Document ID: SEC-2017-0075-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market, LLC
Posted Date: 2017-01-19T05:00Z

[Federal Register Volume 82, Number 12 (Thursday, January 19, 2017)]
[Notices]
[Pages 6664-6667]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-01141]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79784; File No. SR-NASDAQ-2016-135]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Amendment No. 2 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment No. 2, 
Relating to Continued Listing Requirements for Exchange-Traded Products

January 12, 2017.

I. Introduction

    On September 30, 2016, The NASDAQ Stock Market LLC (``Exchange'' or 
``Nasdaq'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change related to continued listing requirements and 
delisting procedures for exchange-traded products listed pursuant to 
the Nasdaq Rule 5700 Series. The proposed rule change was published for 
comment in the Federal Register on October 17, 2016.\3\ On November 25, 
2016, the Commission designated a longer period within which to approve 
the proposed rule change, disapprove the proposed rule change, or 
institute proceedings to determine whether to approve or disapprove the 
proposed rule change.\4\ On January 9, 2017, the Exchange filed 
Amendment No. 1 to the proposed rule change. On January 11, 2017, the 
Exchange filed Amendment No. 2 to the proposed rule change, which 
amended and replaced the original proposal as modified by

[[Page 6665]]

Amendment No. 1.\5\ The Commission received no comment letters on the 
proposed rule change. The Commission is publishing this notice to 
solicit comments on Amendment No. 2 from interested persons, and is 
approving the proposed rule change, as modified by Amendment No. 2, on 
an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 79081 (October 11, 
2016), 81 FR 71548.
    \4\ See Securities Exchange Act Release No. 79399, 81 FR 86759 
(December 1, 2016).
    \5\ In Amendment No. 2, the Exchange: (i) Amended proposed Rule 
5701(d) to require a Company with securities listed under the Rule 
5700 Series to provide the Exchange with prompt notification if the 
Company (rather than an Executive Officer of the Company) becomes 
aware of its non-compliance with the requirements of the Rule 5700 
Series; (ii) further amended rules within the Rule 5700 Series to 
reflect that certain listing requirements (including certain 
statements or representations in rule filings for the listing and 
trading of specific products) apply on an initial and ongoing basis; 
(iii) further amended rules within the Rule 5700 Series to 
consistently state that the Exchange will initiate delisting 
proceedings if continued listing requirements are not maintained; 
(iv) amended the Rule 5700 Series to provide that the Exchange would 
initiate delisting proceedings due to an interruption to the 
dissemination of index, reference asset, or intraday indicative 
values (as applicable to the product) only if the interruption 
persists past the trading day in which it occurred; (v) specified an 
implementation date for the proposed changes; and (vi) made non-
substantive and conforming changes throughout the Rule 5700 Series 
in order to provide consistency throughout these rules, update rule 
numbering, and update cross-references. Amendment No. 2 is available 
at https://www.sec.gov/comments/sr-nasdaq-2016-135/nasdaq2016135-1481751-130537.pdf.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 2

