Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Notices 84025 

19 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 89878 

(September 15, 2020), 85 FR 59349 (September 21, 

2020) (‘‘Notice’’). Comments received on the 

proposal are available on the Commission’s website 

at: https://www.sec.gov/comments/sr-nasdaq-2020- 

057/srnasdaq2020057.htm. 

4 15 U.S.C. 78s(b)(2). 

5See Securities Exchange Act Release No. 90331 

(November 4, 2020), 85 FR 71708 (November 10, 

2020). The Commission designated December 20, 

2020, as the date by which it should approve, 

disapprove, or institute proceedings to determine 

whether to disapprove the proposed rule change. 

6 15 U.S.C. 78s(b)(2)(B). 

7The reference to a registration statement refers 

to a registration statement effective under the 

Securities Act of 1933 (‘‘Securities Act’’). 

8See proposed IM–5315–2. A Direct Listing with 

a Capital Raise would include listings where either: 

(i) Only the company itself is selling shares in the 

opening auction on the first day of trading; or (ii) 

the company is selling shares and selling 

shareholders may also sell shares in such opening 

auction. See id. The Commission notes that while 

the Exchange’s current rules also permit Selling 

Shareholder Direct Listings on the Nasdaq Global 

Market and Nasdaq Capital Market (see IM–5405– 

1 and IM–5505–1), the current proposal would only 

provide for a Direct Listing with a Capital Raise on 

the Nasdaq Global Select Market. 

9 ‘‘Restricted Securities’’ means securities that are 

subject to resale restrictions for any reason, 

including, but not limited to, securities: (1) 

Acquired directly or indirectly from the issuer or 

an affiliate of the issuer in unregistered offerings 

such as private placements or Regulation D 

offerings; (2) acquired through an employee stock 

benefit plan or as compensation for professional 

services; (3) acquired in reliance on Regulation S, 

which cannot be resold within the United States; (4) 

subject to a lockup agreement or a similar 

contractual restriction; or (5) considered ‘‘restricted 

securities’’ under Rule 144. See Rule 5005(a)(37). 

‘‘Unrestricted Securities’’ means securities that are 

not Restricted Securities. See Rule 5005(a)(46). 

‘‘Unrestricted Publicly Held Shares’’ means the 

Publicly Held Shares that are Unrestricted 

Securities. See Rule 5005(a)(45). See also Rule 

5005(a)(23) and (35) for definitions of ‘‘Market 

Value’’ and ‘‘Publicly Held Shares.’’ 

10 IM–5315–1 describes the requirement for a 

Valuation, including the experience and 

independence of the entity providing the Valuation. 

11The Exchange defines ‘‘Private Placement 

Market’’ in Listing Rule 5005(a)(34) as a trading 

system for unregistered securities operated by a 

national securities exchange or a registered brokerdealer. 

12See proposed IM–5315–2. 

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–NYSEArca–2020–110, and 

should be submitted on or before 

January 13, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2020–28303 Filed 12–22–20; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90717; File No. SR– 

NASDAQ–2020–057] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Order 

Instituting Proceedings To Determine 

Whether To Approve or Disapprove a 

Proposed Rule Change To Allow 

Companies To List in Connection With 

a Direct Listing With a Primary Offering 

In Which the Company Will Sell Shares 

Itself In the Opening Auction on the 

First Day of Trading on Nasdaq and To 

Explain How the Opening Transaction 

for Such a Listing Will Be Effected 

December 17, 2020. 

I. Introduction 

On September 4, 2020, The Nasdaq 

Stock Market LLC (‘‘Nasdaq’’ or the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Exchange Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to allow companies to list in 

connection with a primary offering in 

which the company will sell shares 

itself in the opening auction on the first 

day of trading on the Exchange and to 

explain how the opening transaction for 

such a listing will be effected. The 

proposed rule change was published for 

comment in the Federal Register on 

September 21, 2020.3 On November 4, 

2020, pursuant to Section 19(b(2) of the 

Exchange Act,4 the Commission 

designated a longer period within which 

to either approve the proposed rule 

change, disapprove the proposed rule 

change, or institute proceedings to 

determine whether to disapprove the 

proposed rule change.5 This order 

institutes proceedings under Section 

19(b)(2)(B) of the Exchange Act 6 to 

determine whether to approve or 

disapprove the proposed rule change. 

II. Description of the Proposal 

Listing Rule IM–5315–1 provides 

additional listing requirements for 

listing a company that has not 

previously had its common equity 

securities registered under the Exchange 

Act on the Nasdaq Global Select Market 

at the time of effectiveness of a 

registration statement 7 filed solely for 

the purpose of allowing existing 

shareholders to sell their shares (a 

‘‘Selling Shareholder Direct Listing’’). 

