This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

49698 

Vol. 76, No. 155 

Thursday, August 11, 2011 

1On October 1, 2008, NYSE Euronext acquired 

The Amex Membership Corporation (‘‘AMC’’) 

pursuant to an Agreement and Plan of Merger, 

dated January 17, 2008 (the ‘‘Merger’’). In 

connection with the Merger, NYSE Amex’s 

predecessor, the Amex, a subsidiary of AMC, 

became a subsidiary of NYSE Euronext called NYSE 

Alternext US LLC (‘‘NYSE Alternext’’). See 

Securities Exchange Act Release No. 58673 

(September 29, 2008), 73 FR 57707 (October 3, 

2008) (SR–NYSE–2008–60 and SR–Amex–2008–62) 

(approving the Merger). In 2009, the Exchange 

changed its name from NYSE Alternext to NYSE 

Amex LLC (‘‘NYSE Amex’’). See Securities 

Exchange Act Release No. 59575 (March 13, 2009), 

74 FR 11803 (March 19, 2009) (SR–NYSEALTR– 

2009–24) (approving the name change). 

2As of July 1, 2006, the National Market System 

of The NASDAQ Stock Market LLC is known as the 

Nasdaq Global Market (‘‘NGM’’). See Securities 

Exchange Act Release Nos. 53799 (May 12, 2006), 

71 FR 29195 (May 19, 2006) and 54071 (June 29, 

2006), 71 FR 38922 (July 10, 2006). 

3See National Securities Markets Improvement 

Act of 1996, Pub. L. 104–290, 110 Stat. 3416 

(October 11, 1996). 

4 15 U.S.C. 77r(a). 

5 15 U.S.C. 77r(b)(1)(A) and (B). In addition, 

securities of the same issuer that are equal in 

seniority or senior to a security listed on a Named 

Market or national securities exchange designated 

by the Commission as having substantially similar 

listing standards to a Named Market are covered 

securities for purposes of Section 18 of the 

Securities Act. 15 U.S.C. 77r(b)(1)(C). 

6Securities Exchange Act Release No. 39542 

(January 13, 1998), 63 FR 3032 (January 21, 1998) 

(determining that the listing standards of the 

Chicago Board Options Exchange, Incorporated 

(‘‘CBOE’’), Tier 1 of the Pacific Exchange, Inc. 

(‘‘PCX’’) (now known as NYSE Arca, Inc.), and Tier 

1 of the Philadelphia Stock Exchange, Inc. (‘‘Phlx’’) 

(now known as NASDAQ OMX PHLX LLC) were 

substantially similar to those of the Named Markets 

and that securities listed pursuant to those 

standards would be deemed Covered Securities for 

purposes of Section 18 of the Securities Act). In 

2004, the Commission amended Rule 146(b) to 

designate options listed on the International 

Securities Exchange, Inc. (‘‘ISE’’) (now known as 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Part 230 

[Release No. 33–9251; File No. S7–31–11] 

RIN 3235–AL20 

Covered Securities Pursuant to 

Section 18 of the Securities Act of 1933 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Proposed rule. 

SUMMARY: The Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

proposes for comment an amendment to 

Rule 146 under Section 18 of the 

Securities Act of 1933 (‘‘Securities 

Act’’), as amended, to designate certain 

securities on BATS Exchange, Inc. 

(‘‘BATS’’ or ‘‘Exchange’’) as covered 

securities for purposes of Section 18 of 

the Securities Act. Covered securities 

under Section 18 of the Securities Act 

are exempt from state law registration 

requirements. 

DATES: Comments should be received on 

or before September 12, 2011. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/proposed.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number S7–31–11 on the subject line. 

• Use the Federal eRulemaking Portal 

(http://www.regulations.gov). Follow the 

instructions for submitting comments. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number S7–31–11. This file number 

should be included on the subject line 

if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/proposed.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 a.m. and 3 p.m. Copies of the filing 

also will be available for inspection and 

copying at the principal office of the 

Exchange. All comments received will 

be posted without change; the 

Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. 

FOR FURTHER INFORMATION CONTACT: 

David R. Dimitrious, Senior Special 

Counsel, (202) 551–5131, Ronesha 

Butler, Special Counsel, (202) 551–5629 

or Carl Tugberk, Special Counsel, (202) 

551–6049, Division of Trading and 

Markets (‘‘Division’’), Commission, 100 

F Street, NE., Washington, DC 20549– 

6628. 

SUPPLEMENTARY INFORMATION: 

I. Introduction 

In 1996, Congress amended Section 

18 of the Securities Act to exempt from 

state registration requirements securities 

listed, or authorized for listing, on the 

New York Stock Exchange LLC 

(‘‘NYSE’’), the American Stock 

Exchange LLC (‘‘Amex’’) (now known as 

NYSE Amex LLC),1 or the National 

Market System of The NASDAQ Stock 

Market LLC (‘‘Nasdaq/NGM’’) 2

(collectively, the ‘‘Named Markets’’), or 

any national securities exchange 

designated by the Commission to have 

substantially similar listing standards to 

those of the Named Markets.3 More 

specifically, Section 18(a) of the 

Securities Act provides that ‘‘no law, 

rule, regulation, or order, or other 

administrative action of any State * * * 

requiring, or with respect to, registration 

or qualification of securities * * * shall 

directly or indirectly apply to a security 

that—(A) is a covered security.’’ 4

Covered securities are defined in 

Section 18(b)(1) of the Securities Act to 

include those securities listed, or 

authorized for listing, on the Named 

Markets, or securities listed, or 

authorized for listing, on a national 

securities exchange (or tier or segment 

thereof) that has listing standards that 

the Commission determines by rule are 

‘‘substantially similar’’ to those of the 

Named Markets (‘‘Covered Securities’’).5

Pursuant to Section 18(b)(1)(B) of the 

Securities Act, the Commission adopted 

Rule 146.6 Rule 146(b) lists those 


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Federal Register / Vol. 76, No. 155 / Thursday, August 11, 2011 / Proposed Rules 49699 

the International Securities Exchange, LLC) as 

Covered Securities for purposes of Section 18(b) of 

the Securities Act. See Securities Act Release No. 

8442 (July 14, 2004), 69 FR 43295 (July 20, 2004). 

In 2007, the Commission amended Rule 146(b) to 

designate securities listed on the Nasdaq Capital 

Market (‘‘NCM’’) as Covered Securities for purposes 

of Section 18(b) of the Securities Act. See Securities 

Act Release No. 8791 (April 18, 2007), 72 FR 20410 

(April 24, 2007). 

7 17 CFR 230.146(b). 

8See Securities Exchange Act Release No. 64546 

(May 25, 2011), 76 FR 31660 (June 1, 2011) 

(proposing qualitative and quantitative listing 

requirements and standards for securities). 

9See letter from Eric Swanson, Senior Vice 

President and General Counsel, BATS, to Elizabeth 

M. Murphy, Secretary, Commission, dated May 26, 

2011 (File No. 4–632) (‘‘BATS Petition’’). 

10 15 U.S.C. 77r. 

11On July 24, 2008, The NASDAQ OMX Group, 

Inc. acquired Phlx and renamed it ‘‘NASDAQ OMX 

PHLX LLC.’’ See Securities Exchange Act Release 

Nos. 58179 (July 17, 2008), 73 FR 42874 (July 23, 

2008) (SR–Phlx–2008–31); and 58183 (July 17, 

2008), 73 FR 42850 (July 23, 2008) (SR–NASDAQ– 

2008–035). See also Securities Exchange Act 

Release No. 62783 (August 27, 2010), 75 FR 54204 

(September 3, 2010) (SR–Phlx–2010–104). 

12See letter from David P. Semak, Vice President, 

Regulation, PCX, to Arthur Levitt, Jr., Chairman, 

Commission, dated November 15, 1996; letter from 

Alger B. Chapman, Chairman, CBOE, to Jonathan G. 

Katz, Secretary, Commission, dated November 18, 

1996; letter from J. Craig Long, Esq., Foley & 

Lardner, Counsel to CHX, to Jonathan G. Katz, 

Secretary, Commission, dated February 4, 1997; and 

letter from Michele R. Weisbaum, Vice President 

and Associate General Counsel, Phlx, to Jonathan G. 

Katz, Secretary, Commission, dated March 31, 1997. 

13Securities Exchange Act Release No. 39542, 

supra note 6. The Commission did not include Tier 

1 of the CHX in Rule 146 because of ‘‘concerns 

regarding the CHX’s listing and maintenance 

procedures.’’ Id. at 3032. 

14See letter from Michael Simon, Senior Vice 

President and General Counsel, ISE, to Jonathan G. 

Katz, Secretary, Commission, dated October 9, 

2003. 

15Securities Act Release No. 8442 (July 14, 2004), 

69 FR 43295 (July 20, 2004). 

16See letter from Edward S. Knight, Executive 

Vice President and General Counsel, Nasdaq, to 

Nancy M. Morris, Secretary, Commission, dated 

March 1, 2006 (File No. 4–513). 

