[Federal Register Volume 89, Number 37 (Friday, February 23, 2024)]
[Notices]
[Pages 13779-13784]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-03647]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99557; File No. SR-NASDAQ-2023-022]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Amendment No. 2 to a Proposed Rule Change To Create 
a New, Non-Trading Limited Underwriter Membership Class and Impose 
Related Requirements for Principal Underwriting Activity

February 16, 2024.
    On July 12, 2023, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``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 create a new, non-trading limited underwriter 
membership class and impose related requirements for principal 
underwriting activity in connection with a company applying for initial 
listing on the exchange with a transaction involving an underwriter. 
The proposed rule change was published for comment in the Federal 
Register on July 31, 2023.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 97985 (July 25, 
2023), 88 FR 49508.
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    On September 12, 2023, pursuant to Section 19(b)(2) of the Act,\4\ 
the Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\5\ On September 29, 2023, the Commission instituted proceedings 
under Section 19(b)(2)(B) of the Act \6\ to determine whether to 
disapprove the proposed rule change.\7\ On September 29, 2023, the 
Exchange filed Amendment No. 1 to the proposed rule change, which 
amended and replaced the proposed rule change in its entirety.\8\
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 98366, 88 FR 63999 
(Sept. 18, 2023). The Commission designated October 29, 2023, as the 
date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to approve or disapprove, 
the proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 98606, 88 FR 68894 
(Oct. 4, 2023).
    \8\ Amendment No. 1 is available at https://www.sec.goc/comments/sr-nasdaq-2023-022/srnasdaq2023022-267740-644342.pdf.
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    On January 22, 2024, the Exchange filed Amendment No. 2 to the 
proposed rule change which amended and replaced the proposed rule 
change, as

[[Page 13780]]

modified by Amendment No. 1, in its entirety.\9\ The proposed rule 
change, as modified by Amendment No. 2, is described in Items I and II 
below, which Items have been prepared by the Exchange.
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    \9\ Amendment No. 2 is available at https://www.sec.goc/comments/sr-nasdaq-2023-022/srnasdaq2023022-414859-982462.pdf.
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    On January 26, 2024, the Commission extended the time period for 
approving or disapproving the proposal to March 27, 2024.\10\ The 
Commission has received no comment letters on the proposed rule change. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change, as modified by Amendment No. 2, from interested 
persons.
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    \10\ See Securities Exchange Act Release No. 99433, 89 FR 6559 
(Feb. 1, 2024).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of 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.

