Document ID: SEC-2020-1475-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2020-09-15T04:00Z

[Federal Register Volume 85, Number 179 (Tuesday, September 15, 2020)]
[Notices]
[Pages 57282-57286]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-20259]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89799; File No. SR-NASDAQ-2020-027]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To Apply Additional Initial Listing Criteria for 
Companies Primarily Operating in Restrictive Markets

September 9, 2020.

I. Introduction

    On May 29, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to apply additional listing criteria to 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 proposed rule change was published for comment in the 
Federal Register on June 12, 2020.\3\ On July 21, 2020, pursuant to 
Section 19(b)(2) of the Act,\4\ the Commission designated a longer 
period within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change.\5\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 89027 (June 8, 
2020), 85 FR 35962 (``Notice''). Comments on the proposed rule 
change can be found at: https://www.sec.gov/comments/sr-nasdaq-2020-027/srnasdaq2020027.htm.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 89358 (July 21, 
2020), 85 FR 45275 (July 27, 2020). The Commission designated 
September 10, 2020 as the date by which the Commission shall approve 
or disapprove, or institute proceedings to determine whether to 
approve or disapprove, the proposed rule change.
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    The Commission is publishing this order to solicit comments on the 
proposed rule change from interested persons and to institute 
proceedings pursuant to Section 19(b)(2)(B) of the Act \6\ to determine 
whether to approve or disapprove the proposed rule change.
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    \6\ 15 U.S.C. 78s(b)(2)(B).
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II. Exchange's Description of the Proposed Rule Change

    The Exchange states that in recent years the lack of transparency 
from certain emerging markets has raised concerns with respect to 
listed emerging market companies regarding the accuracy of disclosures, 
accountability, and access to information, particularly when the 
companies are 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 (``Restrictive Market'').\7\ The Exchange further states that 
such concerns can be compounded when a company lists on the Exchange 
through an initial public offering (``IPO'') or a business combination 
with a small offering size or a low public float percentage, as the 
company may not develop sufficient public float, investor base, and 
trading interest to provide the depth and liquidity necessary to 
promote fair and orderly trading, which may result in a security that 
is illiquid.\8\ The Exchange states that such securities may trade 
infrequently, in a more volatile manner, and with a wider bid-ask 
spread, all of which may lead to trading at a price that may not 
reflect true market value.\9\ In addition, the Exchange states that 
less liquid securities may be more susceptible to price manipulation 
and that, in particular, the risk of price manipulation due to insider 
trading is more acute with respect to a company that principally 
administers its business in a Restrictive Market (``Restrictive Market 
Company'') because regulatory investigations into price manipulation, 
insider trading, and compliance concerns may be impeded, and, 
therefore, investor protections and remedies may be limited.\10\ As a 
result, the Exchange states that it believes that Restrictive Market 
Companies present unique potential risks to U.S. investors.\11\
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    \7\ See Notice, supra note 3, at 35962.
    \8\ See id. at 35962 and 35965.
    \9\ See id. at 35962 and 35965-66.
    \10\ See id. at 35962 and 35966.
    \11\ See id. at 35965.
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    The Exchange states that it is now proposing rule changes that it 
believes will help to ensure that Restrictive Market Companies have 
sufficient investor base and public float to support fair and orderly 
trading on the Exchange.\12\ Specifically, the Exchange proposes to 
adopt a definition of ``Restrictive Market'' \13\ and to apply 
additional initial listing requirements to a Restrictive Market Company 
listing on the Exchange in connection with an IPO or a business 
combination.\14\ The Exchange also proposes to prohibit a Restrictive 
Market Company from listing on the Nasdaq Capital Market in connection 
with a Direct Listing,\15\ but to allow a Restrictive Market Company to 
list on the Nasdaq Global Select Market or Nasdaq Global Market in 
connection with a Direct Listing, provided that such company meets all 
applicable initial listing requirements for such market.
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    \12\ See id.
    \13\ See infra note 17 and accompanying text.
    \14\ The Exchange states that, currently, it may rely upon its 
discretionary authority under Nasdaq Listing Rule 5101 to deny 
initial listing or apply additional or more stringent criteria when 
it is concerned that a small offering size for an IPO may not 
reflect the company's initial valuation or may not ensure sufficient 
liquidity to support trading in the secondary market. Pursuant to 
Rule 5101, Nasdaq has 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. See Nasdaq Listing Rule 
5101.
    \15\ Nasdaq defines ``Direct Listing'' as the listing of 
``companies that have sold common equity securities in private 
placements, which have not been listed on a national securities 
exchange or traded in the over-the-counter market pursuant to FINRA 
Form 211 immediately prior to the initial pricing.'' See Nasdaq 
Listing Rule IM-5315-1.
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A. Definition of Restrictive Market

