Document ID: SEC-2020-0921-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market LLC
Posted Date: 2020-06-12T04:00Z

[Federal Register Volume 85, Number 114 (Friday, June 12, 2020)]
[Notices]
[Pages 35962-35966]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12685]

[[Page 35962]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89027; File No. SR-NASDAQ-2020-027]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Apply Additional Initial 
Listing Criteria for Companies Primarily Operating in Restrictive 
Markets

June 8, 2020.
    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 May 29, 2020, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to apply additional initial listing criteria 
for companies primarily operating in a jurisdiction that has secrecy 
laws, blocking statutes, national security laws or other laws or 
regulations restricting access to information by regulators of U.S.-
listed companies.
    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's listing requirements include a number of criteria which, 
in the aggregate, are designed to ensure that a security listed on 
Nasdaq has sufficient liquidity and public interest to support a 
listing on a U.S. national securities exchange. These requirements are 
intended to ensure that there are sufficient shares available for 
trading to facilitate proper price discovery in the secondary market. 
In recent years, U.S. investors have increasingly sought exposure to 
emerging markets companies as part of a diversified portfolio. As a 
result of this interest, emerging market companies have sought to raise 
funds in the U.S. and list on Nasdaq. While many of these listings have 
similar trading attributes and rates of compliance concerns compared to 
U.S. companies with similar profiles, the lack of transparency from 
certain emerging markets raises concerns about the accuracy of 
disclosures, accountability, and access to information, particularly 
when a company is based in a jurisdiction that has secrecy laws, 
blocking statutes, national security laws or other laws or regulations 
restricting access to information by regulators of U.S.-listed 
companies in such jurisdiction (a ``Restrictive Market'').
    These concerns can be compounded when the company lists on Nasdaq 
through an initial public offering (``IPO'') or business combination 
with a small offering size or a low public float percentage because 
such companies may not attract market attention and develop sufficient 
public float, investor base, and trading interest to provide the depth 
and liquidity necessary to promote fair and orderly trading. As a 
result, the securities may trade infrequently, in a more volatile 
manner and with a wider bid-ask spread, all of which may result in 
trading at a price that may not reflect their true market value. In 
addition, foreign issuers are more likely to issue a portion of an 
offering to investors in their home country, which raises concerns that 
such investors will not contribute to the liquidity of the security in 
the U.S. secondary market.
    Less liquid securities may be more susceptible to price 
manipulation, as a relatively small amount of trading activity can have 
an inordinate effect on market prices. The risk of price manipulation 
due to insider trading is more acute when a company principally 
administers its business in a Restrictive Market (a ``Restrictive 
Market Company'') because regulatory investigations into price 
manipulation, insider trading and compliance concerns may be impeded. 
In such cases, investor protections and remedies may be limited due to 
obstacles encountered by U.S. authorities in bringing or enforcing 
actions against the companies and insiders.\3\
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    \3\ See SEC Chairman Jay Clayton, PCAOB Chairman William D. 
Duhnke III, SEC Chief Accountant Sagar Teotia, SEC Division of 
Corporation Finance Director William Hinman, SEC Division of 
Investment Management Director Dalia Blass, Emerging Market 
Investments Entail Significant Disclosure, Financial Reporting and 
Other Risks; Remedies are Limited (April 21, 2020), available at 
https://www.sec.gov/news/public-statement/emerging-market-investments-disclosure-reporting.
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    Currently, Nasdaq may rely upon its discretionary authority 
provided under Rule 5101 \4\ to deny initial listing or to apply 
additional and more stringent criteria when Nasdaq is concerned that a 
small offering size for an IPO may not reflect the company's initial 
valuation or ensure sufficient liquidity to support trading in the 
secondary market. Nasdaq is proposing to adopt new Rules 5210(l)(i) and 
(ii) that would require a minimum offering size or public float for 
Restrictive Market Companies listing on Nasdaq in connection with an 
IPO or a business combination (as described in Rule 5110(a) or IM-5101-
2). Nasdaq is also proposing to adopt a new Rule 5210(l)(iii) to 
provide that Restrictive Market Companies would be permitted to list on 
the Nasdaq Global Select or Nasdaq Global Markets if they are listing 
in connection with a Direct Listing (as defined in IM-5315-1), but 
would not be permitted to list on the Nasdaq Capital Market, which has 
lower requirements for Unrestricted Publicly Held Shares, in connection 
with a Direct Listing.
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    \4\ Listing Rule 5101 provides Nasdaq with broad discretionary 
authority over the initial and continued listing of securities in 
Nasdaq in order to maintain the quality of and public confidence in 
its market, to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, and to 
protect investors and the public interest. Nasdaq may use such 
discretion to deny initial listing, apply additional or more 
stringent criteria for the initial or continued listing of 
particular securities, or suspend or delist particular securities 
based on any event, condition, or circumstance that exists or occurs 
that makes initial or continued listing of the securities on Nasdaq 
inadvisable or unwarranted in the opinion of Nasdaq, even though the 
securities meet all enumerated criteria for initial or continued 
listing on Nasdaq.
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I. Definition of Restrictive Market

