Document ID: SEC-2020-2069-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2020-12-28T05:00Z

[Federal Register Volume 85, Number 248 (Monday, December 28, 2020)]
[Notices]
[Pages 84434-84436]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28518]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90729; File No. SR-NASDAQ-2020-060]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Approving a Proposed Rule Change, as Modified by Amendment No. 1, To 
Treat as an Eligible Switch, for Purposes of IM-5900-7, an Acquisition 
Company That Switches From NYSE to Nasdaq After Announcing a Business 
Combination

December 18, 2020.

I. Introduction

    On September 1, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' 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 treat as an Eligible Switch, for purposes of 
IM-5900-7, an Acquisition Company that switches from the New York Stock 
Exchange (``NYSE'') to Nasdaq after announcing a business combination. 
On September 14, 2020, the Exchange filed Amendment No. 1 to the 
proposed rule change, which amended and replaced the proposed rule 
change in its entirety. The proposed rule change, as modified by 
Amendment No. 1, was published in the Federal Register on September 21, 
2020.\3\ The Commission received no comments on the proposal, as 
modified by Amendment No. 1. This order approves the proposed rule 
change, as modified by Amendment No. 1.
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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. 89875 (September 15, 
2020), 85 FR 59346 (``Notice'').
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II. Description of the Proposal

    Nasdaq proposes to modify IM-5900-7 to treat as an Eligible Switch 
under that rule any Acquisition Company \4\ that both: (i) Switched its 
listing from NYSE to list on Nasdaq under IM-5101-2 after the company 
publicly announced that it entered into a binding agreement for a 
business combination; and (ii) subsequently satisfies the conditions in 
IM-5101-2(b) and lists on the Nasdaq Global or Global Select Markets, 
by meeting all listing requirements of one of these market tiers, in 
conjunction with that business combination.\5\
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    \4\ IM-5101-2 imposes additional listing requirements on a 
company whose business plan is to complete an initial public 
offering (``IPO'') and engage in a merger or acquisition with one or 
more unidentified companies within a specific period of time 
(``Acquisition Companies'').
    \5\ See Notice, supra note 3, 85 FR at 59347. As Nasdaq states 
in its rule proposal, the combined company would again have to 
satisfy all initial listing requirements at the time of the business 
combination. See IM-5101-2(d) and (e); Notice, supra note 3, 85 FR 
at 59347. If the Company does not meet the requirements for initial 
listing or does not comply with one of the requirements set forth in 
IM-5101-2, Nasdaq will issue a Staff Delisting Determination under 
Nasdaq Rule 5810 to delist the company's securities.
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    Currently, a company completing a business combination with a 
Nasdaq-listed Acquisition Company is eligible to receive services under 
IM-5900-7 when it lists, by meeting the listing requirements on the 
Nasdaq Global or Global Select Market, in conjunction with a business 
combination that satisfies the conditions in IM-5101-2(b).\6\ According 
to Nasdaq, at this point, the Acquisition Company transitions to being 
an operating company and has a similar need as other companies for 
shareholder communication services, market analytic tools and market 
advisory tools. Nasdaq states that, for this purpose, the Acquisition 
Company is treated as an ``Eligible New Listing'' under the rule, 
similar to a company listing in connection with its IPO.\7\
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    \6\ See IM-5900-7(e). Specifically, within 36 months of the 
effectiveness of its IPO registration statement, or such shorter 
period that the company specifies in its registration statement, the 
company must complete one or more business combinations having an 
aggregate fair market value of at least 80% of the value of the 
deposit account (excluding any deferred underwriters fees and taxes 
payable on the income earned on the deposit account) at the time of 
the agreement to enter into the initial combination. See IM-5101-
2(b).
    \7\ See Notice, supra note 3, 85 FR at 59347.
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    Additionally, under IM-5900-7, Nasdaq treats a company that 
switches its listing from NYSE to the Nasdaq Global or Global Select 
Market as an ``Eligible Switch'' and, according to Nasdaq, offers such 
companies a package of services that can be more valuable than the 
package of services offered to Eligible New Listings.\8\ Nasdaq states 
that, under the current rule, an Acquisition Company listed on NYSE 
that switches to Nasdaq as an Acquisition Company would not receive any 
services when it switches, even if it has already announced its 
business combination, but would receive services as an Eligible New 
Listing when it completes a business combination that satisfies the 
requirements of IM-5101-2(b). However, if the company waits until it 
completes a business combination and then switches to Nasdaq, the 
company would receive services as an Eligible Switch.\9\ According to 
Nasdaq, removing the existing incentive for an Acquisition Company to 
delay switching its listing to Nasdaq until the time of its business 
combination will allow Nasdaq to process both the removal of the 
Acquisition Company and the simultaneous addition of the operating 
company, which will help ensure that the transaction is processed 
smoothly for the benefit of the company's investors.\10\
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    \8\ See Notice, supra note 3, 85 FR at 59347. In particular, an 
Eligible Switch with a market capitalization less than $750 million 
receives the same package of services for the same two year term as 
an Eligible New Listing. But an Eligible Switch with a market 
capitalization of $750 million or more receives services with a 
higher total retail value than a comparably sized Eligible New 
Listing and will receive those services for four years instead of 
two years. See Notice, supra note 3, 85 FR at 59347, n.8.
    \9\ See Notice, supra note 3, 85 FR at 59347 (stating that in 
this scenario the company would not be listing on Nasdaq as an 
Acquisition Company).
    \10\ See Notice, supra note 3, 85 FR at 59347. Nasdaq states 
that, otherwise, multiple markets would need to coordinate the 
removal of the company's securities from one market, a change in the 
name and symbol of the securities, and the addition of securities to 
another market, which all occurs in conjunction with the closing of 
the business combination (itself a significant corporate event). See 
id.
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    Pursuant to the proposed rule change, Nasdaq proposes to treat as 
an Eligible Switch any company that switches its listing from NYSE and 
lists on Nasdaq under IM-5101-2 after the company has publicly 
announced that it entered into a binding agreement for a business 
combination and that subsequently satisfies the conditions in IM-5101-
2(b) and lists on the Global or Global Select Market in conjunction 
with that business combination.\11\ Nasdaq states

