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27 17 CFR 240.17Ad–22(e)(3)(i). 

28 17 CFR 240.17Ad–22(e)(3)(i). 

29 15 U.S.C. 78q–1(b)(3)(F). 

30 17 CFR 240.17Ad–22(e)(2)(v) and (e)(3)(i). 

31 15 U.S.C. 78s(b)(2). 

32 In approving the proposed rule change, the 

Commission considered the proposal’s impact on 

efficiency, competition, and capital formation. 15 

U.S.C. 78c(f). 

33 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 94592 

(April 4, 2022), 87 FR 20905 (April 8, 2022). 

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

5See Securities Exchange Act Release No. 94947 

(May 19, 2022), 87 FR 31915 (May 25, 2022). The 

Commission designated July 7, 2022, as the date by 

which it should approve, disapprove, or institute 

proceedings to determine whether to disapprove the 

proposed rule change. 

6See Securities Exchange Act Release No. 94989 

(May 26, 2022), 87 FR 33558 (June 2, 2022) 

(‘‘Notice’’). 

7 15 U.S.C. 78s(b)(2)(B). 

8The reference to a registration statement refers 

to a registration statement effective under the 

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

9A Direct Listing with a Capital Raise includes 

listings where either: (i) only the company itself is 

selling shares in the opening auction on the first 

day of trading; or (ii) the company is selling shares 

and selling shareholders may also sell shares in 

such opening auction. See Nasdaq Listing Rule IM– 

5315–2. See also Securities Exchange Act Release 

No. 91947 (May 19, 2021), 86 FR 28169 (May 25, 

2021) (order approving rules to permit a Direct 

Listing with a Capital Raise and adopting related 

rules concerning how the opening transaction for 

such listing will be effected) (‘‘2021 Order’’). The 

Exchange’s rules provide for a company listing 

pursuant to a Direct Listing with a Capital Raise to 

list only on the Nasdaq Global Select Market. 

10See Nasdaq Listing Rule IM–5315–2. ‘‘Nasdaq 

Halt Cross’’ means the process for determining the 

price at which Eligible Interest shall be executed at 

the open of trading for a halted security and for 

executing that Eligible Interest. See Nasdaq Rule 

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

or any order that has been entered into the system 

and designated with a time-in-force that would 

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

Nasdaq Halt Cross. See Nasdaq Rule 4753(a)(5). 

Pursuant to Nasdaq Rule 4120, the Exchange will 

halt trading in a security that is the subject of an 

initial public offering (or direct listing), and 

terminate that halt when the Exchange releases the 

security for trading upon certain conditions being 

met, as discussed further below. See Nasdaq Rule 

4120(a)(7) and (c)(8). 

11The Exchange states that references in the 

proposal to the price range established by the issuer 

in its effective registration statement refer to the 

price range disclosed in the prospectus in such 

effective registration statement. See Notice, supra 

enforce written policies and procedures 

reasonably designed to, as applicable, 

maintain a sound risk management 

framework for comprehensively 

managing legal, credit, liquidity, 

operational, general business, 

investment, custody, and other risks 

that arise in or are borne by ICC, which, 

among other things, includes risk 

management policies, procedures, and 

systems designed to identify, measure, 

monitor, and manage the range of risks 

that arise in or are borne by ICC, that are 

subject to review on a periodic basis and 

approved by the board of directors 

annually.27 As discussed above, the 

proposed rule change would expand the 

scope of the Framework so that it 

applies consistently across all of ICC’s 

Models and not just those related to its 

risk management system. For example, 

bringing within the scope of the 

Framework ICC’s Model related to 

counterparty credit. Moreover, under 

the revised Framework, ICC would 

review this Model on a periodic basis. 

The Commission further believes that 

this Model helps ICC manage a risk 

borne by ICC, the risk created by credit 

exposures to ICC’s counterparties. The 

Commission therefore believes this 

change should help ensure that ICC 

reviews on a periodic basis a policy that 

ICC uses to identify, measure, monitor, 

and manage a risk borne by ICC, 

consistent with Rule 17Ad–22(e)(3)(i).28

IV. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of the Act, and in 

particular, with the requirements of 

Section 17A(b)(3)(F) of the Act 29 and 

Rules 17Ad–22(e)(2)(v) and 17Ad– 

22(e)(3)(i) thereunder.30

It is therefore ordered pursuant to 

Section 19(b)(2) of the Act 31 that the 

proposed rule change (SR–ICC–2022– 

006), be, and hereby is, approved.32

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.33

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–14888 Filed 7–12–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–95220; File No. SR– 

NASDAQ–2022–027] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Order 

Instituting Proceedings To Determine 

Whether To Approve or Disapprove a 

Proposed Rule Change, as Modified by 

Amendment No. 1, To Modify Certain 

Pricing Limitations for Companies 

Listing in Connection With a Direct 

Listing With a Capital Raise 

July 7, 2022 

I. Introduction 

On March 21, 2022, The Nasdaq Stock 

Market LLC (‘‘Nasdaq’’ or the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’), pursuant to Section 

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

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

19b–4 thereunder,2 a proposed rule 

change to modify certain pricing 

limitations for companies listing in 

connection with a direct listing with a 

primary offering in which the company 

will sell shares itself in the opening 

auction on the first day of trading on the 

Exchange. The proposed rule change 

was published for comment in the 

Federal Register on April 8, 2022.3 On 

May 19, 2022, pursuant to Section 

19(b)(2) of the Exchange Act,4 the 

Commission designated a longer period 

within which to either approve the 

proposed rule change, disapprove the 

proposed rule change, or institute 

proceedings to determine whether to 

disapprove the proposed rule change.5

On May 23, 2022, the Exchange filed 

Amendment No. 1 to the proposed rule 

change, which superseded the proposed 

rule change as originally filed. 

Amendment No. 1 was published for 

comment in the Federal Register on 

June 2, 2022.6 The Commission has 

received no comments on the proposal. 

This order institutes proceedings under 

Section 19(b)(2)(B) of the Exchange Act 7

to determine whether to approve or 

disapprove the proposed rule change, as 

modified by Amendment No. 1. 

II. Description of the Proposal 

Nasdaq Listing Rule IM–5315–2 

provides listing requirements for 

Nasdaq’s Global Select Market for a 

company that has not previously had its 

common equity securities registered 

under the Exchange Act to list its 

common equity securities on the 

Exchange at the time of effectiveness of 

a registration statement 8 pursuant to 

which the company will sell shares 

itself in the opening auction on the first 

day of trading on the Exchange (a 

‘‘Direct Listing with a Capital Raise’’).9

Securities qualified for listing under 

Nasdaq Listing Rule IM–5315–2 must 

begin trading on the Exchange following 

the initial pricing through the 

mechanism outlined in Nasdaq Rule 

4120(c)(9) and Nasdaq Rule 4753 for the 

opening auction, otherwise known as 

the Nasdaq Halt Cross.10 Currently, in 

the case of a Direct Listing with a 

Capital Raise, the Exchange will release 

the security for trading on the first day 

of listing if, among other things, the 

actual price calculated by the Nasdaq 

Halt Cross is at or above the lowest price 

and at or below the highest price of the 

price range established by the issuer in 

its effective registration statement 11 (the 

‘‘Pricing Range Limitation’’). 


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note 6, 87 FR at 33559 n.10. Throughout this order, 

we refer to this as the ‘‘disclosed price range.’’ 

12See proposed Nasdaq Rule 

4120(c)(9)(B)(vii)d.2. The Exchange has proposed 

additional conditions, as discussed in more detail 

below, before the Nasdaq Halt Cross could proceed 

including a Post-Pricing Period and that the Price 

Volatility Constraint has been satisfied. 

13See proposed Nasdaq Rule 4120(c)(9)(B). If the 

company provides an upper limit in its 

certification, that price would serve as the upper 

limit of the price range within which the Nasdaq 

Halt Cross could proceed. See proposed Nasdaq 

Rule 4120(c)(9)(B)(vii)d.2. 

14See Nasdaq Rule 4120(c)(9)(B). 

