[Federal Register Volume 78, Number 124 (Thursday, June 27, 2013)]
[Notices]
[Pages 38711-38712]
[FR Doc No: 2013-15408]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Project No. 13124-003]

Copper Valley Electric Association, Inc.; Notice of Availability
of Environmental Assessment

    In accordance with the National Environmental Policy Act of 1969
and the Federal Energy Regulatory Commission's (Commission or FERC's)
regulations, 18 Code of Federal Regulations (CFR) Part 380 (Order No.
486, 52 Federal Register 47897), the Office of Energy Projects has
reviewed Copper Valley Electric Association, Inc.'s application for an
original license to construct the Allison Creek Hydroelectric Project
(FERC Project No. 13124-003). The proposed 6.5-megawatt project would
be located on Allison

Creek near Valdez, Alaska. The project would not occupy any federal
lands.
    Staff prepared a final environmental assessment (EA) which analyzes
the potential environmental effects of licensing the project, and
concludes that licensing the project, with appropriate environmental
protective measures, would not constitute a major federal action that
would significantly affect the quality of the human environment.
    A copy of the final EA is available for review at the Commission in
the Public Reference Room or may be viewed on the Commission's Web site
at www.ferc.gov using the ``eLibrary'' link. Enter the docket number
excluding the last three digits in the docket number field to access
the document. For assistance, contact FERC Online Support at
<EMAIL_ADDRESS>or toll-free at 1-866-208-3676, or for TTY,
202-502-8659.
    You may also register online at www.ferc.gov/docs-filing/esubscription.asp to be notified via email of new filings and issuances
related to this or other pending projects. For assistance, contact FERC
Online Support. For further information, contact Kim Nguyen by
telephone at<PHONE_NUMBER>, or by email at<EMAIL_ADDRESS>
    Dated: June 21, 2013.
 Kimberly D. Bose,
 Secretary.
[FR Doc. 2013-15408 Filed 6-26-13; 8:45 am]
BILLING CODE 6717-01-P


[Federal Register Volume 85, Number 249 (Tuesday, December 29, 2020)]
[Notices]
[Pages 85807-85817]
[FR Doc No: 2020-28709]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90768; File No. SR-NYSE-2019-67]

Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Setting Aside Action by Delegated Authority and Approving a Proposed
Rule Change, as Modified by Amendment No. 2, To Amend Chapter One of
the Listed Company Manual To Modify the Provisions Relating to Direct
Listings

December 22, 2020.

I. Introduction

    On December 11, 2019, New York Stock Exchange LLC (``NYSE'' 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 amend Chapter One of the
Listed Company Manual (``Manual'') to modify the provisions relating to
direct listings.\3\ Pursuant to the proposal, NYSE would allow an
issuer, at the time of an initial listing on the Exchange, to conduct a
primary offering as part of a direct listing without conducting a firm
commitment underwritten offering.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ On December 13, 2019, the Exchange filed Amendment No. 1 to
the proposed rule change, which amended and replaced the proposed
rule change in its entirety. The proposed rule change, as modified
by Amendment No. 1, was published for comment in the Federal
Register on December 30, 2019. See Exchange Act Release No. 87821
(Dec. 20, 2019), 84 FR 72065. On February 13, 2020, pursuant to
Section 19(b)(2) of the Exchange Act, 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. See Exchange Act Release No. 88190, 85 FR 9891 (Feb. 20,
2020). On March 26, 2020, the Commission instituted proceedings to
determine whether to approve or disapprove the proposed rule change,
as modified by Amendment No. 1. See Exchange Act Release No. 88485,
85 FR 18292 (Apr. 1, 2020) (``OIP''). On June 22, 2020, the Exchange
filed Amendment No. 2 to the proposed rule change, which superseded
the proposed rule change as modified by Amendment No. 1 (``Amendment
No. 2''). On June 24, 2020, the Commission extended the time period
for approving or disapproving the proposal to August 26, 2020. See
Exchange Act Release No. 89147, 85 FR 39226 (June 30, 2020). The
proposed rule change, as modified by Amendment No. 2, was published
for comment in the Federal Register on June 30, 2020. See Exchange
Act Release No. 89148 (June 24, 2020), 85 FR 39246 (``Notice'').
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    On August 26, 2020, the Commission, acting through authority
delegated to the Division of Trading and Markets (``Division''),\4\
approved the proposed rule change, as modified by Amendment No. 2
(``Approval Order'').\5\ On September 8, 2020, the Council of
Institutional Investors (``CII'' or ``Petitioner'') filed a petition
for review of the Approval Order (``Petition for Review''). Pursuant to
Commission Rule of Practice 431(e), the Approval Order was stayed by
the filing with the Commission of a notice of intention to petition for
review.\6\ On September 25, 2020, the Commission issued a scheduling
order, pursuant to Commission Rule of Practice 431, granting the
Petition for Review of the Approval Order and providing until October
16, 2020, for any party or other person to file a written statement in
support of, or in opposition to, the Approval Order.\7\ On October 16,
2020, NYSE submitted a written statement in support of the Approval
Order.\8\
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    \4\ 17 CFR 200.30-3(a)(12).
    \5\ See Exchange Act Release No. 89684, 85 FR 54454 (Sept. 1,
2020).
    \6\ 17 CFR 201.431(e). See Letter to John Carey, Senior
Director, NYSE Group Inc. (Aug. 31, 2020) (providing notice of
receipt of notice of intention for review of delegated action and
stay of order), available at https://www.sec.gov/rules/sro/nyse/2020/34-89684-carey-letter.pdf. On September 4, 2020, NYSE filed a
motion for the Commission to lift the automatic stay of the Approval
Order and a brief in support of its motion to lift the stay. On
September 8, 2020, CII filed a brief in opposition to NYSE's motion
to lift the automatic stay. On September 11, 2020, NYSE filed a
reply brief in support of its motion to lift the stay.
    \7\ See Exchange Act Release No. 90001, 85 FR 61793 (Sept. 30,
2020). In the scheduling order, the Commission also denied NYSE's
motion to lift the automatic stay of the Approval Order and ordered
that the proposed rule change, as modified by Amendment No. 2,
remain stayed.
    \8\ See The New York Stock Exchange LLC's Statement in Support
of Order Approving Proposed Rule Change (Oct. 16, 2020) (``NYSE
Statement'').
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    The Commission has conducted a de novo review of NYSE's proposal,
giving careful consideration to the entire record--including NYSE's
amended proposal, the Petition for Review, and all comments and
statements submitted--to determine whether the proposal is consistent
with the Exchange Act and the rules and regulations issued thereunder.
Under Section 19b(2)(C) of the Exchange Act, the Commission must
approve the proposed rule change of a self-regulatory organization
(``SRO'') if the Commission finds that the proposed rule change is
consistent with the Exchange Act and the applicable rules and
regulations thereunder; if it does not make such a finding, the
Commission must disapprove the proposed rule change.\9\ Additionally,
under Rule 700(b)(3) of the Commission's Rules of Practice, the
``burden to demonstrate that a proposed rule change is consistent with
the Exchange Act and the rules and regulations issued thereunder . . .
is on the self-regulatory organization that proposed the rule change.''
\10\ Further, ``the description of a proposed rule change, its purpose
and operation, its effect, and a legal analysis of its consistency with
applicable requirements must all be sufficiently detailed and specific
to support an affirmative Commission finding.'' \11\ Finally, ``[a]ny
failure of the self-regulatory organization to provide the information
elicited by Form 19b-4 may result in the Commission not having a
sufficient basis to make an affirmative finding that a proposed rule
change is consistent with the Exchange Act and the rules and
regulations issued thereunder that are applicable to the self-
regulatory organization.'' \12\
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    \9\ 15 U.S.C. 78s(b)(2)(C).
    \10\ 17 CFR 201.700(b)(3).
    \11\ Id.
    \12\ Id.
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    For the reasons discussed herein, the Commission has determined
that NYSE has met its burden to show that the proposed rule change is
consistent with the Exchange Act. We thus set aside the Approval Order
and approve NYSE's proposed rule change, as amended. Section 6(b)(5) of
the Exchange Act requires 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 foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, 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, or to regulate by virtue of any authority conferred by the
Exchange Act matters not related to the purposes of the Exchange Act or
the administration of an exchange.\13\
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    \13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The record supports a finding that NYSE's proposal is consistent
with these requirements. In particular, based on that record, the
Commission concludes that, consistent with Section 6(b)(5) of the
Exchange Act, NYSE's proposal will prevent fraudulent and manipulative
acts and practices, promote just and equitable principles of trade,
remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, will protect
investors and the public interest; and will not permit unfair
discrimination between customers, issuers, brokers, or dealers, and is
not designed to regulate by virtue of the Exchange Act matters not
related to the purposes of the Exchange Act or the administration of an
exchange.

