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[Federal Register Volume 89, Number 249 (Monday, December 30, 2024)]
[Notices]
[Pages 106717-106719]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-30898]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101978; File No. SR-NASDAQ-2024-084]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Modify Certain Initial 
Listing Liquidity Requirements

December 19, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 12, 2024, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify certain initial listing liquidity 
requirements.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at 
the principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    Nasdaq is proposing to modify Listing Rules 5405 and 5505 to 
require that a company listing on the Nasdaq Global Market or Nasdaq 
Capital Market in connection with an initial public offering (``IPO'') 
satisfy the applicable minimum Market Value of Unrestricted Publicly 
Held Shares (``MVUPHS'') requirement solely from the proceeds of the 
offering. Nasdaq is also proposing to make similar changes affecting 
companies that uplist to Nasdaq from the U.S. over-the-counter market 
(``OTC market'') in conjunction with a public offering.
    Nasdaq Listing Rules require a company to have a minimum Market 
Value of Unrestricted Publicly Held

[[Page 106718]]

Shares. For initial listing on the Nasdaq Global Market, a company must 
have a minimum MVUPHS of $8 million under the Income Standard, $18 
million under the Equity Standard, and $20 million under either the 
Market Value or Total Assets/Total Revenue Standards.\3\ For initial 
listing on the Nasdaq Capital Market, a company must have a minimum 
MVUPHS of $5 million under the Net Income Standard, and $15 million 
under either the Equity or Market Value of Listed Securities 
Standards.\4\
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    \3\ See Listing Rules 5405(b)(1)(C), 5405(b)(2)(C), 
5405(b)(3)(B), and 5405(b)(4)(B).
    \4\ See Listing Rules 5505(b)(1)(B), 5505(b)(2)(C), and 
5505(b)(3)(C).
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    Unrestricted Publicly Held Shares are shares that are not held by 
an officer, director or 10% shareholder of the company and which are 
not subject to resale restrictions of any kind.\5\ In the case of a 
company listing in conjunction with a public offering, previously 
issued shares registered for resale (``Resale Shares''), and not held 
by an officer, director or 10% shareholder of the company, are counted 
as Unrestricted Publicly Held Shares in addition to the shares being 
sold in the offering.
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    \5\ See Listing Rule 5005(a)(46).
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    The MVUHPS standard is one of the core liquidity requirements 
within the Nasdaq listing rules. Like the other liquidity requirements, 
it is meant to ensure that there is sufficient liquidity to provide 
price discovery and support an efficient and orderly market for the 
company's securities. Nonetheless, Nasdaq has observed that the 
securities companies that meet the applicable MVUPHS requirement by 
including Resale Shares have experienced higher volatility on the date 
of listing than those of similarly situated companies that meet the 
requirement with only the proceeds from the offering. Nasdaq believes 
that the Resale Shares may not contribute to liquidity to the same 
degree as the shares sold in the public offering. As such, Nasdaq 
believes it is appropriate to modify the rules to exclude the Resale 
Shares from the calculation of MVUPHS for initial listing of companies 
listing in conjunction with a public offering.
    Accordingly, Nasdaq proposes to modify Listing Rules 5405(b) and 
5505(b) to provide that a company listing in connection with an initial 
public offering, including through the issuance of American Depository 
Receipts, must satisfy the applicable MVUPHS requirement for each 
initial listing standard for primary equity securities \6\ with the 
proceeds of that offering.
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    \6\ See footnotes 3 and 4, above.
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    Related to this change, Nasdaq believes it also is appropriate to 
apply a similar requirement to companies trading in the OTC market that 
qualify for listing based on an offering. Specifically, a company 
trading in the OTC market prior to listing must currently satisfy 
either a minimum daily trading volume on the OTC market of 2,000 shares 
over the past 30 trading days with trading occurring in at least 50% of 
those days (the ``ADV Requirement'') or, alternatively, list in 
connection with a firm commitment underwritten public offering of at 
least $4 million.\7\ This alternative recognizes that where a company 
is listing in connection with a significant firm commitment 
underwritten public offering the liquidity characteristics of the prior 
trading will change and reflect the offering, just like in an IPO, and 
shares in the offering will be the primary source of liquidity upon 
listing.
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    \7\ See Listing Rules 5405(a) and 5505(a). This requirement is 
the same under the listing rules of both the Nasdaq Global Market 
and Nasdaq Capital Market.
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    Given Nasdaq's observations about the liquidity characteristics of 
IPOs with Resale Shares, Nasdaq believes it is appropriate to treat OTC 
companies relying on an offering in a similar manner, given that the 
liquidity in such listings is also expected to be supported by the 
offering. Accordingly, Nasdaq proposes to modify the alternative to the 
ADV requirement in Listing Rules 5405(a)(4) and 5505(a)(5). As revised, 
a company relying on the alternative will be required to satisfy the 
applicable MVUPHS requirements with only the proceeds from the 
offering. As a result, Nasdaq also proposes to modify Listing Rules 
5405(a)(4) and 5505(a)(5) to increase the size of the required public 
offering for this alternative to the ADV Requirement from $4 million to 
$5 million for Capital Market applicants and $8 million for Global 
Market applicants to align with the minimum MVUHPS requirement for each 
market.\8\ If the company qualifies under a different standard, instead 
of the income standard, the minimum raise instead would have to satisfy 
the MVUPHS requirement of the applicable standard.
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    \8\ See footnotes 3 and 4, above.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\10\ 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. Specifically, Nasdaq believes that the proposal to modify 
Listing Rules 5405(b) and 5505(b) to require that a company listing on 
the Nasdaq Global Market or Capital Market in connection with an IPO 
satisfy the applicable minimum MVUPHS requirement solely from the 
proceeds of the offering is designed to protect investors and the 
public interest and to remove impediments to and perfect the mechanism 
of a free and open market and a national market system because Nasdaq 
believes that the change will likely result in less volatile trading of 
affected companies upon listing. As described above, the MVUHPS 
standard is one of the core liquidity requirements within the Nasdaq 
listing rules designed to ensure that there is sufficient liquidity to 
provide price discovery and support an efficient and orderly market for 
the company's securities. Based on Nasdaq's experience, companies that 
meet the applicable MVUPHS requirement by including Resale Shares are 
more likely to be subject to volatile trading on the date of listing 
than similarly situated companies that meet the requirement with only 
the proceeds from the offering. Nasdaq believes that this proposed 
change will help ensure that the initial pool of liquidity available 
for trading meets or exceeds the minimum applicable MVUHPS requirement.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    Nasdaq also believes that the proposal to modify Listing Rules 
5405(a)(4) and 5505(a)(5) to require that a company that is trading on 
the OTC market at the time of its application and that is listing in 
conjunction with a firm commitment public offering in lieu of meeting 
the ADV Requirement must satisfy the applicable MVUPHS requirements 
with only the proceeds from the offering is designed to protect 
investors and the public interest and to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because, Nasdaq believes it is appropriate to align the minimum 
offering size for this alternative to the ADV Requirement with the 
minimum MVUHPS requirement for each market \11\ by modifying Listing 
Rules 5405(a)(4) and 5505(a)(5) to set the minimum offering under this 
alternative to $5 million on

