Document ID: SEC-2022-1473-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2022-11-15T05:00Z

[Federal Register Volume 87, Number 219 (Tuesday, November 15, 2022)]
[Notices]
[Pages 68558-68567]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-24767]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96272; File No. SR-NYSE-2022-14]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 
2, To Modify Certain Pricing Limitations for Securities Listed on the 
Exchange Pursuant to a Primary Direct Floor Listing

November 8, 2022.
    On April 7, 2022, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to allow companies to modify certain pricing 
limitations for securities listed on the Exchange pursuant to a Primary 
Direct Floor Listing. The proposed rule change was published for 
comment in the Federal Register on April 19, 2022.\3\ On May 26, 2022, 
pursuant to Section 19(b)(2) of the Act,\4\ the Commission designated a 
longer period within which to either approve or disapprove the proposed 
rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change.\5\ On July 18, 2022, the 
Commission instituted proceedings under Section 19(b)(2)(B) of the Act 
\6\ to determine whether to approve or disapprove the proposed rule 
change.\7\ On October 11, 2022, the Commission designated a longer 
period for Commission action on proceedings to determine whether to 
approve or disapprove the proposed rule change.\8\
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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. 94708 (April 13, 
2022), 87 FR 23300 (April 19, 2022). Comments received on the 
proposal are available on the Commission's website at: https://www.sec.gov/comments/sr-nyse-2022-14/srnyse202214.htm.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 94991 (May 26, 
2022), 87 FR 33518 (June 2, 2022). The Commission designated July 
18, 2022, as the date by which it should approve, disapprove, or 
institute proceedings to determine whether to disapprove the 
proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 95312 (July 18, 
2022), 87 FR 43914 (July 22, 2022).
    \8\ See Securities Exchange Act Release No. 96023 (October 11, 
2022), 87 FR 62902 (October 17, 2022).
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    On November 4, 2022, the Exchange filed Amendment No. 1 to the 
proposed rule change, which superseded the proposed rule change as 
originally filed.\9\ On November 8, 2022, the Exchange filed Amendment 
No. 2 to the proposed rule change. Amendment No. 2 to the proposed rule 
change is described in Items I and II below, which Items have been 
prepared by the Exchange. The Commission is publishing this notice to 
solicit comments on the proposed rule change, as modified by Amendment 
No. 2, from interested persons.
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    \9\ On November 8, 2022, the Exchange withdrew Amendment No. 1. 
See infra note 10.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify certain pricing limitations for 
securities listed on the Exchange pursuant to a Primary Direct Floor 
Listing. This Amendment No. 2 to SR-NYSE-2022-14 replaces SR-NYSE-2022-
14 and Amendment No 1 thereto as originally filed and supersedes such 
filings in their entirety.\10\ The proposed rule change is available on 
the Exchange's website at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.
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    \10\ The Exchange filed Amendment No. 1 to SR-NYSE-2022-14 on 
November 4, 4022 and withdrew such filing on November 8, 2022.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

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

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

1. Purpose
    The Exchange recently amended Chapter One of the Listed Company 
Manual (the ``Manual'') to modify the provisions relating to direct 
listings to

[[Page 68559]]

permit a primary offering in connection with a direct listing and to 
specify how a direct listing qualifies for initial listing if it 
includes both sales of securities by the company and possible sales by 
selling shareholders (a ``Primary Direct Floor Listing'').\11\ The 
Exchange also adopted Rule 7.31(c)(1)(D) defining the Issuer Direct 
Offering (``IDO'') Order for use by a company that wishes to sell its 
shares through a Primary Direct Floor Listing and modified Rule 7.35A 
to describe how the IDO Order would participate in a Direct Listing 
Auction, establish additional requirements for a DMM conducting a 
Direct Listing Auction for a Primary Direct Floor Listing, and specify 
how the Indication Reference Price would be determined for a security 
to be opened in a Direct Listing.\12\ Currently, under Rule 
7.35A(g)(2), the DMM will not conduct a Direct Listing Auction for a 
Primary Direct Floor Listing if (i) the Auction Price \13\ would be 
outside of the price range specified by the company in its effective 
registration statement (the ``Price Range Limitation'') \14\ and (ii) 
if there is insufficient interest to satisfy both the IDO Order and all 
better-priced sell orders in full.
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    \11\ See Securities Exchange Act Release No. 90768 (December 22, 
2020), 85 FR 85807 (December 29, 2020) (SR-NYSE-2019-67) (Order 
Setting Aside Action by Delegated Authority and Approving a Proposed 
Rule Change, as Modified by Amendment No. 2, to Amend Chapter One of 
the Listed Company Manual to Modify the Provisions Relating to 
Direct Listings) (the ``Approval Order'').
    \12\ Id.
    \13\ See Rule 7.35(a)(6) (defining Auction Price as the price at 
which an Auction is conducted); Rule 7.35A (setting forth 
requirements relating to the determination of the Auction Price by 
the DMM). For purposes of this filing, ``Auction Price'' refers to 
the price at which trading would commence in a security to be opened 
in a Direct Listing Auction for a Primary Direct Floor Listing.
    \14\ The Exchange notes that references in this rule filing to 
the price range established by the issuer in its effective 
registration statement are to the price range disclosed in the 
prospectus in such registration statement.
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    In this Amendment No. 1 [sic] and as discussed further below, the 
Exchange proposes to modify the Price Range Limitation to provide that 
a Direct Listing Auction for a Primary Direct Floor Listing may be 
conducted if the Auction Price is outside of the price range 
established by the issuer in its effective registration statement (the 
``Issuer Price Range''), but is at or above the price that is 20% below 
the lowest price of the Issuer Price Range \15\ and at or below the 
price that is 80% above the highest price of the Issuer Price 
Range.\16\ The Exchange proposes that a Direct Listing Auction for a 
Primary Direct Floor Listing could proceed in these circumstances at a 
price outside of the Issuer Price Range (whether lower or higher), 
provided that the issuer has specified the quantity of shares 
registered in its registration statement, as permitted by Securities 
Act Rule 457, and certified to the Exchange and publicly disclosed 
that: (i) it does not expect that the Auction Price would materially 
change the issuer's previous disclosure in its effective registration 
statement; (ii) the price range in the preliminary prospectus included 
in the effective registration statement is a bona fide price range in 
accordance with Item 501(b)(3) of Regulation S-K; and (iii) such 
registration statement contains a sensitivity analysis explaining how 
the issuer's plans would change if the actual proceeds from the 
offering differ from the amount assumed in the price range established 
by the issuer in its effective registration statement. In addition, if 
the issuer certifies to the Exchange a price limit that is below the 
price that is 80% above the highest price of the Issuer Price Range, 
the Exchange proposes that the Direct Listing Auction for a Primary 
Direct Floor Listing may not proceed if the Auction Price determined by 
the DMM exceeds such price limit. The Exchange also proposes to require 
that a company offering securities for sale in a Primary Direct Floor 
Listing must retain an underwriter with respect to the primary sales of 
shares by the company and identify the underwriter in its effective 
registration statement. This Amendment No. 1 [sic] supersedes the 
original filing in its entirety.\17\
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    \15\ As discussed further below, the Exchange proposes to define 
the ``Primary Direct Floor Listing Auction Price Range'' in Rule 
7.31(c)(1)(D)(ii) as the price range that includes 20% below the 
lowest price and 80% above the highest price of the Issuer Price 
Range.
    \16\ As provided in proposed Rule 7.31(c)(1)(D)(ii) (discussed 
in further detail below), the Exchange proposes to calculate the 20% 
and 80% thresholds to determine the Primary Direct Floor Listing 
Price Range based on the highest price of the Issuer Price Range. 
For example, if the Issuer Price Range is $28.00 to $30.00, the 
Primary Direct Floor Listing Price Range would be $22.00 to $54.00.
    \17\ The Exchange believes that this Amendment No. 1 [sic] 
addresses the issues raised by the Commission in its Order 
Instituting Proceedings to Determine Whether to Approve or 
Disapprove a Proposed Rule Change to Modify Certain Pricing 
Limitations for Securities Listed on the Exchange Pursuant to a 
Primary Direct Floor Listing. See Securities Exchange Act Release 
No. 95312 (July 18, 2022), 87 FR 43914 (July 22, 2022) (the 
``OIP''). Specifically, the Exchange believes that its proposal 
addresses the potential lack of a named underwriter in a Primary 
Direct Floor Listing and the usefulness and reliability of the price 
range disclosure provided to investors, as further discussed below. 
The Exchange also believes that this Amendment No. 1 [sic] addresses 
the concerns raised in the comment letter submitted by the Council 
of Institutional Investors, which the Exchange believes raised 
concerns substantively similar to those raised by the Commission in 
the OIP. See Letter from Jeffrey P. Mahoney, General Counsel, 
Council of Institutional Investors, dated July 28, 2022, available 
at: https://www.sec.gov/comments/sr-nyse-2022-14/srnyse202214-20135103-306084.pdf.
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Background
    The Exchange believes that, while many companies are interested in 
alternatives to the traditional initial public offering (``IPO''), 
companies and their advisors may be reluctant to use the Primary Direct 
Floor Listing under current Exchange rules because of concerns about 
the Price Range Limitation.
    One potential benefit of a Primary Direct Floor Listing as an 
alternative to a traditional IPO is that it could maximize the chances 
of more efficient price discovery of the initial public sale of 
securities for issuers and investors. Unlike an IPO, where the offering 
price is informed by underwriter engagement with potential investors to 
gauge interest in the offering, but ultimately decided through 
negotiations between the issuer and the underwriters for the offering, 
the initial sale price in a Primary Direct Floor Listing is determined 
based on market interest and the matching of buy and sell orders in an 
auction open to all market participants.
    In that regard, the Commission noted in the Approval Order that:

