Document ID: SEC-2020-0896-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange, LLC
Posted Date: 2020-06-09T04:00Z

[Federal Register Volume 85, Number 111 (Tuesday, June 9, 2020)]
[Notices]
[Pages 35358-35360]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12384]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88999; File No. SR-NYSE-2020-42]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Section 902.02 of the NYSE Listed Company Manual Concerning Pre-
Revenue Companies That Can Qualify for Reduced Listing and Annual Fees

June 3, 2020.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on May 21, 2020, New York Stock Exchange LLC (``NYSE'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the self-
regulatory organization. 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\ 15 U.S.C. 78a.
    \3\ 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 amend Section 902.02 of the NYSE Listed 
Company Manual (the ``Manual'') to modify the definition of a Pre-
Revenue Company contained in that rule. The proposed rule change is 
available on the Exchange's website at www.nyse.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 self-regulatory organization 
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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Section 902.02 of the Manual includes a provision providing for 
modified listing and annual fees for companies that meet the definition 
of a Pre-Revenue Company set forth in that rule. For purposes of this 
provision, a ``Pre-Revenue Company'' is a company whose initial listing 
date is on or after June 1, 2019, and which has not recorded revenue in 
excess of $5 million in either (i) the most recent completed fiscal 
year prior to listing or (ii) during the year of listing through the 
most recently completed fiscal quarter before the listing date.\4\
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    \4\ The Annual Fees of any company which qualifies as a Pre-
Revenue Company at the time of listing will be calculated quarterly 
for the fiscal quarter in which it lists and in each of the 
succeeding 12 full fiscal quarters, at a rate of one-fourth of the 
applicable Annual Fee rate. The total fees (including Listing Fees 
and Annual Fees, but excluding listing fees paid at the time of 
initial listing) that may be billed to such an issuer during this 
period will be subject to a $25,000 cap in the fiscal quarter in 
which the issuer lists and in each of the succeeding 12 full fiscal 
quarters. This fee cap is subject to the same exclusions as apply in 
relation to the $500,000 per year fee cap described in the 
subsection of Section 902.02 entitled ``Total Maximum Fee Payable in 
a Calendar Year.'' If there are one or more fiscal quarters 
remaining in the calendar year after the conclusion of the period 
described herein, the issuer will, on a prorated basis, be billed 
the regular Annual Fee subject to the $500,000 total fee cap for the 
remainder of that calendar year.
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    In adding the provisions specific to Pre-Revenue Companies,\5\ the 
Exchange noted that its Global Market Capitalization Test (as set forth 
in Section 102.01C of the Manual) allows the Exchange to list companies 
that have not yet recorded any significant revenues, provided the 
issuer has at least a $200 million global market capitalization and 
meets the other requirements for listing. These companies are typically 
engaged in research and development (in many cases they are 
biotechnology companies focused on developing new drug candidates) or 
are in the early stages of commercialization of a product. Generally, a 
company of this kind relies primarily on the proceeds from its initial 
public offering to fund its operations. As such, the fees charged by 
the Exchange represent a more significant expense for these companies 
than they do for other newly-listed companies and in many cases these 
fees are an impediment to the Exchange in competing for the listing of 
these companies. The adoption of the special provisions applicable to 
Pre-Revenue Companies was intended to address the particular 
difficulties faced by Pre-Revenue Companies in being able to pay the 
Exchange's fees.
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    \5\ See Exchange Act Release No. 85961 (May 29, 2019), 84 FR 
25856 (June 4, 2019 (SR-NYSE- 2019-30).
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    Since adopting the provisions for Pre-Revenue Companies, the 
Exchange has observed that some companies that would otherwise qualify 
as a Pre-Revenue Company will have a single revenue-generating event 
that is not typical for a company at that stage in its life cycle. An 
event of this nature renders the company ineligible for Pre-Revenue 
Company status, notwithstanding the fact that the company has not 
previously generated any material revenue and does not have the 
prospect of generating any meaningful additional revenue for the 
foreseeable future. An example of this sort of one-time revenue event 
that the Exchange has observed is a one-time licensing payment received 
by a biotechnology company that is otherwise fully engaged in pre-
commercial research and development activity and does not generate any 
revenue in the ordinary course. The Exchange believes that a company 
that has this sort of event that is anomalous given the nature of that 
company's business can still be the kind of company for which the Pre-
Revenue Company provision was designed. Such a company continues to 
face the same challenges faced by a Pre-Revenue Company. Consequently, 
the Exchange now proposes to amend the definition of a Pre-Revenue 
Company to provide that, in determining whether a company qualifies as 
a Pre-Revenue Company, the Exchange will exclude from its calculations 
any one-time non-recurring revenue items.\6\
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    \6\ The determination of Pre-Revenue Company status is made at 
the time of initial listing. Therefore, there are no companies 
currently listed that would benefit from the proposed modification 
to the definition of Pre-Revenue Company.