17See Securities Act Release No. 8791, supra 

note 6. 

18See BATS Petition, supra note 9. 

19 15 U.S.C. 77r(b)(1)(B). 

20This approach is consistent with the approach 

that the Commission has previously taken. See 

Securities Act Release No. 7494 (January 13, 1998), 

63 FR 3032 (January 21, 1998). 

21See id. 

22See Securities Act Release No. 8791, supra 

note 6. 

23 Id. 

24See generally proposed BATS Chapter XIV; 

Securities Exchange Act Release No. 64546, supra 

note 8, 76 FR 31660. In making its preliminary 

determination of substantial similarity, as discussed 

in detail below, the Commission generally 

compared BATS’ proposed qualitative listing 

standards for both Tier I and Tier II securities with 

Nasdaq/NGM’s qualitative listing standards, BATS’ 

proposed quantitative listing standards for Tier I 

securities with Nasdaq/NGM’s quantitative listing 

standards, and BATS’ proposed quantitative listing 

standards for Tier II securities with NYSE Amex’s 

quantitative listing standards. 

national securities exchanges, or 

segments or tiers thereof, that the 

Commission has determined to have 

listing standards substantially similar to 

those of the Named Markets and thus 

securities listed on such exchanges are 

deemed Covered Securities.7 BATS has 

filed a proposed rule change for the 

listing of securities on BATS 8 and has 

petitioned the Commission to amend 

Rule 146(b) to designate such securities 

as Covered Securities for the purpose of 

Section 18 of the Securities Act.9 If the 

Commission were to approve the 

proposed listing standards and make 

this determination, then securities listed 

on BATS would be exempt from state 

law registration requirements.10

Additionally, should the Commission 

approve BATS’ proposed listing 

standards and the securities listed, or 

authorized for listing, on BATS were 

designated as Covered Securities under 

Rule 146(b)(1), then BATS’ listing 

standards would be subject to Rule 

146(b)(2) under the Securities Act. Rule 

146(b)(2) conditions the designation of 

securities as Covered Securities under 

Rule 146(b)(1) on the identified 

exchange’s listing standards continuing 

to be substantially similar to those of the 

Named Markets. Thus, under Rule 

146(b)(2), the designation of certain 

securities as Covered Securities would 

be conditioned on BATS maintaining 

listing standards for its equity securities 

that are substantially similar to those of 

the Named Markets. 

II. Background 

In 1998, the CBOE, PCX (now known 

as NYSE Arca, Inc.), Phlx,11 and the 

Chicago Stock Exchange, Inc. (‘‘CHX’’) 

petitioned the Commission to adopt a 

rule determining that specified portions 

of the exchanges’ listing standards were 

substantially similar to the listing 

standards of the Named Markets.12 In 

response to the petitions, and after 

extensive review of the petitioners’ 

listing standards, the Commission 

adopted Rule 146(b), determining that 

the listing standards of the CBOE, Tier 

1 of the PCX, and Tier 1 of the Phlx 

were substantially similar to those of the 

Named Markets and that securities 

listed pursuant to those standards 

would be deemed Covered Securities.13

In 2004, ISE petitioned the Commission 

to amend Rule 146(b) to determine that 

its listing standards for securities listed 

on ISE are substantially similar to those 

of the Named Markets and, accordingly, 

that securities listed pursuant to such 

listing standards are Covered Securities 

for purposes of Section 18(b) of the 

Securities Act.14 The Commission 

subsequently amended Rule 146(b) to 

designate options listed on ISE as 

Covered Securities.15 In 2007, Nasdaq 

petitioned the Commission to amend 

Rule 146(b) to determine that listing 

standards for securities listed on the 

NCM are substantially similar to those 

of the Named Markets and, accordingly, 

that securities listed pursuant to such 

listing standards are Covered 

Securities.16 The Commission 

subsequently amended Rule 146(b) to 

designate securities listed on the NCM 

as Covered Securities.17

BATS has petitioned the Commission 

to amend Rule 146(b) and determine 

that its proposed listing standards for 

securities listed on BATS are 

substantially similar to those of the 

Named Markets, and that such securities 

are Covered Securities under Section 

18(b) of the Securities Act.18

III. Discussion 

Under Section 18(b)(1)(B) of the 

Securities Act,19 the Commission has 

the authority to determine that the 

listing standards of an exchange, or tier 

or segment thereof, are substantially 

similar with those of the NYSE, NYSE 

Amex, or Nasdaq/NGM. The 

Commission initially has compared 

BATS’ proposed listing standards for all 

securities with one of the Named 

Markets. If the proposed listing 

standards in a particular category were 

not substantially similar to the 

standards of that market, the 

Commission compared BATS’ proposed 

standards to one of the other two 

markets.20 In addition, as it has done 

previously, the Commission has 

interpreted the ‘‘substantially similar’’ 

standard to require listing standards at 

least as comprehensive as those of the 

Named Markets.21 If a petitioner’s 

listing standards are higher than the 

Named Markets, then the Commission 

may still determine that the petitioner’s 

listing standards are substantially 

similar to those of the Named Markets.22

Finally, the Commission notes that 

differences in language or approach 

would not necessarily lead to a 

determination that the listing standards 

of the petitioner are not substantially 

similar to those of any Named Market.23

The Commission has reviewed 

proposed listing standards for securities 

to be listed and traded on BATS and, for 

the reasons discussed below, 

preliminarily believes that the proposed 

standards overall are substantially 

similar to those of a Named Market.24

A. Qualitative Listing Standards 

BATS’ proposed qualitative listing 

standards for both the Tier I and Tier II 

securities are substantively identical to 


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25Such qualitative listing standards relate to, 

among other things, the number of independent 

directors required, conflicts of interest, composition 

of the audit committee, executive compensation, 

shareholder meeting requirements, voting rights, 

quorum, code of conduct, proxies, shareholder 

approval of certain corporate actions, and the 

annual and interim reports requirements. Compare 

proposed BATS Rules 14.6 and 14.10 with Nasdaq 

Rule 5250 and Rule 5600 Series. 

26Compare proposed BATS Rules 14.4(a) and 

14.8 with Nasdaq Rule 5225(a) and Nasdaq Rule 

5400 Series (providing for identical rules 

concerning initial listing and maintenance 

standards for units, primary equity securities, 

preferred stock and secondary classes of common 

stock, rights, warrants and convertible debt on 

BATS and the Nasdaq/NGM). 

27See generally Sections 101 and 102 of the 

NYSE Amex Company Guide and proposed BATS 

Rule 14.9. 

28BATS’ proposed use of ‘‘primary equity 

securities’’ and NYSE Amex’s use of ‘‘common 

stock’’ is simply a difference in nomenclature, as 

BATS’ proposed listing standards define ‘‘primary 

equity security’’ as a company’s first class of 

common stock. See proposed BATS Rule 

14.1(a)(21). 

29BATS’ proposed listing standards would 

require a minimum bid price of $4 per share for 

initial listing and $1 per share for continued listing 

while NYSE Amex requires a minimum bid price 

of $2–$3 per share depending on the issuer for 

initial listing and will consider delisting if the price 

per share is ‘‘low.’’ Compare proposed BATS Rule 

14.9(b)(1)(A) with Section 102 of the NYSE Amex 

Company Guide. The Commission has interpreted 

the substantially similar standard to require listing 

standards at least as comprehensive as those of the 

Named Markets; the Commission may determine 

that a petitioner’s standards are substantially 

similar if they are higher, and differences in 

language or approach of the listing standards are 

not dispositive. See supra notes 21–23 and 

accompanying text. 

30While BATS’ proposed listing standards would 

require at least 300 round lot holders, NYSE Amex’s 

listing standards require 400 or 800 public 

shareholders (depending upon the number of shares 

held by the public), or 300 or 600 public 

shareholders for its alternate listing standards. The 

Commission preliminarily does not believe this 

difference would preclude a determination of 

substantial similarity between the standards. 

Additionally, BATS’ proposed listing standards are 

identical to the listing standards of NCM, which the 

Commission previously found to be substantially 

similar to a Named Market. See Securities Act 

Release 8791, supra note 6 (determining that NCM 

listing standards, which are identical to BATS’ 

proposed listing standards for primary equity 

securities on Tier II of the Exchange, are 

substantially similar to these same Amex 

standards). With respect to NCM having alternative 

listing standards for the number of round lot 

holders, the Commission noted that this difference 

did not preclude a determination of substantial 

similarity between the standards. See Securities Act 

Release 8791, supra note 6, 72 FR at 20412; 

Securities Act Release No. 8754 (November 22, 

2006), 71 FR 67762 (November 22, 2006) (proposing 

that the Commission amend Rule 146(b) to 

designate securities listed on the NCM as covered 

securities for purposes of Section 18(b) of the 

Securities Act). 