15A ‘‘Company Direct Listing Order’’ or ‘‘CDL 

Order’’ is a market order that may be entered only 

on behalf of the issuer and may be executed only 

in the Nasdaq Halt Cross for a Direct Listing with 

a Capital Raise. The CDL Order is entered without 

a price (with a price later set in accordance with 

the requirements of Nasdaq Rule 4120(c)(9)(B)), 

must be for the quantity of shares offered by the 

issuer as disclosed in its effective registration 

statement, must be executed in full in the Nasdaq 

Halt Cross, and may not be canceled or modified. 

See Nasdaq Rule 4702(b)(16). 

16See Notice, supra note 6, 87 FR at 33559. The 

Exchange represents that in such event, because the 

Nasdaq Halt Cross cannot be conducted, the 

Exchange would postpone and reschedule the 

offering and notify participants via a Trader Update 

that the Direct Listing with a Capital Raise 

scheduled for that date has been cancelled and any 

orders for that security that have been entered on 

the Exchange would be cancelled back to the 

entering firms. See id. 

17See id. The Exchange states that it believes a 

Direct Listing with a Capital Raise could maximize 

the chances of more efficient price discovery of the 

initial public sale of securities for issuers and 

investors, because, unlike in a traditional firm 

commitment underwritten initial public offering 

(‘‘IPO’’) the initial sale price is determined based on 

market interest and the matching of buy and sell 

orders in an auction open to all market participants. 

See id. 

18See id. The Exchange states that if an offering 

cannot be completed due to lack of investor 

interest, there is likely to be a substantial amount 

of negative publicity for the company and the 

offering may be delayed or cancelled. See id. 

19See id. at 33559–60. 

20See id. at 33560. 21See id. 

22See id. 

23See id. 

24See Notice, supra note 6, 87 FR at 33560. 

25See Nasdaq Rule 4120(c)(7)(A) and proposed 

Nasdaq Rule 4120(c)(9)(B)(iii)–(v) for a description 

of the ‘‘Display Only Period.’’ 

26See Notice, supra note 6, 87 FR at 33560. 

The Exchange has proposed to modify 

the Pricing Range Limitation to provide 

that the Exchange would release the 

security for trading if: (a) the actual 

price calculated by the Nasdaq Halt 

Cross is at or above the price that is 20% 

below the lowest price of the disclosed 

price range; or (b) the actual price 

calculated by the Nasdaq Halt Cross is 

at a price above the highest price of 

such price range. For the Nasdaq Halt 

Cross to execute at a price outside of the 

disclosed price range, the company 

would be required to publicly disclose 

and certify to the Exchange that the 

company does not expect that such 

price would materially change the 

company’s previous disclosure in its 

effective registration statement and that 

its effective registration statement 

contains a sensitivity analysis 

explaining how the company’s plans 

would change if the actual proceeds 

from the offering are less than or exceed 

the amount in the disclosed price 

range.12 The Exchange would calculate 

the 20% threshold below the disclosed 

price range based on the maximum 

offering price set forth in the registration 

fee table in the company’s effective 

registration statement, which the 

Exchange argues is consistent with the 

Instruction to paragraph (a) of Securities 

Act Rule 430A.13 The Exchange has also 

proposed to make related conforming 

changes. 

Currently Nasdaq Rule 4120(c)(9)(B) 

states that, notwithstanding the 

provisions of Nasdaq Rule 4120(c)(8)(A) 

and (c)(9)(A), in the case of a Direct 

Listing with a Capital Raise, for 

purposes of releasing securities for 

trading on the first day of listing, the 

Exchange, in consultation with the 

financial advisor to the issuer, will 

make the determination of whether the 

security is ready to trade. The Exchange 

will release the security for trading if: (i) 

all market orders will be executed in the 

Nasdaq Halt Cross; and (ii) the actual 

price calculated by the Nasdaq Halt 

Cross complies with the Pricing Range 

Limitation. The Exchange will postpone 

and reschedule the offering only if 

either or both of such conditions are not 

met.14 The Exchange states that if there 

is insufficient buy interest to satisfy the 

CDL Order 15 and all other market orders 

or if the Pricing Range Limitation is not 

satisfied, the Nasdaq Halt Cross would 

not proceed and such security would 

not begin trading.16

According to the Exchange, based on 

conversations it has had with 

companies and their advisors, the 

Exchange believes that some companies 

may be reluctant to use the existing 

rules for a Direct Listing with a Capital 

Raise because of concerns about the 

Pricing Range Limitation.17 The 

Exchange states it believes ‘‘that the 

Pricing Range Limitation imposed on a 

Direct Listing with a Capital Raise (but 

not on a traditional IPO) increases the 

probability of a failed offering because 

the offering cannot proceed without 

some delay not only for the lack of 

investor interest, but also if investor 

interest is greater than the company and 

its advisors anticipated.’’ 18 According 

to the Exchange, the Exchange believes 

that there may be instances of offerings 

where the price determined by the 

Exchange’s opening auction will exceed 

the highest price of the price range 

disclosed in the company’s effective 

registration statement.19 The Exchange 

states that, under the existing rule, a 

security subject to a Direct Listing with 

a Capital Raise cannot be released for 

trading by the Exchange if the actual 

price calculated by the Nasdaq Halt 

Cross is above the highest price of the 

disclosed price range.20 The Exchange 

further states that, in this case, the 

Exchange would have to cancel or 

postpone the offering until the company 

amends its effective registration 

statement, and that, at a minimum, such 

a delay exposes the company to market 

risk of changing investor sentiment in 

the event of an adverse market event.21

In addition, the Exchange states that the 

determination of the public offering 

price of a traditional IPO is not subject 

to limitations similar to the Pricing 

Range Limitation for a Direct Listing 

with a Capital Raise, which, in the 

Exchange’s view, could make 

companies reluctant to use this 

alternative method of going public 

despite its expected potential benefits.22

The Exchange has proposed to modify 

the Pricing Range Limitation such that 

even if the actual price calculated by the 

Nasdaq Halt Cross is outside the 

disclosed price range, the Exchange 

would release a security for trading if 

the actual price at which the Nasdaq 

Halt Cross would occur is as much as 

20% below the lowest price of the 

disclosed price range or above the 

highest price of the disclosed price 

range, provided all other necessary 

conditions are satisfied, and that the 

company has specified the quantity of 

shares registered, as permitted by 

Securities Act Rule 457.23 In such 

circumstances, the company’s 

registration statement would be required 

to contain a sensitivity analysis 

explaining how the company’s plans 

would change if the actual proceeds 

from the offering are less than or exceed 

the amount assumed in the disclosed 

price range, and, as stated above, the 

company would be required to certify to 

the Exchange that it has met this 

requirement.24 In addition, the company 

would be required to publicly disclose 

and certify to the Exchange prior to the 

beginning of the Display Only Period 25

that the company does not expect that 

such offering price would materially 

change the company’s previous 

disclosure in its effective registration 

statement.26 If the company’s 

certification submitted to the Exchange 

in that regard includes an upside limit, 

the Exchange would not execute the 

Nasdaq Halt Cross if it would result in 


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27See id. The Exchange proposes to define the 

‘‘Price Range’’ as the price range established by the 

issuer in its preliminary prospectus included in the 

effective registration statement. See proposed 

Nasdaq Rule 4120(c)(9)(B). In addition, the 

Exchange proposes to define the ‘‘DLCR Price 

Range’’ as the price range starting from the price 

that is at or above 20% below the lowest price of 

the Price Range and continuing above the highest 

price of the Price Range, with an upper limit if one 

is provided by the company in its certification. See 

proposed Nasdaq Rule 4120(c)(9)(B)(vii)d.2. 

28See Notice, supra note 6, 87 FR at 33560. 

29See id. The Exchange states that Securities Act 

Rule 457 permits issuers to register securities either 

by specifying the quantity of shares registered, 

pursuant to Rule 457(a), or the proposed maximum 

aggregate offering amount, and the Exchange 

proposes to require that companies selling shares 

through a Direct Listing with a Capital Raise will 

register securities by specifying the quantity of 

shares registered and not a maximum offering 

amount. See id. at 33560 n.17. The Exchange also 

states that the Exchange believes that the proposed 

modification of the Pricing Range Limitation is 

consistent with the protection of investors, because, 

according to the Exchange, this approach is similar 

to the pricing of an IPO where an issuer is permitted 

to price outside of the disclosed price range in 

accordance with the SEC Staff’s guidance. See id. 

at 33563. 