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
    The purpose of the proposed rule change is to amend the Exchange's 
Rules to create a new, limited membership class for those underwriters 
that are FINRA members seeking only to perform underwriting activity as 
the principal underwriter on the Exchange \11\ (and not seeking access 
to trade via the Nasdaq Market Center) and require a company applying 
for initial listing in connection with a transaction involving an 
underwriter to have a principal underwriter \12\ that is a member or 
limited member of Nasdaq.\13\
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    \11\ ``Principal underwriter'' will have the same definition 
used in Rule 405 promulgated under the Securities Act of 1933 
(``Securities Act''): an underwriter in privity of contract with the 
issuer of the securities as to which he is underwriter. Such 
definition provides that the term ``issuer'' in the definition of 
``principal underwriter'' has the meaning given in Sections 2(4) and 
2(11) of the Securities Act. 17 CFR 230.405.
    \12\ The Exchange proposes to apply the requirements herein to a 
principal underwriter (defined as an underwriter in privity of 
contract with the issuer of the securities as to which he is 
underwriter) because the definition of principal underwriter points 
to the lead underwriter, who is generally responsible for organizing 
the offering, including tasks such as determining allocation of 
shares and the offering price, in conjunction with the issuer. 
Although offerings may require more than one underwriter, or a group 
of underwriters known as an underwriting syndicate, the Exchange 
proposes to focus on the lead underwriters given the substantial 
role they typically play in the offering process.
    \13\ This Amendment 2 modifies the Exhibit 5 by: (i) updating 
the numbering in Rule 5210 to account for recently added rule 
language; (ii) updating a related reference to Rule 5210 in General 
3, Section 1031(b); (iii) excluding Section 1032 of General 3, a new 
provision, from the Rules the Exchange proposes to apply under 
General 3, Section 1031(c) for reasons described below; (iv) adds 
General 9, Section 21 to the Rules the Exchange proposes to apply 
under General 3, Section 1031(c) for reasons described below; and 
(v) updates existing Rule language in Equity 7, Section 10 due to 
recent changes in the Rule text. In addition, this Amendment 2 
provides related updates and other clarifying updates to the 
narrative explanation herein and adds a statutory basis explanation 
for the imposition of fees. Amendment 1 modified the original filing 
to make several changes as it relates to Associated Persons, 
including: (i) removing a proposed exemption from registration for 
certain investment banking representatives associated solely with 
Limited Underwriting Members as the Exchange determined that such 
exemption was unnecessary because such representatives are not 
required to register as Associated Persons under current Rules; (ii) 
removing proposed rule language from proposed Rule 1032(a) about 
eligibility to become Associated Persons; (iii) removing General 4 
from the list of Rules applicable to Limited Underwriting Members; 
and (iv) revising rule language to clarify that associated persons 
of Limited Underwriting Members shall at all times be properly 
qualified and registered under FINRA rules. In addition, Amendment 1 
provided additional information about Nasdaq's rationale in not 
applying certain existing rules to Limited Underwriting Members.
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    Specifically, the Exchange proposes to amend its General Rules to: 
(i) add a definition of ``Limited Underwriting Member'' to General 1, 
Section 1; and (ii) add a new, limited underwriting membership to 
General 3, Section 1031, as described below. The Exchange proposes to 
amend Equity 7, Section 10 to exempt Limited Underwriting Members from 
being assessed a trading rights fee. In addition, the Exchange proposes 
to amend Rule 5210 of the Listing Rules to impose a requirement that 
each Company applying for initial listing in connection with a 
transaction involving an underwriter have a principal underwriter that 
is a Member or Limited Underwriting Member.
Background
    In the fall of 2022, Nasdaq observed instances of unusually high 
price spikes immediately following the pricing of certain initial 
public offerings (IPOs) on the Exchange and other national securities 
exchanges, mostly with respect to small-cap companies whose offerings 
were less than $25 million. In many instances, the IPO securities that 
were the subject of these extreme price spikes then experienced equally 
dramatic price declines to a level at or below the offering price. 
These extreme price spikes may occur in the opening trade on an 
exchange, or in continuous trading on the day of, or days immediately 
following, the listing.
    Underwriters play a critical role as gatekeepers to the capital 
markets in connection with the trading of newly issued securities. 
Unusual price volatility following IPOs of certain small-cap issuers 
highlights the essential role underwriters play. Nasdaq relies on 
underwriters to select the selling syndicate and ensure that the shares 
are placed in a way that is reasonably designed to allow liquid 
trading, consistent with Nasdaq's listing requirements, and the 
successful introduction of the company to the marketplace. In a recent 
Equity Regulatory Alert,\14\ Nasdaq highlighted the important role of 
underwriters as gatekeepers in the IPO process and the applicability of 
market rules and the federal securities laws. The Financial Industry 
Regulatory Authority (FINRA) and the New York Stock Exchange (NYSE) 
published similar alerts at the same time.\15\ In Nasdaq's Equity 
Regulatory Alert, the Exchange also noted:
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    \14\ https://www.nasdaqtrader.com/MicroNews.aspx?id=ERA2022-9.
    \15\ https://www.nyse.com/publicdocs/nyse/markets/nyse/rule-interpretations/2022/NYSER_Reg_Memo_-_Regulatory_Scrutiny_in_Connection_with_IPOs_(2022.11.17_final).pdf; 
https://www.finra.org/rules-guidance/notices/22-25.

