed

rule would allow a company that has not previously had its common
equity securities registered under the Exchange Act to list its common
equity securities on the Nasdaq Global Select Market at the time of
effectiveness of a registration statement pursuant to which the company
itself will sell shares in the opening auction on the first day of
trading on the Exchange (a ``Direct Listing with a Capital
Raise'').\13\
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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\ See proposed Listing Rule IM-5315-2. A Direct Listing with
a Capital Raise would include 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 id.
The Commission notes that while the Exchange's current rules also
permit Selling Shareholder Direct Listings on the Nasdaq Global
Market and Nasdaq Capital Market (see Listing Rules IM-5405-1 and
IM-5505-1), the current proposal would only provide for a Direct
Listing with a Capital Raise on the Nasdaq Global Select Market.
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    In considering a Selling Shareholder Direct Listing, Listing Rule
IM-5315-1 currently provides that the Exchange will determine that such
company has met the applicable Market Value of Unrestricted Publicly
Held Shares \14\ requirement based on the lesser of: (i) An independent
third-party valuation of the company (a ``Valuation''); \15\ and (ii)
the most recent trading price for the company's common stock in a
Private Placement Market \16\ where there has been sustained recent
trading. For a security that has not had sustained recent trading in a
Private Placement Market prior to listing, the Exchange will determine
that such company has met the Market Value of Unrestricted Publicly
Held Shares requirement if the company satisfies the applicable Market
Value of Unrestricted Publicly Held Shares requirement and provides a
Valuation evidencing a Market Value of Publicly Held Shares of at least
$250,000,000.
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    \14\ ``Restricted Securities'' means securities that are subject
to resale restrictions for any reason, including, but not limited
to, securities: (1) Acquired directly or indirectly from the issuer
or an affiliate of the issuer in unregistered offerings such as
private placements or Regulation D offerings; (2) acquired through
an employee stock benefit plan or as compensation for professional
services; (3) acquired in reliance on Regulation S, which cannot be
resold within the United States; (4) subject to a lockup agreement
or a similar contractual restriction; or (5) considered ``restricted
securities'' under Rule 144. See Listing Rule 5005(a)(37).
``Unrestricted Securities'' means securities that are not Restricted
Securities. See Listing Rule 5005(a)(46). ``Unrestricted Publicly
Held Shares'' means the Publicly Held Shares that are Unrestricted
Securities. See Listing Rule 5005(a)(45). See also Listing Rule
5005(a)(23) and (35) for definitions of ``Market Value'' and
``Publicly Held Shares.''
    \15\ Listing Rule IM-5315-1 describes the requirement for a
Valuation, including the experience and independence of the entity
providing the Valuation.
    \16\ The Exchange defines ``Private Placement Market'' in
Listing Rule 5005(a)(34) as a trading system for unregistered
securities operated by a national securities exchange or a
registered broker-dealer.
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    With respect to a Direct Listing with a Capital Raise, the Exchange
has proposed that, in determining whether a company satisfies the
Market Value of Unrestricted Publicly Held Shares requirement for
initial listing on the Nasdaq Global Select Market, the Exchange will
deem such company to have met the applicable requirement 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).\17\ The Exchange has
proposed to calculate the Market Value of Unrestricted Publicly Held
Shares, for this purpose, using a price per share equal to the lowest
price of the price range disclosed by the issuer in its effective
registration statement.\18\ The Exchange also proposes to determine
whether the company has met the applicable bid price and market
capitalization requirements based on the same share price.\19\
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    \17\ See proposed Listing Rule IM-5315-2. See also Listing Rule
5315(f)(2)(A) and (B) (requiring a Market Value of Unrestricted
Publicly Held Shares for initial listing on the Nasdaq Global Select
Market, not in connection with an IPO, of at least $110 million; or
at least $100 million, if the company has stockholders' equity of at
least $110 million).
    \18\ See proposed Listing Rule IM-5315-2. The Exchange states
that, for example, if the company is selling five million shares in
the opening auction and there are 45 million shares issued and
outstanding immediately prior to the listing that are eligible for
inclusion as Unrestricted Publicly Held Shares based on disclosure
in the company's registration statement, then the Exchange would
calculate the Market Value of Unrestricted Publicly Held Shares
based on a combined total of 50 million shares. If the lowest price
of the price range disclosed in the company's registration statement
is $10 per share, the Exchange will attribute to the company a
Market Value of Unrestricted Publicly Held Shares of $500 million,
based on a $10 price per share. See Notice, supra note 9, 86 FR
12246 n.15. The Exchange also states that, as described below, the
opening auction would not execute at a price that is below the
bottom of the disclosed range, so this is the minimum price at which
the company could list in connection with a Direct Listing with a
Capital Raise. See id. at 12246 n.14.
    \19\ See proposed Listing Rule IM-5315-2.
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    The Exchange states that, except as proposed for a Direct Listing
with a Capital Raise, its listing rules generally do not include shares
held by officers, directors, or owners of more than 10% of the
company's common stock in calculations of Publicly Held Shares.\20\ In
qualifying companies for listing in a Direct Listing with a Capital
Raise, however, all shares sold by the company in the offering and all
shares held by public holders prior to the offering will be included in
the calculation of Publicly Held Shares. According to the Exchange,
such investors may acquire in secondary market trades shares sold by
the issuer in a Direct Listing with a Capital Raise that were included
when calculating whether the issuer met the Market Value of
Unrestricted Publicly Held Shares requirement for initial listing.\21\
The Exchange states, however, that a company listing in conjunction
with a Direct Listing with a Capital Raise will be required to have a
Market Value of Unrestricted Publicly Held Shares that is much higher
than the Exchange's $45 million Market Value of Unrestricted Publicly
Held Shares requirement that applies to a traditional underwritten
initial public offering (``IPO'').\22\ The Exchange further states that
this heightened requirement, along with the ability of all investors to
purchase shares in the opening process on the Exchange, should result
in companies using a Direct Listing with a Capital Raise having
adequate public float and a liquid trading market after the completion
of the opening auction.\23\
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    \20\ See Notice, supra note 9, 86 FR 12246. The Exchange states
that these types of inside investors may purchase shares sold by the
company in the opening auction, and purchase shares sold by other
shareholders or sell their own shares in the opening auction and in
trading after the opening auction, to the extent not inconsistent
with general anti-manipulation provisions, Regulation M, and other
applicable securities laws. See id.
    \21\ See Notice, supra note 9, 86 FR 12246. The Exchange states
that it expects that a company expecting to sell a significant
portion of its shares to officers, directors, and existing
significant shareholders would not undertake a public listing
through a Direct Listing with a Capital Raise, but rather would
raise capital in a private placement or a similar transaction
instead. See id. at 12248.
    \22\ See Notice, supra note 9, 86 FR 12246. See also Listing
Rule 5315(f)(2)(C) (requiring a Market Value of Unrestricted
Publicly Held Shares for initial listing on the Nasdaq Global Select
Market, in connection with an IPO, of at least $45 million). The
Exchange also states that, unlike a company listing in connection
with a Selling Shareholder Direct Listing that could qualify for the
price-based initial listing requirements based on a Valuation, a
company listing in connection with a Direct Listing with a Capital
Raise, like an IPO, must qualify for such requirements based on the
minimum price at which it could sell shares in the offering. See id.
at 12248.
    \23\ See Notice, supra note 9, 86 FR 12246.
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    The Exchange also states that it believes that it is consistent
with the protection of investors to calculate the security's bid price
and values derived from the security's price using a price per share
equal to the lowest price of the price range disclosed by the issuer in
its effective registration statement.\24\ The Exchange states that it
will allow the

