Document ID: SEC-2019-1896-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2019-12-18T05:00Z

[Federal Register Volume 84, Number 243 (Wednesday, December 18, 2019)]
[Notices]
[Pages 69444-69446]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27212]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87726; File No. SR-NASDAQ-2019-092]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Amend Exchange Rule 5515 Which Governs the Listing of Warrants on 
the Nasdaq Capital Market To Replace the Current Requirement That a 
Warrant Have 400 Round-Lot Holders With a Revised Requirement of 100 
Holders That Are Both Public Holders and Round-Lot Holders

December 12, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 5, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below,which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Exchange Rule 5515 which governs the 
listing of warrants on the Nasdaq Capital Market. Specifically, Nasdaq 
proposes to replace the current requirement that a warrant have 400 
Round-Lot Holders with a revised requirement of 100 Holders that are 
both Public Holders and Round-Lot Holders, which is substantially 
similar to a long-standing requirement for listing warrants on the NYSE 
American Exchange.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Nasdaq Exchange Rule 5515 governs the initial listing of warrants 
on the Nasdaq Capital Market. Among the requirements for listing 
warrants on the Nasdaq Capital Market is that each warrant to be listed 
must have 400 Round-Lot Holders.\3\ The corresponding

[[Page 69445]]

rule of the NYSE American Market is Section 105 of the NYSE American 
Company Guide, which requires that each warrant to be listed must have 
100 public warrantholders.
---------------------------------------------------------------------------

    \3\ Specifically, Rule 5515(a) currently provides that for 
initial listing on the Nasdaq Capital Market, ``rights, warrants and 
put warrants (that is, instruments that grant the holder the right 
to sell to the issuing company a specified number of shares of the 
Company's common stock, at a specified price until a specified 
period of time) must meet the following requirements: (1) At least 
400,000 issued; (2) The underlying security must be listed on Nasdaq 
or be a Covered Security; (3) At least three registered and active 
Market Makers; and (4) In the case of warrants, at least 400 Round 
Lot Holders (except that this requirement will not apply to the 
listing of rights or warrants in connection with the initial firm 
commitment underwritten public offering of such warrants).''
---------------------------------------------------------------------------

    Prior to 2010, Nasdaq did not have a holder requirement for listing 
warrants on the Nasdaq Capital Market. In 2010, Nasdaq adopted a round 
lot holder requirement for the initial listing of warrants on the 
Nasdaq Capital Market to help ensure that warrants listed on the Nasdaq 
Capital Market had adequate distribution and a liquid trading 
market.\4\ At the time, Nasdaq determined to adopt the same 400 round 
lot holder requirement as applied to list warrants on the Nasdaq Global 
Market.
---------------------------------------------------------------------------

    \4\ Securities Exchange Act Release No. 61594 (February 25, 
2010), 75 FR 9982 (March 4, 2010) (SR-NASDAQ-2010-024).
---------------------------------------------------------------------------

    In most instances, the requirements for the Nasdaq Capital Market 
are lower than those of the Nasdaq Global Market. In addition, Nasdaq 
has positioned the Nasdaq Capital Market tier to compete for companies 
that otherwise may list on the NYSE American exchange. Accordingly, 
Nasdaq has determined to modify its minimum holder requirement to list 
warrants on the Nasdaq Capital Market so that it is lower than the 
requirement for the Nasdaq Global Market and substantially similar to 
the requirement for NYSE American.\5\ Specifically, Nasdaq proposes to 
adopt the standard of 100 Holders that are both Public Holders \6\ and 
Round-Lot Holders,\7\ which is substantially similar to (but could be 
more stringent than) the NYSE American 100 public warrantholders 
requirement.\8\ Nasdaq is proposing no changes to Nasdaq's other 
initial listing requirements for warrants on the Nasdaq Capital Market, 
nor is Nasdaq proposing changes to Nasdaq's continued listing standards 
for warrants.\9\
---------------------------------------------------------------------------

