Document ID: SEC-2023-0127-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2023-02-06T05:00Z

[Federal Register Volume 88, Number 24 (Monday, February 6, 2023)]
[Notices]
[Pages 7766-7771]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-02357]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96781; File No. SR-NASDAQ-2022-057]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Approving of a Proposed Rule Change, as Modified by Amendment No. 1, To 
Adopt Listing Rule 5732 To Provide Listing Standards for Contingent 
Value Rights on Nasdaq Global Market

January 31, 2023.

I. Introduction

    On October 17, 2022, 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 adopt Listing Rule 5732 to provide listing 
standards for Contingent Value

[[Page 7767]]

Rights (``CVRs'') on Nasdaq Global Market. The proposed rule change was 
published for comment in the Federal Register on November 3, 2022.\3\ 
On December 15, 2022, the Commission extended the time period within 
which to approve the proposed rule change, disapprove the proposed rule 
change, or institute proceedings to determine whether to approve or 
disapprove the proposed rule change.\4\ On January 26, 2023, the 
Exchange filed Amendment No. 1 to the proposed rule change.\5\ The 
Commission received no comment letters on the proposed rule change. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as modified by Amendment No. 1, from interested 
persons and is approving the proposed rule change, as modified by 
Amendment No. 1, 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. 96176 (October 28, 
2022), 87 FR 66337 (``Notice'').
    \4\ See Securities Exchange Act Release No. 96509, 87 FR 78166 
(December 21, 2022) (extending the time period to February 1, 2023).
    \5\ In Amendment No. 1, the Exchange revised the proposal to 
clarify that: (1) the Exchange will require the public disclosure of 
all the material terms of the CVR before listing; (2) under the CVR 
Continued Listing Standards of Nasdaq Proposed Rule 5732(d)(3), the 
$1 million market value threshold requirement refers to Publicly 
Held Shares; (3) to initially list a CVR under Nasdaq Proposed Rule 
5732(a)(4), the issuer's common stock must be compliant with the 
listing standards of the national securities exchange upon which the 
common stock is listed, irrespective of whether listing a Price-
Based or Event-Based CVR; and (4) in Nasdaq Proposed Rule 
5732(d)(4), for Event-Based CVRs, the primary equity security to 
which the Event-Based CVR is linked and the issuer's common stock 
must remain listed. Amendment No. 1 is available at: https://www.sec.gov/comments/sr-nasdaq-2022-057/srnasdaq2022057.htm. See 
also notes 6-7 and accompanying text for definitions of Price-Based 
and Event Based CVRs.
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II. Description of the Proposal, as Modified by Amendment No. 1