31BATS’ proposed listing standards would 

require a minimum of 1,000,000 publicly held 

shares while NYSE Amex requires a minimum of 

500,000. Compare proposed BATS Rule 

14.9(b)(1)(B) with Section 102(a) of the NYSE Amex 

Company Guide. The Commission has interpreted 

the substantially similar standard to require listing 

standards at least as comprehensive as those of the 

Named Markets; the Commission may determine 

that a petitioner’s standards are substantially 

similar if they are higher, and differences in 

language or approach of the listing standards are 

not dispositive. See supra notes 21–23 and 

accompanying text. 

32BATS’ proposed listing requirements would 

require at least three registered and active market 

makers while NYSE Amex requires one specialist 

to be assigned. Compare proposed BATS Rule 

14.9(b)(1)(D) with Section 202(e) of the NYSE Amex 

Company Guide. The Commission may still 

determine that the petitioner’s listing standards are 

substantially similar to those of the Named Markets 

if a petitioner’s listing standards are higher than the 

Named Markets. See Securities Act Release No. 

8791, supra note 6. 

33BATS’ proposed listing standard would require 

a company to have stockholder equity of at least $5 

million, a market value of publicly held shares of 

at least $15 million, and a two-year operating 

history. See proposed BATS Rule 14.9(b)(2)(A). 

NYSE Amex requires stockholder equity of at least 

$4 million, a market value of publicly held shares 

of at least $15 million, and a two-year operating 

history. 

34BATS’ proposed listing standards would 

require a market value of listed securities of at least 

$50 million and a market value of publicly held 

shares of at least $15 million, which is the same as 

required by NYSE Amex. Compare proposed BATS 

Rule 14.9(b)(2)(B) with Section 101(c)(2)–(3) of the 

NYSE Amex Company Guide. 

35BATS’ proposed listing standards would 

require net income from continuing operations of at 

least $750,000, which is the same as required by 

NYSE Amex. Compare proposed BATS Rule 

14.9(b)(2)(C) with Section 101(d)(1) of the NYSE 

Amex Company Guide. 

36See proposed BATS Rule 14.9(b)(1)(E). This 

proposed requirement is identical to NCM. See 

Nasdaq Rule 5505(a)(5); see generally Securities Act 

Release 8791, supra note 6 (determining that NCM 

listing standards, which are identical to BATS’ 

proposed standards for primary equity securities on 

Tier II of the Exchange, are substantially similar to 

the Amex standards). 

37See Section 102 of the NYSE Amex Company 

Guide. See also Section 110 of the NYSE Amex 

Company Guide. 

38See Securities Act Release No. 8791, supra 

note 6. 

39See generally Securities Act Release 8791, 

supra note 6 (determining that NCM continued 

listing standards, which are identical to BATS’ 

proposed continued listing standards for primary 

equity securities on Tier II of the Exchange, are 

substantially similar to the Amex standards). 

the qualitative listing standards for 

Nasdaq/NGM securities.25 Therefore, 

the Commission preliminarily believes 

that BATS’ qualitative listing standards 

for Tier I and Tier II securities are 

substantially similar to a Named Market. 

The Commission requests comment 

on whether BATS’ proposed qualitative 

listing standards for Tier I and Tier II 

are ‘‘substantially similar’’ to Nasdaq/ 

NGM’s listing standards. 

B. Tier I Securities Quantitative Listing 

Standards 

The Commission believes that BATS’ 

proposed initial and continued listing 

standards for its Tier I Securities are 

substantively identical to the initial and 

continued listing standards for 

securities listed on Nasdaq/NGM.26

Therefore, the Commission 

preliminarily believes that BATS’ 

quantitative listing standards for Tier I 

Securities are substantially similar to a 

Named Market. 

The Commission requests comment 

on whether BATS’ proposed Tier I 

Securities quantitative listing rules are 

‘‘substantially similar’’ to Nasdaq/ 

NGM’s listing rules. 

C. Tier II Securities Quantitative Listing 

Standards 

1. Primary Equity Securities 

The Commission compared BATS’ 

proposed listing standards for primary 

equity securities listed on Tier II of the 

Exchange to the listing standards of 

NYSE Amex.27 The Commission 

preliminarily believes that BATS’ 

proposed initial listing standards for 

primary equity securities listed on Tier 

II of the Exchange are substantially 

similar to those of NYSE Amex’s 

common stock listing standards.28

Specifically, BATS’ proposed 

requirements relating to bid price,29

round lot holders,30 shares held by the 

public,31 and required number of 

registered and active market makers 32

are substantially similar to NYSE Amex 

requirements. Additionally, BATS’ 

proposed equity,33 market value,34 and 

net income 35 standards are also 

substantially similar to NYSE Amex 

standards. 

In addition to the above initial listing 

requirements, BATS would require that 

American Depositary Receipts (‘‘ADRs’’) 

comply with an additional criterion. 

Specifically, BATS would require there 

be at least 400,000 ADRs issued for such 

securities to be initially listed on 

BATS.36 However, NYSE Amex does 

not have specific requirements for ADRs 

in addition to its initial listing standards 

for primary equity securities.37 As noted 

above, the Commission may still 

determine that the petitioner’s listing 

standards are similar to those of the 

Named Markets if BATS’ proposed 

listing standards are higher than the 

Named Markets.38 The Commission 

preliminarily believes that BATS’ 

proposed listing requirements for ADRs 

are substantially similar to those of 

NYSE Amex. 

The Commission also preliminarily 

believes that the proposed continued 

listing requirements for primary equity 

securities listed on Tier II of the 

Exchange, while not identical, are 

substantially similar to those of NYSE 

Amex.39 NYSE Amex’s delisting criteria 

are triggered by poor financial 

conditions or operating results of the 


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Federal Register / Vol. 76, No. 155 / Thursday, August 11, 2011 / Proposed Rules 49701 

40See generally Sections 1001 through 1006 of 

the NYSE Amex Company Guide. 

41See Section 1003(a) of the NYSE Amex 

Company Guide. While not identical to NYSE 

Amex, BATS, as noted below, also has a 

shareholder equity standard. See infra note 42 and 

accompanying text. NYSE Amex, however, will not 

normally consider suspending dealing in (i) through 

(iii) noted above if the issuer is in compliance with 

the following: (1) Total market value of market 

capitalization of at least $50,000,000; or total assets 

and revenue of $50,000,000 each in its last fiscal 

year, or in two of its last three fiscal years; and (2) 

the issuer has at least 1,100,000 shares publicly 

held, a value of publicly held shares of at least 

$15,000,000 and 400 round lot holders. Id. 

NYSE Amex also will consider delisting if: (i) An 

issuer has sold or otherwise disposed of its 

principal operating assets or has ceased to be an 

operating company or has discontinued a 

substantial portion of its operations or business; (ii) 

if substantial liquidation of the issuer has been 

made; or (iii) if advice has been received, deemed 

by the Exchange to be authoritative, that the 

security is without value, or in the case of a 

common stock, such stock has been selling for a 

substantial period of time at a low price. See 

Section 1003(c) and (f)(v) of the NYSE Amex 

Company Guide. 

42Proposed BATS Rule 14.9(e)(2)(A)–(C). NYSE 

Amex focuses on a shareholder equity standard for 

continued listing. BATS’ proposed shareholder 

equity standard would require at least $2.5 million 

shareholders’ equity compared to NYSE Amex’s 

lowest shareholder equity standard of $2 million, if 

the NYSE Amex issuer has sustained losses from 

continuing operations and/or net losses in two of 

its three most recent fiscal years. Compare proposed 

BATS Rule 14.9(e)(2)(A)–(C) with Section 1003(a) of 

the NYSE Amex Company Guide. 

43See proposed BATS Rule 14.9(e)(1)(B). Amex 

will consider delisting if the price per share is 

‘‘low.’’ See Section 1003(f)(v) of the Amex Company 

Guide. See also Securities Act Release 8791, supra 

note 6 (noting the same regarding the NCM and 

Amex bid price standards). 

44Proposed BATS Rule 14.9(e)(1)(A)–(E). NYSE 

Amex will consider delisting the common stock of 

an issuer if the aggregate market value of such 

publicly held shares is less than $1 million for more 

than 90 consecutive days, the number of publicly 

held shares is less than 200,000 shares, or the 

number of its public stockholders is less than 300. 

See Section 1003(b) of the NYSE Amex Company 

Guide. 

45The Commission has interpreted the 

substantially similar standard to require listing 

standards at least as comprehensive as those of the 

Named Markets, and differences in language or 

approach of the listing standards are not 

dispositive. See supra notes 21–23 and 

accompanying text. See also Securities Act Release 

8791, supra note 6 (determining that NCM 

continued listing standards, which are identical to 

BATS’ proposed continued listing standards for 

primary equity securities on Tier II of the Exchange, 

are substantially similar to the Amex standards). 

