Federal Register / Vol. 86, No. 39 / Tuesday, March 2, 2021 / Notices 12245 

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). 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). 

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

7See Securities Exchange Act Release No. 90717 

(December 17, 2020), 85 FR 84025 (December 23, 

2020). 

8Securities Exchange Act Release No. 89878 

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

2020) (the ‘‘Initial Proposal’’). The Commission 

issued an Order Instituting Proceedings to 

Determine Whether To Approve or Disapprove the 

Initial Proposal. See Securities Exchange Act 

Release No. 90717 (December 17, 2020), 85 FR 

84025 (December 23, 2020) (the ‘‘OIP’’). 

9Following approval of this proposed rule change 

Nasdaq intends to file a separate proposal with the 

Commission that will seek to modify the process for 

a Direct Listing with a Capital Raise so that it would 

operate in a manner similar to the Initial Proposal 

and will seek to address the remaining issues raised 

in the OIP. 

10A Direct Listing with a Capital Raise includes 

situations 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. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–91205; File No. SR– 

NASDAQ–2020–057] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Filing of Proposed Rule Change, as 

Modified by Amendment No. 1, 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 

February 24, 2021. 

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 (‘‘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 Act,4

the Commission designated a longer 

period within which to either approve 

or disapprove the proposed rule change, 

or institute proceedings to determine 

whether to disapprove the proposed 

rule change.5 On December 17, 2020, 

the Commission instituted proceedings 

under Section 19(b)(2)(B) of the Act 6 to 

determine whether to approve or 

disapprove the proposed rule change.7

On February 22, 2021, the Exchange 

filed Amendment No. 1 to the proposed 

rule change, which superseded the 

proposed rule change as originally filed, 

and is described in Items I and II below, 

which Items have been prepared by the 

Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change, 

as modified by Amendment No. 1, from 

interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes 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 

Nasdaq and to explain how the opening 

transaction for such a listing will be 

effected. 

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/nasdaq/rules, at the principal 

office of the Exchange, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

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–2020–057 8 in order to: (i) 

Require for the security to be released 

for trading that the actual price 

calculated by the cross be at or above 

the lowest price and at or below the 

highest price of the price range 

established by the issuer in its effective 

registration statement; (ii) provide that 

the fourth tie-breaker used in 

calculating the Current Reference Price 

is the price that is closest to the lowest 

price of the price range disclosed by the 

issuer in its effective registration 

statement; (iii) provide that for purposes 

of qualifying a security under the 

Listing Rules Nasdaq will calculate the 

value of shares, and determine whether 

the company has met the applicable 

Market Value of Unrestricted Publicly 

Held Shares, bid price and market 

capitalization requirements, using a 

price per share equal to the lowest price 

in the price range disclosed by the 

issuer in its effective registration 

statement; (iv) provide that 

notwithstanding the provisions of Rule 

4120(c)(8)(A), Nasdaq, in consultation 

with the financial advisor to the issuer, 

will make the determination of whether 

the security is ready to trade and 

whether to reschedule the offering as 

described in Rule 4120(c)(8)(A); and 

make minor technical changes to 

improve the clarity of this proposal. 

Nasdaq believes that this amendment 

addresses the issues raised by the 

Commission in the OIP.9 This 

amendment supersedes and replaces the 

Initial Proposal in its entirety. 

Nasdaq proposes to (i) adopt Listing 

Rule IM–5315–2 to permit a company 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 

(a ‘‘Direct Listing with a Capital 

Raise’’); 10 (ii) amend Rule 4702 to add 

a new order type (the ‘‘Company Direct 

Listing Order’’), which will be used 

during the Nasdaq Halt Cross for the 

shares offered by the company in a 

Direct Listing with a Capital Raise; and 

(iii) amend Rules 4120(c)(9), 4753(a)(3) 

and 4753(b)(2) to establish requirements 

for disseminating information, 

establishing the opening price and 

initiating trading through the Nasdaq 

Halt Cross in a Direct Listing with a 

Capital Raise. 

Proposed Listing Rule IM–5315–2 

Listing Rule IM–5315–1 provides 

additional initial listing requirements 

for listing a company that has not 

previously had its common equity 

securities registered under the Act on 

the Nasdaq Global Select Market at the 

time of effectiveness of a registration 

statement filed solely for the purpose of 

allowing existing shareholders to sell 

their shares (a ‘‘Direct Listing’’). To 


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12246 Federal Register / Vol. 86, No. 39 / Tuesday, March 2, 2021 / Notices 

11The Commission did not identify any concerns 

with proposed Listing Rule IM–5315–2 in the OIP. 

