This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents.

Rules and Regulations Federal Register

50059 

Vol. 82, No. 208 

Monday, October 30, 2017 

1On October 1, 2008, NYSE Euronext acquired 

The Amex Membership Corporation (‘‘AMC’’) 

pursuant to an Agreement and Plan of Merger, 

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

with the Merger, NYSE Amex’s predecessor, Amex, 

a subsidiary of AMC, became a subsidiary of NYSE 

Euronext called NYSE Alternext US LLC (‘‘NYSE 

Alternext’’). See Securities Exchange Act Release 

No. 58673 (September 29, 2008), 73 FR 57707 

(October 3, 2008) (SR–NYSE–2008–60 and SR– 

Amex 2008–62) (approving the Merger). In 2009, 

NYSE Alternext changed its name to NYSE Amex 

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

Release No. 59575 (March 13, 2009), 74 FR 11803 

(March 19, 2009) (SR–NYSEALTR–2009–24) 

(approving the name change). In 2012, NYSE Amex 

changed its name from NYSE Amex LLC to NYSE 

MKT LLC (‘‘NYSE MKT’’). See Securities Exchange 

Act Release No. 67037 (May 21, 2012), 77 FR 31415 

(May 25, 2012) (SR–NYSEAmex–2012–32) 

(publishing notice of the name change to NYSE 

MKT LLC). As of July 24, 2017, NYSE MKT 

changed its name from NYSE MKT LLC to NYSE 

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

Exchange Act Release No. 80283 (March 21, 2017), 

82 FR 15244 (March 27, 2017) (SR–NYSEMKT– 

2017–14). 

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

of The NASDAQ Stock Market LLC is known as the 

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

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

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

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

3See National Securities Markets Improvement 

Act of 1996, Public Law 104–290, 110 Stat. 3416 

(October 11, 1996). 

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

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

securities of the same issuer that are equal in 

seniority or senior to a security listed on a Named 

Market or national securities exchange designated 

by the Commission as having substantially similar 

listing standards to a Named Market are Covered 

Securities for purposes of Section 18(b) of the 

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

6See Securities Exchange Act Release No. 39542 

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

(determining that the listing standards of the 

Chicago Board Options Exchange, Incorporated 

(‘‘CBOE’’), the Pacific Exchange, Inc. (now known 

as NYSE Arca, Inc.), and the Philadelphia Stock 

Exchange, Inc. (‘‘Phlx’’) (now known as NASDAQ 

PHLX LLC) were substantially similar to those of 

the Named Markets). The Commission notes that, 

on July 24, 2008, The NASDAQ OMX Group, Inc. 

acquired Phlx and renamed it ‘‘NASDAQ OMX 

PHLX LLC,’’ and NASDAQ OMX PHLX LLC 

subsequently changed its name to ‘‘NASDAQ PHLX 

LLC.’’ See Securities Exchange Act Release Nos. 

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

(SR–Phlx–2008–31); 58183 (July 17, 2008), 73 FR 

42850 (July 23, 2008) (SR–NASDAQ–2008–035); 

62783 (August 27, 2010), 75 FR 54204 (September 

3, 2010) (SR–Phlx–2010–104); and 76654 

(December 15, 2015), 80 FR 79396 (December 21, 

2015) (SR–Phlx–2015–105). In 2004, the 

Commission amended Rule 146(b) to designate 

options listed on the International Securities 

Exchange, Inc. (‘‘ISE’’) as Covered Securities for 

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

Securities Act Release No. 8442 (July 14, 2004), 69 

FR 43295 (July 20, 2004). The Commission notes 

that, in March 2017, ISE changed its name from 

International Securities Exchange, LLC to ‘‘Nasdaq 

ISE, LLC.’’ See Securities Exchange Act Release No. 

80325 (March 29, 2017), 82 FR 16445 (April 4, 

2017) (SR–ISE–2017–25) (publishing notice of the 

name change to Nasdaq ISE, LLC). In 2007, the 

Commission amended Rule 146(b) to designate 

securities listed on the Nasdaq Capital Market 

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

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

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

(April 24, 2007) (File No. S7–18–06). In 2012, the 

Commission amended Rule 146(b) to designate 

securities listed on Tiers I and II of BATS Exchange, 

Inc. (‘‘BATS’’) as Covered Securities for purposes of 

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

Act Release No. 9295 (January 20, 2012), 77 FR 

3590 (January 25, 2012). The Commission notes 

that, in March 2016, BATS changed its name from 

BATS Exchange, Inc. to ‘‘Bats BZX Exchange, Inc.’’ 

See Securities Exchange Act Release No. 77307 

(March 7, 2016), 81 FR 12996 (March 11, 2016) (SR– 

BATS–2016–25) (publishing notice of the name 

change to Bats BZX Exchange, Inc.). 

7 17 CFR 230.146(b). 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Part 230 

[Release No. 33–10428; File No. S7–06–17] 

RIN 3235–AM07 

Covered Securities Pursuant to 

Section 18 of the Securities Act of 1933 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Final rule. 

SUMMARY: The Securities and Exchange 

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

is adopting an amendment to Rule 146 

under Section 18 of the Securities Act 

of 1933, as amended (‘‘Securities Act’’), 

to designate certain securities listed, or 

authorized for listing, on Investors 

Exchange LLC (‘‘IEX’’ or ‘‘Exchange’’) as 

covered securities for purposes of 

Section 18(b) of the Securities Act. 

Covered securities under Section 18(b) 

of the Securities Act are exempt from 

state law registration requirements. The 

Commission also is amending Rule 146 

to reflect name changes of certain 

exchanges referenced in the Rule. 

DATES: Effective Date: November 29, 

2017. 

FOR FURTHER INFORMATION CONTACT: 

Richard Holley III, Assistant Director; 

Edward Cho, Special Counsel; or 

Michael Ogershok, Attorney-Adviser, 

Office of Market Supervision, at (202) 

551–5777, Division of Trading and 

Markets, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–7010. 

SUPPLEMENTARY INFORMATION: 

I. Introduction 

In 1996, Congress amended Section 

18 of the Securities Act to exempt from 

state registration requirements securities 

listed, or authorized for listing, on the 

New York Stock Exchange LLC 

(‘‘NYSE’’), the American Stock 

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

NYSE American LLC),1 or the National 

Market System of The NASDAQ Stock 

Market LLC (‘‘Nasdaq/NGM’’) 2

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

any national securities exchange 

designated by the Commission to have 

substantially similar listing standards to 

those of the Named Markets 

(‘‘Designated Markets’’).3 More 

specifically, Section 18(a) of the 

Securities Act provides that ‘‘no law, 

rule, regulation, or order, or other 

administrative action of any State . . . 

requiring, or with respect to, registration 

or qualification of securities . . . shall 

directly or indirectly apply to a security 

that—(A) is a covered security.’’ 4

Covered securities are defined in 

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

include those securities listed, or 

authorized for listing, on the Named 

Markets, or securities listed, or 

authorized for listing, on a national 

securities exchange (or tier or segment 

thereof) that has listing standards that 

the Commission determines by rule are 

‘‘substantially similar’’ to those of the 

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

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

Securities Act, the Commission adopted 

Rule 146.6 Rule 146(b) lists those 

national securities exchanges, or 

segments or tiers thereof, that the 

Commission has determined to have 

listing standards substantially similar to 

those of the Named Markets and thus 

securities listed on such exchanges are 

deemed Covered Securities.7 IEX has 

petitioned the Commission to amend 

Rule 146(b) to designate certain 

securities listed, or authorized for 

listing, on IEX as Covered Securities for 


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8See Letter from Sophia Lee, General Counsel, 

IEX, to Brent J. Fields, Secretary, Commission, 

dated September 22, 2016 (‘‘IEX Petition’’). 

9See Securities Act Release No. 10390 (July 14, 

2017), 82 FR 33839 (July 21, 2017) (‘‘Proposing 

Release’’). 

10See Letter from Karl T. Muth, Lecturer in 

Economics and Public Policy, Northwestern 

University, and Lecturer in Law, Pritzker School of 

Law, Northwestern University, to Commission, 

dated July 21, 2017 (‘‘Muth Letter’’). 

11 15 U.S.C. 77r(b)(1). 

12 15 U.S.C. 77r(a). 

13 15 U.S.C. 77r(b)(1)(B). 

14See infra note 20. 

15This approach is consistent with the approach 

that the Commission has previously taken. See, e.g., 

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

63 FR 3032 (January 21, 1998) (File No. S7–17–97). 

16See id. 

17See Securities Act Release No. 8791, supra note 

6. 

18See id. 

19See Proposing Release, supra note 9, at 33841– 

42. See also id. at 33842 (discussing various other 

types of securities and exchange-traded derivative 

securities products). 

20See infra notes 21–29 and accompanying text 

(discussing the quantitative and qualitative listing 

standards); and infra notes 30–31 and 

accompanying text (discussing various other types 

of securities and exchange-traded derivative 

securities products). See also generally IEX Rules 

Chapters 14 (IEX Listing Rules) and 16 (Other 

Securities). See also Securities Exchange Act 

Release No. 75925 (September 15, 2015), 80 FR 

57261 (September 22, 2015) (File No. 10–222) 

(Notice of Filing of Application of IEX). In making 

its determination of substantial similarity, as 

discussed below, the Commission compared IEX’s 

quantitative listing standards with Nasdaq/NGM’s 

quantitative listing standards; IEX’s qualitative 

listing standards with Nasdaq/NGM’s qualitative 

listing standards and, with respect to the rules 

relating to the listing application process and 

internal audit function, with NYSE’s and NYSE 

American’s applicable qualitative listing standards; 

and IEX’s listing standards for other securities, 

including portfolio depository receipts, index fund 

shares, and managed fund shares, with Nasdaq/ 

NGM’s corresponding listing standards. 