46See Securities Act Release No. 8791, supra note 

6, at 20411. 

47BATS’ proposed initial listing standard would 

require 100 round lot holders, as Nasdaq/NGM 

requires. Compare proposed BATS Rule 14.9(c) 

with Nasdaq Rule 5510. Similarly, BATS’ proposed 

continued listing standard would require 100 round 

lot holders. The Nasdaq/NGM continued listing 

standard requires 100 round lot holders. Compare 

proposed BATS Rule 14.9(f) with Nasdaq Rule 

5460(a)(4). 

48While BATS’ proposed bid price requirement 

for initial listing is $4 and the Nasdaq/NGM 

requirement is $5, the Commission preliminarily 

does not believe this difference is significant. 

Compare proposed BATS Rule 14.9(c)(1)(A) with 

Nasdaq Rule 5510(a)(1). See also Securities Act 

Release No. 8791, supra note 6, at 20412 n. 28 

(determining that an NCM bid requirement, which 

is identical to BATS’ proposed bid requirement, 

was substantially similar to the Nasdaq/NGM 

requirement). Both BATS’ proposed standard and 

Nasdaq/NGM’s existing standard require a $1 bid 

price for continued listing. Compare proposed 

BATS Rule 14.9(f)(1) with Nasdaq Rule 5460(a)(3). 

49BATS’ proposed standard would require 

200,000 publicly held shares for initial listing, and 

100,000 publicly held shares for continued listing, 

which is the same as Nasdaq/NGM requires. 

Compare proposed BATS Rule 14.9(c)(1)(C) and 

14.9(f)(1)(c) with Nasdaq Rules 5415(a)(1) and 

5460(a)(1). 

50BATS’ proposed standard for initial listing of 

preferred stock or a secondary class of common 

stock would require a market value of publicly held 

shares of at least $3.5 million. Nasdaq/NGM 

requires a market value of publicly held shares of 

at least $4 million. Compare proposed BATS Rule 

14.9(c)(1)(D) with Nasdaq Rule 5415(a)(2). BATS 

proposed standard for continued listing would 

require a market value of publicly held shares of at 

least $1 million. Nasdaq/NGM requires a market 

value of publicly held shares of at least $1 million 

for continued listing. Compare proposed BATS 

Rule 14.9(f)(1)(D) with Nasdaq Rule 5460(a)(1). The 

Commission preliminarily believes BATS’ proposed 

initial and continued listing standards for preferred 

stock and secondary classes of common stock are 

substantially similar to Nasdaq/NGM. See also 

Securities Act Release No. 8791, supra note 6, at 

20411–12. (determining that NCM listing standards, 

which are identical to BATS’ proposed listing 

standards for preferred stock and secondary classes 

of common stock, are substantially similar to the 

Nasdaq/NGM standards). 

51BATS proposed standard for initial listing 

would require at least three registered and active 

market makers, while its continued listing standard 

would require at least two registered and active 

market makers. Nasdaq/NGM requires the same. 

Compare proposed BATS Rule 14.9(c)(1)(E) with 

Nasdaq Rule 5415(a)(2). 

52The Commission notes that these proposed 

requirements would apply to instances when the 

common stock or common stock equivalent security 

of the issuer were listed on BATS as a Tier II 

Security or otherwise were a Covered Security. If 

the common stock or common stock equivalent is 

not listed as a Tier II Security or is a Covered 

Security, then the security would be required to 

meet the initial primary equity listing requirements 

for Tier II noted above. Nasdaq/NGM contains a 

similar requirement. Compare proposed BATS Rule 

14.9(f)(2) with Nasdaq Rule 5460(b). 

issuer.40 Specifically, NYSE Amex will 

consider delisting an equity issue if: (i) 

Stockholders’ equity is less than $2 

million and such issuer has sustained 

losses from continuing operations and/ 

or net losses in two of its three most 

recent fiscal years; (ii) stockholders’ 

equity is less than $4 million and such 

issuer has sustained losses from 

continuing operations and/or net losses 

in three of its four most recent fiscal 

years; (iii) stockholders’ equity is less 

than $6 million if such issuer has 

sustained losses from continuing 

operations and/or net losses in its five 

most recent fiscal years; or (iv) the 

issuer has sustained losses which are so 

substantial in relation to its overall 

operations or its existing financial 

resources, or its financial condition has 

become so impaired that it appears 

questionable, in the opinion of the 

exchange, as to whether such company 

will be able to continue operations and/ 

or meet its obligations as they mature.41

Although BATS would not have the 

same continued listing provisions for 

Tier II, BATS also would look at the 

financial condition and operating 

results of the issuer in order to 

determine whether to delist an issuer. 

BATS’ continued listing standards for 

Tier II securities would require 

compliance with either a (1) 

Shareholder equity, (2) market value of 

listed securities or (3) net income 

standard. Specifically, for continued 

listing, BATS would require 

shareholder’s equity of at least $2.5 

million, market value of listed securities 

of at least $35 million, or net income of 

$500,000 from continuing operations in 

the past fiscal year or two out of three 

past fiscal years.42 Further, BATS would 

require an issuer to have (i) A minimum 

bid price for continued listing of $1 per 

share,43 (ii) at least two registered and 

active market makers, (iii) 300 public 

holders, and (iv) a minimum number of 

publicly held shares of at least 500,000 

shares with a market value of at least $1 

million.44 The Commission 

preliminarily believes that the 

differences in the maintenance criteria 

for common stock listed on NYSE Amex 

and as proposed on BATS for Tier II 

Securities are not significant and that, 

taken as a whole, the criteria are 

substantially similar.45

The Commission requests comment 

on whether BATS’ proposed listing 

standards for primary equity securities 

on Tier II are ‘‘substantially similar’’ to 

NYSE Amex standards. 

2. Preferred Stock and Secondary 

Classes of Common Stock 

The Commission has compared the 

proposed listing standards of preferred 

stock and secondary classes of common 

stock on Tier II of the Exchange to the 

Nasdaq/NGM standards and 

preliminarily believes that BATS’ 

standards are substantially similar to 

those of Nasdaq/NGM. A secondary 

class of common stock is a class of 

common stock of an issuer that has 

another class of common stock listed on 

an exchange.46 The Commission 

preliminarily believes that BATS’ 

proposed initial and continued listing 

standards with respect to the number of 

round lot holders,47 bid price,48 number 

of publicly held shares,49 market value 

of publicly held shares,50 and number of 

market makers 51 are substantially 

similar to the Nasdaq/NGM standards.52

The Commission requests comment 

on whether the BATS proposed 


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53See proposed BATS Rule 14.9(d)(1)(A), (C) and 

(D). 

54See Nasdaq Rule 5410(a), (c) and (d). 

55See also Securities Act Release 8791, supra 

note 6 (determining that NCM initial listing 

standards, which are identical to BATS’ proposed 

standards for warrants on Tier II of the Exchange, 

are substantially similar to the Amex standards). 

56See BATS proposed Rule 14.9(d)(1)(B). 

57See Nasdaq Rule 5410(b). 

58Compare proposed BATS’ Rule 14.9(g)(1) with 

Nasdaq Rule 5455(1) and (2). 

59Compare proposed BATS’ Rule 14.9(d)(3) with 

Nasdaq Rule 5725. 

60The BATS proposed rule would require a 

principal amount outstanding of at least $10 million 

for initial listing and $5 million for continued 

listing. See proposed BATS Rule 14.9(d)(2)(A) and 

14.9(g)(2)(A). NYSE Amex requires a principal 

amount outstanding of at least $5 million for initial 

listing and will consider delisting if the principal 

amount outstanding is less than $400,000 or if the 

issuer is not able to meet its obligations on the 

listed debt security. See Sections 104 and 1003 of 

the NYSE Amex Company Guide. As the 

Commission noted in a prior release, while these 

requirements are not identical, the Commission 

believes that both standards are designed to ensure 

the continued liquidity of the debt security, and 

thus are substantially similar. See Securities Act 

Release 8791, supra note 6, at 20412 (finding that 

an identical NCM listing standard was substantially 

similar to the Amex standard). 

61Both BATS’ proposed standard and NYSE 

Amex include an initial listing requirement that 

there be current last sale information available in 

the United States with respect to the underlying 

security into which the bond or debenture is 

convertible. Compare proposed BATS Rule 

14.9(d)(2)(B) with Section 104 of the NYSE Amex 

Company Guide. Additionally, Section 1003(e) of 

the NYSE Amex Company Guide states that 

convertible bonds will be reviewed when the 

underlying security is delisted and will be delisted 

when the underlying security is no longer the 

subject of real-time reporting in the United States. 

BATS’ continued listing standards for a convertible 

debt security also require that current last sale 

information be available in the United States with 

respect to the underlying security, whereas NYSE 

Amex does not. Compare proposed BATS Rule 

14.9(g)(2)(C) with Section 1003(e) of the NYSE 

Amex Company Guide. 

