[Federal Register Volume 84, Number 133 (Thursday, July 11, 2019)]
[Notices]
[Pages 33102-33113]
[FR Doc No: 2019-14723]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86314; File No. SR-NASDAQ-2019-009]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Amendment No. 3 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment No. 3, To
Revise the Exchange's Initial Listing Standards Related to Liquidity

July 5, 2019.

I. Introduction

    On March 21, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to revise the Exchange's initial listing standards
related to liquidity. The proposed rule change was published for
comment in the Federal Register on April 9, 2019.\3\ On May 24, 2019,
pursuant to Section 19(b)(2) of the Act,\4\ the Commission designated a
longer period within which to approve the proposed rule change,
disapprove the proposed rule change, or institute proceedings to
determine whether to approve or disapprove the proposed rule change.\5\
On June 12, 2019, the Exchange filed Amendment No. 1 to the proposed
rule change. On June 13, 2019, the Exchange withdrew Amendment No. 1
and filed Amendment No. 2 to the proposed rule change. On July 1, the
Exchange withdrew Amendment No. 2 and filed Amendment No. 3 to the
proposed rule change, which replaced and superseded the proposed rule
change as originally filed.\6\ The Commission received one comment on
the proposed rule change.\7\ The Commission is publishing this notice
to solicit comments on the proposed rule change, as modified by
Amendment No. 3, from interested persons and is approving the proposed
rule change, as modified by Amendment No. 3, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 85503 (April 3,
2019), 84 FR 14172 (April 9, 2019) (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 85933, 84 FR 25329
(May 31, 2019). The Commission designated July 8, 2019, as the date
by which the Commission shall approve the proposed rule change,
disapprove the proposed rule change, or institute proceedings to
determine whether to approve or disapprove the proposed rule change.
    \6\ Amendment No. 3 is available at: https://www.sec.gov/comments/sr-nasdaq-2019-009/srnasdaq2019009-5751370-186792.pdf.
    \7\ See Letter from Carol Anne Huff, Kirkland & Ellis LLP, to
Eduardo A. Aleman, Deputy Secretary, Commission, dated June 5, 2019
(``Kirkland Letter''). The commenter stated that it believes the
Exchange's proposed exclusion of ``restricted securities'' from the
calculation of round lot holders and public float will provide for a
more accurate measure of liquidity, but advocated for a reasonable
grace period for former special purpose acquisition vehicles
(``SPACs''), after their business combination, to demonstrate
compliance with round lot holder and public float requirements,
irrespective of the structure of the business combination.
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II. Exchange's Description of the Proposal, as Modified by Amendment
No. 3

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

1. Purpose
    Nasdaq is filing this amendment to SR-NASDAQ-2019-009,\8\ which was

published for comment by the Commission on April 9, 2019, in order to
(i) clarify Nasdaq's initial intent to impose a new requirement that at
least 50% of a company's round lot holders must each hold unrestricted
securities with a market value of at least $2,500; (ii) clarify that
the new listing rule requiring a minimum average daily trading volume
for securities trading over-the-counter (``OTC'') of at least 2,000
shares over the 30 day period prior to listing (with trading occurring
on more than half of those 30 days) includes trading volume of the
underlying security on the primary market with respect to an ADR; (iii)
clarify that, in connection with a company applying to list on the
Exchange through a direct listing that has not had sustained recent
trading in a private placement market prior to listing, Nasdaq will
determine that the company has met the market value of unrestricted
publicly held shares requirement if the company satisfies the
applicable requirement and provides an independent third-party
valuation evidencing a market value of publicly held shares of at least
$250,000,000; and (iv) make minor technical changes. This amendment
supersedes and replaces the Initial Proposal in its entirety.
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    \8\ Securities Exchange Act Release No. 85503 (April 3, 2019),
84 FR 14172 (April 9, 2019) (the ``Initial Proposal'').
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    Nasdaq proposes several amendments in this rule change to increase
Nasdaq's requirements for initial listing and help assure adequate
liquidity for listed securities. In addition to the changes described
above, Nasdaq proposes to revise its initial listing criteria to
exclude restricted securities from the Exchange's calculations of a
company's publicly held shares, market value of publicly held shares
and round lot holders (``Initial Liquidity Calculations''). To do so,
Nasdaq proposes to add three new definitions to define ``restricted
securities'', ``unrestricted publicly held shares'' and ``unrestricted
securities'' and proposes to amend the definition of ``round lot
holder''. Nasdaq is not proposing to change the requirements for
continued listing purposes at this time, but believes that these
heightened initial listing requirements will result in enhanced
liquidity for the companies that satisfy them on an ongoing basis.\9\
Each amendment is described in more detail below.
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    \9\ Nasdaq staff may apply additional and more stringent
criteria to a listed company that satisfies all of the continued
listing requirements but where there are indications that there is
insufficient liquidity in the security to support fair and orderly
trading. In such circumstances, Nasdaq would typically first allow
the company to provide and implement a plan to increase its
liquidity in the near term.
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I. Restricted Securities
    Nasdaq is proposing to modify its initial listing standards to
exclude securities subject to resale restrictions from its Initial
Liquidity Calculations. Currently, securities subject to resale
restrictions are included in the Exchange's Initial Liquidity
Calculations, however, such securities are not freely transferrable or
available for outside investors to purchase and therefore do not truly
contribute to a security's liquidity upon listing. Because the current
Initial Liquidity Calculations include restricted securities, a
security with a substantial number of restricted securities could
satisfy the Exchange's initial listing requirements related to
liquidity and list on the Exchange, even though there could be few
freely tradable shares, resulting in a security listing on the Exchange
that is illiquid. Nasdaq is concerned because illiquid securities may
trade infrequently, in a more volatile manner and with a wider bid-ask
spread, all of which may result in trading at a price that may not
reflect their true market value. Less liquid securities also may be
more susceptible to price manipulation, as a relatively small amount of
trading activity can have an inordinate effect on market prices.
    To address this concern, Nasdaq is proposing to adopt a new
definition of ``restricted securities'' at Nasdaq Rule 5005(a)(37),
which includes any securities subject to resale restrictions for any
reason, including restricted securities (1) acquired directly or
indirectly from the issuer or an affiliate of the issuer in
unregistered offerings such as private placements or Regulation D
offerings; \10\ (2) acquired through an employee stock benefit plan or
as compensation for professional services; \11\ (3) acquired in
reliance on Regulation S, which cannot be resold within the United
States; \12\ (4) subject to a lockup agreement or a similar contractual
restriction; \13\ or (5) considered ``restricted securities'' under
Rule 144.\14\ Nasdaq is also proposing to adopt a new definition of
``unrestricted securities'' at Nasdaq Rule 5005(a)(46), which includes
securities that are not restricted securities. In connection with these
amendments, Nasdaq is proposing to renumber the remaining provisions of
Rule 5005 to maintain an organized rule structure.
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    \10\ See, e.g., 17 CFR 230.144(a)(3)(i) and (ii).
    \11\ See, e.g., 17 CFR 230.701(g), which states that securities
issued pursuant to certain compensatory benefit plans and contracts
relating to compensation are considered restricted securities.
    \12\ See 17 CFR 230.144(a)(3)(v), which states that securities
of domestic issuers acquired in a transaction in reliance on
Regulation S are considered restricted securities.
    \13\ Securities issued in such transactions would typically
include a ``restrictive'' legend stating that the securities cannot
be freely resold unless they are registered with the SEC or in a
transaction exempt from the registration requirements, such as the
exemption available under Rule 144.
    \14\ See generally Securities and Exchange Commission Investor
Publications, Rule 144: Selling Restricted and Control Securities
(January 16, 2013), available at: https://www.sec.gov/reportspubs/investorpublications/investorpubsrule144htm.html. Nasdaq would
consider a security as subject to a resale restriction until any
restrictive legends are removed, even if a safe harbor is available
that permits the sale of the security at an earlier date.
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    The Exchange believes that these proposed amendments to the listing
rules will enhance its listing criteria and better protect investors by
helping to ensure that securities listed on Nasdaq are liquid and have
sufficient investor interest to support an exchange listing. Nasdaq
notes that in developing their index methodologies the FTSE Russell and
S&P indices take a similar approach. As disclosed by FTSE Russell,
``All FTSE Russell equity index constituents are free float adjusted in
accordance with the index rules, to reflect the actual availability of
stock in the market for public investment.'' \15\ FTSE Russell excludes
shares held within employee share plans, shares subject to a ``lock-
in'' clause, and shares subject to contractual restrictions.\16\ S&P
Dow Jones adjusts its indices to ``reflect only those shares available
to investors rather than all of a company's outstanding shares.'' \17\
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    \15\ See FTSE Russell, ``Free-Float'', available at: https://www.ftse.com/products/indices/free-float.
    \16\ See FTSE Russell, ``Free Float Restrictions v2.0'', May
2018, available at: https://www.ftse.com/products/downloads/Free_Float_Restrictions.pdf.
    \17\ See S&P Dow Jones Indices, ``Float Adjustment
Methodology'', April 2018, available at: https://us.spindices.com/documents/index-policies/methodology-sp-float-adjustment.pdf.
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A. Publicly Held Shares
    Nasdaq is proposing to modify its initial listing requirements
related to publicly held shares so that they are based only on
unrestricted shares. A company is required to have a minimum number of
publicly held shares in order to list its primary equity securities
(including American Depositary Receipts or ``ADRs'') \18\ on all tiers
of the Exchange. A company is also required

