Document ID: SEC-2017-1085-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market LLC
Posted Date: 2017-06-27T04:00Z

[Federal Register Volume 82, Number 122 (Tuesday, June 27, 2017)]
[Notices]
[Pages 29132-29135]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-13371]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80994; File No. SR-NASDAQ-2017-058]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Adopt Initial and Continued Listing Standards for the Listing of Equity 
Investment Tracking Stocks

June 21, 2017.
    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 June 8, 2017, 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, II, and III 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 adopt initial and continued listing 
standards for the listing of Equity Investment Tracking Stocks.
    The text of the proposed rule change is available on the Exchange's 
Web site 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Nasdaq proposes to adopt initial and continued listing standards 
for the listing of Equity Investment Tracking Stocks. An Equity 
Investment Tracking Stock is defined as a class of common equity 
securities that tracks on an unleveraged basis the performance of an 
investment by the issuer in the common equity securities of a single 
other company listed on the Exchange.\3\ An Equity Investment Tracking 
Stock may track multiple classes of common equity securities of a 
single issuer, so long as all of those classes have identical economic 
rights and at least one of those classes is listed on the Exchange.
---------------------------------------------------------------------------

    \3\ Nasdaq will determine whether a security tracks the 
performance of a single other company based on the facts and 
circumstances of the particular matter, including whether the 
security tracks substantial assets in addition to the other listed 
company. Nasdaq encourages any company considering listing a 
security that tracks the performance of another listed company, in 
whole or in part, to contact Nasdaq staff as early as possible to 
discuss.
---------------------------------------------------------------------------

    An Equity Investment Tracking Stock may be listed on the Nasdaq 
Global

[[Page 29133]]

Select, Global, or Capital Markets under the Rule 5300, 5400 or 5500 
Series, as applicable, provided it also meets the additional 
requirements set forth in the proposed Rule 5222. An Equity Investment 
Tracking Stock is only eligible to be listed on the same tier of Nasdaq 
(Global Select, Global or Capital) as the equity security it tracks.
    Proposed Rule 5222(a) provides that, prior to the commencement of 
trading of any Equity Investment Tracking Stock, Nasdaq will distribute 
an information circular to its members that describes any special 
characteristics and risks of trading the Equity Investment Tracking 
Stock, and lists Exchange Rules that will apply to the Equity 
Investment Tracking Stock including rules that require members: (A) To 
use reasonable diligence in regard to the opening and maintenance of 
every account, to know (and retain) the essential facts concerning 
every customer and concerning the authority of each person acting on 
behalf of such customer; and (B) in recommending transactions in the 
Equity Investment Tracking Stock to have a reasonable basis to believe 
that (i) the recommendation is suitable for a customer given reasonable 
inquiry concerning the customer's investment objectives, financial 
situation, needs, and any other information known by such members, and 
(ii) the customer can evaluate the special characteristics, and is able 
to bear the financial risks, of an investment in the Equity Investment 
Tracking Stock.
    Proposed Rule 5222(b) provides that in addition to the initial 
listing requirements of the Rule 5300 Series,\4\ the Rule 5400 
Series,\5\ or the Rule 5500 Series \6\ applicable to all securities,\7\ 
the issuer of the Equity Investment Tracking Stock must own (directly 
or indirectly) \8\ at least 50% of both the economic interest and the 
voting power of all of the outstanding classes of common equity of the 
issuer whose equity is tracked by the Equity Investment Tracking Stock. 
Further, Nasdaq will not list an Equity Investment Tracking Stock if, 
at the time of the proposed listing, the issuer of the equity tracked 
by the Equity Investment Tracking Stock has received a Staff Delisting 
Determination or been notified about a deficiency, except for a 
corporate governance deficiency with a grace period provided under Rule 
5810(c)(3)(E),\9\ with respect to such security.
---------------------------------------------------------------------------