    Nasdaq proposes to adopt a new definition of Restrictive Market in 
Rule 5005(a)(37) to define a Restrictive

[[Page 35963]]

Market as a jurisdiction that Nasdaq determines to have secrecy laws, 
blocking statutes, national security laws or other laws or regulations 
restricting access to information by regulators of U.S.-listed 
companies in such jurisdiction. Nasdaq also proposes to renumber the 
remainder of Rule 5005(a) to ensure consistency in its rulebook.
    In determining whether a company's business is principally 
administered in a Restrictive Market, Nasdaq may consider the 
geographic locations of the company's: (a) Principal business segments, 
operations or assets; (b) board and shareholders' meetings; (c) 
headquarters or principal executive offices; (d) senior management and 
employees; and (e) books and records.\5\ Nasdaq will consider these 
factors holistically, recognizing that a company's headquarters may not 
be the office from which it conducts its principal business activities.
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    \5\ This threshold would capture both foreign private issuers 
based in Restrictive Markets and companies based in the U.S. or 
another jurisdiction that principally administer their businesses in 
Restrictive Markets. The factors that Nasdaq would consider when 
determining whether a business is principally administered in a 
Restrictive Market is supported by SEC guidance regarding foreign 
private issuer status, which suggests that a foreign company may 
consider certain factures including the locations of: The company's 
principal business segments or operations; its board and 
shareholders' meetings; its headquarters; and its most influential 
key executives (potentially a subset of all executives). See 
Division of Corporation Finance of the SEC, Accessing the U.S. 
Capital Markets--A Brief Overview for Foreign Private Issuers 
(February 13, 2013), available at https://www.sec.gov/divisions/corpfin/internatl/foreign-private-issuers-overview.shtml#IIA2c.
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    For example, Company X's headquarters could be located in Country 
Y, while the majority of its senior management, employees, assets, 
operations and books and records are located in Country Z, which is a 
Restrictive Market. If Company X applies to list its Primary Equity 
Security on Nasdaq in connection with an IPO, Nasdaq would consider 
Company X's business to be principally administered in Country Z, and 
Company X would therefore be subject to the proposed additional 
requirements applicable to a Restrictive Market Company.