    Nasdaq members, as well as the members of other self-regulatory 
organizations, that underwrite IPOs, and that play other roles in 
the offering process, should expect a heightened focus when an IPO 
experiences unusual price movements. Nasdaq Regulation will continue 
to investigate to determine whether such members have complied with 
applicable rules designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of 
trade, and to protect investors

[[Page 13781]]

and the public interest. Areas of focus will include suspected 
manipulation and, beyond manipulation, whether the members are 
complying with their obligation to observe high standards of 
commercial honor and just and equitable principles of trade pursuant 
to Nasdaq Rule General 9, Section 1(a). That rule sets forth a 
standard intended to encompass a wide variety of conduct that may 
operate as an injustice to investors or other participants in the 
marketplace.\16\
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    \16\ Supra note 14.

    Notwithstanding the important role of underwriters, Nasdaq does not 
currently require underwriters of companies that are going public on 
the Exchange to be Members of the Exchange. As such, Nasdaq does not 
have authority to require responses to investigative inquiries or to 
enforce its Rules directly against non-member underwriters.\17\
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    \17\ Nasdaq does, however, have broad discretionary authority 
over the initial and continued listing of securities in Nasdaq and 
over Members of the Exchange in order to maintain the quality of and 
public confidence in its market, to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, and to protect investors and the public 
interest. The Exchange may request information from companies that 
are going public on the Exchange and from Members who are permitted 
to trade on the Exchange. They are required to respond to those 
requests. The Exchange may also request information from non-
Members, including non-Member underwriters, but they are not 
required to respond to these requests. As described further below, 
this proposal would provide the Exchange with authority to directly 
obtain information from Limited Underwriting Members, whether pre- 
or post-IPO.
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    Nasdaq proposes creating a new, limited membership class and 
requiring underwriters involved in Nasdaq-listed IPOs to be Members or 
Limited Underwriting Members in order to serve as a principal 
underwriter of an IPO on the Exchange. By creating a new, limited 
membership class, Nasdaq would provide those firms seeking only to 
perform principal underwriting activity on the Exchange (and not 
seeking access to trade via the Nasdaq Market Center) the option of 
selecting a membership that is less burdensome (i.e., to become a 
Limited Underwriting Member rather than a Member).\18\
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    \18\ A revised Membership Application is attached [sic] as 
Exhibit 3, in which Nasdaq proposes to add a category for Limited 
Underwriting Members and clarify that Limited Underwriting Members 
are not subject to the requirement to provide an NSCC account 
number.
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Proposed Changes to Listing Rules
    The proposed rule change primarily impacts membership rules and 
other non-listing rules, which would apply to the underwriters 
themselves. However, as part of the proposal, Nasdaq would impose a new 
requirement in its Listing Rules at Rule 5210(m), requiring each 
Company applying for initial listing in connection with a transaction 
involving an underwriter to have a principal underwriter that is a 
Member or Limited Underwriting Member of Nasdaq. In proposed Rule 
5210(m), the Exchange would also specify that ``principal underwriter'' 
shall have the same definition used in Rule 405 promulgated under the 
Securities Act.\19\ The rule would cross reference the definition of 
``Limited Underwriting Member,'' which is proposed to be added at 
General 1, Section 1, and would define Limited Underwriting Member to 
mean a broker or dealer admitted to limited underwriting membership in 
Nasdaq.
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    \19\ Supra note 11.
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Proposed Changes to General Rules
    Within its General Rules, the Exchange proposes to amend General 1 
(General Provisions) and General 3 (Membership and Access).
    The Exchange proposes to add the definition of ``Limited 