To allow a company to also sell shares 

on its own behalf in connection with its 

initial listing upon effectiveness of a 

registration statement, without a 

traditional underwritten public offering, 

the Exchange has proposed to adopt 

Listing Rule IM–5315–2. This proposed 

rule would allow a company that has 

not previously had its common equity 

securities registered under the Exchange 

Act, to list its common equity securities 

on the Nasdaq Global Select Market at 

the time of effectiveness of a registration 

statement pursuant to which the 

company itself will sell shares in the 

opening auction on the first day of 

trading on the Exchange (a ‘‘Direct 

Listing with a Capital Raise’’).8

In considering a Selling Shareholder 

Direct Listing, Listing Rule IM–5315–1 

currently provides that the Exchange 

will determine that such company has 

met the applicable Market Value of 

Unrestricted Publicly Held Shares 9

requirements based on the lesser of: (i) 

An independent third party valuation of 

the company (a ‘‘Valuation’’); 10 and (ii) 

the most recent trading price for the 

company’s common stock in a Private 

Placement Market 11 where there has 

been sustained recent trading. For a 

security that has not had sustained 

trading in a Private Placement Market 

prior to listing, the Exchange will 

determine that such company has met 

the Market Value of Unrestricted 

Publicly Held Shares requirement if the 

company satisfies the applicable Market 

Value of Unrestricted Publicly Held 

Shares requirement and provides a 

Valuation evidencing a Market Value of 

Publicly Held Shares of at least 

$250,000,000. 

With respect to a Direct Listing with 

a Capital Raise, the Exchange has 

proposed that, in determining whether a 

company satisfies the Market Value of 

Unrestricted Publicly Held Shares 

requirement for initial listing on the 

Nasdaq Global Select Market, the 

Exchange will deem such company to 

have met the applicable requirement if 

the amount of the company’s 

Unrestricted Publicly Held Shares 

before the offering, along with the 

market value of the shares to be sold in 

the Exchange’s opening auction in the 

Direct Listing with a Capital Raise, is at 

least $110 million (or $100 million, if 

the company has stockholders’ equity of 

at least $110 million).12 The Exchange 

has proposed to calculate the Market 

Value of Unrestricted Publicly Held 

Shares, for this purpose, using a price 

per share equal to the price that is 20% 

below the lowest price of the price range 

disclosed by the issuer in its registration 


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84026 Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Notices 

13See proposed IM–5315–2. The Exchange states 

that, for example, if the company is selling five 

million shares in the opening auction and there are 

45 million shares issued and outstanding 

immediately prior to the listing that are eligible for 

inclusion as Unrestricted Publicly Held Shares 

based on disclosure in the company’s registration 

statement, then the Exchange would calculate the 

Market Value of Unrestricted Publicly Held Shares 

based on a combined total of 50 million shares. If 

the lowest price of the price range disclosed in the 

company’s registration statement is $10 per share, 

the Exchange will attribute to the company a 

Market Value of Unrestricted Publicly Held Shares 

of $400 million, based on an $8 price per share, 

which is 20% below the bottom of the disclosed 

range. See Notice, supra note 3, 85 FR at 59350, n.7. 

The Exchange also states that, as described below, 

the opening auction would not execute at a price 

that is more than 20% below the bottom of the 

disclosed range, so this is the minimum price at 

which the company could list in connection with 

a Direct Listing with a Capital Raise. See Notice, 

supra note 3, 85 FR at 59350, n.6. 

14See proposed IM–5315–2. 

15See Notice, supra note 3, 85 FR at 59350. The 

Exchange states that these types of inside investors 

may purchase shares sold by the company in the 

opening auction, and purchase shares sold by other 

shareholders or sell their own shares in the opening 

auction and in trading after the opening auction, to 

the extent not inconsistent with general antimanipulation provisions, Regulation M, and other 

applicable securities laws. See id. 

16See Notice, supra note 3, 85 FR at 59350. The 

Exchange states that it expects that a company 

expecting to sell a significant portion of its shares 

to officers, directors, and existing significant 

shareholders would not undertake a public listing 

through a Direct Listing with a Capital Raise. See 

id. at 59352. 

17See Notice, supra note 3, 85 FR at 59350. The 

Exchange also states that, unlike a company listing 

in connection with a Selling Shareholder Direct 

Listing that could qualify for the price-based initial 

listing requirements based on a Valuation, a 

company listing in connection with a Direct Listing 

with a Capital Raise, like an IPO, must qualify for 

such requirements based on the minimum price at 

which it could sell shares in the offering. See id. 

at 59352. 