to have a minimum number of publicly held shares in order to list its
preferred stock or secondary classes of common stock on Nasdaq's Global
and Capital Market tiers; \19\ subscription receipts on Nasdaq's
Capital Market tier; or paired share units on Nasdaq's Global Select or
Global Market tiers. Currently, Nasdaq Rule 5005(a)(35) defines
``publicly held shares'' as ``shares not held directly or indirectly by
an officer, director or any person who is the beneficial owner of more
than 10 percent of the total shares outstanding. Determinations of
beneficial ownership in calculating publicly held shares shall be made
in accordance with Rule 13d-3 under the Act.'' As discussed above, the
current definition of publicly held shares does not exclude securities
subject to resale restrictions, which may result in a security with
limited liquidity satisfying the Exchange's initial listing
requirements related to publicly held shares and qualifying to list on
the Exchange.
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    \18\ Rule 5005(a)(33) defines ``Primary Equity Security'' as ``a
Company's first class of Common Stock, Ordinary Shares, Shares or
Certificates of Beneficial Interest of Trust, Limited Partnership
Interests or American Depositary Receipts (ADR) or Shares (ADS).''
    \19\ There are no separate listing requirements on the Nasdaq
Global Select Market for classes of securities other than primary
equity securities. Instead, pursuant to Rule 5320, if the primary
equity security is listed on the Nasdaq Global Select Market,
generally any other security of that same company that qualifies for
listing on the Nasdaq Global Market is also included in the Nasdaq
Global Select Market.
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    Nasdaq proposes adding a new definition of ``unrestricted publicly
held shares'' at Nasdaq Rule 5005(a)(45), which would be defined as
publicly held shares excluding the newly defined ``restricted
securities.'' Nasdaq proposes to revise references to ``publicly held
shares'' to ``unrestricted publicly held shares'' in the following
rules:

----------------------------------------------------------------------------------------------------------------
                                                                                Current required  number of
             Rule No.               Nasdaq market tier         Security type            publicly  held shares
----------------------------------------------------------------------------------------------------------------
5315(e)(2).......................  Global Select.......  Primary Equity Security    At least 1,250,000.
                                                          (including Paired Share
                                                          Units and direct
                                                          listings).
5405(a)(2).......................  Global..............  Primary Equity Security    At least 1,100,000.
                                                          (including Paired Share
                                                          Units).
5415(a)(1).......................  Global..............  Preferred Stock or         At least 200,000.
                                                          Secondary Class of
                                                          Common Stock.
5505(a)(2).......................  Capital.............  Primary Equity Security..  At least 1,000,000.
5510(a)(3).......................  Capital.............  Preferred Stock or         At least 200,000.
                                                          Secondary Class of
                                                          Common Stock.
5520(g)(3).......................  Capital.............  Subscription Receipts....  At least 1,100,000.
----------------------------------------------------------------------------------------------------------------

    As a result, only securities that are freely transferrable will be
included in the calculation of publicly held shares to determine
whether a company satisfies the Exchange's initial listing criteria
under these rules. Nasdaq believes that excluding restricted securities
will better reflect the liquidity of, and investor interest in, a
security and therefore will better protect investors.
    In addition to the above, Nasdaq proposes revising references to
``publicly held shares'' to ``unrestricted publicly held shares'' in
Rule 5310(d), which states that ``in computing the number of publicly
held shares for Global Select purposes, Nasdaq will not consider shares
held by an officer, director or 10% or greater Shareholder \20\ of the
Company,'' and Rule 5226(b) which requires a paired share unit to
satisfy the security-level requirements of Rule 5315 or 5405, including
the number of publicly held shares. Nasdaq also proposes to revise Rule
5205(g) to reflect the change to ``unrestricted publicly held shares.''
\21\ Nasdaq also proposes revising Rule 5215(b) to state that in
considering whether an ADR satisfies the initial listing requirements,
Nasdaq will consider the unrestricted publicly held shares of the
underlying security, and that in determining whether shares of the
underlying security are restricted for this purpose, Nasdaq will only
consider restrictions that prohibit the resale or trading of the
underlying security on the foreign issuer's home country market, as
discussed below.
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    \20\ Rule 5005(a)(40) defines ``Shareholder'' as ``a record or
beneficial owner of a security listed or applying to list. For
purposes of the Rule 5000 Series, the term ``Shareholder'' includes,
for example, a limited partner, the owner of a depository receipt,
or unit.''
    \21\ Rule 5205(g) currently states that ``The computation of
Publicly Held Shares and Market Value of Publicly Held Shares shall
be as of the date of application of the Company.''
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B. Market Value of Publicly Held Shares
    Nasdaq is proposing to modify its initial listing requirements
related to market value of publicly held shares so that they are based
only on unrestricted shares. A company is required to have a minimum
market value of publicly held shares in order to list its primary
equity securities (including ADRs) on all tiers of the Exchange. A
company is also required to have a minimum market value of publicly
held shares in order to list its preferred stock or secondary classes
of common stock on Nasdaq's Global and Capital Market tiers;
subscription receipts on Nasdaq's Capital Market tier; or paired share
units on Nasdaq's Global Select or Global Market tiers. The calculation
of ``market value of publicly held shares'' does not exclude stock
subject to resale restrictions. As discussed above, restricted
securities may not contribute to liquidity and therefore the current
calculation of market value of publicly held shares may result in a
security with limited true liquidity satisfying the listing
requirements related to the market value of publicly held shares and
qualifying to list.
    Nasdaq proposes revising its initial listing requirements so that
they are based on the market value of unrestricted publicly held
shares, and therefore exclude restricted securities, in the following
rules:

----------------------------------------------------------------------------------------------------------------
                                                                                Current required market
             Rule No.                Nasdaq  market tier          Security type                  value
----------------------------------------------------------------------------------------------------------------
5315(c)(1)-(3)....................  Global Select........  Primary Equity Security of  (i) A total market value
                                                            a Closed End Management     of the fund family of at
                                                            Investment Company Listed   least $220 million; (ii)
                                                            with a Fund Family.         an average market value
                                                                                of all funds in the fund
                                                                                family of at least $50
                                                                                million; and (iii) a
                                                                                market of each fund in
                                                                                the fund family of at
                                                                                least $35 million.

5315(f)(2)(A)-(D).................  Global Select........  Primary Equity Securities   (i) At least $110
                                                            (including direct           million; (ii) at least
                                                            listings and Paired Share   $100 million, if the
                                                            Units).                     company has
                                                                                stockholders' equity of
                                                                                at least $110 million;
                                                                                (iii) at least $45
                                                                                million in the case of
                                                                                an initial public
                                                                                offering or spin-off; or
                                                                                (iv) at least $70
                                                                                million in the case of a
                                                                                closed end management
                                                                                investment company
                                                                                registered under the
                                                                                Investment Company Act
                                                                                of 1940.
5405(b)(1)(C).....................  Global...............  Primary Equity Securities   At least $8 million
                                                            (including Paired Share     (Income Standard).
                                                            Units).
5405(b)(2)(C).....................  Global...............  Primary Equity Securities   At least $18 million
                                                            (including Paired Share     (Equity Standard).
                                                            Units).
5405(b)(3)(B).....................  Global...............  Primary Equity Securities   At least $20 million
                                                            (including Paired Share     (Market Value Standard).
                                                            Units).
5405(b)(4)(B).....................  Global...............  Primary Equity Securities   At least $20 million
                                                            (including Paired Share     (Total Assets/Total
                                                            Units).                     Revenue Standard).
5415(a)(2)........................  Global...............  Preferred Stock or          At least $4 million.
                                                            Secondary Classes of
                                                            Common Stock.
5505(b)(1)(B).....................  Capital..............  Primary Equity Securities.  At least $15 million
                                                                                (Equity Standard).
5505(b)(2)(C).....................  Capital..............  Primary Equity Securities.  At least $15 million
                                                                                (Market Value Standard).
5505(b)(3)(C).....................  Capital..............  Primary Equity Securities.  At least $5 million (Net
                                                                                Income Standard).
5510(a)(4)........................  Capital..............  Preferred Stock or          At least $3.5 million.
                                                            Secondary Classes of
                                                            Common Stock.
5520(g)(2)........................  Capital..............  Subscription Receipts.....  At least $100 million.
----------------------------------------------------------------------------------------------------------------

