Document ID: SEC-2019-1892-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2019-12-17T05:00Z

[Federal Register Volume 84, Number 242 (Tuesday, December 17, 2019)]
[Notices]
[Pages 69007-69010]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27080]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87716; File No. SR-NASDAQ-2019-089]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Amend Rule 5815 To Preclude 
Stay During Hearing Panel Review of Staff Delisting Determinations in 
Certain Circumstances

December 11, 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 November 27, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or the 
``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 5815 regarding review 
of Nasdaq Staff (``Staff'') Delisting Determinations by Hearings 
Panels. The proposed change would preclude the stay of a Staff 
Delisting Determination during the review period in three specified 
circumstances outlined below.
    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 administers a series of rules that govern the initial and 
continued listing qualifications required of companies listed on the 
Exchange.\3\ Newly listing companies must demonstrate compliance with 
all initial listing requirements before they are listed. Once listed, 
Nasdaq staff (``Staff'') monitors each company to ensure

[[Page 69008]]

continued compliance with the Listing Rules. In the event that a 
company fails to maintain compliance with the Listing Rules, Staff will 
issue a notification informing the company of the deficiency. Where 
allowed by Nasdaq's rules, Staff's notification may provide for a cure 
or compliance period, allow the company to submit a plan of compliance 
for Staff to review, or state the Staff's determination that the 
company should be delisted from the Exchange (a ``Delisting 
Determination'').\4\ In instances where the company is allowed a cure 
or compliance period, Staff will send a Delisting Determination at the 
end of the cure or compliance period if the company has not regained 
compliance; in instances where the company is allowed to submit a plan 
of compliance, Staff will send a Delisting Determination if Staff does 
not accept the company's plan of compliance or if the company does not 
timely complete its plan and regain compliance. The Delisting 
Determination will inform the company of the factual basis for the 
Staff's determination, provide instructions regarding obligations to 
disclose the Delisting Determination to the public, and inform the 
company of its right for review of the Delisting Determination by a 
Hearings Panel.
---------------------------------------------------------------------------

    \3\ See Nasdaq Rules 5300, 5400, and 5500 Series, outlining 
requirements for companies seeking to conduct an initial listing on 
Nasdaq Global Select Market, Nasdaq Global Market and Nasdaq Capital 
Market, respectively, as well as requirements for continued listing 
once an initial listing has been completed.
    \4\ See Nasdaq Rule 5810, listing the categories of deficiency 
notifications, information contained in deficiency notifications and 
Delisting Determinations, company disclosure obligations upon being 
informed of a deficiency or delisting, and types of deficiencies and 
notifications.
---------------------------------------------------------------------------

    Nasdaq Rule 5815(a) allows a company to request a written or oral 
hearing before a Hearings Panel to review a Delisting Determination, 
public reprimand letter or denial of a listing application. Under the 
existing rules, this request for a hearing generally will stay the 
suspension and delisting action pending the issuance of a written 
decision from the Hearings Panel.\5\
---------------------------------------------------------------------------

    \5\ See Nasdaq Rule 5815(a)(1). In the case of a Delisting 
Determination related to the requirements to timely file periodic 
reports with the Commission, the delisting action is only stayed for 
15 calendar days unless the company specifically requests and the 
Hearings Panel grants a further stay.
---------------------------------------------------------------------------

    The Exchange proposes to amend Rule 5815 to remove the stay 
provision in certain situations so that a company's securities will be 
suspended from trading on Nasdaq during the pendency of the Hearings 
Panel's review. Specifically, removal of the stay provision will apply 
to companies that have received a Delisting Determination: In the case 
of proposed 5815 (a)(1)(B)(ii)(a), following the completion of a 
business combination with an operating company that fails to satisfy 
the requirements of Nasdaq Rule IM-5101-2; in the case of proposed 5815 
(a)(1)(B)(ii)(b), following a business combination with a non-Nasdaq 
entity that results in a change of control under Rule 5110(a) where the 
initial listing application has yet to be approved; and in the case of 
proposed 5815 (a)(1)(B)(ii)(c), in connection with a company that has 
declared bankruptcy or announced liquidation pursuant to rule 5110(b). 
After considering the record in the matter, including an oral hearing 
if elected by the company, the Hearings Panel can reinstate the company 
and allow trading to continue on Nasdaq.\6\
---------------------------------------------------------------------------

    \6\ The proposed rule change would suspend the security from 
trading under proposed Rule 5815(a)(1)(B)(ii), rather than halt 
trading in the security pursuant to Nasdaq's authority under Rule 
4120(a)(5).
---------------------------------------------------------------------------

Companies Whose Business Plan Is To Complete One or More Acquisitions 
and Business Combinations With non-Nasdaq Entities Resulting in a 
Change of Control

