
[Federal Register Volume 79, Number 146 (Wednesday, July 30, 2014)]
[Notices]
[Pages 44234-44236]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-17882]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72669; File No. SR-NASDAQ-2014-058]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Granting Approval of Proposed Rule Change To Amend IM-5900-7 To, Among 
Other Things, Modify the Free Services Offered to Certain Newly Listing 
Companies

July 24, 2014.

I. Introduction

    On May 27, 2014, 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 amend IM-5900-7 to, among other things, modify 
the free services offered to certain newly listing companies. The 
proposed rule change was published in the Federal Register on June 10, 
2014.\3\ The Commission received one comment letter on the proposal.\4\ 
Thereafter, Nasdaq submitted a letter in response to this comment.\5\ 
This order grants approval of the proposed rule change.
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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. 72311 (June 4, 
2014), 79 FR 33239 (``Notice'').
    \4\ See Letter to Elizabeth M. Murphy, Secretary, Commission, 
from Patrick Healy, CEO, Issuer Advisory Group LLC, dated July 3, 
2014 (``IAG Letter'').
    \5\ See Letter to Elizabeth M. Murphy, Secretary, Commission, 
from Arnold P. Golub, Vice President, NASDAQ OMX, dated July 14, 
2014 (``Nasdaq Response Letter'').
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II. Description of the Proposal

    Nasdaq IM-5900-7 describes the complimentary services offered by 
Nasdaq to companies listing on the Nasdaq Global and Global Select 
Markets in connection with an initial public offering, upon emerging 
from bankruptcy, or in connection with a spin-off or carve-out from 
another company (``Eligible New Listings'') and to companies that 
switch their listing from the New York Stock Exchange to the Nasdaq 
Global or Global Select Markets (``Eligible Switches''). Under the 
current rule, Eligible Switches with a market capitalization of $500 
million or more receive complimentary services for four years from the 
date of their listing, while all other Eligible Switches and Eligible 
New Listings receive complimentary services for two years from the date 
of their listing. In addition, under the current rule, Eligible 
Switches and Eligible New Listings with a market capitalization of $500 
million or more receive additional services that companies with a 
market capitalization below $500 million do not receive (``Additional 
Services'').\6\
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    \6\ The Additional Services include extra licenses for Directors 
Desk, additional press release distribution services and market 
surveillance tools.
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    Nasdaq proposes to modify several aspects of IM-5900-7. First, 
Nasdaq proposes to increase the threshold for an Eligible Switch or 
Eligible New Listing to receive Additional Services from $500 million 
or more in market capitalization to $750 million or more in market 
capitalization. Nasdaq also proposes to provide three years of 
services, instead of four, to Eligible Switches with a market 
capitalization of $750 million or more.\7\
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    \7\ All other Eligible New Listings or Eligible Switches will 
continue to receive complimentary services for two years, as they do 
under the current rule.
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    Nasdaq also proposes to remove the use of Directors Desk, an online 
board portal, as a complimentary service offered under IM-5900-7.\8\ 
Instead, Nasdaq proposes to offer all Eligible New Listings and 
Eligible Switches four interactive webcasts, with a retail value of 
approximately $6,500 per year.
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    \8\ Under the current rule, all Eligible New Listings and 
Eligible Switches receive use of Directors Desk for up to 10 users, 
with an approximate retail value of $20,000 per year, and Eligible 
New Listings and Eligible Switches with a market capitalization of 
$500 million or more receive an additional five licenses for 
Directors Desk, with a retail value of approximately $10,000 per 
year.
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    Under the current rule, Nasdaq provides market analytic tools for 
up to four users to all Eligible New Listings and Eligible Switches, at 
an approximate retail value of $39,000. Nasdaq proposes to change its 
offer for market analytic tools for all Eligible News Listings and 
Eligible Switches from up to four users to up to two users, at an 
approximate retail value of $30,000.
