Document ID: SEC-2020-0143-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2020-02-03T05:00Z

[Federal Register Volume 85, Number 22 (Monday, February 3, 2020)]
[Notices]
[Pages 6003-6005]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01912]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88056; File No. SR-NASDAQ-2020-004]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
to Clarify the Term ``Closing Price'' in Rule 5635(d)(1)(A) Relating to 
Shareholder Approval for Transactions Other Than Public Offerings

January 28, 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 January 15, 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 clarify Rule 5635(d)(1)(A) without 
changing its substance. The text of the proposed rule change is set 
forth below. Proposed new language is in italics; deleted text is in 
brackets.
* * * * *
The Nasdaq Stock Market LLC Rules
* * * * *
5635. Shareholder Approval
    This Rule sets forth the circumstances under which shareholder 
approval is required prior to an issuance of securities in connection 
with: (i) the acquisition of the stock or assets of another company; 
(ii) equity-based compensation of officers, directors, employees or 
consultants; (iii) a change of control; and (iv) transactions other 
than public offerings. General provisions relating to shareholder 
approval are set forth in Rule 5635(e), and the financial viability 
exception to the shareholder approval requirement is set forth in Rule 
5635(f). Nasdaq-listed Companies and their representatives are 
encouraged to use the interpretative letter process described in Rule 
5602.
    (a) No change.
    (b) No change.
    (c) No change.
    IM-5635-1. No change.
    (d) Transactions other than Public Offerings
    (1) For purposes of this Rule 5635(d):
    (A) ``Minimum Price'' means a price that is the lower of: (i) the 
Nasdaq Official Closing Price [closing price] (as reflected on 
Nasdaq.com) immediately preceding the signing of the binding agreement; 
or (ii) the average Nasdaq Official Closing Price [closing price] of 
the common stock (as reflected on Nasdaq.com) for the five trading days 
immediately preceding the signing of the binding agreement.
    (B) No change.
    (2) No change.
    IM-5635-2. No change.
    IM-5635-3. No change.
    (e) No change.
    (f) No change.
    IM-5635-4. No change.
* * * * *

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
    On September 26, 2018, the Exchange amended Rule 5635(d)(1)(A) to 
change the definition of market value for purposes of the shareholder 
approval rule and eliminate the requirement for shareholder approval of 
issuances at a price less than book value but greater than market value 
(the ``Amendment'').\3\ As revised, Rule 5635(d) requires a Nasdaq-
listed company to obtain shareholder approval prior to the issuance of 
securities in connection with a transaction other than a public 
offering \4\ involving the sale, issuance or potential issuance by the 
company of common stock (or securities convertible into or exercisable 
for common stock), which alone or together with sales by officers, 
directors or Substantial Shareholders \5\ of the company, equals 20% or 
more of the common stock or 20% or more of the voting power outstanding 
before the issuance (a ``20% Issuance'') at a price that is less than 
the Minimum Price. Rule 5635(d)(1)(A) defines ``Minimum Price'' as a 
price that is the lower of: (i) The closing price (as reflected on 
Nasdaq.com) immediately preceding the signing of the binding agreement; 
or (ii) the average closing price of the common stock (as reflected on 
Nasdaq.com) for the five trading days immediately preceding the signing 
of the binding agreement.
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    \3\ See Securities Exchange Act Release No. 84287 (September 26, 
2018), 83 FR 49599 (October 2, 2018) (approving SR-Nasdaq-2018-008) 
(the ``Approval Order'').
    \4\ See Nasdaq Rule IM-5635-3 (Definition of a Public Offering).
    \5\ An interest consisting of less than either 5% of the number 
of shares of common stock or 5% of the voting power outstanding of a 
Company or party will not be considered a substantial interest or 
cause the holder of such interest to be regarded as a ``Substantial 
Shareholder.'' See Nasdaq Rule 5635(e)(3).
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    Prior to the Amendment, shareholder approval was required for a 20% 
Issuance at a price less than the greater of book or market value.\6\ 
In the

[[Page 6004]]

Exchange's proposal to use the closing price reported on Nasdaq.com, 
rather than the market value, the Exchange explained that ``[t]he 
closing price reported on Nasdaq.com is the Nasdaq Official Closing 
Price, which is derived from the closing auction on Nasdaq and reflects 
actual sale prices at one of the most liquid times of the day.'' \7\ At 
the time, Nasdaq believed that ``codify[ing] within the rule that 
Nasdaq.com is the appropriate source of the closing price information'' 
would ``assure that companies and investors use the Nasdaq Official 
Closing Price when pricing transactions.'' \8\ However, Rule 
5635(d)(1)(A) does not specify that the closing price refers to the 
Nasdaq Official Closing Price, which may create confusion. Nasdaq 
proposes to amend Rule 5635(d)(1)(A) to revise ``closing price (as 
reflected on Nasdaq.com)'' to ``Nasdaq Official Closing Price (as 
reflected on Nasdaq.com).'' \9\ The Exchange believes that this change 
will reflect the Exchange's original intention in adopting the 
Amendment.
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    \6\ ``Market value'' is defined in Nasdaq Rule 5005(a)(23) 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). See Nasdaq Rule 5005(a)(23).
    \7\ See Securities Exchange Act Release No. 82702 (February 13, 
2018), 83 FR 7269 (February 20, 2018) at 7270. See also Approval 
Order at 49602 (``the proposal to use the Nasdaq Official Closing 
Price for purposes of market value should help to ensure 
transparency to investors in calculating market value for purposes 
of the rule.'').
    \8\ Id.
    \9\ See Nasdaq Rule 4754(b)(4) (``All orders executed in the 
Nasdaq Closing Cross will be executed at the Nasdaq Closing Cross 
price, trade reported anonymously, and disseminated via the 
consolidated tape. The Nasdaq Closing Cross price will be the Nasdaq 
Official Closing Price for stocks that participate in the Nasdaq 
Closing Cross. Fifteen minutes after the close of trading, Nasdaq 
will disseminate via the network processor a trade message setting 
the Nasdaq Official Closing Price as the official Consolidated Last 
Sale Price in each Nasdaq-listed security in which one round lot or 
more is executed in the Nasdaq Closing Cross where the closing price 
differs from the Consolidated Last Sale Price.'').
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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, by eliminating potential confusion and enhancing clarity and 
transparency in its rules. The proposal is consistent with the 
Exchange's original intent as approved by the Commission and does not 
have any substantive effect on the rule.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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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 change is designed 
to more clearly describe the current operation and original intent of 
an existing rule without changing its substance and, therefore, Nasdaq 
believes that the proposed change will not impose a burden on 
competition.

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) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \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, along 
with a brief description and text of 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.
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    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 
Rule 5635(d)(1)(A) may be amended to reflect the Exchange's original 
intent and reduce potential confusion for companies and investors.
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiver of the operative delay should, 
as noted by Nasdaq, help to avoid potential confusion for investors and 
listed companies. The Commission further notes that the current 
proposal is consistent with Nasdaq's original proposal to adopt the 
current rule language.\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\
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    \16\ See supra note 7 and accompanying text.
    \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).
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    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.

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-2020-004 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-2020-004. 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

[[Page 6005]]

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-2020-004 and should be submitted on or before February 24, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-01912 Filed 1-31-20; 8:45 am]
BILLING CODE 8011-01-P