opening auction, otherwise known as the Nasdaq Halt Cross,\25\ to take
place at a price as low as this price, but no lower, and so this is the
minimum price at which a company could be listed.\26\
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    \24\ See Notice, supra note 9, 86 FR 12248.
    \25\ ``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 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 Halt Cross. See Rule 4753(a)(5). Pursuant
to Rule 4120, the Exchange will halt trading in a security that is
the subject of an IPO (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 Rule
4120(a)(7) and (c)(8).
    \26\ See Notice, supra note 9, 86 FR 12248.
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    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. According to the Exchange, this would include 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.\27\
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    \27\ See Notice, supra note 9, 86 FR 12246 (citing Listing Rules
5315(e)(1) and (2) and 5315(f)(1)).
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    In addition, the Exchange has proposed to amend Rule 4702 to add a
new order type, the ``Company Direct Listing Order'' or ``CDL Order,''
which would be used by the issuer in a Direct Listing with a Capital
Raise. This would be a market order entered for the quantity of shares
offered by the issuer, as disclosed in an effective registration
statement for the offering, that will execute at the price determined
in the Nasdaq Halt Cross.\28\ A CDL Order may be entered only on behalf
of the issuer and the CDL Order may not be cancelled or modified. Only
one Nasdaq member, representing the issuer, may enter a CDL Order
during a Direct Listing with a Capital Raise. The price of the CDL
Order would be set in accordance with Rule 4120(c)(9)(B) that requires,
among other things, that the CDL Order is executed 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. The
CDL Order must be executed in full at the price determined in the
Nasdaq Halt Cross, and all orders priced better than the price
determined in the Nasdaq Halt Cross also would need to be
satisfied.\29\
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    \28\ See proposed Rule 4702(b)(16)(A) and (B).
    \29\ See proposed Rule 4702(b)(16)(A); Notice, supra note 9, 86
FR 12247. The Exchange states that the proposed CDL Order is similar
in some respects to a limit order because it cannot execute at a
price less than the lowest price in the price range disclosed by the
issuer in its effective registration statement. The Exchange also
states that, as a market order, the CDL Order is guaranteed to
execute in the Nasdaq Halt Cross. See Notice, supra note 9, 86 FR
12247 n.20.
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    The Exchange has proposed that securities listing in connection
with a Direct Listing with a Capital Raise must begin trading on the
Exchange following the initial pricing through the Nasdaq Halt Cross,
which is described in Rules 4120(c)(9) and 4753.\30\ As described in
detail below, the Exchange has proposed to modify Rule 4120(c)(9) with
respect to certain functions that are performed by an underwriter in an
IPO or a financial advisor in a Selling Shareholder Direct Listing, to
require that in the case of a Direct Listing with a Capital Raise,
Nasdaq, in consultation with the financial advisor to the issuer, would
make the determination of whether the security is ready to trade and
Nasdaq would determine whether to postpone and reschedule the offering
as described in Rule 4120(c)(8)(A).\31\ The Exchange states that the
requirement that the company begin trading of the company's securities
following the initial pricing through the Nasdaq Halt Cross will
promote fair and orderly markets by protecting against volatility in
the pricing and initial trading of securities covered by the proposal,
because a substantial number of orders are expected to be executed in
the Nasdaq Halt Cross at a single price rather than in the secondary
trading at fluctuating prices.\32\ In addition, the Exchange has
proposed to amend Rule 4120(c)(9) to specify that any services provided
by such financial advisor to the issuer of a security under Rules
4120(c)(8) and 4120(c)(9)(A) and (B), including a company listing in
connection with a Direct Listing with a Capital Raise, must be provided
in a manner that is consistent with all federal securities laws,
including Regulation M and other anti-manipulation requirements.\33\
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    \30\ See proposed Listing Rule IM-5315-2. Rule 4120(c)(9) states
that the process for halting and initial pricing of a security that
is subject to an IPO is also available for the initial pricing of
any other security that has not been listed on a national securities
exchange immediately prior to the initial pricing, if a broker-
dealer serving in the role of financial advisor to the issuer is
willing to perform the functions under Rule 4120(c)(8) that are
performed by an underwriter with respect to an IPO, and if more than
one broker-dealer is serving in the role of financial advisor, the
issuer must designate one to perform these functions. The Exchange
proposes to renumber this provision as Rule 4120(c)(9)(A). See
proposed Rule 4120(c)(9)(A).
    \31\ See Amendment No. 2, supra note 11, at 14 n.19. As
discussed further below, Nasdaq will postpone the offering only if
there is insufficient buy interest to satisfy the CDL Order and all
other market orders, or if the actual price calculated by the cross
is outside the price range established by the issuer in its
effective registration statement.
    \32\ See Notice, supra note 9, 86 FR 12248.
    \33\ See proposed Rule 4120(c)(9)(A). The Exchange states that
this change will also apply to Selling Shareholder Direct Listings
under Listing Rules IM-5315-1, IM-5405-1, and IM-5505-1. See Notice,
supra note 9, 86 FR 12248.
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    With respect to the Nasdaq Halt Cross, the Exchange has proposed
that, in the case of a Direct Listing with a Capital Raise, a security
shall not be released for trading by Nasdaq unless the actual price
calculated by the 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.\34\ This requirement would be in
addition to the existing process described in Rule 4120(c)(8)(A)(i),
(ii), and (iii), as modified by the proposed changes to Rule
4120(c)(9).\35\
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    \34\ See proposed Rule 4120(c)(9)(B).
    \35\ Rule 4120(c)(8)(A) provides that a security will not be
released for trading until (i) Nasdaq receives notice from the
underwriter of the IPO or financial advisor in the case of a Selling
Shareholder Direct Listing that the security is ready to trade; (ii)
the system verifies that all market orders will be executed in the
cross; and (iii) the price determined in the cross satisfies a price
validation test, in which the actual price of the cross may not
deviate from the expected price of the cross that was last displayed
to the underwriter or financial advisor by an amount greater than
the selected price band of between $0 and $0.50.
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    Current Rules 4120(c)(8) and (9) provide that the underwriter of
the IPO, or the financial advisor in a Selling Shareholder Direct
Listing, respectively, provide notice to Nasdaq that the security
subject to the Nasdaq Halt Cross is ``ready to trade.'' \36\ These
rules also provide that the underwriter of the IPO, or the financial
advisor in a Selling Shareholder Direct Listing, with concurrence of
Nasdaq, may determine at any point during the Nasdaq Halt Cross process
up through the conclusion of the pre-launch period to postpone and
reschedule the pricing of the security subject to the Nasdaq Halt
Cross. The Exchange has proposed to require that in the case of a
Direct Listing with a Capital Raise, for purposes of releasing
securities for trading on the first day of listing, Nasdaq, in
consultation with the financial advisor to the issuer, would make the
determination of whether the