    Nasdaq also proposes to update the approximate retail values set 
forth in the rule for the individual services offered and the total 
retail value of all services offered to Eligible New Listings or 
Eligible Switches to account for changes in prices since the rule was 
first adopted as well as changes in services as set forth in the 
proposal. Nasdaq states that the cumulative effect of these changes 
will reduce the stated annual value of the package from approximately 
$94,000 to approximately $70,000 for companies with a market 
capitalization of up to $750 million and from approximately $169,000 to 
approximately $125,000 for companies with a market capitalization of 
$750 million or more.\9\ Under the proposal the stated annual value of 
the package available to Eligible New Listings and Eligible Switches 
with a market capitalization between $500 million and $750 million will 
change from approximately $169,000 to approximately $70,000.\10\
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    \9\ See Notice, supra note 3, at 33239. The prior value for each 
package is the amount currently reflected in the rule text. The 
value of the proposed package is based on retail prices as of May 
2014. Id. at 33239, n.6.
    \10\ Id.
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    Nasdaq proposes to remove the current language in IM-5900-7 that 
states that the complimentary period for the services starts from the 
date of listing and add new paragraph (d) to describe the start of the 
complimentary period. Under proposed IM-5900-7(d), if an Eligible New 
Listing or Eligible Switch begins to use a particular service provided 
under IM-5900-7 within 30 days after the date of listing, the 
complimentary period for that service will begin on the date of first 
use. In all other cases, the period for each complimentary service 
shall commence on the listing date.
    Nasdaq proposes to implement the proposed rule change upon 
approval. However, the proposal provides that any company that applies 
to list on Nasdaq before July 31, 2014, and that actually lists before 
September 30, 2014, may elect to receive services under the terms of 
the rule as in effect prior to the amendment (``Prior Rule''),\11\ 
instead of the terms of the proposed amended IM-5900-7. The proposal 
provides that companies that listed while the Prior Rule was in effect 
will continue to receive services under the terms of the Prior 
Rule.\12\
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    \11\ See Exchange Act Release No. 65963 (December 15, 2011), 76 
FR 79262 (December 21, 2011) (SR-NASDAQ-2011-122) (order approving 
the adoption of IM-5900-7) (``Original Approval Order''). Nasdaq 
states that it will maintain, in its online rule book, a link to the 
text of the rule as in effect before the proposed amendment. The 
text of the Prior Rule will be made available at http://nasdaq.cchwallstreet.com/NASDAQ/pdf/nasdaq-filings/2011/SR-NASDAQ-2011-122.pdf.
    \12\ The proposed rule change would also make non-substantive 
changes to the rule to consistently use the term ``services'' 
instead of interchangeably using the terms ``products'' and 
``services.''
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III. Discussion and Summary of Comment and Commission's Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of Section 6 of the 
Act.\13\ Specifically, the Commission believes it is consistent with 
the provisions of

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Sections 6(b)(4) and (5) of the Act,\14\ in particular, in that it is 
designed to provide for the equitable allocation of reasonable dues, 
fees, and other charges among Exchange members, issuers, and other 
persons using the Exchange's facilities, and is not designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers. 
Moreover, the Commission believes that the proposed rule change is 
consistent with Section 6(b)(8) of the Act \15\ in that it does not 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
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    \13\ 15 U.S.C. 78f. In approving this proposed rule change, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \14\ 15 U.S.C. 78f(b)(4) and (5).
    \15\ 15 U.S.C. 78f(b)(8).
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    The Commission believes that it is consistent with the Act for the 
Exchange to raise the market capitalization threshold for companies to 
qualify for Additional Services from $500 million or more to $750 
million or more, and for the Exchange to reduce the time period of 
complimentary services provided to Eligible Switches with a market 
capitalization of $750 million or more from four years to three years. 
Moreover, the Commission believes that it is consistent with the Act 
for the Exchange to offer varying services to different categories of 
issuers since larger capitalized companies generally will need and use 
more services.\16\ Nasdaq represents that the new threshold better 
reflects the level where a company will most benefit from the 
Additional Services, and will most likely continue to purchase those 
services after the complimentary period has expired.\17\ In addition, 
Nasdaq states that the higher threshold will better reflect the type of 
companies that, when listing on Nasdaq, will assist in Nasdaq's efforts 
to attract and retain other listings.\18\ Nasdaq states that, based on 
its experience, this higher threshold is appropriate to differentiate 
the companies that will most benefit from the Additional Services and 
provide the most future value to Nasdaq.\19\ Based on the above, the 
Commission believes that Nasdaq has provided a sufficient basis for 
increasing the threshold by which companies will receive increased 
services and that this change does not unfairly discriminate among 
issuers.