21See Proposing Release, supra note 9, at 33841. 

Quantitative listing standards relate to, among other 

things, the requirements for bid price, number of 

publicly held shares, number of shareholders, 

market value of publicly held shares, and market 

capitalization. 

22Compare IEX Rules 14.300 series with Nasdaq/ 

NGM Rule 5300 and 5400 series (providing for 

identical rules concerning initial listing and 

maintenance standards for units, primary equity 

securities, preferred stock and secondary classes of 

common stock, rights, warrants, and convertible 

debt on IEX and Nasdaq/NGM). 

23Qualitative listing standards relate to, among 

other things, the number of independent directors 

required, conflicts of interest, composition of the 

audit committee, executive compensation, 

shareholder meeting requirements, voting rights, 

quorum, code of conduct, proxies, shareholder 

approval of certain corporate actions, and the 

annual and interim reports requirements. 

24See Proposing Release, supra note 9, at 33841– 

42. 

25Compare IEX Rules 14.200 and 14.400 series 

with Nasdaq/NGM Rules 5200 and 5600 series 

(providing for virtually identical rules concerning 

procedures and prerequisites for initial and 

continued listing, obligations of security issuers, the 

application and qualification process, and corporate 

governance standards on IEX and Nasdaq/NGM). 

purposes of Section 18(b) of the 

Securities Act.8

In July 2017, the Commission 

proposed to amend Rule 146(b) to 

designate certain securities listed, or 

authorized for listing, on IEX as Covered 

Securities for purposes of Section 18(b) 

of the Securities Act.9 The Commission 

also proposed to amend Rule 146 to 

reflect name changes of certain 

exchanges referenced in the Rule. The 

Commission received one comment 

letter,10 which supported amending 

Rule 146(b) to designate certain 

securities listed, or authorized for 

listing, on IEX as Covered Securities. 

The Commission has determined that 

IEX’s listing standards are substantially 

similar to the listing standards of the 

Named Markets. Accordingly, the 

Commission today is amending Rule 

146(b) to designate securities listed, or 

authorized for listing, on IEX as Covered 

Securities under Section 18(b)(1) of the 

Securities Act.11 Amending Rule 146(b) 

to include these securities as Covered 

Securities will exempt those securities 

from state registration requirements as 

set forth under Section 18(a) of the 

Securities Act.12 The Commission also 

is adopting, as proposed, updated 

references in the Rule. 

II. Amendment to Rule 146(b) To 

Include IEX Securities 

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

Securities Act,13 the Commission has 

the authority to determine that the 

listing standards of an exchange, or tier 

or segment thereof, are substantially 

similar with those of the NYSE, NYSE 

American, or Nasdaq/NGM. The 

Commission initially compared IEX’s 

listing standards with those of Nasdaq/ 

NGM.14 Where the listing standards in 

a particular category were not 

substantially similar to the standards of 

Nasdaq/NGM, the Commission 

compared IEX’s standards to NYSE and 

NYSE American.15 In addition, as it has 

done previously, the Commission 

interpreted the ‘‘substantially similar’’ 

standard to require listing standards at 

least as comprehensive as those of the 

Named Markets.16 If IEX’s listing 

standards were higher than those of the 

Named Markets, then the Commission 

would still determine that IEX’s listing 

standards are substantially similar to 

those of the Named Markets.17 Finally, 

the Commission notes that differences 

in language or approach would not 

necessarily lead to a determination that 

IEX’s listing standards are not 

substantially similar to those of any 

Named Market.18

The Commission included in the 

Proposing Release its preliminary view 

that IEX’s quantitative and qualitative 

listing standards were substantially 

similar to the listing standards for a 

Named Market. The Commission 

received no comments on its views.19

The Commission has reviewed IEX’s 

listing standards for securities to be 

listed and traded on IEX and, for the 

reasons discussed below, has 

determined that IEX’s listing standards 

are substantially similar to those of a 

Named Market as required by Section 

18(b)(1)(B).20 Accordingly, the 

Commission is amending Rule 146(b) to 

include securities listed, or authorized 

for listing, on IEX. 

A. IEX Quantitative Listing Standards 

The Commission continues to believe 

that IEX’s initial and continued 

quantitative listing standards for its 

securities are substantively identical to, 

and thus substantially similar to, the 

initial and continued quantitative listing 

standards for securities listed on 

Nasdaq/NGM.21 Accordingly, because 

IEX’s initial and continued quantitative 

listing standards are substantively 

identical to those of Nasdaq/NGM, the 

Commission has determined that IEX’s 

initial and continued quantitative listing 

standards are substantially similar to 

those of a Named Market.22

B. IEX Qualitative Listing Standards 

The Commission continues to believe 

that IEX’s initial and continued 

qualitative listing standards for its 

securities are substantively identical to, 

and thus substantially similar to, the 

qualitative listing standards for 

securities listed on Nasdaq/NGM,23

with the exception of IEX Rule 14.201 

(Confidential Pre-Application Review of 

Eligibility) (which the Commission 

preliminarily believed was substantially 

similar to rules of NYSE and NYSE 

American) and IEX Rule 14.414 

(Internal Audit Function) (which the 

Commission preliminarily believed was 

substantially similar to a rule of 

NYSE).24

Accordingly, because IEX’s initial and 

continued qualitative listing standards 

are substantively identical to those of 

Nasdaq/NGM, the Commission has 

determined that IEX’s initial and 

continued qualitative listing standards 

are substantially similar to the 

qualitative listing standards for 

securities listed on Nasdaq/NGM, which 

is a Named Market,25 with the exception 

of (a) IEX Rule 14.201 (Confidential PreApplication Review of Eligibility), 

discussed below, which is substantially 

similar to rules of other Named Markets, 

namely NYSE and NYSE American, and 

(b) IEX Rule 14.414 (Internal Audit 


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26Compare IEX Rule 14.200 series with Nasdaq/ 

NGM Rule 5200 series (providing for virtually 

identical rules concerning procedures and 

prerequisites for initial and continued listing, 

obligations of security issuers, and the application 

and qualification process). 

27See IEX Rule 14.201; NYSE Listed Company 

Manual Sections 101 and 104; and NYSE American 

Company Guide Section 201. IEX Rule 14.201 

requires a company seeking the initial listing of one 

or more classes of securities to participate in a free, 

confidential pre-application eligibility review to 

determine whether the company meets the 

applicable listing criteria and, if, upon completion 

of this review, IEX determines that a company is 

eligible for listing, IEX will notify that company in 

writing that it has been cleared to submit an 

original listing application. The Commission notes 

that, while IEX Rule 14.201 is substantially similar 

to the equivalent NYSE and NYSE American rules 

(all of which relate to the confidential preapplication review for eligibility for companies 

seeking to list on the Exchange), IEX’s rule contains 

an additional, heightened provision stating that a 

company deemed eligible for listing will be 

provided with written notification valid for nine 

months that it has been cleared to submit an 

original listing application. See IEX Rule 14.201. 

See also NYSE Listed Company Manual Sections 

101 and 104; NYSE American Company Guide 

Section 201. IEX represents that an issuer that does 

not clear the pre-application eligibility review 

process or receive a timely response as part of that 

process on IEX after the confidential preapplication eligibility review would be permitted to 

appeal such determination under the procedures set 

forth in IEX Rule series 9.500. See IEX Petition, 

supra note 8, at 5. 

28Compare IEX Rule 14.400 series (Corporate 

Governance Requirements) with Nasdaq/NGM Rule 

5600 series (Corporate Governance Requirements). 

29Compare NYSE Listed Company Manual 

Section 303A.07(c) (requiring listed companies to 

maintain an internal audit function to provide 

management and the audit committee with ongoing 

assessments of the listed company’s risk 

management processes and system of internal 

control) with IEX Rule 14.414. 

30Compare IEX Rules Chapter 16 (Other 

Securities) with Nasdaq/NGM Rule 5700 series 

(Other Securities). See also IEX Rule 16.105(a) 

(Portfolio Depository Receipts); Rule 16.105(b) 

(Index Fund Shares); Rule 16.110 (Securities Linked 

to the Performance of Indexes and Commodities 

(Including Currencies)); Rule 16.111(a) (IndexLinked Exchangeable Notes); Rule 16.111(b) (Equity 

Gold Shares); Rule 16.111(c) (Trust Certificates); 

Rule 16.111(d) (Commodity-Based Trust Shares); 

Rule 16.111(e) (Currency Trust Shares); Rule 

16.111(f) (Commodity Index Trust Shares); Rule 

16.111(g) (Commodity Futures Trust Shares); Rule 

16.111(h) (Partnership Units); Rule 16.111(i) (Trust 

Units); Rule 16.111(j) (Managed Trust Securities); 

Rule 16.113 (Paired Class Shares); Rule 16.115 

(Selected Equity-linked Debt Securities (‘‘SEEDS’’)); 

Rule 16.120 (Trust Issued Receipts); Rule 16.125 

(Index Warrants); Rule 16.130 (Listing 

Requirements for Securities Not Otherwise 

Specified (Other Securities)); and Rule 16.135 

(Managed Funds Shares). 

31See Proposing Release, supra note 9, at 33842. 

32See supra note 1. 

33See supra note 6. 

34See id. 

35See id. 

Function), also discussed below, which 

is substantially similar to a rule of 

NYSE. 

With respect to the standards relating 

to the listing and delisting of 

companies, including prerequisites for 

initial and continued listing on IEX, 

obligations of security issuers listed on 

IEX, as well as rules describing the 

application and qualification process, 

IEX’s listing rules for securities are 

virtually identical to, and thus 

substantially similar to, those of 

Nasdaq/NGM.26 IEX Rule 14.201, which 

specifically relates to confidential preapplication review for listing eligibility, 

is substantially similar to the 

corresponding rules of NYSE and NYSE 

American.27

The Commission also notes that IEX’s 

corporate governance standards in 

connection with securities to be listed 

and traded on IEX are virtually identical 

to, and thus substantially similar to, the 

current rules of Nasdaq/NGM and 

NYSE.28 IEX Rule 14.414, specifically 

concerning the internal audit function 

for a listed issuer, is substantially 

similar to the corresponding rule of 

NYSE.29 Therefore, the Commission has 

determined that IEX’s qualitative listing 

standards are substantially similar to 

those of a Named Market. 