    The Exchange proposes to amend the Rule 5700 Series to specify 
continued listing requirements for products listed under those rules, 
which include products listed pursuant to Rule 19b-4(e) under the Act 
(``generically-listed products'') and products listed pursuant to 
proposed rule changes filed with the Commission (``non-generically-
listed products'').\6\
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    \6\ See infra notes 13-15 and accompanying text. The Exchange 
also proposes to amend certain listing requirements within the Rule 
5700 Series. Specifically, the Exchange proposes to amend the 
requirement to delist a product if, following the initial 12-month 
period following commencement of trading on Nasdaq, there are fewer 
than 50 record or beneficial holders of the listed product for 30 or 
more consecutive trading days, by deleting the threshold of ``30 or 
more consecutive trading days.'' See, e.g., proposed changes to Rule 
5705(a)(9)(B)(c).
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    The Exchange also proposes to amend the Rule 5700 Series to specify 
issuer notification requirements related to failures to comply with 
continued listing requirements. Specifically, the Exchange proposes to 
add Rule 5701(d) to require an issuer with securities listed under the 
Rule 5700 Series to promptly notify the Exchange of any non-compliance 
with the requirements of the Rule 5700 Series. In addition, with 
respect to non-generically-listed products, the Exchange proposes to 
require an issuer to notify the Exchange of its failure to comply with 
any continued listing requirements that were specified in the proposals 
to list those products. As proposed, the Exchange would initiate 
delisting proceedings for a product listed under the Rule 5700 Series 
if any of its continued listing requirements (including those set forth 
in a Nasdaq Rule and those set forth in an applicable proposed rule 
change) are not continuously maintained.\7\
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    \7\ Unlike failures to comply with other continued listing 
requirements, if there is an interruption to the dissemination of 
the reference asset, index, or intraday indicative values for a 
listed product, the Exchange would initiate delisting proceedings 
under the Rule 5800 Series only if the interruption persists past 
the trading day in which it occurred. See, e.g., proposed changes to 
Rules 5705(a)(9)(B)(i)(d)-(e) and 5705(b)(9)(B)(i)(d)-(e).
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    The Exchange also proposes to amend Rule 5810 to specify the 
delisting procedures for products listed under the Rule 5700 Series. 
Under proposed Rule 5810(c)(2)(A), unless the issuer is currently under 
review by an Adjudicatory Body for a Staff Delisting Determination, the 
Listing Qualifications Department may accept and review a plan to 
regain compliance when an issuer fails to meet a continued listing 
requirement contained in the Rule 5700 Series. The issuer would be 
required to submit its compliance plan within 45 calendar days of the 
Exchange staff's notification of deficiencies, and certain issuers 
would be required to pay a compliance plan review fee.
    Finally, the Exchange proposes to make conforming and technical 
changes throughout the Rule 5700 Series to maintain consistency in its 
rules. For example, the Exchange proposes to consistently use the 
language ``initiate delisting proceedings under the Rule 5800 Series'' 
when describing the delisting process for a product that fails to meet 
continued listing requirements; \8\ consistently state in the Portfolio 
Depository Receipts and Index Fund Shares rules that, if the index that 
underlies a series of Portfolio Depository Receipts or Index Fund 
Shares is maintained by a broker-dealer or fund advisor, the index 
shall be calculated by a third party who is not a broker-dealer or fund 
advisor; \9\ and consistently reflect that delisting ``following the 
initial 12-month period following commencement of trading on Nasdaq'' 
only applies to the record/beneficial holder, number of shares issued 
and outstanding, and the market value of shares issued and outstanding 
requirements.\10\
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    \8\ See, e.g., proposed changes to Rules 5705(a)(9)(B)(i) and 
5705(b)(9)(B)(i).
    \9\ See proposed changes to Rules 5705(a)(4)(B)(i), 
5705(a)(5)(A)(i), 5705(b)(4)(B)(i), and 5705(b)(5)(A)(i); see also 
Rule 5705(a)(3)(B)(i) (currently stating that, for certain Portfolio 
Depository Receipts, ``[i]f the index is maintained by a broker-
dealer or fund advisor . . . the index shall be calculated by a 
third party who is not a broker-dealer or fund advisor'') and 
5705(b)(3)(B)(i) (currently stating that, for certain Index Fund 
Shares, ``[i]f the index is maintained by a broker-dealer or fund 
advisor . . . the index shall be calculated by a third party who is 
not a broker-dealer or fund advisor'').
    \10\ See, e.g., proposed changes to Rule 5711(d)(vi)(B); see 
also, e.g., Rule 5711(h)(iv)(B)(1) (currently applying the 12-month 
threshold only to the record/beneficial holder, number of units 
issued and outstanding, and market value of units issued and 
outstanding requirements for Partnership Units).
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    The Exchange proposes to implement the rule changes by August 1, 
2017.

III. Discussion and Commission Findings

    The Commission finds that the proposed rule change, as modified by 
Amendment No. 2, is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\11\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\12\ 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.
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    \11\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Commission does not believe that the proposal raises unique or 
novel regulatory issues. As the Commission previously stated, the 
development, implementation, and enforcement of standards governing the 
initial and continued listing of securities on an exchange are 
activities of critical importance to financial markets and the 
investing public. Once a security has been approved for initial 
listing, continued listing 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.
    Currently, certain rules within the Rule 5700 Series impose 
specific listing requirements on an initial basis, without