Accordingly, the only change to proposed IM– 

5315–2 in this amendment is to reflect that the 

minimum price at which the company can sell 

shares is the lowest price in the price range 

disclosed by the issuer in its effective registration 

statement. In the Initial Proposal, Nasdaq proposed 

to allow the company to sell shares at up to a 20% 

discount to the lowest price in the price range 

disclosed in the effective registration statement and 

therefore also to calculate compliance with the 

listing requirements based on that same price. 

12 IM–5315–1 describes the requirement for a 

Valuation, including the experience and 

independence of the entity providing the Valuation. 

13Nasdaq defines ‘‘Private Placement Market’’ in 

Listing Rule 5005(a)(34) as a trading system for 

unregistered securities operated by a national 

securities exchange or a registered broker-dealer. 

14As described below, the Nasdaq Halt Cross 

would not execute at a price that is below the 

bottom of the disclosed range. Thus, this is the 

minimum price at which the company could list in 

connection with a Direct Listing with a Capital 

Raise. 

15See Listing Rules 5315(f)(2)(A) and (B) that 

require the Market Value of Unrestricted Publicly 

Held Shares for initial listing on the Nasdaq Global 

Select Market, not in connection with an IPO, of at 

least $110 million; or at least $100 million, if the 

company has stockholders’ equity of at least $110 

million, respectively. 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 Market Value of 

Unrestricted Publicly Held Shares will be 

calculated based on a combined total of 50 million 

shares. If the lowest price of the price range 

disclosed in the company’s registration statement is 

$10 per share, the Exchange will attribute to the 

company a Market Value of Unrestricted Publicly 

Held Shares of $500 million, based on a $10 price 

per share. 

16Rule 5005(a)(35). 

17See Listing Rules 5315(f)(2)(C) that requires the 

Market Value of Unrestricted Publicly Held Shares 

for initial listing on the Nasdaq Global Select 

Market, in connection with an IPO, of at least $45 

million. 

18See Listing Rules 5315(f)(1), (e)(1) and (2), 

respectively. Rule 5315(f)(1) requires a security to 

have: (A) At least 550 total holders and an average 

monthly trading volume over the prior 12 months 

of at least 1,100,000 shares per month; or (B) at least 

2,200 total holders; or (C) a minimum of 450 round 

lot holders and at least 50% of such round lot 

holders must each hold unrestricted securities with 

a market value of at least $2,500. 

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 proposes to adopt Listing 

Rule IM–5315–2.11 This proposed rule 

would allow a company that has not 

previously had its common equity 

securities registered under the 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. 

In considering the initial listing of a 

company in connection with a Direct 

Listing on the Nasdaq Global Select 

Market, 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 

requirements based on the lesser of: (i) 

An independent third-party valuation of 

the company (a ‘‘Valuation’’); 12 and (ii) 

the most recent trading price for the 

company’s common stock in a Private 

Placement Market where there has been 

sustained recent trading. For a security 

that has not had sustained recent 

trading in a Private Placement Market 13

prior to listing, 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. 

In contrast, when applying this 

requirement to a Direct Listing with a 

Capital Raise, the Exchange and 

investors know the minimum price at 

which the company can sell shares in 

the offering because it is included in the 

company’s registration statement, and 

therefore Nasdaq is proposing the 

following: 

• Nasdaq will calculate the value of 

shares, including those being sold by 

the company and those held by public 

shareholders immediately prior to the 

listing, using a price per share equal to 

the lowest price in the price range 

disclosed by the issuer in its registration 

statement.14 Nasdaq also will determine 

whether the company has met the 

applicable bid price and market 

capitalization requirements based on the 

same per share price. 

• In determining whether the 

company satisfies the Market Value of 

Unrestricted Publicly Held Shares for 

initial listing on the Nasdaq Global 

Select Market, the Exchange will deem 

such Company to have met the 

applicable requirement if the amount of 

the Company’s Unrestricted Publicly 

Held Shares before the offering, along 

with the market value of the shares to 

be sold by the company in the 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).15

Officers, directors or owners of more 

than 10% of the company’s common 

stock prior to the opening auction may 

purchase shares sold by the company in 

the opening auction, provided that such 

purchases are not inconsistent with 

general anti-manipulation provisions, 

Regulation M, and other applicable 

securities laws. In addition, in the same 

way as for shares of a company listing 

following a traditional underwritten 

IPO, such an insider owner may 

purchase shares sold by other 

shareholders or sell its 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. 