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[[Page 35359]]

    The Exchange does not expect there to be a significant number of 
listings in which this proposed revision of the definition of a Pre-
Revenue Company would be applicable. Consequently, the proposed rule 
change would not affect the Exchange's commitment of resources to its 
regulatory oversight of the listing process or its regulatory programs.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\7\ in general, and furthers the 
objectives of Section 6(b)(4) \8\ of the Act, in particular, in that it 
is designed to provide for the equitable allocation of reasonable dues, 
fees, and other charges. The Exchange also believes that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\9\ in that 
it is designed 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, in general, to protect investors and the public interest 
and is not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
    \9\ 15 U.S.C. 78f(b)(5).
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The Proposed Change is Reasonable
    The Exchange operates in a highly competitive marketplace for the 
listing of equity securities. The Commission has repeatedly expressed 
its preference for competition over regulatory intervention in 
determining prices, products, and services in the securities markets.
    The Exchange believes that the ever-shifting market share among the 
exchanges with respect to new listings and the transfer of existing 
listings between competitor exchanges demonstrates that issuers can 
choose different listing markets in response to fee changes. 
Accordingly, competitive forces constrain exchange listing fees. Stated 
otherwise, changes to exchange listing fees can have a direct effect on 
the ability of an exchange to compete for new listings and retain 
existing listings.
    Given this competitive environment, the Exchange believes that the 
proposed fee waivers are reasonable because the cost of paying initial 
listing fees and Annual acts as a disincentive to listing on the 
Exchange for companies that do not yet generate significant recurring 
revenues.
The Proposal is an Equitable Allocation of Fees
    The Exchange believes that the proposal is equitable as it is 
designed to address an anomaly in the treatment of companies that are 
similar in nature to companies that meet the current definition of a 
Pre-Revenue Company.
The Proposal is Not Unfairly Discriminatory
    The Exchange believes that the proposal is not unfairly 
discriminatory because the proposed waive is designed solely to avoid 
the impact on a small group of issuers of an anomalous fee outcome 
arising from the manner in which a one-time nonrecurring event causes 
them to be treated differently for fee purposes than companies that are 
similar to them in every other respect. Occasionally, a company will 
receive a one-time non-recurring payment that causes it to be 
ineligible for treatment as a Pre-Revenue Company for fee purposes, 
notwithstanding the fact that it has not generated any recurring stream 
of ordinary course revenue in the past and does not expect to do so for 
the foreseeable future. A company in this situation is subject to the 
same ongoing financial challenges as other companies that meet the 
definition of a Pre-Revenue Company and the Exchange believes that it 
is consistent with the purpose of the modified listing fees for a Pre-
Revenue Company to modify the definition of such a company to include a 
company that would qualify but for the existence of a one-time, non-
recurring revenue item.
    Finally, the Exchange believes that it is subject to significant 
competitive forces, as described below in the Exchange's statement 
regarding the burden on competition.
    For the foregoing reasons, the Exchange believes that the proposal 
is consistent with the Act.

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act.
Intramarket Competition.
    The proposed waiver will be available to all similarly situated 
issuers on the same basis. The Exchange does not believe that the 
proposed modification of the definition of a Pre-Revenue Company will 
have any meaningful effect on the competition among issuers listed on 
the Exchange.
Intermarket Competition
    The Exchange operates in a highly competitive market in which 
issuers can readily choose to list new securities on other exchanges 
and transfer listings to other exchanges if they deem fee levels at 
those other venues to be more favorable. Because competitors are free 
to modify their own fees in response, and because issuers may change 
their listing venue, the Exchange does not believe its proposed 
modification of the definition of a Pre-Revenue Company can impose any 
burden on intermarket competition.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \10\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \11\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such 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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \12\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \12\ 15 U.S.C. 78s(b)(2)(B).
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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 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

[[Page 35360]]

     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2020-42 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-NYSE-2020-42. 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-NYSE-2020-42 and should be submitted on 
or before June 30, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12384 Filed 6-8-20; 8:45 am]
BILLING CODE 8011-01-P