II. Minimum Offering Size or Public Float Percentage for an IPO

    As proposed, Rule 5210(l)(i) would require a company that is 
listing its Primary Equity Security \6\ on Nasdaq in connection with 
its IPO, and that principally administers its business in a Restrictive 
Market, to offer a minimum amount of securities in a Firm Commitment 
Offering \7\ in the U.S. to Public Holders \8\ that: (i) Will result in 
gross proceeds to the company of at least $25 million; or (ii) will 
represent at least 25% of the company's post-offering Market Value \9\ 
of Listed Securities,\10\ whichever is lower. For example, Company X is 
applying to list on Nasdaq Global Market. Company X principally 
administers its business in a Restrictive Market and its post-offering 
Market Value of Listed Securities is expected to be $75,000,000. Since 
25% of $75,000,000 is $18,750,000, which is lower than $25,000,000, it 
would be eligible to list under the proposed rule based on a Firm 
Commitment Offering in the U.S. to Public Holders of at least 
$18,750,000. However, Company X would also need to comply with the 
other applicable listing requirements of the Nasdaq Global Market, 
including a Market Value of Unrestricted Publicly Held Shares \11\ of 
at least $8 million.\12\
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    \6\ Rule 5005(a)(33) defines ``Primary Equity Security'' as ``a 
Company's first class of Common Stock, Ordinary Shares, Shares or 
Certificates of Beneficial Interest of Trust, Limited Partnership 
Interests or American Depositary Receipts (ADR) or Shares (ADS).''
    \7\ Rule 5005(a)(17) defines ``Firm Commitment Offering'' as 
``an offering of securities by participants in a selling syndicate 
under an agreement that imposes a financial commitment on 
participants in such syndicate to purchase such securities.''
    \8\ 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.''
    \9\ Rule 5005(a)(23) defines ``Market Value'' as ``the 
consolidated closing bid price multiplied by the measure to be 
valued (e.g., a Company's Market Value of Publicly Held Shares is 
equal to the consolidated closing bid price multiplied by a 
Company's Publicly Held Shares).''
    \10\ Rule 5005(a)(22) defines ``Listed Securities'' as 
``securities listed on Nasdaq or another national securities 
exchange.''
    \11\ See Rule 5005(a)(45) (definition of ``Unrestricted Publicly 
Held Shares''), Rule 5005(a)(46) (definition of ``Unrestricted 
Securities''), and Rule 5005(a)(37) (definition of ``Restricted 
Securities'').
    \12\ See Rule 5405(b)(1)(C).
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    In contrast, Company Y, which also principally administers its 
business in a Restrictive Market, is applying to list on the Nasdaq 
Global Select Market and its post-offering Market Value of Listed 
Securities is expected to be $200,000,000. Since 25% of $200,000,000 is 
$50,000,000, which is higher than $25,000,000, it would be eligible to 
list under the proposed rule based on a Firm Commitment Offering in the 
U.S. to Public Holders that will result in gross proceeds of at least 
$25,000,000. However, Company Y would also need to comply with the 
other applicable listing requirements of the Nasdaq Global Select 
Market, including a Market Value of Unrestricted Publicly Held Shares 
of at least $45 million.\13\
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    \13\ See Rule 5315(f)(2)(C).
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    The Exchange believes that the proposal to require a Restrictive 
Market Company conducting an IPO to offer a minimum amount of 
securities in the U.S. to Public Holders in a Firm Commitment Offering 
will provide greater support for the company's price, as determined 
through the offering, and will help assure that there will be 
sufficient liquidity, U.S. investor interest and distribution to 
support price discovery once a security is listed. Nasdaq believes 
there is a risk that substantial participation by foreign investors in 
an offering, combined with insiders retaining significant ownership, 
does not promote sufficient investor base and trading interest to 
support trading in the secondary market. The risk to U.S. investors is 
compounded when a company is located in a Restrictive Market due to 
barriers on access to information and limitations on the ability of 
U.S. regulators to conduct investigations or bring or enforce actions 
against the company and non-U.S. persons, which create concerns about 
the accuracy of disclosures, accountability and access to information. 
Further, the Exchange has observed that Restrictive Market Companies 
listing on Nasdaq in connection with an IPO with an offering size below 
$25 million or public float ratio below 25% have a high rate of 
compliance concerns.
    Nasdaq believes that these concerns may be mitigated by the company 
conducting a Firm Commitment Offering of at least $25 million or 25% of 
the company's post-offering Market Value of Listed Securities, 
whichever is lower. Firm Commitment Offerings typically involve a book 
building process that helps to generate an investor base and trading 
interest that promotes sufficient depth and liquidity to help support 
fair and orderly trading on the Exchange. Such offerings also typically 
involve more due diligence by the broker-dealer than would be done in 
connection with a best-efforts offering, which helps to ensure that 
third parties subject to U.S. regulatory oversight are conducting 
significant due diligence on the company, its registration statement 
and its financial statements.\14\ The