[[Page 6666]]

imposing ongoing listing requirements that are intended to achieve the 
same goals as these initial listing requirements.\13\ To fill this gap, 
the proposal would specify that certain listing requirements within the 
Rule 5700 Series apply both on an initial and ongoing basis, rather 
than only at a single point in time (i.e., at the time of initial 
listing).\14\ Also, with respect to non-generically listed products, 
the Exchange proposes to amend the Rule 5700 Series to provide that any 
of the statements or representations in a proposed rule change 
regarding: (i) The description of the index, holdings, or reference 
asset (as applicable to a specific product); (ii) limitations on index 
composition, holdings, or reference assets (as applicable to a specific 
product); (iii) dissemination and availability of index, reference 
asset, or intraday indicative values (as applicable to a specific 
product); or (iv) the applicability of Exchange rules and surveillance 
procedures, constitute continued listing requirements.\15\
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    \13\ Moreover, certain of the listing requirements do not 
explicitly state that they apply on an ongoing, as well as initial, 
basis. In these cases, the proposal would make explicit that the 
requirements apply both on an initial and ongoing basis. See, e.g., 
proposed changes to Rule 5705(a)(3)(B)-(C) (making explicit that, 
for Portfolio Depository Receipts, requirements related to index 
methodology and index value dissemination, as well as intraday 
indicative value dissemination, apply on an initial and ongoing 
basis); proposed changes to Rule 5710(e) (making explicit that, for 
Linked Securities, requirements related to tangible net worth and 
earnings apply on an initial and ongoing basis); proposed changes to 
Rule 5711(c), Commentary .03 (making explicit that, for Trust 
Certificates, requirements related to the qualifications of a 
trustee and changes to a trustee apply on an initial and ongoing 
basis).
    \14\ For example, current Rule 5705(a)(3)(A)(i) sets forth 
requirements for component stocks of an index or portfolio 
underlying a series of generically-listed Portfolio Depository 
Receipts, which apply upon initial listing. These requirements 
include, for example, minimum market value, minimum monthly trading 
volume, and concentration limits for the component stocks. The 
proposal would specify that these requirements apply both on an 
initial and continued basis.
    \15\ See, e.g., proposed Rule 5705(a)(9)(B)(i)(b). The 
Commission notes that it has approved proposed rule changes for the 
listing and trading of exchange-traded products that included 
similar representations. See, e.g., Securities Exchange Act Release 
No. 77548 (April 6, 2016), 81 FR 21626 (April 12, 2016) (SR-NASDAQ-
2015-161). The Commission also notes that similar types of 
requirements exist in the Rule 5700 Series. See, e.g., Rule 
5705(a)(3) (setting forth, among other things, index composition 
requirements and intraday indicative value dissemination 
requirements for certain generically-listed Portfolio Depository 
Receipts).
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    Because the proposal specifies continued listing requirements for 
products listed pursuant to the Rule 5700 Series, the Commission 
believes the proposal is designed to achieve on a continuing basis the 
goals of the listing requirements, including ensuring that the Exchange 
lists products that are not susceptible to manipulation and maintaining 
fair and orderly markets for the listed products. In particular, the 
Commission believes that the proposal is designed to ensure that stocks 
with a substantial market capitalization and trading volume account for 
a substantial portion of the weight of an index or portfolio underlying 
a listed product; \16\ provide transparency regarding the components of 
an index or portfolio underlying a listed product; \17\ ensure that 
there is adequate liquidity in the listed product itself; \18\ and 
provide timely and fair disclosure of useful information that may be 
necessary to price the listed product.\19\ Moreover, the Commission 
believes that the proposal to require an issuer to notify the Exchange 
of its failures to comply with continued listing requirements would 
supplement the Exchange's own surveillance of the listed products.\20\
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    \16\ For example, as proposed, the requirements under Rule 
5705(a)(3)(A), including minimum market value and minimum monthly 
trading volume requirements for components of the index or portfolio 
underlying Portfolio Depository Receipts, would apply both on an 
initial and ongoing basis. Also, for non-generically listed 
products, the proposal would provide that statements or 
representations made in the proposed rule changes relating the 
description of the portfolio, among other things, constitute 
continued listing requirements. See, e.g., proposed Rule 
5705(a)(9)(B)(i)(b).
    \17\ For example, as proposed, the requirements under Rule 
5705(a)(3)(A), including the requirement that components of the 
index or portfolio underlying Portfolio Depository Receipts be 
exchange-listed and NMS stocks, would apply both on an initial and 
ongoing basis.
    \18\ For example, the Exchange proposes to amend Rule 5715(b)(2) 
to explicitly state that listing requirements for Selected Equity-
Linked Debt Securities (``SEEDS'') apply both on an initial and 
ongoing basis, including, for example, the minimum public 
distribution and the minimum market value of an issue of SEEDS.
     The Commission also believes that the proposal to delete the 
threshold of ``30 or more consecutive trading days'' in the 
requirements for the number of beneficial or record holders is 
consistent with the goal of ensuring that there is adequate 
liquidity in the listed product on an ongoing basis. As proposed, 
the Exchange would initiate delisting proceedings for a product if 
it fails to comply with the minimum number of beneficial holders 
requirement, even if the non-compliance does not continue for 30 
consecutive trading days. See supra note 6.
    \19\ For example, the proposed changes to Rule 5705(a)(3)(B)-(C) 
would make explicit that the requirements related to the 
dissemination of the value of the index underlying Portfolio 
Depository Receipts and the Intraday Indicative Value for Portfolio 
Depository Receipts apply on an initial and ongoing basis.
    \20\ The Commission notes that this concept of issuer 
notification is not novel. For example, in connection with its 
proposal to adopt generic listing standards for Managed Fund Shares, 
the Exchange stated that, prior to listing pursuant to the generic 
listing standards, an issuer would be required to represent to the 
Exchange that it will advise the Exchange of any failure by a series 
of Managed Fund Shares to comply with the continued listing 
requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will monitor for compliance with 
the continued listing requirements. See Securities Exchange Act 
Release No. 78918 (September 23, 2016), 81 FR 67033, 67036 
(September 29, 2016) (SR-NASDAQ-2016-104).
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    As noted above, the proposal specifies the delisting procedures for 
products listed pursuant to the Rule 5700 Series. The Commission 
believes that the proposed amendments to Rule 5810 provide transparency 
regarding the process that the Exchange will follow if a listed product 
fails to meet its continued listing requirements. The Commission also 
notes that the process surrounding compliance plans already exists in 
Rule 5810. As a result, the proposed delisting procedures are not 
novel.
    Finally, the Commission believes that the conforming and technical 
proposed changes do not raise novel issues, are designed to further the 
goals of the listing standards, and provide clarity and consistency in 
the Exchange's rules.
    For the reasons discussed above, the Commission finds that the 
proposed rule change, as modified by Amendment No. 2, is consistent 
with the Act.