62BATS’ proposed standard would require at 

least three registered and active market makers for 

initial listing and two registered and active market 

makers for continued listing (one of which may be 

a market maker entering a stabilizing bid), whereas 

NYSE Amex requires one specialist to be assigned. 

Compare proposed BATS Rule 14.9(d)(1)(C) with 

NYSE Amex Rule 104. 

63NYSE Amex will not list a convertible debt 

issue containing a provision which gives an issuer 

discretion to reduce the conversion price unless the 

issuer establishes a minimum 10-day period within 

which such price reduction will be in effect. See 

Section 104 of the NYSE Amex Company Guide. 

The Commission preliminarily believes that 

omission of such a provision does not impact its 

determination. See Securities Act Release Nos. 

39542, supra note 6 (finding PCX listing standards 

to be substantially similar to Amex even with the 

absence of this provision); 8791, supra note 6, at 

20412 (finding NCM’s listing standard, which is 

identical to BATS’ proposed listing standard for 

convertible debt, is substantially similar to Amex 

even with the absence of this provision). 

64These standards are identical to the initial 

listing standard for convertible debt securities on 

NYSE Amex and NCM). Compare proposed BATS 

Rule 14.9(d)(2)(D)(iv) with Section 104(A)–(E) of the 

NYSE Amex Company Guide and Nasdaq Rule 

5515(b)(4). 

65 Id. 

66A unit is a type of security consisting of two 

or more different types of securities (e.g., a 

secondary classes of common stock and 

preferred stock rules are ‘‘substantially 

similar’’ to Nasdaq/NGM’s rules. 

3. Warrants 

The Commission has compared 

BATS’ proposed standards for warrants 

to Nasdaq/NGM’s standards, and 

preliminarily believes that the BATS 

proposed standards are substantially 

similar to the Nasdaq/NGM standards. 

BATS’ proposed initial listing standards 

would require that 400,000 warrants be 

outstanding for initial listing, and that 

there be at least three registered and 

active market makers and 400 round lot 

holders.53 Nasdaq/NGM’s standards are 

identical except that Nasdaq/NGM 

requires 450,000 warrants to be 

outstanding.54 Though not identical 

with respect to the number of warrants 

outstanding standard, the Commission 

preliminarily believes these proposed 

initial listing standards are substantially 

similar to the Nasdaq/NGM standards.55

Further, the proposed BATS standards 

would require the issuer’s underlying 

security to be listed on the Exchange or 

be a Covered Security.56 The 

Commission notes that Nasdaq/NGM 

has a similar standard that the 

underlying security be listed on Nasdaq/ 

NGM or be a Covered Security and 

preliminarily believes that BATS’ 

proposed standard is substantially 

similar to Nasdaq/NGM.57

The Commission also preliminarily 

believes that BATS’ proposed 

continuing listing requirements for 

warrants that there be two registered 

and active market makers (one of which 

may be a market maker entering a 

stabilizing bid) and that the underlying 

security remain listed on the Exchange 

or be a Covered Security are 

substantially similar to that of Nasdaq/ 

NGM.58

The Commission requests comment 

on whether BATS’ proposed listing 

standards for warrants are ‘‘substantially 

similar’’ to Nasdaq/NGM’s listing 

standards. 

4. Index Warrants 

For index warrants traded on BATS, 

BATS has proposed the same standards 

(both initial and continuing) that apply 

to index warrants traded on Nasdaq/ 

NGM.59 Therefore, the Commission 

preliminarily believes that the proposed 

listing standards for index warrants 

traded on BATS are substantially 

similar to the standards applicable to 

index warrants traded on the Nasdaq/ 

NGM market. 

The Commission requests comment 

on whether BATS proposed listing 

standards for index warrants are 

‘‘substantially similar’’ to Nasdaq/ 

NGM’s listing standards. 

5. Convertible Debt 

The Commission has compared 

BATS’ proposed listing standards for 

convertible debt to NYSE Amex’s listing 

standards for debt. The Commission 

preliminarily believes that BATS’ 

proposed initial listing standards 

regarding the threshold principal 

amount outstanding,60 the availability 

of current last sale information,61 and 

number of market makers 62 are 

substantially similar to NYSE Amex 

standards.63 In addition to the 

requirements noted above, BATS’ 

proposed listing standards would 

require that one of four additional 

conditions be met for listing of 

convertible debt. Specifically, BATS 

proposes that it would not list a 

convertible debt security unless one of 

the following conditions were met: (i) 

The issuer of the debt security also has 

equity securities listed on the Exchange, 

NYSE Amex, the NYSE, or Nasdaq/ 

NGM; (ii) an issuer of equity securities 

listed on the Exchange, NYSE Amex, the 

NYSE, or Nasdaq/NGM directly or 

indirectly owns a majority interest in, or 

is under common control with, the 

issuer of the debt security, or has 

guaranteed the debt security; (iii) a 

nationally recognized securities rating 

organization (an ‘‘NRSRO’’) has 

assigned a current rating to the debt 

security that is no lower than an S&P 

Corporation ‘‘B’’ rating or equivalent 

rating by another NRSRO; or (iv) if no 

NRSRO has assigned a rating to the 

issue, an NRSRO has currently assigned 

an investment grade rating to an 

immediately senior issue or a rating that 

is no lower than an S&P Corporation 

‘‘B’’ rating, or an equivalent rating by 

another NRSRO, to a pari passu or 

junior issue.64 The Commission 

preliminarily believes that these other 

conditions proposed by BATS for listing 

of convertible debt are substantially 

similar to NYSE Amex standards.65

The Commission requests comment 

on whether the BATS proposed 

convertible debt listing rules are 

‘‘substantially similar’’ to NYSE Amex’s 

listing standards for debt securities. 

6. Units 

The listing requirements for units on 

Tier II of the Exchange, NYSE Amex, 

and Nasdaq/NGM are all the same, as 

each evaluates the initial and continued 

listing of a unit by looking to its 

components.66 If all of the components 


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combination of common stocks and warrants). See, 

e.g., Securities Exchange Act Release No. 48464 

(September 9, 2003), 68 FR 54250 (September 16, 

2003) (order approving NYSE Amex proposed rule 

change to amend Sections 101 and 1003 of the 

NYSE Amex Company Guide to clarify the listing 

requirements applicable to units). 

67See generally proposed BATS Rule 14.4, 

Section 101(f) of the NYSE Amex Company Guide, 

and Nasdaq Rule 5225. 

68See Securities Exchange Act Release No. 64546, 

supra note 8, 76 FR 31660 at 31664. 

69Compare proposed BATS Rule 14.11 with 

Nasdaq Rule 5700 Series. 

70See Securities Exchange Act Release No. 58673, 

supra note 1. 

71See Securities Exchange Act Release No. 59575, 

supra note 1. 

72See Securities Exchange Act Release Nos. 

58179, 58183, and 62783, supra note 11. 73 15 U.S.C. 77b(b). 

74See 15 U.S.C. 77r(b)(1)(B). 

75These listed securities include exchange traded 

funds and multiple securities from the same issuer. 

76A commentator noted that the purpose of such 

review is ‘‘to prevent ‘unfair’ and ‘oppressive’ 

offerings of securities,’’ and, as of 2011, merit 

review is employed in about 30 states. See Jeffrey 

B. Bartell & A.A. Sommer, Jr., Blue Sky Registration, 

in Securities Law Techniques (Matthew Bender ed., 

2011). Typical elements of merit review include: 

offering expenses, including underwriter’s 

compensation, rights of security holders, historical 

ability to service debt or pay dividends, financial 

Continued 

of a unit individually meet the 

standards for listing, then the unit 

would meet the standards for listing.67

Because the components for units 

proposed by BATS are substantially 

similar to those of a Named Market, as 

discussed above, the Commission 

preliminarily believes that BATS’ 

proposed listing standards for units to 

be listed on Tier II of the Exchange are 

substantially similar to a Named 

Market.68

The Commission requests comment 

on whether BATS’ proposed listing 

standards for units on Tier II of the 

Exchange are ‘‘substantially similar’’ to 

NYSE Amex requirements. 

D. Other Securities Including Exchange 

Traded Funds, Portfolio Depository 

Receipts and Index Fund Shares 

In addition to the proposed listing 

standards for Tier I and Tier II securities 

and the analyses of such standards to 

the Named Markets discussed above, the 

Commission notes that BATS has 

proposed listing standards for other 

securities, including exchange traded 

funds, portfolio depository receipts, and 

index fund shares. The Commission also 

notes that BATS’ proposed standards for 

these securities are identical to those of 

Nasdaq/NGM.69

E. Other Changes 

Sections (b)(1) and (b)(2) of Rule 146 

use the term ‘‘Amex’’ to refer to the 

American Stock Exchange LLC. As 

noted above, on October 1, 2008, NYSE 

Euronext acquired Amex and renamed it 

NYSE Alternext.70 Further, in 2009, 

NYSE Alternext was renamed NYSE 

Amex LLC.71 Additionally, Section 

(b)(1) of Rule 146 uses the term ‘‘the 

Philadelphia Stock Exchange, Inc.’’ As 

noted above, on July 24, 2008, The 

NASDAQ OMX Group, Inc. acquired 

Phlx and renamed it ‘‘NASDAQ OMX 

PHLX LLC.’’ 72 The proposed rule 

change includes changes to Rule 146(b) 

to account for these name changes. 