[[Page 35964]]

Exchange believes that the proposal will help ensure that Restrictive 
Market Companies seeking to list on the Exchange have sufficient 
investor base and public float to support fair and orderly trading on 
the Exchange.
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    \14\ Certain Restrictive Markets impose national barriers on 
access to information that limit the ability of U.S. regulators to 
effectively conduct regulatory oversight of U.S.-listed companies 
with operations in such countries, including the PCAOB's ability to 
inspect the audit work and practices of auditors in those countries. 
See SEC Chairman Jay Clayton, SEC Chief Accountant Wes Bricker and 
PCAOB Chairman William D. Duhnke III, Statement on the Vital Role of 
Audit Quality and Regulatory Access to Audit and Other Information 
Internationally--Discussion of Current Information Access Challenges 
with Respect to U.S.-listed Companies with Significant Operations in 
China (December 7, 2018), available at https://www.sec.gov/news/public-statement/statement-vital-role-audit-quality-and-regulatory-access-audit-and-other (``Some of these laws, for example, act to 
prohibit foreign-domiciled registrants in certain jurisdictions from 
responding directly to SEC requests for information and documents or 
doing so, in whole or in part, only after protracted delays in 
obtaining authorization. Other laws can prevent the SEC from being 
able to conduct any type of examination, either onsite or by 
correspondence . . . Positions taken by some foreign authorities 
currently prevent or significantly impair the PCAOB's ability to 
inspect non-U.S. audit firms in certain countries, even though these 
firms are registered with the PCAOB.'').
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III. Minimum Market Value of Publicly Held Shares for a Business 
Combination