Shares held by these types of inside 

investors are not included in 

calculations of Publicly Held Shares for 

purposes of Exchange listing rules 

except that, as proposed with respect to 

a Direct Listing with a Capital Raise, all 

shares sold by the company in the 

offering and all shares held by Public 

Holders prior to the offering will be 

included in the calculation of Publicly 

Held Shares, even if some of these 

shares are purchased by inside 

investors.16 The Exchange notes that 

such investors may also 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. However, the Exchange notes 

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 much higher than the Exchange’s 

minimum $45 million Market Value of 

Unrestricted Publicly Held Shares 

requirement for a traditional 

underwritten IPO.17 This heightened 

requirement, along with the ability of all 

investors to purchase shares in the 

opening process on the Exchange, 

should result in companies using a 

Direct Listing with a Capital Raise 

having adequate public float and a 

liquid trading market after the 

completion of the opening auction. 

Any company listing in connection 

with a Direct Listing with a Capital 

Raise would continue to be subject to, 

and required to meet, all other 

applicable initial listing requirements, 

including the requirements to have the 

applicable number of shareholders and 

at least 1,250,000 Unrestricted Publicly 

Held Shares outstanding at the time of 

initial listing, and the requirement to 

have a price per share of at least $4.00 

at the time of initial listing.18

Proposed Listing Rule IM–5315–2 also 

requires that securities listing in 

connection with a Direct Listing with a 


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Federal Register / Vol. 86, No. 39 / Tuesday, March 2, 2021 / Notices 12247 

19As noted below, the Exchange also proposes 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. 

20The Commission did not identify any concerns 

with the proposed changes to Rule 4702 in the OIP. 

Accordingly, no changes to that proposed rule are 

proposed in this amendment. Nasdaq notes that the 

proposed CDL Order is similar in some respects to 

a limit order because it cannot execute at a price 

less than the lowest price in the price range 

disclosed by the issuer in its effective registration 

statement. As a market order, the CDL Order is 

guaranteed to execute in the Nasdaq Halt Cross. 

21See Proposed Rule 4120(c)(9)(B). 

22Rule 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. 

23Rule 4120(c)(8)(A)(i) provides that Nasdaq 

receives notice from the underwriter of the IPO that 

the security is ready to trade. The Nasdaq system 

will calculate the Current Reference Price at that 

time and display it to the underwriter. If the 

underwriter then approves proceeding, the Nasdaq 

system will conduct certain validation checks. 

Under this proposal, Nasdaq will take over these 

functions of the underwriter, as described in detail 

below. 

24Rules 4120(c)(8)(B) and (c)(9) provide that the 

financial advisor selects certain price bands for 

purposes of applying a price validation test that 

occurs once the financial advisor notifies Nasdaq 

that the security is ready to trade. Given that 

Nasdaq proposes that in connection with a Direct 

Listing with a Capital Raise Nasdaq, rather than the 

financial advisor, determines that the security is 

ready to trade, the financial advisor will have no 

purpose in setting the bands. Accordingly, because 

Nasdaq determines when the security is ready to 

trade, it is appropriate for Nasdaq to set the price 

bands. Nasdaq intends to set the price bands at 

zero. 

Capital Raise must begin trading on 

Nasdaq following the initial pricing 

through the Nasdaq Halt Cross, which is 

described in Rules 4120(c)(8) and 4753. 

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 initial public offering.19

However, as described in detail below, 

Nasdaq proposes to modify Rule 

4120(c)(9), in part related to certain 

functions that are performed by an 

underwriter in an IPO or a financial 

advisor in a Direct Listing, to require 

that in the case of a Direct Listing with 

a Capital Raise, Nasdaq, in consultation 

with the financial advisor to the issuer, 

will make the determination of whether 

the security is ready to trade and 

whether to postpone and reschedule the 

offering as described in Rule 

4120(c)(8)(A). 

Amendment to Rule 4702 

The Exchange proposes to amend 

Rule 4702 to add a new order type, the 

‘‘Company Direct Listing Order’’ or 

‘‘CDL Order’’, which will be used for the 

company’s order in a Direct Listing with 

a Capital Raise. This will 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. A 

CDL Order may be entered only on 

behalf of the issuer and the CDL Order 

may not be cancelled or modified. Only 

one Nasdaq member, representing the 

issuer, may enter a CDL Order during a 

Direct Listing with a Capital Raise. The 

price of the CDL Order will be set in 

accordance with Rule 4120(c)(9)(B) that 

requires, among other things, that the 

CDL Order is executed at or above the 

lowest price and at or below the highest 

price of the price range established by 

the issuer in its effective registration 

statement. 