II. Description of the Proposal

    In an initial public offering (``IPO'') underwritten on a firm
commitment basis, an underwriter or group of underwriters enter into an
underwriting agreement with the issuer in which they commit to take and
pay for a specified amount of shares at a set price. The underwriters'
purchase price reflects a discount, or spread, to the public offering
price, which is negotiated between the issuer and the underwriters. The
underwriters purchase the securities at the agreed upon discount and
then resell the securities to the initial investors at the public
offering price prior to the opening of trading. The underwriters and
the issuer generally determine the public offering price and the
discount based on indications for interest from prospective initial
purchasers, which typically are, in large part, institutional investors
with ongoing relationships with the underwriters. When the securities
begin trading on an exchange, the opening price is determined based on
orders to buy and sell the securities and may vary significantly from
the initial public offering price. In a direct listing, in contrast,
there is no initial sale to an underwriter or pre-opening sale by the
underwriter to the initial purchasers. Instead, initial sales are
conducted through the exchange, with the prices determined based on
matching buy and sell orders and in accordance with applicable listing
rules.
    Section 102.01B, Footnote (E) of the Manual states that the
Exchange generally expects to list companies in connection with a firm
commitment underwritten IPO, upon transfer from another market, or
pursuant to a spin-off, but also allows for the possibility of using a
direct listing, as described below.\14\ Currently, Footnote (E) states
that the Exchange recognizes that companies that have not previously
had their common equity securities registered under the Exchange Act,
but that have sold common equity securities in a private placement, may
wish to list their common equity securities on the Exchange at the time
of effectiveness of a registration statement \15\ filed solely for the
purpose of allowing existing shareholders to sell their shares.\16\ The
Exchange has proposed to define this type of direct listing already
permitted by the Exchange's rules as a ``Selling Shareholder Direct
Floor Listing.'' \17\ The Exchange has proposed to recognize an
additional type of direct listing in which a company that has not
previously had its common equity securities registered under the
Exchange Act would list its common equity securities on the Exchange at
the time of effectiveness of a registration statement pursuant to which
the company itself would sell shares in the opening auction on the
first day of trading on the Exchange in addition to, or instead of,
facilitating sales by selling shareholders (a ``Primary Direct Floor
Listing'').\18\ Under the proposal, the Exchange would, on a case-by-
case basis, exercise discretion to list companies through a Selling
Shareholder Direct Floor Listing or a Primary Direct Floor Listing.\19\
---------------------------------------------------------------------------

    \14\ See Section 102.01B, Footnote (E) of the Manual.
    \15\ The reference to a registration statement refers to an
effective registration statement filed pursuant to the Securities
Act of 1933 (``Securities Act'').
    \16\ See Section 102.01B, Footnote (E) of the Manual. See also
Exchange Act Release No. 82627 (Feb. 2, 2018), 83 FR 5650 (Feb. 8,
2018) (SR-NYSE-2017-30) (``NYSE 2018 Order'') (approving proposed
rule change to amend Section 102.01B of the Manual to modify the
provisions relating to the qualifications of companies listing
without a prior Exchange Act registration in connection with an
underwritten IPO and amend the Exchange's rules to address the
opening procedures on the first day of trading for such securities).
    \17\ See proposed Section 102.01B, Footnote (E) of the Manual.
Under the proposal, the Exchange would specify that such company may
have previously sold common equity securities in ``one or more''
private placements. The Exchange also has proposed to move the
description of this type of direct listing as involving a company
``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'' so that this description appears in conjunction with
the definition of ``Selling Shareholder Direct Floor Listing.'' See
id.
    \18\ See proposed Section 102.01B, Footnote (E) of the Manual. A
Primary Direct Floor Listing would include any such listing in which
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.
    \19\ See proposed Section 102.01B, Footnote (E) of the Manual.
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    With respect to a Selling Shareholder Direct Floor Listing, the
Exchange proposal retains the existing standards regarding how the
Exchange will determine whether a company has met its market value of
publicly-held shares listing requirement. The Exchange will continue to
determine that such company has met the $100 million aggregate market
value of publicly-held shares requirement based on a combination of
both (i) an independent third-party valuation (``Valuation'') of the
company; and (ii) the most recent trading price for the company's
common stock in a trading system for unregistered securities operated
by a national securities exchange or a registered broker-dealer
(``Private Placement Market'').\20\ Alternatively, in the absence of
any recent trading in a Private Placement Market, the Exchange will
determine that such company has met its market value of publicly-held
shares requirement if the company provides a Valuation evidencing a
market value of publicly-held shares of at least $250 million.\21\
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    \20\ See proposed Section 102.01B, Footnote (E) of the Manual.
The Exchange will attribute a market value of publicly-held shares
to the company equal to the lesser of: (i) The value calculable
based on the Valuation; and (ii) the value calculable based on the
most recent trading price in a Private Placement Market. See Section
102.01B, Footnote (E) of the Manual. For specific requirements
regarding the Valuation and the independence of the valuation agent
conducting such Valuation, see Section 102.01B, Footnote (E) of the
Manual. Section 102.01B, Footnote (E) of the Manual also sets forth
specific factors for relying on a Private Placement Market price.
Generally, the Exchange will only rely on a Private Placement Market
price if it is consistent with a sustained history over a several
month period prior to listing evidencing a market value in excess of
the Exchange's market value requirement.
    \21\ See Section 102.01B, Footnote (E) of the Manual. Shares
held by directors, officers, or their immediate families and other
concentrated holdings of 10 percent or more are excluded in
calculating the number of publicly-held shares. See Section 102.01A,
Footnote (B) of the Manual.

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    With respect to a Primary Direct Floor Listing, the Exchange has
proposed that it will deem a company to have met the applicable
aggregate market value of publicly-held shares requirement if the
company will sell at least $100 million in market value of the shares
in the Exchange's opening auction on the first day of trading on the
Exchange.\22\ Alternatively, where a company is conducting a Primary
Direct Floor Listing and will sell shares in the opening auction with a
market value of less than $100 million, the Exchange will determine
that such company has met its market value of publicly-held shares
requirement if the aggregate market value of the shares the company
will sell in the opening auction on the first day of trading and the
shares that are publicly held immediately prior to the listing is at
least $250 million, with such market value calculated using a price per
share equal to the lowest price of the price range established by the
issuer in its registration statement.\23\
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    \22\ See proposed Section 102.01B, Footnote (E) of the Manual.
    \23\ See proposed Section 102.01B, Footnote (E) of the Manual.
The Exchange states that, for example, if the company is selling
five million shares in the opening auction, there are 45 million
publicly-held shares issued and outstanding immediately prior to
listing, and the lowest price of the price range disclosed in the
company's registration statement is $10 per share, then the Exchange
will attribute to the company a market value of publicly-held shares
of $500 million. See Notice, 85 FR at 39247.
---------------------------------------------------------------------------