Underwriting Member'' to General 1, Section 1 (Definitions). As noted 
above, the Exchange proposes to define Limited Underwriting Member to 
mean a broker or dealer admitted to limited underwriting membership in 
Nasdaq.
    The Exchange proposes to add the new category of membership to 
General 3, Section 1031, within which the Exchange proposes to include 
information about persons eligible to become Limited Underwriting 
Members, Limited Underwriting Member access to the Exchange, and rules 
applicable to Limited Underwriting Members.
    The Exchange would specify in General 3, Section 1031(a), that any 
registered broker or dealer shall be eligible for limited underwriting 
membership in the Exchange, except such registered brokers or dealers 
as are excluded under paragraph (b) of Rule 1002.\20\ Proposed Rule 
1031(a) is consistent with the existing rules for persons eligible to 
become Members in General 3, Rule 1002(a).
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    \20\ In relevant part, General 3, Section 1002(b) provides that, 
subject to certain exceptions, no registered broker or dealer shall 
be admitted to membership, and no Member shall be continued in 
membership, if such broker, dealer, or Member fails or ceases to 
satisfy the qualification requirements established by the Rules, or 
if such broker, dealer, or Member is or becomes subject to a 
statutory disqualification, or if such broker, dealer, or Member 
fails to file such forms as may be required in accordance with such 
process as the Exchange may prescribe.
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    The Exchange proposes to state, in General 3, Section 1031(b) that 
(i) a limited underwriting membership provides no rights to transact on 
the Exchange and (ii) a limited underwriting membership is solely to 
allow a firm that is not otherwise a Member to serve as a principal 
underwriter for a Company seeking to list on the Exchange, pursuant to 
Rule 5210(m).
    Nasdaq proposes applying a limited ruleset to this newly proposed 
limited membership class.\21\ Specifically, the Exchange proposes to 
apply only the following rules to Limited Underwriting Members: General 
1 (General Provisions); General 2 (Organization and Administration), 
with the exception of Sections 6(a) and 22; General 3 (Membership and 
Access), with the exception of Section 1032; General 5 (Discipline), 
with the exception of Rules 8211 and 9557; General 9 (Regulation), 
Sections 1, 20, and 21; and Equity 7, Section 10 (Pricing Schedule, 
Membership Fees). The Exchange would specify the aforementioned rules 
applicable to this new membership class in General 3, Section 
1031(c)(1). With the proposal, the Exchange aims to apply only those 
rules it deems appropriate to a firm serving as a principal 
underwriter, including those rules it deems critical to such firms. Of 
course, a firm registering as a Limited Underwriting Member on Nasdaq 
would remain subject to all applicable rules of the Commission and any 
other Self-Regulatory Organization of which it is a member, including 
FINRA.
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    \21\ Members of the Exchange, unlike Limited Underwriting 
Members, are subject to all of the Exchange's Rules (which includes 
the limited ruleset applicable to the newly proposed limited 
membership class).
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    The Exchange acknowledges that there are additional, existing Rules 
that it could propose to apply to Limited Underwriting Members. 
However, the Exchange is proposing to apply only a narrow ruleset as 
the Exchange does not intend to create comprehensive rules to regulate 
underwriting activity. Rather, the Exchange proposes to apply a limited 
ruleset, primarily to provide the Exchange with the authority to 
require information directly from the Limited Underwriting Members and 
enhance its tools for oversight with respect to the role the 
underwriter plays in connection with a company listing on the Exchange, 
as described below. Limited Underwriting Members would be subject to 
FINRA's rules, including its rules that substantively regulate 
underwriting activity. Nasdaq would consider whether additional 
existing Rules that are not proposed in the limited ruleset for Limited 
Underwriting Members or new Rules are warranted as the Exchange gains 
more experience in applying the rules proposed herein. As the Exchange 
adopts new Rules over time, it also would consider whether to apply 
such Rules to Limited Underwriting Members.