C. Other Securities, Including Securities 

of Exchange-Traded Funds and Other 

Exchange-Traded Derivative Securities 

Products 

The Commission compared IEX’s 

listing standards for other types of 

securities, including, for example, 

portfolio depository receipts; index fund 

shares; securities linked to the 

performance of indexes, commodities, 

and currencies; index-linked 

exchangeable notes; partnership units; 

trust units; and managed fund shares,30

to Nasdaq/NGM’s standards. The 

Commission continues to believe that 

IEX’s standards for these other types of 

securities are virtually identical to the 

corresponding Nasdaq/NGM 

standards.31 Accordingly, because IEX’s 

initial and continued listing standards 

for these other securities are 

substantively identical to those of 

Nasdaq/NGM, the Commission has 

determined that IEX’s standards for 

these other securities are substantially 

similar to those of a Named Market. 

D. Other Amendments 

Finally, the Commission is amending 

Rule 146(b) as proposed to reflect the 

following name changes, on which the 

Commission did not receive any 

comments: 

• Paragraphs (b)(1) and (b)(2) of Rule 

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

to the national securities exchange 

formerly known as the American Stock 

Exchange LLC. As noted above, in 2012, 

NYSE Amex changed its name from 

NYSE Amex LLC to NYSE MKT LLC, 

and, in July 2017, NYSE MKT LLC 

changed its name to NYSE American 

LLC.32 Accordingly, the Commission is 

making a conforming change to Rule 

146(b). 

• Paragraph (b)(1) of Rule 146 refers 

to ‘‘Tier I of the NASDAQ OMX PHLX 

LLC.’’ As noted above, in December 

2015, NASDAQ OMX PHLX LLC 

changed its name to NASDAQ PHLX 

LLC.33 Accordingly, the Commission is 

making a conforming change to Rule 

146(b). 

• Paragraph (b)(1) of Rule 146 refers 

to ‘‘Tier I and Tier II of BATS Exchange, 

Inc.’’ As noted above, in March 2016, 

BATS Exchange, Inc. changed its name 

to Bats BZX Exchange, Inc.34

Accordingly, the Commission is making 

a conforming change to Rule 146(b). 

• Paragraph (b)(1) of Rule 146 refers 

to ‘‘Options listed on the International 

Securities Exchange, LLC.’’ As noted 

above, in March 2017, the International 

Securities Exchange, LLC changed its 

name to Nasdaq ISE, LLC.35

Accordingly, the Commission is making 

a conforming change to Rule 146(b). 

III. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

does not apply because the amendment 

to Rule 146(b) does not impose 

recordkeeping or information collection 

requirements or other collection of 

information, which require the approval 

of the Office of Management and Budget 

under 44 U.S.C. 3501 et seq. 

IV. Economic Analysis 

The Commission is sensitive to the 

economic consequences of its rules, 

including the benefits, costs, and effects 

on efficiency, competition, and capital 

formation. As noted above, the 

Commission has determined that the 

overall listing standards for securities to 

be listed and traded on IEX are 

substantially similar to those of a 

Named Market. As such, the 

Commission is adopting amendments to 

Rule 146 under Section 18 of the 

Securities Act, to designate securities 

listed, or authorized for listing, on IEX 

as Covered Securities. The following 

analysis considers the economic effects 

that may result from the amendment. 

Where possible, the Commission has 

quantified the economic effects of the 

amendment; however, as explained 

further below, the Commission is unable 

to quantify all of the economic effects 

because it lacks the information 

necessary to provide reasonable 

estimates. In some cases, quantification 

depends heavily on factors outside of 

the control of the Commission, 

particularly due to the flexibility that an 


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36See Muth Letter, supra note 10 (‘‘The removal 

of state-by-state heterogeneity, including through 

18(b) inclusion, is one way to decrease friction both 

at the offering stage and on the secondary market. 

That IEX securities would enjoy this freedom from 

the encumbrances of state-level registration 

requirements is unobjectionable in the short-term 

and likely beneficial to both securities issuers and 

consumers in the long-term (and, indirectly, 

beneficial to brokers in securities of this kind).’’). 

37See supra note 8 and accompanying text. 

38See 15 U.S.C. 781(f) and Rule 12f–2. 

39See Office of Investor Education and Advocacy, 

‘‘Blue Sky Laws’’ (2014), available at https://

www.sec.gov/fast-answers/answersblueskyhtm.html. 

40See, e.g., Stuart R. Cohn, Securities Counseling 

for Small and Emerging Companies § 12:8 (2016) 

(describing merit review as ‘‘the authority of state 

administrators to deny, suspend or revoke an 

offering because the administrator believes that the 

offering has substantive weaknesses in structure, 

financial strength or fairness to investors’’). Typical 

elements of merit review include: Offering 

expenses, including underwriter’s compensation, 

issuer capitalization requirements, dilution, 

financial condition of the issuer, cheap stock held 

by insiders, types of offering (e.g., blind pool 

offerings), the quantity of securities subject to 

options and warrants, loans to insiders, and the 

price at which the securities will be offered. See id. 

The North American Securities Administrators 

Association (NASAA), an association of state and 

provincial securities regulators composed of the 

securities administrators from each state, Mexico, 

and 13 Canadian provinces, has issued guidelines 

intended to provide uniformity among state merit 

review standards. See NASAA Statements of Policy, 

available at http://www.nasaa.org/regulatoryactivity/statements-of-policy/. Some exchange 

listing standards impose merit regulation on 

issuers. 

41See CA Corp Code § 25608(e) for California 

filing fees; http://www.leg.state.fl.us/Statutes/ 

index.cfm?App_mode=Display_Statute&Search_

String=&URL=0500-0599/0517/Sections/ 

0517.081.html for Florida filing fees; http://

www.cyberdriveillinois.com/departments/ 

issuer has when choosing if and where 

to list its securities and the flexibility of 

a registered national securities exchange 

to tailor its policies and rules to the 

nature of its business and technology. 

These factors make it difficult to 

quantify the changes in market share of 

Named and Designated Markets that 

may result from the amendment. In 

addition, the incumbent Named and 

Designated Markets and IEX each may 

react to the amendments with respect to 

listing fees and services. These reactions 

are also difficult to quantify or predict, 

which further complicates 

quantification of changes to market 

share, and also makes quantification of 

the economic effects of the amendment 

difficult. Therefore, some of the 

discussions below are qualitative in 

nature. In the Proposing Release the 

Commission solicited comment on its 

economic analysis, including costs and 

benefits and potential impacts on 

efficiency, competition, and capital 

formation, and encouraged commenters 

to provide specific estimates or data. 

The Commission did not receive any 

comment on, or data regarding, its 

estimates. The Commission received 

one comment letter that was generally 

supportive of the proposed rule 

amendment.36

A. Baseline 

The Commission compared the 

economic effects of the amendment, 

including benefits, costs, and effects on 

efficiency, competition, and capital 

formation, to a baseline that consists of 

the existing regulatory framework and 

market structure. 

1. Regulatory Framework and Affected 

Parties 

The listing standards of Named and 

Designated Markets are quantitative and 

qualitative requirements that issuers 

must satisfy before they may list on 

these markets. Securities listed on a 

Named or Designated Market are 

Covered Securities, which are exempt 

from complying with state securities 

law registration and qualification 

requirements. As mentioned above,37

subsequent to its exchange registration, 

IEX petitioned the Commission to 

amend Rule 146(b) to provide that the 

listing standards for securities listed, or 

authorized for listing, on IEX are 

substantially similar to those of the 

Named Markets. 

Pursuant to unlisted trading 

privileges, a national securities 

exchange such as IEX currently can 

trade securities that are listed on other 

exchanges.38 While IEX may offer to list 

securities for trading, currently, those 

securities would not be Covered 

Securities if they chose to list on IEX in 

the absence of this amendment to Rule 

146. Issuers of securities that are not 

Covered Securities must comply with 

state securities law registration and 

qualification requirements, which 

generally require the issuer to register 

such securities in each state or 

jurisdiction in which the issuer will 

offer or sell its securities. State 

registration and qualification 

requirements generally vary across the 

54 U.S. jurisdictions, comprising the 50 

states, the District of Columbia, and the 

three U.S. territories of Puerto Rico, the 

Virgin Islands, and Guam.39 These 

requirements typically include: (i) 

Filing state administrative forms and 

other paperwork necessary for 

compliance with state registration 

requirements; (ii) adherence to 

disclosure standards; and (iii) in some 

states, requirements based upon the 

merits of the offering or issuer.40

The Commission lacks 

comprehensive, independent data to 

precisely estimate the total time, 

registration, and compliance costs 

associated with state registration and 

qualification. Moreover, those total costs 

may vary widely for issuers depending 

upon the number of states in which an 

issuer elects to register. To provide 

some information about potential costs 

for state registration, Table 1 below lists 

examples of Blue Sky registration filing 

fees for several states. 

TABLE 1—EXAMPLES OF BLUE SKY REGISTRATION FILING FEES 41

State Filing fee 

California ............................................................. $200 plus 1⁄5 of 1 percent of the aggregate value of the securities proposed to be sold, with a 

maximum fee of $2,500. 

Florida ................................................................. $1,000. 

Illinois .................................................................. 1⁄20 of 1 percent of the aggregate offering in Illinois, with a minimum fee of $500 and a maximum fee of $2,500. 

New York ............................................................ Based on total offerings: 

$500,000 or less: $300. 