security is ready to trade.\37\ Once Nasdaq has determined that the
security is ready to trade, Nasdaq shall release the security for
trading if (i) all market orders will be executed in the Nasdaq Halt
Cross; and (ii) 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. Nasdaq shall postpone and reschedule the offering only if
either or both such conditions are not met.\38\
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    \36\ Rule 4120(c)(8)(A)(i) provides that Nasdaq receives notice
from the underwriter of the IPO that the security is ready to trade.
The Exchanges states that the Nasdaq system will calculate the
Current Reference Price at that time and display it to the
underwriter. If the underwriter then approves proceeding, the Nasdaq
system will conduct certain validation checks. According to the
Exchange, under the proposal, Nasdaq would take over these functions
of the underwriter. See Notice, supra note 9, 86 FR 12247 n.23. See
also Rule 4853(a)(3) for a description of the ``Current Reference
Price.''
    \37\ See proposed Rule 4120(c)(9)(B).
    \38\ See proposed Rule 4120(c)(9)(B).
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    According to the Exchange, if there is insufficient buy interest to
satisfy the CDL Order, and all other market orders, as required by the
proposal, or if the actual price calculated by the Nasdaq Halt Cross is
outside the price range established by the issuer in its effective
registration statement, the Nasdaq Halt Cross would not be allowed to
proceed and such security would not begin trading.\39\ The Exchange
represents that, if the Nasdaq Halt Cross cannot be conducted because
these conditions are not met, the Exchange would postpone and
reschedule the offering and notify market 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, including the CDL Order, would be cancelled
back to the entering firms.\40\ The Exchange further states that
because the CDL Order will be a market order, if the Nasdaq Halt Cross
proceeds, that order will execute in full in the Nasdaq Halt Cross,
along with orders priced at or better than the price determined in the
Nasdaq Halt Cross.
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    \39\ See Notice, supra note 9, 86 FR 12247. The Exchange states
that Nasdaq alone would make any determination to postpone and
reschedule the offering and would do so only in the narrowly defined
circumstances described in proposed Rule 4120(c)(9)(B). See
Amendment No. 2, supra note 11, at 15 n.19. The Exchange also states
that the price bands established by Rule 4120(c)(8) cannot act to
cause the Nasdaq Halt Cross to occur outside of the price range
disclosed by the issuer in its effective registration statement,
because the actual price calculated by the Nasdaq Halt Cross is
required to be 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. See Notice, supra note 9, 86 FR
12248.
    \40\ See Notice, supra note 9, 86 FR 12247-48.
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    The Exchange states that, unlike in an IPO, a company listing
through a Direct Listing with a Capital Raise would not have an
underwriter to guarantee that a specified number of shares would be
sold by the company at a price consistent with disclosure in the
company's effective registration statement. However, the Exchange
states that this would be achieved through the proposed requirements
that (1) the Nasdaq Halt Cross occur only if the CDL Order, which must
be equal to the total number of shares disclosed as being offered by
the company in the effective registration statement, is executed in
full; and (2) the Nasdaq Halt Cross occur at a price per share that is
within the price range disclosed by the issuer in its effective
registration statement.\41\ The Exchange states that it believes that
the CDL Order and related provisions would clearly define the method by
which the issuer participates in the opening auction, to prevent the
issuer from being in a position to improperly influence the price
discovery process, and assures an auction that is consistent with the
disclosures in the registration statement.\42\
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    \41\ See Notice, supra note 9, 86 FR 12249.
    \42\ See Notice, supra note 9, 86 FR 12249. The Exchange states
that, specifically, the CDL Order entered on the company's behalf
could not be executed at a price below the low end or above the high
end of the price range in the company's effective registration
statement, and, as a market order, the full quantity of shares in
the CDL Order would have to be executed in the opening auction. The
Exchange states that, in addition, the CDL Order would not be able
to be modified and the financial advisor to the company would be
unable to reschedule the offering once it began. See id.
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    Finally, the Exchange has proposed to make adjustments to how it
would calculate the Current Reference Price, which is disseminated in
the Nasdaq Order Imbalance Indicator,\43\ and the price at which the
Nasdaq Halt Cross would execute, for a Direct Listing with a Capital
Raise. In each case, where there are multiple prices that would satisfy
the conditions for determining the price, the Exchange would modify the
fourth tie-breaker for a Direct Listing with a Capital Raise to use the
lowest price of the price range disclosed by the issuer in its
effective registration statement.\44\
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    \43\ See Rule 4853(a)(3) for a description of the ``Order
Imbalance Indicator.''
    \44\ See proposed Rule 4753(a)(3)(A)(iv)(c) and (b)(2)(D)(iii).
The Exchange states that the fourth tie-breaker used to calculate
the Current Reference Price for an IPO is the price that is closest
to the issuer's IPO price, and that a Direct Listing with a Capital
Raise is similar to an IPO in that the company sells securities in
the offering. See Notice, supra note 9, 86 FR 12249. The Exchange
also proposes non-substantive changes to renumber the other
alternatives for the fourth tie-breaker. See proposed Rule
4753(a)(3)(A)(iv) and (b)(2)(D).
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III. Discussion and Commission Findings

    The Commission finds that the proposed rule change, as modified by
Amendment No. 2, is consistent with the requirements of the Exchange
Act and the rules and regulations thereunder applicable to a national
securities exchange.\45\ In particular, the Commission finds that the
proposed rule change, as modified by Amendment No. 2, is consistent
with Section 6(b)(5) of the Exchange Act,\46\ which requires, among
other things, that the rules of a national securities exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest; and are not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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    \45\ 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).
    \46\ 15 U.S.C. 78f(b)(5).
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    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.\47\ The standards, collectively, also provide
investors and market participants with some level of assurance that the
listed company has the resources, policies, and procedures

to comply with the requirements of the Exchange Act and Exchange
rules.\48\
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    \47\ 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., Securities Exchange Act Release Nos. 90768
(December 22, 2020), 85 FR 85807, 85811 n.55 (December 29, 2020)
(SR-NYSE-2019-67) (``NYSE 2020 Order''); 82627 (February 2, 2018),
83 FR 5650, 5653 n.53 (February 8, 2018) (SR-NYSE-2017-30) (``NYSE
2018 Order''); 81856 (October 11, 2017), 82 FR 48296, 48298 (October
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 (December 3,
2019), 84 FR 67308, 67314 n.42 (December 9, 2019) (SR-NASDAQ-2019-
059); 88716 (April 21, 2020), 85 FR 23393, 23395 n.22 (April 27,
2020) (SR-NASDAQ-2020-001).
    \48\ ``Meaningful listing standards are also important given
investor expectations regarding the nature of securities that have
achieved a national securities exchange listing, and the role of a
national securities exchange in overseeing its market and assuring
compliance with its listing standards.'' Securities Exchange Act
Release No. 65708 (November 8, 2011), 76 FR 70799, 70802 (November
15, 2011) (SR-NASDAQ-2011-073). See also NYSE 2020 Order, supra note
47, 85 FR 85811 n.56; Securities Exchange Act Release Nos. 65709
(November 8, 2011), 76 FR 70795 (November 15, 2011) (SR-NYSE-2011-
38); 88389 (March 16, 2020), 85 FR 16163 (March 20, 2020) (SR-
NASDAQ-2019-089). The Exchange, in addition to requiring companies
seeking to list to meet the quantitative initial listing standards
and once listed the quantitative continued listing standards, also
requires listed companies to meet other qualitative requirements.
See, e.g., Listing Rules 5600 Series, Corporate Governance
Requirements.
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    The Exchange's listing standards currently provide the Exchange
with discretion to list a company whose stock has not been previously
registered under the Exchange Act, where such company is listing in
connection with a Selling Shareholder Direct Listing.\49\ The Exchange
has proposed to allow companies to list in connection with a Direct
Listing with a Capital Raise, which would provide a company the option,
without a firm commitment underwritten offering, of selling shares to
raise capital in the opening auction upon initial listing on the
Exchange.\50\ The Commission notes that recently it approved a proposal
by the New York Stock Exchange to allow a direct listing with a primary
offering.\51\
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    \49\ See Nasdaq Listing Rules IM-5315-1, IM-5405-1, and IM-5505-
1. See also Securities Exchange Act Release Nos. 85156 (February 15,
2019), 84 FR 5787 (February 22, 2019) (SR-NASDAQ-2019-001) (notice
of filing and immediate effectiveness of proposal to adopt listing
standards for direct listings on Nasdaq Global Select Market); 87648
(December 3, 2019), 84 FR 67308 (December 9, 2019) (SR-NASDAQ-2019-
059) (order granting approval of proposal to adopt requirements for
the Nasdaq Capital and Global Markets applicable to direct
listings).
    \50\ See proposed Listing Rule IM-5315-2. In contrast, Listing
Rule IM-5315-1 states that it permits companies ``to list on the
Nasdaq Global Select Market, provided the Company meets all
applicable initial listing requirements and lists at the time of
effectiveness of a registration statement filed solely for the
purpose of allowing existing shareholders to sell their shares. This
Interpretive Material describes when a Company whose stock is not
previously registered under the Exchange Act may list on the Nasdaq
Global Select Market, where such Company is listing without a
related underwritten offering upon effectiveness of a registration
statement registering only the resale of shares sold by the company
in earlier private placements.'' Listing Rule IM-5315-1.
    \51\ See NYSE 2020 Order, supra note 47.
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    As explained further below, the following aspects of the proposal,
as modified by Amendment No. 2, demonstrate that it is reasonably
designed to be consistent with the protection of investors and the
maintenance of fair and orderly markets, as well as the facilitation of
capital formation: (i) Addition of the CDL Order type and other
requirements that address how the issuer will participate in the
opening auction; (ii) addition of the requirement that the opening
price must occur 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; (iii) discussion of the role of
financial advisors and addition of requirements providing that only
Nasdaq, in consultation with the financial advisor, may determine that
the security is ready to trade and limiting the circumstances pursuant
to which Nasdaq could postpone or reschedule the offering; (iv)
addition of language reminding financial advisors that specified
activities are to be conducted in a manner that is consistent with the
federal securities laws, including Regulation M and other anti-
manipulation requirements; and (v) clarification of how market value
will be determined for qualifying the company's securities for listing.
    The Commission discusses below the Exchange's proposal to allow a
Direct Listing with a Capital Raise. First, the Commission addresses
the Exchange's proposed market value of unrestricted publicly-held
shares requirement for a Direct Listing with a Capital Raise. Second,
the Commission addresses concerns it raised in the Order Instituting
Proceedings about the initial listing opening auction process for
Direct Listings with a Capital Raise and the role of financial advisors
in the Exchange's proposed rule change, prior to the changes made by
Amendment Nos. 1 and 2. As discussed below, in the amended proposal the
Exchange made several modifications to its proposal that were designed
to address these concerns.\52\ Finally, the Commission addresses a
commenter's concerns about whether the proposal is consistent with
investor protection and the public interest given the lack of
traditional underwriter involvement in a Direct Listing with a Capital
Raise and concerns about Securities Act Section 11 liability.\53\ 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 to be consistent with the Exchange Act.
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    \52\ See supra notes 8 and 11. In the amended filing, the
Exchange states that, following approval of this proposed rule
change, the Exchange intends to file a separate proposal with the
Commission that will seek to modify the process for a Direct Listing
with a Capital Raise so that it would operate in a manner similar to
the initial proposal, and the Exchange will seek to address the
remaining issues raised in the Order Instituting Proceedings. See
Notice, supra note 9, 86 FR 12245 n.9. This approval order pertains
only to Nasdaq's current proposal before the Commission, and any new
rules or changes to the rules being approved would require the
Exchange to file a new proposed rule change pursuant to Section
19(b) of the Exchange Act.
    \53\ In addition to the comments discussed below, one commenter
stated general support for Nasdaq's proposed method of opening the
transaction. See Letter from Rahul Chaudhary (October 13, 2020).
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A. Aggregated Market Value of Unrestricted Publicly Held Shares
Requirement