    As discussed above, Nasdaq believes that excluding restricted
securities from the calculation of market value of publicly held shares
will better reflect the liquidity of, and investor interest in, a
security and therefore will better protect investors. Specifically,
market value of publicly held shares is an indication of the size and
investor interest in a company. When restricted securities are included
in that calculation, a company could technically meet Nasdaq's
requirement without actually having sufficient investor interest,
resulting in a security that is illiquid. Less liquid securities may be
more susceptible to price manipulation, as a relatively small amount of
trading activity can have an inordinate effect on market prices and a
company's market value of publicly held shares.
    In addition to the above, Nasdaq proposes revising references to
``market value of publicly held shares'' to ``market value of
unrestricted publicly held shares'' in Rule 5226(b), which requires a
paired share unit listing on Nasdaq's Global Select or Global Market
tiers to satisfy the security-level requirements of Rule 5315 or 5405,
including the market value of publicly held shares.\22\ Nasdaq also
proposes to revise Rule 5205(g) to reflect that the computation for
market value of unrestricted publicly held shares shall be as of the
date of the application of the company for all market tiers.\23\
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    \22\ Nasdaq is also proposing to capitalize defined terms in
Rule 5226(b) that were previously not capitalized for consistency
and in order to maintain an organized rule book structure.
    \23\ Rule 5205(g) currently states that ``The computation of
Publicly Held Shares and Market Value of Publicly Held Shares shall
be as of the date of application of the Company.''
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    Nasdaq also proposes revising references to ``market value of
publicly held shares'' to ``market value of unrestricted publicly held
shares'' in the preamble and subsections (a) and (b) of IM-5315-1,
which currently set forth the Exchange's method of determining bid
price, market capitalization and market value of publicly held shares
for a company applying to list on the Exchange through a direct
listing.\24\ Currently, IM-5315-1(a) states that ``[i]f the Company's
security has had sustained recent trading in a Private Placement
Market,\25\ Nasdaq will attribute a price, market capitalization, and
Market Value of Publicly Held Shares to the Company equal to the lesser
of (i) the value calculable based on an independent third-party
valuation (a ``Valuation'') and (ii) the value calculable based on the
most recent trading price in a Private Placement Market.'' As a result
of the proposed change, Nasdaq will attribute a market value of
unrestricted publicly held shares to the company equal to the lesser of
(i) the value calculable based on a Valuation and (ii) the value
calculable based on the most recent trading price in a Private
Placement Market.
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    \24\ A ``direct listing'' is the listing of a company that has
sold common equity securities in private placements, which have not
been listed on a national securities exchange or traded in the over-
the-counter market pursuant to FINRA Form 211 immediately prior to
the initial pricing on Nasdaq.
    \25\ Rule 5005(a)(34) defines ``Private Placement Market'' as
``a trading system for unregistered securities operated by a
national securities exchange or a registered broker-dealer.''
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    Currently, IM-5315-1(b) states that ``[f]or a security that has not
had sustained recent trading in a Private Placement Market prior to
listing, Nasdaq will determine that such Company has met the Market
Value of Publicly Held Shares requirement if the Company provides a
Valuation evidencing a Market Value of Publicly Held Shares of at least
$250,000,000. Nasdaq will also determine the bid price and market
capitalization based on such Valuation.'' Nasdaq is proposing to revise
this rule to clarify that Nasdaq will determine that such company has
met the market value of unrestricted publicly held shares requirement
if the company satisfies the applicable market value of unrestricted
publicly held shares requirement and provides a Valuation evidencing a
market value of publicly held shares of at least $250,000,000. As a
result, a company applying to list on the Exchange through a direct
listing will be subject to all proposed changes in Rule 5315 to exclude
restricted securities from the Exchange's Initial Liquidity
Calculations, but restricted securities will not be excluded for
purposes of determining whether the Valuation evidences a market value
of publicly held shares of at least $250,000,000. Nasdaq believes that
it is appropriate to include restricted securities in this calculation
because this requirement is

meant to measure the size of the entity, and not necessarily measure
its liquidity, and restricted securities should be included in the
measure of the entity size. Furthermore, as discussed above, a direct
listing would also need to comply with the initial listing standards
set forth in Rule 5315 including the revised Initial Liquidity
Calculations.
    Lastly, Nasdaq proposes revising Rule 5215(b) to state that in
considering whether an ADR satisfies the initial listing requirements,
Nasdaq will consider the market value of unrestricted publicly held
shares of the underlying security, and that in determining whether
shares of the underlying security are restricted for this purpose,
Nasdaq will only consider restrictions that prohibit the resale or
trading of the underlying security on the foreign issuer's home country
market, as discussed below.
C. Round Lot Holders
    Nasdaq is proposing to revise the listing criteria related to the
minimum number of round lot holders for companies seeking to initially
list primary equity securities (including ADRs), preferred stock,
secondary classes of common stock and warrants on the Exchange so that
they are based on holders of unrestricted securities. Currently, Nasdaq
defines a ``round lot holder'' as ``a holder of a Normal Unit of
Trading'' and notes that ``beneficial holders will be considered in
addition to holders of record.'' \26\ Nasdaq defines a ``round lot or
normal unit of trading'' as ``100 shares of a security unless, with
respect to a particular security, Nasdaq determines that a normal unit
of trading shall constitute other than 100 shares.'' \27\ A company is
required to have a minimum number of round lot holders in order to list
securities on the Exchange. While this is another measure of liquidity
designed to help assure that there will be sufficient investor interest
and trading to support price discovery once a security is listed, as
noted above, under the existing rule, all the shares held by a holder
could be restricted securities that do not contribute to liquidity.
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    \26\ Currently, this is Nasdaq Rule 5005(a)(39) but will be
converted to Nasdaq Rule 5005(a)(40).
    \27\ Currently, this is Nasdaq Rule 5005(a)(38) but will be
converted to Nasdaq Rule 5005(a)(39).
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    To address this concern, Nasdaq is proposing to revise the
definition of ``round lot holder'' to mean a holder of a normal unit of
trading of unrestricted securities. This change will impact the
following rules:

----------------------------------------------------------------------------------------------------------------
                                                                                Current required number
             Rule No.                 Nasdaq market tier          Security type           of round lot holders
----------------------------------------------------------------------------------------------------------------
5315(f)(1)(C).....................  Global Select........  Primary Equity Security     At least 450 round lot
                                                            (including Paired Share     holders or a minimum
                                                            Units and direct            number of total holders.
                                                            listings).
5405(a)(3)........................  Global...............  Primary Equity Security     At least 400.
                                                            (including Paired Share
                                                            Units).
5410(d)...........................  Global...............  Warrants..................  At least 400 unless such
                                                                                warrants are listed in
                                                                                connection with an
                                                                                initial firm commitment
                                                                                underwritten public
                                                                                offering.
5415(a)(4)........................  Global...............  Preferred Stock or          At least 100.
                                                            Secondary Class of Common
                                                            Stock.
5505(a)(3)........................  Capital..............  Primary Equity Securities.  At least 300.
5510(a)(2)........................  Capital..............  Preferred Stock or          At least 100.
                                                            Secondary Class of Common
                                                            Stock.
5515(a)(4)........................  Capital..............  Warrants..................  At least 400 unless such
                                                                                warrants are listed in
                                                                                connection with an
                                                                                initial firm commitment
                                                                                underwritten public
                                                                                offering.
5520(g)(4)........................  Capital..............  Subscription Receipts.....  At least 400.
----------------------------------------------------------------------------------------------------------------