Under Nasdaq rules, a market order, 

such as the CDL Order, must be 

executed in full at the price determined 

in the Nasdaq Halt Cross. In addition, 

all orders priced better than the price 

determined in the Nasdaq Halt Cross 

also would need to be satisfied.20

Amendments to Rules 4120(c)(9), 

4753(a)(3) and 4753(b)(2) 

Nasdaq proposes to amend Rules 

4120(c)(9), 4753(a)(3) and 4753(b)(2) to 

establish requirements for disseminating 

information, establishing the opening 

price and initiating trading through the 

Nasdaq Halt Cross in a Direct Listing 

with a Capital Raise. 

Under the proposal, in the case of the 

Direct Listing with a Capital Raise, a 

security shall not be released for trading 

by Nasdaq unless the actual price 

calculated by the cross is at or above the 

lowest price and at or below the highest 

price of the price range established by 

the issuer in its effective registration 

statement.21 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, as modified by the proposed 

changes to Rule 4120(c)(9), as described 

below.22

Rules 4120(c)(8) and (9) provide that 

the underwriter of the IPO, or the 

financial advisor in a Direct Listing, 

respectively, provide notice to Nasdaq 

that the security subject to the Nasdaq 

Halt Cross is ‘‘ready to trade.’’ 23 These 

rules also provide that the underwriter 

of the IPO, or the financial advisor in a 

Direct Listing, with concurrence of 

Nasdaq, may determine at any point 

during the Halt Cross process up 

through the conclusion of the prelaunch period to postpone and 

reschedule the pricing of the security 

subject to the Nasdaq Halt Cross. 

However, Nasdaq proposes to require 

that in the case of a Direct Listing with 

a Capital Raise, Nasdaq, in consultation 

with the financial advisor to the issuer, 

will make the determination of whether 

the security is ready to trade and 

whether to postpone and reschedule the 

offering as described in Rule 

4120(c)(8)(A). Specifically, Nasdaq 

auction technology displays the Current 

Reference Price, which is the price at 

which the auction can cross the largest 

number of securities subject to the 

Nasdaq Halt Cross. If the auction cannot 

match all the entered orders at the 

Current Reference Price, an imbalance 

on the buy or sell side is displayed and 

provided via Nasdaq data feeds. Nasdaq 

would determine that the security is 

ready to trade when Nasdaq believes, 

based on the displayed information 

referenced above, that a reasonable 

volume of securities will cross on the 

initial trade to minimize the immediate 

price volatility following the initial 

pricing.24 Nasdaq may consult with the 

financial advisor to the issuer as to the 

reasonableness of such volume but can 

determine that the security is ready to 

trade without such consultation. Once 

Nasdaq has determined that the security 

is ready to trade, which will satisfy the 

requirement of Rule 4120(c)(8)(A)(i), 

Nasdaq shall release the security for 

trading if the conditions described in 

Rules 4120(c)(8)(A)(ii) and (iii) are met 

and the actual price calculated by the 

Cross is at or above the lowest price and 

at or below the highest price of the price 

range established by the issuer in its 

effective registration statement. 

If there is insufficient buy interest to 

satisfy the CDL Order, and all other 

market orders, as required by this 

proposed rule, or if the actual price 

calculated by the Cross is outside the 

price range established by the issuer in 

its effective registration statement, the 

Cross would not proceed and such 

security would not begin trading. In 

such event, because the Cross cannot be 

conducted, the Exchange would 

postpone and reschedule the offering 

and notify market participants via a 

Trader Update that the Direct Listing 

with a Capital Raise scheduled for that 

date has been cancelled and any orders 

for that security that have been entered 


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25 In addition, in the OIP the Commission 

expressed concern that the financial advisor could, 

in effect, cancel the non-cancellable CDL Order by 

rescheduling the offering. To address this concern, 

this amendment modifies the rules to provide that 

Nasdaq, in consultation with the financial advisor 

to the issuer, will make the determination of 

whether the security is ready to trade and whether 

to postpone and reschedule the offering as 

described in Rule 4120(c)(8)(A). Finally, the 

proposed changes to Rule 4753 have been modified 

to reflect that the lowest price at which the Nasdaq 

Halt Cross can occur is the lowest price of the price 

range disclosed by the issuer in its effective 

registration statement. 