    The Exchange has proposed that it will deem a company to have met
the Market Value of Unrestricted Publicly Held Shares requirement 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). The
Exchange would calculate the Market Value of Unrestricted Publicly Held
Shares using a price per share equal to the lowest price of the price
range disclosed by the issuer in its effective registration
statement.\54\ According to the Exchange, a company may list in
connection with a traditional underwritten IPO with a minimum $45
million Market Value of Unrestricted Publicly Held Shares. The Exchange
states that the ``heightened requirement'' for a Direct Listing with a
Capital Raise, ``along with the ability of all investors to purchase
shares in the opening process on the Exchange, should result in
companies using a Direct Listing with a Capital Raise having adequate
public float and a liquid trading market after completion of the
opening auction.'' \55\
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    \54\ See supra notes 17-18 and accompanying text.
    \55\ Notice, supra note 9, 86 FR 12248. As described above, in
determining that a company has met the Market Value of Unrestricted
Publicly Held Shares requirement, the Exchange will consider the
market value of all shares sold by the company in the opening
auction, rather than excluding shares that may be purchased by
officers, directors, or owners of more than 10% of the company's
common stock, notwithstanding that generally the Exchange's listing
standards exclude shares held by such insiders from its calculations
of publicly-held shares. The Exchange states that it expects that a
company expecting to sell a significant portion of its shares to
these insiders would not undertake a public listing through a Direct
Listing with a Capital Raise, but would raise capital in a private
placement or similar transaction instead. See id.
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    The Exchange has shown that the proposed aggregate Market Value of
Unrestricted Publicly Held Shares requirement provides the Exchange
with a reasonable level of assurance that the

company's market value supports listing on the Exchange and the
maintenance of fair and orderly markets.\56\ The Commission reaches
this conclusion because the proposed market value standard for listing
a Direct Listing with a Capital Raise is more than two times greater
than the market value standard that currently exists under Exchange
rules for an Exchange listing of an IPO. The proposed requirement is
also comparable to the Market Value of Unrestricted Publicly Held
Shares requirement used by the Exchange for initial listing in other
contexts.\57\ Specifically, the Exchange's proposed Market Value of
Unrestricted Publicly Held Shares requirement of at least $110 million
(or $100 million, if the company has stockholders' equity of at least
$110 million) is the same Market Value of Unrestricted Publicly Held
Shares requirement applied to companies that list their primary equity
securities on the Exchange, other than in the case of an IPO or spin-
off,\58\ in addition to being higher than the $45 million Market Value
of Unrestricted Publicly Held Shares requirement applied to IPOs and
spin-offs.\59\
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    \56\ A significant number of exchange-listed IPOs in the recent
years had proceeds that fell below the $110 million threshold. Using
information from Thomson Reuters SDC Platinum New Issues database,
the Commission staff concluded that, among 146 exchange-listed IPOs
conducted during the 2019 calendar year, the median offer size was
$106.7 million. Among 196 exchange-listed IPOs conducted during the
2020 calendar year, the median offer size was $175.4 million.
Further, staff concluded that approximately 51.4 percent of the
companies that went public via the IPO in 2019 and 33.7 percent of
the companies that went public via the IPO in 2020 (63.6 percent in
2019 and 34.6 percent in 2020 among NASDAQ IPOs only) had an offer
size that fell below $110 million. Similarly, academic research
finds that the median proceeds raised in exchange-listed IPOs in the
United States were approximately $121 million during the 2019
calendar year and $188 million during the 2020 calendar year. See
Jay R. Ritter, Initial Public Offerings: Updated Statistics tbl.4f
(March 10, 2021), available at https://site.warrington.ufl.edu/ritter/files/IPO-Statistics.pdf.
    \57\ See supra notes 17 and 22 and accompanying text.
    \58\ The existing market value requirement of at least $110
million (or $100 million, if the company has a stockholders' equity
of at least $110 million) in Listing Rule 5315(f)(2)(A) and (B) is a
longstanding requirement that has supported the listing of companies
on the Exchange since 2009. See Securities Exchange Act Release No.
53799 (May 12, 2006), 71 FR 29195 (May 19, 2006) (SR-NASDAQ-2006-
007) (creating the Nasdaq Global Select Market and implementing
initial listing requirements for that market). In 2019, when
approving a proposal by Nasdaq to require that the calculation of
market value of publicly-held shares be limited to unrestricted
securities, the Commission stated that it believed that the
revisions ``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.'' Securities Exchange Act Release No. 86314 (July
5, 2019), 84 FR 33102, 33111 (July 11, 2019) (SR-NASDAQ-2019-009).
The Exchange also applies this same market value requirement to
Selling Shareholder Direct Listings if the company's security has
had sustained recent trading in a Private Placement Market. See
Listing Rule IM-5315-1(a); Securities Exchange Act Release No. 85156
(February 15, 2019), 84 FR 5787 (February 22, 2019) (SR-NASDAQ-2019-
001).
    \59\ The existing $45 million market value requirement in
Listing Rule 5315(f)(2)(C) is a longstanding requirement that has
supported the listing of companies on the Exchange that are suitable
for listing and has existed since 2010. See Securities Exchange Act
Release No. 61904 (April 14, 2010), 75 FR 20651 (April 20, 2010)
(SR-NASDAQ-2010-047) (lowering the market value of publicly-held
shares requirement for the listing of IPOs, affiliates, or spin-offs
from $70 million to $45 million).
---------------------------------------------------------------------------

    Further, as described below, using the lowest price in the price
range established by the issuer in its registration statement to
determine the minimum market value is a reasonable and conservative
approach because the Direct Listing with a Capital Raise will not
proceed at a lower price.