    As a result of these changes, a holder of only restricted
securities would not be considered in the round lot holder count.
Nasdaq believes that these amendments will help ensure adequate
distribution and investor interest in a listed security, which will
result in a more liquid trading market and which will better protect
investors. Illiquid securities may trade infrequently, in a more
volatile manner and with a wider bid-ask spread, all of which may
result in trading at a price that may not reflect their true market
value. Less liquid securities also may be more susceptible to price
manipulation, as a relatively small amount of trading activity can have
an inordinate effect on market prices.
    In addition to the above, Nasdaq proposes revising references to
``holder'' to ``round lot holders'' in Rule 5226(b), which requires a
paired share unit applying to list on the Nasdaq Global Select or
Global Market tiers to meet the security-level requirements of Rule
5315 or 5405, which includes the number of round lot holders. Nasdaq
also proposes revising Rule 5215(b) to state that in considering
whether an ADR satisfies this proposed change that determination of
round lot holders be based on holders of unrestricted securities,
Nasdaq will consider whether round lot holders of the underlying
security hold unrestricted shares of that underlying security, and that
in determining whether shares of the underlying security are restricted
for this purpose, Nasdaq will only consider restrictions that prohibit
the resale or trading of the underlying security on the foreign
issuer's home country market, as discussed below. Nasdaq will also
apply the new minimum value requirement for round lot holders to the
underlying security, as proposed below, in addition to the minimum
number of round lot holders required by the applicable tier that the
company is seeking to list on.
D. American Depositary Receipts
    Lastly, Nasdaq proposes to revise Rule 5215(b) to specify how these
new requirements apply to ADRs. Specifically, as under the current rule
for calculating publicly held shares, market value of publicly held
shares, and round lot holders, Nasdaq will continue to consider the
underlying security in calculating the unrestricted publicly held
shares and market value of unrestricted publicly held shares and in
calculating the new definition of a round lot holder. In determining
whether shares of the underlying security are ``restricted'' for these
purposes, only restrictions that prohibit the resale or trading of the
underlying security on the foreign issuer's home country market would
result in those securities being considered restricted for purposes of
the proposed rules. Thus, if the restrictions provided as examples in
the new definition of ``restricted

securities'' would restrict the underlying security from being freely
sold or tradable on its home country market, Nasdaq would also consider
such restrictions when calculating ``unrestricted publicly held
shares.'' Nasdaq believes that this is appropriate because the purpose
of the Initial Liquidity Calculations, and the proposed changes
described herein, is to establish investor interest in the foreign
issuer and ensure adequate liquidity and distribution of the foreign
issuer's underlying security on its home country market, which is held
by the depositary bank and represented by the ADR. For this reason,
existing Rule 5215(b) currently looks to the underlying security when
calculating publicly held shares, market value of publicly held shares,
round lot and public holders and it is similarly appropriate to
consider whether or not the underlying security is freely tradable in
its home country market when determining unrestricted publicly held
shares, market value of unrestricted publicly held shares, and round
lot holders. Excluding securities that are only restricted from resale
or trading in the United States would be not be an appropriate measure
of investor interest in or liquidity of the underlying security because
the underlying security will not be listed or trading in the U.S.\28\
Moreover, applying the new definition of restricted securities to
securities trading on a foreign market, if the securities trading on
the home country market are not already restricted by the examples set
forth in the new definition of restricted securities, would unduly
impose the requirements of a U.S. national securities exchange on those
securities, which will not be listed in the U.S.
---------------------------------------------------------------------------

    \28\ For example, the underlying security may not be eligible to
trade in the U.S., but that would not cause all shares of that
security to be considered restricted if they are freely tradable on
the foreign issuer's home country market.
---------------------------------------------------------------------------

    In addition, Nasdaq proposes to revise the reference to Form S-12
in Rule 5215(b) to Form F-6 in order to refer to the current form
required by the Commission to register ADRs under the Securities Act of
1933.\29\
---------------------------------------------------------------------------

    \29\ Securities Exchange Act Release No. 34-19612 (March 18,
1983), 48 FR 12346 (March 24, 1983).
---------------------------------------------------------------------------

II. Minimum Value Requirement for Holders
    Nasdaq is also proposing to revise the listing rules related to
round lot holders listed in Part I.C, above, except for those
applicable to listing warrants, to impose a new requirement related to
the minimum investment amount held by shareholders. Under the current
definition of a round lot, a shareholder may be considered a round lot
holder by holding exactly 100 shares, which would be worth only $400 in
the case of a stock that is trading at the minimum bid price of $4 per
share.\30\ Nasdaq believes that this minimal investment is not an
appropriate representation of investor interest to support a listing on
a national securities exchange. To address this concern, Nasdaq
proposes to require that for initial listing at least 50% of a
company's required round lot holders must each hold unrestricted
securities with a market value of at least $2,500. Nasdaq does not
propose to impose this requirement on initial listings of warrants,
however, because warrants do not have a minimum price requirement and
may have little value at the time of issuance.\31\ Nonetheless,
warrants are often issued as part of a unit and the common stock
component of the unit would be required to satisfy the minimum value
requirement. Further, in all cases, the security underlying a warrant
must be listed on Nasdaq or be a covered security, as defined in
Section 18(b) of the Securities Act of 1933.\32\ Nasdaq has not
observed problems with the trading of warrants.
---------------------------------------------------------------------------

    \30\ On the Nasdaq Capital Market, certain companies are also
eligible to list at $2 or $3 and the minimum value held by such a
holder would be only $200 or $300, respectively. See Listing Rule
5505(a)(1)(B).
    \31\ Warrants issued as part of a unit must satisfy the initial
listing requirements for warrants applying to list on the applicable
market tier in accordance with Rule 5225.
    \32\ 15 U.S.C. 77r(b).
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    Nasdaq believes that adopting this amendment will help ensure that
a majority of the required minimum number of shareholders hold a
meaningful value of unrestricted securities and that a company has
sufficient investor interest to support an exchange listing.
III. Average Daily Trading Volume
    Nasdaq is proposing to adopt an additional initial listing criteria
for primary equity securities (including ADRs), preferred stock,
secondary classes of common stock and paired share units, previously
trading OTC in the United States. The new rules will require such
securities to have a minimum average daily trading volume over the 30
trading days prior to listing of at least 2,000 shares a day (including
trading volume of the underlying security on the primary market with
respect to an ADR), with trading occurring on more than half of those
30 days (i.e., at least 16 days). Nasdaq believes that this will help
ensure a liquid trading market, promote price discovery and establish
an appropriate market price for the listed securities.
    Nasdaq is proposing to implement this new requirement by making
additional amendments to Rule 5315(e) to add a new Rule 5315(e)(4);
Rule 5405(a) to add a new Rule 5405(a)(4); Rule 5415(a) to add a new
Rule 5415(a)(6); Rule 5505(a) to add a new Rule 5505(a)(5); and Rule
5510(a) to add a new Rule 5510(a)(6).\33\ In connection with the
foregoing amendments, Nasdaq is proposing to revise the cross-
references in Rules 5415(a) and 5510(a) to add new Rules 5415(a)(6) and
5510(a)(6), respectively, and renumber the remaining provisions of Rule
5505(a) to maintain an organized rule structure. In addition, Nasdaq is
proposing to revise Rule 5226(b) to clarify that the average daily
trading volume requirement would apply to companies seeking to list
paired share units on the Exchange.
---------------------------------------------------------------------------

    \33\ Rule 5005(a)(33) defines ``Primary Equity Security'' as ``a
Company's first class of Common Stock, Ordinary Shares, Shares or
Certificates of Beneficial Interest of Trust, Limited Partnership
Interests or American Depositary Receipts (ADR) or Shares (ADS).''
The Exchange considers ADRs to be primary equity securities and
therefore the Exchange's initial listing requirements for preferred
stock and secondary classes of common stock (including Rules
5415(a)(6) and 5510(a)(6)) do not apply to ADRs.
---------------------------------------------------------------------------

    As noted above, the average daily trading volume requirement will
also apply to ADRs. Currently, Nasdaq considers the underlying security
of an ADR when determining annual income from continuing operations,
publicly held shares, market value of publicly held shares,
stockholders' equity, round lot or public holders, operating history,
market value of listed securities, total assets and total revenue.
Nasdaq is proposing amend Rule 5215(b) to state that the average daily
trading volume of the underlying security of an ADR will be considered
in the Exchange's computations for this new requirement. Nasdaq would
consider trading in the security underlying an ADR on the foreign
issuer's primary market together with the average daily trading volume
of the ADR in the U.S. OTC market in determining whether a foreign
issuer seeking to list ADRs satisfies the requirement. Nasdaq believes
that this will help demonstrate adequate investor interest in the
foreign issuer and the underlying security, which will help promote
price discovery and establish an appropriate market price for the
ADR.\34\
---------------------------------------------------------------------------

    \34\ ADR shares trade separately from the underlying securities,
and often have slightly different values. However, ADR share values
usually track closely with the value of the underlying security.