26Rule 4120(c)(8) describes the activities 

performed by an underwriter in an IPO and by a 

financial advisor in a Direct Listing. 

27 15 U.S.C. 78f(b). 

28 15 U.S.C. 78f(b)(5). 

on the Exchange, including the CDL 

Order, would be cancelled back to the 

entering firms. 

Because the CDL Order will be a 

market order, if the Halt Cross proceeds, 

that order will execute in full in the Halt 

Cross, along with orders priced at or 

better than the price determined in the 

Halt Cross. As noted above, the Halt 

Cross would not be allowed to proceed 

if the actual price calculated by the 

Cross is below the lowest price or above 

the highest price of the price range 

disclosed by the company in its 

effective registration statement. 

Nasdaq also proposes changes to 

Rules 4753(a)(3) and 4753(b)(2) to make 

adjustments to the calculation of the 

Current Reference Price, which is 

disseminated in the Nasdaq Order 

Imbalance Indicator, in the case of a 

Direct Listing with a Capital Raise and 

for how the price at which the Nasdaq 

Halt Cross will execute. In each case, 

where there are multiple prices that 

would satisfy the conditions for 

determining a price, Nasdaq proposes to 

modify the fourth tie-breaker for a Direct 

Listing with a Capital Raise, to use the 

lowest price of the price range disclosed 

by the issuer in its effective registration 

statement. 

In this Amendment No. 1, Nasdaq 

also proposes changes to address 

concerns raised by the Commission in 

the OIP relating to Rule 4120. 

Specifically, consistent with Nasdaq’s 

original intent, as revised, the price 

bands established by Rule 4120(c)(8) 

cannot act to cause the Halt Cross to 

occur outside of the price range 

disclosed by the issuer in its effective 

registration statement because the actual 

price calculated by the Cross is required 

to be at or above the lowest price and 

at or below the highest price of the price 

range established by the issuer in its 

effective registration statement.25

Finally, Nasdaq proposes to amend 

Rule 4120(c)(9) to specify that the 

activities performed by a financial 

advisor under Rule 4120(c)(8) must be 

conducted in a manner that is consistent 

with all federal securities laws, 

including Regulation M and other antimanipulation requirements.26 This 

change will apply to traditional Direct 

Listings, as described under IM–5315–1, 

IM–5405–1 and IM–5505–1, as well as 

to Direct Listings with a Capital Raise, 

as described under proposed IM–5315– 

2. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act,27 in general, and furthers the 

objectives of Section 6(b)(5) of the Act,28

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. 

Nasdaq believes that the proposed 

amendment to the listing requirements 

is consistent with the protection of 

investors. The proposal would require 

that a company completing a Direct 

Listing with a Capital Raise have an 

aggregate market value of unrestricted 

publicly-held shares immediately prior 

to listing together with the market value 

of shares the company sells in the 

opening auction total at least $110 

million (or $100 million, if the 

Company has stockholders’ equity of at 

least $110 million), with such market 

value calculated using a price per share 

equal to the lowest price of the price 

range established by the issuer in its 

effective registration statement. While 

officers, directors or owners of more 

than 10% of the company’s common 

stock prior to the opening auction may 

purchase shares sold by the company or 

other shareholders in the opening 

transaction on Nasdaq, in the event that 

such purchases are not inconsistent 

with general anti-manipulation 

provisions, Regulation M, and other 

applicable securities laws, Nasdaq 

expects that a company expecting to sell 

a significant portion of its shares to 

officers, directors and existing 

significant shareholders would not 

undertake a public listing through a 

Direct Listing with a Capital Raise but 

would raise capital in a private 

placement or a similar transaction 

instead. Nasdaq also notes that a 

company may list on the Global Select 

Market in connection with its initial 

public offering with a market value of 

unrestricted publicly held shares of $45 

million and that unlike a company 

listing in connection with a Direct 

Listing that could qualify for the pricebased 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. The higher 

requirement, along with the ability of all 

investors to purchase shares in the 

opening process on the Exchange, 

should result in companies using a 

Direct Listing with a Capital Raise 

having adequate public float and a 

liquid trading market after the 

completion of the opening auction. 

Nasdaq also believes that it is 

consistent with the protection of 

investors to calculate the security’s bid 

price and values derived from the 

security’s price using a price per share 

equal to the lowest price of the price 

range disclosed by the issuer in its 

effective registration statement. Nasdaq 

will allow the Halt Cross to take place 

as low as this price, but no lower, and 

so this is the minimum price at which 

the company could be listed. 