    \5\ In considering this change, Nasdaq compared the trading 
quality of warrants listed on Nasdaq with that of warrants listed on 
NYSE American. The study reviewed trading during 2019 for warrants 
listed as of January 1, 2019, and included factors such as average 
daily volume executed, average quoted and effective spreads, and 
volatility. While it is difficult to draw conclusions given the 
small universe of data (only six warrants were listed on NYSE 
American as of January 1, 2019, and warrants on both markets did not 
trade on a large number of days) and other differences between the 
exchanges in market structure and listing requirements, based on 
this review, in Nasdaq's opinion, there was no evidence indicating 
that trading quality in warrants listed on NYSE American under its 
current listing standard was worse than those of warrants listed on 
Nasdaq under its standard. Additionally, Nasdaq is unaware that NYSE 
American has taken adverse action against a warrant or an issuer of 
such warrant listed under Section 105 of the NYSE American Company 
Guide based on the quantitative listing standards in question.
    \6\ Nasdaq Rule 5005(a)(36) defines Public Holders as ``holders 
of a security that includes both beneficial holders and holders of 
record, but does not include any holder who is, either directly or 
indirectly, an Executive Officer, director, or the beneficial holder 
of more than 10% of the total shares outstanding.''
    \7\ Nasdaq Rule 5005(a)(40) defines a Round Lot Holder as ``a 
holder of a Normal Unit of Trading of Unrestricted Securities. The 
number of beneficial holders will be considered in addition to 
holders of record.''
    \8\ The proposed Nasdaq requirement could be more stringent than 
the NYSE American requirement because the Nasdaq rule would require 
that the holders be both Public Holders and Round Lot Holders, and 
would exclude holders of restricted securities, whereas the NYSE 
American rule only requires that they be public holders.
    \9\ Nasdaq notes that Section 105 of the NYSE American Company 
Guide also provides requirements around warrant exercise provisions 
when a company has the right to reduce the exercise price of its 
warrants. Similar to these NYSE American requirements, Nasdaq 
believes that its rules also require a company with such a right to 
comply with any applicable tender offer regulatory provisions under 
the federal securities laws and to publicly disclose material 
information such as the reduction of the warrant exercise price. 
Nasdaq intends to file a subsequent rule filing to provide 
transparency to this.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\10\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\11\ in particular, in that it is designed 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. Specifically, Nasdaq believes this proposed rule change 
removes an impediment to a free and open system by enabling Nasdaq to 
compete with NYSE American for the listing of a broader scope of 
warrants and simultaneously by offering issuers of such warrants an 
additional listing option. Nasdaq further believes that it does so 
without impacting the protection of investors or the public interest 
because, in Nasdaq's opinion, the quantitative standards at issue have 
been applied by NYSE American for many years without harm.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. To the contrary, the Exchange 
believes the proposed rule change is pro-competitive in that it permits 
competition for more issuers of warrants. Today, there is no such 
competition because such issuers are not eligible for listing on 
Nasdaq.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \12\ and Rule 
19b-4(f)(6) thereunder.\13\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \14\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \15\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the Exchange may allow the issuer of a warrant currently affected by 
the existing rule the opportunity to list on Nasdaq. The Exchange notes 
that its proposal is based on an existing NYSE American rule and, in 
its view, the proposal does not raise new issues that are inconsistent 
with the protection of investors and the public interest.
---------------------------------------------------------------------------

    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    The Commission believes that waiver of the operative delay is 
appropriate because the proposed warrant holder

[[Page 69446]]

requirement is substantially similar to the rules of another national 
securities exchange.\16\ For these reasons, the Commission believes 
that waiver of the 30-day operative delay is consistent with the 
protection of investors and the public interest. Therefore, the 
Commission hereby waives the operative delay and designates the 
proposal as operative upon filing.\17\
---------------------------------------------------------------------------

    \16\ See also supra note 9.
    \17\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change 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-2019-092 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-2019-092. 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-2019-092 and should be submitted 
on or before January 8, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-27212 Filed 12-17-19; 8:45 am]
 BILLING CODE 8011-01-P