Document ID: SEC-2016-1653-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq Stock Market, LLC
Posted Date: 2016-09-15T04:00Z

[Federal Register Volume 81, Number 179 (Thursday, September 15, 2016)]
[Notices]
[Pages 63523-63525]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-22155]

[[Page 63523]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78806; File No. SR-NASDAQ-2016-098]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Approving Proposed Rule Change To Modify the Complimentary Services 
Offered to Certain New Listings

September 9, 2016.

I. Introduction

    On July 11, 2016, 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 modify the complimentary services offered to 
certain new listings. The proposed rule change was published for 
comment in the Federal Register on July 28, 2016.\3\ No comment letters 
were received in response to the Notice. This order approves the 
proposed rule change.
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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. 78392 (July 22, 
2016), 81 FR 49705 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange offers complimentary services to companies listing on 
the Nasdaq Global and Global Select Markets in connection with an 
initial public offering, upon emerging from bankruptcy, or in 
connection with a spin-off or carve-out from another company 
(``Eligible New Listings'') and to companies that switch their listing 
from the New York Stock Exchange (``NYSE'') to the Nasdaq Global or 
Global Select Markets (``Eligible Switches'' and, with Eligible New 
Listings, ``Eligible Companies'').\4\ According to the Exchange, this 
program offers valuable services to newly listing companies designed to 
help ease the transition of becoming a public company or switching 
markets, makes listing on Nasdaq more attractive to these companies, 
and provides Nasdaq Corporate Solutions the opportunity to demonstrate 
the value of its services and forge a relationship with the company.\5\ 
Currently, Eligible Companies receive a whistleblower hotline, investor 
relations Web site, press release distribution services, interactive 
webcasting, and market analytic tools, and may receive a market 
surveillance service.\6\ As discussed in more detail below, the 
Exchange proposed to modify its current offerings to Eligible 
Companies.
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    \4\ See Notice, supra note 3, at 49705. See also Securities 
Exchange Act Release Nos. 65963 (December 15, 2011), 76 FR 79262 
(December 21, 2011) (SR-NASDAQ-2011-122) (``Original Approval 
Order'') and 72669 (July 24, 2014), 79 FR 44234 (July 30, 2014) (SR-
NASDAQ-2014-058) (``2014 Approval Order'').
    \5\ See Notice, supra note 3, at 49705.
    \6\ See Nasdaq Rule IM-5900-7(b)-(c). Only Eligible Companies 
with a market capitalization of $750 million or more receive the 
market surveillance service. The Exchange proposed to rename this 
service as ``stock surveillance'' to better reflect its purpose.
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    The Exchange currently offers Eligible Companies that have a market 
capitalization of $750 million or more a stock surveillance tool, 
through which an analyst attempts to determine who is buying and 
selling the company's stock.\7\ While any public company can use this 
offering, the Exchange stated in its proposal that it may not be an 
appropriate fit for some companies, such as those that are closely held 
or otherwise have low liquidity or low volume, which may prioritize 
different investor relations tools over stock surveillance.\8\ 
Therefore, the Exchange proposed to allow companies eligible for this 
service to choose from the existing stock surveillance offering or 
other alternatives, which Nasdaq stated are also designed to help 
companies identify current owners, potential buyers or sellers of their 
stock, or otherwise enhance their investor relations efforts.\9\ 
Specifically, Eligible Companies that have a market capitalization of 
$750 million or more would be allowed to choose the existing stock 