The proposed requirement that a 

company that lists on the Nasdaq Global 

Select Markets through a Direct Listing 

with a Capital Raise must begin trading 

of the company’s securities following 

the initial pricing through the Halt Cross 

will promote fair and orderly markets by 

protecting against volatility in the 

pricing and initial trading of securities 

covered by the proposed rule change 

because a substantial number of buy and 

sell orders is expected to be executed in 

the Halt Cross at a single price rather 

than in the secondary trading at 

fluctuating prices. Accordingly, Nasdaq 

believes these changes, as required by 

Section 6(b)(5) of the Exchange Act, are 

reasonably designed to protect investors 

and the public interest and promote just 

and equitable principles of trade for the 

opening of securities listing in 

connection with a Direct Listing with a 

Capital Raise on the Nasdaq Global 

Select Market. 

Nasdaq also believes that the 

proposed adoption of the CDL Order 

type in Rule 4702 and the addition of 

requirements to the operation of the 

Nasdaq Halt Cross in Rule 4120(c)(9) 

will remove impediments to and perfect 

the mechanism of a free and open 

market and a national market system 

because it would guarantee that the 

Nasdaq Halt Cross would only occur 

within the specified price range, as 

described above, and, if the Halt Cross 

occurs, all shares offered by the 

company would be sold at such price. 

Unlike an IPO, a company listing 

through a Direct Listing with a Capital 

Raise would not have an underwriter to 


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Federal Register / Vol. 86, No. 39 / Tuesday, March 2, 2021 / Notices 12249 

29See Letter from Jeffrey P. Mahoney, General 

Counsel, Council of Institutional Investors to 

Secretary, Securities and Exchange Commission 

(October 8, 2020), available at https://www.sec.gov/ 

comments/sr-nasdaq-2020-057/srnasdaq2020057- 

7888884-224228.pdf. See also Letter from Jeffrey P. 

Mahoney, General Counsel, Council of Institutional 

Investors to Secretary, Securities and Exchange 

Commission (January 13, 2021), available at https:// 

www.sec.gov/comments/sr-nasdaq-2020-057/ 

srnasdaq2020057-8241868-227781.pdf. 

30Securities Exchange Act Release No. 89684 

(August 26, 2020), 85 FR 54454 (September 1, 2020) 

(approval by delegated authority of SR–NYSE– 

2019–67). On December 22, 2020, the Commission 

issued an order setting aside the action by delegated 

authority and approving the proposed rule change. 

Securities Exchange Act Release No. 90768 

(December 22, 2020), 85 FR 85807 (December 29, 

2020) (the ‘‘NYSE Approval’’). 

31NYSE Approval at 85816. 

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. This certainty would be 

effected in two ways. First, the proposed 

CDL Order would be required to be 

equal to the total number of shares 

disclosed as being offered by the 

company in the prospectus included in 

the effective registration statement filed 

in connection with its listing. The 

Nasdaq Halt Cross would only occur if 

all of the shares in this market order 

could be executed. Second, the Nasdaq 

Halt Cross would be required to occur 

at a price per share that is within the 

price range disclosed by the issuer in its 

effective registration statement. Nasdaq 

further believes that these proposed 

changes would remove impediments to 

and perfect the mechanism of a free and 

open market and a national market 

system because they are designed to 

function seamlessly with the existing 

process for the Nasdaq Halt Cross, 

including dissemination of information 

about the expected price. 

Nasdaq believes that the CDL Order 

and related clarifications will clearly 

define the method by which the issuer 

participates in the opening auction, to 

prevent the issuer from being in a 

position to improperly influence the 

price discovery process, and to design 

an auction that is otherwise consistent 

with the disclosures in the registration 

statement. Specifically, the CDL Order 

entered on the company’s behalf could 

not be executed at a price below the low 

end or above the high end of the price 

range in the company’s effective 

registration statement and, as a market 

order, the full quantity of shares in the 

CDL Order would have to be executed 

in the opening auction. In addition, the 

CDL Order cannot be modified and the 

financial advisor to the company will be 

unable to reschedule the offering once it 

begins. As such, Nasdaq believes that 

the proposed process provides 

reasonable assurance that the opening 

auction and subsequent trading promote 

fair and orderly markets and that the 

proposed rules are designed to prevent 

manipulative acts and practices, and 

protect investors and the public interest 

in accordance with Section 6(b)(5) of the 

Exchange Act. 