[[Page 106719]]

the Capital Market and to $8 million on the Global Market because, in 
the case where a company does not meet the ADV Requirement, the 
offering serves as the primary source of price discovery in the same 
way the offering does in an IPO, as described above. Moreover, failure 
to align these requirements could allow a company to begin trading on 
the OTC market and then uplist to Nasdaq a short time later with an 
offering that does not satisfy the proposed new requirements for 
companies listed in connection with an IPO, as described above.
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    \11\ See text accompanying footnotes 3 and 4, above.
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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. While Nasdaq does not believe 
there will be any impact on inter-market competition from the proposed 
change, any impact on competition that does arise will be necessary to 
better protect investors, in furtherance of a central purpose of the 
Act. Moreover, each national securities exchange can elect how to 
structure its listing requirements and respond in a competitive manner. 
In that regard, Nasdaq notes, for example, that in 2019 Nasdaq first 
enhanced its initial listing requirements to exclude holders of 
restricted stock from the calculation of the market value of publicly 
held shares and to impose a requirement that a minimum number of 
shareholders hold at least $2,500 worth of unrestricted stock, however 
New York Stock Exchange and NYSE American have not adopted comparable 
requirements and compete for listings on such basis.\12\
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    \12\ Securities Exchange Act Release No. 86314 (July 5, 2019), 
84 FR 33102 (July 11, 2019) (approving SR-NASDAQ-2019-009).
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    Nasdaq also believes that any impact on intra-market competition 
from the proposed change affecting companies listing on the Nasdaq 
Global and Capital Markets in connection with an IPO or uplisting form 
the OTC market, as described above, will be necessary to better protect 
investors, in furtherance of a central purpose of the Act. In that 
regard, companies listing on Nasdaq through other means, such as those 
listing on the Nasdaq Global Select Market or listing through a Direct 
Listing, are already subject to higher initial listing standards than 
companies impacted by this proposed change and Nasdaq has not observed 
similar concerns with the trading of these companies' securities.

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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) by order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NASDAQ-2024-084 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-NASDAQ-2024-084. 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-2024-084 and should 
be submitted on or before January 21, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-30898 Filed 12-27-24; 8:45 am]
BILLING CODE 8011-01-P
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