    Under Listing Rule IM-5101-02, Nasdaq will permit the listing of a 
company whose business plan is to complete an initial public offering 
and engage in a merger or acquisition with one or more unidentified 
companies within a specific period of time. Such a company is required 
to keep the proceeds of its initial public offering in an escrow 
account and, until the company has completed one or more business 
combinations having an aggregate fair market value of at least 80% of 
the value of the escrow account, must meet the requirements for initial 
listing following each business combination.\7\ Nasdaq Staff may, after 
having reviewed such a company, determine that the combined company 
does not meet the initial listing requirements and, in such a case, 
will issue a Delisting Determination.
---------------------------------------------------------------------------

    \7\ See Nasdaq Rule IM-5101-2.
---------------------------------------------------------------------------

    Similarly, a Nasdaq-listed company must apply for initial listing 
on the Exchange in connection with a transaction whereby the company 
combines with a non-Nasdaq entity, resulting in a change of control of 
the company and potentially allowing the non-Nasdaq entity to obtain a 
Nasdaq listing.\8\ If the company's application for initial listing has 
not been approved prior to consummation of the transaction, Nasdaq will 
issue a Delisting Determination.\9\
---------------------------------------------------------------------------

    \8\ See Nasdaq Rule 5110(a).
    \9\ Nasdaq Staff provides written notice to a company if it 
determines that a transaction, as then proposed, will result in a 
change of control pursuant to Listing Rule 5110(a). In this 
notification, Nasdaq Staff advises the company that the combined 
entity will be required to submit an initial listing application and 
listing agreement prior to consummating the transaction, satisfy all 
initial inclusion criteria immediately upon consummation of the 
transaction and pay all required fees. Upon receipt of this 
notification, the company may appeal Staff's determination that 
Listing Rule 5110(a) is applicable to the transaction. As such, a 
company would only be subject to suspension under the proposed rule 
if it does not contest the applicability of Rule 5110(a), or if the 
Panel has already concluded that the rule is applicable, and if the 
company does not satisfy the initial inclusion requirements upon 
consummation of the transaction. See Nasdaq FAQ 413, available at 
https://listingcenter.nasdaq.com/Material_Search.aspx?materials=413&mcd=LQ&criteria=2.
---------------------------------------------------------------------------

    In each case, under existing Nasdaq rules, if a company requests 
review by a Hearings Panel, the Delisting Determination is stayed 
during the pendency of such review and the company's shares will 
continue to trade on the Exchange. The proposed rule change will modify 
the rules so that suspension of the company's shares is not stayed in 
connection with a Delisting Determination for the following reasons.
    For both categories of companies outlined above, the Exchange 
believes immediate suspension is appropriate and necessary in order to 
prevent a company from listing shares on the Exchange despite it having 
never established compliance with the Exchange's initial listing 
requirements. In each case, the company that must satisfy the initial 
listing requirements is effectively a new business entity and, as a 
result, is required by Nasdaq's rules to demonstrate compliance with 
the Exchange's initial listing standards. To allow such companies to 
trade on the Exchange without first demonstrating compliance with the 
initial listing standards misleads the investing public by giving the 
appearance that the company has met the standards imposed by Nasdaq. 
Moreover, the company could then use the benefits of its Nasdaq listing 
and trading to achieve compliance with the initial listing requirements 
it does not satisfy.\10\
---------------------------------------------------------------------------

    \10\ In 2011, the Securities and Exchange Commission noted that 
``. . . the listing standards provide the means for an exchange to 
screen issuers that seek to become listed, and to provide listed 
status only to those that are bona fide companies with sufficient 
public float, investor base, and trading interest likely to generate 
depth and liquidity sufficient to promote fair and orderly markets. 
Meaningful listing standards also are important given investor 
expectations regarding the nature of securities that have achieved 
an exchange listing, and the role of an exchange in overseeing its 
market and assuring compliance with its listing standards.'' 
Securities Exchange Act Release No. 65708 (November 8, 2011), 76 FR 
70799 at 70802 (November 15, 2011) (approving SR-NASDAQ-2011-073).
---------------------------------------------------------------------------

    Nasdaq believes that adopting this rule change will align the 
process for listing a company following a business combination (with an 
acquisition

[[Page 69009]]

company or following a business combination resulting in a change of 
control) with the process for other companies that must meet the 
initial listing requirements before they are allowed to list and trade 
on Nasdaq.
Bankruptcy
    Under Nasdaq Rule 5110(b), Staff may use its discretionary 
authority to delist a company's listing in the event it has filed for 
protection under the federal bankruptcy laws, or comparable foreign 
laws, or has announced that liquidation has been authorized by its 
board of directors, even if the company's securities otherwise meet all 
requirements for continued listing on the Exchange.\11\ The proposed 
rule change will modify the rules so that suspension in trading in the 
company's shares is not stayed when a company has requested an appeal 
after received a Delisting Determination for these reasons.
---------------------------------------------------------------------------