[[Page 84435]]

that an Acquisition Company could only switch its listing to Nasdaq if 
it satisfies all of Nasdaq's initial listing requirements. Nasdaq 
further states that the combined company would again have to satisfy 
all initial listing requirements at the time of the business 
combination.\12\ According to Nasdaq, as under existing rules, the 
Acquisition Company itself would not receive services as an Eligible 
Switch under the proposed rule and the services would only be available 
to the company upon completing its business combination and listing on 
the Nasdaq Global or Global Select Markets pursuant to the conditions 
described in IM-5900-7(e).\13\
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    \11\ See proposed IM 5900-7(a)(2). According to Nasdaq, in the 
event that the Acquisition Company terminates the business 
combination that was announced when it switched, it would not be 
eligible to receive services as an Eligible Switch under the 
proposed rule; however, if the Acquisition Company subsequently 
completes a different business combination it may be eligible to 
receive services as an Eligible New Listing as described in existing 
IM-5900-7(e). See Notice, supra note 3, 85 FR at 59347, n.9.
    \12\ See Notice, supra note 3, 85 FR at 59347.
    \13\ See Notice, supra note 3, 85 FR at 59347-48.
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    Nasdaq represents that no other company will be required to pay 
higher fees as a result of the proposed amendments and that providing 
these services will have no impact on the resources available for its 
regulatory programs.\14\
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    \14\ See Notice, supra note 3, 85 FR at 59348.
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    Finally, Nasdaq states that it proposes non-substantive technical 
amendments to IM-5900-7. Specifically, Nasdaq states that it proposes 
to eliminate most of the description of the history of the rule from 
the rule text because it is no longer applicable to any companies. 
However, Nasdaq further states that it proposes to relocate to a new 
paragraph (g) and make minor non-substantive changes to the discussion 
about the 2018 change to the services offered because some companies 
are still eligible to receive services under the rule in effect prior 
to the 2018 change. Nasdaq also proposes to renumber other paragraphs 
of the rule in order to improve the rule's readability.\15\
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    \15\ See Notice, supra note 3, 85 FR at 59348.
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III. Discussion and Commission's Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of Section 6 of the 
Act.\16\ Specifically, the Commission believes the proposed rule change 
is consistent with the provisions of Sections 6(b)(4) and (5) of the 
Act,\17\ in particular, in that it is designed to provide for the 
equitable allocation of reasonable dues, fees, and other charges among 
Exchange members, issuers, and other persons using the Exchange's 
facilities, 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. 
Moreover, the Commission believes that the proposed rule change is 
consistent with Section 6(b)(8) of the Act \18\ in that it does not 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
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    \16\ 15 U.S.C. 78f. 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).
    \17\ 15 U.S.C. 78f(b)(4) and (5).
    \18\ 15 U.S.C. 78f(b)(8).
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    The Commission believes that it is consistent with the Act for the 
Exchange to treat as an Eligible Switch, for purposes of IM-5900-7, an 
Acquisition Company that (i) switched its listing from NYSE to list on 
Nasdaq under IM-5101-2 after the company publicly announced that it 
entered into a binding agreement for a business combination; and (ii) 
subsequently satisfies the conditions in IM-5101-2(b) and lists on the 