18See Notice, supra note 3, 85 FR at 59350. 

19See Notice, supra note 3, 85 FR at 59352. 

20See Notice, supra note 3, 85 FR at 59352. 

21 ‘‘Nasdaq Halt Cross’’ means the process for 

determining the price at which Eligible Interest 

shall be executed at the open of trading for a halted 

security and for executing that Eligible Interest. See 

Rule 4753(a)(4). ‘‘Eligible Interest’’ means any 

quotation or any order that has been entered into 

the system and designated with a time-in-force that 

would allow the order be in force at the time of the 

Halt Cross. See Rule 4753(a)(5). Pursuant to Rule 

4120, the Exchange will halt trading in a security 

that is the subject of an IPO (or direct listing), and 

terminate that halt when the Exchange releases the 

security for trading upon certain conditions being 

met, as discussed further below. See Rule 4120(a)(7) 

and (c)(8). 

22See Notice, supra note 3, 85 FR at 59352. 

23See Notice, supra note 3, 85 FR at 59351 (citing 

Rules 5315(e)(1) and (2), and 5315(f)). 

24See proposed Rule 4702(b)(16)(A) and (B). 

25See proposed Rule 4702(a)(16)(A); Notice, 

supra note 3, 85 FR at 59351. 

26See proposed IM–5315–2. Rule 4120(c)(9) 

states that the process for halting and initial pricing 

of a security that is subject to an IPO is also 

available for the initial pricing of any other security 

that has not been listed on a national security 

exchange immediately prior to the initial pricing, if 

a broker-dealer serving in the role of financial to the 

issuer is willing to perform the functions under 

Rule 4120(c)(8) that are performed by an 

underwriter with respect to an IPO, and if more 

than one broker-dealer is serving in the role of 

financial advisor, the issuer must designate one to 

perform these functions. The Exchange proposes to 

renumber this provision as Rule 4120(c)(9)(A). See 

proposed Rule 4120(c)(9)(A). 

statement.13 The Exchange also 

proposes to determine whether the 

company has met the applicable bid 

price and market capitalization 

requirements based on the same share 

price.14

The Exchange states that, except as 

proposed for a Direct Listing with a 

Capital Raise, its listing rules generally 

do not include shares held by officers, 

directors, or owners of more than 10% 

of the company’s common stock in 

calculations of Publicly Held Shares.15

In qualifying companies for listing in a 

Direct Listing with a Capital Raise, 

however, such officers, directors and 

owners of 10% or more of the 

company’s common stock will be 

included in determining whether the 

company meets the Market Value of 

Publicly Held Shares requirement. 