    According to the Exchange, a company may list on the Exchange in
connection with a traditional IPO with a market value of publicly-held
shares of $40 million and, in the Exchange's experience in listing
IPOs, a liquid trading market develops after listing for issuers with a
much smaller value of publicly-held shares than the Exchange
anticipates would exist after the opening auction in a Primary Direct
Floor Listing under the proposed market value of publicly-held shares
requirements.\24\ Consequently, the Exchange believes that these
requirements would provide that any company conducting a Primary Direct
Floor Listing would be of a suitable size for Exchange listing and that
there would be sufficient liquidity for the security to be suitable for
auction market trading.\25\ The Exchange also states that, with the
exception of the proposed requirement for Primary Direct Floor
Listings, shares held by officers, directors, or owners of more than
10% of the company stock are not included in calculations of publicly-
held shares for purposes of Exchange listing rules.\26\ The Exchange
states that such investors may acquire in secondary market trades
shares sold by the issuer in a Primary Direct Floor Listing that were
included when calculating whether the issuer meets the market value of
publicly-held shares initial listing requirement.\27\ The Exchange
further states that it believes that because of the enhanced publicly-
held shares requirement for listing in connection with a Primary Direct
Floor Listing, which is much higher than the Exchange's $40 million
requirement for a traditional underwritten IPO, and the neutral nature
of the opening auction process, companies using a Primary Direct Floor
Listing would have an adequate public float and liquid trading market
after completion of the opening auction.\28\
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    \24\ See Notice, 85 FR at 39250.
    \25\ See Notice, 85 FR at 39250.
    \26\ See Notice, 85 FR at 39247. 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.
    \27\ See Notice, 85 FR at 39247.
    \28\ See Notice, 85 FR at 39247.
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    The Exchange states that any company listing in connection with a
Primary Direct Floor Listing or a Selling Shareholder Direct Floor
Listing would continue to be subject to and need to meet all other
applicable initial listing requirements. According to the Exchange,
this would include the requirements of Section 102.01A of the Manual to
have 400 round lot shareholders and 1.1 million publicly-held shares
outstanding at the time of initial listing, and the requirement of
Section 102.01B of the Manual to have a price per share of at least
$4.00 at the time of initial listing.\29\
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    \29\ See Notice, 85 FR at 39247.
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    The Exchange has proposed a new order type to be used by the issuer
in a Primary Direct Floor Listing and rules regarding how that new
order type would participate in a Direct Listing Auction.\30\
Specifically, the Exchange has proposed to introduce an Issuer Direct
Offering Order (``IDO Order''), which would be a Limit Order to sell
that is to be traded only in a Direct Listing Auction for a Primary
Direct Floor Listing.\31\ The IDO Order would have the following
requirements: (1) Only one IDO Order may be entered on behalf of the
issuer and only by one member organization; (2) the limit price of the
IDO Order must be equal to the lowest price of the price range
established by the issuer in its effective registration statement (the
price range is defined as the ``Primary Direct Floor Listing Auction
Price Range''); (3) the IDO Order must be for the quantity of shares
offered by the issuer, as disclosed in the prospectus in the effective
registration statement; (4) the IDO Order may not be cancelled or
modified; and (5) the IDO Order must be executed in full in the Direct
Listing Auction.\32\ Consistent with current rules, a Designated Market
Maker (``DMM'') would effectuate a Direct Listing Auction manually, and
the DMM would be responsible for determining the Auction Price.\33\
Under the proposal, the DMM would not conduct a Direct Listing Auction
for a Primary Direct Floor Listing if (1) the Auction Price would be
below the lowest price or above the highest price of the Primary Direct
Floor Listing Auction Price Range; or (2) there is insufficient buy
interest to satisfy both the IDO Order and all better-priced sell
orders in full.\34\ The Exchange states that if there is insufficient
buy interest and the DMM cannot price the Auction and satisfy the IDO
Order as required, the Direct Auction would not proceed and such
security would not begin trading.\35\ The Exchange represents that, if
a Direct Listing Auction cannot be conducted, the Exchange would notify
market participants via a Trader Update that the Primary Direct Floor
Listing has been cancelled and any orders for that

security that had been entered on the Exchange, including the IDO
Order, would be cancelled back to the entering firms.\36\
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    \30\ Under current Rule 1.1(f), the term ``Direct Listing''
means ``a security that is listed under Footnote (E) to Section
102.01B of the Listed Company Manual.'' The Exchange has proposed to
modify this definition to specify that the term ``Direct Listing''
may refer to either a Selling Shareholder Direct Floor Listing or a
Primary Direct Floor Listing. See proposed Rule 1.1(f). See also
Rule 7.35(a)(1) for the definition of ``Auction'' and Rule
7.35(a)(1)(E) for the definition of ``Direct Listing Auction.''
    \31\ See proposed Rule 7.31(c)(1)(D). See also Rule 7.31(a)(2)
for the definition of ``Limit Order.''
    \32\ See proposed Rule 7.31(c)(1)(D)(i)-(v).
    \33\ ``Auction Price'' is defined as the price at which an
Auction is conducted. See Rule 7.35(a)(5). The Exchange states that
because an IDO Order would not be entered by the DMM, the Exchange
has proposed to include IDO Orders among the types of Auction-Only
Orders that are not available to DMMs. See Notice, 85 FR at 39248,
n.21. See also proposed Rule 7.31(c). An ``Auction-Only Order'' is a
Limit or Market Order that is to be traded only in an auction
pursuant to the Rule 7.35 Series (for Auction-Eligible Securities)
or routed pursuant to Rule 7.34 (for UTP Securities). See Rule
7.31(c). See also Rule 7.31(a)(1) for the definition of ``Market
Order.''
    \34\ See proposed Rule 7.35A(g)(2). A buy (sell) order is
``better-priced'' if it is priced higher (lower) than the Auction
Price, and this includes all sell Market Orders and Market-on-Open
Orders. See Rule 7.35(a)(5)(A). See also Rule 7.31(c)(1)(B) for the
definition of ``Market-on-Open Order.'' A buy (sell) order is ``at-
priced'' if it is priced equal to the Auction Price. See Rule
7.35(a)(5)(B).
    \35\ See Notice, 85 FR at 39249.
    \36\ See Notice, 85 FR at 39249.
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    Currently, Rule 7.35A(h) generally provides that, once an Auction
Price has been determined, better-priced orders are guaranteed to
participate in the Auction at the Auction Price, whereas at-priced
orders are not guaranteed to participate and will be allocated
according to specified priority rules.\37\ The Exchange has proposed
that an IDO Order would be guaranteed to participate in the Direct
Listing Auction at the Auction Price.\38\ If the limit price of the IDO
Order is equal to the Auction Price, the IDO Order would have priority
at that price.\39\ The Exchange states that providing priority to an
at-priced IDO Order would increase the potential for the IDO Order to
be executed in full, and therefore for the Primary Direct Floor Listing
to proceed.\40\
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    \37\ See Rule 7.35A(h)(1) and (2).
    \38\ See proposed Rule 7.35A(h)(4).
    \39\ See proposed Rule 7.35A(h)(4).
    \40\ See Notice, 85 FR at 39249.
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    In addition, the Exchange has proposed to specify that two existing
provisions would apply in the case of a Selling Shareholder Direct
Floor Listing only. Currently, a DMM will publish a pre-opening
indication if the Auction Price is anticipated to be a change of more
than the Applicable Price Range \41\ from a specified Indication
Reference Price.\42\ Under the proposal, the Indication Reference Price
for a security that is a Selling Shareholder Direct Floor Listing that
has had recent sustained trading in a Private Placement Market prior to
listing would be the most recent transaction price in that market or,
if none, would be a price determined by the Exchange in consultation
with a financial advisor to the issuer of such security.\43\ Further,
when facilitating the opening on the first day of trading of a Selling
Shareholder Direct Floor Listing that has not had a recent sustained
history of trading in a Private Placement Market prior to listing, the
DMM would consult with a financial advisor to the issuer of such
security in order to effect a fair and orderly opening of such
security.\44\ The Exchange states that these provisions are not
applicable to a Primary Direct Floor Listing because, unlike for a
Selling Shareholder Direct Floor Listing, the registration statement
for a Primary Direct Floor Listing would include a price range within
which the company anticipates selling the shares it is offering.\45\
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    \41\ The ``Applicable Price Range'' for determining whether to
publish a pre-opening indication, with limited exception, is 5% for
securities with an Indication Reference Price over $3.00 and $0.15
for securities with an Indication Reference Price equal to or lower
than $3.00. See Rule 7.35A(d)(3)(A).
    \42\ See Rule 7.35A(d)(1)(A).
    \43\ See proposed Rule 7.35A(d)(2)(A)(iv).
    \44\ See proposed Rule 7.35A(g)(1). The Exchange has proposed a
non-substantive change to this provision to modify a reference to
``Private Placement'' to utilize the defined term ``Private
Placement Market.'' See id.
    \45\ See Notice, 85 FR at 39249.
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    In the case of a Primary Direct Floor Listing, the Exchange has
proposed a new measure of the Indication Reference Price. Specifically,
for a security that is offered in a Primary Direct Floor Listing, the
Indication Reference Price would be the lowest price of the Primary
Direct Floor Listing Auction Price Range.\46\
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    \46\ See proposed Rule 7.35A(d)(2)(A)(v). The Exchange states
that, for example, if the Primary Direct Floor Listing Auction Price
Range is $10.00 to $20.00, then the Indication Reference Price would
be $10.00. See Notice, 85 FR at 39248, n.22.
---------------------------------------------------------------------------

    The Exchange states that any services provided by a financial
advisor to the issuer of a security listing in connection with a
Selling Shareholder Direct Floor Listing or a Primary Direct Floor
Listing (the ``financial advisor'') and the DMM assigned to that
security must provide such services in a manner that is consistent with
all federal securities laws, including Regulation M and other anti-
manipulation requirements.\47\ The Exchange states that, for example,
when a financial advisor provides a consultation to the Exchange as
required by Rule 7.35A(d)(2)(a)(iv), when the DMM consults with a
financial advisor in connection with Rule 7.35A(g)(1), or when a
financial advisor otherwise assists or consults with the DMM as to
pricing or opening of trading in a Selling Shareholder Direct Floor
Listing or Primary Direct Floor Listing, the financial advisor and DMM
will not act inconsistent with Regulation M and other anti-manipulation
provisions of the federal securities laws, or Exchange Rule 2020.\48\
The Exchange represents that it has retained the Financial Industry
Regulatory Authority (``FINRA'') pursuant to a regulatory services
agreement to monitor such compliance with Regulation M and other anti-
manipulation provisions of the federal securities laws, and Rule
2020.\49\ The Exchange has proposed a new commentary that states that,
in connection with a Selling Shareholder Direct Floor Listing, the
financial advisor to the issuer of the security being listed and the
DMM assigned to such security are reminded that any consultation that
the financial advisor provides to the Exchange as required by Rule
7.35A(d)(2)(A)(iv) and any consultation between the DMM and financial
advisor as required by Rule 7.35A(g)(1) is to be conducted in a manner
that is consistent with the federal securities laws, including
Regulation M and other anti-manipulation requirements.\50\
---------------------------------------------------------------------------