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

    Nasdaq is proposing to adopt an exemption from the proposed average
daily trading volume requirement for securities (including ADRs) listed
in connection with a firm commitment underwritten public offering of at
least $4 million. Nasdaq believes that the sale of securities in an
underwritten public offering provides an additional basis for believing
that a liquid trading market will likely develop for such securities
after listing, since the offering process is designed to promote
appropriate price discovery. Moreover, the underwriters in a firm
commitment underwritten public offering will also generally make a
market in the securities for a period of time after the offering,
assisting in the creation of a liquid trading market. For these
reasons, in part, Nasdaq's rules already provide similar exemptions in
other situations involving a firm commitment underwritten offering.\35\
Nasdaq believes that the process of a firm commitment underwritten
offering similarly supports an exception from the proposed average
daily trading volume requirement. Nasdaq also notes that the same
volume requirement is being proposed for each of Nasdaq's Global
Select, Global and Capital Market tiers, and that it is therefore
appropriate to base the exemption on the same minimum $4 million
offering in each case, notwithstanding the different listing criteria
generally applicable to companies seeking to list on each tier.
Finally, Nasdaq believes that the proposed minimum $4 million firm
commitment underwritten public offering is large enough to represent a
fundamental change in how the company will trade following the
offering, such that the prior trading volume will not be representative
of the volume following the offering. In that regard, Nasdaq notes that
the minimum $4 million offering would be sufficient to satisfy Nasdaq's
one million share public float requirement at the minimum $4 price for
listing on Capital Market. This exemption will be included in new Rules
5315(e)(4), 5405(a)(4), 5415(a)(6), 5505(a)(5), and 5510(a)(6).
---------------------------------------------------------------------------

    \35\ For example, Rules 5410(d) and 5515(a)(4) provide an
exemption from the minimum round lot holder requirement for warrants
listed in connection with an initial firm commitment underwritten
public offering. Rule 5110(c)(3) provides an exemption from the
requirements applicable to a company that was formed by a reverse
merger if the company completes a firm commitment underwritten
public offering where the gross proceeds to the company will be at
least $40 million.
---------------------------------------------------------------------------

    Nasdaq proposes that this change be effective 30 days after
approval by the SEC. Nasdaq notes that it had originally solicited
comment on a similar proposal in October 2018,\36\ which provided
companies with notice that Nasdaq was considering adopting the proposed
changes to the Exchange's Initial Liquidity Calculations. The proposed
30-day delay from approval until operation of the proposed rule will
allow companies a short opportunity to complete an offering or
transaction before the new rules become effective if they have
substantially completed the Nasdaq review process or are near
completion of an offering or transaction, and have relied on the
existing rules.
---------------------------------------------------------------------------

    \36\ See https://listingcenter.nasdaq.com/assets/Liquidity_Measures_Comment_Solicitation.pdf.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\37\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\38\ in particular, in that it is designed 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, as set forth below. Further, the Exchange believes that this
proposal is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 78f(b).
    \38\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission has previously opined on the importance of
meaningful listing standards for the protection of investors and the
public interest.\39\ In particular, the Commission stated:
---------------------------------------------------------------------------

    \39\ Securities Exchange Act Release No. 65708 (November 8,
2011), 76 FR 70799 (November 15, 2011) (approving SR-Nasdaq-2011-073
adopting additional listing requirements for companies applying to
list after consummation of a ``reverse merger'' with a shell
company.)
---------------------------------------------------------------------------

    Among other things, listing standards provide the means for an
exchange to screen issuers that seek to become listed, and to provide
listed status only to those that are bona fide companies with
sufficient public float, investor base, and trading interest likely to
generate depth and liquidity sufficient to promote fair and orderly
markets. Meaningful listing standards also are important given investor
expectations regarding the nature of securities that have achieved an
exchange listing, and the role of an exchange in overseeing its market
and assuring compliance with its listing standards.\40\
---------------------------------------------------------------------------

    \40\ Id. at 70802.
---------------------------------------------------------------------------

    As described below, Nasdaq believes that the proposed rule changes
in this filing are consistent with the investor protection requirement
of Section 6(b)(5) of the Act because they each will enable Nasdaq to
help ensure that issuers seeking to list on the Exchange have
sufficient public float, investor base, and trading interest likely to
generate depth and liquidity. Illiquid securities may trade
infrequently, in a more volatile manner and with a wider bid-ask
spread, all of which may result in trading at a price that may not
reflect their true market value. Less liquid securities also may be
more susceptible to price manipulation, as a relatively small amount of
trading activity can have an inordinate effect on market prices.
I. Restricted Securities
    The proposed amendments will adopt new definitions of ``restricted
securities'' and ``unrestricted securities'' in order to exclude
securities that are subject to resale restrictions from the Exchange's
Initial Liquidity Calculations. The Exchange believes that these
amendments will bolster the Exchange's quantitative shareholder
requirements, and as a result, better reflect and safeguard the
liquidity of a security. The Commission has previously noted the
importance of adequate liquidity in a security and the consequences for
investors when a security is thinly traded. In In the Matter of the
Application of Rocky Mountain Power Company, the Commission observed:

    We note that the requirement concerning the number of shareholders
is not only an important listing criterion but is also a standard used
in conjunction with other standards to ensure that a stock has the
investor following and liquid market necessary for trading. In response
to the Panel's questions, the Company's president acknowledged that the
market for Rocky Mountain's shares would be initially ``very, very
small,'' and that fewer than 20,000 of the Company's over 700,000
shares outstanding were freely tradeable. While Rocky Mountain, as a
technical matter, complied with the shareholder requirement, it failed
to demonstrate an adequate market for its shares, which is at the heart
of this and other [Nasdaq] inclusion requirements.\41\
---------------------------------------------------------------------------

    \41\ See Rocky Mountain Power Co., Securities Exchange Act
Release No. 40648, 1998 SEC LEXIS 2422; 53 SEC. 979 (November 9,
1998).

    Nasdaq believes that adopting the new definitions of restricted
securities and unrestricted securities will 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 protect
investors and the public interest

because securities subject to resale restrictions are not freely
transferrable and therefore excluding restricted securities from the
Exchange's Initial Liquidity Calculations will help ensure that Nasdaq
lists only companies with liquid securities and sufficient investor
interest to support an exchange listing meeting the Exchange's listing
criteria, which will better protect investors.
A. Publicly Held Shares
    The proposed amendments will adopt a new definition of
``unrestricted publicly held shares'' which excludes restricted
securities and revise Nasdaq's initial listing standards to conform the
minimum number of publicly held shares to the new definition. Nasdaq
believes that these changes will 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 protect investors and the
public interest because it will help ensure that a security to be
listed has adequate liquidity and is thus suitable for listing and
trading on an exchange, which will reduce trading volatility and price
manipulation, thereby protecting investors and the public interest.
B. Market Value of Publicly Held Shares
    The proposed amendments will revise the definition of ``market
value'' to exclude restricted securities from the calculation of
``market value of unrestricted publicly held shares'' and revise
Nasdaq's initial listing standards to conform the minimum market value
to the new definition. Nasdaq believes that these changes will 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 protect investors and the public interest because it will
help ensure that a security to be listed has adequate liquidity and
investor interest and is thus suitable for listing and trading on an
exchange, which will reduce trading volatility and price manipulation,
thereby protecting investors and the public interest.
C. Round Lot Holders
    The proposed amendments will exclude restricted securities from the
calculation of the number of round lot holders required to meet the
Exchange's initial listing criteria by revising the definition of
``round lot holder'' to exclude restricted securities. Nasdaq believes
that this amendment will 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 protect investors and the
public interest by helping ensure adequate distribution, shareholder
interest and a liquid trading market of a security.
D. American Depositary Receipts
    The proposed amendments will modify Nasdaq's rules to state that
when considering the security underlying an ADR, Nasdaq will only
consider restrictions that prohibit the resale or trading of the
underlying security on the foreign issuer's home country market.
However, any restrictions, including those provided as examples in the
new definition of ``restricted securities,'' which would restrict the
underlying security from being freely sold or tradable on its home
country market would be considered by Nasdaq when calculating
``unrestricted publicly held shares.'' Nasdaq believes that this is
appropriate because the purpose of the Initial Liquidity Calculations,
and the proposed changes described herein, is to establish investor
interest in the foreign issuer and ensure adequate liquidity and
distribution of the foreign issuer's underlying security on its home
country market, which is held by the depositary bank and represented by
the ADR. For this reason, existing Rule 5215(b) currently looks to the
underlying security when calculating publicly held shares, market value
of publicly held shares, round lot and public holders and it is
similarly appropriate to consider whether or not the underlying
security is freely tradable in its home country market when determining
unrestricted publicly held shares, market value of unrestricted
publicly held shares, and round lot holders. Excluding securities that
are only restricted from resale or trading in the United States would
be not be an appropriate measure of investor interest in or liquidity
of the underlying security because the underlying security will not be
listed or trading in the U.S. Moreover, applying the new definition of
restricted securities to securities trading on a foreign market, if the
securities trading on the home country market are not already
restricted by the examples set forth in the new definition of
restricted securities, would unduly impose the requirements of a U.S.
national securities exchange on those securities, which will not be
listed in the U.S. For the foregoing reasons, Nasdaq believes that this
provision will 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 protect investors and the public
interest.
    Further, the Exchange believes that this provision is not designed
to permit unfair discrimination between customers, issuers, brokers, or
dealers. While the Exchange's Initial Liquidity Calculations for ADRs
would be calculated differently than other securities, these
differences are not unfair because they recognize the unique structure
of ADRs, as already reflected in the existing treatment of ADRs under
Nasdaq's rules, where Nasdaq looks to the underlying security in order
to ensure sufficient investor interest and adequate liquidity and
distribution of the foreign issuer's underlying security, which is
represented by the ADR.
II. Minimum Value Requirement for Holders
    The Exchange proposes adopting a new requirement that at least 50%
of a company's round lot holders hold unrestricted securities with a
market value of at least $2,500. Nasdaq believes that the proposed
$2,500 minimum value is reasonable because the Exchange has noticed
problems with companies listing where a large number of round lot
holders hold exactly 100 shares, which would be worth only $400 in the
case of a stock that is trading at the minimum bid price of $4 per
share, or as little as $200 in the case of a stock listing under the
alternative price criteria. Nasdaq notes that the proposed $2,500
threshold is from 6.5 times to 12.5 times larger than the existing
minimum investment, and Nasdaq believes that this increased amount is a
more appropriate representation of genuine investor interest in the
company and will make it more difficult to circumvent the requirement
through share transfers for no value. As such, Nasdaq believes that
these amendments will 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 protect investors and the
public interest by requiring more than half of the required number of
shareholders hold a more significant investment in the company, and
that the company will therefore have an adequate distribution,
shareholder interest and a liquid trading market of a security.
    Nasdaq does not propose to impose this requirement on the initial
listings of warrants because warrants do not have a minimum price
requirement and may have little value at the time of issuance. The
value of warrants is derived from the value of the underlying security,
which must be listed on Nasdaq or be a covered security and Nasdaq has
not