According to the Exchange, such 

investors may acquire in secondary 

market trades shares sold by the issuer 

in a Direct Listing with a Capital Raise 

that were included when calculating 

whether the issuer meets the Market 

Value of Unrestricted Publicly Held 

Shares requirement for initial listing.16

The Exchange states, however, that a 

company listing in conjunction with a 

Direct Listing with a Capital Raise will 

be required to have a Market Value of 

Unrestricted Publicly Held Shares that 

is much higher than the Exchange’s $45 

million Market of Unrestricted Publicly 

Held Shares requirement that applies to 

a traditional underwritten initial public 

offering (‘‘IPO’’).17 The Exchange further 

states that this heightened requirement, 

along with the ability of all investors to 

purchase shares in the opening process 

on the Exchange, should result in 

companies using a Direct Listing with a 

Capital Raise having adequate public 

float and a liquid trading market after 

completion of the opening auction.18

The Exchange also states that it 

believes that it is consistent with the 

protection of investors to calculate the 

security’s bid price and values derived 

from the security’s price using a price 

per share equal to the price that is 20% 

below the lowest price of the price range 

disclosed by the issuer in its registration 

statement.19 According to the Exchange, 

Commission rules and interpretations 

generally allow the sale of securities 

pursuant to an effective registration 

statement at a price that is 20% below 

the lowest price of the price range 

disclosed by the issuer in its registration 

statement.20 The Exchange states that, as 

a result, the Exchange will allow the 

opening auction, otherwise known as 

the Nasdaq Halt Cross,21 to take place at 

a price as low as this price, but no 

lower, and so this is the minimum price 

at which a company could be listed.22

The Exchange states that any 

company listing in connection with a 

Direct Listing with a Capital Raise 

would continue to be subject to, and be 

required to meet, all other applicable 

initial listing requirements. According 

to the Exchange, this would include the 

requirements to have the applicable 

number of shareholders and at least 

1,250,000 Unrestricted Publicly Held 

Shares outstanding at the time of initial 

listing, and the requirement to have a 

price per share of at least $4.00 at the 

time of initial listing.23

In addition, the Exchange has 

proposed to amend Rule 4702 to add a 

new order type, the ‘‘Company Direct 

Listing Order’’ or ‘‘CDL Order,’’ which 

would be used by the issuer in a Direct 

Listing with a Capital Raise. This would 

be a market order entered for the 

quantity of shares offered by the issuer, 

as disclosed in an effective registration 

statement for the offering, that will 

execute at the price determined in the 

Nasdaq Halt Cross.24 A CDL Order may 

be entered only on behalf of the issuer 

and the CDL Order may not be cancelled 

or modified. Only one Nasdaq member, 

representing the issuer, may enter a CDL 

Order during a Direct Listing with a 

Capital Raise. The CDL Order must be 

executed in full at the price determined 

in the Nasdaq Halt Cross, and all orders 

priced better than the price determined 

in the Nasdaq Halt Cross also would 

need to be satisfied.25

The Exchange has proposed that 

securities listing in connection with a 

Direct Listing with a Capital Raise must 

begin trading on the Exchange following 

the initial pricing through the Nasdaq 

Halt Cross, which is described in Rules 

4120(c)(8) and Rule 4753. The Exchange 

further has proposed that, to allow such 

initial pricing, the company must, in 

accordance with Rule 4120(c)(9), have a 

broker-dealer serving in the role of 

financial advisor to the issuer of the 

securities being listed, who is willing to 

perform the functions under Rule 

4120(c)(8) that are performed by an 

underwriter with respect to an IPO.26

The Exchange states that the 

requirement that the company begin 

trading of the company’s securities 

following the initial pricing through the 

Nasdaq Halt Cross will promote fair and 

orderly markets by protecting against 

volatility in the pricing and initial 


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Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Notices 84027 

27See Notice, supra note 3, 85 FR at 59352. 28See proposed Rule 4120(c)(9)(A). 29See proposed Rule 4120(c)(9)(B). 30Rule 4120(c)(8)(A) provides that a security will 

not be released for trading until Nasdaq receives 

notice from the underwriter of the IPO or financial 

advisor in the case of a Direct Listing that the 

security is ready to trade, the system verifies that 

all market orders will be executed in the cross, and 

the price determined in the cross satisfies a price 

validation test. 

31See Notice, supra note 3, 85 FR at 59352. 

32See Notice, supra note 3, 85 FR at 59351. 

33See Notice, supra note 3, 85 FR at 59351. 

34See Notice, supra note 3, 85 FR at 59351. 

35See Notice, supra note 3, 85 FR at 59351. 

36See Notice, supra note 3, 85 FR at 59351. 

37See Rule 4853(a)(3) for a description of the 

‘‘Current Reference Price’’ and ‘‘Order Imbalance 

Indicator.’’ 

38See proposed Rule 4753(a)(3)(A)(iv)(c) and 

(b)(2)(D)(iii). The Exchange states that the fourth tiebreaker used to calculate the Current Reference 

Price for an IPO is the price that is closest to the 

issuer’s IPO price, and that a Direct Listing with a 

Capital Raise is similar to an IPO in that the 

company sells securities in the offering. See Notice, 

supra note 3, 85 FR at 59352. The Exchange also 

proposes non-substantive changes to renumber the 

other alternatives for the fourth tie-breaker. See 

proposed Rule 4753(a)(3)(A)(iv) and (b)(2)(D). 

39See Letter from Jeffrey P. Mahoney, General 

Counsel, Council of Institutional Investors, at 2, 4 

(October 8, 2020) (‘‘CII Letter’’). The commenter 

stated that on September 25, 2020, the Commission 

issued an order granting the Council of Institutional 

Investors’ petition for review of an order, issued by 

delegated authority, granting approval of a 

proposed rule change by the New York Stock 

Exchange LLC relating to a proposed direct listing 

with a primary offering (‘‘NYSE Proposal’’). See id. 

at 1–2. See also Securities Exchange Act Release 

No. 90001 (September 25, 2020), 85 FR 61793 

(September 30, 2020) (SR–NYSE–2019–67) (Order 

Granting Petition for Review, Scheduling Filing of 

Statements, and Denying New York Stock Exchange 

LLC’s Motion to Lift the Stay). This commenter 

stated that the Exchange’s current proposal is 

similar to the NYSE Proposal and cites its petition 

for review of the NYSE Proposal as further support 

for its recommendation that the Commission 

disapprove the Exchange’s proposal. See CII Letter, 

at 1–2 (citing Petition of Council of Institutional 

Investors for Review of an Order, Issued by 

Delegated Authority, Granting Approval of a 

Proposed Rule (September 8, 2020), available at 

https://www.sec.gov/rules/sro/nyse/2020/34-89684- 

petition.pdf). 