    [B]ecause the price of securities issued by a company in a 
Primary Direct Floor Listing will be determined based on market 
interest and the matching of buy and sell orders, Primary Direct 
Floor Listings will provide an alternative way to price securities 
offerings that may better reflect prices in the aftermarket, and 
thus may allow for efficiencies in IPO pricing and allocation. . . . 
The opening auction in a Primary Direct Floor Listing provides for a 
different price discovery method for IPOs which may reduce the 
spread between IPO price and subsequent market trades, a potential 
benefit to existing and potential investors.\18\
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    \18\ See Approval Order, 85 FR at 85816-17 (footnote omitted).
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    A successful IPO of shares requires sufficient investor interest. 
If an offering cannot be completed due to lack of investor interest, a 
company is likely to receive negative publicity, and the offering may 
be delayed or cancelled. The Price Range Limitation--which is imposed 
on a Primary Direct Floor Listing but not on an IPO--increases the 
probability of a failed offering because it contemplates there also 
being too much investor interest. In other words, if investor interest 
is greater than the company and other advisors anticipated, an offering 
would need to be delayed or cancelled.
    As the Commission has noted with respect to traditional firm 
commitment

[[Page 68560]]

underwritten offerings, the IPO price, which is established through 
negotiation between the underwriters and the issuer, is often lower 
than the price that the issuer could have obtained for the securities, 
based on a comparison of the IPO price to the closing price on the 
first day of trading.\19\ The Exchange believes that the price range in 
a company's effective registration statement for a Primary Direct Floor 
Listing is similarly determined by the company and other advisors and, 
therefore, there may be instances of offerings where the price 
determined by the Direct Listing Auction would exceed the highest price 
of the price range in the company's effective registration statement.
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    \19\ See, e.g., Approval Order, 85 FR at 85816, n. 113.
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    As described above, under current Exchange Rules, the DMM would not 
conduct a Direct Listing Auction for a security subject to a Primary 
Direct Floor Listing if the Auction Price determined is above the 
highest price of the price range established by the issuer in its 
effective registration statement. In this case, the offering would be 
cancelled or postponed until the company amends its effective 
registration statement. At a minimum, such a delay could expose the 
company to risks associated with changing investor sentiment in the 
event of an adverse market event. As a result, the Exchange believes 
that companies may be reluctant to use this alternative method of going 
public despite its expected potential benefits because of the 
restrictions of the Price Range Limitation.
Proposed Rule Change
    In light of the above, the Exchange proposes to modify the Price 
Range Limitation such that a Direct Listing Auction for a Primary 
Direct Floor Listing could proceed if the Auction Price is at or above 
the price that is 20% below the lowest price of the Issuer Price Range 
and at or below the price that is 80% above the highest price of such 
price range. In other words, the Exchange proposes that the DMM could 
conduct the Direct Listing Auction, provided all other necessary 
conditions are satisfied, even if the Auction Price is outside of the 
Issuer Price Range, if the Auction Price would not be more than 20% 
below the lowest price or more than 80% above the highest price of such 
range. In such cases (whether the Auction Price is lower or higher than 
the Issuer Price Range), the Exchange proposes that the company must 
have, in its effective registration statement, specified the quantity 
of shares registered, as permitted by Securities Act Rule 457.\20\
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    \20\ Securities Act Rule 457 permits issuers to register 
securities either by specifying the quantity of shares registered, 
pursuant to Rule 457(a), or the proposed maximum aggregate offering 
amount. The Exchange proposes to require that companies selling 
shares through a Primary Direct Floor Listing will register 
securities by specifying the quantity of shares registered and not a 
maximum offering amount.
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    The Exchange further proposes that, when the Auction Price is 
outside of the Issuer Price Range but not more than 20% below such 
price range and not more than 80% above the highest price of such price 
range, the Direct Listing Auction would not proceed unless the company 
has publicly disclosed and certified to the Exchange that (i) the 
company does not expect that such offering price would materially 
change the company's previous disclosure in its effective registration 
statement; (ii) the price range in the preliminary prospectus included 
in the effective registration statement is a bona fide price range in 
accordance with Item 501(b)(3) of Regulation S-K; and (iii) the 
company's registration statement contains a sensitivity analysis 
explaining how the company's plans would change if the actual proceeds 
from the offering differ from the amount assumed in the price range 
established by the issuer in its effective registration statement.\21\ 
In addition, if the company's certification submitted to the Exchange 
includes a price limit that is below the price that is 80% above the 
highest price of the Issuer Price Range, the Direct Listing Auction 
would not take place if the Auction Price is determined by the DMM to 
be above such limit. When the Auction Price is outside of the Issuer 
Price Range (whether it is lower or higher than such price range), the 
Exchange also proposes to provide the issuer with the opportunity to 
provide any necessary additional disclosures that are dependent on the 
price of the offering so that any such disclosures would be available 
to investors prior to the completion of the offering. Thus, the 
Exchange proposes that a Direct Listing Auction for a Primary Direct 
Floor Listing would not take place until the issuer confirms to the 
Exchange that no additional disclosures are required under federal 
securities laws based on the Auction Price determined by the DMM.
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    \21\ Sensitivity analysis disclosure may include, but is not 
limited to, use of proceeds; balance sheet and capitalization; and 
the company's liquidity position after the offering. A company could 
state, for example: ``We will apply the net proceeds from this 
offering first to repay all borrowings under our credit facility and 
then, to the extent of any proceeds remaining, to general corporate 
purposes.''
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    The Exchange believes that the additional requirements to permit a 
Direct Listing Auction to take place at an Auction Price that is 