F. Comments 

To date, the Commission has not 

received any comment letters on the 

Petition. 

IV. Solicitation of Comments 

The Commission seeks comment 

generally on the desirability of 

amending Rule 146(b) to include 

securities listed, or authorized for 

listing, of BATS. As discussed above, 

based on its review of BATS’ proposed 

listing standards, the Commission 

preliminarily believes that the proposed 

initial and continued listing standards 

for BATS are substantially similar to 

those of the NYSE Amex or Nasdaq/ 

NGM. The Commission seeks comments 

on its preliminary analysis. 

The Commission also invites 

commenters to provide views and data 

as to the costs, benefits, and effects 

associated with the proposed 

amendments. In addition to the 

questions posed above, commenters are 

welcome to offer their views on any 

other matter raised by the proposed 

amendment to Rule 146(b), including 

the application of rule 146(b)(2). 

Finally, the Commission requests 

comment on whether it could use a 

different methodology to determine 

whether BATS’ proposed listing 

standards are ‘‘substantially similar’’ to 

those of the Named Markets. 

V. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

does not apply because the proposed 

amendment to Rule 146(b) does not 

impose recordkeeping or information 

collection requirements or other 

collection of information, which require 

the approval of the Office of 

Management and Budget under 44 

U.S.C. 3501 et seq. 

VI. Economic Analysis 

A. Introduction 

Section 2(b) of the Securities Act 73

requires us, when engaging in 

rulemaking where we are required to 

consider or determine whether an action 

is necessary or appropriate in the public 

interest, to consider, in addition to the 

protection of investors, whether the 

action will promote efficiency, 

competition and capital formation. We 

have considered, and discuss below, the 

effects of the proposed amendment to 

Securities Act Rule 146, with regard to 

BATS’ proposed listing standards to 

designate certain securities that would 

be listed on BATS as Covered 

Securities, on efficiency, competition, 

and capital formation, as well as the 

benefits and costs associated with the 

proposed rulemaking. 

Congress amended Section 18 of the 

Securities Act to exempt covered 

securities from state registration 

requirements. These securities are listed 

on the Named Markets or any other 

national securities exchange determined 

by the Commission to have 

‘‘substantially similar’’ listing standards 

to those of the Named Markets 

(‘‘Designated Markets’’).74 The 

Commission proposes to determine (if 

the Commission were to approve the 

proposed listing standards filed by 

BATS) that the listing standards for 

securities listed on BATS are 

substantially similar to those of a 

Named Market, specifically Nasdaq/ 

NGM or NYSE Amex. Securities listed, 

or authorized for listing, on BATS 

therefore would be exempt from state 

law registration requirements. 

There are three Named Markets 

(NYSE, NYSE Amex, and Nasdaq/NGM) 

and currently five Designated Markets 

(Tier I of NYSE Arca, Tier I of the 

Philadelphia Stock Exchange, CBOE, 

ISE, and Nasdaq/NCM). NYSE and 

Nasdaq/NGM are currently the largest 

exchanges in terms of number of 

securities listed. As of April 19, 2011, in 

terms of securities listed, NYSE lists 

3,255, Nasdaq/NGM lists 2,854, NYSE 

Arca lists 1,213, and NYSE Amex lists 

544.75

The direct economic effect of the 

proposed rule would be to exempt 

issuers that list, or are authorized to list, 

on BATS from the requirements of state 

registration. Instead, these issuers 

would be required to comply with 

BATS’ proposed listing standards and 

the federal securities laws, rules and 

regulations with respect to the 

registration and sale of securities. The 

requirements of state registration 

typically include: (i) Paperwork and 

labor hours necessary to comply with 

state registration requirements, (ii) 

meeting the disclosure standards, and 

(iii) in some states, meeting certain 

minimum merit requirements to make 

public offerings.76


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condition of the issuer, cheap stock held by 

insiders, the quantity of securities subject to options 

and warrants, self-dealing and other conflicts of 

interest, and the price at which the securities will 

be offered. See id. Some merit regulation would be 

imposed on these issuers through application of 

exchange listing standards. 

77See Securities Exchange Act Release No. 64546, 

supra note 8. 

78See, e.g., Thierry Foucault and Christine A. 

Parlour, Competition for Listing, 35 Rand J. Econ. 

329 (2004) (describing how listing fees and trading 

costs both affect firms’ incentives to list with one 

exchange versus another). 

79 It has been noted that NYSE and the London 

Stock Exchange, for example, compete for listings 

of firms in third countries, in particular from 

emerging economies. See Thomas J. Chemmanur & 

Paolo Fulghieri, Competition and Cooperation 

Among Exchanges: A Theory of Cross-Listing and 

Endogenous Listing Standards, 82 J. Fin. Econ. 455, 

456 (2006). See generally Craig Doidge, Andrew 

Karolyi, and Rene ́ Stulz, Has New York Become 

Less Competitive than London in Global Markets? 

Evaluating Foreign Listing Choices Over Time, 

Journal of Financial Economics 91, 253–277 (2009); 

Craig Doidge, Andrew Karolyi, and Rene ́ Stulz, Why 

Do Foreign Firms Leave U.S. Equity Markets?, 

Journal of Finance 65, 1507–1553 (2010); Caglio, 

Cecilia, Hanley, Kathleen Weiss and MariettaWestberg, Jennifer, Going Public Abroad: The Role 

of International Markets for IPOs (March 16, 2010), 

available at SSRN: http://papers.ssrn.com/sol3/ 

papers.cfm?abstract_id=1572949. Additionally, 

differences in regulatory regimes may impact listing 

decisions. 

80Any revision to exchange listing standards 

must be done in accordance with Section 19(b) of 

the Exchange Act and Rule 19b–4 thereunder. Any 

Commission approval of a listing standard revision 

is conditioned upon a finding by the Commission 

that the revision is consistent with the requirements 

of the Exchange Act and rules thereunder. See 15 

U.S.C. 78s. 

81See Chemmanur & Fulghieri, supra note 79, at 

458. 

82See generally Clement G. Krouse, Brand Name 

as a Barrier to Entry: The Rea Lemon Case, 51 

Southern Econ. J. 495 (1984) (describing the effect 

of brand name on competition in markets with 

incomplete information); see also Tibor Scitovsky, 

Ignorance as a Source of Oligopoly Power, 40 Amer. 

Econ. Rev. 48, 49 (1950) (‘‘An ignorant buyer * * * 

is unable to judge the quality of the products he 

buys by their intrinsic merit. Unable to appraise 

products by objective standards, he is forced to base 

his judgment on indices of quality, such as * * * 

general reputation of the producing firms.’’). 

83See, e.g., Carmine Di Nola, Competition and 

Integration Among Stock Exchanges in Europe: 

Network Effects, Implicit Mergers and Remote 

Access, 7 European Fin. Man. 39 (2001)(‘‘Firms may 

derive more utility in being listed on exchanges 

where there are more intermediaries as they give 

more liquidity to the market.’’). 

84Brand name recognition is frequently 

recognized as a barrier to entry mainly because 

consumers do not have all the information 

regarding product quality and thus tend to rely on 

brand names as a proxy for quality. See, e.g., Brand 

Name as a Barrier to Entry: The Rea Lemon Case, 

51 S. Econ. J. 495 (1984); Tibor Scitovsky, Ignorance 

as a Source of Oligopoly Power, 40 Amer. Econ. 

Rev. 48 (1950). Network externalities are also 

recognized as a barrier to entry. See, e.g., Gregory 

J. Weden, Network Effects and Conditions of Entry: 

Lessons from the Microsoft Case, 69 Antitrust L.J. 

87 (2001); Douglas A. Melamed, Network Industries 

and Antitrust, 23 Harv. J. L. & Pub. Pol’y 147 (1999). 

An indirect effect of the proposed rule 

would be that, by removing the 

requirements of state registration for 

issuers that list, or are authorized to list, 

on BATS—the same privilege granted to 

other Covered Securities—the rule 

could improve BATS’ ability to compete 

effectively with other exchanges. 

Therefore, an important economic effect 

of the rule could be to engender greater 

competition in the market for listing 

services. 

Exchanges generally compete in 

multiple areas, which include the 

market for listing, the market for 

trading, and the market for order-flow. 