    Nasdaq proposes to adopt Listing Rule 5732 to provide listing 
standards for Price-Based and Event-Based Contingent Value Rights (each 
a ``CVR'' and collectively, ``CVRs'') on Nasdaq Global Market, which 
are unsecured obligations of the issuer providing for a possible cash 
payment at maturity.\6\ As discussed in more detail below, CVRs provide 
for a possible cash payment for a ``Price-Based CVR'' at maturity based 
upon the price performance of an affiliate's equity security or for an 
``Event-Based CVR'', within a specified time period, upon the 
occurrence of a specified event or events related to the business of 
the issuer or an affiliate of the issuer.\7\
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    \6\ According to the Exchange, the proposed rule change is based 
on Section 703.18 of the NYSE Listed Company Manual, related to 
initial listing of CVRs, and the provisions of Section 802.01D 
applicable to ``Specialized Securities'', related to continued 
listing of CVRs. See Securities Exchange Act Release No. 26072 (May 
30, 1990), 55 FR 23166 (June 6, 1990) (SR-NYSE-90-15) (order 
approving original listing standards for CVRs (Priced-Based) on the 
Exchange); Securities Exchange Act Release No. 86651 (August 13, 
2019), 84 FR 42967 (August 19, 2019) (SR-NYSE-2019-14) (order 
approving the listing of Event-Based CVRs on the Exchange).
    \7\ See Nasdaq Proposed Rule 5732.
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    Specifically, under the proposal, at maturity, the holder of a 
Price-Based CVR is entitled to a cash payment if the average market 
price of the issuer's related affiliate's equity security is less than 
a pre-set target price.\8\ The proposal states that the target price is 
typically established at the time the Price-Based CVR is issued.\9\ 
Conversely, should the average market price of the related equity 
security equal or exceed the target price, the Price-Based CVR would 
expire worthless.\10\ In its proposal, Nasdaq states that Price-Based 
CVRs are generally distributed to shareholders of an acquired company 
who are receiving shares of the acquirer as acquisition 
consideration.\11\ Nasdaq further states that Price-Based CVRs provide 
the acquiree's shareholders with some medium-term protection against 
poor stock price performance of the shares of the acquirer by 
guaranteeing them a specified cash payment if the acquirer's average 
stock price is below a specified level at the time of maturity of the 
Price-Based CVR.\12\
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    \8\ See Nasdaq Proposed Rule 5732.
    \9\ See id.
    \10\ See id.
    \11\ See Notice, supra note 3, 87 FR at 66337.
    \12\ See id.
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    The Exchange states that Event-Based CVRs are also typically issued 
to the shareholders of an acquired entity as consideration in an 
acquisition transaction.\13\ Under the proposal, Event-Based CVRs 
entitle their holders to receive a cash payment upon the occurrence of 
a specified event or events related to the business of the issuer or an 
affiliate of the issuer within a specified period of time that is 
determined at the time the Event-Based CVR is issued.\14\ In contrast, 
should the specified event or events not occur within the specified 
time period, the Event-based CVR would expire worthless.\15\ According 
to the Exchange, an Event-Based CVR provides the shareholders of the 
acquiree an additional interest in the medium-term performance of the 
merged entity upon occurrence of its specified event(s).\16\
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    \13\ See id.
    \14\ See id; Nasdaq Proposed Rule 5732.
    \15\ See Nasdaq Proposed Rule 5732.
    \16\ See Notice, supra note 3, 87 FR at 66337.
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    For initial listing of CVRs on the Nasdaq Global Market, the issuer 
must have assets in excess of $100 million, satisfy the requirement of 
Nasdaq Rule 5315(f)(3)(A) \17\ or have at least $200 million in global 
market capitalization and satisfy the requirement of Rule 5315(f)(2)(A) 
and (B) \18\ related to Market Value of Unrestricted Publicly Held 
Shares. In order to list a CVR, an issuer of the CVR must not be 
considered non-compliant with the listing standards of the national 
securities exchange where either: (i) the equity security to whose 
price performance a Price-Based CVR is linked or the issuer's common 
stock is listed, or (ii) in an Event-Based CVR where the primary equity 
security is linked or the issuer's common stock is listed.\19\
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    \17\ Specifically, to satisfy Nasdaq Rule 5315(f)(3)(A) a 
Company, other than a closed end management investment company, must 
aggregate income from continuing operations before income taxes of 
at least $11 million over the prior three fiscal years, (ii) 
positive income from continuing operations before income taxes in 
each of the prior three fiscal years, and (iii) at least $2.2 
million income from continuing operations before income taxes in 
each of the two most recent fiscal years.
    \18\ See Nasdaq Rule 5315(f)(2)(A) and (B) requiring (i) a 
Market Value of at least $110 million; or (ii) a Market Value of at 
least $100 million, if the Company has stockholders' equity of at 
least $110 million.
    \19\ See Amendment No. 1, supra note 5, at 3.
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    The CVR issue must also have a minimum of 400 holders; a minimum of 
1 million CVRs outstanding; a minimum of $4 million market value; a 
minimum life of one year; and a minimum $4.00 bid price.\20\ Nasdaq 
states that while these distribution and liquidity standards applicable 
to CVRs can help to ensure there should be adequate depth, liquidity, 
and investor interest to support an exchange listing, the issuer 
requirements, that are described above, will provide some minimum level 
of indicia that the issuer of a CVR should be able to meet any future 
payment obligations to shareholders of Event-Based, as well as Price-
Based, CVRs pursuant to the applicable CVR agreement.\21\
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    \20\ See id.
    \21\ See Notice, supra note 3, 87 FR at 66338.
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    Prior to listing a CVR under the proposed rule, Nasdaq would issue 
a circular as described in proposed Nasdaq Rule 5732(c) reminding its 
members that because CVRs have certain unique characteristics investors 
should be afforded an explanation of such special characteristics and 
risks attendant to trading thereof, as well as the Exchange's know-
your-customer, suitability, and other rules applicable thereto.\22\ 
Nasdaq will suggest to its members that transactions in CVRs be 
recommended only to investors whose accounts have been approved for