outside of the Issuer Price Range (whether it is lower or higher than 
such price range), as proposed, would provide sufficient disclosures to 
allow investors to evaluate whether to participate in the Direct 
Listing Auction for a Primary Direct Floor Listing, including the 
opportunity to see how changes in share price may impact the company's 
disclosures.
    The Exchange believes that its proposal with respect to the Price 
Range Limitation for a Primary Direct Floor Listing can be analogized 
to SEC Rule 430A and question 227.03 of the SEC Staff's Compliance and 
Disclosure Interpretations, which generally allow a company to price a 
public offering 20% outside of the disclosed price range without regard 
to the materiality of the changes to the disclosure contained in the 
company's registration statement.\22\ The Exchange believes such 
guidance would also allow for deviation of greater than 20% above the 
highest price of the price range in a company's registration, provided 
that such change would not materially change the previous disclosure. 
Accordingly, the Exchange believes that a company listing in connection 
with a Primary Direct Floor Listing could specify the quantity of 
shares registered, as permitted by Securities Act Rule 457, and, if the 
Direct Listing Auction prices outside of the disclosed price range, use 
a Rule 424(b) prospectus, rather than a post-effective amendment, when 
either (i) the 20% threshold noted in Rule 430A is not exceeded, 
regardless of the materiality or non-materiality of resulting changes 
to the registration statement disclosure that would be contained in the 
Rule 424(b) prospectus, or (ii) there is a deviation above the price 
range beyond the 20% threshold noted in Rule 430A if such deviation 
would not materially change the previous disclosures, in each case 
assuming the number of shares issued is not increased from the number 
of shares disclosed in the prospectus.
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    \22\ See Compliance & Disclosure Interpretation of Securities 
Act Rules #227.03 at https://www.sec.gov/corpfin/securities-act-rules.
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    The Exchange notes that the Commission previously stated that while 
Securities Act 430A permits companies to omit specified price-related 
information from the prospectus included in the registration statement 
at the time of effectiveness, and later file

[[Page 68561]]

the omitted information with the Commission as specified in the rule, 
it neither prohibits a company from conducting a registered offering at 
prices beyond those that would permit a company to provide pricing 
information through a Securities Act Rule 424(b) prospectus supplement 
nor absolves any company relying on the rule from any liability for 
potentially misleading disclosure under the federal securities 
laws.\23\ Accordingly, the burden of complying with the disclosures 
required under federal securities laws, including providing any 
disclosure necessary to avoid any material misstatements or omissions, 
remains with the issuer. In that regard, the Exchange believes that, in 
circumstances where the Auction Price would be outside of the Issuer 
Price Range, providing the issuer with the opportunity, prior to the 
completion of the offering, to provide any necessary additional 
disclosures that are dependent on the price of the offering, if any, 
and/or determine and confirm to the Exchange that no additional 
disclosures are required under federal securities laws based on the 
Auction Price determined by the DMM.
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    \23\ Securities Exchange Act Release No. 93119 (September 24, 
2021), 86 FR 54262 (September 30, 2021).
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    The Exchange believes that an underwriter plays an important role 
in a traditional IPO and, therefore, proposes to require that a company 
listing securities on the Exchange in connection with a Primary Direct 
Floor Listing must retain an underwriter with respect to the primary 
sales of shares by the company and identify the underwriter in its 
registration statement. Describing the roles and responsibilities of an 
underwriter, the Commission recently explained that:

    [a]s intermediaries between an issuer and the investing public, 
underwriters play a critical role as ``gatekeepers'' to the public 
markets. Historically, in initial public offerings, where the 
investing public might be unfamiliar with a particular issuer, 
financial firms that act as underwriters would lend their well-known 
name to support that issuer's offering. Where public investors may 
not have been inclined to invest with the company seeking to conduct 
a public offering, they could take comfort in the fact that a large, 
well-known financial institution, acting as underwriter was 
including its name on the first page of the issuer's prospectus . . 
.
    An underwriter's participation in an issuer's offering also 
exposes the underwriter to potential liability under the Securities 
Act. The civil liability provisions of the Securities Act reflect 
the unique position underwriters occupy in the chain of distribution 
of securities and provide strong incentives for underwriters to take 
steps to help ensure the accuracy of disclosure in a registration 
statement. Section 11 of the Securities Act imposes on underwriters, 
among other parties identified in Section 11(a), civil liability for 
any part of the registration statement, at effectiveness, which 
contained an untrue statement of a material fact or omitted to state 
a material fact required to be stated therein or necessary to make 
the statements therein not misleading, to any person acquiring such 
security. Similarly, Section 12(a)(2) imposes liability upon anyone, 
including underwriters, who offers or sells a security, by means of 
a prospectus or oral communication, which includes an untrue 
statement of a material fact or omits to state a material fact 
necessary in order to make the statements, in light of the 
circumstances under which they were made, not misleading, to any 
person purchasing such security from them. These provisions provide 
significant investor protections to those who acquire securities 
sold pursuant to a registration statement by providing tools to hold 
companies, underwriters, and other parties accountable for 
misstatements and omissions in connection with public offerings of 
securities. As a result, anyone who might be named as a potential 
defendant in these suits has strong incentives to take the necessary 
steps to avoid such liability.
    One defense available to an underwriter in a distribution is the 
``due diligence'' defense, which shields an underwriter from 
liability if it can establish that, after reasonable investigation, 
the underwriter had reasonable ground to believe and did believe, at 
the time the registration statement became effective, that the 
statements therein were true and that there was no omission to state 
a material fact required to be stated therein or necessary to make 
the statements therein not misleading.\24\
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    \24\ Special Purpose Acquisition Companies, Shell Companies, and 
Projections (Proposed Rule), 87 FR 29458 (May 13, 2022).

