Document ID: SEC-2020-0151-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market LLC
Posted Date: 2020-02-04T05:00Z

[Federal Register Volume 85, Number 23 (Tuesday, February 4, 2020)]
[Notices]
[Pages 6244-6245]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-02051]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88078; File No. SR-NASDAQ-2019-060]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Amendment No. 2 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment No. 2, To 
Amend Rules 4120 and 4753

January 29, 2020.

I. Introduction

    On July 18, 2019, The Nasdaq Stock Market LLC (``Exchange'' or 
``Nasdaq'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Rules 4120 and 4753 to permit the 
Exchange to declare a regulatory halt in a security that traded in the 
over-the-counter (``OTC'') market prior to its initial pricing on the 
Exchange, allow for the initial pricing of such a security through the 
IPO Cross, and establish a new tie-breaker for determining the Current 
Reference Price and the Cross price for such a security. The proposed 
rule change was published for comment in the Federal Register on August 
6, 2019.\3\ On September 19, 2019, pursuant to Section 19(b)(2) of the 
Act,\4\ the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to disapprove the 
proposed rule change.\5\ On September 19, 2019, the Exchange also filed 
Amendment No. 1 to the proposed rule change, which amended and 
superseded the proposed rule change as originally filed.\6\ On November 
1, 2019, the Commission published notice of Amendment No. 1 and 
instituted proceedings under Section 19(b)(2)(B) of the Act \7\ to 
determine whether to approve or disapprove the proposed rule change, as 
modified by Amendment No. 1.\8\ The Commission received no comment 
letters on the proposal. On January 10, 2020, the Exchange filed 
Amendment No. 2 to the proposed rule change, which amended and 
superseded the proposed rule change, as modified by Amendment No. 1.\9\ 
The Commission is publishing this notice to solicit comments on 
Amendment No. 2 from interested persons, and is approving the proposed 
rule change, as modified by Amendment No. 2, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 86537 (July 31, 
2019), 84 FR 38321.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 87012, 84 FR 50490 
(September 25, 2019). The Commission designated November 4, 2019 as 
the date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \6\ In Amendment No. 1, the Exchange revised the proposal to: 
(1) clarify that when a security previously traded in the OTC market 
is initially priced using the IPO Cross, the fourth tie-breaker for 
each of the Current Reference Price disseminated in the Nasdaq Order 
Imbalance Indicator and the price at which the Cross will occur will 
be the price that is closest to the most recent transaction price in 
the OTC market; (2) specify that, for purposes of this proposed rule 
change, the use of the term ``regulatory halt'' refers to Nasdaq's 
authority to halt trading in a security under Rule 4120(a)(7); (3) 
clarify that, currently, a security that traded in the OTC market 
immediately prior to listing on Nasdaq is released for initial 
trading on Nasdaq through the Opening Cross under Rule 4752(d) and, 
pursuant to the proposal, if such an issuer does not retain a 
financial advisor, the initial pricing will continue to be effected 
through the Opening Cross; (4) include additional justification in 
support of the proposed rule change; and (5) make technical and 
conforming changes. Amendment No. 1 is available at https://www.sec.gov/comments/sr-nasdaq-2019-060/srnasdaq2019060-6163792-192369.pdf.
    \7\ 15 U.S.C. 78s(b)(2)(B).
    \8\ See Securities Exchange Act Release No. 87445, 84 FR 60130 
(November 7, 2019).
    \9\ In Amendment No. 2, the Exchange further revised the 
proposal to: (1) clarify that the proposal will not allow a company 
transferring from the OTC market to concurrently raise capital in 
the IPO Cross; (2) clarify that the proposal can be beneficial 
because Rule 4120(c)(8) will provide for extended quoting activity 
prior to the launch of a security; and (3) make technical and 
conforming changes. Amendment No. 2 is available at https://www.sec.gov/comments/sr-nasdaq-2019-060/srnasdaq2019060-6637710-203487.pdf.
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II. Description of the Proposal