Nasdaq believes that it is consistent 

with the protection of investors and the 

public interest to require that in the case 

of a Direct Listing with a Capital Raise, 

Nasdaq, in consultation with the 

financial advisor to the issuer, will 

make the determination of whether the 

security is ready to trade and whether 

to postpone and reschedule the offering 

as described in Rule 4120(c)(8)(A) 

because Nasdaq would determine that 

the security is ready to trade when 

Nasdaq believes, based on the available 

information, that a reasonable volume of 

securities will cross on the initial trade 

to minimize the immediate price 

volatility following the initial pricing. 

Nasdaq also believes that its ability to 

consult the financial advisor to the 

issuer is consistent with the protection 

of investors because the financial 

advisor would be expected to gather 

relevant information in connection with 

the Direct Listing with a Capital Raise 

by engaging in certain price discovery 

activities with potential buyers and 

sellers and such information could be 

shared with Nasdaq. Nasdaq believes 

that as part of their regular activities as 

full-service broker-dealer, such firm’s 

capital markets and sales and trading 

desk personnel may contact or be 

contacted by potential investors and 

current holders of the securities subject 

to the Nasdaq Halt Cross in the normal 

course of their activities and may, in 

that capacity, inform and educate 

interested persons regarding the 

company and obtain information 

regarding pre-listing buying and selling 

interest in such securities (including 

with regard to price, volume and timing 

expectations), which information may 

also be provided to Nasdaq in order to 

support an effective price discovery 

process by Nasdaq. 

Nasdaq notes that, as described above, 

Nasdaq will be able to postpone and 

reschedule the offering only if there is 

insufficient buy interest to satisfy the 

CDL Order, and all other market orders, 

as required by this proposed rule, or if 

the actual price calculated by the Cross 

is outside the price range established by 

the issuer in its effective registration 

statement. 

Nasdaq also believes that it is 

consistent with the protection of 

investors and the public interest to 

remind financial advisors in a Direct 

Listing, including Direct Listings with a 

Capital Raise, that activities in 

connection with the listing must be 

conducted in a manner that is consistent 

with the federal securities laws, 

including Regulation M and other antimanipulation requirements. 

Nasdaq believes that the proposed 

rule change to modify the fourth tiebreaker used in calculating the Current 

Reference Price disseminated in the 

Nasdaq Order Imbalance Indicator and 

the price at which the Nasdaq Halt 

Cross will occur, protects investors and 

the public interest. For a Direct Listing, 

in using the Halt Cross to initiate the 

initial trading in the company’s 

securities, the Current Reference Price 

and price at which the Nasdaq Halt 

Cross will occur may be based on the 

most recent transaction price in a 

Private Placement Market where the 

security has had recent sustained 

trading in such a market over several 

months; otherwise the price will be 

determined by the Exchange in 

consultation with a financial advisor to 

the issuer. For an IPO, however, the 

fourth tie-breaker used in calculating 

the Current Reference Price, is the price 

that is closest to the Issuer’s Initial 

Public Offering Price. Because a Direct 

Listing with a Capital Raise is similar to 

an IPO in that the company sells 

securities in the offering, the proposed 

rule change provides that the forth tiebreaker in calculating the Current 

Reference Price for such security is the 

lowest price of the price range disclosed 

by the issuer in its effective registration 

statement, which is the minimum price 

at which the Halt Cross will occur. 

Finally, while a commenter expressed 

concerns that that the expansion of 

direct listings would compound 

problems that shareholders face in 

tracing their share purchases to a 

registration statement,29 the 

Commission has previously considered 

and rejected these concerns.30 In that 

regard, the Commission has determined 

that investor protection concerns 

relating to tracing challenges are not 

unique to direct listings, including 

where the company itself would sell 

shares in the opening auction on the 

first day of trading on the Exchange in 

addition to, or instead of, facilitating 

sales by selling shareholders (‘‘Primary 

Direct Floor Listing’’), and stated that it 

did not expect ‘‘any such tracing 

challenges in this context to be of such 

magnitude as to render the proposal 

inconsistent with the Act.’’ 31 On the 

other hand, the Commission found that 

allowing a Primary Direct Floor Listing 

‘‘will provide benefits to existing and 

potential investors relative to firm 


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12250 Federal Register / Vol. 86, No. 39 / Tuesday, March 2, 2021 / Notices 

32 Id. 

33 Id. 

34 Id. at 85815. 

35See NYSE Approval, above footnote 30. 36 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78mm(a)(1). 

