
[Federal Register Volume 79, Number 74 (Thursday, April 17, 2014)]
[Notices]
[Pages 21829-21831]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-08684]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71931; File No. SR-NASDAQ-2014-032]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Adopt Rule 4120(c)(8) With Respect to Initial Pricing of Certain 
Securities Not Subject to an Initial Public Offering

April 11, 2014.
    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 April 7, 2014, 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 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to adopt Rule 4120(c)(8). Such rule will 
allow, under certain circumstances, the process for halting and initial 
pricing of a security that is the subject of an initial public offering 
to be used for the initial pricing of other securities that have not 
been listed on a national securities exchange or traded on the over-
the-counter market pursuant to FINRA Form 211 immediately prior to the 
initial pricing. NASDAQ proposes to implement the change immediately.
    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *
4120. Limit Up-Limit Down Plan and Trading Halts
    (a)-(b) No change.
    (c) Procedure for Initiating and Terminating a Trading Halt
    (1)-(7) No change.
    (8) For purposes of this Rule and Rule 4753, the process for 
halting and initial pricing of a security that is the subject of an 
initial public offering shall also be available for the initial pricing 
of any other security that has 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, provided that a 
broker-dealer serving in the role of financial advisor to the issuer of 
the securities being listed is willing to perform the functions under 
Rule 4120(c)(7)(B) that are performed by an underwriter with respect to 
an initial public offering.
* * * * *

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
    The Exchange proposes to amend Rule 4120 to add a new Rule 
4120(c)(8) to modify the process by which trading commences in the 
securities of certain companies listing on NASDAQ that are not 
conducting an initial public offering of securities (``IPO'') at the 
time of listing on NASDAQ. Under the proposed amendment, securities of 
companies that have not previously been listed on a national securities 
exchange or traded in the over the counter market immediately prior to 
listing on NASDAQ could also be launched for trading using the same 
crossing mechanism currently available for IPOs.
    Securities of companies listing on NASDAQ in an IPO are released 
for trading in the IPO Halt Cross process outlined in Rule 
4120(c)(7)(B) and (C)

[[Page 21830]]

and Rule 4753. The IPO Halt Cross is designed to facilitate an orderly 
start to trading in an unseasoned security by providing additional time 
for quoting activity prior to launch (at least 15 minutes) and allowing 
significant underwriter involvement in determining when to launch 
trading. The IPO is released when the following two conditions are 
simultaneously met:
     Nasdaq receives notice from the underwriter of the IPO 
that the security is ready to trade, and
     There is no order imbalance in the security (as defined in 
the rule).

In administering the IPO cross process since 2006, NASDAQ has found 
that underwriters possess valuable information about the pending IPO 
given their unique position in the market, including the status of IPO 
orders on the underwriter's book. We believe the process has worked 
successfully in providing a stable environment at the time trading 
commences.
    By contrast, the securities of companies that list on NASDAQ that 
are not conducting IPOs are launched using a different crossing 
mechanism. These securities are released using the same Halt Cross used 
whenever securities are halted on NASDAQ for any reason. This process, 
outlined in Rule 4120(c)(7)(A), has a shorter quoting period (five 
minutes) and provides no ability to extend the quoting period in the 
event trading interest or volatility in the market appears likely to 
have a material impact the security, unless there is an order imbalance 
as defined in the rule. While this process has worked reasonably well 
for most issuers listing on NASDAQ for the first time, there have been 
situations where unseasoned issues have been subject to significant 
price fluctuation due to limited market interest, confusion about 
certain aspects of the security or other unforeseen circumstances.
    NASDAQ believes that it is important to extend the safeguards 
contained in the IPO Halt Cross to unseasoned issuers that have not 
previously been listed on a national securities exchange or traded in 
the over-the-counter market pursuant to FINRA Form 211 immediately 
prior to trading on NASDAQ.\3\ As proposed in Rule 4120(c)(8), these 
securities would become eligible for the IPO Halt Cross. In situations 
where the issuer is not conducting an offering of securities at the 
time of listing, NASDAQ proposes that a broker-dealer serving in the 
role of financial advisor to the issuer would, if willing, serve in the 
same capacity under the rule as the underwriter for purposes of IPOs. 
NASDAQ believes such an advisor, with market knowledge of the book and 
an understanding of the company and its security, would be well placed 
to provide advice on when the security should be released for trading. 
Other issuers coming to NASDAQ that did not meet the terms of Rule 
4120(c)(8) would continue to commence trading under Rule 4120(c)(7)(A). 
NASDAQ believes that these seasoned issuers, which previously traded on 
other national securities exchange or in the over-the-counter market, 
do not present the same concerns as the unseasoned issuers covered by 
the proposal.
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    \3\ FINRA Form 211 is used by a member firm to request the 
exemption afforded by Rule 15c2-11 to trade a security on the over-
the-counter markets.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\4\ in general, and with 
Section 6(b)(5) of the Act,\5\ in particular, 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 
transaction 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. The proposed 
rule change promotes this goal by providing a mechanism to promote the 
orderly opening of trading in a security that is not the subject of an 
IPO, but that has 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 initiation of trading on NASDAQ. NASDAQ 
believes that its IPO Cross is well suited for use in such 
circumstances, provided a broker-dealer that is serving in the capacity 
of financial advisor to the issuer is willing to perform the functions 
under Rule 4120(c)(7)(B) with respect to the timing of the initiation 
of trading that are normally performed by the underwriter. NASDAQ 
believes that the rule change will promote fair and orderly markets by 
helping to protect against volatility in the pricing and initial 
trading of the unseasoned securities covered by the proposed rule 
change.
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    \4\ 15 U.S.C. 78f.
    \5\ 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 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. 
Specifically, NASDAQ believes that the change is not relevant to 
competition, but rather is designed to promote fair and orderly 
markets. The change does not impact the ability of any market 
participant or trading venue to compete.

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

    Because the 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 if consistent with the protection of investors 
and the public interest, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \6\ and Rule 19b-
4(f)(6)(iii) thereunder.\7\
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Exchange believes that waiver of the operative delay will 
immediately promote orderly trading and reduce potential volatility in 
an initial trading. 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 
designates the proposed rule change to be operative upon filing.\8\
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    \8\ For purposes only of waiving the 30-day operative delay, the 
Commission has also 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

[[Page 21831]]

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 to determine whether the 
proposed rule should be approved or 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-2014-032 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-2014-032. 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 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, 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 such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2014-032, and should 
be submitted on or before May 8, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014-08684 Filed 4-16-14; 8:45 am]
BILLING CODE 8011-01-P