[[Page 7768]]

options trading or whom the member firm has otherwise ascertained that 
CVRs are suitable for.\23\ In its proposal, Nasdaq stated that like 
other financial products with unique features trading on the Exchange, 
CVRs combine features of debt, equity, and securities derivative 
instruments.\24\ Consequently, Nasdaq states this product may be more 
complex than straight stock, bond, or equity warrants and that the 
distribution of the information circular will help to alert members to 
the special disclosure and suitability obligations that apply to CVRs 
and that are relevant to making recommendation for investors in 
CVRs.\25\
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    \22\ See id.; Nasdaq Proposed Rule 5732(c).
    \23\ See Notice, supra note 3, 87 FR at 66338.
    \24\ See id.
    \25\ See Notice, supra note 3, 87 FR at 66338.
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    Prior to listing a Contingent Value Right, Nasdaq will require that 
all material terms of the Contingent Value Right be publicly 
disclosed.\26\ While listed, the issuer of an Event-Based CVR will be 
required to make public disclosure: (i) upon the occurrence of any 
event that must occur as a condition to the issuer's obligation to make 
a cash payment with respect to the CVR (or if such an event is deemed 
to have occurred pursuant to the terms of the documents governing the 
CVR); or (ii) at any such time as it becomes clear that a condition to 
the cash payment with respect to the CVR has not been met as required 
by the documents governing the terms of the CVR.\27\
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    \26\ See Amendment No. 1, supra note 5, at 3.
    \27\ See Nasdaq Rule IM-5250-1. Disclosure of Material 
Information, among other things, requires Nasdaq companies to notify 
Nasdaq's MarketWatch Department prior to the distribution of certain 
material news at least 10 minutes prior to public announcement of 
the news when the public release of the information is made from 
7:00 a.m. to 8:00 p.m. ET. Trading halts are instituted, among other 
reasons, to ensure that material information is fairly and 
adequately disseminated to the investing public and the marketplace, 
and to provide investors with the opportunity to evaluate the 
information in making investment decisions. See also Notice, supra 
note 3, 87 FR at 66338,
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    Nasdaq will delist a CVR pursuant to the provisions of the Listing 
Rule 5800 Series if the CVR fails to maintain any of the following: (1) 
at least 100,000 Publicly Held Shares; (2) at least 100 Holders; or (3) 
at least $1 million Market Value of Publicly Held Shares.\28\ In 
addition, Nasdaq will promptly delist any CVR if the issuer's common 
stock, the equity security to whose price performance a Price-Based CVR 
is linked, or the primary equity security to which an Event-Based CVR 
is linked, ceases to be listed on a national securities exchange.\29\ 
Also, Nasdaq will delist an Event-Based CVR once the occurrence of the 
specified event or events related to the business of the issuer or an 
affiliate of the issuer has occurred or once it goes beyond the time 
that the specified event or events should have occurred.\30\
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    \28\ See Notice, supra note 3, 87 FR at 66338; Nasdaq Proposed 
Rule 5732(d); Amendment No. 1, supra note 5, at 3.
    \29\ See Amendment No. 1, supra note 5, at 3-4.
    \30\ See id.
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    The Exchange will rely on its existing trading surveillances, 
administered by the Exchange, or the Financial Industry Regulatory 
Authority (``FINRA'') on behalf of the Exchange, which are designed to 
detect violations of Exchange rules and applicable federal securities 
laws.\31\ The Exchange will monitor activity in CVRs to identify and 
deter any potential improper trading activity in such securities and 
monitor CVRs alongside the common equity securities of the issuer or 
its affiliates, as applicable.\32\ In addition, the Exchange will adopt 
enhanced surveillance procedures if necessary.\33\ In addition, if the 
underlying security is listed and traded on another U.S. national 
securities exchange, Nasdaq will communicate as needed and may obtain 
information regarding trading from markets and other entities that are 
members of Intermarket Surveillance Group.\34\
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    \31\ See Notice, supra note 3, 87 FR at 66338.
    \32\ See id.
    \33\ See id.
    \34\ See Notice, supra note 3, 87 FR at 66338, n. 8 and 
accompanying text.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\35\ In particular, the 
Commission finds that the proposed rule change, as modified by 
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\36\ 
which requires, among other things, that the rules of a national 
securities exchange be designed to prevent fraudulent and manipulative 
acts and practices, 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; and are not designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers.
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    \35\ 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).
    \36\ 15 U.S.C. 78f(b)(5).
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    The development and enforcement of adequate standards governing the 
initial and continued listing of securities on an exchange is an 
activity of critical importance to financial markets and the investing 
public. Listing standards, among other things, serve as a means for an 
exchange to screen issuers and to provide listed status only to bona 
fide companies that have or will have sufficient public float, investor 
base, and trading interest to provide the depth and liquidity necessary 
to promote fair and orderly markets. Meaningful listing standards are 
especially important given the expectations of investors regarding the 
nature of securities that have achieved an exchange listing and the 
role of an exchange in overseeing and assuring compliance with its 
listing standards. Once a security has been approved for initial 
listing, maintenance criteria allow an exchange to monitor the status 
and trading characteristics of that issue to ensure that it continues 
to meet the exchange's standards for market depth and liquidity so that 
fair and orderly markets can be maintained.
    For the reasons discussed below, the Commission believes that the 
Exchange's proposed listing standards, as modified by Amendment No. 1, 
are consistent with the Act and in particular with Section 6(b)(5). The 
Exchange, as described above, has proposed to adopt listing standards 
for Price-Based CVRs and Event-Based CVRs on NASDAQ Global Market. CVRs 
are typically used as consideration offered to the shareholders of the 
target company in a business combination transaction, such as a merger 
or an exchange offer. As the Commission has previously stated CVRs have 
unique characteristics that combine features of debt, equity and 
securities derivatives instruments.\37\ The Commission believes that 
the Exchange's proposal to establish listing criteria for CVRs should 
adequately address the unique concerns raised by the listing of such 
securities and should help to ensure that only substantial companies 
capable of meeting their financial obligations can list such CVRs on 
the Exchange, thereby protecting investors and the public interest 
consistent with the Act. The proposal, as modified by Amendment No. 1, 
should also, consistent with the Act, aid the Exchange in maintaining 
fair and orderly markets for CVRs and