More than $500,000: $1,200. 

Texas .................................................................. $100 filing fee, plus examination fee of 1⁄10 of 1 percent of the aggregate amount of securities 

sold in Texas. 

The issuer of a non-Covered Security 

in multiple jurisdictions would have 


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Federal Register / Vol. 82, No. 208 / Monday, October 30, 2017 / Rules and Regulations 50063 

securities/sellingsec.html for Illinois filing fees; 

https://ag.ny.gov/investor-protection/broker-dealerand-securities-registration-information-sheet for 

New York filing fees; and https://

www.ssb.texas.gov/texas-securities-act-board-rules/ 

fee-schedule#one for Texas filing fees. 

42See Proposing Release, supra note 9, at 33843 

(citing Securities Act Release No. 9741 (March 25, 

2015), 80 FR 21806 (April 20, 2015) (Amendments 

for Small and Additional Issues Exemptions under 

the Securities Act (Regulation A)), at Section II.H.3 

(‘‘Regulation A Release’’)). 

43See id. 

44See id. at 33843 & n.43 (citing Regulation A 

Release, supra note 42; Letter from Michael L. 

Zuppone, Paul Hastings LLP, to Commission, dated 

November 26, 2013, at 2 (further noting the 

‘‘significant costs and uncertainties associated with 

‘Blue Sky’ law compliance’’); and Regulation A 

Release, supra note 42, at n.1024 and accompanying 

text). As noted in the Proposing Release, the 

commenter did not address whether these estimated 

costs vary by the size of the offering. Also, the 

Commission notes that the estimate concerns the 

initial costs associated with registration. The 

Commission believes that the ongoing costs of 

compliance that the issuer bears will be lower than 

these initial costs. See id. 

45See id. at 33844 & n.45 (citing Letter from 

Daniel Zinn, General Counsel, OTC Markets Group 

Inc., to Elizabeth M. Murphy, Secretary, 

Commission, dated March 24, 2014, at 4 (describing 

the commenter’s views of the impact of Blue Sky 

laws on broker-dealers)). 

46As noted in the Proposing Release, a 

commenter also stated that broker-dealers may have 

increased ‘‘rescission risk’’ for failing to comply 

with each jurisdiction’s Blue Sky requirements, 

which OTC Markets argues ‘‘may chill some brokerdealers’ willingness to allow their customers to 

transact in those securities at all, including 

securities of SEC reporting companies.’’ See id. at 

33844 & n.46. 

47The Commission believes that the amendment 

also may indirectly impact exchanges that are not 

Named or Designated Markets as well as other 

trading venues for both covered and non-covered 

securities as explained below. 

48Listing fees for equity securities can range from 

$55,000 (NYSE American) to $295,000 (NYSE). See 

NYSE MKT Company Guide at Sec. 140, available 

at http://wallstreet.cch.com/MKTtools/Platform

Viewer.asp?SelectedNode=chp_1_1_1&manual=/ 

MKT/CompanyGuide/mkt-company-guide/; and 

NYSE Listed Company Manual at 902.02, available 

at http://nysemanual.nyse.com/LCMTools/ 

bookmark.asp?id=sx-ruling-nyse-policymanual_

902.02&manual=/lcm/sections/lcm-sections/. See 

Continued 

more compliance obligations than the 

issuer of a Covered Security, including 

the potential for considerable additional 

costs and legal fees associated with 

reviews of offering-related materials at 

the state level.42 Additionally, as 

discussed above, many state securities 

regulators also review securities 

offerings based upon the merits of the 

offering and/or the issuer of the 

securities, which can further increase an 

issuer’s compliance obligations and 

associated costs.43 In addition, the 

Commission notes that on a separate 

matter, the Commission received an 

estimate that an issuer seeking state 

registration in 50 states would incur 

$50,000 to $70,000 in filing fees and 

$80,000 to $100,000 in legal fees.44

In addition, the Commission believes 

that the state registration and 

qualification requirements applicable to 

non-Covered Securities also impose 

costs on broker-dealers. Specifically, 

broker-dealers may incur costs to ensure 

that they are complying with applicable 

state laws governing non-Covered 

Securities in each state in which they 

are transacting in those securities on 

behalf of their customers or providing 

advice or other information to 

customers related to those securities. 

For example, broker-dealers can incur 

costs associated with maintaining a 

compliance program to verify an issuer’s 

state registration status and comply with 

any state requirements applicable to 

broker-dealers that transact in nonCovered Securities, which could vary 

depending on where the customer 

resides and where the transaction 

occurs. In addition, the types and 

content of communications brokerdealers may have with their customers 

regarding non-Covered securities may 

be subject to regulation under Blue Sky 

laws, thus broker-dealers may incur 

costs to ensure they are compliant with 

such requirements in each state in 

which they advise customers.45 While 

some portion of these costs may be 

passed on to a broker-dealer’s 

customers—i.e., the investors that 

transact through the broker-dealer in 

non-Covered Securities—through 

commissions or transaction fees, the 

Commission believes that the 

compliance costs associated with Blue 

Sky requirements may lead some 

broker-dealers to only offer their 

services for Covered Securities.46

However, the Commission lacks the data 

necessary to quantify the costs that 

broker-dealers and their customers face. 

The amendment to Rule 146 that the 

Commission is adopting to make IEX a 

Designated Market will impact several 

parties, including (i) issuers that 

currently list their securities on a 

Named or Designated Market; (ii) issuers 

with securities not currently listed on 

any incumbent Named or Designated 

Market but who might list on IEX, or on 

an incumbent Named or Designated 

Market, as a result of the competition 

from IEX if IEX enters the listing market; 

and (iii) issuers with securities not 

currently listed on any incumbent 

Named or Designated Market and that 

would eventually list on a Named or 

Designated Market, regardless of IEX’s 

entry into the market. Given that issuers 

that meet the listing standards of IEX are 

likely to meet the listing standards of 

other Named or Designated Markets, the 

number of issuers that will list on a 

Named or Designated Market solely as a 

result of the amendment (i.e., those in 

category (ii) above) may be small. In 

addition, the amendment will affect 

IEX, as it will now be able to list 

Covered Securities, as can the Named 

and Designated Markets with which IEX 

now will be able to compete for 

listings.47 The impacts on each of these 

affected parties are discussed in more 

detail below. 

2. Current Practices in the Market for 

Listings 

Issuers of public securities make 

several considerations when deciding 

on which exchange to list their 

securities. These considerations 

include, among other things, the 

visibility and publicity provided by the 

exchange, the exchange’s listing services 

and fees, and the exchange’s listing 

standards. The Named and Designated 

Markets may provide issuers of Covered 

Securities with additional visibility over 

that of securities traded over the 

counter, which may, in turn, increase 

the pool of potential investors for an 

issuer and thereby improve an issuer’s 

access to capital. In addition, the Named 

and Designated Markets provide listing 

services for their listed issuers, which 

can include monitoring, 

communication, and regulatory 

compliance services. These services 

may help issuers by reducing the cost of 

raising capital and the costs associated 

with going or remaining public. 

However, many issuers that list for the 

first time do so as part of an initial 

public offering, which can include 

considerations not related to listing on 

an exchange, such as SEC reporting 

obligations, as well as legal, accounting, 

and other expenses (both for the initial 

offering and the ongoing requirements 

of remaining public). In addition, 

issuers also consider the benefits of 

going public, such as increased access to 

capital and providing investors with a 

signal of an issuer’s ability to meet 

obligations that apply to public 

companies (e.g., reporting 

requirements). Commonly, the decision 

of which exchange to list on is made 

concurrently with the decision about 

whether or not to go public. 

Issuers must pay listing fees and meet 

listing standards to list on a Named or 

Designated Market. Listing fees may 

include an initial application fee, as 

well as an ongoing annual fee, and may 

vary by the number of shares in the 

initial offering or be fixed. However, 

listing fees typically represent a small 

portion of the overall cost of an initial 

public offering or the ongoing costs of 

remaining public,48 and thus may not be 


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50064 Federal Register / Vol. 82, No. 208 / Monday, October 30, 2017 / Rules and Regulations 

also supra notes 41–46 and accompanying text 

(discussing the overall costs of state securities 

registration). See also Proskauer Rose LLP, 2016 IPO 

Study, at 52, available at http://www.proskauer.

com/files/uploads/Proskauer-2016-IPO-Study.pdf 

(examining 258 IPOs from 2013 to 2015 and finding 

that the average total IPO expense, excluding 

underwriting fees, was $4.15 million). 

49The Commission views the term ‘‘listing 

exchange’’ as equivalent to the term ‘‘Named or 

Designated Market’’ for purposes of this release. 

50See infra Section IV.A.3, for further discussion 

of listing standards and signaling to investors. 

51See, e.g., Thomas J. Chemmanur & Paolo 

Fulghieri, Competition and Cooperation Among 

Exchanges: A Theory of Cross-listing and 

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

89 (2006), available at http://www.sciencedirect.

com/science/article/pii/S0304405X06001139. 

52These figures of listed equities include equity 

securities reported to a securities information 

processor. The estimates also include multiple 

securities from the same issuer, which means the 

total number of securities may differ from the total 

number of issuers potentially affected by this 

rulemaking. Listing information is from the master 

files of the daily trade and quotation data (‘‘TAQ 

Data’’). 

53The listings data for NYSE, Nasdaq, NYSE 

American, and NYSE Arca were taken from 

Compustat Merged © 2016 Center for Research in 

Securities Prices (‘‘CRSP’’), The University of 

Chicago Booth School of Business. As CRSP does 

not have BATS listings data, BATS listings are from 

TAQ Data. See supra note 52. 

