Document ID: SEC-2010-0331-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2010-03-04T05:00Z

[Federal Register: March 4, 2010 (Volume 75, Number 42)]
[Notices]               
[Page 9982-9985]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04mr10-120]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61594; File No. SR-NASDAQ-2010-024]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Adopt a Round Lot Holder Initial Listing Requirement for Listing of 
Warrants on the Nasdaq Global and Capital Markets Except for Initial 
Firm Commitment Underwritten Public Offering

February 25, 2010.
    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 February 19, 2010, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by NASDAQ. 
NASDAQ has designated the proposed rule change as constituting a non-
controversial rule change under Rule 19b-4(f)(6) under the Act,\3\ 
which renders the proposal effective upon filing with the Commission. 
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.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    NASDAQ is filing this proposed rule change to adopt a round lot 
holder requirement for listing on the Global and Capital markets, and 
to make a technical correction to a cross referenced rule.
    The text of the proposed rule change is below. Proposed new 
language is in italics and proposed deletions are in [brackets].

5410. Initial Listing Requirements for Rights and Warrants

    For initial listing, the rights or warrants must meet all the 
requirements below:
    (a) No change.
    (b) The underlying security must be listed on the Global Market or 
be a Covered Security; [and]
    (c) There must be at least three registered and active Market 
Makers[.] ; and
    (d) In the case of warrants, there must be at least 400 Round Lot 
Holders (except that this requirement will not apply to the listing of 
warrants in connection with the initial firm commitment underwritten 
public offering of such warrants).
* * * * *

5515. Initial Listing Requirements for Rights, Warrants, and 
Convertible Debt

    The following requirements apply to a Company listing convertible 
debt, rights or warrants on The Nasdaq Capital Market.
    (a) For initial listing, rights, warrants and put warrants (that 
is, instruments that grant the holder the right to sell to the issuing 
company a specified number of shares of the Company's common stock, at 
a specified price until a specified period of time) must meet the 
following requirements:
    (1) No change.
    (2) The underlying security must be listed on Nasdaq or be a 
Covered Security; [and]
    (3) At least three registered and active Market Makers[.] ; and
    (4) In the case of warrants, at least 400 Round Lot Holders (except 
that this requirement will not apply to the listing of rights or 
warrants in connection with the initial firm commitment underwritten 
public offering of such warrants).
    (b)-(c) No change.
* * * * *

5730. Listing Requirements for Securities Not Specified Above (Other 
Securities)

    (a) Initial Listing Requirements

[[Page 9983]]