Nasdaq Global or Global Select Markets in conjunction with that 
business combination. According to the Exchange, an Acquisition Company 
may reconsider its listing market following the public announcement of 
a business combination that is intended to satisfy the conditions in 
IM-5101-2(b) in connection with its rebranding and the launch of the 
operating company as a public company. Moreover, according to the 
Exchange, the consideration about whether to switch markets is roughly 
the same for an Acquisition Company that has publicly announced a 
business combination as it is for other companies that are considered 
Eligible Switches. The Exchange believes that treating the company as 
an Eligible Switch would provide an incentive to the company to list on 
Nasdaq.\19\ In addition, the Exchange believes that in most instances 
involving an Acquisition Company that has announced a business 
combination, the operating company plays a significant role in deciding 
where to list the combined company. The Exchange asserts, accordingly, 
it is not unfair to treat an Acquisition Company that has announced a 
business combination differently from one that has not yet made such an 
announcement.\20\
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    \19\ See Notice, supra note 3, 85 FR at 59348.
    \20\ See id.
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    As noted in the Commission's previous order approving IM-5900-7, 
Section 6(b)(5) of the Act does not require that all issuers be treated 
the same; rather, the Act requires that the rules of an Exchange not 
unfairly discriminate between issuers.\21\ The Commission believes that 
the Exchange has reasonably justified treating an Acquisition Company 
transferring its listing from NYSE under the circumstances described 
above as an Eligible Switch and that it reflects the competition 
between the exchanges, with the Exchange offering a more valuable 
package of services for transfers of listings from a competing 
exchange.\22\ The Commission further notes that such companies will be 
receiving the same package of services as any other Eligible Switch and 
will not be receiving any additional benefits or services by virtue of 
the proposed rule change. In addition, the Commission notes that if the 
Acquisition Company terminates its announced business combination, it 
would not be eligible to receive services as an Eligible Switch, but 
the Acquisition Company may be eligible to receive services as an 
Eligible New Listing if it subsequently completes a different business 
combination.\23\
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    \21\ 15 U.S.C. 78f(b)(5); see also Securities Exchange Act 
Release No. 65963 (December 15, 2011), 76 FR 79262, 79266 (December 
21, 2011) (approving NASDAQ-2011-122) (``2011 Approval Order'') 
(``The Commission believes that NASDAQ has provided a sufficient 
basis for its different treatment of Eligible Switches and that this 
portion of NASDAQ's proposal meets the requirements of the Act in 
that it reflects competition between exchanges, with NASDAQ offering 
discounts for transfers of listings from a competing exchange.'').
    \22\ See supra note 8 and accompanying text.
    \23\ See supra note 11.
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    The Commission also believes that describing in the Exchange's 
rules the products and services available to listed companies and their 
associated values will ensure that individual listed companies, 
including Acquisition Companies, are not given specially negotiated 
packages of products or services to list, or remain listed, that would 
raise unfair discrimination issues under the Act.\24\ The Commission 
has previously found that the package of complimentary services offered 
to Eligible New Listings and Eligible Switches is equitably allocated 
among issuers consistent with Section 6(b)(4) of the Act and that 
describing the values