    Currently, a security that traded in the OTC market immediately 
prior to listing on the Exchange is released for initial trading on the 
Exchange by utilizing the Opening Cross pursuant to Rule 4752(d).\10\ 
The Exchange proposes to amend Rule 4120 to permit the Exchange to 
declare a regulatory halt \11\ in a security that traded in the OTC 
market prior to its initial pricing on the Exchange.\12\ The Exchange 
also proposes to amend Rules 4120 and 4753 to allow for the initial 
pricing on the Exchange of such a security through the IPO Cross 
(described in Rules 4120(c)(8) and 4753) if a broker-dealer serving in 
the role of financial advisor to the issuer is willing to perform the 
functions under Rule 4120(c)(8) that are performed by an underwriter in 
an initial public offering.\13\ If the issuer does not retain a 
financial advisor, the initial pricing on the Exchange of such a 
security will continue to be effected through the Opening Cross.\14\ 
Moreover, the Exchange proposes to adopt Rules 4753(a)(3)(A)(iv)(e) and 
4753(b)(2)(D)(v) to provide that, in the case of the initial pricing of 
a security that traded in the OTC market pursuant to FINRA Form 211 
immediately prior to its initial pricing, the fourth tie-breaker used 
in calculating each of the Current Reference Price disseminated in the 
Nasdaq Order Imbalance Indicator for purposes of the IPO Cross and the 
price at which the IPO Cross will occur will be the price that is 
closest to the most recent transaction price in the OTC market.\15\
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    \10\ See Amendment 2, supra note 9, at 4 n.4.
    \11\ For purposes of this proposed rule change, the term 
``regulatory halt'' refers to Nasdaq's authority to halt trading in 
a security under Rule 4120(a)(7). See id. at 4 n.3.
    \12\ The Exchange states that its proposal will facilitate a 
more orderly start to trading by permitting the Exchange to declare 
a regulatory halt in a security that traded in the OTC market prior 
to its initial pricing on the Exchange, before trading on the 
Exchange begins, which the Exchange believes will avoid potential 
price disparities or anomalies that may occur during any unlisted 
trading privileges (``UTP'') trading before the first transaction on 
the primary listing exchange. See id. at 7.
    \13\ Rule 4120(c)(9) currently provides that the IPO Cross 
process is available for the initial pricing of a security that has 
not been listed on a national securities exchange or traded in the 
OTC market pursuant to FINRA Form 211 immediately prior to the 
initial pricing where a broker-dealer serving in the role of 
financial advisor to the issuer is willing to perform the functions 
under Rule 4120(c)(8) that are performed by an underwriter with 
respect to an initial public offering. The Exchange states that the 
IPO Cross will be a better mechanism to open trading in securities 
that traded in the OTC market given that these companies may attract 
significant interest upon listing on the Exchange from investors who 
previously could not invest in such securities. See id. at 8. The 
Exchange states that the initial interest in such securities upon 
listing on the Exchange makes it beneficial to provide the issuer's 
financial advisor with additional time by extending quoting activity 
prior to launch and to allow significant financial advisor 
involvement in determining when to launch trading. See id. at 8-9. 
The Exchange also represents that its proposal will not allow a 
company transferring from the OTC market to concurrently raise 
capital in the IPO Cross. See id. at 8 n.12.
    \14\ See id. at 4 n.4.
    \15\ The Exchange states that the most recent transaction price 
in the OTC market is predictive of the price that will develop upon 
the listing of the security on the Exchange. See id. at 8. This 
proposed change to the fourth tie-breaker will not affect the 
pricing of a security if the issuer does not retain a financial 
advisor. See id. at 4 n.5.

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[[Page 6245]]

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 2, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\16\ In particular, the 
Commission finds that the proposed rule change, as modified by 
Amendment No. 2, is consistent with Section 6(b)(5) of the Act,\17\ 
which requires, among other things, that the rules of a national 
securities exchange be designed to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in 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.
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    \16\ 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)(5).
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    The Commission believes that the proposal to allow the Exchange to 
declare a regulatory halt prior to the initial pricing on the Exchange 
of a security that was previously traded in the OTC market is 
reasonably designed to address potential price disparities or anomalies 
that may occur during UTP trading in such security before the first 
transaction on the Exchange and contribute to a fair and orderly 
market. The Commission also believes that the proposal to allow a 
security that previously traded in the OTC market to utilize the IPO 
Cross for its initial pricing on the Exchange, provided that a broker-
dealer serving in the role of financial advisor to the issuer is 
willing to perform the functions under Rule 4120(c)(8) that are 
performed by an underwriter with respect an initial public offering, 
could facilitate a more orderly start to trading in such security on 
the Exchange, particularly for a company that attracts significant 
additional interest upon listing on the Exchange. Finally, the 
Commission believes that it is reasonable to utilize the most recent 
transaction price in the OTC market, which could be predictive of the 
price that will develop upon listing of the security on the Exchange, 
as the fourth tie-breaker for determining the Current Reference Price 
and the Cross price for a security transferring from the OTC market.

IV. Solicitation of Comments on Amendment No. 2 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 2 is consistent with the 
Act. Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2019-060 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2019-060. 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 the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-2019-060, and should be submitted 
on or before February 25, 2020.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 2, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
2 in the Federal Register. As discussed above, in Amendment No. 2, the 
Exchange further revised the proposal to: (1) Clarify that the proposal 
will not allow a company transferring from the OTC market to 
concurrently raise capital in the IPO Cross; (2) clarify that the 
proposal can be beneficial because Rule 4120(c)(8) will provide for 
extended quoting activity prior to the launch of a security; and (3) 
make technical and conforming changes. The Commission believes that 
Amendment No. 2 provides additional accuracy and clarity to the 
proposal and does not raise any novel regulatory issues. Accordingly, 
the Commission finds good cause, pursuant to Section 19(b)(2) of the 
Act,\18\ to approve the proposed rule change, as modified by Amendment 
No. 2, on an accelerated basis.
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    \18\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\19\ that the proposed rule change (SR-NASDAQ-2019-060), as 
modified by Amendment No. 2, be, and hereby is, approved on an 
accelerated basis.
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    \19\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-02051 Filed 2-3-20; 8:45 am]
 BILLING CODE 8011-01-P