54The Herfindahl-Hirschman Index (HHI) 

measure for listing exchanges is 0.321, calculated as 

the sum of squared market shares, or (2,552/ 

7,217)∧2 + (2,863/7,217)∧2 + (1,377/7,217)∧2 + (339/ 

7,217)∧2 + (86/7,217)∧2 = 0.321. See Campbell 

McConnell, Stanley Brue & Sean Flynn, 

Microeconomics: Principles, Problems, & Policies 

218, 219, 225, 226 (2014). An HHI close to 0 

indicates low concentration while an HHI of 1 

indicates total concentration or monopoly. 

55See infra Section IV.B.2, for further discussion 

about how this may affect currently unlisted 

issuers. 

a significant factor that issuers consider 

when deciding (i) whether to list on a 

Named or Designated Market, and (ii) if 

so, on which Named or Designated 

market to list. Listing exchanges also 

impose listing standards on issuers, 

which can include corporate governance 

standards as well as quantitative 

requirements, such as minimum 

income, market capitalization, and 

operating history requirements.49 While 

an exchange’s listing standards may 

prevent potential issuers who do not 

meet those standards from listing on the 

exchange, the stringency of an 

exchange’s listing standards may 

provide a valuable signal to investors 

about the quality of issuers that are able 

to list, which may improve the issuers’ 

access to capital.50

3. Competitive Landscape 

The amendment to Rule 146 will 

affect the market for listing services, in 

which the Named and Designated 

Markets compete to provide listing 

services to issuers, or potential issuers, 

of Covered Securities because, as 

explained in detail below, the 

amendment will permit IEX to compete 

in this market. In addition, the 

Commission believes that the 

amendment can also affect the market 

for trading services because the listing 

status and listing designation of 

securities (i.e., whether a security is a 

Covered Security and where it is listed) 

are related to where and how the 

securities trade. In this section, the 

Commission discusses competition 

among Named and Designated Markets 

for listings, as well as competition 

among the various trading platforms 

(including Named and Designated 

Markets) for trading services. 

(a) Competition for Listings 

Listing exchanges compete with each 

other for listings in many ways, 

including, but not limited to, listing 

fees, listing standards, and listing 

services. When issuers select a listing 

exchange, they consider the listing fees 

and the costs of compliance with listing 

standards on any given exchange, as 

well as the quality of listing services 

and any relevant reputational benefits, 

among other things, each exchange may 

offer. Although issuers may incur costs 

to meet an exchange’s listing standards, 

high listing standards may also yield 

benefits as they may serve as a positive 

signal to investors of an issuer’s ability 

to satisfy high qualitative and 

quantitative listing requirements. 

Investors may interpret the reputation of 

a listing exchange and high listing 

standards as a credible signal of the 

quality of the listed securities on that 

exchange.51

Currently, there are three Named 

Markets under Section 18(b)(1)(A) of the 

Securities Act: NYSE, NYSE American, 

and Nasdaq/NGM. In addition, there are 

currently six Designated Markets: (i) 

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

I of the NASDAQ OMX PHLX LLC; (iii) 

CBOE; (iv) options listed on ISE; (v) The 

Nasdaq Capital Market; and (vi) Tier I 

and Tier II of BATS. As of June 2, 2017, 

the Commission estimates that NYSE 

listed 3,172 equity securities, Nasdaq 

listed 3,183 equity securities, NYSE 

Arca listed 1,529 equity securities, 

NYSE American listed 359 equity 

securities, and BATS listed 176 equity 

securities.52

While the number of equities listed on 

each exchange relative to the total 

number of equities listed on all 

exchanges is informative about overall 

competition for listings among the 

exchanges, the market shares for recent 

equity issue listings may provide a 

better picture of the nature of 

competition between exchanges and the 

size of the new listings market. Table 2 

identifies the number of new equity 

issue listings from 2008 to 2016.53

TABLE 2—NEW EQUITY LISTINGS IN NAMED AND DESIGNATED MARKETS, 2008–2016 

NYSE Nasdaq NYSE 

American NYSE ARCA BATS 

2008 ..................................................................................... 68 142 53 68 0 

2009 ..................................................................................... 76 115 33 20 0 

2010 ..................................................................................... 141 156 31 12 0 

2011 ..................................................................................... 130 132 34 14 0 

2012 ..................................................................................... 148 135 19 9 17 

2013 ..................................................................................... 178 201 26 13 6 

2014 ..................................................................................... 178 278 23 12 5 

2015 ..................................................................................... 101 220 15 13 31 

2016 ..................................................................................... 81 163 5 12 85 

As shown in Table 2, two listing 

exchanges—NYSE and Nasdaq— 

captured 71% of all new equity listings 

on Named and Designated Markets in 

2016, which is evidence of a highly 

concentrated listing market.54 In 

addition, when BATS entered the 

market in 2012, it gained only 17 new 

listings, which was 5.2% of all new 

equity listings in 2012. This small 

number of new listings suggests that the 

number of currently unlisted issuers 

that would list with a new Designated 

Market is likely to be small.55


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56The listings data for NYSE, Nasdaq, NYSE 

American, and NYSE Arca were taken from CRSP. 

BATS listings are from TAQ Data. See supra note 

52. 

57For the exchanges in the CRSP data (NYSE, 

NYSE American, Nasdaq, and NYSE Arca), this 

category (Not Trading) includes listings that were 

halted, suspended, not trading, or whose listing 

status was not known in the following year. For the 

exchange from the TAQ data (BATS), this column 

includes listings that were not in the TAQ master 

file in the following year. 

58See, e.g., Ulff Bru ̈ ggemann, Aditya Kaul, 

Christian Leuz & Ingrid M. Werner, The Twilight 

Zone: OTC Regulatory Regimes and Market Quality, 

(Nat’l Bureau of Econ. Research, Working Paper No. 

19358, 2013), available at https://ideas.repec.org/p/ 

nbr/nberwo/19358.html. 

A highly concentrated market may be 

the result of barriers to entry, which 

limit competition, and can include 

economies of scale, reputation, legal 

barriers to entry, and network 

externalities. These barriers to entry 

may adversely affect a new listing 

exchange’s ability to compete with 

incumbent exchanges for listings. New 

listing exchanges do not enjoy the 

economies of scale of large listing 

exchanges. Listing exchanges may 

exhibit economies of scale because an 

exchange with a large number of listings 

can spread the fixed costs of listing 

equities over a greater number of 

issuers. The larger these fixed costs are, 

the greater will be the scale economies 

of larger listing exchanges. New listing 

exchanges face reputational barriers to 

entry because they may not be able to 

quickly establish a strong reputation for 

high quality listings. This lack of 

reputation may discourage issuers from 

listing on an entrant exchange, as well 

as discourage investors from investing 

in an issuer that lists on an entrant 

exchange, which may further reinforce 

the reputational barriers to entry. 

Legal barriers to entry also can apply 

because exchanges are self-regulatory 

organizations overseen by the 

Commission. The governing statute and 

regulations establish legal barriers to 

entry for an entity that seeks to register 

as an exchange, as well as additional 

legal barriers for an exchange to become 

a Designated Market. Specifically, the 

process by which the Commission 

designates an exchange as a Designated 

Market imposes a legal barrier to entry 

on the ability of an exchange to 

effectively compete for the listing 

business of Covered Securities. 

In addition, the market for listings 

exhibits positive network externalities: 

Issuers may prefer to be listed on 

exchanges where other similar issuers 

are listed because of increased visibility. 

This indicates that, all else being equal, 

issuers may tend to favor listing their 

securities on large exchanges (in terms 

of listings) over smaller ones. 

Issuers also may face costs associated 

with moving their listing from one 

exchange to another. These switching 

costs will not only include the fixed 

costs associated with listing on a new 

exchange (such as the exchange’s 

application fee, and the legal and 

accounting expenses associated with 

ensuring that the issuer satisfies the 

listing standards of the new exchange) 

but also will include the costs 

associated with communicating with 

investors about the move to the new 

exchange. Thus, an issuer that is 

considering moving from one exchange 

to another would compare the relatively 

lower annual listing fee of its current 

exchange with the relatively high costs 

of moving its listing to a new exchange, 

which places the new exchange at a 

disadvantage and creates a barrier to 

entry for a potential entrant. Even if an 

entrant exchange prices its listing fees 

and services for new issuers 

competitively compared to the 

incumbent exchanges, the costs for an 

issuer to switch its listing to a new 

exchange may dissuade an issuer from 

switching and thereby prevent the 

entrant from gaining market share. 

Table 3 shows estimates of the 

probability that an issuer would change 

its listing exchange in a given year, 

based on issuer switching behavior for 

equities over the period 2008 to 2016. 

As an example, if an equity security was 

listed on NYSE in a given year, there 

was a 99.33% chance that it would still 

be listed on NYSE the following year, 

but a 0.04% chance it would be listed 

on Amex the following year, a 0.34% 

chance it would be listed on Nasdaq the 

following year, and a 0.08% chance it 

would be listed on NYSE Arca the 

following year. More generally, equities 

listed on NYSE and Nasdaq in a given 

year had a greater than 99% chance of 

remaining listed on that exchange the 

following year. This result suggests that 

issuers are unlikely to switch their 

listings away from the two exchanges 

with the highest market shares. 