[[Page 84436]]

of the services adds greater transparency to the Exchange's rules and 
to the fees applicable to such companies.\25\ Based on the foregoing, 
the Commission believes that the Exchange has provided a sufficient 
basis for treating as an Eligible Switch, for purposes of IM-5900-7, an 
Acquisition Company that switches from NYSE to Nasdaq after announcing 
a business combination and satisfies the conditions in IM-5101-2(b) and 
lists on the Nasdaq's Global or Global Select Markets by meeting all 
listing requirements and that this change does not unfairly 
discriminate among issuers and is therefore consistent with Section 
6(b)(5) of the Act. For similar reasons, and as the value of services 
offered to an Eligible Switch is not changing, only whether certain 
Acquisition Companies are treated as an Eligible Switch instead of an 
Eligible Listing, the Commission believes that the proposal is 
consistent with Section 6(b)(4) of the Act.
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    \24\ See Securities Exchange Act Release No. 79366 (November 21, 
2016), 81 FR 85663, 85665 (November 28, 2016) (approving Nasdaq-
2016-106) (``2016 Approval Order'') (citing Securities Exchange Act 
Release No. 65127 (August 12, 2011), 76 FR 51449, 51452 (August 18, 
2011) (approving NYSE-2011-20)). The Commission notes that the 
Exchange represents that no other company will be required to pay 
higher fees as a result of the proposal and that the proposal will 
have no impact on the resources available for its regulatory 
programs. See supra note 14 and accompanying text.
    \25\ See 2016 Order, supra note 24, 81 FR at 85665; 2011 
Approval Order, supra note 21, 76 FR at 79266.
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    Further, the Exchange asserts that its proposal removes an 
incentive for an Acquisition Company to wait until the consummation of 
a business combination to change listing exchanges if it would like to 
receive the more valuable package of services, which otherwise makes it 
more difficult to process the listing determinations smoothly.\26\ As 
noted above, under the proposal the Acquisition Company will be treated 
as an Eligible Switch only in connection with the business combination 
that was announced prior to the transfer of its listing to Nasdaq.\27\ 
Therefore, the proposal appears to be narrowly crafted and does not 
permit the company to be treated as an Eligible Switch indefinitely 
should the announced business combination be terminated. Based on the 
above, the Commission believes that the proposal should remove 
impediments to the operation of a free and open market and protect 
investors and the public interest, consistent with Section 6(b)(5) of 
the Act.
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    \26\ See supra note 10 and accompanying text.
    \27\ See supra note 11 and accompanying text.
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    The Exchange has also stated that the proposal would provide an 
incentive for a company to list on Nasdaq given that companies often 
reconsider their listing market at the time of a public announcement to 
a business combination in connection with its rebranding and the launch 
of the operating company. As noted above, the Commission also believes 
that the Exchange is responding to competitive pressures in the market 
for listings in making this proposal. The Exchange states in its 
proposal that it faces competition in the market for listing services 
and the Commission understands that the Exchange competes, in part, by 
offering complimentary services to companies. Specifically, the 
Exchange is offering a more valuable listing package of complementary 
services to Acquisition Companies that transfer from NYSE at the time 
that they announce a business combination, and later satisfy the 
conditions in IM-5901-2(b) and all the initial listing requirements at 
the time of the business combination to list on the Nasdaq Global or 
Global Select Markets,\28\ to attract new listings. Accordingly, the 
Commission believes that the proposed rule reflects the current 
competitive environment for exchange listings among national securities 
exchanges, and is appropriate and consistent with Section 6(b)(8) of 
the Act.\29\
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    \28\ As Nasdaq states in its filing, ``[o]f course an 
Acquisition Company could only switch its listing to Nasdaq if it 
satisfies all of Nasdaq's initial listing requirements. In addition, 
the combined company would again have to satisfy all initial listing 
requirements at the time of the business combination.'' Notice, 
supra note 3, 85 FR at 59347.
    \29\ 15 U.S.C. 78f(b)(8).
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    Finally, the Commission finds that it is consistent with Section 
6(b)(5) of the Act \30\ for the Exchange to make various technical and 
conforming revisions to facilitate clarity of its Rules.
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    \30\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\31\ that the proposed rule change, as modified by Amendment No. 1 
(SR-NASDAQ-2020-060), be, and it hereby is, approved.
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    \31\ 15 U.S.C. 78s(b)(2).
    \32\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-28518 Filed 12-23-20; 8:45 am]
BILLING CODE 8011-01-P