    \47\ See Notice, 85 FR at 39249.
    \48\ See Notice, 85 FR at 39249 (citing Rule 2020, which
provides that ``No member or member organization shall effect any
transaction in, or induce the purchase or sale of, any security by
means of any manipulative, deceptive or other fraudulent
contrivance'').
    \49\ See Notice, 85 FR at 39249. The Exchange further represents
that it expects to issue regulatory guidance in connection with a
company conducting a Primary Direct Floor Listing, and that such
regulatory guidance would include a reminder to member organizations
that activities in connection with a Primary Direct Floor Listing,
like activities in connection with other listings, must be conducted
in a manner not inconsistent with Regulation M and other anti-
manipulation provisions of the federal securities laws and Rule
2020. See id. at 39249, n.28.
    \50\ See proposed Rule 7.35A, Commentary .10.
---------------------------------------------------------------------------

    Finally, the Exchange has proposed to remove references to Direct
Listing Auctions from Rule 7.35C, which concerns Exchange-facilitated
auctions.\51\ The Exchange states that, because of the importance of
the DMM to the Direct Listing Auction, if a DMM is unable to manually
facilitate a Direct Listing Auction, the Exchange would not proceed
with a Selling Shareholder Direct Floor Listing or a Primary Direct
Floor Listing.\52\
---------------------------------------------------------------------------

    \51\ See proposed Rule 7.35C(a), (a)(3), (b)(1), and (b)(3).
    \52\ See Notice, 85 FR at 39249.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    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,\53\ 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.\54\
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    \53\ 15 U.S.C. 78f(b)(5).
    \54\ 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).
---------------------------------------------------------------------------

    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.\55\ 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.\56\
---------------------------------------------------------------------------

    \55\ 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., NYSE 2018 Order, 83 FR at 5653, n.53;
Exchange Act Release Nos. 81856 (Oct. 11, 2017), 82 FR 48296, 48298
(Oct. 17, 2017) (SR-NYSE-2017-31); 81079 (July 5, 2017), 82 FR
32022, 32023 (July 11, 2017) (SR-NYSE-2017-11). The Commission has
stated that adequate listing standards, by promoting fair and
orderly markets, are consistent with Section 6(b)(5) of the Exchange
Act, in that they are, among other things, designed to prevent
fraudulent and manipulative acts and practices, promote just and
equitable principles of trade, and protect investors and the public
interest. See, e.g., NYSE 2018 Order, 83 FR at 5653, n.53; Exchange
Act Release Nos. 87648 (Dec. 3, 2019), 84 FR 67308, 67314, n.42
(Dec. 9, 2019) (SR-NASDAQ-2019-059); 88716 (Apr. 21, 2020), 85 FR
23393, 23395, n.22 (Apr. 27, 2020) (SR-NASDAQ-2020-001).
    \56\ ``Meaningful listing standards also are 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.'' Exchange Act Release No.
65708 (Nov. 8, 2011), 76 FR 70799, 70802 (Nov. 15, 2011) (SR-NASDAQ-
2011-073). See also Exchange Act Release Nos. 65709 (Nov. 8, 2011),
76 FR 70795 (Nov. 15, 2011) (SR-NYSE-2011-38); 88389 (Mar. 16,
2020), 85 FR 16163 (Mar. 20, 2020) (SR-NASDAQ-2019-089). The
Exchange, in addition to requiring companies seeking to list to meet
the quantitative listing standards and once listed the quantitative
continued listing standards, also requires listed companies to meet
other qualitative requirements. See, e.g., Section 3, Corporate
Responsibility, of the Manual.
---------------------------------------------------------------------------

    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 Floor Listing.\57\ The
Exchange has proposed to allow companies to list in connection with a
Primary Direct Floor Listing, which would for the first time 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.\58\
---------------------------------------------------------------------------

    \57\ See Section 102.01B, Footnote (E) of the Manual. See also
NYSE 2018 Order, 83 FR at 5654.
    \58\ See NYSE Listed Company Manual Section 102.01B, Footnote
(E) of the Manual which states generally that the Exchange expects
to list companies in connection with a firm commitment underwritten
IPO, upon transfer from another market, or pursuant to a spin-off.
Section 102.01B, Footnote (E) also states, however, that ``the
Exchange recognizes that some companies that have not previously had
their common equity securities registered under the Exchange Act,
but which have sold common equity securities in a private placement,
may wish to list their common equity securities on the Exchange at
the time of effectiveness of a registration statement filed solely
for the purpose of allowing existing shareholders to sell their
shares.''
---------------------------------------------------------------------------

    Several commenters expressed support for the proposed expansion of
direct listings to permit a primary offering.\59\ One commenter, for
example, stated that it supports alternative formats for IPOs,
including direct listing proposals like the one proposed by the
Exchange, and expressed the view that issuers should be offered choices
that match their objectives so long as they protect the integrity of
the markets and are fair and clear to investors, using transparent
processes.\60\ Another commenter believed that allowing for multiple
pathways for private companies to achieve exchange listing would
encourage more companies to participate in public equity markets and
provide investors a broader array of attractive investment
opportunities.\61\
---------------------------------------------------------------------------

    \59\ See Letter from Stephen John Berger, Managing Director,
Global Head of Government & Regulatory Policy, Citadel Securities
(Feb. 18, 2020) (``Citadel Letter''), at 1; Letter from Paul
Abrahimzadeh and Russell Chong, Co-Heads, U.S. Equity Capital
Markets, Citigroup Capital Markets Inc. (Feb. 26, 2020) (``Citigroup
Letter''); Letter from Matthew B. Venturi, Founder & CEO,
ClearingBid, Inc. (Jan. 21, 2020) (``ClearingBid Letter''), at 5;
Letter from David Ludwig, Head of Americas Equity Capital Markets,
Goldman Sachs Group, Inc. (Feb. 7, 2020) (``Goldman Sachs Letter'');
Letter from Burke Dempsey, Executive Vice President Head of
Investment Banking, Wedbush Securities (Apr. 20, 2020) (``Wedbush
Letter'').
    \60\ See Citigroup Letter. This commenter also stated its belief
that the direct listing format would afford broad participation in
the capital formation process and help establish a shareholder base
that has a long-term interest in partnering with management teams.
See id.
    \61\ See Goldman Sachs Letter. This commenter also referenced
the recent direct listings by Spotify Technology S.A. and Slack
Technologies, Inc., and expressed the view that the development of a
direct listing approach to becoming a public company has been a
significant step forward in providing companies greater choice in
their path to going public, and that the ability to include a
primary capital raise in a direct listing will further enhance this
flexibility. See id. See also Citadel Letter, at 1; Wedbush Letter.
---------------------------------------------------------------------------

    In Amendment No. 2, the Exchange made several modifications to its
proposal that were designed to clarify the role of the issuer and
financial advisor in a direct listing to explain how compliance with
various rules and regulations will be addressed. As discussed in more
detail below, these changes: (i) Help to ensure that the issuer cannot
unduly influence the opening price through a new order type that cannot
be modified or canceled; (ii) highlight that financial advisors
involved with direct listings cannot violate the anti-manipulation
provisions of the Exchange Act, including Regulation M; and (iii)
highlight that the Exchange has retained FINRA pursuant to a regulatory
services agreement to monitor compliance with Regulation M and other
anti-manipulation provisions of the federal securities laws. We
conclude that the proposal, as amended by Amendment No. 2, supports a
finding that the proposal is consistent with the Exchange Act. More
specifically, the following aspects of the proposal 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 IDO Order
type and other requirements which address how the issuer will
participate in the opening auction; (ii) discussion of the role of
financial advisors; (iii) addition of the Commentary that provides 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; (iv) retaining FINRA to monitor
compliance with Regulation M and other anti-manipulation provisions of
the federal securities laws and NYSE Rule 2020; (v) clarification of
how market value will be determined for qualifying the company's
securities for listing; and (vi) elimination of the grace period for
meeting certain listing requirements.
    The Commission addresses below the relevant concerns, identified by
either commenters or the Commission in the OIP, relating to NYSE's
proposal to allow direct listings with a primary offering. First, the
Commission addresses issues identified in the OIP related to the
aggregate market value of publicly-held shares requirement and whether
the proposed standards will help facilitate adequate liquidity for
companies listing in a Primary Direct Floor Listing. Second, the
Commission addresses issues identified in the OIP about the initial
listing opening auction process for Primary Direct Floor Listings and
discusses financial advisors. Finally, the Commission addresses
commenters' concerns about whether the proposal is consistent with
investor protection and the public interest given the lack of
traditional underwriter

involvement in a Primary Direct Floor Listing, as well as concerns
about Securities Act Section 11(a) liability. As discussed in greater
detail below, the Commission concludes that the record addresses these
concerns and 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.