    The Exchange believes that these significant investor protection 
provisions are necessary in a Primary Direct Floor Listing if an 
offering can price outside of the price range established in the 
issuer's effective registration statement, subject to the proposed 
limitations, because such provisions allow investors to make reasonable 
pricing decisions with clarity that the company's underwriter would 
face statutory liability, as described above. Accordingly, the Exchange 
proposes to require that a company listing securities on the Exchange 
through a Primary Direct Floor Listing must retain an underwriter with 
respect to the primary sales of shares by the company and identify the 
underwriter in its effective registration statement.
    The Exchange also believes that the requirement to retain a named 
underwriter, as described above, may mitigate concerns raised by the 
Commission in the OIP regarding challenges to bringing claims under 
Section 11 of the Securities Act due to the potential assertion of 
tracing defenses because an underwriter may choose to impose lock-up 
arrangements, as described below.
    As a preliminary matter, the Exchange notes that, in the Approval 
Order, the Commission explained that the issue of traceability:

    is potentially implicated anytime securities that are not the 
subject of a recently effective registration statement trade in the 
same market at those that are so subject. Where a registration 
statement, at the time of effectiveness, contains an untrue 
statement of a material fact or omits to state a material fact 
required to be stated therein or necessary to make the statements 
therein not misleading, Section 11(a) of the Securities Act provides 
a cause of action to ``any person acquiring such security,'' unless 
it is proved at the time of the acquisition the person ``knew of 
such untruth or omission.'' Courts have interpreted this statutory 
provision to permit aftermarket purchases (i.e., those who acquire 
their securities in secondary market transactions rather than in the 
initial distribution from the issuer or underwriter) to recover 
damages under Section 11, but only if they can trace the acquired 
shares back to the offering covered by the false or misleading 
registration statement. Tracing is not set forth in Section 11 and 
is judicially-developed doctrine. As such, the application of this 
doctrine and, in particular, the pleading standards and factual 
proof that potential claimants must satisfy vary depending on the 
particular facts of the distribution and judicial district.\25\
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    \25\ See Approval Order, 85 FR at 85815-16 (internal citations 
omitted).

    The Commission then reaffirmed its position that ``concerns 
regarding shareholders' ability to pursue claims pursuant to Section 11 
of the Securities Act due to traceability issues are not exclusive to 
nor necessarily inherent in Primary Direct Floor Listings'' and further 
stated that it ``is not aware of . . . any precedent to date in the 
direct listing context which prohibits plaintiffs from pursuing Section 
11 claims.'' \26\ The Exchange believes that no such precedent exists 
as of the date of this Amendment and that the modifications to the 
Price Range Limitation in this proposal do not, in any way, exacerbate 
the tracing issues.
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    \26\ See id. at 85816.
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    However, as stated above, the Exchange believes that the 
requirement to retain a named underwriter may mitigate traceability 
concerns that could arise in the context of a Primary Direct Floor 
Listing. As in a traditional firm commitment underwritten IPO, in which 
lock-up arrangements are often imposed, an underwriter in connection 
with a Primary Direct Floor Listing, as

[[Page 68562]]

required by the Amendment, would be able to impose lock-up agreements 
for the same reasons that make lock-up agreements common in an IPO.
    The Exchange also believes that the requirement to retain a named 
underwriter, as described above, mitigates concerns raised by the 
Commission in the OIP regarding the usefulness of price range 
disclosure provided to investors in a Securities Act registration 
statement filed in connection with a Primary Direct Floor Listing. The 
Exchange believes that an underwriter retained in connection with a 
Primary Direct Floor Listing would perform substantially similar 
functions, including those related to establishing and adjusting the 
price range, to those performed by an underwriter in a typical IPO 
because the underwriter would be subject to similar liability and 
reputational risk.
    To further mitigate concerns regarding the usefulness of price 
range disclosure provided to investors, the Exchange proposes to 
require that the securities of a company listing in connection with a 
Primary Direct Floor Listing cannot price above an ``Upper Limit,'' 
which would not be higher than 80% above the highest price of the 
Issuer Price Range. The Upper Limit would incentivize the company and 
its underwriter to set the disclosed price range to avoid the failed 
offering consequences described above. The Upper Limit would also 
encourage an issuer to adjust the price range disclosed in their 
registration statement prior to effectiveness in response to pricing 
feedback received from market analysts and potential investors.
    To determine an appropriate Upper Limit, the Exchange analyzed 
operation companies' IPOs on the NYSE and the Nasdaq Global Select 
Market for 2020 and 2021.\27\ This analysis indicated that the vast 
majority of IPOs opened at a price above the highest price of the 
issuer's disclosed price range and, moreover, that 90% of these IPOs 
opened at a price that was no more than the Upper Limit. Based on this 
data, the Exchange believes that, on balance, capital formation and 
investor protection goals would be best served by a pricing limitation 
equal to the Upper Limit.
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    \27\ This data set included approximately 600 records and 
includes IPOs that took place between January 2020 and December 
2021.
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    Given that, as proposed, there may be a Primary Direct Floor 
Listing that could price outside of the price range of the company's 
effective registration statement, subject to the Upper Limit above 
which the Direct Listing Auction could not proceed,\28\ the Exchange 
proposes to support price discovery transparency by providing readily 
available, real time pricing information to investors. Specifically, 
the DMM's pre-opening indications for a security to be opened in a 
Direct Listing Auction for a Primary Direct Floor Listing would 
continue to be published via the securities information processor 
(``SIP'') and proprietary data feeds.\29\ In addition, the Exchange 
would make the Indication Reference Price available, free of charge, on 
a public website (such as www.nyse.com) on the day such Auction is 
anticipated to take place.\30\
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    \28\ In addition, if the company's certification to the Exchange 
includes a price limit that is lower than the Upper Limit and the 
Auction Price determined by the DMM exceeds such lower price limit, 
the Exchange would not conduct the Direct Listing Auction.
    \29\ The Exchange notes that its dissemination of pre-opening 
indications for a security to be opened in a Direct Listing Auction 
for a Primary Direct Floor Listing via the SIP and proprietary data 
feeds is consistent with the availability of the same for securities 
opened in IPOs and believes that interested investors have found 
pre-opening indications to be readily accessible and to provide 
useful real time pricing information to inform their participation 
in such auctions. The Exchange thus believes that its proposal 
addresses the concerns raised in the OIP regarding the sufficiency 
of price discovery transparency for investors.
    \30\ The Indication Reference Price for a security to be opened 
in a Primary Direct Floor Listing is the lowest price of the Primary 
Direct Floor Listing Price Range. See Rule 7.35A(d)(2)(A)(v).
---------------------------------------------------------------------------