    The Exchange proposes to adopt a new definition of Restrictive 
Market in Listing Rule 5005(a)(37).\16\ As proposed, a Restrictive 
Market would mean 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.\17\ In

[[Page 57283]]

determining whether a Company's business is principally administered in 
a Restrictive Market, Nasdaq may consider the geographic locations of 
the Company's: (i) Principal business segments, operations or assets; 
(ii) board and shareholders' meetings; (iii) headquarters or principal 
executive offices; (iv) senior management and employees; and (v) books 
are records.\18\ The Exchange states that it would consider these 
factors holistically, recognizing that a company's headquarters may not 
be the office from which it conducts its principal business 
activities.\19\ The Exchange also states that the proposed definition 
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.\20\
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    \16\ The Exchange proposes to renumber current paragraphs 
(a)(37) through (a)(46) of Listing Rule 5005 in connection with the 
addition of the definition of Restrictive Market. See Notice, supra 
note 3, at 35963.
    \17\ See id. at 35962-63; proposed Listing Rule 5005(a)(37).
    \18\ See id. Nasdaq Listing Rule 5005(a)(6) defines ``Company'' 
as the issuer of a security listed or applying to list on Nasdaq.
    \19\ See Notice, supra note 3, at 35963. The Exchange provides 
the following example. Company X's headquarters are 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. Nasdaq would consider Company X's 
business to be principally administered in Country Z. See id.
    \20\ See id. at 35963, n.5.
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B. Minimum Offering Size or Public Float Percentage Requirement for an 
IPO

    The Exchange proposes to adopt new Rule 5210(l)(i) to require a 
Restrictive Market Company listing its Primary Equity Security \21\ on 
Nasdaq in connection with its IPO to offer a minimum amount of 
securities in a Firm Commitment Offering \22\ in the U.S. to Public 
Holders \23\ 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 of Listed Securities,\24\ 
whichever is lower. A Restrictive Market Company listing on the 
Exchange in connection with an IPO that is subject to the proposed rule 
would also need comply with all other applicable listing 
requirements.\25\
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    \21\ Nasdaq Listing 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).''
    \22\ Nasdaq Listing 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.''
    \23\ Nasdaq Listing 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.''
    \24\ ``Market Value'' means the consolidated closing bid price 
multiplied by the measure to be valued. See Nasdaq Listing Rule 
5000(a)(23). ``Listed Securities'' means securities listed on Nasdaq 
or another national securities exchange. See Nasdaq Listing Rule 
5000(a)(22).
    \25\ The Exchange provides the following examples to illustrate 
the proposed rule. First, Company X, which principally administers 
its business in a Restrictive Market, is applying to list on Nasdaq 
Global Market and has an expected post-offering Market Value of 
Listed Securities of $75,000,000. Since 25% of $75,000,000 is 
$18,750,000, which is lower than $25,000,000, pursuant to the 
requirements of the proposed rule, Company X would be eligible to 
list based on a Firm Commitment Offering in the U.S. to Public 
Holders of at least $18,750,000. 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 of at least $8 million. See Nasdaq Listing Rule 
5405(b)(1)(C). See also 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''). As another example, 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, pursuant to the requirements of the 
proposed rule, Company Y would be eligible to list 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. 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. See 
Nasdaq Listing Rule 5315(f)(2)(C).
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    The Exchange states that it 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.\26\ The Exchange further states that it 
believes the proposed listing requirement would 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.\27\
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    \26\ See Notice, supra note 3, at 35963.
    \27\ See id. at 35963-64.
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C. Minimum Market Value of Unrestricted Publicly Held Shares 
Requirement for a Business Combination