30See id. at 33560. The Exchange states that in 

a prior proposal that the Commission disapproved, 

the Exchange proposed different requirements 

based on whether the Nasdaq Halt Cross would 

occur at a price that was within 20% of the 

disclosed price range, but that the Exchange is 

eliminating this proposed distinction and instead 

proposing to treat uniformly all instances when the 

actual price of the Nasdaq Halt Cross would occur 

outside of the disclosed price range. See id. at 

33560 n.16 (citing Securities Exchange Act Release 

No. 94311 (February 24, 2022), 87 FR 11780 (March 

2, 2022)). 

31See Notice, supra note 6, 87 FR at 33560. 

32See id. 

33See id. The Commission previously stated that 

while Securities Act Rule 430A permits companies 

to omit specified price-related information from the 

prospectus included in the registration statement at 

the time of effectiveness, and later file the omitted 

information with the Commission as specified in 

the rule, it neither prohibits a company from 

conducting a registered offering at prices beyond 

those that would permit a company to provide 

pricing information through a Securities Act Rule 

424(b) prospectus supplement nor absolves any 

company relying on the rule from any liability for 

potentially misleading disclosure under the federal 

securities laws. See id. (citing Securities Exchange 

Act Release No. 93119 (September 24, 2021), 86 FR 

54262 (September 30, 2021)). 

34See Notice, supra note 6, 87 FR at 33560–61. 

35See id. at 33561. 

36See id. 

37See id. See Nasdaq Rule 4753(a)(3) for a 

description of the ‘‘Current Reference Price.’’ 

38See Notice, supra note 6, 87 FR at 33561. 

39See id. The Exchange proposes to define ‘‘Near 

Execution Price’’ as the Current Reference Price at 

the time the Price Volatility Constraint has been 

satisfied, and to define the ‘‘Near Execution Time’’ 

as such time. See id. 

40See id. 

41See id. 

42See id. 

43See id. 

an offering price above such limit.27 The 

Exchange states that the goal of these 

requirements is to have disclosure that 

allows investors to see how changes in 

share price ripple through critical 

elements of the disclosure.28

The Exchange states that it believes 

that its proposed approach is consistent 

with Securities Act Rule 430A and staff 

guidance, which, according to the 

Exchange, generally allow a company to 

price a public offering 20% outside of 

the disclosed price range without regard 

to the materiality of the changes to the 

disclosure contained in the company’s 

registration statement.29 According to 

the Exchange, the Exchange believes 

such guidance also allows deviation 

above the price range beyond the 20% 

threshold if such change or deviation 

does not materially change the previous 

disclosure.30 The Exchange states that, 

accordingly, the Exchange believes that 

a company listing in connection with a 

Direct Listing with a Capital Raise can 

specify the quantity of shares registered, 

as permitted by Securities Act Rule 457, 

and, when an auction prices outside of 

the disclosed price range, use a Rule 

424(b) prospectus, rather than a posteffective amendment, when either: (i) 

the 20% threshold noted in the 

instructions to Rule 430A is not 

exceeded, regardless of the materiality 

or non-materiality of resulting changes 

to the registration statement disclosure 

that would be contained in the Rule 

424(b) prospectus, or (ii) there is a 

deviation above the price range beyond 

the 20% threshold noted in the 

instructions to Rule 430A if such 

deviation would not materially change 

the previous disclosure, in each case 

assuming the number of shares issued is 

not increased from the number of shares 

disclosed in the prospectus.31 The 

Exchange states that, for purposes of 

this rule, the 20% threshold would be 

calculated based on the maximum 

offering price set forth in the registration 

fee table, and that this method of 

calculation is consistent with the SEC 

Staff’s guidance on Securities Act Rule 

430A.32

The Exchange states that the burden 

of complying with the disclosures 

required under federal securities laws, 

including providing any disclosure 

necessary to avoid any material 

misstatements or omissions, remains 

with the issuer.33 The Exchange further 

states that, in that regard, the PostPricing Period (as defined below), 

which is applicable in circumstances 

where the actual price calculated by the 

Nasdaq Halt Cross is outside of the 

disclosed price range, provides the 

company an opportunity, prior to the 

completion of the offering, to provide 

any additional disclosures that are 

dependent on the price of the offering, 

if any, or to determine and confirm to 

the Exchange that no additional 

disclosures are required under federal 

securities laws based on the actual price 

calculated by the Nasdaq Halt Cross.34

The Exchange also proposes to adopt 

a new Price Volatility Constraint and 

disseminate information about whether 

the Price Volatility Constraint has been 

satisfied, which will indicate whether 

the security may be ready to trade.35

The Exchange states that prior to 

releasing a security for trading, the 

Exchange allows a ‘‘Pre-Launch Period’’ 

of indeterminate length, during which 

price discovery takes place.36 The 

‘‘Price Volatility Constraint’’ would 

require that the Current Reference Price 

has not deviated by 10% or more from 

any Current Reference Price during the 

Pre-Launch Period within the previous 

10 minutes.37 The Pre-Launch Period 

would continue until at least five 

minutes after the Price Volatility 

Constraint has been satisfied.38 The 

Exchange states that this change would 

provide investors with notice that the 

Nasdaq Halt Cross nears execution and 

allow a period of at least five minutes 

for investors to modify their orders, if 

needed, based on the Near Execution 

Price, prior to the execution of the 

Nasdaq Halt Cross and the pricing of the 

offering.39 The Exchange also states that 

to assure that the Near Execution Price 

is a meaningful benchmark for investors 

and that the offering price does not 

deviate substantially from the Near 

Execution Price, the Exchange proposes 

to require that the Nasdaq Halt Cross 

may execute only if the actual price 

calculated by the Nasdaq Halt Cross is 

no more than 10% below or above the 

Near Execution Price (the ‘‘10% Price 

Collar’’), in addition to the other 

existing conditions stated in proposed 

Nasdaq Rule 4120(c)(9)(B)(vii).40

The Exchange states that an 

imbalance between buy and sell orders 

could sometimes cause the Current 

Reference Price to fall outside of the 

10% Price Collar after the Price 

Volatility Constraint has been 

satisfied.41 According to the Exchange, 

such price fluctuations could be 

temporary and the Current Reference 

Price may return to and remain within 

the 10% Price Collar, or the price 

fluctuation could be lasting such that 

the Current Reference Price remains 

outside of the 10% Price Collar.42 The 

Exchange proposes to assess the Current 

Reference Price as compared to the 10% 

Price Collar 30 minutes after the Near 

Execution Time.43 If at that time the 

Current Reference Price is outside of the 

10% Price Collar, all requirements of 

the Pre-Launch Period would reset and 


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44See id. The Exchange states that once the Price 

Volatility Constraint has been satisfied anew, the 

Current Reference Price at such time would become 

the updated Near Execution Price and such time 

would become the Near Execution Time. See id. 

The Exchange further states that this process would 

continue iteratively if new resets are triggered, until 

the Nasdaq Halt Cross is executed or the offering 

is postponed. See id. 

45See id.; proposed Nasdaq Rule 

4120(c)(9)(B)(vii). The Exchange states that if at any 

time more than 30 minutes after the Near Execution 

Time the Current Reference Price falls outside of 

the 10% Price Collar, all requirements of the PreLaunch Period would reset and would need to be 

satisfied again. See Notice, supra note 6, 87 FR at 

33561. 

46See Notice, supra note 6, 87 FR at 33561. The 

Exchange states that if the company’s certification 

submitted to the Exchange includes an upside limit 

and the actual price calculated by the Nasdaq Halt 

Cross exceeds such limit, the Exchange will 

postpone and reschedule the offering. See id. at 

33561 n.23. 

47See id. at 33561. 

48See id. The Exchange represents that the 

disclosure would indicate that the Near Execution 

Price and the Near Execution Time may be reset if 

the security is not released for trading within 30 

minutes of the Near Execution Time and the 

Current Reference Price at such time (or any time 

thereafter) is more than 10% below or more than 

10% above the Near Execution Price. See id. 