surveillance offering or from among the following alternatives: (i) A 
global targeting package, where an investor targeting specialist will 
help focus the company's investor relations efforts on appropriate 
investors, tailor messaging to those investors' interests and measure 
the company's impact on their holdings; (ii) monthly ownership 
analytics and event driven targeting, which provide a monthly 
shareholder analysis and tracking report, which an analyst will help 
interpret during a monthly call, and a shareholder targeting plan 
around one event each year, such as a roadshow or investor conference; 
or (iii) an annual perception study designed to identify how the 
company is perceived by key stakeholders and provide the company with 
actionable recommendations for enhancing its perception in the 
market.\10\ The approximate retail value of the proposed new services 
ranges from $35,000 to $46,000 per year, as compared to the approximate 
retail value of $51,000 for the existing stock surveillance tool.\11\
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    \7\ See Nasdaq Rule IM-5900-7(c).
    \8\ See Notice, supra note 3, at 49705.
    \9\ See id.
    \10\ See proposed Rule IM-5900-7(a) under section being renamed 
``Market Advisory Tools.''
    \11\ See Notice, supra note 3, at 49705. The Exchange also 
proposed to update the description of the stock surveillance tool to 
clarify that it is a single, dedicated analyst who provides that 
service, as opposed to the team approach used for the proposed 
alternative market advisory tools, and to note that the analyst 
attempts to identify institutional buyers and sellers in the 
company's stock. See id.
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    The Exchange also proposed to create a new tier of services for 
Eligible Companies with a market capitalization of $5 billion or more. 
As noted in the Original Approval Order and the 2014 Approval Order, 
the Exchange believes that it is appropriate to offer different 
services based on a company's market capitalization given that larger 
companies generally will need more and different governance, 
communication, and intelligence services.\12\ According to the 
Exchange, companies with a market capitalization of $5 billion or more 
can benefit from, and are more likely to purchase at the end of the 
complimentary period, investor targeting or perception studies in 
addition to surveillance services because they have more complex 
investor relations functions and frequently have more shareholders and 
a greater change in their shareholdings.\13\ As such, the Exchange 
proposed to offer these companies, with a market capitalization of $5 
billion or more, the choice of a second market advisory tool.
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    \12\ See Notice, supra note 3, at 49706. See also Original 
Approval Order, supra note 4, at 79265.
    \13\ See Notice, supra note 3, at 49706.
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    The Exchange also proposed to modify the complimentary services 
offered to Eligible Switches. In particular, the Exchange proposed to 
increase the number of users of the market analytic tool to three users 
for Eligible Switches with a market capitalization of $750 million or 
more but less than $5 billion and to four users for Eligible Switches 
with a market capitalization of $5 billion or more.\14\ In addition, 
Nasdaq proposed to increase the term of the complimentary services from 
three years to four years for any Eligible Switch with a market 
capitalization of $750 million or greater.\15\
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    \14\ See proposed Rule IM-5900-7(c)(2)-(3). This service has a 
retail value of approximately $29,000 per year for two users, 
$40,000 for three users, and $51,000 for four users. See Notice, 
supra note 3, at 49706.
    \15\ See proposed Rule IM-5900-7(c)(2)-(3). The Exchange noted 
that this proposal would restore some features and the term of 
complimentary services that was previously in effect for such 
companies. See Notice, supra note 3, at 49706.