TABLE 3—CONDITIONAL PROBABILITY OF TRANSITION FOR LISTINGS, 2008–2016 56

Original exchange NYSE 

(%) 

NYSE 

American 

(%) 

Nasdaq 

(%) 

NYSE 

Arca 

(%) 

BATS 

(%) Not trading 57

Status in the Following Year 

NYSE ....................................................... 99.33 0.04 0.34 0.08 0.00 0.20 

NYSE Amer .............................................. 1.80 93.47 2.80 1.39 0.00 0.54 

Nasdaq ..................................................... 0.38 0.07 99.11 0.01 0.00 0.42 

NYSE Arca ............................................... 1.50 0.47 1.13 90.81 0.00 6.10 

BATS ........................................................ 0.00 0.00 0.00 0.00 94.40 5.60 

(b) Competition for Trading Services 

Trading in Covered Securities is 

segmented from trading in those 

securities that are not listed on a Named 

or Designated Market (i.e., non-Covered 

Securities). Non-Covered Securities 

trade only on over-the-counter (‘‘OTC’’) 

markets, which consist of alternative 

trading systems (‘‘ATSs’’) that trade 

unlisted securities and broker-dealers 

who internalize orders. Covered 

Securities, on the other hand, may trade 

on the registered national securities 

exchanges or off-exchange either on the 

35 ATSs or through broker-dealers that 

internalize orders. The market to trade 

Covered Securities on either the Named 

and Designated Markets or the other 

trading platforms is more liquid than 

the OTC trading of non-Covered 

Securities because, among other things, 

OTC markets have higher search costs 

associated with finding buyers and 

sellers.58 Further, because Covered 

Securities are exempt from state 

securities registration laws, the costs 

associated with complying with state 

securities registration laws are lower for 

broker-dealers that trade Covered 

Securities on behalf of their customers, 

as compared to trading non-covered 

securities. 

Exchanges, ATSs, and broker-dealers 

compete to attract order flow in Covered 

Securities by offering better trading 

services or innovative trading 


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50066 Federal Register / Vol. 82, No. 208 / Monday, October 30, 2017 / Rules and Regulations 

59For example, market data fees collected by the 

three industry networks are allocated 

proportionally among the exchanges based, in part, 

on each exchange’s share of the overall transaction 

volume. See Securities Exchange Act Release No. 

61358 (January 14, 2010), 75 FR 3594, 3600–01 

(January 21, 2010) (Concept Release on Equity 

Market Structure) (Commission concept release 

discussing the revenues and expenses from data 

fees at that point in time). 

60See James Angel, Lawrence Harris & Chester 

Spatt, Equity Trading in the 21st Century: An 

Update (2013), available at http://www.q-group.org/ 

wp-content/uploads/2014/01/Equity-Trading-inthe-21st-Century-An-Update-FINAL1.pdf. 

61 Data compiled from Forms ATS and Form 

ATS–R submitted to the Commission as of June 

2017 show that 35 ATSs have noted that they 

expect to trade NMS stocks. However, only 34 ATSs 

had observable transactions in NMS stocks since 

the third quarter of 2009. 

62See 17 CFR 242.600(b)(47) (definition of NMS 

Stock) (‘‘NMS stock means any NMS security other 

than an option.’’) and 17 CFR 242.600(46) 

(definition of NMS security) (‘‘NMS security means 

any security or class of securities for which 

transaction reports are collected, processed, and 

made available pursuant to an effective transaction 

reporting plan, or an effective national market 

system plan for reporting transactions in listed 

options.’’). The estimates of ATSs that trade NMS 

stocks and ATS trade volume share was developed 

using weekly summaries of trade volume collected 

from ATSs pursuant to FINRA Rule 4552. See also 

Securities Exchange Act Release No. 76474 

(November 18, 2015), 80 FR 80998, 81109 

(December 28, 2015) (Regulation of NMS Stock 

Alternative Trading Systems). The estimates in this 

release were developed in the same manner as in 

the cited release. See also OTC (ATS & Non-ATS) 

Transparency, FINRA, http://www.finra.org/

Industry/Compliance/MarketTransparency/ATS/. 

63See Angel, Harris & Spatt, supra note 60, at 20– 

21. 

64For the purposes of this rulemaking, staff 

examined TAQ Data for the time period of 

November through December 2014. Staff observed 

that exchanges tend to enjoy more than 15% higher 

market share in the securities they list compared to 

the securities they do not list, on average, and they 

tend to enjoy about 20% higher market share in the 

securities they list compared to the market share of 

others’ trading in those securities, on average. 

65See 15 U.S.C. 77b(b). 

66See 15 U.S.C. 78l(b). 

67See supra Section IV.A.3.a (for further 

discussion). 

68See supra Section IV.A.3.b. See also Darrell 

Duffie, Nicolae Garleanu & Lasse Heje Pedersen, 

Over-the-Counter Markets, 73 Econometrica 1815 

(2005). 

mechanisms. Attracting order flow can 

generate revenue in the form of 

transaction fees or data revenue.59

The ability of listing exchanges, 

however, to successfully use innovative 

trading services to attract listings has 

declined over the past decade.60 During 

this time, the number of competitors in 

the market for trading services has 

increased, resulting in fragmentation in 

the market and a decline in the market 

share of trading at listing exchanges. For 

example, since the third quarter of 2009, 

the number of ATSs that reported 

transactions in NMS stocks has 

increased from 32 to 34,61 while the 

share volume of Covered Securities 

executed on ATSs has increased from 

7.9% to 13.0%.62 In contrast, the two 

listing exchanges with the greatest 

number of issues listed, NYSE and 

Nasdaq, each experienced a sharp 

decline in the market share of trading 

volume in the securities they list. The 

market share of the NYSE in NYSElisted stocks fell from approximately 

80% in 2005 to 20% in 2013; Nasdaq’s 

market share of Nasdaq-listed stocks fell 

by approximately half, from 50% in 

2005 to 25% in 2013.63 Despite these 

changes, listing exchanges still currently 

enjoy a larger trading market share in 

their listed securities.64

B. Impact on Efficiency, Competition, 

and Capital Formation 

Securities Act Section 2(b) 65 requires 

the Commission, when engaging in 

rulemaking that requires it to consider 

or determine whether an action is 

necessary or appropriate in the public 

interest, to consider, in addition to the 

protection of investors, whether the 

action will promote efficiency, 

competition, and capital formation. 

1. Efficiency 

By listing on IEX, security issuers that 

otherwise would have not listed their 

securities on a Named or Designated 

Market will be able to avoid the 

duplicative costs of securities 

registration in multiple jurisdictions. In 

this way, the amendment will reduce 

the impediments to listing on 

exchanges, which in turn can improve 

market efficiency. To the extent that the 

amendment results in increased listing 

activity, then it may improve the 

allocative efficiency of securities 

markets by allowing investors to better 

diversify financial risks by investing in 

newly-listed securities. 

However, these two impacts may be 

mitigated by the extent to which issuers 

are unable to list on a Named or 

Designated Market because, for 

example, they do not satisfy listing 

standards or cannot afford the attendant 

costs of doing so. An issuer must be an 

SEC reporting company to list on a 

national securities exchange.66

Therefore, to the extent that an issuer is 

not already an SEC reporting company, 

it may face increased disclosure costs in 

order to be eligible to be listed on a 

national securities exchange. Moreover, 

issuers that are able to meet the listing 

standards of IEX are likely to be able to 

meet the listing standards of other 

Named or Designated Markets; 

accordingly, the entry of IEX will not 

necessarily increase the pool of 

securities eligible for listing. As a result, 

the Commission believes that the 

number of issuers that would not have 

listed at all in the absence of an 

amendment, but will now list on IEX, is 

likely to be small.67

2. Capital Formation 

Whether IEX entering the listing 

market promotes capital formation 

depends on the extent to which issuers 

previously unable or unwilling to list on 

a Named or Designated Market 

subsequently do so. Some issuers may, 

as a result of improved services and/or 

decreased fees stemming from the 

increased competition between listing 

exchanges, be induced to list on an 

exchange where, in the absence of the 

amendment, they would not have done 

so. If so, then the entrance of IEX can 

provide issuers with lower cost access 

to capital. 

As noted in Section IV.A, one reason 

issuers list on a Named or Designated 

Market is improved access to capital. 

Listing on a Named or Designated 

Market may improve access to capital in 

several ways, which can promote capital 

formation. First, listing on a Named or 

Designated Market may credibly signal 

to investors that a firm is of higher 

quality because firms that list on these 

exchanges must meet the exchange’s 

minimum standards for governance and 

disclosure. Like listed issuers on the 

Named and Designated Markets, IEX’s 

listed issuers might benefit from the 

signal of quality that comes from listing 

on a Named or Designated Market. The 

reputational benefits that come from 

listing on a Named or Designated 

Market may make investors more 

willing to invest in such issuers, which 

may improve the issuers’ access to 

capital, and promote capital formation. 

Second, an issuer listing on a Named 

or Designated Market may experience 

enhanced liquidity that facilitates 

capital formation. Investors may 

demand a liquidity premium (greater 

returns) when investing in illiquid 

securities to compensate for the risks 

associated with the lack of liquidity. 

Any liquidity risk premium raises the 

costs issuers incur when issuing new 

securities. Listing on a Named or 

Designated Market may result in more 

liquid trading relative to OTC trading 

because of potential frictions to 

liquidity imposed by OTC search 

costs.68 Therefore, if the amendment 

induces additional issuers to list, the 

enhanced liquidity can facilitate capital 

formation by reducing the cost that the 

issuers of those securities would 

otherwise incur (e.g., through their 


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69See supra Section IV.A.3.b. 

70See supra Section IV.A.1. 

71See, e.g., John Heaton & Deborah J. Lucas, 

Evaluating the Effects of Incomplete Markets on 

Risk Sharing and Asset Pricing, 104 J. Pol. Econ. 

443 (1996). 

72See, e.g., Thierry Foucault & Christine A. 

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

329 (2004) (describing how, in equilibrium, 

competing exchanges obtain positive expected 

profits by offering different execution costs and 

different listing fees). See also supra note 60 and 

accompanying text. 

73See infra note 75 (discussing the filing 

requirements under the Securities Exchange Act of 

1934 (‘‘Exchange Act’’) necessary for any revision 

to exchange listing standards and noting that such 

listing standards and changes to such listing 

standards are subject to the requirements of the 

Exchange Act and the rules and regulations 

thereunder). 