49See id. 

50See id. 

51See id. 

52See id. 

53See id. at 33562. 

54See id. 

55See id. The Exchange states that an information 

circular is an industry-wide, free service provided 

by the Exchange. See id. at 33562 n.25. 

56See id. at 33562. 

57See id.; proposed Nasdaq Rule 4120(c)(9)(B)(i). 

58See Notice, supra note 6, 87 FR at 33562. 

59See id. The Exchange states that it believes that 

investors have become familiar with the approach 

of pricing an IPO outside of the price range stated 

in an effective registration statement. See id. at 

33565. 

would need to be satisfied again.44

Alternatively, if at that time the Current 

Reference Price is within the 10% Price 

Collar, price formation would continue 

without limitations until the Exchange, 

in consultation with the financial 

advisor to the issuer, makes the 

determination that the security is ready 

to trade and the conditions in proposed 

Nasdaq Rule 4120(c)(9)(B)(vii) and (viii) 

are met, at which time the Pre-Launch 

Period would end.45

According to the Exchange, given that 

there may be a Direct Listing with a 

Capital Raise that could price outside of 

the disclosed price range and that there 

may be no upside limit above which the 

Nasdaq Halt Cross could not proceed, 

the Exchange proposes to enhance 

transparency by providing readily 

available, real time pricing information 

to investors.46 To that end, the Exchange 

states that it would disseminate, free of 

charge, the Current Reference Price on 

a public website, such as Nasdaq.com, 

during the Pre-Launch Period and 

indicate whether the Current Reference 

Price is within the disclosed price 

range.47 Once the Price Volatility 

Constraint has been satisfied, the 

Exchange would also disseminate the 

Near Execution Price, the Near 

Execution Time, and the 30-minute 

countdown from such time.48 The 

Exchange states that, in this way, 

investors interested in participating in 

the opening auction would be informed 

when volatility has settled to a range 

that would allow the opening auction to 

take place, would be informed of the 

price range at which the auction would 

take place, and, if the price remains 

outside of that range for 30 minutes, 

would have at least five minutes to 

reevaluate their investment decision.49

The Exchange also proposes to 

prohibit market orders (other than by 

the company through its CDL Order) 

from the opening of a Direct Listing 

with a Capital Raise.50 The Exchange 

states that this would protect investors 

by assuring that investors only purchase 

shares at a price at or better than the 

price they affirmatively set, after having 

the opportunity to review the 

company’s effective registration 

statement, including the sensitivity 

analysis describing how the company 

would use any additional proceeds 

raised.51 The Exchange states that, 

accordingly, an investor participating in 

a Direct Listing with a Capital Raise 

would make their initial investment 

decision prior to the launch of the 

offering by setting a price in their limit 

order above which they will not buy 

shares in the offering, but would also 

have the opportunity to reevaluate their 

initial investment decision during the 

price formation process of the PreLaunch Period based on the Near 

Execution Price, and would have at least 

five minutes once the Near Execution 

Price has been set and before the 

offering may be priced by the Exchange 

to modify their order, if needed.52

In addition, the Exchange states that 

to protect investors and assure that they 

are informed about the attributes of a 

Direct Listing with a Capital Raise, the 

Exchange proposes to impose specific 

requirements on Nasdaq members with 

respect to a Direct Listing with a Capital 

Raise.53 These rules would require 

members to provide to a customer, 

before that customer places an order to 

be executed in the Nasdaq Halt Cross, a 

notice describing the mechanics of 

pricing a security subject to a Direct 

Listing with a Capital Raise in the 

Nasdaq Halt Cross, including 

information regarding the location of the 

public website where the Exchange 

would disseminate the Current 

Reference Price.54

The Exchange states that to assure 

that members have the necessary 

information to be provided to their 

customers, the Exchange proposes to 

distribute, at least one business day 

prior to the commencement of trading of 

a security listing in connection with a 

Direct Listing with a Capital Raise, an 

information circular to its members.55

This information circular would 

describe any special characteristics of 

the offering and the Exchange’s rules 

that apply to the initial pricing through 

the mechanism outlined in Nasdaq Rule 

4120(c)(9)(B) and Nasdaq Rule 4753 for 

the opening auction, including 

information about the notice that 

members must provide to their 

customers.56 This information circular 

would also describe other requirements 

that: (a) members use reasonable 

diligence in regard to the opening and 

maintenance of every account, to know 

(and retain) the essential facts 

concerning every customer, and 

concerning the authority of each person 

acting on behalf of such customer; (b) 

members in recommending transactions 

for a security subject to a Direct Listing 

with a Capital Raise have a reasonable 

basis to believe that (i) the 

recommendation is suitable for a 

customer given reasonable inquiry 

concerning the customer’s investment 

objectives, financial situation, needs, 

and any other information known by 

such members, and (ii) the customer can 

evaluate the special characteristics, and 

is able to bear the financial risks, of an 

investment in such security; and (c) 

members cannot accept market orders to 

be executed in the Nasdaq Halt Cross.57

The Exchange states that these member 

requirements are intended to remind 

members of their obligations to ‘‘know 

their customers,’’ increase transparency 

of the pricing mechanisms of a Direct 

Listing with a Capital Raise, and help 

assure that investors have sufficient 

price discovery information.58

The Exchange represents that in each 

instance of a Direct Listing with a 

Capital Raise, the Exchange’s 

information circular would inform 

market participants that the auction 

could price up to 20% below the lowest 

price of the disclosed price range and 

would specify that price. The Exchange 

also represents that it would indicate in 

such circular whether or not there is an 

upside limit above which the Nasdaq 

Halt Cross could not proceed, based on 

the company’s certification.59

The Exchange states that to assure 

that the issuer has the ability, prior to 

the completion of the offering, to 


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60See id. at 33562. 61See id. 62See id. 63See id. 

64See id. 

65See id. 

66See id. The Exchange would select an upper 

price band and a lower price band with the default 

for an upper and lower price band set at zero. The 

Exchange represents that if a security does not pass 

the price validation test, the Exchange may select 

different price bands before recommencing the 

process to release the security for trading. See id. 

67See id. 

68See Nasdaq Listing Rule 5005(a)(23) and (45) 

for the definitions of ‘‘Market Value’’ and 

‘‘Unrestricted Publicly Held Shares,’’ respectively. 69See Nasdaq Listing Rule 5315(f)(2). 70See Nasdaq Listing Rule IM–5315–2. The 

Exchange will determine that the company has met 

the applicable bid price and market capitalization 

requirements based on the same per share price. See 

id. 71See Notice, supra note 6, 87 FR at 33562. 72See id. 

73See id. (citing Nasdaq Listing Rules 5315(e)(1) 

and (2) and 5315(f)(1)). 

74See proposed Nasdaq Listing Rule IM–5315–2. 75See proposed Nasdaq Rules 4753(a)(3)(A)(iv)c. 

and 4753(b)(2)(D)(iii). 76See Nasdaq Rule 4753(a)(3) for a description of 

the ‘‘Order Imbalance Indicator.’’ 

77See Notice, supra note 6, 87 FR at 33562–63. 

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

provide any necessary additional 

disclosures that are dependent on the 

price of the offering, the Exchange 

proposes to introduce to the operation 

of the Nasdaq Halt Cross a brief PostPricing Period, in circumstances where 

the actual price calculated by the 

Nasdaq Halt Cross is outside of the 

disclosed price range.60 Specifically, in 

such circumstances, the Exchange 

would initiate a ‘‘Post-Pricing Period’’ 

following the calculation of the actual 

price.’’ 61 During the Post-Pricing 

Period, the issuer must confirm to the 

Exchange that no additional disclosures 

are required under the federal securities 

laws based on the actual price 

calculated by the Nasdaq Halt Cross. 