[[Page 7769]]

preventing fraudulent and manipulative acts and practices.
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    \37\ See Securities Exchange Act Release No. 86651 (August 13, 
2019), 84 FR 42967 (August 19, 2019) (SR-NYSE-2019-14) (order 
approving the listing of Event-Based CVRs on the Exchange); See also 
Securities Exchange Act Release No. 28072 (May 30, 1990), 55 FR 
23166 (June 6, 1990) (SR-NYSE-90-15) (order approving original 
listing standards for CVRs (Priced-Based) on the Exchange).
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    The Commission believes the Exchange's proposed quantitative 
listing standards should help to ensure that only substantial companies 
capable of meeting their financial obligations issue CVRs. This is 
important in light of the contingent financial obligations created by 
these instruments, and should serve to protect investors and the public 
interest by ensuring that the companies listing Price-Based CVRs and 
Event-Based CVRs are of substantial size, which can help to indicate 
such companies have sufficient financial means to meet their settlement 
obligations. Specifically, an issuer of a CVR must (1) have assets in 
excess of $100 million, (2) must satisfy Rule 5315(f)(3)(A) or have at 
least $200,000,000 in global market capitalization, (3) must satisfy 
the Market Value of Unrestricted Publicly Held Shares requirement of 
Rule 5315(f)(2)(A) and (B) requiring (i) a Market Value of at least 
$110 million; or (ii) a Market Value of at least $100 million, if the 
Company has stockholders' equity of at least $110 million.\38\ 
Furthermore, the CVR issue must have a minimum of 400 holders; a 
minimum of 1 million CVRs outstanding; a minimum of $4 million market 
value; a minimum life of one year; and a minimum $4.00 bid price. The 
Commission believes these distribution and liquidity standards 
applicable to CVRs can help to ensure adequate depth, liquidity, and 
investor interest to support an exchange listing. The Commission also 
believes the issuer requirements will provide some minimum level of 
indicia that the issuer of a CVR should be able to meet any future 
payment obligations to shareholders of CVRs pursuant to the applicable 
CVR agreement. Furthermore, the proposed listing standards are 
substantially similar to the CVR listing standards on New York Stock 
Exchange (``NYSE).\39\
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    \38\ See note 17-18, supra, and accompanying text.
    \39\ See Section 703.18 of the NYSE Listed Company Manual. See 
also Securities Exchange Act Release No. 85812 (May 9, 2019), 84 FR 
21861 (May 15, 2019) (SR-NYSE-2019-14) (Notice of Filing of proposed 
rule change to permit the listing of Event-Based CVRs on the 
Exchange).
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    In addition, in order to list a CVR, an issuer of the CVR must not 
be considered non-compliant with the listing standards of the national 
securities exchange where either: (i) the equity security to whose 
price performance a Price-Based CVR is linked or the issuer's common 
stock is listed, or (ii) in an Event-Based CVR where the primary equity 
security is linked or the issuer's common stock is listed.\40\ The 
Commission believes that this requirement protects investors and the 
public interest in accordance with Section 6(b)(5) of the Act in that 
it would not permit a CVR to be listed on the Exchange if the listed 
company is below compliance with listing standards, and therefore 
potentially subject to delisting, on the national securities exchange 
where its common stock, or equity security linked to the CVR, was 
listed.
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    \40\ See Amendment No. 1, supra note 5, at 3. The issuer of a 
CVR also has to comply with the corporate governance requirements of 
the national securities exchange where its common stock or equity 
security linked to the CVR is listed. An issuer of a CVR may not be 
below compliance with these corporate governance standards, as well 
as the quantitative continued listing standards, for its common 
stock or equity security on the national securities exchange where 
such security is listed at the time of the listing of the CVR. This 