    \11\ Nasdaq Rule 5110(b) also requires a company emerging from 
bankruptcy protection to demonstrate compliance with the Exchange's 
initial listing standards in order to be listed on the Exchange.
---------------------------------------------------------------------------

    Nasdaq believes that it is appropriate to eliminate the stay during 
the pendency of the Hearings Panel's review where Nasdaq Staff has 
determined to delist a company in bankruptcy proceedings. In these 
cases, the company has acknowledged its serious financial straits and, 
in Nasdaq's experience, there is generally no residual equity for the 
current stockholders. Continued trading of the company's shares during 
the duration of the Hearings Panel's review is inadvisable in light of 
these facts and could create investor confusion about the company's 
ability to satisfy Nasdaq's listing requirements.\12\ Instead, Nasdaq 
believes it would better enhance investor protection if the company's 
shares were suspended during the review process.
---------------------------------------------------------------------------

    \12\ Rule 5110(b) requires a company emerging from bankruptcy 
protection to demonstrate compliance with the Exchange's initial 
listing standards in order to continue to be listed on the Exchange. 
Of 37 Delisting Determinations related to bankruptcy between 2016 
and 2018, only one company remained listed and demonstrated 
compliance with the initial listing requirements upon emerging from 
bankruptcy.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\13\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\14\ 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, by preventing companies that have not demonstrated compliance 
with the Exchange's initial listing standards, and companies that have 
sought bankruptcy protection, from trading on the Exchange during the 
pendency of the Hearings Panel's review of a Delisting Determination. 
Nasdaq believes that allowing such companies to continue trading on the 
Exchange is confusing to investors and raises investor protection 
concerns.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In the case of companies whose business plan is to complete one or 
more acquisitions and companies that complete a business combinations 
with a non-Nasdaq entity resulting in a change in control, allowing 
continued trading on the Exchange would permit companies that are 
effectively new entities to be listed without having completed the 
standard vetting process conducted by the Exchange of all new listed 
companies and demonstrating compliance with all initial listing 
requirements. Likewise, due to the uncertainty of the outcome, and the 
limited information provided during bankruptcy proceedings, continued 
listing of a company's shares on the Exchange during such proceedings 
exposes investors to increased risk. The proposed rule will protect 
investors by preventing continued trading in such company's securities 
until an independent Hearings Panel reviews the Delisting Determination 
and determines that continued trading on Nasdaq is appropriate.
    The proposed rule change is also consistent with Section 6(b)(7) of 
the Act in that it provides a fair procedure for the prohibition or 
limitation by the Exchange of any person with respect to access to 
services offered. Under the proposed rule change, companies whose 
business plan is to complete one or more acquisitions or a business 
combination with a non-Nasdaq entity resulting in a change of control 
would be treated the same as any other company that is applying for 
listing on The Nasdaq Stock Market. No company may trade on The Nasdaq 
Stock Market until it demonstrates compliance with the listings 
qualifications rules of the Exchange. This standard is applied to new 
companies and companies that previously traded on the Exchange but have 
now undergone a change in business status that requires demonstration 
of compliance with the Exchange's listing rules.
    In the case of a company undergoing bankruptcy, the proposed rule 
change is fair because the company's shares will be suspended only for 
the duration of an independent Hearing Panel's consideration of the 
company's appeal. The proposed rule would not immediately delist a 
company's shares. A company subject to a Delisting Determination 
pursuant to bankruptcy would be given an opportunity to present its 
case to an impartial Hearings Panel. Once the Hearings Panel has issued 
a written decision, the company's shares may then resume trading if the 
Hearings Panel deems it appropriate. Fairness requirements do not 
mandate continued trading, only the ability to have an impartial 
Hearings Panel review the Staff's Delisting Determination. Limitations 
on trading during the pendency of the Hearings Panel's review is 
appropriate in light of the need to protect prospective investors.

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. The proposed rule would be 
applied equally to all listed companies whose business plan is to 
complete one or more acquisitions, that complete a business 
combinations with a non-Nasdaq entity resulting in a change in control, 
or that seek bankruptcy protection. In addition, the proposed rule 
change will align the process for listing a new company following a 
business combination with an acquisition company or following a 
business combination resulting in a change of control with the process 
for other newly listing companies, which must meet the initial listing 
requirements prior to being listed.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine

[[Page 69010]]

whether the proposed rule change should be 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-2019-089 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-2019-089. 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 such 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-2019-089, and should be submitted 
on or before January 7, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-27080 Filed 12-16-19; 8:45 am]
 BILLING CODE 8011-01-P