    \4\ The Rule 5300 Series generally requires that for initial 
listing on the Nasdaq Global Select Market a security must satisfy a 
price, publicly held shares, market maker, ownership, market value 
and valuation requirement.
    \5\ The Rule 5400 Series generally requires that for initial 
listing on the Nasdaq Global Market a security must satisfy a price, 
publicly held shares, round lot holder, market maker, and either an 
income, an equity, a market value of listed securities, or a total 
assets and total revenue requirement.
    \6\ The Rule 5500 Series generally requires that for initial 
listing on the Nasdaq Capital Market a security must satisfy a 
price, publicly held shares, round lot holder, market maker, and 
either an equity, a market value of listed securities, or a net 
income requirement.
    \7\ In addition to meeting the quantitative requirements of the 
Rule 5300 Series, the Rule 5400 Series, or the Rule 5500 Series, the 
issuer of Equity Investment Tracking Stock must meet the 
requirements of the Rule 5100 Series, the disclosure obligations set 
forth in the Rule 5200 Series, the Corporate Governance requirements 
set forth in the Rule 5600 Series, and pay any applicable fees in 
the Rule 5900 Series.
    \8\ An example of an indirect ownership would be where the 
listed company has a 100%-owned subsidiary and that subsidiary in 
turn owns the stock of the company whose performance is being 
tracked. Another example would be where the listed company owns 100% 
of each of two subsidiaries, each of which owns stock in the company 
whose performance is being tracked.
    \9\ Rule 5810(c)(3)(E) provides that if a company fails to meet 
the majority board independence or the audit committee composition 
requirements due to one vacancy, or fails to meet the audit 
committee composition requirements because an audit committee member 
ceases to be independent for reasons outside her control, Nasdaq 
will provide the company with an automatic grace period for up to 
one year to regain compliance with the rule.
---------------------------------------------------------------------------

    Proposed Rule 5222(c) provides that in addition to the continued 
listing requirements of the Rule 5400 Series \10\ or the Rule 5500 
Series,\11\ as applicable, Nasdaq will also apply additional continued 
listing requirements. Specifically, if the listed equity security or 
securities whose value is tracked by the Equity Investment Tracking 
Stock is transferred to a different tier of Nasdaq (Global Select, 
Global or Capital), the Equity Investment Tracking Stock that tracks 
such security will be automatically transferred to the same tier of 
Nasdaq, provided the Equity Investment Tracking Stock meets the 
applicable listing standards for that tier. However, if the Equity 
Investment Tracking Stock does not meet the applicable listing 
standards for that tier, Nasdaq will determine whether the Equity 
Investment Tracking Stock meets an applicable initial listing standard 
in place at that time and will halt trading in the Equity Investment 
Tracking Stock and issue a Staff Delisting Determination pursuant to 
Rule 5810(c)(1) if it does not. Similarly, if the listed equity 
security or securities whose value is tracked by the Equity Investment 
Tracking Stock ceases to be listed on Nasdaq or is suspended pending 
delisting, the issuer of the Equity Investment Tracking Stock owns less 
than 50% of the issuer whose equity is tracked by the Equity Investment 
Tracking Stock, or the Equity Investment Tracking Stock ceases to track 
the performance of the listed equity security or securities that was 
tracked at the time of initial listing, Nasdaq will determine whether 
the Equity Investment Tracking Stock meets an applicable initial 
listing standard in place at that time and will halt trading in the 
Equity Investment Tracking Stock and issue a Staff Delisting 
Determination pursuant to Rule 5810(c)(1) if it does not.
---------------------------------------------------------------------------

    \10\ The Rule 5400 Series generally requires that for continued 
listing on the Nasdaq Global Market, including the Nasdaq Global 
Select Market, a security must satisfy a price, publicly held 
shares, total holders, market maker, and either an equity, a market 
value of listed securities, or a total assets and total revenue 
requirement.
    \11\ The Rule 5500 Series generally requires that for continued 
listing on the Nasdaq Capital Market a security must satisfy a 
price, publicly held shares, public holders, market maker, and 
either an equity, a market value of listed securities, or a net 
income requirement.
---------------------------------------------------------------------------

    Nasdaq also proposes to amend Rule 5810(c)(1) to provide that an 
Equity Investment Tracking Stock's failure to comply with the 
additional continued listing requirements in Rule 5222(c) or the 
issuance of a Staff Delisting Determination with respect to the 
security such Equity Investment Tracking Stock tracks will constitute a 
deficiency that will immediately result in Nasdaq issuing a Delisting 
Determination with regard to the Equity Investment Tracking Stock.
    Proposed Rule 5222(d) imposes additional disclosure and procedural 
requirements on the Equity Investment Tracking Stock when a listed 
equity security whose value is tracked by the Equity Investment 
Tracking Stock is subject to deficiency procedures. These requirements 
are designed to provide investors in the Equity Investment Tracking 
Stock with notice about the potential delisting of the listed equity 
security or securities whose value is tracked by the Equity Investment 
Tracking Stock and to assure that the Equity Investment Tracking Stock 
is treated in the same manner as the equity security whose value it 
tracks during the deficiency administration process. Specifically, if 
the issuer of the security that the Equity Investment Tracking Stock 
tracks announces that it has received a deficiency notification then 
the issuer of the Equity Investment Tracking Stock must promptly 
publicly announce (either by filing a Form 8-K, where required by SEC 
rules, or by issuing a press release) that fact.\12\
---------------------------------------------------------------------------