    The Exchange proposes to adopt new Rule 5210(l)(ii) to require a 
Company that is conducting a business combination, as described in 
Nasdaq Listing Rule 5110(a) \28\ or IM-5101-2,\29\ with a Restrictive 
Market Company to have a minimum Market Value of Unrestricted Publicly 
Held Shares \30\ following the business combination equal to the lesser 
of (i) $25 million or (ii) 25% of post-business combination entity's 
Market Value of Listed Securities. A Company subject to the proposed 
rule would also need comply with all other applicable listing 
requirements.\31\
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    \28\ Nasdaq Listing Rule 5110(a) (Business Combinations with 
non-Nasdaq Entities Resulting in a Change of Control) sets forth 
requirements applicable to a Company that engages in a business 
combination 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.
    \29\ Nasdaq Listing Rule IM-5101-2 (Listing of Companies Whose 
Business Plan is to Complete One or More Acquisitions) sets forth 
requirements applicable to a Company whose business plan is to 
complete an IPO and engage in a merger or acquisition with one or 
more unidentified companies within a specific period of time.
    \30\ Nasdaq Listing Rule 5005(a)(45) defines ``Unrestricted 
Publicly Held Shares'' as Publicly Held Shares that are Unrestricted 
Securities. ``Publicly Held Shares'' means shares not held directly 
or indirectly by an officer, director or any person who is the 
beneficial owner of more than 10 percent of the total shares 
outstanding. See Nasdaq Listing Rule 5005(a)(35). ``Unrestricted 
Securities'' means securities that are not subject to resale 
restrictions for any reason, including, but not limited to, 
securities: (i) Acquired directly or indirectly from the issuer or 
an affiliate of the issuer in unregistered offerings such as private 
placements or Regulation D offerings; (ii) acquired through an 
employee stock benefit plan or as compensation for professional 
services; (iii) acquired in reliance on Regulation S, which cannot 
be resold within the United States; (iv) subject to a lockup 
agreement or a similar contractual restriction; or (v) considered 
``restricted securities'' under Rule 144. See Nasdaq Listing Rules 
5005(a)(46) and (37).
    \31\ The Exchange provides the following examples to illustrate 
the proposed rule. First, 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, 
pursuant to the requirements of the proposed rule, to qualify for 
listing the post-business combination entity must have a minimum 
Market Value of Unrestricted Publicly Held Shares of at least 
$25,000,000. The company 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. See Nasdaq Listing Rule 5315(f)(2)(C). As another 
example, 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, pursuant to the 
requirements of the proposed rule, 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. The post-business 
combination company would also need to comply with all other 
applicable listing requirements of the Nasdaq Capital Market, 
including a Market Value of Unrestricted Publicly Held Shares of at 
least $5 million. See Nasdaq Listing Rule 5505(b)(3)(C).

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[[Page 57284]]

    The Exchange states that it believes that a business combination, 
as described in Nasdaq Rule 5110(a) or IM-5101-2, involving a 
Restrictive Market Company presents similar risks to U.S. investors as 
an IPO of a Restrictive Market Company and that the proposed listing 
requirement will 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 is a 
Restrictive Market Company.\32\
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    \32\ See Notice, supra note 3, at 35964.
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D. Direct Listings of Restrictive Market Companies