[[Page 13782]]

    The Exchange proposes to apply General 1 to Limited Underwriting 
Members because General 1 provides defined terms that would be 
applicable to Limited Underwriting Members and, as explained above, the 
proposed rule change would also add a definition (``Limited 
Underwriting Member'') to General 1.
    The Exchange proposes to apply General 2 (with the exception of 
Sections 6(a) and 22) to Limited Underwriting Members because General 2 
relates to organization and administration including requirements 
surrounding fees, limitations on affiliations, and a requirement for an 
executive representative, among other obligations. The Exchange 
proposes to specifically exclude General 2, Sections 6(a) and Section 
22. General 2, Section 6(a) states that General Equity and Options 
Rules and Equity Rules shall apply to all members and persons 
associated with a member, which is not accurate in the case of Limited 
Underwriting Members. General 2, Section 22 relates to Sponsored 
Participants and client access to the Nasdaq Market Center via a 
Member, which is not applicable to underwriting activity.
    The Exchange also proposes to subject Limited Underwriting Members 
to General 3 (with the exception of Section 1032) because General 3 
contains membership rules, including an obligation to follow specified 
procedures for applying to be a member, making changes to membership, 
or terminating membership. The Exchange proposes to specifically 
exclude General 3, Section 1032 because such section includes 
requirements related to Nasdaq Market Center Participant registration. 
This section is inapplicable to Limited Underwriting Members because 
they are not permitted to transact on the Nasdaq Market Center. As 
described herein, the proposed rule change would also add additional 
details regarding the limited underwriting membership to General 3, 
Rule 1031.
    The Exchange believes it is critical to subject Limited 
Underwriting Members to General 5 (with the exception of Rules 8211 and 
9557), which contains the Exchange's disciplinary rules.\22\ Notably, 
General 5, Rule 8210 provides the Exchange with authority to require 
information from Exchange Members. The Exchange proposes to 
specifically exclude General 5, Rule 8211 and Rule 9557. Rule 8211 
relates to members submission of trade data. Rule 9557 relates to 
procedures for regulating activities under General 9, Sections 40 and 
41, which incorporate FINRA Rules 4110 and 4120, which relate to FINRA 
carrying or clearing members. Therefore, Rule 8211 and Rule 9557 are 
not relevant to underwriting activity.
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    \22\ General 5, Rule 8001 provides that the Exchange and FINRA 
are parties to the FINRA Regulatory Contract (often referred to as a 
Regulatory Services Agreement (``RSA'')) pursuant to which FINRA has 
agreed to perform certain functions described in the Exchange's 
Rules on behalf of the Exchange. The Exchange does not anticipate 
that the proposed rule change would have any material impact on the 
current RSA.
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    The Exchange also believes it is important to subject Limited 
Underwriting Members to General 9, Section 1 which includes general 
standards by which Members must abide. Specifically, of importance, 
General 9, Section 1(a) requires Members to observe just and equitable 
principles of trade. General 9, Sections 20 and 21 require Members to 
establish and maintain a system to supervise the activities of each 
registered representative and associated person that is reasonably 
designed to achieve compliance with applicable securities laws and 
regulations and with applicable Nasdaq rules, and to identify 
principles who must establish, maintain, and enforce a system of 
supervisory control policies and procedures that, among other things, 
tests that the member's supervisory procedures are reasonably designed 