B. Opening Auction Process for Direct Listing With a Capital Raise and
Role of Financial Advisors

    As discussed above, the Exchange has proposed to add the CDL Order
as a new order type to be used in a Direct Listing with a Capital
Raise. An issuer would be required to submit a CDL Order in the opening
auction for the full quantity of offered shares, as reflected in the
effective registration statement, and the CDL Order must be executed in
full. Although the CDL Order would be entered as a market order, it
would only execute at a price 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. The CDL Order cannot be modified
or cancelled by the issuer once entered.\60\
---------------------------------------------------------------------------

    \60\ See supra notes 28-29 and accompanying text. In addition,
as discussed above, the Exchange proposes that it would modify the
fourth tie-breaker used for the Current Reference Price disseminated
in its Order Imbalance Indicator and for the price at which the
Nasdaq Halt Cross will execute to equal the lowest price of the
price range reflected in the effective registration statement. See
supra notes 43-44 and accompanying text. The Commission believes
that this is a reasonable price to use because the auction cannot
occur at a lower price.
---------------------------------------------------------------------------

    In the Order Instituting Proceedings, the Commission raised
concerns about provisions in the original proposal regarding the price
at which the Nasdaq Halt Cross could proceed on the first day of
trading, and whether that price would be consistent with the
disclosures in the issuer's Securities Act registration statement.\61\
Specifically, the Commission expressed concern about the lack of a
proposed maximum price, above which the cross could not proceed, and
that, without an upside limit, it was not clear how the issuer could
ensure that the issuer's Securities Act registration statement would
cover the full amount of securities to be sold in the offering.\62\ The
Commission also expressed concern about a provision in the original
proposal that would have allowed the opening cross to occur at a price
up to 20% below the price range disclosed by the issuer in its
effective registration statement, and that the Exchange had not
explained how investors would know the minimum price at which the
company could sell shares in the offering. Further, the Commission
raised a concern that it was unclear from the proposed rules that the
cross would not occur at a price that is below the price 20% below the
disclosed price range due to the application of an existing provision
that permits an underwriter or financial advisor to select price bands
of up to $0.50 outside of the expected cross price and still have the
cross proceed if the actual price is within the price band.
---------------------------------------------------------------------------

    \61\ If that price were not consistent with the disclosures in
the issuer's Securities Act registration statement, in addition to
any issues under the Securities Act, there would be concerns about
whether the proposal was consistent with Section (6)(b)(5) under the
Exchange Act, including whether the proposal was designed to prevent
fraudulent and manipulative acts and practices, and to protect
investors and the public interest.
    \62\ One commenter stated that it shared this concern. See
Letter from Jeffrey P. Mahoney, General Counsel, Council of
Institutional Investors (January 13, 2021) (``CII Letter II''). In
the Order Instituting Proceedings, the Commission stated, among
other things, that although issuers may file additional Securities
Act registration statements to register additional securities needed
to complete an offering, Section 5 of the Securities Act requires
all of the related registration statements to be effective prior to
the time of sale. To the extent Nasdaq's original proposal may have
resulted in issuers needing to register additional securities beyond
those included in an initial Securities Act registration statement,
it was not apparent how an issuer could ensure that any additional
required registration statement would be effective prior to the time
of opening.
---------------------------------------------------------------------------

    In the amended proposal, the Exchange modified the permissible
price range for the opening cross and provided that Nasdaq would
release a security for trading only if the actual price calculated by
the 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.\63\ The

Commission believes that the changes to the proposed pricing provisions
that the Exchange made in the amended proposal ensure that the actual
price of the cross and the number of shares offered will be consistent
with the issuer's disclosures in its effective registration statement.
The Commission further believes that these changes adequately address
the Commission's concerns arising from the price at which the cross
would proceed.
---------------------------------------------------------------------------

    \63\ With respect to the potential use of price bands allowed by
Rule 4120(c)(8), the Exchange states that Nasdaq would set the price
bands and that it intends to set these price bands at zero. The
Exchange further states that the price bands cannot act to allow the
cross to occur outside of the price range disclosed by the issuer in
its effective registration statement because, under the proposal as
amended, the actual price calculated by the cross is required to be
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. See supra note 39 and accompanying text.
---------------------------------------------------------------------------

    The CDL Order and related opening auction procedures proposed by
the Exchange set forth the method by which the issuer participates in
the opening auction, help to prevent the issuer from being in a
position to improperly influence the price discovery process,\64\ and
will help result in the Exchange conducting an auction that is
otherwise consistent with the disclosures in the registration
statement. Specifically, the issuer would be required to submit a CDL
Order in the opening auction for the full quantity of offered shares,
and the security would only be released for trading in the opening
auction at a price that is within the disclosed price range, as
reflected in the effective registration statement. Further, the CDL
Order cannot be modified or cancelled by the issuer once entered. The
Commission notes that it recently approved the use of a similar order
for the opening process for a direct listing with primary offering on
another national securities exchange, stating that an opening process
using such order type provided reasonable assurance that the opening
auction and subsequent trading promote fair and orderly markets, and
that the proposed rules are designed to prevent fraud and manipulation
and protect investors and the public interest, consistent with Section
6(b)(5) under the Exchange Act.\65\
---------------------------------------------------------------------------

    \64\ See supra note 60 and accompanying text. See also proposed
Rule 4702(b)(16), which sets forth the requirements the issuer must
follow in entering the CDL Order, and proposed Rule 4120(c)(9)(B),
which sets forth the requirements for Nasdaq to release the security
for trading in the opening auction for a Direct Listing with a
Capital Raise.
    \65\ See NYSE 2020 Order, supra note 47, 85 FR 85813.
---------------------------------------------------------------------------

    In the Order Instituting Proceedings, the Commission also expressed
concern that the proposed rules appeared to permit the issuer's
financial advisor broad discretion to postpone the offering, which
would effectively cancel the CDL Order. In its original proposal, the
Exchange contemplated that the financial advisor in a Direct Listing
with a Capital Raise would determine when the security is ready to
trade, similar to the role played by an underwriter in an IPO or a
financial advisor in a Selling Shareholder Direct Listing, and could
also postpone the offering at anytime prior to the opening.\66\ In the
amended proposal, the Exchange proposed to modify its rules for the
opening cross to provide that, for a Direct Listing with a Capital
Raise, Nasdaq, in consultation with the financial advisor to the
issuer, would make the determination of whether the security is ready
to trade, and Nasdaq alone would make the determination of whether to
postpone and reschedule the offering, rather than allowing the
financial advisor to make these determinations. Nasdaq would postpone
and reschedule the offering only if there is insufficient buy interest
to satisfy the CDL Order and all other market orders, or if the actual
price calculated by the cross is outside the price range established by
the issuer in its effective registration statement.
---------------------------------------------------------------------------

    \66\ Under current Rule 4120(c)(8) and (9), a security will be
released for trading by the Exchange in its opening cross when the
Exchange receives notice from the underwriter in an IPO (or the
financial advisor in a Selling Shareholder Direct Listing) that the
security is ready to trade and the security passes certain
validation checks. Specifically, in the case of an IPO, the
underwriter will notify the Exchange that the security is ready to
trade. Then the Nasdaq system will calculate the Current Reference
Price at the time and display it to the underwriter. If the
underwriter approves proceeding, the Nasdaq system will conduct
validation checks to determine that all market orders will be
executed in the cross and that the actual price calculated by the
cross does not differ from the price displayed to the underwriter by
an amount in excess of the price band selected by the underwriter.
In addition, the underwriter may determine at any point during the
cross process to postpone and reschedule the offering. In a Selling
Shareholder Direct Listing, a financial advisor performs these
functions.
---------------------------------------------------------------------------

    The Commission believes that providing Nasdaq exclusive discretion
to determine whether to postpone or reschedule the offering, and
limiting that discretion to cases where the CDL Order could not
otherwise be executed, adequately addresses the concerns expressed in
the Order Instituting Proceedings that the CDL Order, which by its
terms may not be cancelled or modified, could indirectly be cancelled
by virtue of the financial advisor's broad discretion to postpone or
reschedule the offering.\67\ This will help ensure that the offering
will proceed consistent with the disclosures in the issuer's Securities
Act registration statement and, for the reasons noted above, consistent
with Section 6(b)(5) of the Exchange Act.
---------------------------------------------------------------------------

    \67\ See supra notes 38-39 and accompanying text.
---------------------------------------------------------------------------