    Nasdaq believes that a business combination, as described in Rule 
5110(a) or IM-5101-2, involving a Restrictive Market Company presents 
similar risks to U.S. investors as IPOs of Restrictive Market 
Companies. However, such a business combination would typically not 
involve an offering. Therefore, Nasdaq proposes to adopt a new Rule 
5210(l)(ii) that would impose a similar new requirement as applicable 
to IPOs, but would reflect that the listing would not typically be 
accompanied by an offering. Specifically, proposed Rule 5210(l)(ii) 
would require the listed company to have a minimum Market Value of 
Unrestricted Publicly Held Shares following the business combination 
equal to the lesser of: (i) $25 million; or (ii) 25% of the post-
business combination entity's Market Value of Listed Securities.
    For example, Company A is currently listed on the Nasdaq Capital 
Market and plans to acquire a company that principally administers its 
business in a Restrictive Market, in accordance with IM-5101-2. 
Following the business combination, Company A intends to transfer to 
the Nasdaq Global Select Market. Company A expects the post-business 
combination entity to have a Market Value of Listed Securities of 
$250,000,000. Since 25% of $250,000,000 is $62,500,000, which is higher 
than $25,000,000, to qualify for listing on the Nasdaq Global Select 
Market the post-business combination entity must have a minimum Market 
Value of Unrestricted Publicly Held Shares of at least $25,000,000. 
However, Company A would also need to comply with the other applicable 
listing requirements of the Nasdaq Global Select Market, including a 
Market Value of Unrestricted Publicly Held Shares of at least 
$45,000,000.\15\
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    \15\ See Rule 5315(f)(2)(C).
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    In contrast, Company B is currently listed on Nasdaq Capital Market 
and plans to combine with a non-Nasdaq entity that principally 
administers its business in a Restrictive Market, resulting in a change 
of control as defined in Rule 5110(a), whereby the non-Nasdaq entity 
will become the Nasdaq-listed company. Following the change of control, 
Company B expects the listed company to have a Market Value of Listed 
Securities of $50,000,000. Since 25% of $50,000,000 is $12,500,000, 
which is lower than $25,000,000, the listed company must have a minimum 
Market Value of Unrestricted Publicly Held Shares following the change 
of control of at least $12,500,000. However, the company would also 
need to comply with the other applicable listing requirements of the 
Nasdaq Capital Market, including a Market Value of Unrestricted 
Publicly Held Shares of at least $5 million.\16\
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    \16\ See Rule 5505(b)(3)(C).
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    Market Value of Unrestricted Publicly Held Shares excludes 
securities subject to resale restrictions from the calculation of 
Publicly Held Shares because securities subject to resale restrictions 
are not freely transferrable or available for outside investors to 
purchase and therefore do not truly contribute to a security's 
liquidity upon listing. Nasdaq believes that requiring the post-
business combination entity to have a minimum Market Value of 
Unrestricted Publicly Held Shares of at least $25 million or 25% of its 
Market Value of Listed Securities, whichever is lower, would help to 
provide an additional assurance that there are sufficient freely 
tradable shares and investor interest to support fair and orderly 
trading on the Exchange when the target company principally administers 
its business in a Restrictive Market. Nasdaq believes that this will 
help mitigate the unique risks that Restrictive Market Companies 
present to U.S. investors due to barriers on access to information and 
limitations on the ability of U.S. regulators to conduct investigations 
or bring or enforce actions against the company and non-U.S. persons, 
which create concerns about the accuracy of disclosures, accountability 
and access to information.

IV. Direct Listings of Restrictive Market Companies

    Nasdaq proposes to adopt Rule 5210(l)(iii) to provide that a 
Restrictive Market Company would be permitted to list on the Nasdaq 
Global Select Market or Nasdaq Global Market in connection with a 
Direct Listing (as defined in IM-5315-1), provided that the company 
meets all applicable listing requirements for the Nasdaq Global Select 
Market and the additional requirements of IM-5315-1, or the applicable 
listing requirements for the Nasdaq Global Market and the additional 
requirements of IM-5405-1. However, such companies would be not be 
permitted to list on the Nasdaq Capital Market in connection with a 
Direct Listing notwithstanding the fact that such companies may meet 
the applicable initial listing requirements for the Nasdaq Capital 
Market and the additional requirements of IM-5505-1.
    Direct Listings are currently required to comply with enhanced 
listing standards pursuant to IM-5315-1 (Nasdaq Global Select Market) 
and IM-5405-1 (Nasdaq Global Market). If a company's security has had 
sustained recent trading in a Private Placement Market,\17\ Nasdaq may 
attribute a Market Value of Unrestricted Publicly Held Shares equal to 
the lesser of (i) the value calculable based on a Valuation \18\ and 
(ii) the value calculable based on the most recent trading price in the 
Private Placement Market.\19\ Nasdaq believes that the price from such 
sustained trading in the Private Placement Market for the company's 
securities is predictive of the price in the market for the common 
stock that will develop upon listing of the securities on Nasdaq and 
that qualifying a company based on the lower of such trading price or 
the Valuation helps assure that the company satisfies Nasdaq's 
requirements.
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    \17\ See Rule 5005(a)(34).
    \18\ See IM-5315-1(a)(1).
    \19\ See IM-5315-1(a)(1) (Nasdaq Global Select Market) and IM-
5405-1(a)(1) (Nasdaq Global Market).
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    Nasdaq may require a company listing on the Nasdaq Global Select 
Market that has not had sustained recent trading in a Private Placement 
Market to satisfy the applicable Market Value of Unrestricted Publicly 
Held Shares requirement and provide a Valuation evidencing a Market 
Value of Publicly Held Shares of at least $250,000,000.\20\ For a 
company that has not had sustained recent trading in a Private 
Placement Market