This proposed rule and BATS’ proposed 

listing standards 77 relate primarily to 

the market for listing, although the 

proposed rule (should it be adopted) 

and the entry of a new participant in the 

listings market could impact other 

markets as well.78 In the market for 

listing, exchanges compete for issuers to 

list on their exchanges, so that the 

exchange may collect listing fees. 

Domestic exchanges face listing 

competition from other domestic 

exchanges and from foreign 

exchanges.79 The benefit of listing for 

issuers generally is to gain greater access 

to capital through measures designed to 

help promote quality certification and 

visibility to public investors, which will 

generally result in a reduction in the 

cost of raising capital for these issuers. 

This access to capital may be further 

enhanced through listing on particular 

exchanges, which could affect the level 

of investors’ trust in a listed company’s 

governance structure and the fairness of 

trading in the company’s securities 

(through the perceived effectiveness of 

exchanges’ conduct rules and 

surveillance of trading as well as other 

services and regulatory functions). 

Exchanges may try to compete for 

issuers by reducing listing fees or by 

improving the quality of services they 

offer, or both. The cost of listing for an 

issuer includes listing fees and the cost 

of complying with listing standards. In 

principle, this means exchanges can 

compete by reducing listing fees, by 

relaxing the listing standards issuers 

must meet, or by offering several trading 

segments with different listing 

standards on each, though such 

standards must be determined to be 

substantially similar to a Named Market 

in order to get the benefit of the 

Securities Act Section 18(b)(1)(B) 

exemption from state registration 

requirements. Any concern that 

exchanges may try to compete by 

lowering the listing standards to attract 

issuers (and hence enter in a ‘‘race-tothe-bottom’’) is mitigated by the fact that 

(1) Listing standards affect exchanges’ 

reputations among investors, which, in 

turn, impacts their attractiveness to 

issuers, (2) any proposed listing 

standards or proposed changes to 

existing listing standards must be filed 

with the Commission pursuant to 

Section 19(b) of the Securities Exchange 

Act of 1934, as amended (‘‘Exchange 

Act’’) and must meet its requirements to 

become effective,80 and (3) lower listing 

standards that are not substantially 

similar to those of a Named Market will 

not have the benefit of the exemption 

from state registration requirements.81

The competition among exchanges for 

listings is only partially based on price. 

Exchanges also compete in various other 

areas, which contribute to the quality of 

the service listed issuers receive, 

including, but not limited to, provision 

of trade statistics, regulatory and 

surveillance services, access to new 

technology, attractive trading 

mechanisms, and marketing services. 

One important dimension of 

competition is brand name.82 Issuers 

place high value on being listed on 

certain exchanges because investors 

may more readily trust those exchanges, 

which may, in turn, reduce the cost of 

raising capital for those issuers. As a 

result, NYSE and Nasdaq/NGM, which 

are already the two largest exchanges in 

terms of securities listed, may be able to 

charge listing fees that are above 

marginal cost—that is, what it would 

cost them to list additional issuers—and 

higher than other competing exchanges; 

therefore, certain exchanges may earn 

economic rent from these higher listing 

premiums (the amount of fee difference 

certain exchanges can charge, above a 

competitor’s price, because of its brand 

name). In addition to brand name 

recognition, the market for listing 

exhibits positive network externalities: 

issuers may prefer to be listed on 

exchanges where many other issuers are 

listed and where there are more 

intermediaries trading because of 

increased liquidity and visibility.83 This 

indicates that, all else being equal, large 

exchanges (in terms of listings) will tend 

to be favored over smaller ones. In 

theory, this preference may persist to 

some extent even if large exchanges 

were to offer slightly inferior services 

than their smaller counterparts because 

the advantages of being listed on a large 

exchange, where there are many issuers 

and intermediaries, might outweigh the 

cost of being offered slightly inferior 

services. Because of these brand name 

effects and positive externalities, the 

market for listings to some extent 

exhibits certain barriers to entry for new 

entrants to the listing markets, such as 

BATS.84


emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 76, No. 155 / Thursday, August 11, 2011 / Proposed Rules 49705 

85A number of scholarly articles have expressed 

concerns over the possibility for blue sky merit 

regulation to hinder capital formation. See, e.g., 

Martin Fojas, Ay Dios NSMIA!: Proof of a Private 

Offering Exemption Should Not Be a Precondition 

for Preempting Blue Sky Law Under the National 

Securities Markets Improvement Act, 74 Brooklyn 

L. Rev. 477 (2009); Rutheford B. Campbell, Jr., Blue 

Sky Laws and the Recent Congressional Preemption 

Failure, 22 J. Corp. L. 175 (1997); Brian J. Fahrney, 

State Blue Sky Laws: A Stronger Case for Federal 

Pre-Emption Due to Increasing Internationalization 

of Securities Markets, Comment, 86 Nw. U. L. Rev. 

753 (1991–92); Roberta S. Karmel, Blue-Sky Merit 

Regulation: Benefit to Investors or Burden on 

Commerce, 53 Brook. L. Rev. 106 (1987–88). While 

the concerns are numerous, other studies have 

shown some positive effect of merit regulation. See 

Jay T. Brandi, The Silverlining in Blue Sky Laws: 

The Effect of Merit Regulation on Common Stock 

Returns and Market Efficiency, 12 J. Corp. L. 713 

(1986–87) (reporting that merit regulation can have 

a positive effect on investor returns); Ashwini K. 

Agrawal, ‘‘The Impact of Investor Protection Law on 

Corporate Policy: Evidence from the Blue Sky 

Laws,’’ working paper (2009) (reporting that the 

passage of investor protection statutes causes firms 

to pay out greater dividends, issue more equity, and 

grow in size), available at http://ssrn.com/ 

abstract=1442224. Some merit regulation would be 

imposed on these issuers through application of 

exchange listing standards. 

86See Securities Exchange Act Release No. 64546, 

supra note 8, 76 FR at 31666 & n. 27–28 

(representing that BATS’ proposed pricing, while 

not necessarily cheaper for all issuers at all other 

markets, is roughly equivalent to or less than the 

price issuers would pay at other exchanges, 

including NGM and NCM). 87See, e.g., Brandi, supra note 85. 

B. Benefits, Including the Impact on 

Efficiency, Competition, and Capital 

Formation 

By proposing to exempt securities 

listed, or authorized for listing, on 

BATS from state law registration 

requirements, the Commission expects 

that issuers seeking to list securities on 

BATS could have the benefit of reduced 

regulatory compliance burdens, as 

compliance with state blue sky law 

requirements would not be required. 

One benefit of this proposal would be to 

eliminate these compliance burdens 

with respect to securities listed, or 

authorized for listing, on BATS. The 

Commission expects that the proposed 

rule could also improve efficiency by 

eliminating duplicative registration 

costs for issuers and improving liquidity 

by allowing for greater market access to 

issuers who have not been listed 

previously. 

To the extent that state merit reviews 

may have inhibited certain smaller 

businesses from making public 

offerings,85 an exemption from state 

registration requirements could 

facilitate capital formation. 

The Commission preliminarily 

believes that the proposed amendment 

to Rule 146(b) should permit BATS to 

better compete for listings with other 

markets whose listed securities already 

are exempt from state law registration 

requirements. This result could enhance 

competition, thus benefiting market 

participants and the public. 

Specifically, BATS currently intends 

to enter the listing market with 

generally lower fees than incumbent 

exchanges in order to compete with 

them.86 In response to BATS’ proposed 

entry, although recognizing the 

significant barriers to entry noted above, 

the incumbent exchanges might choose 

to reduce their listing fees to match or 

come closer to those proposed by BATS. 

Incumbent exchanges might also 

enhance the other services they provide 

to their currently listed issuers (e.g., 

regulatory and surveillance services, 

access to new technology, attractive 

trading mechanisms, marketing 

services) as a way to counteract BATS’ 

proposed lower listing fees. 

Additional competition in the market 

for listings could enable some issuers, 

both public and private, that have (1) 

either not listed on any exchange or (2) 

have listed on an exchange but have 

chosen not to list on certain exchanges 

because of the costs of listing there, to 

list on any Named or Designated Market 

due to the potential for lower listing fees 

across all exchanges. This potentially 

could result in a lower cost of capital for 

those issuers that previously had not 

listed on an exchange and could benefit 

the current investors in such issuers in 

the form of higher company value 

arising from the reduced cost of capital 

and increased liquidity. If currently 

unlisted firms were able to list because 

of lower listing fees, this could also 

improve efficiency and capital 

formation since future investors in these 

issuers would have easier access to 

invest in them and to further diversify 

their investment portfolios. 

Those issuers that are currently listed 

on any exchange, including the Named 

Markets, and that remain listed there, 

would potentially benefit from any 

reduced listing fees; however, because 

any such benefit would come at the 

expense of the exchange on which they 

are listed in the form of potentially 

reduced profit, this aggregate effect 

would be a transfer from one group of 

investors (exchange shareholders) to 

another group of investors (listed issuer 

shareholders). 