observed problems with the trading of warrants. As such, Nasdaq
believes that it is not unfairly discriminatory to treat warrants
differently under this proposal and that excluding warrants avoids
imposing an unnecessary impediment to the mechanism of a free and open
market.
III. Average Daily Trading Volume
    The proposed amendments will generally impose a minimum average
daily trading volume over the 30 trading days prior to listing of at
least 2,000 shares a day (including trading volume of the underlying
security on the primary market with respect to an ADR), with trading
occurring on more than half of those 30 days (i.e., at least 16 days).
This will apply to primary equity securities, preferred stock,
secondary classes of common stock and ADRs previously trading OTC in
the United States that apply to list on the Exchange. Nasdaq believes
this proposed change will 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 protect investors and the
public interest by helping to assure adequate liquidity and price
discovery of a security. The Exchange believes that companies trading
at least 2,000 shares a day over a period of 30 trading days prior to
listing, with trading occurring on more than half of those 30 days, can
demonstrate sufficient investor interest to support sustained trading
activity when listed on a national stock exchange.
    The proposed rule change will provide a limited exemption to this
requirement for securities (including ADRs) listed in connection with a
firm commitment underwritten public offering of at least $4 million.
Nasdaq believes that it is consistent with the protection of investors
and the public interest, and not unfairly discriminatory, to exempt
from the proposed average daily trading volume requirement securities
satisfying this exemption because underwriters facilitate appropriate
price discovery and will generally make a market in the securities for
a period of time after the offering, assisting in the creation of a
liquid trading market. Further, Nasdaq believes that this exemption is
consistent with the protection of investors and the public interest,
and not unfairly discriminatory, because the proposed minimum $4
million firm commitment underwritten public offering is large enough to
represent a fundamental change in how the company will trade following
the offering, such that the prior trading volume will not be
representative of the volume following the offering.
    Under the proposed rule, Nasdaq would consider trading in the
security underlying an ADR on the foreign issuer's primary market
together with the average daily trading volume of the ADR in the U.S.
OTC market in determining whether a foreign issuer seeking to list ADRs
satisfies the requirement. Nasdaq believes that this distinction is not
unfairly discriminatory because the trading volume in the underlying
security on the foreign issuer's primary market represents interest in
the foreign issuer's security and that interest is reasonably likely to
be indicative of investor interest in the ADR.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. All domestic and foreign
companies seeking to list primary equity securities, preferred stock,
secondary classes of common stock or subscription receipts would be
affected in the same manner by these changes, across all market tiers.
As discussed above, companies listing ADRs would be treated differently
in some respects than companies listing other primary equity
securities, but those differences reflect the unique characteristics of
ADRs and does not impose an unnecessary burden on competition.
    To the extent that companies prefer listing on a market with these
proposed listing standards, other exchanges can choose to adopt similar
enhancements to their requirements. As such, these changes are neither
intended to, nor expected to, impose any burden on competition between
exchanges.

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

    On October 5, 2018, Nasdaq launched a formal comment solicitation
on proposals to exclude restricted securities from the Exchange's
Initial Liquidity Calculations and adopt a new initial listing criteria
related to prior trading volume for securities that are currently
trading OTC (``2018 Solicitation''), a copy of which is attached hereto
as Exhibit 2.\42\ No comments were received in response to the comment
solicitation.
---------------------------------------------------------------------------

    \42\ The Commission notes that Exhibit 2 is attached to the
Exchange's Amendment No. 3 and not to this notice and order.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 3, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\43\ In particular, the
Commission finds that the proposed rule change, as modified by
Amendment No. 3, is consistent with Section 6(b)(5) of the Act,\44\
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.
---------------------------------------------------------------------------

    \43\ 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).
    \44\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The development and enforcement of meaningful listing standards for
an exchange is of critical importance to financial markets and the
investing public. Among other things, listing standards provide the
means for an exchange to screen issuers that seek to become listed, and
to provide listed status only to those that are bona fide companies
with sufficient public float, investor base, and trading interest
likely to generate depth and liquidity sufficient to promote fair and
orderly markets. Meaningful listing standards also are important given
investor expectations regarding the nature of securities that have
achieved an exchange listing, and the role of an exchange in overseeing
its market and assuring compliance with its listing standards.\45\
---------------------------------------------------------------------------

    \45\ See, e.g., Securities Exchange Act Release Nos. 65708
(November 8, 2011), 76 FR 70799 (November 15, 2011) (SR-Nasdaq-2011-
073) (order approving a proposal to adopt additional listing
requirements for companies applying to list after consummation of a
``reverse merger'' with a shell company); 63607 (December 23, 2010),
75 FR 82420 (December 30, 2010) (SR-NASDAQ-2010-137) (order
approving a proposal to amend initial listing standards to list
securities of special purpose acquisition companies); and 57785 (May
6, 2008), 73 FR 27597 (May 13, 2008) (SR-NYSE-2008-17) (order
approving a proposal to adopt new initial and continued listing
standards to list securities of special purpose acquisition
companies).
---------------------------------------------------------------------------

    Nasdaq has proposed to make more rigorous certain of its initial
listing

standards in order to help assure an adequate level of liquidity exists
for securities that are listing on the Exchange for the first time. The
Exchange has proposed to exclude securities subject to resale
restrictions from the Exchange's Initial Liquidity Calculations. The
Commission believes the proposed changes to the Exchange's calculation
of a company's publicly held shares, market value of publicly held
shares, and round lot holders for purposes of qualifying the company's
securities for initial listing, including the proposed new definitions
of ``Restricted Securities,'' ``Unrestricted Publicly Held Shares,''
and ``Unrestricted Securities,'' and the proposed amended definition of
``Round Lot Holder,'' are consistent with the requirements of the Act,
including the protection of investors, the prevention of fraudulent and
manipulative acts and practices, and the promotion of fair and orderly
markets.
    As noted by the Exchange, Exchange rules currently only exclude
from the publicly held share requirement shares held, directly or
indirectly, by officers, directors or any person who is the beneficial
owner of more than 10 percent of the total shares outstanding.\46\
Nasdaq's publicly held share and market value of publicly held share
requirements, as well as its round lot holder requirement, however,
currently do not exclude restricted shares that would not be freely
tradeable at the time of listing. As a result, under the Exchange's
current initial listing standards,\47\ a security that may not have a
substantial number of unrestricted, freely transferable securities
outstanding and may be considered illiquid may nevertheless satisfy the
Exchange's current initial listing requirements related to liquidity
and qualify to list on the Exchange. Nasdaq notes that an illiquid
stock may trade infrequently and may be subject to volatility as well
as potentially more susceptible to manipulation.\48\
---------------------------------------------------------------------------

    \46\ See definition of ``Publicly Held Shares'' in Nasdaq Rule
5005(a)(35).
    \47\ See supra Section II.A.1.I (Restricted Securities).
    \48\ See id.
---------------------------------------------------------------------------