should provide additional protections for investors in both Event-
Based and Price-Based CVRs.
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    Once listed, Nasdaq will delist a CVR pursuant to the provisions of 
the Listing Rule 5800 Series if the CVR fails to maintain any of the 
following: (1) at least 100,000 Publicly Held Shares; (2) at least 100 
Holders; or (3) at least $1 million Market Value of Publicly Held 
Shares. In addition, Nasdaq will promptly delist any CVR if the 
issuer's common stock, the equity security to whose price performance a 
Price-Based CVR is linked, or the primary equity security to which an 
Event-Based CVR is linked, ceases to be listed on a national securities 
exchange.\41\ Additionally, Nasdaq would delist an Event-Based CVR once 
the occurrence of the specified event or events related to the business 
of the issuer or an affiliate of the issuer has occurred or once it 
goes beyond the time that the specified event or events should have 
occurred. The Commission believes the proposed delisting standards, 
which are also substantially similar to those of NYSE,\42\ provide some 
indicia of a minimum level of liquidity for continued listing of CVRs. 
Further, the requirement that Price-Based CVRs and Event-Based CVRs be 
promptly delisted if either the common stock of the issuer of the CVR 
or the related linked equity security ceases to be listed on a national 
securities exchange is consistent with investor protection and the 
public interest in that it helps to ensure that the issuer of the CVR 
is meeting the continued quantitative and qualitative listing standards 
of a national securities exchange on an ongoing basis while the CVR is 
trading on the Exchange. These additional requirements for delisting 
also will protect investors by helping to maintain fair and orderly 
markets by ensuring that a CVR will not remain listed when the common 
stock of the issuer or any linked equity security to a CVR is delisted. 
For similar reasons, the requirement to delist an Event-Based CVR, when 
the event has occurred or the time period for the event or events has 
passed will also further investor protection and fair and orderly 
markets since any payout on the CVR should be conditioned on such 
events.
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    \41\ See Amendment No. 1, supra note 5, at 3-4.
    \42\ See Section 703.18 of the NYSE Listed Company Manual.
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    In addition, the proposed rule change would require that, prior to 
listing a Price-Based or Event-Based CVR, an issuer be required to 
publicly disclose all material terms of the CVR.\43\ The proposed rule 
change would also require the issuer of an Event-Based CVR to make 
public disclosure, in accordance with the provisions of Rule 5250(b) 
and IM-5250-1, upon the occurrence of any event that must occur as a 
condition to the issuer's obligation to make a cash payment with 
respect to the CVR (or if such an event is deemed to have occurred 
pursuant to the terms of the documents governing the CVR) or at any 
such time as it becomes clear that a condition to the cash payment with 
respect to the CVR has not been met as required by the documents 
governing the terms of the CVR.\44\ The Commission believes that these 
disclosure requirements should help to protect investors and the public 
interest by ensuring that investors have sufficient information to make 
investment decisions relating to CVRs. The Commission further believes 
that the requirement to publicly disclose whether a specified event has 
occurred or failed to occur should help to protect investors and 
prevent fraudulent manipulative acts and practices by ensuring that 
investors and market participants will have access to important 
information needed to trade, and make investment decisions in, the CVRs 
and that such information will be publicly available to all investors 
at the same time.\45\ Notification to the Exchange, in accordance with 
the requirements of Nasdaq Rule 5250(b) and Nasdaq Rule IM-5250-1, will 
also provide the Exchange with the information necessary for it to 
determine whether a temporary trading halt may be appropriate for an 
Event-