40See CII Letter, supra note 39, at 2–3. 

41See CII Letter, supra note 39, at 3. The 

commenter stated with respect to this case that 

while the district court denied a motion to dismiss 

a Section 11 claim on the grounds that the plaintiff 

could not trace its purchases to Slack’s registration 

statement, the court of appeals has agreed to hear 

the matter on an interlocutory basis, so it is unclear 

whether the district court case will be upheld. See 

id. See also Pirani v. Slack Technologies, Inc., No. 

20–16419 (9th Cir. July 23, 2020), Docket No. 1. 

42See CII Letter, supra note 39, at 3. 

43See CII Letter, supra note 39, at 4. 

trading of securities covered by the 

proposal.27 In addition, the Exchange 

has proposed to amend Rule 4120(c)(9) 

to specify that any services provided by 

such financial advisor to the issuer of a 

security, including a company listing in 

connection with a Direct Listing with a 

Capital Raise, must provide such 

services in a manner that is consistent 

with all federal securities laws, 

including Regulation M and other antimanipulation requirements.28

With respect to the Nasdaq Halt Cross, 

the Exchange has proposed that, in the 

case of a Direct Listing with a Capital 

Raise, a security shall not be released for 

trading by Nasdaq unless the expected 

price at which the cross would occur (as 

defined in Rule 4120(c)(8)(A)(i)) is at or 

above the price that is 20% below the 

lowest price of the price range 

established by the issuer in its effective 

registration statement.29 This 

requirement would be in addition to the 

existing conditions described in Rule 

4120(c)(8)(A)(i), (ii), and (iii), which 

would continue to apply.30 The 

Exchange notes that, unlike in an IPO, 

a company listing through a Direct 

Listing with a Capital Raise would not 

have an underwriter to guarantee that a 

specified number of shares would be 

sold by the company at a price 

consistent with disclosure in the 

company’s effective registration 

statement. However, the Exchange 

asserts that this would be achieved 

through the proposed requirements that 

(1) the Nasdaq Halt Cross occur only if 

the CDL Order, which must be equal to 

the total number of shares disclosed as 

being offered by the company in the 

effective registration statement, is 

executed in full, and (2) the Nasdaq Halt 

Cross occur at a price per share no less 

than 20% below the lowest price of the 

price range disclosed by the issuer in its 

registration statement.31

The Exchange states that, because the 

financial advisor would be responsible 

for determining when the security 

subject to the Nasdaq Halt Cross is ready 

to trade, the proposal would make the 

financial advisor responsible for 

determining whether the Nasdaq Halt 

Cross for a Direct Listing with a Capital 

Raise can proceed.32 According to the 

Exchange, if there is insufficient buy 

interest to satisfy the CDL Order as 

required by the proposal, the Nasdaq 

Halt Cross would not proceed and such 

security would not begin trading.33 The 

Exchange represents that, if the Nasdaq 

Halt Cross cannot be conducted, the 

Exchange would notify market 

participants via a Trader Update that the 

Direct Listing with a Capital Raise has 

been cancelled and any orders for that 

security that had been entered on the 

Exchange, including the CDL Order, 

would be cancelled back to the entering 

firms.34 The Exchange further states 

that, because the CDL Order will be a 

market order, if the Nasdaq Halt Cross 

proceeds, that order will execute in full 

in the Nasdaq Halt Cross, along with 

orders priced at or better than the price 

determined in the Nasdaq Halt Cross.35

The Exchange notes that, while the 

Nasdaq Halt Cross would not proceed if 

the price calculated is 20% or more 

below the lowest price disclosed by the 

company in its effective registration 

statement, there would be no upper 

limit to the price determined in the 

Nasdaq Halt Cross.36

Finally, the Exchange has proposed to 

make adjustments to how it would 

calculate the Current Reference Price, 

which is disseminated in the Nasdaq 

Order Imbalance Indicator, and the 

price at which the Nasdaq Halt Cross 

would execute, for a Direct Listing with 

a Capital Raise.37 In each case, where 

there are multiple prices that would 

satisfy the conditions for determining 

the price, the Exchange would modify 

the fourth tie-breaker for a Direct Listing 

with a Capital Raise to use the price that 

is closest to the price that is 20% below 

the lowest price of the price range 

disclosed by the issuer in its effective 

registration statement.38

III. Summary of Comment Letters 

Received 

One commenter recommended that 

the Commission disapprove the 

proposal because it believes that the 

proposed expansion of direct listings 

would compound problems that 

shareholders face in tracing their share 

purchases to a registration statement 

and may lead to a decline in effective 

governance at U.S. public companies.39

The commenter stated that traceability 