    \12\ In addition, the issuer of the Equity Investment Tracking 
Stock that receives a notification of deficiency or Staff Delisting 
Determination is required by Rule 5810(b) to make a public 
announcement disclosing receipt of the notification.

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

[[Page 29134]]

    In addition, proposed Rule 5222(d) provides that notwithstanding 
any provisions to the contrary, if the Staff Delisting Determination 
issued to the security such Equity Investment Tracking Stock tracks is 
stayed pursuant to the Rule 5800 Series, the suspension of the Equity 
Investment Tracking Stock also will be stayed and will remain stayed on 
the same terms that apply to the security such Equity Investment 
Tracking Stock tracks.
    Nasdaq proposes to amend Rule 4120(a) governing Nasdaq's authority 
to initiate trading halts or pauses and Rule IM-5250-1 providing 
interpretive material regarding trading halts to provide that, in the 
event that the issuer of the common equity security tracked by an 
Equity Investment Tracking Stock intends to issue a material news 
release during the trading day and Nasdaq determines that a regulatory 
trading halt should be implemented, including a trading halt pending 
dissemination of the news, Nasdaq will also halt trading in the Equity 
Investment Tracking Stock simultaneously with the halt in the security 
it tracks and will also recommence trading at the same time. In 
addition, Nasdaq will halt trading in the Equity Investment Tracking 
Stock if the security it tracks is suspended from trading, such as 
while the security is pending delisting.\13\
---------------------------------------------------------------------------

    \13\ If the security that an Equity Investment Tracking Stock 
tracks is suspended pending delisting Nasdaq would also follow the 
procedures in Rule 5222(c) and initiate delisting proceedings for 
the Equity Investment Tracking Stock unless it meets another 
applicable listing standard. The trading halt in the Equity 
Investment Tracking Stock would remain in place until the Equity 
Investment Tracking Stock is requalified or is suspended pending its 
delisting pursuant to the procedural requirements of the Rule 5800 
Series.
---------------------------------------------------------------------------

    Nasdaq proposes to amend Rules 5401 and 5501 to update the preamble 
to these rules and Rule 5305 to provide that an Equity Investment 
Tracking Stock may be listed as a primary equity security or as a 
secondary class of common stock, as applicable, provided it must also 
meet the requirements set forth in Rule 5222.
    Nasdaq represents that it will monitor activity in Equity 
Investment Tracking Stocks to identify and deter any potential improper 
trading activity in such securities. The Exchange will adopt 
surveillance procedures, and make any enhancements necessary, 
sufficient to enable it to monitor Equity Investment Tracking Stocks 
alongside the securities whose value they track. Additionally, 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.\14\
---------------------------------------------------------------------------