with respect to the activities of the member and its associated 
persons, to achieve compliance with applicable securities laws and 
regulations, and with applicable Nasdaq rules. The Exchange believes it 
is important to apply these provisions on supervision as it would 
provide the Exchange with authority to assess whether a Limited 
Underwriting Member has an adequate supervisory system and written 
supervisory procedures in place. With the exception of General 9, 
Section 1, Section 20, and Section 21, the Exchange does not propose to 
apply other sections of General 9 to Limited Underwriting Members at 
this time. Although the Exchange acknowledges that certain other 
sections of General 9 could be applied to underwriters, the Exchange is 
targeting limited inclusion of those Rules it deems critical. Further, 
many of the standards in General 9 are FINRA rules that are 
incorporated by reference into the Exchange's Rules. Limited 
Underwriting Members would therefore be subject to such FINRA rules by 
virtue of their FINRA membership.
    Finally, the Exchange proposes to include Equity 7, Section 10 to 
Limited Underwriting Members because this section includes the 
membership and application fees applicable to Limited Underwriting 
Members. The Exchange proposes to avoid applying all those Exchange 
rules not specified in proposed General 3, Section 1031(c)(1) to 
Limited Underwriting Members in an effort to impose minimal burden on 
Limited Underwriting Members, while still allowing the Exchange to have 
regulatory authority over such members. Furthermore, the Exchange 
believes that the Exchange's rules that Limited Underwriting Members 
would not be subject to under the proposal primarily relate to trading 
activity and are, therefore, not relevant to the activities of Limited 
Underwriting Members. As noted above, Nasdaq would consider whether 
additional existing Rules that are not proposed in the limited ruleset 
for Limited Underwriting Members or new Rules are warranted as the 
Exchange gains more experience in applying the rules proposed herein.
    The Exchange proposes to include language in General 3, Section 
1031(c)(1) providing that, for purposes of interpreting and applying 
the rules to Limited Underwriting Members, references to ``Member,'' 
``Members,'' or ``membership'' shall be functionally equivalent to 
``Limited Underwriting Member,'' ``Limited Underwriting Members,'' or 
``limited underwriting membership'' respectively. The Exchange also 
proposes to include a requirement, in General 3, Section 1031(c)(2), 
that Limited Underwriting Members shall at all times be members of 
FINRA and associated persons of Limited Underwriting Members shall at 
all times be properly qualified and registered under FINRA rules.\23\
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    \23\ Limited Underwriting Members would, therefore, be eligible 
to waive-in to Exchange membership, as provided for in General 3, 
Section 1013(b). Prospective Limited Underwriting Members would need 
to submit a membership application (see supra note 18) in which they 
would select ``Waive-In Membership'' for the application type and 
``Limited Underwriting Member of NQX'' for the nature of intended 
activity. For ``waive-in'' applicants, the Exchange relies 
substantially upon FINRA's determination to approve the applicant 
for FINRA membership when the Exchange evaluates the applicant for 
Exchange membership.
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Proposed Change to Equity Rules
    The Exchange proposes to exempt Limited Underwriting Members from 
the trading rights fee of $1,250 per month that is normally charged to 
Members because such Limited Underwriting Members would not be eligible 
to trade on the Exchange. Accordingly, the Exchange proposes to add 
language to Equity 7, Section 10(a) to specify that Limited 
Underwriting Members would not be charged the monthly trading rights 
fee. Limited Underwriting Members would be