Further, during this period no 

additional orders for the security could 

be entered in the Nasdaq Halt Cross, and 

no existing orders could be modified.62

The Exchange states that the security 

would be released for trading 

immediately following the Post-Pricing 

Period.63 However, if the company 

cannot provide the required 

confirmation, then the Exchange would 

postpone and reschedule the offering.64

The Exchange also proposes to clarify 

several provisions of existing rules by 

restating the provisions of Nasdaq Rule 

4120(c)(8)(A) and (c)(9)(A) in a clear and 

direct manner in proposed Nasdaq Rule 

4120(c)(9)(B) without substantively 

changing the requirements.65

Specifically, the Exchange proposes to 

clarify the mechanics of the Nasdaq Halt 

Cross by specifying that the Exchange 

will initiate a 10-minute Display Only 

Period only after the CDL Order has 

been entered and that the Exchange 

shall select price bands for purposes of 

applying the price validation test in the 

Nasdaq Halt Cross in connection with a 

Direct Listing with a Capital Raise.66

The Exchange proposes to clarify that 

the ‘‘actual price,’’ as the term is used 

in the rule, is the Current Reference 

Price at the time the system applies the 

price validation test.67

Nasdaq Listing Rule IM–5315–2 

provides that in determining whether a 

company listing in connection with a 

Direct Listing with a Capital Raise 

satisfies the Market Value of 

Unrestricted Publicly Held Shares 68 for 

initial listing on the Nasdaq Global 

Select Market, the Exchange will deem 

such company to have met the 

applicable requirement 69 if the amount 

of the company’s Unrestricted Publicly 

Held Shares before the offering, along 

with the market value of the shares to 

be sold by the company in the 

Exchange’s opening auction in the 

Direct Listing with a Capital Raise, is at 

least $110 million (or $100 million, if 

the company has stockholders’ equity of 

at least $110 million). For this purpose, 

under current rules, the Market Value of 

Unrestricted Publicly Held Shares will 

be calculated using a price per share 

equal to the lowest price of the 

disclosed price range.70 The Exchange 

states that because the Exchange 

proposes to allow the opening auction 

to price up to 20% below the lowest 

price of the disclosed price range, the 

Exchange proposes to make a 

conforming change to Nasdaq Listing 

Rule IM–5315–2 to provide that the 

price used to determine such company’s 

compliance with the required Market 

Value of Unrestricted Publicly Held 

Shares would be the price per share 

equal to the price that is 20% below the 

lowest price of the disclosed price 

range.71 The Exchange further states that 

this is the minimum price at which the 

company could sell its shares in the 

opening transaction for a Direct Listing 

with a Capital Raise and thus assures 

that the company will satisfy the listing 

requirements at any price at which the 

opening auction successfully 

executes.72

The Exchange states that any 

company listing in connection with a 

Direct Listing with a Capital Raise 

would continue to be subject to, and 

required to meet, all other applicable 

initial listing requirements, including 

the requirements to have the applicable 

number of shareholders and at least 

1,250,000 Unrestricted Publicly Held 

Shares outstanding at the time of initial 

listing, and the requirement to have a 

price per share of at least $4.00 at the 

time of initial listing.73 The Exchange 

also proposes to amend Nasdaq Listing 

Rule IM–5315–2 to specify that a 

company offering securities for sale in 

connection with a Direct Listing with a 

Capital Raise must register securities by 

specifying the quantity of shares 

registered, as permitted by Securities 

Act Rule 457(a), and that securities 

qualified for listing under Nasdaq 

Listing Rule IM–5315–2 must satisfy the 

additional requirements of Nasdaq Rule 

4120(c)(9)(B).74

Finally, the Exchange has proposed to 

amend Nasdaq Rules 4753(a)(3)(A) and 

4753(b)(2) to conform the requirements 

for disseminating information and 

establishing the opening price through 

the Nasdaq Halt Cross in a Direct Listing 

with a Capital Raise to the proposed 

amendment to allow the opening 

auction to price as much as 20% below 

the lowest price of the disclosed price 

range.75 Specifically, the Exchange 

proposes changes to Nasdaq Rules 

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

adjustments to the calculation of the 

Current Reference Price, which is 

disseminated in the Nasdaq Order 

Imbalance Indicator,76 and to the 

calculation of the price at which the 

Nasdaq Halt Cross will execute, for a 

Direct Listing with a Capital Raise. 

Under these rules currently, where there 

are multiple prices that would satisfy 

the conditions for determining the price, 

the fourth tie-breaker for a Direct Listing 

with a Capital Raise is the price that is 

closest to the lowest price of the 

disclosed price range. The Exchange 

states that, to conform these rules to the 

proposed modification of the price 

range within which the opening auction 

would proceed, the Exchange proposes 

to modify the fourth tie-breaker for a 

Direct Listing with a Capital Raise to use 

the price closest to the price that is 20% 

below the lowest price of the disclosed 

price range.77

III. Proceedings To Determine Whether 

To Approve or Disapprove SR– 

NASDAQ–2022–027 and Grounds for 

Disapproval Under Consideration 

The Commission is instituting 

proceedings pursuant to Section 

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

determine whether the proposal should 

be approved or disapproved.78

Institution of such proceedings is 

appropriate at this time in view of the 

legal and policy issues raised by the 

proposed rule change, as modified by 

Amendment No. 1, as discussed below. 

Institution of disapproval proceedings 

does not indicate that the Commission 


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79 15 U.S.C. 78f(b)(5). 

80 Id. 

81The Commission has stated in approving 

national securities exchange listing requirements 

that the development and enforcement of adequate 

standards governing the listing of securities on an 

exchange is an activity of critical importance to the 

financial markets and the investing public. In 

addition, once a security has been approved for 

initial listing, maintenance criteria allow an 

exchange to monitor the status and trading 

characteristics of that issue to ensure that it 

continues to meet the exchange’s standards for 

market depth and liquidity so that fair and orderly 

markets can be maintained. See, e.g., 2021 Order, 

supra note 9, 86 FR at 28172 n.47; Securities 

Exchange Act Release Nos. 90768 (December 22, 

2020), 85 FR 85807, 85811 n.55 (December 29, 

2020) (SR–NYSE–2019–67) (‘‘NYSE 2020 Order’’); 

82627 (February 2, 2018), 83 FR 5650, 5653 n.53 

(February 8, 2018) (SR–NYSE–2017–30) (‘‘NYSE 

2018 Order’’); 81856 (October 11, 2017), 82 FR 

48296, 48298 (October 17, 2017) (SR–NYSE–2017– 

31); 81079 (July 5, 2017), 82 FR 32022, 32023 (July 

11, 2017) (SR–NYSE–2017–11). The Commission 

has stated that adequate listing standards, by 

promoting fair and orderly markets, are consistent 

with Section 6(b)(5) of the Exchange Act, in that 

they are, among other things, designed to prevent 

fraudulent and manipulative acts and practices, 

promote just and equitable principles of trade, and 

protect investors and the public interest. See, e.g., 

2021 Order, supra note 9, 86 FR at 28172 n.47; 

NYSE 2020 Order, 85 FR at 85811 n.55; NYSE 2018 

Order, 83 FR at 5653 n.53; Securities Exchange Act 

Release Nos. 87648 (December 3, 2019), 84 FR 

67308, 67314 n.42 (December 9, 2019) (SR– 

NASDAQ–2019–059); 88716 (April 21, 2020), 85 FR 

23393, 23395 n.22 (April 27, 2020) (SR–NASDAQ– 

2020–001). 

82See Notice, supra note 6, 87 FR at 33563. 

83See generally id. at 33564–65. 

84See id. at 33565. 

85Under the Nasdaq rules for a Direct Listing 

with a Capital Raise approved by the Commission 

in May 2021, the actual price calculated by the 

Cross must be at or above the lowest price and at 

or below the highest price of the disclosed price 

range. 

86See 2021 Order, supra note 9, 86 FR at 28174– 

75, 28177. 

87See Notice, supra note 6, 87 FR at 33559. 

88Section 2(a)(11) of the Securities Act defines 

‘‘underwriter’’ to mean ‘‘any person who has 

purchased from an issuer with a view to, or offers 

or sells for an issuer in connection with, the 

distribution of any security, or participates, or has 

a direct or indirect participation in the direct or 

indirect underwriting of any such undertaking.’’ 