    \14\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    Given the novel investment characteristics of Equity Investment 
Tracking Stocks, the Exchange will conduct a review of the trading and 
compliance with continued listing standards of Equity Investment 
Tracking Stocks and their issuers over the initial two year period for 
which the proposed listing standard is in operation.
    The Exchange will furnish two reports to the SEC based on this 
review, one to be provided no later than sixty days after the first 
anniversary of the adoption of the proposed rule, which will cover the 
first year, and the second to be provided one year later, which will 
cover the second year. At a minimum, the reports will address the 
relationship between the trading prices of listed Equity Investment 
Tracking Stocks and those of the securities whose values they track, 
the liquidity of the market for the two securities, and any 
manipulation concerns arising in connection with the trading of 
securities listed under the standard and the securities whose values 
are being tracked. The reports will also discuss any recommendations 
the Exchange may have for enhancements to the listing standard based on 
its review.
    Nasdaq proposes to make a conforming change to Rule 5950(e)(3) to 
allow for the renumbering of the defined terms in Rule 5005(a).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\15\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\16\ 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, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In particular, the proposed listing standards are designed to 
protect investors and the public interest by ensuring that Equity 
Investment Tracking Stocks listed on the Exchange meet stringent 
quantitative and qualitative listing standards to qualify for initial 
and continued listing. The Exchange notes that trading in an Equity 
Investment Tracking Stock will be halted and subject to delisting if it 
does not meet another applicable initial listing standard and (i) the 
equity security or securities whose value is tracked by the Equity 
Investment Tracking Stock ceases to be listed on the Exchange or is 
suspended pending delisting; (ii) the issuer of the Equity Investment 
Tracking Stock owns (directly or indirectly) less than 50% of either 
the economic interest or the voting power of all of the outstanding 
classes of common equity of the issuer whose equity is tracked by the 
Equity Investment Tracking Stock; or (iii) the Equity Investment 
Tracking Stock ceases to track the performance of the listed equity 
security that was tracked at the time of initial listing. If the 
security whose value is tracked by an Equity Investment Tracking Stock 
changes tiers (e.g., from Capital Market to Global Market), Nasdaq will 
halt trading and initiate delisting of the Equity Investment Tracking 
Stock unless the Equity Investment Tracking Stock meets the applicable 
listing requirements for the new tier or qualifies for listing under 
another applicable initial listing standard.
    The Equity Investment Tracking Stocks will have to meet the 
requirements of the proposed Listing Rule 5222 in addition to the other 
listing requirement applicable to equity securities. The issuer of an 
Equity Investment Tracking Stock must fully comply with the 
requirements of the Rule 5100 Series, the disclosure obligations set 
forth in the Rule 5200 Series, the quantitative requirements set forth 
in the Rule 5300 Series, the Rule 5400 Series or the Rule 5500 Series, 
and the Corporate Governance requirements set forth in the Rule 5600 
Series, subject to applicable exemptions such as those for controlled 
companies.
    The proposed rule change is designed to provide equivalent 
treatment to an Equity Investment Tracking Stock as is provided to the 
security or securities it tracks, and therefore it will not permit 
unfair discrimination between customers, issuers, brokers, or dealers.

[[Page 29135]]

    The Exchange notes that it is proposing to amend Rule 4120(a) 
governing Nasdaq's authority to initiate trading halts or pauses and 
Rule IM-5250-1 providing interpretive material regarding trading halts 
to provide that, in the event that the issuer of the common equity 
security tracked by an Equity Investment Tracking Stock intends to 
issue a material news release during the trading day and Nasdaq 
determines that a regulatory trading halt should be implemented pending 
dissemination of the news or if Nasdaq determines that any other 
required regulatory trading halt should be implemented, the Exchange 
will also halt trading in the Equity Investment Tracking Stock 
simultaneously with the halt in the security whose values is being 
tracked and will also recommence trading at the same time. The Exchange 
believes that this proposed amendment will protect investors and the 
public interest by preventing market participants from gaining an 
advantage in trading in an Equity Investment Tracking Stock based on 
their possession of material nonpublic information with respect to the 
company whose value is being tracked by the Equity Investment Tracking 
Stock. In addition, Nasdaq will halt trading in the Equity Investment 
Tracking Stock if the security whose value is being tracked is 
suspended from trading, such as while the security is pending 
delisting.

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 change is 
designed to provide listing standards for Equity Investment Tracking 
Stocks that are appropriately protective of investors and is not 
designed to limit the ability of the issuers of those securities to 
list them on any other national securities exchange. The market for 
listing services is extremely competitive.\17\ Because issuers have a 
choice to list their securities on a different national securities 
exchange, the Exchange does not believe that the proposed listing 
standards impose a burden on competition.
---------------------------------------------------------------------------

    \17\ See Securities Exchange Act Release No. 78153 (June 24, 
2016), 81 FR 42762 (June 30, 2016) (SR-NYSE-2016-22) (adopting 
listing standards for Equity Investment Tracking Stocks).
---------------------------------------------------------------------------

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\18\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\19\
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
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.
---------------------------------------------------------------------------

    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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-2017-058 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2017-058. 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 Web site (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 Web site 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2017-058, and should 
be submitted on or before July 18, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Eduardo A. Aleman,
Assistant Secretary.
---------------------------------------------------------------------------

    \20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. 2017-13371 Filed 6-26-17; 8:45 am]
 BILLING CODE 8011-01-P