Document ID: SEC-2019-1663-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2019-11-07T05:00Z

[Federal Register Volume 84, Number 216 (Thursday, November 7, 2019)]
[Notices]
[Pages 60130-60132]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24257]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87445; File No. SR-NASDAQ-2019-060]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Amendment No. 1 and Order Instituting Proceedings 
To Determine Whether To Approve or Disapprove a Proposed Rule Change, 
as Modified by Amendment No. 1, To Amend Rules 4120 and 4753

November 1, 2019.

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 the initial pricing on the 
Exchange and to allow for the initial pricing of such a security 
through the IPO Cross. 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proposed rule change, which amended and superseded the proposed rule 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\ The Commission received no comment 
letters on the proposed rule change. The Commission is publishing this 
notice and order to solicit comments on the proposed rule change, as 
modified by Amendment No. 1, from interested persons and to institute 
proceedings pursuant to 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.
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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).
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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

[[Page 60131]]

4752(d).\8\ The Exchange proposes to amend Rule 4120 to permit the 
Exchange to declare a regulatory halt \9\ in a security that traded in 
the OTC market prior to its initial pricing on the Exchange.\10\ 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.\11\ 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.\12\ 
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.\13\
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    \8\ See Amendment 1, supra note 6, at 4 n.4.
    \9\ 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.
    \10\ The Exchange states that its proposal would 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 would 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.
    \11\ 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, and that it will be 
beneficial to allow significant financial advisor involvement in 
determining when to launch trading. See id. at 8-9.
    \12\ See id. at 4 n.4.
    \13\ 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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III. Proceedings To Determine Whether To Approve or Disapprove SR-
NASDAQ-2019-060, as Modified by Amendment No. 1, and Grounds for 
Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \14\ to determine whether the proposed rule 
change, as modified by Amendment No. 1, should be approved or 
disapproved. Institution of proceedings is appropriate at this time in 
view of the legal and policy issues raised by the proposal, as 
discussed below. Institution of proceedings does not indicate that the 
Commission has reached any conclusions with respect to any of the 
issues involved. Rather, as described below, the Commission seeks and 
encourages interested persons to provide additional comment on the 
proposed rule change, as modified by Amendment No. 1.
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    \14\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\15\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of, and input from commenters with respect to, the consistency 
of the proposal with Section 6(b)(5) of the Act.\16\ Section 6(b)(5) of 
the Act requires that the rules of a national securities exchange be 
designed, among other things, to promote just and equitable principles 
of trade, to remove impediments to and perfect the mechanism of a free 
and open market and a national market system and, in general, to 
protect investors and the public interest.
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    \15\ Id.
    \16\ 15 U.S.C. 78f(b)(5).
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    As discussed above, the proposal would allow the Exchange to 
declare a regulatory halt in a security that traded in the OTC market 
prior to its initial pricing on the Exchange. The proposal would also 
allow the Exchange to use the IPO Cross to initially price such a 
security 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 to an 
initial public offering, and would establish the fourth tie-breaker 
used in calculating the Current Reference Price and the IPO Cross 
price. Currently, the functions performed by an underwriter with 
respect to an initial public offering under Rule 4120(c)(8) include, 
for example, providing notice to the Exchange that the security is 
ready to trade, selecting price bands for the price validation test, 
and determining to postpone and reschedule the initial public offering. 
The underwriter functions under Rule 4120(c)(8) currently also apply to 
a broker-dealer serving in the role of financial advisor to the issuer 
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 its initial pricing on the Exchange, if the IPO 
Cross is used for the initial pricing of such a security on the 
Exchange. In the current proposal, 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 a security that was traded in the OTC 
market, and it would be beneficial to allow significant financial 
advisor involvement in determining when to launch trading.\17\ The 
Commission seeks commenters' views on the sufficiency and merit of the 
Exchange's statements in support of the proposal, which are set forth 
in Amendment No. 1,\18\ in addition to any other comments they may wish 
to submit about the proposed rule change.
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    \17\ See Amendment 1, supra note 6, at 8-9.
    \18\ See Amendment 1, supra note 6.
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IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their data, views, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposed rule 
change, as modified by Amendment No. 1, is consistent with Section 
6(b)(5) or any other provision of the Act, or the rules and regulations 
thereunder. Although there does not appear to be any issues relevant to 
approval or disapproval which would be facilitated by an oral 
presentation of data, views, and arguments, the Commission will 
consider, pursuant to Rule 19b-4 under the Act,\19\ any request for an 
opportunity to make an oral presentation.\20\
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    \19\ 17 CFR 240.19b-4.
    \20\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants to 
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is 
appropriate for consideration of a particular proposal by a self-
regulatory organization. See Securities Acts Amendments of 1975, 
Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 
94th Cong., 1st Sess. 30 (1975).

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[[Page 60132]]

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change, as modified by 
Amendment No. 1, should be approved or disapproved by November 29, 
2019. Any person who wishes to file a rebuttal to any other person's 
submission must file that rebuttal by December 12, 2019.
    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 No. 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 No. SR-NASDAQ-2019-060. The 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 No. SR-NASDAQ-2019-060 and should be submitted by 
November 29, 2019. Rebuttal comments should be submitted by December 
12, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-24257 Filed 11-6-19; 8:45 am]
 BILLING CODE 8011-01-P