A. Aggregate Market Value of Publicly-Held Shares Requirement

    With respect to the aggregate market value of publicly-held shares
requirement, the Exchange proposes to require that it will deem a
company to have met such requirement if the company will sell at least
$100 million in market value of shares in the Exchange's opening
auction on the first day of trading. Alternatively, where a company
will sell shares in the opening auction with a market value of less
than $100 million, the Exchange will deem the company to have met such
requirement if the aggregate market value of the shares the company
will sell in the opening auction on the first day of trading and the
shares that are publicly held immediately prior to listing is at least
$250 million. According to the Exchange, a company may list in
connection with an IPO with a market value of publicly-held shares of
$40 million and, ``in the Exchange's experience in listing IPOs, a
liquid trading market develops after listing for issuers with a much
smaller value of publicly-held shares than the Exchange anticipates
would exist after the opening auction in a Primary Direct Floor
Listing.'' \62\ In Amendment No. 2, the Exchange clarified that market
value would be calculated using a price per share equal to the lowest
price of the price range multiplied by the number of shares being
offered by the issuer.\63\
---------------------------------------------------------------------------

    \62\ Notice, 85 FR at 39250. As described above, in determining
that a company has met the market value of publicly-held shares
standards 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 believes that the Primary Direct Floor Listing will have an
adequate public float and liquid trading market after completion of
the opening auction given the higher market value requirement than
that required for listing an underwritten IPO. See Notice, 85 FR at
39247.
    \63\ See Notice, 85 FR at 39247 and note 23, supra, and
accompanying text.
---------------------------------------------------------------------------

    One commenter expressed the view that the proposal, as originally
noticed for comment, appropriately updated the publicly-held shares and
distribution requirements associated with direct listings in order to
ensure the development of a liquid trading market.\64\ Another
commenter believed that the Exchange should provide data to support its
conclusion that there would be adequate liquidity for a security
listing in connection with a Primary Direct Floor Listing.\65\ In its
statement in support of its proposal, the Exchange stated that its
proposal would impose a substantially higher capitalization requirement
for Primary Direct Floor Listings than its rules require for
traditional IPOs.\66\
---------------------------------------------------------------------------

    \64\ See Citadel Letter, at 1.
    \65\ See Letter from Jeffrey P. Mahoney, General Counsel,
Council of Institutional Investors (July 16, 2020) (``CII Letter
III''), at 5.
    \66\ See NYSE Statement, at 12 (citing Section 102.01B of the
Manual; Approval Order at 16-17). According to the Exchange, it
generally requires companies listing on the Exchange in connection
with an IPO to have a market value of publicly-held shares of at
least $40 million, whereas the proposal would require a company
listing in conjunction with a Primary Direct Floor Listing to either
(1) sell at least $100 million of its listed securities in the
opening auction; or (2) have an aggregate market value of publicly-
held shares immediately prior to listing, together with the market
value of shares the company sells in the opening auction, of at
least $250 million.
---------------------------------------------------------------------------

    The Commission has determined that the Exchange has met its burden
to show that the proposed aggregate market value of 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.\67\ The
Commission reaches this conclusion because the proposed market value
standard for listing a Primary Direct Floor Listing is at least two and
a half times greater than the market value standard that currently
exists under Exchange rules for an Exchange listing of an IPO. The
Commission also finds that the proposed requirements are also
comparable to or higher than the aggregate market value of publicly-
held shares required by the Exchange for initial listing in other
contexts.\68\ Specifically, the Exchange's proposed minimum market
value requirements, which are designed in part to ensure sufficient
liquidity, of $100 million and $250 million for Primary Direct Floor
Listings are, in addition to being higher than the $40 million minimum
market value requirement for IPOs,\69\ comparable to (i) the $100
million and $250 million minimum market value requirements for listing
a Selling Shareholder Direct Floor Listing; \70\ and (ii) the $100
million requirement for aggregate market value of publicly-held shares
for companies that list other than at the time of an IPO, spin-off, or
initial firm commitment underwritten public offering.\71\
---------------------------------------------------------------------------

    \67\ Almost half of exchange-listed IPOs in the recent year had
proceeds that fell below the $100 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. Further, staff concluded that approximately 47.9
percent of the companies that went public via IPO (12.8 percent for
NYSE IPOs and 60.7 percent for NASDAQ IPOs) had an offer size that
fell below $100 million. Similarly, an Ernst & Young report states
that during 2019, the median proceeds raised in exchange-listed IPOs
in the United States were approximately $110 million. See Global IPO
trends: Q4 2019, Ernst & Young, available at https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/growth/ey-global-ipo-trends-q4-2019.pdf.
    \68\ The Exchange did not provide the data specifically
referenced by a commenter. See supra note 65 and accompanying text.
However, the proposed minimum market value requirements are
comparable to or higher than those listing standards applied by the
Exchange in other contexts. See supra notes 20-21 and 66 and
accompanying text.
    \69\ The existing $40 million market value requirement in
Exchange Rules (Section 102.01B of the Manual) is a longstanding
requirement that has supported the listing of companies on the
Exchange that are suitable for listing and have existed since at
least 2009. See Section 102.01B of the Manual. See Exchange Act
Release No. 60501 (Aug. 13, 2009), 74 FR 42348 (Aug. 21, 2009) (SR-
NYSE-2009-80) (lowering the aggregate market value of publicly-held
shares for the listing of IPOs and spin-offs from $60 million to $40
million).
    \70\ The Commission previously approved the standards for
Selling Shareholder Direct Floor Listings as supporting listing on
the Exchange and the maintenance of fair and orderly markets thereby
protecting investors and the public interest in accordance with
Section 6(b)(5) of the Exchange Act. See NYSE 2018 Order, 83 FR at
5654.
    \71\ See Section 102.01B of the Manual. The Commission
previously has found that this longstanding requirement is suitable
for initial listing of companies on the Exchange and that the
standard has supported listings of companies on the Exchange over
many years. For example, in 1999 the Commission approved the
existing $100 million aggregate market value standard of publicly-
held shares standard that currently applies to listings other than
IPOs and spin-offs. In approving this proposal, the Commission
stated its belief that this threshold requirement, among others,
should ``ensure that only companies of a certain minimum size are
included among those listing on the Exchange, thereby protecting
investors by raising the minimum standard for listed companies.''
Exchange Act Release No. 41502 (June 9, 1999), 64 FR 32588 (June 17,
1999) (SR-NYSE-99-13). The 1999 rule change also increased to $60
million the $40 million requirement that applied to IPOs and spin-
offs, which is still significantly below the requirements being
proposed for a Primary Direct Floor Listing. Id. As noted supra at
note 69, the $60 million requirement was lowered back to $40 million
in 2009. See Exchange Act Release No. 60501 (Aug. 13, 2009), 74 FR
42348 (Aug. 21, 2009) (SR-NYSE-2009-80).
---------------------------------------------------------------------------

    And 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

Primary Direct Floor Listing will not proceed at a lower price.