concerns often arise when there have 

been successive offerings, as 

shareholders seek to establish their 

standing to litigate claims for material 

misstatements or omissions under 

federal securities law.40 The commenter 

stated that investor concerns about the 

traceability of shares in a direct listing 

were drawn into sharp focus in current 

litigation involving a direct listing by 

Slack Technologies, Inc. (‘‘Slack’’), 

which is still under consideration.41

The commenter further stated that, 

independent of the Slack case, the 

Exchange’s proposal raises important 

investor issues that the Commission 

should consider before opening U.S. 

capital markets up to the potential for a 

vastly increased number of direct 

listings.42 The commenter urged the 

Commission to explore updating its 

‘‘proxy plumbing’’ regulations before 

approving an expanded direct listings 

regime.43

In addition, this commenter stated 

that it is concerned that the Exchange’s 

proposal would result in a significant 

increase in the use of direct listings, and 

that more direct listings may lead to a 


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84028 Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Notices 

44See CII Letter, supra note 39, at 4. 

45See CII Letter, supra note 39, at 5. 

46See Letter from Rahul Chaudhary (October 13, 

2020). 

47 15 U.S.C. 78s(b)(2)(B). 

48 15 U.S.C. 78f(b)(5). 

49 Id. 

50The Commission has stated in approving 

exchange listing requirements that the development 

and enforcement of adequate standards governing 

the listing of securities on an exchange is an activity 

of critical importance to the financial markets and 

the investing public. In addition, once a security 

has been approved for initial listing, maintenance 

criteria allow an exchange to monitor the status and 

trading characteristics of that issue to ensure that 

it continues to meet the exchange’s standards for 

market depth and liquidity so that fair and orderly 

markets can be maintained. See, e.g., Securities 

Exchange Act Release Nos. 82627 (February 2, 

2018), 83 FR 5650, 5653, n.53 (February 8, 2018) 

(SR–NYSE–2017–30) (‘‘NYSE 2018 Order’’); 81856 

(October 11, 2017), 82 FR 48296, 48298 (October 17, 

2017) (SR–NYSE–2017–31); 81079 (July 5, 2017), 82 

FR 32022, 32023 (July 11, 2017) (SR–NYSE–2017– 

11). The Commission has stated that adequate 

listing standards, by promoting fair and orderly 

markets, are consistent with Section 6(b)(5) of the 

Exchange Act, in that they are, among other things, 

designed to prevent fraudulent and manipulative 

acts and practices, promote just and equitable 

principles of trade, and protect investors and the 

public interest. See, e.g., NYSE 2018 Order, 83 FR 

at 5653, n.53; Securities Exchange Act Release Nos. 

87648 (December 3, 2019), 84 FR 67308, 67314, 

n.42 (December 9, 2019) (SR–NASDAQ–2019–059); 

88716 (April 21, 2020), 85 FR 23393, 23395, n.22 

(April 27, 2020) (SR–NASDAQ–2020–001). 

51See supra note 29 and accompanying text. 

52See supra note 36 and accompanying text. 

53Securities Act Rule 457 permits issuers to 

register securities either by specifying the quantity 

of shares registered, pursuant to Rule 457(a), or the 

proposed maximum aggregate offering amount, 

pursuant to Rule 457(o). For issuers that register 

securities based on the proposed maximum 

aggregate offering amount, it is not clear how the 

issuer could ensure that the total amount sold by 

the issuer in the opening auction does not exceed 

the amount of securities registered under the 

Securities Act. 

54Notice, supra note 3, 85 FR at 59350. 

55 ‘‘Expected Price’’ under Rule 4120(c)(8)(A)(i) 

means the Current Reference Price at the time the 

Exchange receives notice that the security is ready 

to trade from an underwriter or financial advisor. 

56Under Nasdaq Rule 4120(c)(8)(B) a financial 

advisor in a Direct Listing with a Capital Raise 

would select ‘‘price bands’’ that are defined as the 

decline in the effective corporate 

governance of U.S. public companies to 

the detriment of long-term investors and 

the capital markets generally.44 The 

commenter stated that a recent direct 

listing of Palantir Technologies Inc. had 

a dual-class structure that is viewed by 

many market participants as 

inconsistent with effective 

governance.45

Another commenter simply stated 

support for the proposed method of 

opening the transaction.46

IV. Proceedings To Determine Whether 

To Approve or Disapprove SR– 

NASDAQ–2020–057 and Grounds for 

Disapproval Under Consideration 

The Commission is instituting 

proceedings pursuant to Section 

19(b)(2)(B) of the Exchange Act to 

determine whether the proposal should 

be approved or disapproved.47

Institution of such proceedings is 

appropriate at this time in view of the 

legal and policy issues raised by the 

proposed rule change, as discussed 

below. Institution of disapproval 

proceedings does not indicate that the 

Commission has reached any 

conclusions with respect to any of the 

issues involved. 