IV. Accelerated Approval of Amendment No. 2

    As noted above, in Amendment No. 2, the Exchange: (i) Amended 
proposed Rule 5701(d) to require a Company with securities listed under 
the Rule 5700 Series to provide the Exchange with prompt notification 
if the Company (rather than an Executive Officer of the Company) 
becomes aware of its non-compliance with the requirements of the Rule 
5700 Series; (ii) further amended rules within the Rule 5700 Series to 
reflect that certain listing requirements (including certain statements 
or representations in rule filings for the listing and trading of 
specific products) apply on an initial and ongoing basis; (iii) further 
amended rules within the Rule 5700 Series to consistently state that 
the Exchange will initiate delisting proceedings if continued listing 
requirements are not maintained; (iv) amended rules within the Rule 
5700 Series to provide that the Exchange will initiate delisting 
proceedings due to an interruption to the dissemination of index, 
reference asset, or intraday indicative values (as applicable to the 
product) only if the interruption persists past the trading day in 
which it occurred; (v) specified an implementation date for the 
proposed changes; and (vi) made conforming and non-substantive changes 
throughout the

[[Page 6667]]

Rule 5700 Series. The Commission believes that Amendment No. 2 furthers 
the goals of the proposed rule change and does not raise novel 
regulatory issues. Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Act,\21\ to approve the proposed 
rule change, as modified by Amendment No. 2, on an accelerated basis.
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    \21\ 15 U.S.C. 78s(b)(2).
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V. Solicitation of Comments on Amendment No. 2

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 2 
is consistent with the Act. 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-2016-135 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2016-135. 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 Web site (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 Web site 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 the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2016-135 and should 
be submitted on or before February 9, 2017.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\22\ that the proposed rule change (SR-NASDAQ-2016-135), as 
modified by Amendment No. 2, be, and hereby is, approved on an 
accelerated basis.
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    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2017-01141 Filed 1-18-17; 8:45 am]
 BILLING CODE 8011-01-P