    (1) Nasdaq will consider listing on the Global Market any security 
not otherwise covered by the criteria in the Rule 5400 or 5700 Series, 
provided the instrument is otherwise suited to trade through the 
facilities of Nasdaq. Such securities will be evaluated for listing 
against the following criteria:
    (A) The Company shall have assets in excess of $100 million and 
stockholders' equity of at least $10 million. In the case of a Company 
which is unable to satisfy the income criteria set forth in Rule 
5405(b)(1)(A)[paragraph (a)(1)], Nasdaq generally will require the 
Company to have the following:
    (i)-(ii) No change.
    (B)-(D) No change.
    (2)-(3) No change.
    (b) 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, NASDAQ 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. NASDAQ 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 is proposing to adopt a round lot holder requirement for the 
initial listing of warrants on the Global and Capital Markets, with a 
limited exemption for companies listing warrants pursuant to a firm 
commitment underwritten initial public offering.\4\ Currently, Listing 
Rule 5410 provides that to list a warrant on the Global Market a 
Company must have at least 450,000 warrants issued, the underlying 
security must be listed on the Global Market or be a Covered Security 
\5\, and there must be at least three registered and active Market 
Makers. To list a warrant on the Capital Market, a Company must have at 
least 400,000 warrants issued, the underlying security must be listed 
on NASDAQ or be a Covered Security, and there must be at least three 
registered and active Market Makers.\6\
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    \4\ The Commission notes that the proposed changes to the Global 
Market warrant holder requirement would apply to the Global Select 
Market under Nasdaq Rule 5320, which provides that ``[i]f the 
Primary Equity Security of a Company is included in the Global 
Select Market, any other security of that same Company, such as 
other classes of common or preferred stock, warrants and units, that 
qualify for listing on the Global Market shall also be included in 
the Global Select Market.''
    \5\ Rule 5005(a)(9) defines a Covered Security as a security 
described in Section 18(b) of the Securities Act of 1933.
    \6\ Rule 5515(a).
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    On March 12, 2009, NASDAQ filed a proposed rule change to revise 
the rules relating to the qualification, listing, and delisting of 
companies listed on, or applying to list on, NASDAQ to improve the 
organization of the rules, eliminate redundancies and simplify the rule 
language.\7\ These rules (the ``Listing Rules'') were operative April 
13, 2009. In adopting the new Listing Rules, NASDAQ inadvertently 
omitted the requirement in the prior rules that a warrant have at least 
400 round lot holders for initial listing \8\ on the Global Market. 
NASDAQ is proposing to modify Rule 5410 to add the round lot holder 
requirement back to the rule.
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    \7\ Securities Exchange Act Release No. 59663 (March 31, 2009), 
74 FR 15552 (April 6, 2009)(SR-NASDAQ-2009-018).
    \8\ Former Rule 4420(d)(1) required warrants to substantially 
meet the requirements of the Global Market listing rules, which 
included a minimum of 400 round lot shareholders under all three 
entry standards.
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    NASDAQ is also proposing to adopt an identical 400 round lot holder 
requirement for the initial listing of warrants on the Capital Market. 
NASDAQ does not currently have a holder requirement for listing 
warrants on the Capital Market; however, NASDAQ believes that adopting 
such a requirement will help ensure that warrants listed on the Capital 
Market will have adequate distribution and a liquid trading market.
    NASDAQ is proposing to adopt an exemption from the proposed round 
lot holder requirements of both the Global and Capital Markets for 
warrants listed pursuant to a firm commitment underwritten initial 
public offering. NASDAQ believes that a primary purpose of distribution 
requirements in listing standards is to ensure a liquid trading market, 
promoting price discovery and the establishment of an appropriate 
market price for the listed securities. In the case of warrants, NASDAQ 
believes that this liquidity concern is partially addressed by the fact 
that the market price for a warrant is in large part determined by the 
trading price of the underlying common stock. Warrant values are 
primarily determined using valuation models that factor in the trading 
price of the underlying stock, the warrant exercise price and the 
expiration date of the right or warrant. NASDAQ believes that the sale 
of warrants in an underwritten public offering provides an additional 
basis for believing that a liquid trading market will likely develop 
for such warrants after listing, since the offering process is designed 
to promote appropriate price discovery. Moreover, the underwriters in a 
firm commitment underwritten public offering will also generally make a 
market in the securities for a period of time after the offering, 
assisting in the creation of a liquid trading market. For the foregoing 
reasons, NASDAQ believes that it is consistent with the protection of 
investors and the public interest to exempt from the proposed holder 
requirements of Rules 5410 and 5515(a) any series of warrants that is 
listed in connection with its initial firm commitment underwritten 
public offering. This proposed exemption is also consistent with a 
recent change to the listing requirements of the New York Stock 
Exchange (``NYSE'').\9\
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    \9\ See SR-NYSE-2009-115 (December 2, 2009), 74 FR 64781 
(December 8, 2009) (amending Section 703.12 of the NYSE Listed 
Company Manual to exempt from the 400 holders requirement any series 
of warrants listed in connection with the initial firm commitment 
underwritten public offering of such warrants).
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    NASDAQ is not proposing to require a minimum number of holders for 
the initial listing of rights, because rights are generally distributed 
to the holders of an existing security and becomes a part of the 
realizable value of that security. As such, because the existing 
security must meet liquidity requirements, including a continued 
listing holders requirement, there is not a need to require a separate 
minimum number of holders of the rights to help ensure the liquidity of 
the rights.\10\
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    \10\ This is also consistent with the NYSE's treatment of 
rights. See Section 703.03(N) of the NYSE Listed Company Manual.
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    NASDAQ is also making a technical correction to a cross-reference 
contained in the Listing Rules. Rule 5730(a)(1)(A) was derived from old 
Rule 4420(d), which contained a cross reference to the Global Market 
income criteria found under old Rule 4420(a)(1). Rule 4420(a)(1) was 
moved to new Listing Rule 5405(b)(1)(A), yet the cross reference in 
Rule 5730(a)(1)(A) was not updated to reflect this new location. 
Accordingly, NASDAQ proposes to correct the reference in Rule 
5730(a)(1)(A).
2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the