    In addition, to protect investors and enhance disclosure in 
connection with a Primary Direct Floor Listing, the Exchange proposes 
to adopt certain requirements for member organizations with respect to 
Primary Direct Floor Listings. Specifically, the Exchange proposes to 
require member organizations to provide to a customer, before that 
customer places an order to participate in the Direct Listing Auction 
for a Primary Direct Floor Listing, a notice describing the mechanics 
of pricing a security subject to a Direct Listing Auction for a Primary 
Direct Floor Listing, including information regarding the availability 
of pre-opening indications via the SIP and proprietary data feeds and 
the location of the public website where the Exchange will disseminate 
information relating to the Indication Reference Price.
    The Exchange further proposes to distribute, at least one business 
day prior to the commencement of trading of a security listing in 
connection with a Primary Direct Floor Listing, a regulatory bulletin 
that describes any special characteristics of the offering and the 
Exchange rules that apply to the pricing of a Primary Direct Floor 
Listing. The regulatory bulletin would also include information about 
the notice that member organizations would be required to provide 
customers, as proposed, and remind member organizations of their 
obligations pursuant to the Exchange rules that:
     Require member organizations to use reasonable diligence 
in regard to the opening and maintenance of every account, to know (and 
retain) the essential facts concerning every customer and concerning 
the authority of each person acting on behalf of such customer (Rule 
2090); and
     Require member organizations in recommending transactions 
for a security subject to a Direct Listing Auction for a Primary Direct 
Floor Listing to have a reasonable basis to believe that: (i) the 
recommendation is suitable for a customer given reasonable inquiry 
concerning the customer's investment objectives, financial situation, 
needs, and any other information known by such member organizations, 
and (ii) the customer can evaluate the special characteristics, and is 
able to bear the financial risks, of an investment in such security 
(Rule 2111).
    These member organization requirements are intended to remind 
members of their obligations to ``know their customers'' and would also 
serve to increase transparency regarding the pricing mechanisms 
applicable to a Primary Direct Floor Listing and help provide investors 
with sufficient price discovery information.
    For each Primary Direct Floor Listing, the Exchange proposes that 
its regulatory bulletin would also inform market participants that the 
Auction Price could be up to 20% below the lowest price of the price 
range in the company's effective registration statement and specify 
what that price is. The Exchange's regulatory bulletin would also 
indicate the price above which the Direct Listing Auction for the 
Primary Direct Floor Listing could not proceed (i.e., the Upper Limit 
or other lower price based on the company's certification as described 
above).
Amendments to the Manual
    Section 102.01B(E) of the Manual provides that companies may be 
listed on the Exchange through a Primary Direct Floor Listing. More 
specifically, a company that has not previously had its common equity 
securities registered under the Act may list its common equity 
securities on the Exchange at the time of effectiveness of a 
registration statement pursuant to which the company itself will sell 
shares in the opening auction on the first day of trading on the 
Exchange. A Primary Direct Floor Listing is any such listing in which 
either (i) only the company

[[Page 68563]]

itself is selling shares in the opening auction on the first day of 
trading or (ii) the company is selling shares and selling shareholders 
may also sell shares in such opening auction.
    Section 102.01B(E) of the Manual also provides that, with respect 
to a Primary Direct Floor Listing, the Exchange will deem a company to 
have met the applicable aggregate market value of publicly-held shares 
requirement if the company will sell at least $100,000,000 in market 
value of shares in the Exchange's opening auction on the first day of 
trading on the Exchange. The Manual further provides that, where a 
company is conducting a Primary Direct Floor Listing and will sell 
shares in the opening auction with a market value of less than 
$100,000,000, the Exchange will determine that such company has met its 
market-value of publicly-held shares requirement if the aggregate 
market value of the shares the company will sell in the opening auction 
on the first day of trading and the shares that are publicly held 
immediately prior to the listing is at least $250,000,000 with such 
market value calculated using a price per share equal to the lowest 
price of the price range established by the issuer in its registration 
statement.
    To effect the changes to the Price Range Limitation described above 
and facilitate the possibility of a Direct Listing Auction for a 
Primary Direct Floor Listing pricing up to 20% below the price range 
disclosed in an issuer's effective registration statement, the Exchange 
proposes to modify Section 102.01B(E) of the Manual to provide that the 
Exchange would calculate the market value of such company's shares 
using a price per share equal to the lowest price of the price range 
established by the issuer in its effective registration statement, 
minus an amount equal to 20% of the highest price included in such 
price range, which will be referred to as the ``Primary Direct Floor 
Listing Minimum Price.'' As noted above, the Exchange proposes that a 
company listing its securities on the Exchange pursuant to a Primary 
Direct Floor Listing must have (1) specified the quantity of shares 
registered, as permitted by Securities Act Rule 457, in its effective 
registration statement, and (2) retained an underwriter with respect to 
the primary sales of shares by the company and identified the 
underwriter in its effective registration statement. Accordingly, the 
Exchange further proposes to amend Section 102.01B(E) to include this 
requirement.
Amendments to Exchange Rules
    To implement the changes to the Price Range Limitation described 
above, the Exchange also proposes the following changes to Rules 7.31 
and 7.35A.
Proposed Changes to Rule 7.31
    The Exchange proposes to modify Rule 7.31(c)(1)(D), which defines 
the IDO Order. Rule 7.31(c)(1)(D) currently provides that an IDO Order 
is a Limit Order to sell that is to be traded only in a Direct Listing 
Auction for a Primary Direct Floor Listing, and Rule 7.31(c)(1)(D)(ii) 
currently provides that the limit price of an IDO Order must be equal 
to the lowest price of the price range established by the issuer in its 
effective registration statement. The Exchange proposes to modify Rule 
7.31(c)(1)(D)(ii) to provide that the limit price of an IDO Order would 
be equal to the lowest price of the ``Primary Direct Floor Listing 
Auction Price Range'' and to redefine the ``Primary Direct Floor 
Listing Auction Price Range'' as 20% below the lowest price and 80% 
above the highest price of the price range established by the issuer in 
its effective registration statement. The Exchange also proposes to 
define ``Issuer Price Range'' as the price range established by the 
issuer in its effective registration statement. Thus, Rule 
7.31(c)(1)(D)(ii), as modified, would facilitate the proposed changes 
to the Price Range Limitation by providing that the limit price of an 
IDO Order would be equal to the price that is 20% below the lowest 
price of the Issuer Price Range.
    The Exchange further proposes to specify in Rule 7.31(c)(D)(ii) 
that, for purposes of determining the Primary Direct Floor Listing 
Price Range, the 20% and 80% thresholds would be calculated based on 
the highest price of the Issuer Price Range.
Proposed Changes to Rule 7.35A
    Rule 7.35A sets forth rules pertaining to Core Open Auctions and 
Trading Halt Auctions facilitated by a DMM. Rule 7.35A(d) sets forth 
Exchange rules relating to pre-opening indications published by a DMM 
in connection with a DMM-facilitated auction. This Rule currently 
provides that a pre-opening indication will include the security and 
the price range within which the Auction Price is anticipated to occur 
and that a pre-opening indication--including for a Direct Listing 
Auction for a Primary Direct Floor Listing--will be published via the 
securities information processor and proprietary data feeds.
    Rule 7.35A(d)(2)(A) and the subparagraphs thereunder describe the 
Indication Reference Price for a security to be opened in a DMM-
facilitated auction. The Exchange proposes to amend Rule 
7.35A(d)(2)(A)(v), which currently provides that, for a security that 
is a Primary Direct Floor Listing, the Indication Reference Price will 
be the lowest price of the Primary Direct Floor Listing Auction Price 
Range. To effect the proposed requirement described above that the 
Exchange disseminate the Indication Reference Price on a public 
website, the Exchange proposes to add this requirement to Rule 
7.35A(d)(2)(A)(v). The Exchange also notes that, based on the proposed 
revision to the definition of Primary Direct Floor Listing Auction 
Price Range in Rule 7.31(c)(1)(D)(ii), the Indication Reference Price 
for a Primary Direct Floor Listing would be the price that is 20% below 
the lowest price of the Issuer Price Range, consistent with the 
proposed changes to the Price Range Limitation described above.
    Next, the Exchange proposes to modify Rule 7.35A(g)(2), which 
specifies the circumstances under which a DMM may not conduct a Direct 
Listing Auction for a Primary Direct Floor Listing. Structurally, the 
Exchange proposes to amend Rule 7.35A(g)(2) such that the rule would 
specify requirements for a Direct Listing Auction for a Primary Direct 
Floor Listing to proceed, rather than specifying circumstances under 
which a DMM would not conduct a Direct Listing Auction for a Primary 
Direct Floor Listing.
    Rule 7.35A(g)(2)(A) currently provides that the DMM will not 
conduct a Direct Listing Auction for a Primary Direct Floor Listing if 
the Auction Price would be below the lowest price or above the highest 
price of the Primary Direct Floor Listing Auction Price Range. The 
Exchange proposes to modify this rule to specify that the Auction Price 
for a Direct Listing Auction for a Primary Direct Floor Listing may not 
be lower than the price that is 20% below the lowest price of the 
Issuer Price Range or higher than the price that is 80% above the 
highest price of the Issuer Price Range. In other words, the Auction 
Price may not be outside of the Primary Direct Floor Listing Auction 
Price Range, as defined in amended Rule 7.31(c)(1)(D)(ii). The Exchange 
proposes that Rule 7.35A(g)(2)(A) would further provide that, if an 
issuer has certified to the Exchange a maximum Auction Price that is 
lower than 80% above the highest price of the Issuer Price Range, the 
Auction Price may not exceed such lower price.