[[Page 35965]]

and that is applying to list on the Nasdaq Global Market, Nasdaq will 
generally require the company to provide a Valuation that demonstrates 
a Market Value of Listed Securities and Market Value of Unrestricted 
Publicly Held Shares that exceeds 200% of the otherwise applicable 
requirement.\21\ Nasdaq believes that in the absence of recent 
sustained trading in the Private Placement Market, the requirement to 
demonstrate a Market Value of Publicly Held Shares of at least $250 
million for a company seeking to list on Nasdaq Global Select Market, 
or that the company exceeds 200% of the otherwise applicable price-
based requirement for a company seeking to list on Nasdaq Global 
Market, helps assure that the company satisfies Nasdaq's requirement by 
imposing a standard that is more than double the otherwise applicable 
standard.
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    \20\ See IM-5315-1(b).
    \21\ See IM-5405-1(a)(2) (Nasdaq Global Market).
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    Thus, companies listing in connection with a Direct Listing on the 
Nasdaq Global or Global Select Market tiers are already subject to 
enhanced listing requirements and Nasdaq believes it is appropriate to 
permit Restrictive Market Companies to list through a Direct Listing on 
the Nasdaq Global Select Market or Nasdaq Global Market. On the other 
hand, while companies ayaylisting [sic] in connection with a Direct 
Listing on the Capital Market are also subject to enhanced listing 
requirements, Nasdaq does not believe that these enhanced requirements 
are sufficient to overcome concerns regarding sufficient liquidity and 
investor interest to support fair and orderly trading on the Exchange 
with respect to Restrictive Market Companies.\22\ Nasdaq believes that 
Restrictive Market Companies present unique risks to U.S. investors due 
to barriers on access to information and limitations on the ability of 
U.S. regulators to conduct investigations or bring or enforce actions 
against the company and non-U.S. persons, which create concerns about 
the accuracy of disclosures, accountability and access to information. 
Therefore, Nasdaq believes that precluding a Restrictive Market Company 
from listing through a Direct Listing on the Capital Market will help 
to ensure that the company has sufficient public float, investor base, 
and trading interest likely to generate depth and liquidity necessary 
to promote fair and orderly trading on the secondary market.
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    \22\ For example, the Nasdaq Global Select Market and Nasdaq 
Global Market require a company to have at least 1,250,000 and 1.1 
million Unrestricted Publicly Held Shares, respectively, and a 
Market Value of Unrestricted Publicly Held Shares of at least $45 
million and $8 million, respectively. In contrast, the Nasdaq 
Capital Market requires a company to have at least 1 million 
Unrestricted Publicly Held Shares and a Market Value of Unrestricted 
Publicly Held Shares of at least $5 million.
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V. Conclusion

    Nasdaq believes that the U.S. capital markets can provide 
Restrictive Market Companies with access to additional capital to fund 
ground-breaking research and technological advancements. Further, such 
companies provide U.S. investors with opportunities to diversify their 
portfolio by providing exposure to Restrictive Markets. However, as 
discussed above, Nasdaq believes that Restrictive Market Companies 
present unique potential risks to U.S. investors due to national 
barriers on access to information and limitations on the ability of 
U.S. regulators to conduct investigations or bring or enforce actions 
against the company and non-U.S. persons, which create concerns about 
the accuracy of disclosures, accountability and access to 
information.\23\ Nasdaq believes that the proposed rule changes will 
help to ensure that Restrictive Market Companies have sufficient 
investor base and public float to support fair and orderly trading on 
the Exchange.
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    \23\ See supra note 3.
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2. Statutory Basis