[[Page 9984]]

provisions of Section 6 of the Act,\11\ in general and with Section 
6(b)(5) of the Act,\12\ 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. The proposed 
rule change, which imposes a round lot holder requirement applicable to 
the initial listing of warrants, subject to a limited exception for 
warrants listed pursuant to firm commitment initial public offerings, 
will protect investors and the public interest and remove impediments 
to and perfect the mechanism of a free and open market by helping to 
assure adequate liquidity, and correcting inadvertent errors in the 
adoption of the New Listing Rules.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6) \14\ thereunder 
because the proposal does not: (i) Significantly affect the protection 
of investors or the public interest; (ii) impose any significant burden 
on competition; and (iii) by its terms, become operative for 30 days 
from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest.\15\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires the Exchange to give the Commission written 
notice of the Exchange's 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 the pre-filing requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) \16\ 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 requested that the 
Commission waive the 30-day operative delay period.
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    \16\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiver of the 30-day operative delay 
period is consistent with the protection of investors and the public 
interest. For the Global Market, Nasdaq would require the same 400 
round lot warrant holders requirement that was contained in the rules 
for warrants prior to the reorganization of its Listing Rules. For the 
Capital Market, Nasdaq is proposing an identical 400 round lot warrant 
holders requirement as the Global Market. The Commission believes that 
waiver of the 30-day operative delay period is consistent with the 
protection of investors and the public interest as the proposed changes 
should help to enhance liquidity and price discovery for warrants. 
Further, for both the Global Market and the Capital Market, Nasdaq's 
proposed exemption from the holder requirement for initial firm 
commitment underwritten public offerings is identical to the rules of 
the NYSE, which were published for notice and comment in the Federal 
Register.\17\ The Commission did not receive any comments during the 
public comment period. The Commission further notes that waiving the 
30-day operative delay for this provision is consistent with the 
protection of investors and the public interest as market making by the 
underwriters in an initial firm commitment public offering of warrants 
for a period of time after the offering should help alleviate short 
term liquidity concerns.\18\ Finally, Nasdaq proposes to correct 
inaccurate cross references in the Listing Rules. Based on the above, 
the Commission believes it is consistent with the protection of 
investors and the public interest to waive the 30-day operative delay 
and therefore deems the proposal effective upon filing.\19\
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    \17\ See note 9 supra.
    \18\ As noted by Nasdaq, the price of such warrants would be 
established by the firm commitment underwritten offering process, in 
addition to the price of the underlying security, the exercise price 
of the warrants, and the expiration of the warrants.
    \19\ For purposes only of waiving the operative delay for this 
proposal, the Commission 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 may summarily abrogate such proposed 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.\20\
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    \20\ 15 U.S.C. 78s(b)(3)(C).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2010-024 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2010-024. This 
file number should be included on the subject line if e-mail 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 on 
official business days between the hours of 10 a.m. and 3 p.m. Copies 
of such filing also will be available for inspection and copying at the 
principal offices of the NASDAQ. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You

[[Page 9985]]

should submit only information that you wish to make available 
publicly.
    All submissions should refer to File Number SR-NASDAQ-2010-024, and 
should be submitted on or before March 25, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-4411 Filed 3-3-10; 8:45 am]
BILLING CODE 8011-01-P