[[Page 7770]]

Based or Price-Based CVR in order to ensure fair and orderly 
markets.\46\
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    \43\ See Amendment No. 1, supra note 5, at 3.
    \44\ See Notice, supra note 3, 87 FR at 66338; Nasdaq Proposed 
Rule 5732(b).
    \45\ Nasdaq Rule 5250 requires listed companies to disclose any 
material information that would reasonably be expected to affect the 
value of its securities or influence investor decisions.
    \46\ Notifications of material news to the Exchange at least 10 
minutes prior to its release to the public when the information is 
released between 7:00 a.m. to 8:00 p.m. ET allows Nasdaq to 
determine if a trading halt is necessary in accordance with Nasdaq 
Rule IM-5250-1. As stated by Nasdaq, trading halts ``ensure that 
material information is fairly and adequately disseminated to the 
investing public and the marketplace, and to provide investors with 
the opportunity to evaluate the information in making an investment 
decision.'' See Notice, supra note 3, 87 FR at 66338 n. 7.
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    Under the Exchange's proposal, as described above, Event-Based CVRs 
must be based upon the occurrence of a specified event or events 
related to the business of the issuer or an affiliate of the issuer. 
The Commission believes that requiring an Event-Based CVR to be related 
to the business of the issuer or an affiliate of the issuer is an 
essential requirement that will help to ensure that the company will 
have the information necessary to determine if the required events have 
occurred or not occurred within any required time frames under the 
terms of the CVR and make timely required public disclosure.\47\
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    \47\ The Commission notes that under the Exchange's rules, 
Priced-Based CVRs are similarly related to the performance of an 
affiliate's equity security.
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    The Exchange's proposed rule for listing CVRs also addresses the 
additional regulatory concerns raised by these products. Like other 
financial products with unique features trading on the Exchange, as 
noted above, CVRs combine features of debt, equity, and securities 
derivative instruments. As a result, this product may be more complex 
than straight stock, bond, or equity warrants. The Exchange has 
proposed to distribute an information circular apprising member firms 
of the special characteristics, risks, and suitability obligations 
associated with CVRs.\48\ The Commission believes distribution of this 
information circular will help to alert members to the special 
characteristics, risks, disclosure and suitability obligations that 
apply to CVRs and the attendant requirements of members when making 
recommendations to investors to purchase CVRs.\49\
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    \48\ See Nasdaq Proposed Rule 5732(c).
    \49\ For example, the circular states, among other things, that 
it is suggested that transactions in CVRs be recommended only to 
investors whose accounts have been approved for options trading and 
that members recommending transactions in CVRs should have a 
reasonable basis for believing, at the time of making the 
recommendation, that the customer has such knowledge and experience 
in financial matters that the customer may reasonably be expected to 
be capable of evaluating the risks and special characteristics, and 
is financially able to bear the risks, of a recommendation to invest 
in CVRs. See id.
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    The Exchange has represented that it will also monitor activity in 
CVRs to identify and deter any potential improper trading activity in 
such securities and will monitor CVRs alongside the common equity 
securities of the issuer or its affiliates, as applicable.\50\ The 
Exchange states it will adopt enhanced surveillance procedures to do so 
if necessary.\51\ Since news and information concerning a company and 
the linked equity security and issuer's common stock can have an impact 
on the company's CVRs, this surveillance should help to monitor the 
trading activity in the CVRs. To the extent the common equity security 
is traded on another national securities exchange, these procedures are 
expected to ensure proper coordination.\52\ The Commission believes 
that these safeguards and standards should help to ensure that the 
listing, and continued listing, of any CVRs on the Exchange will be 
consistent with investor protection, the public interest, and the 
maintenance of fair and orderly markets. In this regard, the Commission 
expects the Exchange to thoroughly review any potential listing of 
Price-Based and Event-Based CVRs to ensure that its listing standards 
have been met and continue to be met, as well as to monitor trading in 
the Event-Based and Price-Based CVRs and related common stock or equity 
security of the issuer.
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    \50\ As noted above, the Exchange will rely on its existing 
trading surveillances, administered by the Exchange, or the FINRA on 
behalf of the Exchange, which are designed to detect violations of 
Exchange rules and applicable federal securities laws. See Note 31, 
supra.
    \51\ See Notice, supra note 3, 87 FR at 66338.
    \52\ See Note 34, supra, and accompanying text.
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    Based on the above, the Commission believes the proposed rule 
change, as modified by Amendment no. 1, is reasonable and should 
provide for the listing of CVRs with baseline investor protection and 
other standards. The Commission believes, as discussed above, that the 
Exchange has developed sufficient standards to allow the listing of 
both Price-Based CVRs and Event Based CVRs on the Exchange and finds 
the proposal consistent with the requirements set forth under the Act, 
and in particular, Section 6(b)(5).

IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 1 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 [email protected]. Please include 
File Number SR-NASDAQ-2022-057 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-2022-057. 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-2022-057, and should be submitted 
on or before February 27, 2023.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
1 in the Federal Register. As discussed above, in Amendment No. 1, the 
Exchange revised the proposal to clarify that: (1) the Exchange will 
require the public

[[Page 7771]]

disclosure of all the material terms of the CVR before listing the CVR; 
(2) under the CVR Continued Listing Standards of Proposed Rule 
5732(d)(3), the $1 million market value threshold requirement refers to 
Publicly Held Shares; (3) to initially list a CVR under Proposed Rule 
5732(a)(4), the issuer's common stock must be compliant with the 
listing standards of the national securities exchange upon which the 
common stock is listed, irrespective of whether listing a Price-Based 
or Event-Based CVR; and (4) in Proposed Rule 5732(d)(4), for Event-
Based CVRs, the primary equity security to which the Event-Based CVR is 
linked and the issuer's common stock must remain listed.
    The Commission believes that Amendment No. 1 does not raise any 
novel regulatory issues from the original proposal, which was subject 
to a full notice and comment period during which no comments were 
received. Rather, Amendment No. 1 strengthens the original proposal by 
requiring the material terms of the CVR to be publicly disclosed prior 
to the Exchange listing of a CVR which will increase transparency to 
investors in CVRs and potential investors seeking to make an informed 
investment decision. In addition, the change to the continued listing 
standards to require the market value standard to include only Publicly 
Held Shares strengthens the requirements for continued listing in the 
original proposal and can help in ensuring adequate liquidity for 
continued listing of CVRs. Finally, the changes in Amendment No. 1 
applicable to Nasdaq Proposed Rules 5732(a)(4) and (d)(4) provide 
additional specificity and clarity regarding the circumstances in which 
the Exchange would list and delist a CVR, which will provide additional 
protections for potential investors and current investors in CVRs. 
Accordingly, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Act,\53\ to approve the proposed rule change, as 
modified by Amendment No. 1, on an accelerated basis.
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    \53\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1, is consistent with the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\54\ that the proposed rule change (SR-NASDAQ-2022-57), as modified 
by Amendment No. 1, be, and hereby is, approved.
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    \54\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\55\
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    \55\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-02357 Filed 2-3-23; 8:45 am]
BILLING CODE 8011-01-P