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    \16\ See Original Approval Order, supra note 1111, 76 FR at 
79266, finding that it is reasonable for Nasdaq to provide different 
services to tiers based on market capitalization since larger 
capitalized companies generally will need and use more services.
    \17\ See Notice, supra note 3, 79 FR at 33239. As noted by 
Nasdaq, in its prior filing, it offers more services to larger 
companies because they need more and different governance, 
communications and intelligence services.
    \18\ Id.
    \19\ Id. at 33240.
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    Further, Nasdaq notes that reducing the time period from four to 
three years for free services available to larger Eligible Switches 
will reduce an existing difference between Eligible Switches and other 
Eligible New Listings.\20\ Nasdaq states that these proposed changes 
will result in fewer companies receiving the Additional Services and 
shorten the period for which some companies receive services, which may 
have the result of enhancing competition with other listing venues and 
with other service providers.\21\ As noted below, this reflects the 
competitive environment for exchange listings.
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    \20\ Id.
    \21\ Id. at 33240-1.
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    The Commission believes that it is consistent with the Act for the 
Exchange to modify its existing complimentary service offerings by 
removing Directors Desk, adding interactive webcasts, and reducing the 
number of users for market analytic tools services. Nasdaq states that 
it has observed that companies offered the complimentary Directors Desk 
package may decline to use it, or may only use a few of the available 
seats, and that a number of companies have expressed interest in 
interactive webcasts during their discussions with Nasdaq and many 
purchase this service from NASDAQ OMX Corporate Solutions.\22\ Thus, 
Nasdaq believes that although the interactive webcasts may cost less 
than Directors Desk, the expected increase in utilization by companies 
could make this substitution more valuable to companies.\23\ In 
addition, with respect to the reduction in market analytic tools users, 
Nasdaq states that it has observed that many companies have contracted 
for four users just because they were available, and not because they 
were actually needed by the company, and that these companies may not 
be interested in continuing to pay for those users at the retail price 
when the package expires.\24\ The Commission understands that Nasdaq 
faces competition in the market for listing services, and that it 
competes, in part, by offering valuable services to its listed 
companies. Nasdaq states that it believes that the changes to the 
services offered will result in a more enticing package for potential 
new listings, even though the individual value of the services offered 
may be less, and therefore will enhance competition among listing 
exchanges.\25\
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    \22\ Id. at 33239.
    \23\ Id.
    \24\ Id.
    \25\ Id. at 33240.
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    Accordingly, the Commission believes that Nasdaq's proposed changes 
to its complimentary services offerings, including changes to the 
eligibility thresholds and the time period of services offered, 
reflects the current competitive environment for exchange listings 
among national securities exchanges and is appropriate and consistent 
with Section 6(b)(8). The Commission notes that all listed companies 
receive some services from Nasdaq, including Nasdaq Online and the 
Market Intelligence Desk.\26\
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    \26\ Id.
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    The Commission also believes that it is consistent with the Act for 
the Exchange to allow the complimentary period for a particular service 
to begin on the date of first use if a company begins to use the 
service within 30 days after the date of listing. Nasdaq states that, 
in its experience, it can take companies a period of time to review and 
complete necessary contracts and training for the complimentary 
services offered under IM-5900-7 following their listing, and that 
allowing this modest 30 day period, if the company needs it, will help 
to ensure that the company will have the benefit of the full period 
permitted under the rule to actually use the services, thereby enabling 
companies to receive the full intended benefit.\27\ Nasdaq states that 
this change also more closely aligns Nasdaq's treatment of these 
companies with other customers of NASDAQ OMX Corporate Solutions, who 
do not receive or pay for services until they are contracted.\28\ 
Nasdaq states that it believes that the increased flexibility 
surrounding the start date of services will result in a more enticing 
package for potential new listings and therefore will enhance 
competition among listing exchanges.\29\ The Commission notes that this 
change would provide only a short window of additional time to allow 
companies to finalize their contracts for the complimentary services, 
and that this additional time would only be available to companies that 
have already determined to list on Nasdaq.\30\ The Commission also 
notes, as Nasdaq points out, that a competing service provider could 
continue to offer its services during this 30-day period,

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which could potentially enhance competition among service 
providers.\31\
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    \27\ Id.