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

3See letter from Brett M. Kitt, Principal Associate 

General Counsel, Nasdaq Inc., to J. Matthew 

DeLesDernier, Assistant Secretary, Commission, 

dated December 30, 2020 (‘‘Exemptive Request’’). 

4 15 U.S.C. 78mm(a)(1). 

5See Securities Exchange Act Release No. 90903 

(January 12, 2021), 86 FR 5284 (January 19, 2021) 

(SR–ISE–2020–43). Although the proposed rule 

change was filed pursuant to Section 19(b)(3)(A)(iii) 

of the Exchange Act, and thereby became effective 

upon filing with the Commission, the Exchange 

stipulated in its proposal that the incorporation by 

reference would not be operative until such time as 

the Commission grants this Exemptive Request. 

6See note 5, supra. 

commitment underwritten offerings’’ 32

because the structure ‘‘has the potential 

to broaden the scope of investors that 

are able to purchase securities in an 

initial public offering, at the initial 

public offering price, rather than in 

aftermarket trading’’ and ‘‘may allow for 

efficiencies in IPO pricing and 

allocation.’’ 33 Similarly, while the 

commenter expressed concern that that 

the expansion of direct listings may lead 

to a decline in effective governance at 

U.S. public companies, presumably 

because of the lack of an underwriter in 

the offering, Nasdaq believes that this 

concern is unsubstantiated and 

challenges in this context are not of 

such magnitude as to render the 

proposal inconsistent with the Act. 

Moreover, in approving the Primary 

Direct Floor Listing proposal the 

Commission concluded that it ‘‘does not 

view a firm commitment underwriting 

as necessary to provide adequate 

investor protection in the context of a 

registered offering.’’ 34 As a result, 

consistent with the purposes of the Act, 

the proposed rule change may provide 

investors with additional investment 

opportunities and companies with more 

options for becoming publicly traded. 

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. The 

proposed amendments would not 

impose any burden on competition, but 

would rather increase competition. In 

that regard, the Commission recently 

approved a similar proposal to allow a 

Primary Direct Floor Listing on the New 

York Stock Exchange.35 Allowing 

Nasdaq to have similar rules will give 

issuers interested in this pathway to 

access the capital markets a choice of 

listing venues, which will enhance 

competition among exchanges. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change, as modified by Amendment No. 

1, 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 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 March 

23, 2021 . 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.36

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–04222 Filed 3–1–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–91202] 

Order Granting Application by Nasdaq 

ISE, LLC for Exemption Pursuant to 

Section 36(a) of the Exchange Act 

From the Rule Filing Requirements of 

Section 19(b) of the Exchange Act With 

Respect to the Nasdaq Rule 1000 

Series Incorporated by Reference 

February 24, 2021. 

Nasdaq ISE, LLC (the ‘‘Exchange’’) has 

filed with the Securities and Exchange 

Commission (the ‘‘Commission’’) an 

application for an exemption under 

Section 36(a)(1) of the Securities 

Exchange Act of 1934 (‘‘Exchange 

Act’’) 1 from the rule filing requirements 

of Section 19(b) of the Exchange Act 2

with respect to certain rules of The 

Nasdaq Stock Market LLC (‘‘Nasdaq’’) 

that the Exchange seeks to incorporate 

by reference (‘‘Nasdaq Rule 1000 

Series’’).3 Section 36(a)(1) of the 

Exchange Act,4 subject to certain 

limitations, authorizes the Commission 

to conditionally or unconditionally 

exempt any person, security, or 

transaction, or any class thereof, from 

any provision of the Exchange Act or 

rule thereunder, if necessary or 

appropriate in the public interest and 

consistent with the protection of 

investors. 

The Exchange filed a proposed rule 

change 5 under Section 19(b) of the 

Exchange Act to replace its existing 

membership rules, as set forth in 

General 3 of its rulebook, with the Rule 

1000 Series of the Nasdaq rulebook, as 

such rules may be in effect from time to 

time. Namely, in the proposed rule 

change, the Exchange proposed to 

incorporate by reference the Nasdaq 

Rule 1000 Series such that Nasdaq Rule 

1000 Series would be applicable to the 

Exchange’s applicants, members, 

associated persons, and other persons 

subject to the Exchange’s jurisdiction as 

though such rules were fully set forth 

within the Exchange’s rulebook.6


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