Given this broad definition of ‘‘underwriter,’’ a 

financial advisor to an issuer engaged in a Direct 

Listing with a Capital Raise may, depending on the 

facts and circumstances including the nature and 

extent of the financial advisor’s activities, be 

deemed a statutory ‘‘underwriter’’ with respect to 

the securities offering, with attendant underwriter 

liabilities. See 2021 Order, supra note 9, 86 FR at 

28176. Whether or not any person would be 

considered a statutory underwriter would be 

evaluated based on the particular facts and 

circumstances, in light of the definition of 

underwriter contained in Section 2(a)(11). In the 

context of a firm commitment underwritten initial 

public offering, Item 508 of Regulation S–K requires 

the underwriters to be named in the registration 

statement. 

has reached any conclusions with 

respect to any of the issues involved. 

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

Exchange Act, the Commission is 

providing notice of the grounds for 

disapproval under consideration. The 

Commission is instituting proceedings 

to allow for additional analysis and 

input concerning the proposed rule 

change’s consistency with the Exchange 

Act and, in particular, with Section 

6(b)(5) 79 of the Exchange Act, which 

requires, among other things, that the 

rules of a national securities exchange 

be designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general, to protect 

investors and the public interest; and 

are not designed to permit unfair 

discrimination between customers, 

issuers, brokers, or dealers.80

The Commission has consistently 

recognized the importance of national 

securities exchange listing standards. 

Among other things, such listing 

standards help ensure that exchangelisted companies will have sufficient 

public float, investor base, and trading 

interest to provide the depth and 

liquidity necessary to promote fair and 

orderly markets.81

The Exchange is proposing to modify 

the rules concerning the opening 

transaction on the first day of trading for 

a Direct Listing with a Capital Raise so 

that the opening transaction is not 

constrained by the Pricing Range 

Limitation, which limits the price of the 

opening transaction to the price range 

disclosed in the issuer’s effective 

registration statement. Instead, the 

proposal would allow the opening 

transaction to proceed, provided other 

requirements are satisfied, at or above 

the price that is as low as 20% below 

the lowest price in the disclosed price 

range; or at a price above the highest 

price of such price range. 

Specifically, under the proposal, to 

execute at a price outside of the 

disclosed price range, the company has 

to certify to Nasdaq and publicly 

disclose that the company does not 

expect that such price would materially 

change the company’s previous 

disclosure in its effective registration 

statement and that the company’s 

registration statement contains a 

sensitivity analysis explaining how the 

company’s plans would change if the 

actual proceeds from the offering were 

less than or exceeded the amount 

assumed in such price range. 

In support of its proposal, the 

Exchange states that allowing an 

opening transaction to proceed at prices 

not within the disclosed price range is 

consistent with the protection of 

investors because it ‘‘is similar to the 

pricing of an IPO where an issuer is 

permitted to price outside of the price 

range disclosed by the issuer in its 

effective registration statement.’’ 82

Nasdaq also states that various aspects 

of its proposal are designed to protect 

investors, including, among others, 

those intended to increase the 

transparency and information available 

to investors on the price discovery 

process during the opening auction, 

provide investors an opportunity to 

modify their orders after notice that the 

Nasdaq Halt Cross nears execution, and 

ensure that the offering price does not 

deviate substantially from the Near 

Execution Price.83 Nasdaq also states 

that allowing Direct Listings with a 

Capital Raise to price up to 20% below 

the lowest price and at a price above the 

highest price of the disclosed price 

range would be consistent with Chair 

Gensler’s recent call to treat ‘‘like cases 

alike.’’ 84

We have concerns about whether the 

Exchange has met its burden to 

demonstrate that its proposal to expand 

the conditions under which Direct 

Listings with a Capital Raise are 

permitted 85 is consistent with the 

protection of investors and the public 

interest, and other relevant provisions 

under Section 6(b)(5) and the Exchange 

Act and the rules and regulations 

thereunder. Under existing Nasdaq rules 

that permit Direct Listings with a 

Capital Raise, such offerings are 

required to price within the price range 

disclosed in the issuer’s effective 

registration statement. When these rules 

were approved in 2021, the Commission 

considered that required feature and 

also stated that the related registration 

statements would include, among other 

disclosures, a bona fide price range.86

The Exchange has indicated that it 

believes that some companies may be 

reluctant to use the existing rules for a 

Direct Listing with a Capital Raise 

because of concerns about the Pricing 

Range Limitation.87 Permitting Direct 

Listings with a Capital Raise to price 

outside of the disclosed price range 

could increase the frequency of such 

offerings and may raise investor 

protection concerns. 

While the Exchange has indicated that 

the proposal is intended to treat like 

cases alike with respect to pricing 

flexibility, it has not addressed certain 

differences between listings that would 

occur under this proposed rule change 

and firm commitment underwritten 

initial public offerings on the Exchange 

that may affect investor protection, 

including the lack of a named 

underwriter,88 any challenges to 


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89Where a Securities Act registration statement, 

at the time of effectiveness, contains an untrue 

statement of a material fact or omits to state a 

material fact required to be stated therein or 

necessary to make the statements therein not 

misleading, Section 11(a) of the Securities Act 

provides a cause of action to ‘‘any person acquiring 

such security,’’ unless it is proved that at the time 

of the acquisition the person knew of such untruth 

or omission. Courts have interpreted this statutory 

provision to permit aftermarket purchasers (i.e., 

those who acquire their securities in secondary 

market transactions rather than in the initial 

distribution from the issuer or underwriter) to 

recover damages under Section 11, but only if they 

can ‘‘trace’’ the acquired shares back to the offering 

covered by the false or misleading registration 

statement. See, e.g., In re Century Aluminum Co. 

Sec. Litig., 729 F.3d 1104 (9th Cir. 2013). Tracing 

is not set forth in Section 11 and is a judiciallydeveloped doctrine. The Commission has 

previously stated that shareholders’ ability to 

pursue claims pursuant to Section 11 of the 

Securities Act due to traceability issues are not 

exclusive to nor necessarily inherent in direct 

listings with a primary capital-raising component, 

and that this issue is potentially implicated any 

time securities that are not the subject of a recently 

effective registration statement trade in the same 

market as the shares issued pursuant to the 

registration statement. See 2021 Order, supra note 

9, 86 FR at 28176. The Ninth Circuit has held that 

investors who purchase shares in a direct listing 

may bring claims pursuant to Section 11, even if 

they cannot prove that the shares they acquired 

were registered shares. See Pirani v. Slack Techs., 

Inc., 13 F.4th 940 (9th Cir. 2021). 

90Tracing concerns may be more prevalent in 

direct listings than traditional underwritten initial 

public offerings. As compared to traditional firm 

commitment underwritten initial public offerings in 

which lock-up arrangements are routinely imposed, 

direct listings to date typically have not imposed 

lock-up arrangements. This raises a concern that 

there may be a heightened risk that investors in 

direct listings may face difficulties tracing their 

shares, potentially jeopardizing their ability to 

pursue Section 11 claims. See supra note 89. Given 

the limited judicial precedent addressing tracing 

requirements in the context of direct listings, and 

the typical absence of lock-up arrangements in 

connection with direct listings to date, we are 

considering whether the Exchange has met its 

burden of establishing that the proposal to allow a 

direct listing to proceed at a price outside of the 

disclosed price range is consistent with Section 

6(b)(5) of the Exchange Act that requires the rules 

of the Exchange be designed to protect investors 

and the public interest. 

91See U.S.C. 77k(b)(3). 92See Securities Act Release No. 7393 (February 

20, 1997), 62 FR 9276 (February 28, 1997) (‘‘The 

due diligence efforts performed by underwriters, 

accounting professionals and others play a critical 

role in the integrity of our disclosure system.’’); 

Securities Act Release No. 6335 (August 6, 1981), 

46 FR 42015 (August 18, 1981) (‘‘[T]he Securities 

Act imposes a high standard of conduct on specific 

persons, including underwriters and directors, 

associated with a registered public offering of 

securities. Under Section 11, they must make a 

reasonable investigation and have reasonable 

grounds to believe the disclosures in the 

registration statement are accurate.’’). 