    \28\ Id.
    \29\ Id.
    \30\ The Commission expects Nasdaq to track the start (and end) 
date of each free service.
    \31\ See Notice, supra note 3, 79 FR at 33241.
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    Nasdaq proposes to allow a company that applies for listing on 
Nasdaq before July 31, 2014, and lists before September 30, 2014, to 
elect to receive services under the terms of the rule as in effect 
before the amendment. Nasdaq notes that companies near a listing or 
switch may have relied upon the services described in the previous 
version of the rule in making their decision to list on Nasdaq.\32\ The 
IAG Letter received argues that Nasdaq should go further and 
grandfather under the old rule any company that can demonstrate that it 
has been offered the services under the prior version of the rule.\33\ 
This commenter argues that being forced to file an application by July 
31, 2014 and list with Nasdaq by September 30, 2013 in order to receive 
the services offered under the prior version of the rule will 
disadvantage companies utilizing the confidentiality protection offered 
under the JOBS Act.\34\ In response, Nasdaq states its continued belief 
that the grandfather period as proposed is appropriate and consistent 
with the Act and fully addresses the situation where companies made a 
listing decision based, in part, on the services provided under the old 
rule.\35\ Nasdaq states its view that companies that have not applied 
to list by July 31, 2014 will be able to make their listing decision 
based on the services provided under the amended rule and would, 
therefore, not be disadvantaged.\36\ In addition, Nasdaq states that 
the commenter's suggestion would result in unfair treatment of certain 
companies that read the current rule but did not meet with Nasdaq, 
introduces unnecessary complexity into the rule by having to 
indefinitely track such companies, and would be impractical to 
administer.\37\ The Commission agrees with Nasdaq that the grandfather 
period proposed is consistent with the Act. The Commission believes 
that the application and listing deadlines proposed by Nasdaq in order 
to receive services under the prior version of the rule are reasonable, 
and that adequate notice of the cutoff dates has been provided to 
issuers. The Commission notes that the Notice of the proposal, which 
clearly sets forth the grandfather provision, was published in the 
Federal Register on June 10, 2014.\38\
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    \32\ Id. at 33240.
    \33\ See IAG Letter, supra note 4, at 2. The IAG also commented 
on the reduction in the dollar value of the services and encouraged 
the Commission to remain vigilant on this issue. For the reasons 
discussed above, the Commission believes that Nasdaq's proposed 
changes are consistent with the Act.
    \34\ Id. at 1.
    \35\ See Nasdaq Response Letter, supra note 5.
    \36\ Id.
    \37\ Id.
    \38\ See supra note 3.
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    Finally, the Commission believes that is reasonable, and in fact 
required by Section 19(b) of the Exchange Act, that Nasdaq amend IM-
5900-7 to update the rule text to reflect the actual retail values of 
the services offered, which have changed since the original adoption of 
the rule.\39\ This provides greater transparency to Nasdaq's rules and 
the fees applicable to companies listing on the Exchange.
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    \39\ We would expect Nasdaq, consistent with Section 19(b) of 
the Act, to periodically update the retail values of services 
offered should they change. This will help to provide transparency 
to listed companies on the value of the free services they receive 
and the actual costs associated with listing on Nasdaq.
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\40\ that the proposed rule change (SR-NASDAQ-2014-058) be, and it 
hereby is, approved.
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    \40\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
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    \41\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-17882 Filed 7-29-14; 8:45 am]
BILLING CODE 8011-01-P