    The proposed amendments should allow the Exchange to more
accurately determine whether a security has adequate distribution and
liquidity and is thus suitable for listing and trading on the Exchange.
The Commission believes that these amendments should help to ensure
that the Exchange lists only securities with a sufficient market, with
adequate depth and liquidity, and with sufficient investor interest to
support an exchange listing.
    With respect to a company applying to list on the Exchange through
a direct listing, the Exchange amended its proposal to specify that for
a company that has not had sustained recent trading in a private
placement market prior to listing, Nasdaq will determine that the
company has met the Market Value of Unrestricted Publicly Held Shares
requirement if the Company satisfies the applicable Market Value of
Unrestricted Publicly Held Shares requirement set forth in Nasdaq Rule
5315 and provides a Valuation evidencing a Market Value of Publicly
Held Shares of at least $250,000,000.\49\ The Commission believes that
this change is reasonable given that a company applying to list on the
Exchange through a direct listing that is subject to the $250,000,000
valuation requirement would also be required to comply with the initial
listing standards set forth in Nasdaq Rule 5315, including the revised
Initial Liquidity Calculations.
---------------------------------------------------------------------------

    \49\ See supra Section II.A.1.I.B (Market Value of Publicly Held
Shares). The Exchange originally proposed that it would determine
that such a company had met the Market Value of Unrestricted
Publicly Held Shares requirement if the company provided a valuation
evidencing a Market Value of Unrestricted Publicly Held Shares of at
least $250,000,000. See Notice, supra note 3, 84 FR at 14174. The
Exchange states that the $250,000,000 valuation requirement is
designed to be a measure of the size of the company rather than a
measure of its liquidity. See supra Section II.A.1.I.B (Market Value
of Publicly Held Shares).
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    With respect to ADRs, the Commission believes that it is reasonable
and consistent with the Act for the Exchange to consider restrictions
that prohibit the resale or trading of the foreign security underlying
the ADR on the foreign issuer's home country market (rather than on the
U.S. markets) when determining whether a security is restricted for
purposes of the Initial Liquidity Calculations. The Exchange states
that for ADRs, the purpose of the Initial Liquidity Calculations is to
establish investor interest in the foreign issuer and ensure adequate
liquidity and distribution of the foreign issuer's underlying security
on its home country market, which is held by the depositary bank and
represented by the ADR; therefore, excluding securities that are only
restricted from resale or trading in the United States would not be an
appropriate measure of investor interest in or liquidity of the
underlying security because the underlying security will not be listed
or trading in the U.S.\50\ The Commission notes that pursuant to
current Nasdaq Rule 5215(b), the Exchange looks to an ADR's underlying
foreign security for purposes of the Initial Liquidity Calculations,
and that the proposal should help to ensure adequate liquidity and
distribution and sufficient investor interest in the company's
underlying security on its home country market to support the listing
of an ADR in the U.S.
---------------------------------------------------------------------------

    \50\ See supra note 28 and accompanying text.
---------------------------------------------------------------------------

    The Commission received one comment letter that generally supported
the proposed changes but requested that SPACs be given additional time
to comply with the new requirements after a business combination.\51\
The commenter notes that the Exchange currently provides a 30-day grace
period for a former SPAC to demonstrate compliance with the round lot
requirement, if the business combination is structured in a certain
way, and states that a grace period will become more important if the
new standards are approved and should be allowed regardless of the
transaction structure. Nasdaq has not proposed a grace period for SPACs
so the comment is beyond the scope of this proposal. The Commission
notes, however, that it previously stated, in reviewing a Nasdaq
proposal providing for a grace period for SPACs to comply with the
holder and other requirements after a business combination, that
initial listing standards, absent an explicit exception, apply upon
initial listing.\52\ The Commission also recently disapproved a NYSE
proposal requesting additional time for a post-business combination
SPAC to comply with listing standards.\53\ As noted above, the
Commission believes that the proposed standards should help to ensure
upon initial listing (including for SPACs and former SPACs after the
business combination) that there is adequate depth and liquidity and
investor interest to support exchange listing and trading, which should
help to protect investors and the public interest.
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    \51\ See Kirkland Letter, supra note 7.
    \52\ See Securities Exchange Act Release No. 82478 (January 9,
2018), 83 FR 2278 (January 16, 2018) (SR-NASDAQ-2017-087) (Order
Instituting Proceedings).
    \53\ See Securities Exchange Act Release No. 86117 (June 14,
2019), 84 FR 28879 (June 20, 2019) (SR-NYSE-2018-46).
---------------------------------------------------------------------------

    The Commission also believes the proposed new initial listing
requirement that at least 50% of a company's required Round Lot Holders
hold Unrestricted Securities with a market value of at least $2,500 is
consistent with the Act, including the protection of investors, the
prevention of fraudulent and manipulative acts and practices, and the
promotion of fair and orderly markets. The Exchange stated that it has

noticed problems with companies listing where a large number of Round
Lot Holders hold exactly 100 shares, worth as little as $400 in the
case of a stock that is trading at the minimum bid price of $4 per
share, or as little as $200 in the case of a stock listing under the
alternative price criteria.\54\ The Exchange stated that the proposed
$2,500 threshold is 6.5 times to 12.5 times larger than the existing
minimum investment, and that it believes this increased amount is a
more appropriate representation of genuine investor interest in the
company and will make it more difficult to circumvent the Round Lot
Holder requirement through share transfers for no value.\55\ The
Commission believes that the proposed new minimum value requirement is
reasonably designed to ensure that at least 50% of the required number
of Round Lot Holders have a sufficient investment in the company and
that the company should therefore have adequate distribution and
liquidity and shareholder interest to support an exchange listing.
---------------------------------------------------------------------------

    \54\ See supra Section II.A.2.II (Minimum Value Requirement for
Holders).
    \55\ See id. Nasdaq Rule 5505(a)(1)(B) allows, under certain
conditions, for companies to list with a minimum price of $2.00 or
$3.00 per share.
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    The Commission believes that it is reasonable and not unfairly
discriminatory for the Exchange not to impose this minimum value
requirement on the initial listing of warrants. The Exchange states
that warrants do not have minimum price requirements and may have
little value at the time of issuance.\56\ The Exchange also represents
that it has not observed problems with the trading of warrants.\57\ The
Commission notes that the security underlying a warrant must be listed
on the Exchange or be a covered security, as defined in Section 18(b)
of the Securities Act of 1933.\58\
---------------------------------------------------------------------------

    \56\ See supra Section II.A.1.II (Minimum Value Requirement for
Holders).
    \57\ See id. As Nasdaq stated, warrants are often issued as part
of a unit and the common stock component of the unit would be
required to satisfy the minimum value requirement. See id.
    \58\ See Nasdaq Rules 5410(b) and 5515(a)(2).
---------------------------------------------------------------------------

    The Commission further believes that the Exchange's proposal to
impose a new minimum average daily trading volume requirement for the
initial listing of securities trading OTC at the time of their listing
is consistent with the Act.\59\ The Exchange states that it believes
that companies trading at least 2,000 shares a day over a period of 30
trading days prior to listing, with trading occurring on more than half
of those 30 days, can demonstrate sufficient investor interest to
support sustained trading activity when listed on the Exchange and help
to promote price discovery of a security when listed.\60\ The
Commission believes that the proposed requirement is reasonably
designed to ensure that companies trading OTC prior to listing have
adequate liquidity and trading activity to support an exchange listing.
---------------------------------------------------------------------------

    \59\ The trading volume provisions apply to primary equity
securities, ADRs, preferred stock, secondary classes of common stock
and paired share units to the extent there is trading in these
securities in the U.S. OTC market. See supra Section I.A.1.III
(Average Daily Trading Volume).
    \60\ See id.
---------------------------------------------------------------------------

    With respect to ADRs, the Exchange amended its proposal to make
clear that, to the extent the ADR has trading in the U.S. OTC market,
such daily trading volume will be combined with trading volume of the
security underlying the ADR in the foreign issuer's primary market. The
Commission believes that combining the trading volume of the ADR and
the security underlying the ADR to meet this standard is consistent
with the Exchange's purpose to ensure there is sufficient interest and
trading activity to support an exchange listing of the ADR and help in
price discovery upon listing.
    In addition, the Commission believes that the proposed exception to
the minimum average daily trading volume requirement for securities
listed in connection with a firm commitment underwritten public
offering of at least $4 million reasonably accommodates issuers that
may not meet the requirement but should nevertheless have adequate
liquidity upon an exchange listing. As noted by the Exchange, it has
proposed this exception to the trading volume requirement because it
believes the underwritten offering process is designed to promote
appropriate price discovery and provides a basis for believing that a
liquid trading market will likely develop for the securities after
listing. The Commission notes that the underwriters in a firm
commitment underwriting will typically have ``indications of interest''
from prospective investors and will use this information to recommend a
price for the shares \61\ and, as the Exchange stated, will generally
make a market in the securities for a period of time after the offering
and thereby assist in creating a liquid market. While the dollar amount
for the exception of a $4 million underwritten public offering is
relatively low,\62\ particularly when compared to the higher listing
standards of the Global Select and Global tiers, the Commission notes
that the other changes to the liquidity requirements, as well as other
listing standards, will all still have to be met upon initial listing.
---------------------------------------------------------------------------