93See Tuch, Andrew F. and Seligman, Joel, The 

Further Erosion of Investor Protection: Expanded 

Exemptions, SPAC Mergers and Direct Listings 

(December 15, 2021), at 70–71, Washington 

University in St. Louis Legal Studies Research 

Paper No. 22–01–03, available at SSRN: https://

ssrn.com/abstract=4020460 (questioning the extent 

of due diligence performed by financial advisors in 

direct listings); Horton, Brent J., Spotify’s Direct 

Listing: Is It a Recipe for Gatekeeper Failure?, 72 

SMU L. Rev. 177 (2019). In the NYSE 2020 Order, 

the Commission stated that ‘‘financial advisors to 

issuers in Primary Direct Floor Listings have 

incentives to engage in robust due diligence, given 

their reputational interests and potential liability, 

including as statutory underwriters under the broad 

definition of that term.’’ NYSE 2020 Order, supra 

note 81, 85 FR at 85815. 

bringing claims under Section 11 of the 

Securities Act due to the potential 

assertion of tracing defenses,89 and how 

those differences could affect the 

consistency of the proposal with Section 

6(b)(5) of the Exchange Act.90 It is not 

clear from the proposal what 

consideration, if any, the Exchange has 

given to addressing these issues, or why 

it believes the proposal is consistent 

with investor protection, as required by 

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

light of the pricing flexibility proposed 

by the Exchange. 

In a firm commitment underwritten 

initial public offering, issuers often 

adjust the price range disclosed in their 

registration statements prior to 

effectiveness in light of pricing feedback 

received from market analysts and 

potential investors. These revisions to 

the disclosed price range may provide 

valuable information to potential 

investors as to the issuer’s valuation. If, 

under the proposal, the opening auction 

can proceed at any price above the 

disclosed price range, and up to 20% 

below the low end of the disclosed price 

range, it is not clear whether issuers 

pursuing Direct Listings with a Capital 

Raise would make similar revisions to 

the disclosed price range based on 

investor or market analyst sentiment, 

and whether the absence of any such 

corrective price signaling would 

detrimentally affect investors. 

In the absence of a named underwriter 

in a direct listing where the opening 

price is executed outside of the 

disclosed price range, there may not be 

an adequate assurance that a party who 

may meet the definition of underwriter 

will review the information disclosed in 

the registration statement and take the 

steps necessary to claim a ‘‘due 

diligence’’ defense. To assert such a 

defense, a party must establish that, 

after reasonable investigation, the party 

had reasonable ground to believe and 

did believe, at the time the registration 

statement became effective, that the 

statements therein were true and that 

there was no omission to state a material 

fact required to be stated therein or 

necessary to make the statements 

therein not misleading.91 Underwriters 

play a critical role in the securities 

offering process as gatekeepers to the 

public markets.92

The Exchange’s proposed expansion 

of its rules permitting Direct Listings 

with a Capital Raise could potentially 

result in increased regulatory arbitrage, 

if and to the extent that issuers and 

intermediaries, including financial 

advisors, are not subject to equivalent 

liability standards in the direct listings 

context as they would be in traditional 

firm commitment underwritten initial 

public offerings. Any ability of issuers 

or intermediaries to minimize potential 

liability through choosing a direct 

listing over other methods to become 

listed on the Exchange could be 

inconsistent with Section 6(b)(5) of the 

Exchange Act. 

Although financial advisors may, 

depending on facts and circumstances, 

be held liable as statutory underwriters, 

absent greater clarity as to a financial 

advisor’s status as a statutory 

underwriter in listings that would occur 

under this proposed rule change, 

investors would have no way to know 

whether financial advisors named as 

assisting with the direct listing would 

face Section 11 liability for the 

disclosure in the registration statement. 

Investors also may assume that financial 

advisors would incur equivalent 

liability, without any assurance that 

such is the case. Some legal observers 

have raised concerns that, without 

clarity on whether financial advisors 

would be held liable as statutory 

underwriters, any due diligence may not 

be as robust as that performed by named 

underwriters in traditional initial public 

offerings.93 Less robust due diligence 

could result in reduced disclosure 

quality and lead investors to improperly 

value the securities offered under the 

proposed rules. As the proposed rules 

would permit direct listings to be 

conducted at prices outside of the 

disclosed price range, would investors 

be able to make reasonable pricing 

decisions without greater clarity as to 

whether financial advisors would face 

liability as statutory underwriters? 

Without increased clarity on this point, 

would the proposed rule change be 

inconsistent with investor protection 

and the public interest? 

There are a number of additional 

questions relating to investor protection 

and Securities Act liability that merit 

examination in connection with our 

consideration of whether the Exchange 

has met its burden to demonstrate its 

proposal is consistent with Section 

6(b)(5) of the Exchange Act. It is not 

clear what role a financial advisor 

would perform, in relation to price 

range disclosures, in a direct listing 

where the offering can price outside of 

the disclosed price range. Would 

additional transparency into the 

functions performed by financial 


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94See notes 89 and 90, supra, and accompanying 

text. The Commission disapproved a prior proposal 

of Nasdaq to expand the direct listing price range. 

See Securities Exchange Act Release No. 94311 

(February 24, 2022). 87 FR 11780 (March 2, 2022) 

(‘‘Disapproval Order’’). In the Disapproval Order, 

the Commission stated that the Exchange did not 

respond to one commenter’s concerns, among 

others, that investors in direct listings, including 

direct listings with a capital raise, are likely to 

continue to have fewer legal rights than investors 

in a traditional public offering and concerns 

relating to ‘‘tracing’’ share purchases for purposes 

of Section 11 claims. See Disapproval Order, 87 FR 

at 11785 n.82. 

95Under the proposed rule change, to execute at 

a price outside of the disclosed price range, the 

company must certify to Nasdaq and publicly 

disclose that the company does not expect that such 

price would materially change the company’s 

previous disclosure in its effective registration 

statement and that the company’s registration 

statement contains a sensitivity analysis explaining 

how the company’s plans would change if the 

actual proceeds from the offering were less than or 

exceeded the amount assumed in such price range. 

96The Exchange has stated that its proposal to 

permit more flexibility as to pricing would allow 

Direct Listings with a Capital Raise to be treated 

similarly to other initial public offerings. See 

Notice, supra note 6, 87 FR at 33563, 33565. 

97See Notice, supra note 6, 87 FR at 33562. 

98See id. at 33560. 

99See id. at 33562. 

100 Id. at 33563. 

101Rule 700(b)(3), Commission Rules of Practice, 

17 CFR 201.700(b)(3). 

102See id. 

103See id. 

104 15 U.S.C. 78s(b)(2)(B). 

105Section 19(b)(2) of the Exchange Act, as 

amended by the Securities Act Amendments of 

Continued 

advisors in a direct listing where the 

offering can price outside of the 

disclosed price range be necessary for 

investors to determine how much 

reliance to place on issuer disclosures? 

Would any tracing concerns be 

exacerbated, thus raising investor 

protection concerns, in the context of 

direct listings where the offering can 

price outside of the disclosed price 

range? 94 What are the implications if 

the expansion of Direct Listings with a 

Capital Raise, as proposed by the 

Exchange, resulted in fewer investor 

protections in a direct listing? If under 

the proposal to modify the Pricing 

Range Limitation there is continued 

uncertainty as to whether a financial 

advisor would be liable as a statutory 

underwriter, is the liability of any other 

gatekeepers in the offering sufficient to 

protect investors? 

The Commission also has concerns 

about the potential effect of the 

proposed rules on the usefulness of 

price range disclosure provided to 

investors in Securities Act registration 

statements.95 Given the possibility 

under the proposed rules that the 

offering might price far outside the 

disclosed price range, would issuers be 

less likely to update their disclosed 

price ranges, compared to firm 

commitment underwritten initial public 

offerings? 96 Similarly, would disclosed 

price ranges for direct listings be less 

reliable as indicators of management’s 

perceived valuation of the issuer? How 

would the ability to ultimately conduct 

the auction up to 20% below or 

anywhere above the disclosed price 

range affect issuer decisions as to what 

price range to disclose in the 

registration statement? Would this 

impact the usefulness of price range 

disclosure to potential investors or 

market analysts? If so, this raises 

concerns about the consistency of the 

proposal with investor protection and 

the public interest under Section 6(b)(5) 

of the Exchange Act. 