74See Stewart C. Myers & Nicholas S. Majluf, 

Corporate Financing and Investment Decisions 

When Firms Have Information That Investors Do 

Not Have, 13 J. Fin. Econ. 187 (1984), available at 

http://www.sciencedirect.com/science/article/pii/

0304405X84900230, for a discussion of the role of 

asymmetric information in corporate finance. See 

also Nathalie Dierkens, Information Asymmetry and 

Equity Issues, 26 J. Fin. & Quantitative Analysis 181 

(1991), available at www.jstor.org/stable/2331264, 

for empirical evidence of asymmetric information 

in the equity issue process. 

75Any revision to exchange listing standards 

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

the Exchange Act and Rule 19b–4 thereunder and 

is subject to the requirements of the Exchange Act 

and the rules and regulations thereunder. See 15 

U.S.C. 78s(b) and 17 CFR 240.19b–4. 

76See 17 CFR 230.146(b)(2). 

77See supra Section IV.A. 

ability to issue securities at a higher 

offering price compared to a non-listed 

issuance) when issuing new securities. 

Additionally, listing on a Named or 

Designated Market may enhance 

liquidity and promote access to capital 

(and thereby promote capital formation) 

by reducing the costs of trading incurred 

by broker-dealers, which potentially are 

shared with investors. Broker-dealers 

incur costs to trade non-Covered 

Securities when ensuring their 

compliance with state securities laws in 

multiple jurisdictions,69 which are 

potentially shared with investors. Thus, 

the amendment may reduce investors’ 

transaction costs to trade securities that 

list on a Named or Designated Market as 

a result of the amendment.70

Consequently, investors in securities 

that list on IEX as a result of the 

amendment will have easier access to 

invest in those securities and to further 

diversify their investment portfolios, 

which may promote capital formation 

by improving allocative efficiency.71

3. Competition 

The amendment to Rule 146(b) will 

likely increase competition among the 

Named and Designated Markets that 

compete to list securities. By 

determining that IEX has ‘‘substantially 

similar’’ listing standards to the Named 

and other Designated Markets, the 

amendment permits IEX to compete 

with other Named and Designated 

Markets to list securities that are exempt 

from state registration requirements. As 

discussed above, the Named and 

Designated Markets compete with each 

other in many ways, including listing 

standards, listing fees, and listing 

services. In addition to permitting IEX 

to compete to list securities as a 

Designated Market, the additional 

competition from IEX’s entry into the 

listing market will also provide 

incumbent listing markets with 

incentives to change how they compete 

with each other.72

Generally, there are two ways that 

increased competition can affect how 

listing markets compete with each other. 

First, it can affect how Named or 

Designated Markets compete to provide 

better services and value for listing 

issuers. If an additional entrant 

competes by providing better listing and 

monitoring services or lower costs for 

issuers, incumbent listing exchanges 

may decide to follow suit. For example, 

listing markets could reduce fees, 

improve services, or reduce compliance 

burdens associated with their listing 

standards.73

The Named and Designated Markets 

also may compete to provide better 

services by increasing their level of 

specialization with respect to securities 

listings. As noted below, as in the case 

of BATS, some Named and Designated 

Markets may develop reputations for 

specializing in specific types of issues 

by catering to specific types of issuers. 

An increase in competitive pressures 

may cause the Named and Designated 

Markets to increase the degree to which 

they cater to specific types of issuers. 

Specialization may reduce the cost of 

providing listing services or may 

promote innovation in the provision of 

listing services. To the extent that 

specialization improves the services 

provided to issuers or reduces the costs 

of these services, this competitive 

response may improve the efficiency of 

the market for listing services. 

Second, the reputation of a Named or 

Designated Market for strict listing 

standards may be informative to an 

investor and serve as a signal of the 

quality of an issuer.74 Issuers that are 

able to meet the listing standards of a 

Named or Designated Market can signal 

their ability to do so by listing on those 

exchanges. However, because 

complying with these listing standards 

may be costly for issuers, issuers weigh 

the benefits of signaling their higher 

quality (through their ability to meet the 

stronger listing standards of the Named 

or Designated Market) against the costs 

of compliance with these standards. 

The impact of increased competition 

on listing standards is uncertain. The 

Named and Designated Markets may 

respond to increased competition by 

strengthening listing standards to 

provide additional signaling and attract 

investors to the issuers the exchanges 

list. Alternatively, the Named and 

Designated Markets can instead respond 

to increased competition by proposing 

to weaken their listing standards to 

attract additional listings. The 

exchanges’ opposing incentives to cater 

to these two groups of market 

participants make predicting the impact 

of increased competition on listing 

standards difficult. 

The Named and Designated Markets’ 

ability to lower listing standards is 

constrained by two factors (1) any 

proposed listing standards or proposed 

changes to existing listing standards 

must be filed with the Commission 

pursuant to Section 19(b) of the 

Exchange Act and must meet statutory 

and rule requirements to become 

effective;75 and (2) an exchange with 

listing standards that are not 

substantially similar to those of a 

Named Market may lose its status as a 

Designated Market.76 The requirement 

that the listing standards of a Designated 

Market be substantially similar to those 

of a Named Market means that the 

listing standards of the Named Markets 

serve as a lower bound for the extent to 

which competition may pressure listing 

exchanges to attempt to weaken their 

listing standards. 

Some of the features of the market for 

listings that currently inhibit 

competition may mitigate the effects of 

the amendment on competition. 

Specifically, some of the barriers to 

entry discussed in the baseline— 

economies of scale and network 

externalities—may make it difficult for 

IEX to effectively compete with 

incumbent exchanges for listings.77 For 

example, if a new entrant does not 

attract enough initial listings, the fixed 

cost of operations may make it difficult 

to keep its listing fees competitive. In 

addition, a new entrant may not have 

established a sufficient reputation as a 

listing exchange to credibly certify the 

quality of its new issues. Thus, the 

structure of the market for listings may 

mitigate some of the potential effects of 

increased competition between Named 

and Designated Markets. 

The most recent example of an entrant 

into the market for listings is BATS, 

which became a Designated Market in 


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50068 Federal Register / Vol. 82, No. 208 / Monday, October 30, 2017 / Rules and Regulations 

78See Securities Act Release No. 9295 (January 

20, 2012), 77 FR 3590 (January 25, 2012). 

79As BATS noted in its registration statement 

filed with the Commission on December 15, 2015, 

‘‘[O]n March 23, 2012, we experienced a serious 

technical failure on BZX, forcing us to cancel our 

planned IPO. . . . These technical failures 

damaged our reputation and resulted in increased 

regulatory scrutiny of the event by the SEC and 

other governmental authorities.’’ 

80Rule 146 and Section 18 have no effect on 

Federal registration requirements, which are 

addressed by Section 5 of the Exchange Act. See 15 

U.S.C. 78e. Section 18 of the Securities Act states 

that no law, rule, regulation, or order, or other 

administrative action of any State or any political 

subdivision thereof requiring, or with respect to, 

registration or qualification of securities, or 

registration or qualification of securities 

transactions, shall directly or indirectly apply to a 

covered security. See 15 U.S.C. 77r(a)(1)(A). 

81 Data to estimate the number of such issuers 

does not exist, but the Commission believes that the 

numbers of such issuers is likely to be small, as any 

issuers that can meet the listing standards of IEX 

are likely to be able to meet the listing standards 

of the incumbent Named or Designated Markets. 

82See supra Sections IV.A.1 and IV.B.1. 

83See Table 2, supra Section IV.A.3.a, and 

accompanying text. 

84The Commission acknowledges that this 

benefit to IEX may come at the expense of the 

existing Named and Designated Markets, who may 

lose a portion of their current share to a new 

entrant. See infra Section IV.D. 

85See supra Section IV.B.3. 

86See supra Section IV.A.1. 

87See Table 2, supra Section IV.A.3.a, and 

accompanying text. 

2012.78 Table 2 in Section IV.A.3.a 

shows that the number of new listings 

on BATS decreased each year until 2015 

but has increased recently. While the 

growth in new listings by BATS may be 

indicative of the barriers to entry that 

entrants such as IEX will face, 

circumstances specific to BATS may 

have impacted its ability during that 

period to attract listings.79

Table 3 in Section IV.A.3.a shows that 

almost none of the new listings on 

BATS arrived as transfers from another 

exchange; rather most of those listings 

were the initial listing for each issuer. 

This evidence could indicate that 

switching costs may also have had an 

impact on BATS’ ability to gain market 

share, and may be a factor for IEX, as 

well. Moreover, the vast majority of 

BATS-listed securities are exchangetraded products, which is consistent 

with the idea that, despite barriers to 

entry, BATS was able to enter the 

market by competing for one segment of 

the market and specializing in listing 

exchange-traded products. 

C. Analysis of Benefits and Costs 

The amendment to Rule 146(b) 

making IEX a Designated Market allows 

securities listed, or authorized for 

listing, on IEX to be designated as 

Covered Securities under Rule 146(b)(1) 

under the Securities Act. As described 

above, Covered Securities are exempt 

from state law registration 

requirements.80 In this section, the 

Commission discusses the benefits and 

costs of the amendment, which stem 

from: (i) The exemption from Blue Sky 

laws provided to any issuers that would 

not list in the absence of the 

amendment; and (ii) the entry of IEX 

into the market for listings as a 

Designated Market. 

As noted above, the Commission is 

unable to quantify all of the economic 

effects of the amendment because it 

lacks the information necessary to 

provide reasonable estimates. 