    The Exchange proposes to adopt new Rule 5210(l)(iii) to provide 
that a Restrictive Market Company that is listing its Primary Equity 
Security on Nasdaq in connection with a Direct Listing, as defined in 
Listing Rule IM-5315-1,\33\ would be permitted to list on: (i) The 
Nasdaq Global Select Market, provided that the Company meets all 
applicable listing requirements for the Nasdaq Global Select Market and 
the additional requirements of Listing Rule IM-5315-1, or (ii) the 
Nasdaq Global Market, provided that the Company meets all applicable 
listing requirements for the Nasdaq Global Market and the additional 
requirements of Listing Rule IM-5405-1. On the other hand, proposed 
Rule 5210(l)(iii) would provide that a Restrictive Market Company would 
not be permitted to list on the Nasdaq Capital Market in connection 
with a Direct Listing, notwithstanding the fact that the Company may 
meet the applicable initial listing requirements for the Nasdaq Capital 
Market and the additional requirements in Listing Rule IM-5505-1.
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    \33\ See supra note 15.
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    The Exchange's rules currently set forth initial listing 
requirements for companies listing on the Nasdaq Global Select Market, 
Nasdaq Global Market, and Nasdaq Capital Market,\34\ and additional 
listing requirements for Companies conducting a Direct Listing on such 
markets.\35\ The Exchange states that it 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 because such 
companies would be subject to the additional listing requirements set 
forth in IM-5315-1 or IM-5405-1, respectively.\36\ On the other hand, 
the Exchange states that it does not believe that the additional 
requirements for Direct Listing on the Nasdaq Capital Market, set forth 
in IM-5501-1, 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.\37\
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    \34\ See Nasdaq Listing Rules 5315, 5405, and 5505.
    \35\ See Nasdaq Listing Rules IM-5315-1, IM-5405-1, and IM-5501-
1.
    \36\ See Notice, supra note 3, at 35965.
    \37\ See id. As an example, the Exchange states that 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. 
See Nasdaq Listing Rules 5315(e)(2), 5315(f)(2)(c), 5405(a)(2), and 
5405(b)(1)(c). 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. See Nasdaq Listing Rules 5505(a)(2) and 5505(b)(3)(C). 
See also Notice, supra note 3, at 35965, n.22.
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III. Summary of the Comment Letters Received

    One commenter stated that it fully supports the proposed rule 
change inasmuch as it seems reasonably tailored to help ensure full, 
complete, and transparent financial and other disclosure from 
Restrictive Market Companies.\38\ Another commenter expressed its 
support for the proposed rule changes to require Restrictive Market 
Companies to have a minimum offering size or public float percentage 
for an IPO and minimum market value of publicly held shares for a 
business combination and agreed that these requirements should help 
mitigate the risks that Restrictive Market Companies present to U.S. 
investors.\39\ However, this commenter did not support the proposal to 
allow Restrictive Market Companies to list on Nasdaq Global Select 
Market or Nasdaq Global Market in connection with a Direct Listing and 
stated its general opposition to any proposal that would expand the use 
of direct listings.\40\ On the other hand, this commenter agreed with 
the Exchange that precluding Restrictive Market Companies from listing 
through a Direct Listing on the Nasdaq Capital Market will help to 
promote fair and orderly trading on the secondary market.\41\
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    \38\ See Letter from Annemarie Tierney, Founder and Principal, 
Liquid Advisors, Inc. (July 2, 2020), at 5.
    \39\ See Letter from Jeffrey P. Mahoney, General Counsel, 
Council of Institutional Investors (June 25, 2020) (``CII Letter''), 
at 4-5.
    \40\ See id. at 5-6. This commenter cited its letter to the 
Commission submitted in connection with File Number SR-NYSE-2019-67, 
which stated that ``the SEC should take real and substantial steps, 
on an urgent basis, to explore establishing a system of traceable 
shares before approving a direct listing regime.'' See Letter from 
Jeffrey P. Mahoney, General Counsel, Council of Institutional 
Investors (January 16, 2020), at 2-3, available at https://www.sec.gov/comments/sr-nyse-2019-67/srnyse201967-6660338-203855.pdf.
    \41\ See CII Letter, supra note 39, at 6.
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IV. Proceedings To Determine Whether To Approve or Disapprove SR-
NASDAQ-2020-027 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \42\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide 
additional comment on the proposed rule change to inform the 
Commission's analysis of whether to approve or disapprove the proposed 
rule change.
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    \42\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\43\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act, which requires, among other things, that the rules of a 
national securities exchange be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and to protect 
investors and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.\44\
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    \43\ Id.
    \44\ 15 U.S.C. 78f(b)(5).
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    As discussed above, the Exchange proposes to apply new initial 
listing requirements to Restrictive Market Companies in connection with 
an IPO to