    In addition, the proposed rules contain a reminder to the financial
advisor that any activities performed under Rules 4120(c)(8) and
4120(c)(9)(A) and (B) must be conducted in a manner that is consistent
with the federal securities laws, including Regulation M and other
anti-manipulation requirements.\68\ This provision will help to ensure
compliance by participants in the direct listing process with these
important provisions of the federal securities laws and that the
proposed changes are consistent with preventing manipulative acts and
practices, and protecting investors and the public interest in
accordance with Section 6(b)(5) of the Exchange Act.
---------------------------------------------------------------------------

    \68\ See proposed Rule 4120(c)(9)(A).
---------------------------------------------------------------------------

C. Lack of Traditional Underwriter Involvement in a Direct Listing With
a Capital Raise and Securities Act Section 11 Standing

    One commenter recommended that the Commission disapprove the
proposal because it believes that the proposed expansion of direct
listings would compound problems that shareholders face in tracing
their share purchases to a registration statement for purposes of
claims under Section 11 of the Securities Act and may lead to a decline
in effective corporate governance at U.S. public companies.\69\ This
commenter stated that traceability concerns often arise when there have
been successive offerings, as shareholders seek to establish their
standing to litigate claims for material misstatements or omissions
under Section 11 of the Securities Act.\70\ The commenter also stated
that investor concerns about the traceability of shares in a direct
listing were drawn into sharp focus in current litigation involving a

direct listing by Slack Technologies, Inc. (``Slack''), which is still
under judicial review.\71\ The commenter further stated that,
independent of the Slack case, direct listings raise important investor
issues that the Commission should consider before opening U.S. capital
markets up to the potential for a vastly increased number of direct
listings.\72\ The commenter urged the Commission to explore updating
its ``proxy plumbing'' regulations before approving an expanded direct
listings regime.\73\ In response, the Exchange stated that the
Commission has previously considered these concerns and stated that the
Commission determined that investor protection concerns relating to
tracing challenges are not unique to direct listings.\74\
---------------------------------------------------------------------------

    \69\ See Letter from Jeffrey P. Mahoney, General Counsel,
Council of Institutional Investors, at 2, 4 (October 8, 2020) (``CII
Letter I''); CII Letter II, supra note 62. The commenter stated that
on September 25, 2020, the Commission issued an order granting the
Council of Institutional Investors' petition for review of an order,
issued by delegated authority, granting approval of a proposed rule
change by the New York Stock Exchange LLC relating to a proposed
direct listing with a primary offering (``NYSE Proposal''). See CII
Letter I, at 1-2. This commenter stated that the Exchange's current
proposal is similar to the NYSE Proposal and cites its petition for
review of the NYSE Proposal as further support for its
recommendation that the Commission disapprove Nasdaq's proposal. See
id. at 1-2 (citing Petition of Council of Institutional Investors
for Review of an Order, Issued by Delegated Authority, Granting
Approval of a Proposed Rule (September 8, 2020), available at
https://www.sec.gov/rules/sro/nyse/2020/34-89684-petition.pdf). See
also NYSE 2020 Order, supra note 47 (setting aside previous approval
by delegated authority and approving proposed rule change).
    \70\ See CII Letter I, supra note 69, at 2-3. The commenter
cited to a statement by Commissioners Lee and Crenshaw, issued
contemporaneously with the Commission's approval of the NYSE
Proposal, that raised a concern about the potential inability of
shareholders to recover losses for inaccurate disclosures due to
traceability problems. See CII Letter II, supra note 62, at 3.
    \71\ See CII Letter I, supra note 69, at 3. In that case, as
noted by the commenter, the defendants sought dismissal of the
Section 11 claims on the grounds that the plaintiffs could not trace
their purchases to Slack's registration statement. The commenter
stated with respect to this case that while the district court
denied the motion to dismiss the Section 11 claims, it is uncertain
whether the Ninth Circuit Court of Appeals, which has agreed to
consider the Section 11 standing issue on an interlocutory basis,
will uphold the district court's reasoning. See id. See also Pirani
v. Slack Technologies, Inc., No. 20-16419 (9th Cir. July 23, 2020),
Docket No. 1.
    \72\ See CII Letter I, supra note 69, at 3.
    \73\ See CII Letter I, supra note 69, at 4.
    \74\ See Notice, supra note 9, 86 FR 12249 (citing NYSE 2020
Order, supra note 47, 85 FR 85816).
---------------------------------------------------------------------------

    In addition, this commenter stated that it is concerned that the
Exchange's proposal would result in a significant increase in the use
of direct listings, and that more direct listings may lead to a decline
in the effective corporate governance of U.S. public companies to the
detriment of long-term investors and the capital markets generally.\75\
The commenter stated that a recent direct listing of Palantir
Technologies Inc. had a multi-class structure that is viewed by many
market participants as inconsistent with effective governance.\76\ In
response, the Exchange stated that it believes that the concern about a
decline in effective corporate governance is unsubstantiated and
challenges in this context are not of such magnitude as to render the
proposal inconsistent with the Exchange Act. The Exchange also pointed
to the Commission's prior conclusion that it did not view a firm
commitment underwriting as necessary to provide adequate investor
protection in the context of a registered offering.\77\
---------------------------------------------------------------------------

    \75\ See CII Letter I, supra note 69, at 4.
    \76\ See CII Letter I, supra note 69, at 5. See also CII Letter
II, supra note 62, at 3 (raising a concern about the lack of a firm
commitment underwriter).
    \77\ See Notice, supra note 9, 86 FR 12250 (citing NYSE 2020
Order, supra note 47, 85 FR 85815).
---------------------------------------------------------------------------

    As the Commission stated previously, the Securities Act does not
require the involvement of an underwriter in registered offerings.\78\
Moreover, given the broad definition of ``underwriter'' \79\ in the
Securities Act, a financial advisor to an issuer engaged in a Direct
Listing with a Capital Raise may, depending on the facts and
circumstances including the nature and extent of the financial
advisor's activities, be deemed a statutory ``underwriter'' with
respect to the securities offering, with attendant underwriter
liabilities.\80\ Thus, the financial advisors to issuers in Direct
Listings with a Capital Raise have incentives to engage in robust due
diligence, given their reputational interests and potential liability,
including as statutory underwriters under the broad definition of that
term.\81\ Moreover, even absent the involvement of a statutory
underwriter, investors would not be precluded from pursuing any claims
they may have under the Securities Act for false or misleading offering
documents, nor would the absence of a statutory underwriter affect the
amount of damages investors may be entitled to recover.
---------------------------------------------------------------------------

    \78\ See, e.g., Item 508(c) of Regulation S-K (``Outline briefly
the plan of distribution of any securities to be registered that are
to be offered otherwise than through underwriters.''). See also NYSE
2020 Order, supra note 47, 85 FR 85815.
    \79\ Section 2(a)(11) of the Securities Act defines
``underwriter'' to include ``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.'' For purposes of this
definition, ``issuer'' includes, in addition to an issuer, any
person directly or indirectly controlling or controlled by the
issuer, or any person under direct or indirect common control with
the issuer.
    \80\ Whether a person would be considered a statutory
underwriter would be evaluated based on the particular facts and
circumstances, in light of the definition of underwriter contained
in Section 2(a)(11). See, e.g., SEC v. Platforms Wireless Int'l
Corp., 617 F.3d 1072 (9th Cir. 2010); Harden v. Raffensperger,
Hughes & Co., 65 F.3d 1392 (7th Cir. 1995); SEC v. Int'l Chem. Dev.
Corp., 469 F.2d 20 (10th Cir. 1972); SEC v. Chinese Consol.
Benevolent Ass'n, 120 F.2d 738 (2d Cir.), cert. denied, 314 U.S. 618
(1941).
    \81\ Depending on the facts and circumstances, an analysis of
activities engaged in by financial advisors in the context of
selling shareholder direct listings could lead to a conclusion that
such advisors are statutory underwriters. The Commission understands
that practices surrounding direct listings continue to evolve. The
Commission will continue to monitor such activities and any
developments, and will evaluate whether further action in this area
would be appropriate.
---------------------------------------------------------------------------