1. Benefits of the Amendment 

The amendment will provide benefits, 

flowing from the exemption from Blue 

Sky laws, to issuers that do not 

currently list on an existing Named or 

Designated Market but choose to list on 

IEX.81 Specifically, the amendment will 

permit these issuers to avoid the 

potentially duplicative costs of 

complying with multiple state securities 

regulations. As noted above, these 

duplicative costs can include both a 

fixed cost of registration and ongoing 

compliance costs. Because an unlisted 

issuer needs to register in each of the 

jurisdictions in which its securities will 

be bought or sold, any issuers that list 

as a result of the amendment will save 

these registration costs. To the extent 

that IEX attracts previously unlisted 

issuers, IEX will benefit as a result of 

revenue from listing fees, trading fees, 

and data fees generated by additional 

issuers. In addition, absent the 

amendment, the heterogeneity in state 

securities regulations generates ongoing 

costs for broker-dealers and investors 

transacting in multiple jurisdictions.82

However, the overall magnitude of these 

benefits depends on the number of 

currently unlisted issuers that choose to 

list on IEX as a result of the amendment, 

and the Commission believes this 

number is likely to be small because any 

unlisted issuer able to meet the listing 

standards of IEX is likely to be able to 

meet the listing standards of the other 

Named and Designated Markets.83

More generally, by making IEX a 

Designated Market, the amendment will 

benefit IEX by allowing it to compete in 

the listing market for Covered Securities 

on a more level playing field with 

similarly situated national securities 

exchanges.84 Specifically, being able to 

list Covered Securities will allow IEX 

more effectively to compete with the 

incumbent Named and Designated 

Markets that also are able to offer 

Covered Securities status. This will also 

benefit issuers that choose to list 

securities on a Named or Designated 

Market by providing them with another 

alternative venue on which to list. 

Furthermore, adding IEX as an entrant 

into this market will increase the 

number of competitors in the market for 

listings. To the extent that the existing 

Named and Designated Markets respond 

to this increased competition by 

reducing listing fees or improving 

listing services, as discussed above, 

currently listed issuers and their 

investors may benefit from the 

improved quality of listing services, 

reduced listing fees or reduced 

compliance costs. In addition, to the 

extent that the entry of IEX increases the 

specialization of incumbent Named and 

Designated Markets, issuers may benefit 

from listing services that are more 

tailored to their needs.85

Last, if issuers list on a Named or 

Designated Market as a result of the 

amendment, this listing may impact the 

trading of those issuers’ securities on 

markets that are not Named or 

Designated Markets. As noted in the 

baseline, securities that list on a Named 

or Designated Market may also trade on 

exchanges that are not Named or 

Designated Markets, which may bring 

those exchanges additional revenue 

from trades.86 To the extent IEX’s entry 

into the market increases the number of 

issuers listing on a Named or Designated 

Market, exchanges that are not Named 

or Designated Markets may benefit from 

trading revenue from trading more 

Covered Securities, even though these 

exchanges do not directly compete with 

IEX or the Named or Designated Markets 

for listings business. 

2. Costs of the Amendment 

For unlisted issuers that choose to list 

on IEX as a result of the amendment, 

listing on IEX may entail compliance 

costs arising from new reporting 

obligations from IEX’s listing standards. 

In addition, if unlisted issuers choose to 

list on IEX as a result of the amendment, 

investors may also face costs from the 

loss of state oversight for the securities 

listed by these issuers. The Commission 

notes that the overall magnitude of costs 

associated with the loss of state 

oversight depends on the number of 

unlisted issuers that choose to list as a 

result of the amendment. The 

Commission believes this number is 

likely to be small, or non-existent, for 

the reasons noted above.87 Furthermore, 

the Commission notes that these issuers 

would only choose to list on IEX and 

bear these costs if they decided that the 

benefits of listing on IEX justified the 

costs. 

The Commission believes that any 

costs to investors from a loss of state 


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88See supra Section IV.A.3.a, for a discussion of 

the sources of switching costs. 

89See supra note 64. Using TAQ data, 

Commission staff estimates that listing exchanges 

have around 28.8% of the dollar volume in the 

securities they list compared to other exchanges’ 

average of about 3.3% of the dollar volume. Staff 

observed that each listing exchange enjoys a higher 

market share of dollar volume in its listed securities 

than any other exchange trading the listing 

exchange’s listed securities. Staff also observed that 

these differences were not only economically large, 

but that they were also statistically significant. 

90 In light of the relevant statutory language and 

in the context of this particular rulemaking, the 

Commission does not believe that there are 

reasonable alternatives to this proposal to designate 

securities listed on IEX as Covered Securities. 

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

92See Proposing Release, supra note 9, at 33850– 

51. 

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

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

oversight for such issuers will be 

mitigated by (i) federal regulations and 

oversight of IEX and the other Named 

and Designated Markets, and (ii) the 

requirement for issuers to meet the 

exchanges’ listing standards. Indeed, 

Congress, in Section 18 of the Securities 

Act, has already determined that federal 

regulation is sufficient for those issuers 

that meet the high listing standards of 

a Named or Designated Market. 

Furthermore, the Commission believes 

that regulatory protections offered by 

exchanges for trading in Covered 

Securities conducted on their facilities 

(e.g., market surveillance, investigation 

and enforcement) will mitigate the 

potential costs of a loss of state 

oversight for unlisted issuers that list on 

IEX. 

Issuers that currently list on an 

existing Named or Designated Market 

that would switch to IEX would not 

experience potential costs from a loss of 

state oversight or compliance costs 

arising from new reporting obligations, 

because they currently are not subject to 

state oversight and are subject to the 

reporting requirements by virtue of 

being an SEC reporting company (a 

condition to their listing on a current 

Named or Designated Market). However, 

any previously listed issuers that decide 

to change their listing from another 

Named or Designated Market to IEX will 

incur costs to switch their listing.88

Still, the Commission notes that issuers 

can choose whether or not to incur this 

cost and likely would do so only if the 

benefits of switching their listing exceed 

their switching costs. 

D. Other Effects of the Amendment 

Some of the effects of the amendment 

to Rule 146 on IEX, incumbent Named 

and Designated Markets, and issuers 

involve transfers from one party to 

another. For example, the listing fees 

collected by IEX from previously-listed 

issuers may come from a reduction in 

the listing fees collected by other 

Named or Designated Markets. Issuers 

that list on Named and Designated 

Markets may also enjoy savings from 

listing fee reductions as a result of 

increased listing exchange competition, 

which would also come from a 

reduction in listing fees collected by 

Named or Designated Markets. 

Additionally, as a result of changes to 

competition in the market for listings, 

the volume of trading across trading 

venues may shift, to the advantage of 

some venues and to the detriment of 

others. Changes to the Named or 

Designated Markets’ shares of the 

market for listings may affect the 

distribution of trading volumes across 

Named and Designated Markets, as well 

as other trading venues. Commission 

staff estimates that an exchange captures 

an average share of volume in the 

securities listed by that exchange that is 

about 20% higher than the market share 

of other exchanges trading the same 

securities.89 This result suggests that 

even if the number of listed securities 

does not change, changes to listings 

driven by increased competition may 

alter the market share of trading 

distributed across each venue by about 

20% of the volume in such securities. 

Any shifts in the market share of trading 

can result in gains and losses in 

transaction fees collected and the share 

of data fees split between exchanges. 

Although these gains and losses are 

relevant potential economic effects of 

the amendment, the Commission does 

not consider these transfers to be a 

benefit or cost of the amendment, but 

rather a consequence of increased 

competition.90

V. Regulatory Flexibility Act 

Certification 

The Commission certified, pursuant 

to Section 605(b) of the Regulatory 

Flexibility Act,91 that the amendment to 

Rule 146 would not have a significant 

economic impact on a substantial 

number of small entities. This 

certification was included in the 

Proposing Release.92 The Commission 

solicited comments on the certification. 

No comments on the certification were 

received. 

VI. Statutory Authority and Text of the 

Rule 

The Commission is adopting an 

amendment to Rule 146 pursuant to the 

Securities Act of 1933,93 particularly 

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

List of Subjects in 17 CFR Part 230 

Securities. 

For the reasons set forth in the 

preamble, Title 17, Chapter II of the 

Code of Federal Regulations is amended 

as follows: 

PART 230—GENERAL RULES AND 

REGULATIONS, SECURITIES ACT OF 

1933 

■ 1. The authority citation for part 230 

continues to read, in part, as follows: 

Authority: 15 U.S.C. 77b, 77b note, 77c, 

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

78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o–7 note, 

78t, 78w, 78ll(d), 78mm, 80a–8, 80a–24, 80a– 

28, 80a–29, 80a–30, and 80a–37, and Pub. L. 

112–106, sec. 201(a), sec. 401, 126 Stat. 313 

(2012), unless otherwise noted. 

* * * * * 

■ 2. Section 230.146 is amended by 

revising paragraphs (b)(1) and (b)(2) to 

read as follows: 

§ 230.146 Rules under section 18 of the 

Act. 

* * * * * 

(b) * * * 

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

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

finds that the following national 

securities exchanges, or segments or 

tiers thereof, have listing standards that 

are substantially similar to those of the 

New York Stock Exchange (‘‘NYSE’’), 

the NYSE American LLC (‘‘NYSE 

American’’), or the National Market 

System of the Nasdaq Stock Market 

(‘‘Nasdaq/NGM’’), and that securities 

listed, or authorized for listing, on such 

exchanges shall be deemed covered 

securities: 

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

(ii) Tier I of the NASDAQ PHLX LLC; 

(iii) The Chicago Board Options 

Exchange, Incorporated; 

(iv) Options listed on Nasdaq ISE, 

LLC; 

(v) The Nasdaq Capital Market; 

(vi) Tier I and Tier II of Bats BZX 

Exchange, Inc.; and 

(vii) Investors Exchange LLC. 

(2) The designation of securities in 

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

section as covered securities is 

conditioned on such exchanges’ listing 

standards (or segments or tiers thereof) 

continuing to be substantially similar to 

those of the NYSE, NYSE American, or 

Nasdaq/NGM. 

By the Commission. 

Dated: October 24, 2017. 

Lynn M. Powalski, 

Deputy Secretary. 

[FR Doc. 2017–23507 Filed 10–27–17; 8:45 am] 

BILLING CODE 8011–01–P 


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