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[[Page 63524]]

    The Exchange also proposed to revise the values and descriptions of 
the complimentary services offered.\16\ In addition, the Exchange 
proposed to amend the description of the market analytic tool to 
reflect the addition of mobile access to the users of that service and 
to add the value of that offering for three and four users ($40,000 and 
$51,000, respectively).\17\ In its filing, the Exchange also proposed 
to rename the ``Interactive Webcasting'' service ``Audio Webcasting'' 
to reflect the voice-only nature of the service, which is delivered 
through a platform branded with the company's name and logo that allows 
real-time questions from the audience, and to describe the four audio 
webcasts as a ``package'' to reflect the basis for the approximate 
retail value provided.\18\ In addition, the Exchange proposed to rename 
the current ``Press Release'' service to ``Disclosure Services'' to 
better reflect the availability of EDGAR and XBRL services, and to 
specify that these services are provided as an annual stipend usable 
with Nasdaq Corporate Solutions.\19\ The Exchange also proposed to 
delete the reference to factors affecting the number of press releases 
available because the revised rule would explicitly state that an 
annual stipend is provided and would emphasize disclosure services 
generally rather than just press releases.\20\
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    \16\ In particular, the approximate retail value would be 
updated from $15,000 to $16,000 for the investor relations Web site, 
from $30,000 to $29,000 for the market analytic tool for two users, 
and from $50,000 to $51,000 for the stock surveillance tool. See 
proposed Rule IM-5900-7(a). The Exchange also proposed to eliminate 
rounding in the total retail value of the services offered to each 
category of Eligible Company. See Notice, supra note 3, at 49706. In 
addition, the Exchange proposed to modify the introductory note to 
Rule IM-5900-7 to reference the historical changes to the program 
and explain the impact of the revisions to companies that are 
already listed, and to reorganize the rule to enhance its 
readability and usability. See id.
    \17\ See proposed Rule IM-5900-7(a).
    \18\ See Notice, supra note 3, at 49706.
    \19\ See proposed Rule IM-5900-7(a).
    \20\ See Notice, supra note 3, at 49706.
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    The Exchange stated that if a company has a choice among different 
complimentary services under the proposed rule, the company must make 
its selection when it first begins to use a complimentary service and 
will not be permitted to subsequently change to a different 
complimentary service offered in the package.\21\ The Exchange noted in 
its proposal that a company can discontinue using a service at any time 
without penalty and can also elect to purchase from Nasdaq Corporate 
Solutions a service alternative that was previously declined or a 
comparable service from another competitor.\22\
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    \21\ See id.
    \22\ See id.
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    The Exchange noted that any company receiving services under the 
terms of the Original Approval Order or the 2014 Approval Order on the 
date this proposal is approved may elect to receive services under the 
revised terms in this proposal. If a company elects to receive services 
under this proposal, the services that the company is eligible to 
receive will be determined based on its status and market 
capitalization at the time of its original listing and the length of 
time that services are available to the company under the revised 
package will be calculated from the company's original listing 
date.\23\
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    \23\ See id.
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III. Discussion and Commission 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.\24\ Specifically, the Commission finds that the proposal is 
consistent with Sections 6(b)(4) \25\ and 6(b)(5) of the Act \26\ in 
particular, in that the proposed rule 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, 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 \27\ 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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    \24\ 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).
    \25\ 15 U.S.C. 78f(b)(4).
    \26\ 15 U.S.C. 78f(b)(5).
    \27\ 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 revise the products and services it offers to companies. 
According to Nasdaq, the stock surveillance tool that certain Eligible 
Companies receive may not be an appropriate fit for some of these 
companies, such as those that are closely held or otherwise have low 
liquidity or low volume.\28\ Accordingly, these companies may derive 
more value from the other market advisory services, as described above, 
that Nasdaq is now going to be offering as a choice, in addition to the 
stock surveillance tool, to Eligible Companies with a market 
capitalization of $750 million or more.
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    \28\ See Notice, supra note 3 at 49705.
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    The Commission also believes that it is consistent with the Act for 
the Exchange to create a new tier of services for Eligible Companies 
with a market capitalization of $5 billion or more and to offer varying 
services to different categories of issuers since larger capitalized 
companies generally will need and use more services.\29\ The Exchange 
represents that companies with a market capitalization of $5 billion or 
more have more complex investor relations functions and therefore can 
benefit from additional market advisory services and are more likely to 
purchase additional services at the end of the complimentary 
period.\30\ In addition, the Exchange's proposal would provide Eligible 
Switches additional user seats for the market analytic tool than those 
provided to similarly capitalized Eligible New Listings. In making this 
distinction, the Exchange has stated that Eligible Switches are more 
likely to benefit from additional market analytic user seats than 
Eligible New Listings because these companies generally have larger 
investor relations teams already in place, whereas Eligible New 
Listings receive support from investment banks and others for a period 
of time after listing as their investor relations programs mature and 
therefore have, in the Exchange's view, less need for additional user 
seats.\31\ Moreover, Nasdaq stated in its proposal that Eligible 
Switches will, in its view, forego more services paid for by their 
former exchange and that larger Eligible Switches will forego even more 
services. In support of this, Nasdaq notes that NYSE recently modified 
its services offered to listed companies so that they are now valued 
higher so that some companies will need a greater incentive