B. Opening Auction Process for Primary Direct Floor Listings and Role
of Financial Advisors

    In the Order Instituting Proceedings, the Commission expressed
concern that, with a Primary Direct Floor Listing, the company could be
the only seller (or a dominant seller) participating in the opening
auction and thus could be in a position to uniquely influence the price
discovery process, and requested the Exchange to explain how its
opening auction rules would apply in a Primary Direct Floor
Listing.\72\ In Amendment No. 2, the Exchange proposed to add the IDO
Order as a new order type to be used by the issuer in a Primary Direct
Floor Listing, and to clarify in its rules how the DMM would conduct
the opening auction for such listings. As discussed above, the issuer
would be required to submit an IDO Order in the opening auction with a
limit price equal to the low end of the Primary Direct Floor Listing
Auction Price Range, and for the full quantity of offered shares, as
reflected in the registration statement. The IDO Order cannot be
modified or canceled by the issuer once entered. Further, the DMM would
conduct the opening auction only if the auction price is within the
Primary Direct Floor Listing Auction Price Range disclosed in the
registration statement, and the IDO Order and all better-priced sell
orders can be satisfied in full. If the auction price is equal to the
limit price of the IDO Order (i.e., the low end of the Primary Direct
Floor Listing Auction Price Range), the IDO Order would have priority
over other sell orders at that price.\73\
---------------------------------------------------------------------------

    \72\ One commenter expressed general support for the proposal
and offered a variety of observations beyond the scope of the
proposal, including with respect to the importance of opening
auction information. See ClearingBid Letter, at 1.
    \73\ In addition, as discussed above, the Exchange proposes that
the DMM will publish a pre-opening indication in a Primary Direct
Floor Listing if the auction price is expected to be outside a price
range around an ``Indication Reference Price'' equal to the low end
of the price range reflected in the registration statement. The
Commission believes this is a reasonable and conservative reference
price because the auction cannot occur at a lower price, and if the
auction occurs at a higher price the proposal errs on the side of
requiring opening indication information to be disseminated to
market participants.
---------------------------------------------------------------------------

    The Commission finds that the IDO Order and related clarifications
proposed by the Exchange help to 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,\74\ and to design an auction that is otherwise consistent with
the disclosures in the registration statement. Specifically, the issuer
would be required to submit an IDO Order in the opening auction with a
limit price equal to the low end of the Primary Direct Floor Listing
Auction Price Range, and for the full quantity of offered shares, as
reflected in the registration statement. Further, the IDO Order cannot
be modified or canceled by the issuer once entered. The Commission
further finds that it is appropriate for the IDO Order to have priority
over other sell orders at the same price if the auction price is at the
limit price of the IDO Order because the auction will not occur at all
unless the IDO Order is satisfied in full. This provision therefore
would allow for both the issuer's IDO Order and better-priced sell
orders to be executed in the opening auction.\75\ The IDO Order
requirements described above mitigate concerns about the price
discovery process in the opening auction and provide reasonable
assurance that the opening auction and subsequent trading promote fair
and orderly markets and that the proposed rules are designed to prevent
manipulative acts and practices, and protect investors and the public
interest in accordance with Section 6(b)(5) of the Exchange Act.
---------------------------------------------------------------------------

    \74\ See supra notes 72-73 and accompanying text. See also
proposed Rule 7.31(c)(1)(D)(i)-(v) which sets forth the requirements
the issuer must follow in entering the IDO Order and proposed Rule
7.35A(g)(2) which sets forth the requirements in order for the DMM
to conduct the direct listing auction for a Primary Direct Floor
Listing.
    \75\ In addition, the proposed changes to Rule 7.35C to remove
the references to Direct Listing Auction would help ensure that all
direct listings occur with a DMM that will facilitate the opening
auction manually, and should help promote fair and orderly markets
in connection with direct listings, because of the role of the DMM
in ensuring that the conditions to conduct the auction, described
above, have been met. The proposed changes to (i) Section 102.01B of
the Manual, Footnote (E) to clarify the description of a Selling
Shareholder Direct Floor Listing, (ii) Rule 1.1(f) to amend the
definition of ``Direct Listing,'' and (iii) Rule 7.35A(g)(1) to use
the defined term ``Private Placement Market'' will also provide
clarity to the Exchange's rules, consistent with the protection of
investors and the public interest under Section 6(b)(5) of the
Exchange Act.
---------------------------------------------------------------------------

    In Amendment No. 2, the Exchange added language to its proposal,
discussed above, reminding a financial advisor to an issuer and the DMM
that any consultations with the financial advisor must be conducted in
a manner consistent with the federal securities laws, including
Regulation M and other anti-manipulation requirements.\76\ The Exchange
also represents that it has retained FINRA to monitor such compliance
and that it plans to issue regulatory guidance in this area. These
steps will also 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.
---------------------------------------------------------------------------

    \76\ See Notice, 85 FR at 39249, and proposed Rule 7.35A,
Commentary .10. See also supra note 36 and accompanying text noting
that the Exchange will issue a regulatory circular to remind member
organizations that activities in connection with a Primary Direct
Floor Listing, like activities in connection with other listings,
must be conducted in a manner not inconsistent with Regulation M and
other anti-manipulation provisions of the federal securities laws
and NYSE Rule 2020.
---------------------------------------------------------------------------

C. Lack of Traditional Underwriter Involvement in a Primary Direct
Floor Listing and Securities Act Section 11(a) Standing

1. Comments on the Proposal
    Several commenters expressed concerns that the lack of traditional
underwriter involvement in direct listings generally would increase
risks for investors, suggesting that direct listings circumvent the
traditional due diligence process and traditional underwriter
liability.\77\ One commenter stated that approval of the proposal would
likely increase the number of companies that forgo the traditional IPO
process, and significantly increase the risks for retail investors,
including by circumventing the due diligence process.\78\ This
commenter expressed concern that direct listings could weaken certain
investor protections, and recommended that the Commission make clear
that financial advisors, exchanges, control shareholders, and directors
involved in a direct listing automatically incur statutory underwriter
liability under the Securities Act and are required to hold

the regulatory capital necessary to act as a de facto underwriter.\79\
On the other hand, one commenter supported direct listings as a
suitable option for certain issuers, and stated that ``[d]ue diligence
is already ably done by the legions of experienced accountants,
lawyers, consultants, rating agencies, etc.'' \80\
---------------------------------------------------------------------------

    \77\ See, e.g., Letter from Christopher A. Iacovella, Chief
Executive Officer, ASA (December 12, 2019) (``ASA Letter I''), at 1.
    \78\ See ASA Letter I, at 1-2. This commenter believed that
allowing companies to raise primary capital through a direct listing
``would be a complete end run around the traditional underwriting
process and . . . create a massive loophole in the regulatory regime
that governs the offerings of securities to the public.'' Id. at 1.
In this commenter's view, two recent high-profile direct listings--
Spotify and Slack--did not work out particularly well for retail
investors, and a robust underwriting process would have uncovered
more of these companies' vulnerabilities before these securities
were offered to the public. See id. at 2. Another commenter stated
that these direct listings may have been successes for private
investors, but the retail and public investors that purchased stock
in Spotify and Slack were under water for years, and one company is
facing a lawsuit because of how direct listings are modeled. See
Letter from Anonymous (June 30, 2020).
    \79\ See ASA Letter I, at 2; Letter from Christopher A.
Iacovella, Chief Executive Officer, American Securities Association
(Mar. 5, 2020) (``ASA Letter II''), at 2-3. Several additional
commenters raised a variety of concerns with the use of a direct
listing to conduct a primary offering. For example, one commenter
expressed the view that ``bailing out'' private market investors
with reduced offering requirements would incent companies to remain
private longer, reduce transparency, and impair price discovery. See
Letter from Anonymous (Dec. 4, 2019). Another commenter took the
position that direct listings are a method for insiders to ``rip-
off'' IPO investors. See Letter from Allan Rosenbalm (Dec. 4, 2019).
Another commenter was critical of direct listings for a variety of
reasons, and expressed the view, among other things, that they are
``an attempt to bypass the independent skilled investment banking
and investment management professionals when establishing the
initial market value of the company.'' Letter from Anonymous (Jan.
3, 2020). Another commenter stated that a primary capital raise
would have many red flags, questioned how to trust a private
company's accounting methods that are not consistent with the public
markets, and stated that a direct listing is ``fraudulent with no
liability.'' See Letter from Anonymous (July 1, 2020).
    \80\ Wedbush Letter.
---------------------------------------------------------------------------

    Another commenter recommended that the Commission disapprove the
proposal and expressed concern that shareholder legal rights under
Section 11 of the Securities Act may be particularly vulnerable in the
case of direct listings, and that investors in direct listings may have
fewer legal protections than investors in IPOs.\81\ The commenter
stated that it could not support direct listings as an alternative to
IPOs if public companies could limit their liability for damages caused
by untrue statements of fact or material omissions of fact within
registration statements associated with direct listings.\82\
---------------------------------------------------------------------------