    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\24\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\25\ in particular, in that it is 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. Further, 
the Exchange believes that this proposal is not designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers.
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    \24\ 15 U.S.C. 78f(b).
    \25\ 15 U.S.C. 78f(b)(5).
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    The Commission has previously opined on the importance of 
meaningful listing standards for the protection of investors and the 
public interest.\26\ In particular, the Commission stated:
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    \26\ Securities Exchange Act Release No. 65708 (November 8, 
2011), 76 FR 70799 (November 15, 2011) (approving SR-Nasdaq-2011-073 
adopting additional listing requirements for companies applying to 
list after consummation of a ``reverse merger'' with a shell 
company).

    Among other things, 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.\27\
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    \27\ Id at 70802.

    Nasdaq believes that requiring a minimum offering size or public 
float percentage for Restrictive Market Companies seeking to list on 
Nasdaq through an IPO or business combination will ensure that a 
security to be listed on Nasdaq has adequate liquidity, distribution 
and U.S. investor interest to support fair and orderly trading in the 
secondary market, which will reduce trading volatility and price 
manipulation, thereby protecting investors and the public interest.
    Similarly, Nasdaq believes that permitting Restrictive Market 
Companies to list on Nasdaq Global Select Market or Nasdaq Global 
Market, rather than the Nasdaq Capital Market, in connection with a 
Direct Listing will ensure that such companies satisfy more rigorous 
listing requirements, including the minimum amount of Publicly Held 
Shares and Market Value of Publicly Held Shares, which will help to 
ensure that the security has sufficient public float, investor base, 
and trading interest likely to generate depth and liquidity sufficient 
to promote fair and orderly trading, thereby protecting investors and 
the public interest.
    While the proposal applies only to Restrictive Market Companies, 
the Exchange believes that the proposal is not designed to permit 
unfair discrimination among companies because Nasdaq believes that 
Restrictive Market Companies present unique potential risks to U.S. 
investors due to national barriers on access to information and 
limitations on the ability of U.S. regulators to conduct investigations 
or bring or enforce actions against the company and non-U.S. persons, 
which create concerns about the accuracy of disclosures, accountability 
and access to information. In addition, such companies may not develop 
sufficient public float, investor base, and trading interest to provide 
the depth and liquidity necessary to promote fair and orderly trading, 
resulting in a security that is illiquid. Nasdaq is concerned because 
illiquid securities may trade infrequently, in a more volatile manner 
and with a wider bid-ask spread, all of

[[Page 35966]]

which may result in trading at a price that may not reflect their true 
market value.
    Less liquid securities also may be more susceptible to price 
manipulation, as a relatively small amount of trading activity can have 
an inordinate effect on market prices. Price manipulation is a 
particular concern when insiders retain a significant ownership portion 
of the company. The risk of price manipulation due to insider trading 
is more acute when a company principally administers its business in a 
Restrictive Market and management lacks familiarity or experience with 
U.S. securities laws. Therefore, Nasdaq believes that it is not 
unfairly discriminatory to treat Restrictive Market Companies 
differently under this proposal because it will help ensure that 
securities of a Restrictive Market Company listed on Nasdaq have 
sufficient public float, investor base, and trading interest to provide 
the depth and liquidity necessary to promote fair and orderly markets, 
thereby promoting investor protection and the public interest.

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

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. While the proposed rule changes 
will apply only to companies primarily operating in Restrictive 
Markets, Nasdaq and the SEC have identified specific concerns with such 
companies that make the imposition of additional initial listing 
criteria on such companies appropriate to enhance investor protection, 
which is a central purpose of the Act. Any impact on competition, 
either among listed companies or between exchanges, is incidental to 
that purpose.

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 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-2020-027 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-2020-027. 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-2020-027 and should be submitted 
on or before July 6, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12685 Filed 6-11-20; 8:45 am]
BILLING CODE 8011-01-P