[[Page 13783]]

subject to a $2,000 application fee (per Equity 7, Section 10(b)) and a 
$4,000 yearly membership fee (per Equity 7, Section 10(a)).
Excluded Rules
    As noted above, Nasdaq acknowledges that additional Rules could 
theoretically be applied to Limited Underwriting Members. However, 
Nasdaq proposes to apply the limited ruleset for the reasons described 
above. In addition to the Rules discussed above, the Exchange has not 
proposed to apply the following Rules to Limited Underwriting Members 
at this time: General 4; General 6; General 7; General 8; Equity Rules 
(with the exception of Equity 7, Section 10); and Options Rules. 
General 4 requires certain categories of persons associated with 
members to register with the Exchange. Because these categories do not 
relate to underwriting, the Exchange does not propose to apply General 
4 to Limited Underwriting Members. However, as noted above, the 
Exchange would require all Limited Underwriting Members to be FINRA 
members and associated persons of Limited Underwriting Members to be 
properly qualified and registered under FINRA rules. Limited 
Underwriting Members and their associated persons would be subject to 
FINRA's registration and qualification rules,\24\ including, for 
example, requirements regarding relevant examinations for underwriting 
(Series 79, Investment Banking, IB) and supervision of underwriting 
(Series 79 plus Series 24, Investment Banking Principal). General 6 
relates generally to FINRA arbitration rules to which the Limited 
Underwriting Members would be subject to directly by virtue of their 
FINRA membership. The Exchange does not propose to apply General 7 to 
Limited Underwriting Members because it governs consolidated audit 
trail compliance and would not apply to underwriting activity. General 
8 governs connectivity to the Exchange and would not be relevant to 
Limited Underwriting Members given their lack of access to trade on the 
Exchange. Similarly, the Equities Rules and the Options Rules are 
generally not relevant to the activities of Limited Underwriting 
Members due to their lack of access to trade on the Exchange. Although 
Limited Underwriting Members could access the Exchange via other means, 
such as trading through another Member, Limited Underwriting Members 
would have no direct access to trade on the Exchange.
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    \24\ See FINRA Rules, Rule 1210 (Registration Requirements) and 
Rule 1220 (Registration Categories).
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Implementation
    The Exchange would designate the proposed changes to be operative 
60 days after publication of the Commission's approval order of SR-
NASDAQ-2023-022, as amended, in the Federal Register. This delay will 
allow time for firms involved with upcoming IPOs to become Limited 
Underwriting Members, if they choose, and for companies planning IPOs 
to select alternative underwriters if their current firm is not, and 
does not intend to become, a Member or Limited Underwriting Member.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\25\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\26\ 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, by strengthening Nasdaq's ability to carry out its oversight 
responsibilities. It is also consistent with Section 6(b)(7) of the Act 
in that it provides for a fair procedure for prohibiting or limiting 
any person with respect to access to services offered by the Exchange 
or a Member thereof.\27\ As discussed above, the proposal would create 
a new, limited membership class for those firms seeking only to perform 
activity as the principal underwriter of an IPO on the Exchange (and 
not seeking access to trade via the Nasdaq Market Center) and require a 
company applying for initial listing in connection with a transaction 
involving an underwriter to have a principal underwriter that is a 
member or limited member of Nasdaq. The Exchange would apply specified 
rules to Limited Underwriting Members, as explained above. Such rules 
include general provisions and standards, membership and access rules, 
organization and administration rules, registration requirements, 
disciplinary rules, and certain fees. Creating this new membership 
class and subjecting principal underwriters to such specified rules 
supports fair and orderly markets, which protects investors and the 
public interest, consistent with Section 6(b)(5) of the Act. Notably, 
the proposal would subject Limited Underwriting Members to Nasdaq's 
disciplinary rules, which provides Nasdaq authority to require 
information from such underwriters (per General 5, Rule 8210), as well 
as other general rules, including the requirement to observe just and 
equitable principles of trade (per General 9, Section 1(a)), the 
requirement to establish and maintain a system to supervise the 
activities of registered representatives and associated persons (per 
General 9, Section 20), and the requirement to test and verify that the 
system is reasonably designed (per General 9, Section 21). Nasdaq 
believes that imposing these Nasdaq rules, as well as the other rules 
included in proposed Rule 1031(c)(1), on principal underwriters will 
strengthen \28\ Nasdaq's ability to carry out its oversight 
responsibilities and deter potential violative conduct, such as fraud 
or manipulation, thereby protecting investors and the public interest. 
Nasdaq also believes that it is appropriate and consistent with the 
protection of investors and the public interest that it not impose 
those rules excluded from proposed Rule 1031(c)(1) because these rules 
are not directly applicable to the activities a Limited Underwriting 
Members is permitted to conduct on the Exchange, and the firms will be 
subject to all applicable FINRA rules.
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    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(5).
    \27\ 15 U.S.C. 78f(b)(7).
    \28\ As noted above, the Exchange acknowledges that additional, 
existing Rules could apply to underwriters. The Exchange proposes to 
apply a limited ruleset to Limited Underwriting Members, consisting 
of those Rules it deems most critical. Today, underwriters are not 
required to be Members and therefore, non-member underwriters are 
not subject to any of the Exchange's Rules.
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    The Exchange also believes that the proposed rule change is not 
designed to permit unfair discrimination between customers, issuers, 
brokers and dealers, consistent with Section 6(b)(5) of the Act.\29\ 
The proposed changes to the Listing Rules will apply equally to all 
similarly situated companies applying for initial listing in connection 
with a transaction involving an underwriter on the Exchange and 
therefore, are not designed to permit unfair discrimination. The 
Exchange's proposal to subject Limited Underwriting Members to a 
limited set of rules and exclude certain rules applicable to Members is 
not designed to permit unfair discrimination between brokers and 
dealers because the limited underwriting membership does not confer the 
same benefits as a standard Exchange membership and does not warrant 
application of the same ruleset. All Limited Underwriting Members