    \81\ See Letter from Jeffrey P. Mahoney, General Counsel,
Council of Institutional Investors (Jan. 16, 2020) (``CII Letter
I''), at 2; Letter from Jeffrey P. Mahoney, General Counsel, Council
of Institutional Investors (Apr. 16, 2020) (``CII Letter II''), at
2; CII Letter III, at 3-4, 6.
    \82\ See CII Letter I, at 2-3; CII Letter II, at 3; Petition for
Review, at 9-10. This commenter was particularly concerned about
positions taken by the issuer in a recent lawsuit relating to the
direct listing of Slack, and expressed the view that the issuer
``relies on (1) attacking the right of secondary market purchasers
to bring a Section 11 claim; and (2) the inability to determine what
shares were `covered' by Slack's registration statement.'' CII
Letter I, at 2. See also Pirani v. Slack Technologies, Inc., 445 F.
Supp. 3d 367 (N.D. Cal. 2020).
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    The Petitioner's Petition for Review stated that the delegated
order raises important policy issues that should be decided after
plenary consideration by the Commission. In particular, the Petitioner
expanded on its prior comments relating to claims under Section 11 of
the Securities Act, stating that the proposal compounds the problems
shareholders face in tracing their share purchases to a registration
statement. As discussed in greater detail below, Section 11(a) of the
Securities Act allows purchasers to bring claims for damages based on
materially false or misleading registration statements. Courts have
held that plaintiffs lack standing to pursue such claims if they cannot
trace their purchased shares back to the offering covered by the false
or misleading registration statement. The Petitioner stated that the
proposal exacerbates concerns regarding the availability of Section 11
protections because it would ``make it possible for many more shares to
be directly listed and sold without the protections offered by IPO
regulations.'' \83\ The Petitioner acknowledged that traceability
problems may occur because of successive offerings--where first there
is an offering under a registration statement and then there are
unregistered offerings by company insiders after the expiration of any
applicable lockup or Rule 144 holding periods.\84\ The Petitioner also
stated that traceability challenges may also arise in the context of
simultaneous registered and unregistered sales.\85\ The Petitioner also
argued that the very purpose of the proposal is ``to facilitate, if not
encourage, a significant increase in the number of securities that can
be sold to the public without Section 11 protections'' and that it is
hard to understand how that result poses no heightened risk to
investors.\86\ The Petitioner urged the Commission to explore a system
of traceable shares before approving a direct listing regime.\87\
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    \83\ See Petition for Review, at 9.
    \84\ Although not required by federal securities laws or
existing national securities exchange listing rules, a lockup period
is an oft-included contractual agreement or provision negotiated
with the underwriters of an initial public offering that restricts
insiders and certain other pre-IPO security holders from selling,
transferring, or otherwise disposing of their securities for a
specified period--typically 90 to 180 days--following the initial
public offering. As these provisions are not required by federal
securities laws or existing national securities exchange listing
rules, the specific terms of lockup agreements can and do vary
between offerings. Rule 144 creates a safe harbor for the sale of
restricted or control securities under the exemption in Section
4(a)(1) of the Securities Act if the seller complies with the
conditions of the safe harbor, which includes a minimum holding
period. See 17 CFR 230.144.
    \85\ The Petitioner stated that tracing shares to a registration
statement immediately after an IPO may not be a significant concern
but the situation becomes murkier when insiders are able to sell
their shares in the company after the end of the lockup period. See
Petition for Review, at 8. In discussing traceability issues, the
Petitioner also stated that NYSE's proposal on Selling Shareholder
Direct Floor Listings ``permitted not only the sale of shares
covered by the registration statement, but also the simultaneous
sale of unregistered shares held by insiders, assuming that the
owner of those shares could satisfy the requirements of the Rule 144
exemption from registration.'' See Petition for Review, at 9.
    \86\ See id. at 14. The Petitioner stated with respect to the
Slack case (see note 82, supra) that while the district court denied
a motion to dismiss a Section 11 claim on the grounds that the
plaintiff could not trace their purchase to Slack's registration
statement, the court of appeals has agreed to hear the matter on an
interlocutory basis so it is unclear whether the district court case
will be upheld. See Pirani v. Slack Technologies, Inc., No. 20-16419
(9th Cir. July 23, 2020), Docket No. 1. The Petitioner further
argued that the Approval Order did not cite any cases where the sale
of registered and unregistered shares shortly after an IPO and prior
to the end of a lockup period was used as a basis to dismiss a claim
of a Section 11 violation. See Petition for Review, at 14.
    \87\ See Petition for Review, at 12; CII Letter I, at 2-3; CII
Letter III, at 4.
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2. NYSE Response to Comments
    In response, the Exchange stated that it does not believe that the
absence of underwriters creates a gap in the regulatory regime that
governs offerings of securities to the public.\88\ According to the
Exchange, while involvement of a traditional underwriter is often
necessary to the success of an IPO or other public offering,
underwriter participation in the public capital-raising process is not
required by the Securities Act, and companies regularly access the
public markets for capital raising and other purposes without using
traditional underwriters.\89\ In the Exchange's view, the due diligence
process in Primary Direct Floor Listings is the responsibility of the
gatekeepers who participate in the transaction, such as the company's
board of directors, its senior management, and its independent
accountants.\90\ The Exchange further stated that a company pursuing a
Primary Direct Floor Listing would go through the same process of
publicly filing a registration statement as an underwritten offering,
and if a company's business model exhibits weaknesses, they will be
exposed to the public prior to listing.\91\
---------------------------------------------------------------------------

    \88\ See Letter from Elizabeth K. King, Chief Regulatory
Officer, ICE, General Counsel & Corporate Secretary, NYSE (Mar. 16,
2020) (``NYSE Response Letter''), at 2.
    \89\ See NYSE Response Letter, at 2-3.
    \90\ See NYSE Response Letter, at 2-3. The Exchange took the
position that IPOs carry a certain amount of risk for investors,
that an underwritten IPO does not insulate investors from that risk,
and that there is no reason to believe that companies with direct
listings will perform any better or worse than companies with
underwritten IPOs. See id. at 3.
    \91\ See NYSE Response Letter, at 4. The Exchange also took the
position that the absence of lockup agreements with pre-IPO
shareholders in Primary Direct Floor Listings does not create short-
term price instability, and that at most it shifts the timing of
such instability from six months after the offering to closer to the
time of listing. See id. See also NYSE Statement, at 20, stating
that the same price volatility concerns that cause underwriters to
request lockup agreements in a traditional IPO may apply to direct
listings as well.

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

    In response to the Petitioner's concern about the adequacy of
investor protections under Section 11 of the Securities Act, the
Exchange stated that these concerns flow from an extraneous factor--
namely, lockup agreements. In particular, the Exchange contends that
the Section 11 and traceability concerns are due to the potential lack
of lockup agreements, which are neither prohibited nor required by the
proposal or any other law or regulation, rather than to anything
inherent in direct listings themselves or the Exchange rules permitting
them to be listed.\92\ The Exchange argued that the Petitioner assumes
that because Primary Direct Floor Listings do not require underwriters,
they will never involve lockup agreements, and therefore insider
shareholders will sell their unregistered shares alongside the issuer's
registered shares, potentially making it harder to trace purchased
shares back to the registration statement.\93\ Further, according to
the Exchange, the traceability requirement may make it difficult for
shareholders to establish standing under Section 11 in many situations
that do not involve direct listings, including when a company has
issued securities under more than one registration statement and
distributed those securities through traditional, firm commitment
underwritings.\94\ The Exchange stated that in traditional, firm
commitment underwritten IPOs there is no legal or regulatory
requirement for the issuer to enter into lockup agreements with
insiders, and conversely, there is nothing preventing an issuer in a
direct listing from entering into a lockup agreement.\95\
---------------------------------------------------------------------------

    \92\ See NYSE Statement, at 15.
    \93\ See NYSE Statement, at 18. The Exchange stated that tracing
issues are very fact-dependent and turn on many factors so it is
unclear whether Section 11 tracing difficulties will in fact occur.
See NYSE Statement, at 17.
    \94\ See NYSE Statement, at 18-19 (citing In re Century Aluminum
Co. Sec. Litig., 729 F.3d 1104, 1107-08 (9th Cir 2013); Krim v.
pcOrder.com, Inc., 402 F.3d 489, 496-98 (5th Cir. 2005)).
    \95\ See NYSE Statement, at 20 (stating that in the recent
Selling Shareholder Direct Floor Listing by Palantir, insider
shareholders entered into lockup agreements with respect to certain
shares). Further, the Exchange stated that even if lockup agreements
did prove to be less common in direct listings, there is a market-
based solution to this issue because shareholders will pay less for
shares acquired with direct listings if they would face materially
greater difficulty in pursuing Section 11 claims in connection with
direct listings, and that in turn would incentivize issuers to
structure their direct listings in a way that does not reduce the
protections available under the federal securities laws. See id. at
21, n.67.
---------------------------------------------------------------------------

    According to the Exchange, the only courts to consider Section 11
standing in the context of a direct listing involved the Selling
Shareholder Direct Floor Listing by Slack Technologies, Inc., where
both a federal and a state court concluded that Section 11 did not
preclude plaintiffs, at the pleading stage, from pursuing claims just
because they could not definitively trace the securities they acquired
to the registration statement.\96\ The Exchange stated that for
Petitioner's concerns to materialize, other courts in circumstances
where there is no lockup agreement would need to reach the opposite
conclusion.\97\ Moreover, in response to the Petitioner's arguments
that the Commission should delay implementation of the proposal until
it addresses the traceability issue by enacting certain ``proxy
plumbing'' reform measures, the Exchange stated that the Petitioner has
pursued this goal for many years and the current proposal is not the
proper vehicle to advance this agenda.\98\
---------------------------------------------------------------------------