Additionally, some issuers currently 

listed on other Named or Designated 

Markets could potentially switch their 

listings to BATS, thus potentially 

lowering their listing costs (provided 

the Named or Designated Markets did 

not reduce their listing fees). The size of 

any such potential benefit would 

depend on how large any cost savings 

due to listing on BATS would be in 

comparison to the cost of giving up any 

valuable services that the other 

exchanges might provide that BATS 

might not. In addition, the behavior of 

these issuers would depend heavily on 

the extent to which these other 

exchanges respond to BATS’ proposed 

entry by making themselves more 

competitive to the issuers. 

C. Costs, Including the Impact on 

Efficiency, Competition, and Capital 

Formation 

The proposed amendment would 

eliminate state registration requirements 

for securities listed, or authorized for 

listing, on BATS. In principle, there 

could be certain economic costs to 

investors through the loss of benefits of 

state registration and oversight. For 

example, by listing on BATS, issuers 

would no longer be required to comply 

with certain states’ blue sky laws, which 

could mandate more detailed disclosure 

than BATS’ proposed listing standards 

and the requirements imposed pursuant 

to the federal securities laws, rules, and 

regulations. In such circumstances, 

investors could lose the benefit of the 

additional information. Additionally, to 

the extent blue sky laws result in 

additional enforcement protections in 

the form of another regulator policing 

issuer activity, then investors from these 

states could incur costs when issuers 

choose to list on BATS. Some 

commentators have also expressed a 

concern that the exemption from blue 

sky laws could prompt riskier public 

offerings.87

From the perspective of competition 

in the market for listing, the 

Commission notes that there could be a 

concern that, to the extent the market 

for exchange services exhibits network 

effects, as explained above, there could 

be a loss in efficiency as a result of 

having a greater number of networks, if 

one or more of the existing large 

exchanges (in terms of listings) shrinks 

in size. However, the Commission also 

notes that the overall efficiency effect 

would depend on the precise 

fragmentation of the exchanges. It is 

possible, for instance, that, through 

specialization of exchanges, there could 

be an efficiency gain from having more 

distinct exchanges, each of which 

specializes in listing issuers from 

certain types of industries. 

The Commission acknowledges that 

these costs are difficult to quantify. The 

Commission believes that Congress 

contemplated these costs in relation to 

the economic benefits of exempting 

Covered Securities from state regulation. 

The Commission, however, is 

considering the costs of the proposed 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
49706 Federal Register / Vol. 76, No. 155 / Thursday, August 11, 2011 / Proposed Rules 

88 5 U.S.C. 603(a). 

89 5 U.S.C. 605(b). 

90 17 CFR 230.157. See also 17 CFR 240.0–10(a). 

91 5 U.S.C. 605(b). 

92Public Law 104–121, Title II, 110 Stat. 857 

(1996) (codified in various sections of 5 U.S.C., 15 

U.S.C., and as a note to 5 U.S.C. 601). 

93 15 U.S.C. 77a et seq. 

94 15 U.S.C. 77r(b)(1)(B) and 77s(a). 

amendment to Rule 146(b) and requests 

commenters to provide views and 

supporting information as to the costs 

and benefits associated with this 

proposal. The proposed rule otherwise 

imposes no recordkeeping or 

compliance burdens, but would provide 

a limited purpose exemption under the 

federal securities laws. 

Overall, the Commission believes the 

proposed amendment to Rule 146(b) 

should not impair efficiency, 

competition, and capital formation. 

D. Request for Comment 

We request comment on the costs and 

benefits associated with this rule 

amendment, including identification 

and assessments of any costs and 

benefits not discussed in this analysis. 

We solicit comments on the usefulness 

of the rule amendment to investors, 

reporting persons, registrants, and the 

marketplace at large. We encourage 

commentators to identify, discuss, 

analyze, and supply relevant data, 

information, or statistics regarding any 

such costs or benefits, as well as any 

costs and benefits not already defined. 

We also request qualitative feedback on 

the nature of the benefits and costs 

described above. Additionally, we 

request comment on the extent of any 

costs that may be attributable to any loss 

of protections that currently are afforded 

by the state registration process, such as 

any merit-based requirements imposed 

by states on issuers. 

VII. Regulatory Flexibility Act 

Certification 

Section 603(a) of the Regulatory 

Flexibility Act 88 requires the 

Commission to undertake an initial 

regulatory flexibility analysis of the 

proposed amendment to Rule 146 on 

small entities, unless the Commission 

certifies that the proposed amendment, 

if adopted, would not have a significant 

economic impact on a substantial 

number of small entities.89 For purposes 

of Commission rulemaking in 

connection with the Regulatory 

Flexibility Act, an issuer is a small 

business if its ‘‘total assets on the last 

day of its most recent fiscal year were 

$5 million or less.’’ 90

The Commission believes that the 

proposal to amend Rule 146(b) would 

not affect a substantial number of small 

entities because, as proposed by BATS, 

to list its securities on BATS, an issuer’s 

aggregate market value of publicly held 

shares would be required to be at least 

$5 million. If an entity’s market value of 

publicly held shares were at least $5 

million, it is reasonable to believe that 

its assets generally would be worth 

more than $5 million. Therefore, an 

entity seeking to list securities as 

proposed by BATS in its proposed 

listing standards generally would have 

assets with a market value of more than 

$5 million and thus would not be a 

small entity. 

Accordingly, the Commission hereby 

certifies, pursuant to Section 605(b) of 

the Regulatory Flexibility Act,91 that 

amending Rule 146(b) as proposed 

would not have a significant economic 

impact on a substantial number of small 

entities. The Commission encourages 

written comments regarding this 

certification. The Commission solicits 

comment as to whether the proposed 

amendment to Rule 146(b) could have 

an effect that has not been considered. 

The Commission requests that 

commenters describe the nature of any 

impact on small entities and provide 

empirical data to support the extent of 

such impact. 

VIII. Small Business Regulatory 

Enforcement Fairness Act of 1996 

For purposes of the Small Business 

Enforcement Fairness Act of 1996, a rule 

is ‘‘major’’ if it results or is likely to 

result in: 

(i) An annual effect on the economy 

of $100 million or more; 

(ii) A major increase in costs or prices 

for consumers or individual industries; 

or 

(iii) Significant adverse effects on 

competition, investment, or 

innovation.92

The Commission requests comment 

regarding the potential impact of the 

proposed amendment on the economy 

on an annual basis. Commenters should 

provide empirical data to support their 

views to the extent possible. 

IX. Statutory Authority and Text of the 

Proposed Rule 

The Commission is proposing an 

amendment to Rule 146 pursuant to the 

Securities Act of 1933,93 particularly 

Sections 18(b)(1)(B) and 19(a).94

List of Subjects in 17 CFR Part 230 

Securities. 

For the reasons set forth in the 

preamble, the Commission proposes to 

amend Title 17, Chapter II of the Code 

of Federal Regulations as follows: 

PART 230—GENERAL RULES AND 

REGULATIONS, SECURITIES ACT OF 

1933 

1. The authority citation for Part 230 

continues to read, in part, as follows: 

Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 

77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 78c, 78d, 

78j, 78l, 78m, 78n, 78o, 78t, 78w, 78ll(d), 

78mm, 80a–8, 80a–24, 80a–28, 80a–29, 80a– 

30, and 80a–37, unless otherwise noted. 

* * * * * 

2. Revise Section 230.146(b)(1) and 

(b)(2) to read as follows: 

§ 230.146 Rules under section 18 of the 

Act. 

* * * * * 

(b) * * * 

(1) For purposes of Section 18(b) of 

the Act (15 U.S.C. 77r), the Commission 

finds that the following national 

securities exchanges, or segments or 

tiers thereof, have listing standards that 

are substantially similar to those of the 

New York Stock Exchange (‘‘NYSE’’), 

the NYSE Amex LLC (‘‘NYSE Amex’’), 

or the National Market System of the 

Nasdaq Stock Market (‘‘Nasdaq/NGM’’), 

and that securities listed, or authorized 

for listing, on such exchanges shall be 

deemed covered securities: 

(i) Tier I of the NYSE Arca, Inc.; 

(ii) Tier I of the NASDAQ OMX PHLX 

LLC; 

(iii) The Chicago Board Options 

Exchange, Incorporated; 

(iv) Options listed on the 

International Securities Exchange, LLC; 

(v) The Nasdaq Capital Market; and 

(vi) BATS Exchange, Inc. 

(2) The designation of securities in 

paragraphs (b)(1)(i) through (vi) of this 

section as covered securities is 

conditioned on such exchanges’ listing 

standards (or segments or tiers thereof) 

continuing to be substantially similar to 

those of the NYSE, NYSE Amex, or 

Nasdaq/NGM. 

* * * * * 

By the Commission. 

Dated: August 8, 2011. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2011–20445 Filed 8–10–11; 8:45 am] 

BILLING CODE 8011–01–P 


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