    In addition, issuers, officers, directors, and accountants, with
their attendant liability, play important roles in assuring that
disclosures provided to investors are materially accurate and complete.
The Commission therefore does not view a firm commitment underwriting
as necessary to provide adequate investor protection in the context of
a registered offering. Indeed, exchange-listed companies often engage
in offerings that do not involve a firm commitment underwriting.
    Moreover, as the Commission stated previously, the commenter's
concerns regarding shareholders' ability to pursue claims pursuant to
Section 11 of the Securities Act due to traceability issues are not
exclusive to nor necessarily inherent in a direct listing with a
primary offering, including the proposed Direct Listing with a Capital
Raise.\82\ Rather, this issue is potentially implicated anytime
securities that are not the subject of a recently effective
registration statement trade in the same market as those that are so
subject. Where a registration statement, at the time of effectiveness,
contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, Section 11(a) of the Securities Act
provides a cause of action to ``any person acquiring such security,''
unless it is proved that at the time of the acquisition the person
``knew of such untruth or omission.'' \83\ In the context of
conventional public offerings, courts have interpreted this statutory
provision to permit aftermarket purchasers (i.e., those who acquire
their securities in secondary market transactions rather than in the
initial distribution from the issuer or underwriter) to recover damages
under Section 11, but only if they can trace the acquired shares back
to the offering covered by the false or misleading registration
statement.\84\ Tracing is not set forth in Section 11 and is a
judicially-developed doctrine. The application of this doctrine and, in
particular, the pleading standards and factual proof that potential
claimants must satisfy vary depending on the particular facts of the
distribution and judicial district, and may be affected by pending
litigation.\85\
---------------------------------------------------------------------------

    \82\ See NYSE 2020 Order, supra note 47, 85 FR 85815.
    \83\ Section 11(a) of the Securities Act.
    \84\ See, e.g., In re Century Aluminum Co. Sec. Litig., 729 F.3d
1104 (9th Cir. 2013).
    \85\ See, e.g., Pirani v. Slack Techs., Inc., 2020 U.S. Dist.
LEXIS 70177 (N.D. Cal., April 21, 2020) (addressing Securities Act
Section 11 standing and stating that ``[i]f the text is ambiguous,
the Court `may [also] use canons of construction, legislative
history, and the statute's overall purpose to illuminate Congress's
intent.' '' (quoting Pac. Coast Fed'n of Fishermen's Ass'ns v.
Glaser, 945 F.3d 1076 (9th Cir. 2019)).

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

    Although it is possible that aftermarket purchases following a
Direct Listing with a Capital Raise may present tracing challenges, it
is not yet known whether a court would find that this investor
protection concern is applicable to a Direct Listing with a Capital
Raise. We expect judicial precedent on traceability in the direct
listing context to continue to evolve,\86\ but the Commission is not
aware of any precedent to date in the direct listing context which
prohibits plaintiffs from pursuing Section 11 claims. The Commission is
actively monitoring this issue and will be able to respond to such
concerns when and if they arise.
---------------------------------------------------------------------------

    \86\ For example, the Ninth Circuit Court of Appeals has agreed
to consider the issue of Section 11 standing at issue in Pirani v.
Slack Techs., Inc., 2020 U.S. Dist. LEXIS 70177 (N.D. Cal., April
21, 2020) on an interlocutory basis. See Pirani v. Slack
Technologies, Inc., No. 20-16419 (9th Cir., July 23, 2020), Docket
No. 1.
---------------------------------------------------------------------------

    With respect to the commenter's concern that Nasdaq's proposal
could lead to a significantly increased use of direct listings, we
acknowledge that the ability to raise capital in connection with a
direct listing may lead more issuers to pursue this alternative method
of becoming publicly traded.
    With respect to the commenter's concern that Nasdaq's proposal
could lead to a decline in effective corporate governance,\87\ the
commenter suggests that the involvement of banks and underwriters in
conventional IPOs may help investors encourage issuers to revise
corporate governance arrangements, such as dual-class structures, that
are not favored by such investors. The commenter cited as an example a
recent secondary direct listing in which founders of the listed
company, as a result of the company's multi-class structure, would
retain effective voting control over the company as long as they
collectively owned a specified minimum amount of the company's shares.
Under existing listing rules, nothing precludes companies with multi-
class structures that give their founders disproportionate voting
rights from listing on an exchange in connection with a traditional
firm commitment IPO; indeed, such listings are not uncommon. Moreover,
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 structures are
of sufficient concern to investors, they may be able to influence
companies' governance practices, notwithstanding the lack of a firm
commitment underwriting, 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.
---------------------------------------------------------------------------

    \87\ See supra notes 75-77 and accompanying text.
---------------------------------------------------------------------------

    The Commission finds that the proposed rule change is consistent
with the protection of investors. The proposed rule change will require
all Direct Listings with a Capital Raise to be registered under the
Securities Act, and thus subject to the existing liability and
disclosure framework under the Securities Act for registered offerings.
Among other disclosures, these registration statements will require
both bona fide price ranges \88\ and audited financial statements
prepared in accordance with either U.S. GAAP or International Financial
Reporting Standards as issued by the International Accounting Standards
Board.\89\
---------------------------------------------------------------------------

    \88\ See, e.g., Instruction 1 to Item 501(b)(3) of Regulation S-
K.
    \89\ See Rule 4-01(a) of Regulation S-X.
---------------------------------------------------------------------------

    The Commission further believes that Direct Listings with a Capital
Raise will provide benefits to existing and potential investors
relative to firm commitment underwritten offerings.\90\ First, because
the securities to be issued by the company in connection with a Direct
Listing with a Capital Raise would be allocated based on matching buy
and sell orders, in accordance with the proposed rules, some investors
may be able to purchase securities in a Direct Listing with a Capital
Raise who might not otherwise receive an initial allocation in a firm
commitment underwritten offering. The proposed rule change therefore
has the potential to broaden the scope of investors that are able to
purchase securities in an initial public offering, at the initial
public offering price, rather than in aftermarket trading.
---------------------------------------------------------------------------

    \90\ See also NYSE 2020 Order, supra note 47, 85 FR 85816.
---------------------------------------------------------------------------

    Second, because the price of securities issued by the company in a
Direct Listing with a Capital Raise will be determined based on market
interest and the matching of buy and sell orders, Direct Listings with
a Capital Raise will provide an alternative way to price securities
offerings that may allow for efficiencies in IPO pricing and
allocation.\91\ In a firm commitment underwritten offering, the
offering price is informed by underwriter engagement with potential
investors to gauge interest in the offering, but ultimately decided
through negotiations between the issuer and the underwriters for the
offering. The underwriters then sell the securities to the initial
purchasers at the public offering price. When the securities begin
trading on the listing exchange, however, the price often varies from
the IPO price. The opening auction in a Direct Listing with a Capital
Raise provides for a different price discovery method for IPOs which
may reduce the spread between the IPO price and subsequent market
trades, a potential benefit to existing and potential investors. In
this way, the proposed rule change may result in additional investment
opportunities while providing companies more options for becoming
publicly traded.\92\
---------------------------------------------------------------------------

    \91\ A frequent academic observation of traditional firm
commitment underwritten offerings is that the IPO price, established
through negotiation between the underwriters and the issuer, is
often lower than the price that the issuer could have obtained for
the securities, based on a comparison of the IPO price to the
closing price on the first day of trading. See, e.g., Patrick M.
Corrigan, Article: The Seller's Curse and the Underwriter's Pricing
Pivot: A Behavioral Theory of IPO Pricing, 13 Va. L. & Bus. Rev.
335; Jay R. Ritter, Initial Public Offerings: Underpricing tbl.1
(December 29, 2020), available at https://site.warrington.ufl.edu/ritter/files/IPOs-Underpricing.pdf.
    \92\ While the Commission acknowledges the possibility that some
companies may pursue a Direct Listing with a Capital Raise instead
of a traditional IPO, these two listing methods may not be
substitutable in a wide variety of instances. For example, some
issuers may require the assistance of underwriters to develop a
broad investor base sufficient to support a liquid trading market;
others may believe a traditional firm commitment IPO is preferable
given the benefits to brand recognition that can result from
roadshows and other marketing efforts that often accompany such
offerings. Thus, we do not anticipate that all companies that are
eligible to go public through a Direct Listing with a Capital Raise
will choose to do so; the method chosen will depend on each issuer's
unique characteristics.
---------------------------------------------------------------------------