Finally, it is not clear whether the 

proposed changes would result in the 

Exchange using the minimum price at 

which the opening auction could occur 

as the per share price for purposes of 

evaluating whether the issuer satisfies 

the applicable market value of publicly 

held shares requirement and other 

applicable bid price and market 

capitalization requirements. The 

Exchange proposes to amend Nasdaq 

Listing Rule IM–5315–2 to provide that 

the Exchange would calculate the 

market value of unrestricted publicly 

held shares, as well as applicable bid 

price and market capitalization 

requirements, using a price per share 

equal to the price that is 20% below the 

lowest price of the price range disclosed 

by the issuer in its effective registration 

statement.97 The Exchange also 

proposes to specify in Nasdaq Rule 

4120(c)(9)(B) that ‘‘[t]he 20% threshold 

below the Price Range will be calculated 

based on the maximum offering price 

set forth in the registration fee table, 

consistent with the Instruction to 

paragraph (a) of Securities Act Rule 

430A.’’ 98 Further, the Exchange states 

its belief that the proposed change to 

Nasdaq Listing Rule IM–5315–2 for 

calculating the market value of 

unrestricted publicly held shares, bid 

price, and market capitalization 

conforms these rules to the 

modifications of the Pricing Range 

Limitation and ‘‘is the minimum price 

at which the company could sell its 

shares in the Direct Listing with a 

Capital Raise transaction and so assure 

that the company will satisfy these 

requirements at any price at which the 

auction successfully executes.’’ 99 Is 

further clarification needed as to the 

precise manner of computing the 20% 

threshold under proposed Nasdaq Rule 

4120(c)(9)(B) and whether that 

computation would lead to the same 

minimum price contemplated by the 

proposed revisions to Nasdaq Listing 

Rule IM–5315–2? Similarly, there are 

questions about whether the proposed 

change to the fourth-tie breaker in a 

Direct Listing with a Capital Raise that 

proposes to use ‘‘the price that is 20% 

below the lowest price of the price range 

disclosed by the issuer in its effective 

statement’’ to ‘‘conform these rules to 

the modifications to the Pricing Range 

Limitation’’ 100 would also result in 

using the minimum price at which the 

opening auction could occur given the 

proposed changes described above in 

Nasdaq Rule 4120(c)(9)(B) for 

calculating the price that is 20% below 

the lowest price of the Price Range. 

Under the Commission’s Rules of 

Practice, the ‘‘burden to demonstrate 

that a proposed rule change is 

consistent with the Exchange Act and 

the rules and regulations issued 

thereunder . . . is on the self-regulatory 

organization [‘SRO’] that proposed the 

rule change.’’ 101 The description of a 

proposed rule change, its purpose and 

operation, its effect, and a legal analysis 

of its consistency with applicable 

requirements must all be sufficiently 

detailed and specific to support an 

affirmative Commission finding,102 and 

any failure of an SRO to provide this 

information may result in the 

Commission not having a sufficient 

basis to make an affirmative finding that 

a proposed rule change is consistent 

with the Exchange Act and the 

applicable rules and regulations.103

For these reasons, the Commission 

believes it is appropriate to institute 

proceedings pursuant to Section 

19(b)(2)(B) of the Exchange Act 104 to 

determine whether the proposal should 

be approved or disapproved. 

IV. Commission’s Solicitation of 

Comments 

The Commission requests that 

interested persons provide written 

submissions of their views, data, and 

arguments with respect to the issues 

identified above, as well as any other 

concerns they may have with the 

proposal. In particular, the Commission 

invites the written view of interested 

persons concerning whether the 

proposal is consistent with Section 

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

Exchange Act, or the rules and 

regulations thereunder. Although there 

do not appear to be any issues relevant 

to approval or disapproval that would 

be facilitated by an oral presentation of 

views, data, and arguments, the 

Commission will consider, pursuant to 

Rule 19b-4, any request for an 

opportunity to make an oral 

presentation.105


jspears on DSK121TN23PROD with NOTICES1
41788 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 

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

Commission flexibility to determine what type of 

proceeding—either oral or notice and opportunity 

for written comments—is appropriate for 

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

Amendments of 1975, Senate Comm. on Banking, 

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

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

106 17 CFR 200.30–3(a)(57). 

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

2 17 CFR 240.19b–4. 

3All capitalized terms not defined herein have 

the same definition as in the CDS Clearing Rule 

Book, Supplement or Procedures, as applicable. 

Interested persons are invited to 

submit written data, views, and 

arguments regarding whether the 

proposal should be approved or 

disapproved by August 3, 2022. Any 

person who wishes to file a rebuttal to 

any other person’s submission must file 

that rebuttal by August 17, 2022. 

Comments may be submitted by any 

of the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NASDAQ–2022–027 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–2022–027. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

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

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–NASDAQ–2022–027 and 

should be submitted on or before 

August 3, 2022. Rebuttal comments 

should be submitted by August 17, 

2022. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.106

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–14887 Filed 7–12–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–95207; File No. SR–LCH 

SA–2022–004] 

Self-Regulatory Organizations; LCH 

SA; Notice of Filing of Proposed Rule 

Change Relating to the Clearing of 

Markit iTraxx® Australia Indices and 

the Associated Single Name 

Constituents and Remediation of WWR 

Margin Instability 

July 7, 2022. 

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

Securities Exchange Act of 1934 (‘‘Act’’ 

or ‘‘Exchange Act’’) 1 and Rule 19b–4 

thereunder 2 notice is hereby given that 

on June 30, 2022, Banque Centrale de 

Compensation, which conducts 

business under the name LCH SA (‘‘LCH 

SA’’), filed with the Securities and 

Exchange Commission (‘‘Commission’’ 

or ‘‘SEC’’) the proposed rule change 

described in Items I, II, and III below, 

which Items have been prepared 

primarily by LCH SA. The Commission 

is publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

(a) LCH SA is proposing to amend its 

CDSClear Risk methodology and its CDS 

Clearing Supplement (the ‘‘Clearing 

Supplement’’) to allow LCH SA to 

enhance and expand its clearing 

services as follows: LCH SA intends to 

(i) permit the clearing of Markit iTraxx®

Australia indices and the associated 

single name constituents, (the ‘‘iTraxx 

Change’’) and (ii) provide a remediation 

to one independent model validation 

recommendation regarding the Wrong 

Way Risk (WWR) margin instability (the 

‘‘WWR Change’’) (all together the 

‘‘Proposed Rule Change’’). 

The text of the Proposed Rule Change 

is in Exhibit 5.3

The implementation of the Proposed 

Rule Change will be contingent on LCH 

SA’s receipt of all necessary regulatory 

approvals. 

(b) Not applicable. 

(c) Not applicable. 

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, 

LCH SA 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. LCH SA has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of these statements. 

A. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

(a) Purpose 

The purpose of the Proposed Rule 

Change is to revise LCH SA’s rules, 

procedures and supplement to (1) 

permit the clearing of Markit iTraxx®

Australia indices and the associated 

single name constituents and (2) 

provide the remediation to the WWR 

margin instability. 

(1) Proposed Amendments To Permit 

the Clearing of Markit iTraxx® Australia 

Indices 

(a) Amendments to the Clearing 

Supplement 

The Clearing Supplement has been 

amended in order to include the 

relevant provisions to allow the clearing 

of the new Markit iTraxx® Australia 

indices. 

In Part B of the Clearing Supplement, 

Section 1.2 (Terms defined in the CDS 

Clearing Supplement) has been 

amended to include a new subparagraph (a) to the definition of an 

‘‘Index Cleared Transaction 

Confirmation’’ in order to make a 

reference to the form of confirmation 

which incorporates the iTraxx® Asia/ 

Pacific Untranched Standard Terms 

Supplement. As a consequence, the subparagraphs (a), (b), (c), and (d) have 

been re-lettered as (b), (c), (d), (e), 

respectively. 

Section 2.2 (Index Cleared 

Transaction Confirmation) of Part B of 

the Clearing Supplement has been also 

amended to make appropriate references 


jspears on DSK121TN23PROD with NOTICES1