[[Page 68564]]

    The Exchange proposes to amend Rule 7.35A(g)(2)(B) to provide that 
a Direct Listing Auction could proceed when the Auction Price is 
outside of the Issuer Price Range but within the Primary Direct Floor 
Listing Auction Price Range (as described in proposed Rule 
7.35A(g)(2)(A)) if the issuer has previously certified to the Exchange 
and publicly disclosed that:
     The issuer does not expect that the Auction Price would 
materially change its previous disclosure in its effective registration 
statement (proposed Rule 7.35A(g)(2)(B)(i)(a));
     The price range in the preliminary prospectus included in 
the effective registration statement is a bona fide price range in 
accordance with Item 501(b)(3) of Regulation S-K (proposed Rule 
7.35A(g)(2)(B)(i)(b)); and
     The registration statement contains a sensitivity analysis 
explaining how the issuer's plans would change if the actual proceeds 
from the offering differ from the amount assumed in the price range 
established by the issuer in its effective registration statement 
(proposed Rule 7.35A(g)(2)(B)(i)(c)).
    Proposed Rule 7.35A(g)(2)(B)(ii) would further provide that, when 
the Auction Price determined by the DMM is outside of the Issuer Price 
Range (whether lower or higher), the issuer would be required to 
confirm to the Exchange that no additional disclosures are required 
under the federal securities laws based on such price. This proposed 
change would permit issuers to comply with their disclosure obligations 
under federal securities laws and provide investors with access to the 
requisite disclosures before the offering would proceed, as detailed 
above. Upon receiving confirmation from the issuer that any such 
obligations have been met, the Exchange would relay that information to 
the DMM to proceed with the Direct Listing Auction.
    Finally, the Exchange proposes to add new subparagraph (C) under 
Rule 7.35A(g)(2). Proposed Rule 7.35A(g)(2)(C)(i) would reflect the 
requirement set forth in current Rule 7.35A(g)(2)(B) that the DMM may 
not conduct a Direct Listing Auction for a Primary Direct Floor Listing 
if there is insufficient buy interest to satisfy both the IDO Order and 
all better-priced sell orders in full. The Exchange does not propose to 
change this requirement, other than adding clarifying text to specify 
that such orders would be satisfied at the Auction Price.
    Proposed Rule 7.35A(g)(2)(C)(ii) would set forth an additional 
requirement that must be satisfied before the DMM could conduct a 
Direct Listing Auction for a Primary Direct Floor Listing. This 
proposed change would reflect the proposed requirements described above 
regarding the regulatory bulletin to be distributed by the Exchange. 
Proposed Rule 7.35A(g)(2)(C)(ii) would provide that the DMM would not 
proceed with a Direct Listing Auction for a Primary Direct Floor 
Listing until it has been notified by the Exchange that the additional 
conditions set forth in new Commentary .20 to Rule 7.35A have been 
satisfied. Proposed Commentary .20 to Rule 7.35A would provide that the 
Direct Listing Auction for a Primary Direct Floor Listing for a 
security may not be conducted until the Exchange has notified the DMM 
that, at least one business day prior to the commencement of trading in 
such security, the Exchange has distributed a regulatory bulletin 
describing any special characteristics of the offering and the Exchange 
rules that apply to the pricing of the Primary Direct Floor Listing; 
the obligations of member organizations pursuant to Exchange Rules 2090 
and 2111; and the requirement that a member organization provide its 
customers with a notice with information regarding the Direct Listing 
Auction for a Primary Direct Floor Listing. This proposed change would 
(i) facilitate the requirements described above to provide member 
organizations with sufficient information so that they may in turn 
inform their customers, (ii) remind member organizations of their 
obligations to ``know their customers,'' (iii) increase transparency 
around the pricing mechanisms of a Primary Direct Floor Listing, and 
(iv) help provide investors with sufficient price discovery 
information.
    Proposed Rule 7.35A(g)(2)(C)(iii) would provide that the DMM would 
not conduct a Direct Listing Auction for a Primary Direct Floor Listing 
if the Auction Price is outside of the Issuer Price Range and the 
issuer has not satisfied the conditions set forth in proposed Rules 
7.35A(g)(2)(A), 7.35A(g)(2)(B)(i), and 7.35A(g)(2)(B)(ii). The Exchange 
proposes this rule to reinforce that a Direct Listing Auction for a 
Primary Direct Floor Listing could not proceed in these circumstances 
unless the Auction Price meets the requirements of proposed Rule 
7.35A(g)(2)(A) and the issuer has made the requisite disclosures 
described in proposed Rule 7.35A(g)(2)(B).
1. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Exchange Act,\31\ in general, and furthers the 
objectives of Section 6(b)(5) of the Exchange Act,\32\ in particular, 
in that it is designed to promote just and equitable principles of 
trade, to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78f(b).
    \32\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed modification of the Price 
Range Limitation would promote just and equitable principles of trade, 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and protect investors and the 
public interest because the proposed approach is similar to the pricing 
of an IPO, where the issuer is permitted to price outside of the price 
range disclosed in its effective registration statement in accordance 
with the SEC Staff's guidance, as described above.\33\ Specifically, 
the Exchange believes that it is reasonable to permit the Direct 
Listing Auction for a Primary Direct Floor Listing to proceed if the 
Auction Price is as low as 20% below the lowest price of the Issuer 
Price Range or as high as 80% above the highest price of such price 
range (or as high as the upper price limit set by the issuer in its 
certification to the Exchange)--because a company listing in connection 
with a Primary Direct Floor Listing could specify the quantity of 
shares registered, as permitted by Securities Act Rule 457, and, when 
the Auction Price is outside of the disclosed price range, use a Rule 
424(b) prospectus, rather than a post-effective amendment, when either 
(i) the 20% threshold noted in Rule 430A is not exceeded, regardless of 
the materiality or non-materiality of resulting changes to the 
registration statement disclosure that would be contained in the Rule 
424(b) prospectus, or (ii) there is a deviation above the price range 
beyond the 20% noted in Rule 430A if such deviation would not 
materially change the previous disclosure, in each case assuming the