    \96\ See NYSE Statement, at 21-22 (citing Pirani, 445 F. Supp.
3d at 380-81; Case Management Order #5, In re Slack Techs. Inc.
S'holder Litig., Master File No. 19CIV005370, 2020 WL 4919555, at
*3-5 (Cal. Super. Ct. Aug. 12, 2020)).
    \97\ See NYSE Statement, at 22.
    \98\ See NYSE Statement, at 22-24.
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3. Commission Discussion and Analysis
    The Commission agrees with the Exchange that the Securities Act
does not require the involvement of an underwriter in registered
offerings.\99\ Moreover, given the broad definition of ``underwriter''
\100\ in the Securities Act, a financial advisor to an issuer engaged
in a Primary Direct Floor Listing 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.\101\ Thus, the financial advisors to issuers in Primary
Direct Floor Listings 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. 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.
---------------------------------------------------------------------------

    \99\ 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.'').
    \100\ Section 2(a)(11) of the Securities Act defines
``underwriter'' to mean ``any person who has purchased from an
issuer with a view to, or offers or sells for an issuer in
connection with, the distribution of any security, or participates,
or has a direct or indirect participation in the direct or indirect
underwriting of any such undertaking.''
    \101\ The Commission does not agree, as argued by one commenter,
that financial advisors, exchanges, control shareholders, and
directors involved in a direct listing will necessarily incur
statutory underwriter liability under the Securities Act. See ASA
Letter I, at 2; ASA Letter II, at 2-3. Whether or not any 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).
---------------------------------------------------------------------------

    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.
    The Commission finds that the proposed rule change is consistent
with the protection of investors. First, the Commission disagrees with
the concerns raised by commenters that direct listings would ``rip
off'' investors, reduce transparency, or involve reduced offering
requirements or accounting methods that are not ``up to code with the
public markets.'' \102\ The proposed rule change will require all
Primary Direct Floor Listings 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 \103\ 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.\104\
---------------------------------------------------------------------------

    \102\ See note 79, supra.
    \103\ See, e.g., Instruction 1 to Item 501(b)(3) of Regulation
S-K.
    \104\ See Rule 4-01(a) of Regulation S-X.
---------------------------------------------------------------------------

    Second, Petitioner'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
Primary Direct Floor Listings. 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.'' \105\ 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.\106\ Tracing is not set forth in Section 11 and
is a judicially-developed doctrine. As such, 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.\107\
---------------------------------------------------------------------------

    \105\ Section 11(a) of the Securities Act.
    \106\ See, e.g., In re Century Aluminum Co. Sec. Litig., 729
F.3d 1104 (9th Cir. 2013).
    \107\ 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)).
---------------------------------------------------------------------------

    Aftermarket purchasers following either firm commitment
underwritten IPOs or direct listings may face similar difficulties in
tracing their shares back to a misleading registration statement. In a
number of litigated cases outside of the direct listing context, courts
have denied plaintiffs standing to sue under Section 11 following
registered public offerings on the basis that plaintiffs purchased
their securities in secondary market transactions and could not
directly trace their purchases to the allegedly defective registered
offering because some portion \108\ of the outstanding securities
available for trading--sometimes a very small portion--were not issued
pursuant to the allegedly defective registration statement. These
situations arise where shares may have been issued pursuant to more
than one registration statement, not all of which include material
misstatements or omissions. Shares may have also entered the market
prior to a potential claimant's purchase other than through the
registered offering, such as through sales pursuant to Rule 144.\109\
For example, the shares might have been sold by insiders or significant
shareholders following the expiration of lockup agreements or
applicable restricted periods, or could have also been sold by other
shareholders who were never subject to any such agreement.\110\
Furthermore, traceability concerns can arise when shares are held in
fungible bulk--as they usually are--such that an investor is not able
to establish that the particular shares it purchased were acquired
pursuant to, or are traceable to, a particular misleading registration
statement.\111\
---------------------------------------------------------------------------

    \108\ See, e.g., Barnes v. Osofsky, 373 F.2d 269 (2d Cir. 1967);
Krim v. PCOrder.com, 402 F.3d 489 (5th Cir. 2005) (IPO stock
represented 91% of shares trading in market); In re Century Aluminum
Co. Sec. Litig., 729 F.3d 1104 (9th Cir. 2013) (49 million shares
were already trading in market prior to the issuance of 24.5 million
shares pursuant to allegedly misleading registration statement).
    \109\ Rule 144 is a non-exclusive safe harbor that permits the
resale of restricted securities, without Securities Act
registration, if a number of conditions are met, including a holding
period of either six months or one year, depending on the reporting
status of the issuer. Non-affiliates of a newly-listed issuer may
rely on Rule 144 to sell their securities provided they have held
the securities for at least one year.
    \110\ While lockup agreements are customary in firm commitment
initial public offerings, in the Commission's experience they often
do not cover all of the outstanding shares. There is thus a risk
that, even in the context of IPOs underwritten on a firm commitment
basis, securities other than those issued pursuant to the related
registration statement may enter the trading market prior to the
expiration of any applicable lockup period and thus could raise
questions regarding traceability of shares purchased on a national
securities exchange. Additionally, as the Exchange noted, companies
that pursue a direct listing may also enter into lockup agreements.
Required disclosure in registration statements, for both direct
listings and IPOs, may help investors assess the risk that shares
other than those offered pursuant to the registration statement will
be available for sale. For example, in registration statements for
IPOs and direct listings, issuers are required to provide disclosure
of the amount of shares that may be sold pursuant to Rule 144. See
Item 201(a)(2) of Regulation S-K. Issuers also typically provide
disclosure of the material terms of lockup agreements governing pre-
IPO shares.
    \111\ See, e.g., Krim v. PCOrder.com, 402 F.3d 489 (5th Cir.
2005).
---------------------------------------------------------------------------

    Although it is possible that aftermarket purchases following a
Primary Direct Floor Listing may present tracing challenges, this
investor protection concern is not unique to Primary Direct Floor
Listings, nor (based on the approaches taken by courts as described
above) do we expect any such tracing challenges in this context to be
of such magnitude as to render the proposal inconsistent with the Act.
We expect judicial precedent on traceability in the direct listing
context to continue to evolve,\112\ but the Commission is not aware of,
nor have commenters pointed to, any precedent to date in the direct
listing context which prohibits plaintiffs from pursuing Section 11
claims.
---------------------------------------------------------------------------

    \112\ 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.
---------------------------------------------------------------------------

    The Commission further believes that Primary Direct Floor Listings
will provide benefits to existing and potential investors relative to
firm commitment underwritten offerings. First, because the securities
to be issued by the company in connection with a Primary Direct Floor
Listing 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 Primary Direct Floor Listing 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.
    Second, because the price of securities issued by the company in a
Primary Direct Floor Listing will be determined based on market
interest and the matching of buy and sell orders, Primary Direct Floor
Listings will provide an alternative way to price securities offerings
that may better reflect prices in the aftermarket, and thus may allow
for efficiencies in IPO pricing and allocation.\113\ 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 Primary Direct Floor Listing 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.\114\
---------------------------------------------------------------------------

    \113\ 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.1a (June
17, 2020), https://site.warrington.ufl.edu/ritter/files/IPOs2019_Underpricing.pdf.
    \114\ While the Commission acknowledges the possibility that
some companies may pursue a Primary Direct Floor Listing 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 Primary Direct Floor Listing 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, as well as foster
competition, which is clearly consistent with the purposes of the
Exchange Act. The orderly distribution of, and trading of shares,
promotes fair and orderly markets, and is one of the important roles of
a national securities exchange in ensuring that its rules prevent
fraudulent and manipulative acts and practices, promote just and
equitable principles of trade and protect investors and the public
interest.\115\ The proposal also fosters competition by providing an
alternate 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 Primary Direct Floor Listings is designed to, among other
things, prevent fraudulent and manipulative acts and practices and to
protect investors and the public interest.
---------------------------------------------------------------------------

    \115\ See 15 U.S.C. 78f(b)(5). See also 15 U.S.C. 78k-
1(a)(1)(C)(i).
---------------------------------------------------------------------------

IV. Conclusion

    For 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 Rule 431 of the Commission's
Rules of Practice, that the earlier action taken by delegated
authority, Exchange Act Release No. 89684 (August 26, 2020), 85 FR
54454 (September 1, 2020), is set aside and, pursuant to Section
19(b)(2) of the Exchange Act, the proposed rule change (SR-NYSE-2019-
67), as modified by Amendment No. 2, hereby is approved.

    By the Commission.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020-28709 Filed 12-28-20; 8:45 am]
BILLING CODE 8011-01-P