[[Page 13784]]

would be subject to the same specified rules.
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    \29\ 15 U.S.C. 78f(b)(5).
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    Finally, Nasdaq believes that its proposal to impose certain fees 
on Limited Underwriting Members is consistent with Section 6(b) of the 
Act, in general, and furthers the objectives of Sections 6(b)(4) and 
6(b)(5) of the Act, in particular, in that it provides for the 
equitable allocation of reasonable dues, fees and other charges among 
members and issuers and other persons using any facility, and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The Exchange believes that its proposal to charge 
the $2,000 application fee and $4,000 yearly membership fee but not 
charge the $1,250 monthly trading rights fee is reasonable, equitable 
and not unfairly discriminatory. The Exchange would apply fees that are 
already in existence and the Exchange believes such fees reflect the 
value of services it provides its applicants and membership. By 
charging Limited Underwriting Members the same application and yearly 
membership fee as Members, the Exchange believes that it would be 
treating the membership equitably. Further, the Exchange believes it is 
reasonable and equitable to exempt Limited Underwriting Members from 
the monthly trading rights fee because such members would not have 
access to trade on the Exchange. The Exchange believes that the fee 
proposal is not designed to permit unfair discrimination between 
Exchange members because the fees would be applied equally to all 
similarly situated members.

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. As noted above, the proposed 
changes to the Listing Rules will apply equally to all similarly 
situated companies applying for initial listing in connection with a 
transaction involving an underwriter on the Exchange. Likewise, the 
proposed changes to the General and Equity Rules, including to the 
membership rules, will apply equally to all similarly situated 
Applicants and Members and they will confer no relative advantage or 
disadvantage upon any category of Exchange Applicant or Member. 
Although the Exchange proposes to subject Limited Underwriting Members 
to a limited set of rules, the limited underwriting membership does not 
confer the same benefits as a standard Exchange membership. Namely, a 
Limited Underwriting Member would not be permitted to transact on the 
Nasdaq Market Center. Therefore, applying a limited ruleset to Limited 
Underwriting Members is justified. All Limited Underwriting Members 
would be subject to the same specified rules, as noted above. Moreover, 
the Exchange does not expect that its proposal will have an adverse 
impact on competition among exchanges for members. The Exchange 
believes the proposed rule changes, overall, will strengthen the 
Exchange's ability to carry out its role and responsibilities as a 
self-regulatory organization and deter potential violative conduct. As 
such, 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.

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 Amendment No. 2 
to the proposed rule change is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#5d2f283138703e3230303833292e1d2e383e733a322b"><span class="__cf_email__" data-cfemail="5321263f367e303c3e3e363d2720132036307d343c25">[email protected]</span></a>. Please include 
file number SR-NASDAQ-2023-022 on the subject line.

Paper Comments

    <bullet> 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-2023-022. 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 (https://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 
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. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NASDAQ-2023-022 and should 
be submitted on or before March 15, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-03647 Filed 2-22-24; 8:45 am]
BILLING CODE 8011-01-P


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