Pursuant to Section 19(b)(2)(B) of the 

Exchange Act, the Commission is 

providing notice of the grounds for 

disapproval under consideration. The 

Commission is instituting proceedings 

to allow for additional analysis and 

input concerning the proposed rule 

change’s consistency with the Exchange 

Act 48 and, in particular, with Section 

6(b)(5) of the Exchange Act, 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.49

The Commission has consistently 

recognized the importance of exchange 

listing standards. Among other things, 

such listing standards help ensure that 

exchange-listed companies will have 

sufficient public float, investor base, 

and trading interest to provide the depth 

and liquidity necessary to promote fair 

and orderly markets.50

The Exchange proposal states that for 

a Direct Listing with a Capital Raise, the 

Nasdaq Halt Cross on the first day of 

trading for the security would not 

proceed unless the price would be at or 

above the price that is 20% below the 

lowest price of the price range 

established by the issuer in its effective 

registration statement.51 The proposal, 

however, has no maximum price above 

which the Nasdaq Halt Cross may not 

proceed.52 Therefore, the proposed rule 

would permit issuers to sell, in the 

opening, the quantity of shares 

disclosed as offered in the prospectus 

included in the effective registration 

statement at a price that is above the 

price range disclosed in the effective 

registration statement. As there is no 

proposed upside limit on the price at 

which the opening auction could occur, 

it is not clear how the issuer could 

ensure that the issuer’s Securities Act 

registration statement covers the full 

amount of securities to be sold in the 

offering.53 Although issuers may file 

additional Securities Act registration 

statements to register additional 

securities needed to complete an 

offering, Section 5 of the Securities Act 

requires all of the related registration 

statements to be effective prior to the 

time of sale. To the extent Nasdaq’s 

proposal may result in issuers needing 

to register additional securities beyond 

those included in an initial Securities 

Act registration statement, it is not 

apparent how an issuer could ensure 

that any additional required registration 

statement would be effective prior to the 

time of opening. Nor is it apparent how 

an issuer would be able to determine 

whether an additional Securities Act 

registration statement would be required 

before the opening occurs. Thus, we 

have concerns that Nasdaq’s proposed 

rule may not provide adequate 

safeguards to ensure that issuers 

conducting a Direct Listing with a 

Capital Raise are able to comply with 

Section 5 of the Securities Act. The 

Exchange has not explained how this 

would be consistent with the investor 

protection requirements under Section 

6(b)(5) and other relevant provisions of 

the Exchange Act. 

In addition, the Exchange states that 

‘‘investors know the minimum price at 

which the company can sell shares in 

the offering.’’ 54 The Exchange has not 

explained how investors would know 

that price, as the opening could occur if 

the price obtained in the Nasdaq Halt 

Cross is up to 20% below the price 

range disclosed by the issuer in its 

effective registration statement. 

Further, the Exchange asserts, 

throughout its proposal, that the Nasdaq 

Halt Cross will not occur at a price 

lower than 20% below the low end of 

the issuer’s disclosed price range, but it 

is unclear from the Exchange’s rules that 

this would always be the case. 

Specifically, proposed Rule 

4120(c)(9)(B) states that the security will 

not be released for trading unless ‘‘the 

Expected Price is at or above the price 

that is 20% below the lowest price of 

the price range established’’ in the 

effective registration statement.55 Rule 

4120(c)(8), however, appears to permit 

the underwriter or financial advisor to 

select price bands of up to $0.50 outside 

of the Expected Price, and provide that 

the Nasdaq system would view the price 

validation test as having been passed 

and permit the security to be released 

for trading, so long as the actual price 

calculated by the cross differs from the 

Expected Price by no more than the 

price band.56 The Exchange has not 


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Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Notices 84029 

amounts by which the actual price may not be 

lower, or higher, than the Expected Price. The rule 

states that available price bands, set by Nasdaq, 

shall include $0 but shall not be in excess of $0.50. 

Under the proposal, the financial advisor in a Direct 

Listing with a Capital Raise is not restricted from 

selecting price bands in accordance with Rule 

4120(c)(8)(B). 

57Rule 700(b)(3), Commission Rules of Practice, 

17 CFR 201.700(b)(3). 

58See id. 