[[Page 57285]]

require such companies to offer a minimum amount of securities in a 
Firm Commitment Offering in the U.S. to Public Holders 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 
of Listed Securities, whichever is lower.\45\ In addition, the Exchange 
proposes to apply new listing requirements to companies conducting a 
business combination with a Restrictive Market Company to require such 
companies 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 post-business combination entity's Market 
Value of Listed Securities.\46\ In support of the proposed 
requirements, the Exchange states that it 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 and that business combinations 
involving Restrictive Market Companies present similar risks to U.S. 
investors.\47\ However, the Exchange does not provide any other data or 
analysis to support the level at which the proposed thresholds are set. 
The Commission believes there are questions as to whether the proposed 
thresholds are set at levels which are not designed to permit unfair 
discrimination amongst Restrictive Market Company issuers.
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    \45\ See supra Section II.B.
    \46\ See supra Section II.C.
    \47\ See supra notes 26 and 32 and accompanying text.
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    In addition, the Exchange's proposal sets forth five factors that 
the Exchange ``may'' consider when determining whether a Company's 
business is principally administered in a Restrictive Market and the 
Exchange states that it will consider these factors ``holistically.'' 
\48\ The proposal does not provide how, or if, the Exchange would apply 
these five factors when making a determination of whether a Company's 
business is principally administered in a Restrictive Market but, 
instead, provides the Exchange with broad discretion in determining so. 
The Commission believes there are questions as to whether such broad 
discretion when making a determination of whether a Company's business 
is principally administered in a Restrictive Market is not designed to 
permit unfair discrimination. Accordingly, the Commission believes 
there are questions as to whether the proposal is consistent with 
Section 6(b)(5) of the Act and its requirement, among other things, 
that the rules of a national securities exchange not be designed to 
permit unfair discrimination.
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    \48\ See supra notes 18-19 and accompanying text.
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    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the Exchange 
Act and the rules and regulations issued thereunder . . . is on the 
[SRO] that proposed the rule change.'' \49\ The description of a 
proposed rule change, its purpose and operation, its effect, and a 
legal analysis of its consistency with applicable requirements must all 
be sufficiently detailed and specific to support an affirmative 
Commission finding,\50\ and any failure of an SRO to provide this 
information may result in the Commission not having a sufficient basis 
to make an affirmative finding that a proposed rule change is 
consistent with the Act and the applicable rules and regulations.\51\
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    \49\ 17 CFR 201.700(b)(3).
    \50\ See id.
    \51\ See id.
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    The Commission is instituting proceedings to allow for additional 
consideration and comment on the issues raised herein, including as to 
whether the proposal is consistent with the Act.

V. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5) \52\ of the Act or any other provision 
of the Act, or the rules and regulations thereunder. Although there do 
not appear to be any issues relevant to approval or disapproval that 
would be facilitated by an oral presentation of views, data, and 
arguments, the Commission will consider, pursuant to Rule 19b-4 under 
the Act,\53\ any request for an opportunity to make an oral 
presentation.\54\
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    \52\ 15 U.S.C. 78f(b)(5).
    \53\ 17 CFR 240.19b-4.
    \54\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by October 6, 2020. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
October 20, 2020. The Commission asks that commenters address the 
sufficiency of the Exchange's statements in support of the proposal, 
which are set forth in the Notice,\55\ in addition to any other 
comments they may wish to submit about the proposed rule change.
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    \55\ See Notice, supra note 3.
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    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

[[Page 57286]]

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 by October 6, 2020. Rebuttal 
comments should be submitted by October 20, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\56\
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    \56\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-20259 Filed 9-14-20; 8:45 am]
BILLING CODE 8011-01-P