[[Page 63525]]

to forego the services offered by NYSE and switch to Nasdaq.\32\ Based 
on the above, the Commission believes that the Exchange has provided a 
sufficient basis for providing additional services to certain Eligible 
New Listings and Eligible Switches, as well as varying services to 
these different categories of listings, and that these changes do not 
unfairly discriminate among issuers and reflect the competitive 
environment for exchange listings for transfers from a competing 
exchange.\33\
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    \29\ See Original Approval Order, supra note 4, at 79266 
(finding that it is reasonable for Nasdaq to provide different 
services to tiers based on market capitalization since larger 
capitalized companies generally will need and use more services). 
See also Notice, supra note 3, at 49707. The Commission notes that, 
as stated in the 2014 Approval Order, all listed companies receive 
some services from Nasdaq, including Nasdaq Online and the Market 
Intelligence Desk. See 2014 Approval Order, supra note 4, at 44235.
    \30\ See Notice, supra note 3, at 49707. As noted by the 
Exchange in its prior filing, it offers more services to larger 
companies because they need more and different governance, 
communications, and intelligence services. See Original Approval 
Order, supra note 4, at 79265.
    \31\ See Notice, supra note 3, at 49707. The Commission notes 
that in a prior filing Nasdaq reduced its market analytic tools to 
all Eligible Companies from four users to two users based on 
Nasdaq's experience with company use of the service.
    \32\ See id. at 49706. See also Securities Exchange Act Release 
No. 76127 (October 9, 2015), 80 FR 62584 (October 16, 2015) (SR-
NYSE-2015-36).
    \33\ See 2014 Approval Order, supra note 4, at 44235.
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    Further, the Commission believes that it is consistent with the Act 
for the Exchange to reinstate the four year term for services provided 
to Eligible Switches with a market capitalization of $750 million or 
more. According to the Exchange, this change reflects Nasdaq's ongoing 
assessment of the competitive market for listings.\34\ Specifically, 
the Exchange has represented that it faces competition in the market 
for listing services and that it competes in part by offering valuable 
services to listed companies.\35\ The Exchange states that the proposed 
changes will result in a more enticing package for potential listings 
and therefore will enhance competition among listing exchanges.\36\ 
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.\37\
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    \34\ See Notice, supra note 3, at 49707. The Commission notes 
that the Original Approval Order found four years of services for 
Eligible Switches as consistent with the Act. As noted above, Nasdaq 
had reduced services to Eligible Switches from four to three years 
in 2014 and is now proposing to change back to four years of 
services for these transfers for competitive reasons. See id. at 
49706 & n.13. See also supra note 32 and accompanying text.
    \35\ See Notice, supra note 3, at 49707 & n.13.
    \36\ See id. at 49708.
    \37\ 15 U.S.C. 78f(b)(8).
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    Finally, the Commission believes that it is reasonable, and in fact 
required by Section 19(b) of the Exchange Act, that Nasdaq amend IM-
5900-7 to update the rule text to reflect the actual retail values of 
the services offered, which have changed since the original adoption of 
the rule.\38\ The Commission also believes it is reasonable for the 
Exchange to make certain non-substantive changes, as described above, 
to the names and descriptions of certain services provided. This 
provides greater transparency to Nasdaq's rules and the fees applicable 
to companies listing on the Exchange.
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    \38\ We would expect Nasdaq, consistent with Section 19(b) of 
the Act, to periodically update the retail values of services 
offered should they change. This will help to provide transparency 
to listed companies on the value of the free services they receive 
and the actual costs associated with listing on Nasdaq.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\39\ that the proposed rule change (SR-NASDAQ-2016-098), be, and 
hereby is, approved.
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    \39\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
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    \40\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-22155 Filed 9-14-16; 8:45 am]
 BILLING CODE 8011-01-P