59See id. 

60 15 U.S.C. 78s(b)(2)(B). 

61Section 19(b)(2) of the Exchange Act, as 

amended by the Securities Act Amendments of 

1975, Public Law 94–29 (June 4, 1975), grants the 

Commission flexibility to determine what type of 

proceeding—either oral or notice and opportunity 

for written comments—is appropriate for 

consideration of a particular proposal by a selfregulatory organization. See Securities Act 

Amendments of 1975, Senate Comm. on Banking, 

Housing & Urban Affairs, S. Rep. No. 75, 94th 

Cong., 1st Sess. 30 (1975). 

62 17 CFR 200.30–3(a)(57). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

explained this apparent inconsistency 

in its rules. 

Finally, although the Exchange has 

proposed that the CDL Order may not be 

cancelled or modified, the Exchange’s 

rules appear to permit the issuer’s 

financial advisor broad discretion to 

postpone the offering, which would 

effectively cancel the CDL Order. 

Specifically, Rule 4120(c)(8) provides 

that the validation needed to open the 

security only occurs after the Expected 

Price is displayed to the financial 

advisor and the financial advisor then 

approves proceeding. Rule 4120(c)(8) 

also permits the financial advisor, with 

the concurrence of Nasdaq, to determine 

at any point during the Nasdaq Halt 

Cross process up through the conclusion 

of the pre-launch period to postpone 

and reschedule the offering. The 

financial advisor therefore could 

effectively ‘‘cancel’’ the CDL Order, on 

behalf of the issuer, by deciding not to 

proceed with the offering for a variety 

of reasons, including being dissatisfied 

with the Expected Price. The Exchange 

has not explained why its rules appear 

to allow the financial advisor this 

discretion in the case of a Direct Listing 

with a Capital Raise, or why doing so 

would be consistent with Section 6(b)(5) 

and other relevant provisions of the 

Exchange Act. 

The Commission notes that, under the 

Commission’s Rules of Practice, the 

‘‘burden to demonstrate that a proposed 

rule change is consistent with the 

Exchange Act and the rules and 

regulations issued thereunder . . . is on 

the self-regulatory organization [‘SRO’] 

that proposed the rule change.’’ 57 The 

description of a proposed rule change, 

its purpose and operation, its effect, and 

a legal analysis of its consistency with 

applicable requirements must all be 

sufficiently detailed and specific to 

support an affirmative Commission 

finding,58 and any failure of an SRO to 

provide this information may result in 

the Commission not having a sufficient 

basis to make an affirmative finding that 

a proposed rule change is consistent 

with the Exchange Act and the 

applicable rules and regulations.59

For these reasons, the Commission 

believes it is appropriate to institute 

proceedings pursuant to Section 

19(b)(2)(B) of the Exchange Act 60 to 

determine whether the proposal should 

be approved or disapproved. 

V. Commission’s Solicitation of 

Comments 

The Commission requests that 

interested persons provide written 

submissions of their views, data, and 

arguments with respect to the issues 

identified above, as well as any other 

concerns they may have with the 

proposal. In particular, the Commission 

invites the written view of interested 

persons concerning whether the 

proposal is consistent with Section 

6(b)(5) or any other provision of the 

Exchange Act, or the rules and 

regulations thereunder. Although there 

do not appear to be any issues relevant 

to approval or disapproval that would 

be facilitated by an oral presentation of 

views, data, and arguments, the 

Commission will consider, pursuant to 

Rule 19b–4, any request for an 

opportunity to make an oral 

presentation.61

Interested persons are invited to 

submit written data, views, and 

arguments regarding whether the 

proposal should be approved or 

disapproved by January 13, 2021. Any 

person who wishes to file a rebuttal to 

any other person’s submission must file 

that rebuttal by January 27, 2021. 

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 rule-comments@

sec.gov. Please include File Number SR– 

NASDAQ–2020–057 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–2020–057. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of such 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–NASDAQ–2020–057 and 

should be submitted on or before 

January 13, 2021. Rebuttal comments 

should be submitted by January 27, 

2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.62

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2020–28319 Filed 12–22–20; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90711; File No. SR–MIAX– 

2020–38] 

Self-Regulatory Organizations; Miami 

International Securities Exchange, 

LLC; Notice of Filing and Immediate 

Effectiveness of a Proposed Rule 

Change To Amend Chapter XVII, Audit 

Trail Compliance Rule 

December 17, 2020. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on December 

11, 2020, Miami International Securities 

Exchange, LLC (‘‘MIAX Options’’ or the 

‘‘Exchange’’) filed with the Securities 


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