    The Commission finds that the Exchange's proposal will facilitate
the orderly distribution and trading of shares, which promotes fair and
orderly markets, and helps the Exchange ensure that its rules prevent
fraudulent and manipulative acts and practices, promote just and
equitable principles of trade and protect investors and the public
interest.\93\ The proposal also will foster competition by providing an
alternative method for companies of sufficient size that decide they
would rather not conduct a firm commitment underwritten offering to
list on the Exchange, thereby removing potential impediments to free
and open markets consistent with Section 6(b)(5) of the Exchange Act
while also supporting capital formation. For the reasons discussed
above, the Commission finds that, on balance, the proposed rule change
to permit Direct Listings with a

Capital Raise is consistent with the Exchange Act.
---------------------------------------------------------------------------

    \93\ See 15 U.S.C. 78f(b)(5). See also 15 U.S.C. 78k-
1(a)(1)(C)(i).
---------------------------------------------------------------------------

IV. Conclusion

    For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment No. 2, 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,\94\ that the proposed rule change (SR-NASDAQ-2020-057),
as modified by Amendment No. 2 thereto, be, and it hereby is, approved.
---------------------------------------------------------------------------

    \94\ 15 U.S.C. 78s(b)(2).
    \95\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\95\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-10968 Filed 5-24-21; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 85, Number 45 (Friday, March 6, 2020)]
[Notices]
[Pages 13159-13160]
[FR Doc No: 2020-04652]

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ENVIRONMENTAL PROTECTION AGENCY

[FRL-10006-08-Region 4]

Public Water System Supervision Program Revision for the State of
Alabama

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice of intended approval.

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SUMMARY: Notice is hereby given that the State of Alabama is revising
its approved Public Water System Supervision Program. Alabama has
adopted drinking water regulations for the Revised Total Coliform Rule.
The Environmental Protection Agency (EPA) has determined that Alabama's

regulations are no less stringent than the federal rule and the
revision otherwise meets applicable Safe Drinking Water Act
requirements. Therefore, EPA intends to approve this revision to the
State of Alabama's Public Water System Supervision Program.

DATES: Any interested person may request a public hearing. A request
for a public hearing must be submitted by April 6, 2020, to the
Regional Administrator at the EPA Region 4 street address shown below.
The Regional Administrator may deny frivolous or insubstantial requests
for a hearing. However, if a substantial request for a public hearing
is made by April 6, 2020, a public hearing will be held. If no timely
and appropriate request for a hearing is received and the Regional
Administrator does not elect to hold a hearing on her own motion, this
determination shall become final and effective on April 6, 2020. Any
request for a public hearing shall include the following information:
The name, address, and telephone number of the individual,
organization, or other entity requesting a hearing; a brief statement
of the requesting person's interest in the Regional Administrator's
determination and a brief statement of the information that the
requesting person intends to submit at such hearing; and the signature
of the individual making the request, or, if the request is made on
behalf of an organization or other entity, the signature of a
responsible official of the organization or other entity.

ADDRESSES: Documents relating to this determination are available for
inspection between the hours of 9:00 a.m. and 4:00 p.m., Monday through
Friday (excluding legal holidays) at the following locations: The
Drinking Water Branch, Alabama Department of Environmental Management,
1400 Coliseum Boulevard, Montgomery, Alabama 36110; and the Drinking
Water Section, U.S. Environmental Protection Agency, Region 4, 61
Forsyth Street SW, Atlanta, Georgia 30303.

FOR FURTHER INFORMATION CONTACT: Dale Froneberger, EPA Region 4,
Drinking Water Section, by mail at the Atlanta street address given
above, by telephone at<PHONE_NUMBER>, or by email at
<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: The State of Alabama has submitted a request
that EPA approve a revision to the State's Safe Drinking Water Act
Public Water System Supervision Program to include the authority to
implement and enforce the Revised Total Coliform Rule. For the request
to be approved, EPA must find the state regulations codified at ADEM
Admin. Code r. 335-7 to be no less stringent than the federal rule
codified at 40 CFR part 141. EPA reviewed Alabama's application using
the federal statutory provisions (Section 1413 of the Safe Drinking
Water Act), federal regulations (at 40 CFR parts 141 and 142), state
regulations, state policies and procedures for implementing the rule,
regulatory crosswalk, and EPA regulatory guidance to determine whether
the request for revision is approvable. EPA determined that the Alabama
regulations are no less stringent than the corresponding federal rule
and the revision otherwise meets applicable Safe Drinking Water Act
requirements. Therefore, EPA intends to approve this revision. If EPA
does not receive a timely and appropriate request for a hearing and the
Regional Administrator does not elect to hold a hearing on her own
motion, this approval shall become final and effective on April 6,
2020.

    Authority: Section 1413 of the Safe Drinking Water Act, as
amended (1996), and 40 CFR part 142.

    Dated: February 20, 2020.
Mary S. Walker,
Regional Administrator, Region 4.
[FR Doc. 2020-04652 Filed 3-5-20; 8:45 am]
BILLING CODE 6560-50-P


[Federal Register: September 13, 2006 (Volume 71, Number 177)]
[Notices]
[Page 54107-54108]
[DOCID:fr13se06-130]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54409; File No. SR-OCC-2006-13]

Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating to a Name Change of a Board Committee and of a Securities
Market

September 6, 2006.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on July 17, 2006, The Options
Clearing Corporation (``OCC'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I, II, and III below, which items have been prepared primarily by
OCC. OCC filed the proposed rule change pursuant to section 19(b)(3)(A)
of the Act \2\ whereby the proposal was effective upon filing with the
Commission. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The proposed rule change reflects the renaming of OCC's Membership/
Margin Committee to the Membership/Risk Committee and of Nasdaq
National Market to the Nasdaq Global Market.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, OCC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. OCC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of such
statements.\3\
---------------------------------------------------------------------------

    \3\ The Commission has modified parts of these statements.
---------------------------------------------------------------------------

(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    The purpose of the proposed rule change is to reflect that OCC has
renamed the Membership/Margin Committee to the Membership/Risk
Committee and that Nasdaq has renamed the Nasdaq National Market to the
Nasdaq Global Market.
    OCC believes that the proposed rule change is consistent with the
purposes and requirements of section 17A of the Act because it reflects
the appropriate titles of an OCC Board committee and a securities
marketplace. The rule change is not inconsistent with the existing by-
laws and rules of OCC, including those proposed to be amended.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    OCC does not believe that the proposed rule change would impose any
burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others

    Written comments were not and are not intended to be solicited with
respect to the proposed rule change, and none have been received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    The foregoing rule change has become effective pursuant to section
19(b)(3)(A)(iii) of the Act \4\ and Rule 19b-4(f)(4) \5\ promulgated
thereunder because the proposal effects a change in an existing service
of OCC that (A) does not adversely affect the safeguarding of
securities or funds in the custody or control of OCC or for which it is
responsible and (B) does not significantly affect the respective rights
or obligations of OCC or persons using the service. At any time within
sixty days of the filing of the proposed rule change, the Commission
may summarily abrogate such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \5\ 17 CFR 240.19b-4(f)(4).

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

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
) or     Send an e-mail to<EMAIL_ADDRESS>Please include

File Number SR-OCC-2006-13 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-OCC-2006-13. This
file number should be included on the subject line if e-mail 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 Web site (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 inspection
and copying in the Commission's Public Reference Section, 100 F Street,
NE., Washington, DC 20549. Copies of such filing also will be available
for inspection and copying at the principal office of OCC and on OCC's
Web site at http://www.optionsclearing.com. All comments received will

be posted without change; the Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-OCC-2006-13 and should be submitted on
or before October 4, 2006.
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    \6\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\6\
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-15189 Filed 9-12-06; 8:45 am]

BILLING CODE 8010-01-P