    \61\ See ``Investor Bulletin: Investing in an IPO,'' issued by
the Commission, available at https://www.sec.gov/files/ipo-investorbulletin.pdf.
    \62\ See, e.g., Nasdaq Rule 5110(c)(3) (providing an exception
to certain initial listing requirements for a ``reverse merger''
company completing an underwritten public offering of at least $40
million).
---------------------------------------------------------------------------

    Nasdaq states that it is not proposing to change the requirements
for continued listing at this time, and believes that the proposed
heightened initial listing requirements will result in enhanced
liquidity for the companies that satisfy them on an ongoing basis.\63\
The Commission would expect Nasdaq to review its experience with the
new initial listing standards and consider whether the adoption of the
new rule has addressed the concerns identified by Nasdaq and propose
any appropriate changes, if necessary, to its listing standards,
including continued listing standards.
---------------------------------------------------------------------------

    \63\ See supra note 9 and accompanying text.
---------------------------------------------------------------------------

    For the reasons discussed above, the Commission believes that
Nasdaq's proposal will further the purposes of Section 6(b)(5) of the
Act by, among other things, protecting investors and the public
interest, and preventing fraudulent and manipulative acts and
practices, as well as promoting fair and orderly markets under the Act.

IV. Solicitation of Comments on Amendment No. 3 to the Proposed Rule
Change

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-NASDAQ-2019-009 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2019-009. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the

submission, all subsequent amendments, all written statements with
respect to the proposed rule change that are filed with the Commission,
and all written communications relating to the proposed rule change
between the Commission and any person, other than those that may be
withheld from the public in accordance with the provisions of 5 U.S.C.
552, will be available for website viewing and printing in the
Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2019-009 and should be submitted
on or before August 1, 2019.

V. Accelerated Approval of the Proposed Rule Change, as Modified by
Amendment No. 3

    The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 3, prior to the thirtieth day
after the date of publication of notice of the filing of Amendment No.
3 in the Federal Register. The Commission notes that the original
proposal was published for comment in the Federal Register.\64\ The
Commission notes that Amendment No. 3 clarifies and provides additional
explanation relating to the proposed rule change. The changes and
additional information in Amendment No. 3 assist the Commission in
evaluating the Exchange's proposal and in determining that it is
consistent with the Act. Accordingly, the Commission finds good cause,
pursuant to Section 19(b)(2) of the Act,\65\ to approve the proposed
rule change, as modified by Amendment No. 3, on an accelerated basis.
---------------------------------------------------------------------------

    \64\ See Notice, supra note 3.
    \65\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\66\ that the proposed rule change (SR-NASDAQ-2019-009), as
modified by Amendment No. 3, be, and it hereby is, approved on an
accelerated basis.
---------------------------------------------------------------------------

    \66\ Id.
    \67\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\67\
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 2019-14723 Filed 7-10-19; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register: August 29, 2008 (Volume 73, Number 169)]
[Notices]
[Page 50955-50956]
[DOCID:fr29au08-63]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Project No. 13173-000]

FFP Ohio River 21, LLC; Notice of Preliminary Permit Applications
Accepted for Filing and Soliciting Comment, Motions To Intervene, and
Competing Applications

August 22, 2008.
    On March 25, 2008, FFP Ohio River 21, LLC each filed an
application, pursuant to section 4(f) of the Federal Power Act,
proposing to study the feasibility of the Ohio River 21 Project, to be
located on the Ohio River in Ohio County, Indiana and Boone County,
Kentucky.
    The proposed Ohio River 21 Project consists of: (1) 1,020 proposed
20 kilowatt Free Flow generating units having a total installed
capacity of 20.4 megawatts, (2) a proposed transmission line, and (3)
appurtenant facilities. The FFP Ohio River 21, LLC, project would have
an average annual generation of 89.35 gigawatt-hours and be sold to a
local utility.
    Applicant Contact: Mr. Dan Irvin, FFP Ohio River 21, LLC, 69 Bridge
Street, Manchester, MA 01944, phone<PHONE_NUMBER>.
    FERC Contact: Robert Bell,<PHONE_NUMBER>.
    Deadline for filing comments, motions to intervene, competing
applications (without notices of intent), or notices of intent to file
competing applications: 60 days from the issuance of this notice.
Comments, motions to intervene, notices of intent, and competing
applications may be filed electronically via the Internet. See 18 CFR
385.2001(a)(1)(iii) and the instructions on the Commission's Web site
under the ``e-Filing'' link. If unable to be filed electronically,
documents may be paper-filed. To paper-file, an original and eight

copies should be mailed to: Kimberly D. Bose, Secretary, Federal Energy
Regulatory Commission, 888 First Street, NE., Washington, DC 20426. For
more information on how to submit these types of filings please go to
the Commission's Web site located at http: //www.ferc.gov/filing-
comments.asp. More information about this project can be viewed or
printed on the ``eLibrary'' link of Commission's Web site at http: //
www.ferc.gov/docs-filing/elibrary.asp. Enter the docket number (P-
13173) in the docket number field to access the document. For
assistance, call toll-free 1-866-208-3372.

Kimberly D. Bose,
Secretary.
[FR Doc. E8-20049 Filed 8-28-08; 8:45 am]

BILLING CODE 6717-01-P


[Federal Register: March 30, 2009 (Volume 74, Number 59)]
[Notices]
[Page 14121]
[DOCID:fr30mr09-39]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. EL09-43-000]

Arkansas Public Service Commission, Complainant v. Entergy
Corporation, Entergy Services, Inc., Entergy Louisiana, Inc., Entergy
Arkansas, Inc., Entergy Mississippi, Inc., Entergy New Orleans, Inc.,
Entergy Gulf States Louisiana, LLC, Entergy Texas, Inc., Respondents;
Notice of Complaint

March 23, 2009.
    Take notice that on March 20, 2009, pursuant to section 206 of the
Commission's Rules of Practice and Procedure, 18 CFR 385.206 (2008) and
sections 206 and 306 of the Federal Power Act, 16 U.S.C. 824(e) and
825(e), Arkansas Public Service Commission (Complainant) filed a formal
complaint against Entergy Corporation, Entergy Services, Inc., Entergy
Louisiana, LLC, Entergy Arkansas, Inc., Entergy Mississippi, Inc.,
Entergy New Orleans, Inc., Entergy Gulf States Louisiana, LLC, and
Entergy Texas, Inc. (Respondents) seeking relief by way of a
modification of certain text found in Section 30.12 of Service Schedule
MSS-3 to the System Agreement (Rough Production Cost Equalization
Formula Tariff) among the Complainant and Respondents, which relates to
the definitions of depreciation expense, nuclear decommissioning
expense, and accumulated provision for depreciation and amortization.
    The Complainant certifies that copies of the complaint were served
on the representatives of the Respondents listed on the Commission's
list of Corporate Officials.
    Any person desiring to intervene or to protest this filing must
file in accordance with Rules 211 and 214 of the Commission's Rules of
Practice and Procedure (18 CFR 385.211, 385.214). Protests will be
considered by the Commission in determining the appropriate action to
be taken, but will not serve to make protestants parties to the
proceeding. Any person wishing to become a party must file a notice of
intervention or motion to intervene, as appropriate. The Respondent's
answer and all interventions, or protests must be filed on or before
the comment date. The Respondent's answer, motions to intervene, and
protests must be served on the Complainants.
    The Commission encourages electronic submission of protests and
interventions in lieu of paper using the ``eFiling'' link at http://
www.ferc.gov. Persons unable to file electronically should submit an
original and 14 copies of the protest or intervention to the Federal
Energy Regulatory Commission, 888 First Street, NE., Washington, DC
20426.
    This filing is accessible on-line at http://www.ferc.gov, using the
``eLibrary'' link and is available for review in the Commission's
Public Reference Room in Washington, DC. There is an ``eSubscription''
link on the Web site that enables subscribers to receive e-mail
notification when a document is added to a subscribed docket(s). For
assistance with any FERC Online service, please e-mail
<EMAIL_ADDRESS>or call<PHONE_NUMBER> (toll free). For
TTY, call<PHONE_NUMBER>.
    Comment Date: 5 p.m. Eastern Time on April 9, 2009.

Nathaniel J. Davis, Sr.,
Deputy Secretary.
 [FR Doc. E9-6949 Filed 3-27-09; 8:45 am]