[[Page 68565]]

number of shares issued is not increased from the number of shares 
disclosed in the prospectus.
---------------------------------------------------------------------------

    \33\ See Compliance & Disclosure Interpretation of Securities 
Act Rules #227.03, supra note 15. The Exchange also notes that, in a 
recent speech, SEC Chair Gary Gensler emphasized that an overarching 
principle of regulation is that like activities ought to be treated 
alike. See https://www.sec.gov/news/speech/gensler-healthy-markets-associationconference-120921 (``Gensler Speech'').
---------------------------------------------------------------------------

    In addition, in the event that the Auction Price is outside of the 
Issuer Price Range, the Exchange proposes that the Direct Listing 
Auction for a Primary Direct Floor Listing could still proceed, but 
would not be conducted until the issuer has met disclosure requirements 
that would help provide investors with additional information regarding 
the offering, including a requirement that the issuer's effective 
registration statement contain a sensitivity analysis explaining how 
the issuer's plans would change if the actual proceeds from the Primary 
Direct Floor Listing are lower or higher than the amount assumed by the 
price range set forth in the registration statement. The Exchange also 
proposes to require that an issuer must have confirmed to the Exchange 
that no additional disclosures are required under the federal 
securities laws based on the Auction Price determined. The issuer would 
thus have the opportunity to provide any necessary additional 
disclosures that are dependent on the price of the offering prior to 
the completion of the offering. Accordingly, the Exchange believes that 
this proposed change is designed to promote just and equitable 
principles of trade and to remove impediments to and perfect the 
mechanism of a free and open market because it would allow an offering 
to proceed under certain circumstances when the Auction Price is 
outside of the Issuer Price Range--including where investor interest is 
greater than the company and its advisors anticipated (thereby 
promoting capital formation)--while protecting investors by requiring 
that a company listing shares through a Primary Direct Floor Listing 
make applicable disclosures under the federal securities laws. The 
Exchange also believes that its proposal to allow a Direct Listing 
Auction for a Primary Direct Floor Listing to price above the Issuer 
Price Range but below the Upper Limit is designed to promote just and 
equitable principles of trade and remove impediments to and perfect the 
mechanism of a free and open market because this approach is similar 
to, but more stringent than, that of pricing a traditional IPO. The 
Exchange also believes that the proposed Upper Limit and requirement 
that the securities of a company listing in connection with a Primary 
Direct Floor Listing cannot price above such Upper Limit is designed to 
protect investors and the public interest because it would incentivize 
the company, its underwriter, and other advisors to avoid a failed 
offering by taking steps to ensure the accuracy of price range 
disclosure in a registration statement, thereby providing the investing 
public with a useful and reliable price range in connection with the 
planned Primary Direct Floor Listing.
    The Exchange also believes that the proposed requirement that a 
company offering securities for sale in connection with a Primary 
Direct Floor Listing must retain an underwriter with respect to the 
primary sales of shares by the company and identify the underwriter in 
its effective registration statement would promote just and equitable 
principles of trade, remove impediments to and perfect the mechanism of 
a free and open market, and protect investors and the public interest 
because the requirement would facilitate holding underwriters 
accountable for potential misstatements and omissions in connection 
with a Primary Direct Floor Listing. The Exchange also believes that an 
underwriter would be incentivized to take necessary steps to support 
accurate price range disclosure to avoid exposure to statutory 
liability, thereby offering the investing public greater assurances 
with respect to the reliability of the price range disclosure for a 
Primary Direct Floor Listing.
    The Exchange also believes that the proposed change is designed to 
promote investor protection because the Exchange would support price 
discovery transparency by providing readily available, real time 
pricing information to investors by disseminating pre-opening 
indications via the SIP and proprietary data feeds on the day on which 
the Direct Listing Auction for a Primary Direct Floor Listing is 
anticipated to take place. Market participants would thus have ready 
access to up-to-date pricing information leading up to a Direct Listing 
Auction for a Primary Direct Floor Listing.
    In particular, the Exchange believes that making pre-opening 
indications readily available to market participants would provide 
price transparency to the market in connection with Primary Direct 
Floor Listings. Pre-opening indications, which are based on the DMM's 
assessment of interest eligible to participate in the Direct Listing 
Auction for a Primary Direct Floor Listing, would provide notice of 
when price volatility has subsided and price equilibrium has been met 
with respect to the orders that wish to participate in such Auction. In 
addition, Exchange rules establishing pre-opening indication procedures 
already include requirements supporting the precision and reliability 
of pre-opening indications, such as those set forth in Rule 
7.35A(d)(4)(C), which provides that DMMs should aim to publish a pre-
opening indication with a spread of less than $1.00 before opening a 
security; Rule 7.35A(d)(4)(D), which provides that the DMM must wait 
for certain minimum specified periods after publishing a pre-opening 
indication and before opening a security; and Rule 7.35A(d)(4)(G), 
which provides that the DMM may not open a security outside of the 
last-published pre-opening indication. As the table below shows, the 
DMMs in the Selling Shareholder Direct Floor Listings that took place 
in 2020 and 2021 indicated very tight and reliable anticipated opening 
price ranges irrespective of the amount of time between the last 
indication and opening auction:

----------------------------------------------------------------------------------------------------------------
                                                 Last pre-                      Time elapsed between last pre-
Date of direct listing auction     Symbol         opening      Auction price    opening indication and auction
                                                indication                                   open
----------------------------------------------------------------------------------------------------------------
9/30/2020.....................  PLTR              9.95-10.05              10  10 minutes, 19 seconds.
9/30/2020.....................  ASAN                26.75-27              27  2 minutes, 24 seconds.
3/10/2021.....................  RBLX             64.25-64.75            64.5  3 minutes, 2 seconds.
5/19/2021.....................  SQSP                 47.5-48              48  2 minutes, 31 seconds.
5/26/2021.....................  ZIP              19.75-20.25              20  16 minutes, 29 seconds.
9/29/2021.....................  WRBY                 54-54.5           54.05  12 minutes, 31 seconds.
----------------------------------------------------------------------------------------------------------------

    The Exchange thus believes that its existing pre-opening indication 
process provides significant investor protection measures based on the 
Exchange rules governing the publishing of pre-opening indications and 
the judgment applied by the DMM in refining the anticipated price range 
of a security to be opened in a Direct Listing Auction as

[[Page 68566]]

appropriate and in determining that the price has reached stability, 
such that the Direct Listing Auction should proceed.\34\
---------------------------------------------------------------------------

    \34\ The Exchange believes that it would be appropriate to 
permit Market Orders and MOO Orders (as defined in Rules 7.31(a)(1) 
and 7.31(c)(1)(B)) to participate in a Direct Listing Auction for a 
Primary Direct Floor Listing, given the safeguards provided by the 
pre-opening indication process. Although Market Orders and MOO 
Orders are unpriced orders, the Exchange believes that Market Orders 
and MOO Orders that participate in a Direct Listing Auction for a 
Primary Direct Listing would not be subject to extreme price 
volatility due to the DMM's role in refining pre-opening indications 
and determining the Auction Price, as well as the DMM's obligation 
under Rule 7.35A(g) to fill all better-priced interest. Moreover, 
investors submitting Market Orders and MOO Orders would have the 
benefit of readily available, real time pricing information to 
inform their decision to participate in the Auction. The Exchange 
also notes that data from IPOs (which are not subject to the Price 
Range Limitation) that took place in the last six calendar months 
indicates that MOOs made up a significant portion of opening auction 
volume and thus believes that allowing MOOs to participate in a 
Direct Listing Auction for a Primary Direct Floor Listing could 
encourage investor participation.
---------------------------------------------------------------------------

    The Exchange believes that its proposal to issue a regulatory 
bulletin as outlined above would promote just and equitable principles 
of trade, remove impediments to and perfect the mechanism of a free and 
open market, and promote investor protection because it would provide 
member organizations with the necessary information to share with their 
customers regarding the Primary Direct Floor Listing. Specifically, the 
proposed regulatory bulletin would be distributed at least one business 
day prior to the commencement of trading in a security to be listed in 
connection with a Direct Listing Auction for a Primary Direct Floor 
Listing and would describe any special characteristics of the offering, 
as well as the Exchange Rules that apply to the pricing of a Direct 
Listing Auction for a Primary Direct Floor Listing. The regulatory 
bulletin would inform prospective participants in the Direct Listing 
Auction that the Auction Price could be up to 20% below the lowest 
price of the Issuer Price Range (and specify what that price is) and 
indicate the price above which the Direct Listing Auction for a Primary 
Direct Floor Listing could not proceed, which would be either the Upper 
Limit or a lower limit based on the company's certification as 
described above. The Exchange also believes that the regulatory 
bulletin would further the protection of investors by reminding member 
organizations of their obligations pursuant to Exchange Rules 2090 and 
2111 to ``know their customers,'' providing member organizations and 
their customers with information regarding the pricing mechanism of a 
Direct Listing Auction for a Primary Direct Floor Listing, and helping 
investors receive sufficient price discovery information.
    The Staff of the Commission in a Compliance and Disclosure 
Interpretation has indicated that pricing up to 20% below the lowest 
price and at a price above the highest price of the price range set 
forth in the company's effective registration statement is appropriate 
for a company conducting an IPO, notwithstanding that the price would 
be outside of the range stated in the company's effective registration. 
The Exchange believes that investors have become familiar with this 
approach at least since the Staff last revised Compliance and 
Disclosure Interpretation 227.03 in January 2009.\35\ Accordingly, the 
Exchange believes that allowing Direct Listing Auctions in connection 
with a Primary Direct Floor Listing to similarly price up to 20% below 
the lowest price and at a price not more than 80% above the highest 
price of the price range in the company's effective registration 
statement would be consistent with both Chair Gensler's recent call to 
treat ``like cases alike'' \36\ and the protection of investors.
---------------------------------------------------------------------------

    \35\ See Compliance & Disclosure Interpretation of Securities 
Act Rules #227.03, supra note 15.
    \36\ See Gensler Speech, supra note 26.
---------------------------------------------------------------------------

    The Exchange also believes that the proposed changes to the Manual 
are consistent with the protection of investors. Specifically, the 
proposed change to Section 102.01B(E) to specify that a company 
offering securities for sale in connection with a Primary Direct Floor 
Listing must register securities by specifying the quantity of shares 
registered, as permitted by Securities Act Rule 457(a), would promote 
investor protection because it would provide certainty regarding the 
number of shares available in connection with the Primary Direct Floor 
Listing, even if the Auction Price of such shares may be outside of the 
price range specified in the issuer's effective registration statement. 
The Exchange also believes that the proposed change to Section 
102.01B(E) to specify that a company offering securities for sale in 
connection with a Primary Direct Floor Listing must retain an 
underwriter with respect to the primary sales of shares by the Company 
and identify the underwriter in its effective registration statement 
would support the protection of investors for the reasons described 
above. The Exchange also believes that the proposed change to Section 
102.01B(E) to reflect that the market value calculation of a company's 
shares would be based on a price per share equal to the lowest price of 
the price range established by the issuer in its registration 
statement, less an amount equal to 20% of the highest price included in 
such price range, is consistent with the protection of investors 
because it would not modify any other applicable listing requirements 
and would update the Manual to align with the proposed changes to the 
Price Range Limitation described herein.
    Finally, the Exchange believes that its proposed changes with 
respect to the Price Range Limitation would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because they would not change the existing process for a DMM-
facilitated Direct Listing Auction for a Primary Direct Floor Listing, 
but would eliminate a potential impediment to companies considering a 
Primary Direct Floor Listing, thereby encouraging capital formation. In 
addition, the proposed changes are designed to protect investors and 
the public interest because they would provide an expanded opportunity 
for a Primary Direct Floor Listing to proceed so that the issuer's 
securities can be listed and begin trading on the secondary market.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Rather, the proposed change 
would increase competition by continuing to facilitate new pathways for 
companies to access the public markets.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:
Electronic Comments
     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or

[[Page 68567]]

     Send an email to [email protected]. Please include 
File Number SR-NYSE-2022-14 on the subject line.
Paper Comments
     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2022-14. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSE-2022-14, and should be submitted on 
or before December 6, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
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    \37\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-24767 Filed 11-14-22; 8:45 am]
BILLING CODE 8011-01-P