[Federal Register Volume 83, Number 27 (Thursday, February 8, 2018)]
[Notices]
[Pages 5650-5655]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-02501]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82627; File No. SR-NYSE-2017-30]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Amendment No. 3 and Order Granting Accelerated 
Approval of Proposed Rule Change, as Modified by Amendment No. 3, To 
Amend Section 102.01B of the NYSE Listed Company Manual To Provide for 
the Listing of Companies That List Without a Prior Exchange Act 
Registration and That Are Not Listing in Connection With an 
Underwritten Initial Public Offering and Related Changes to Rules 15, 
104, and 123D

February 2, 2018.

I. Introduction

    On June 13, 2017, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (``Exchange Act'') \2\ and Rule 19b-4 
thereunder,\3\ a proposed rule change to amend Section 102.01B of the 
NYSE Listed Company Manual to modify the provisions relating to the 
qualification of companies listing without a prior Exchange Act 
registration in connection with an underwritten initial public offering 
and amend Exchange rules to address the opening procedures on the first 
day of trading of such securities. The proposal, as modified by 
Amendment No. 3, would: (i) Eliminate the requirement in Footnote (E) 
of Section 102.01B (``Footnote (E)'') of the Manual to have a private 
placement market trading price if there is a valuation from an 
independent third-party of $250 million in market value of publicly-
held shares; (ii) set forth several factors indicating when the 
independent third party providing the valuation would not be deemed 
``independent'' under Footnote (E); (iii) amend NYSE Rule 15 to add a 
reference price for when a security is listed under Footnote (E); (iv) 
amend NYSE Rule 104 to specify Designated Market Maker (``DMM'') 
requirements when facilitating the opening of a security listed under 
Footnote (E) when there has been no sustained history of trading in a 
private placement trading market for such security; and (v) amend NYSE 
Rule 123D to specify that the Exchange may declare a regulatory halt 
prior to

[[Page 5651]]

opening a security that is the subject of an initial pricing upon 
Exchange listing and that has not, immediately prior to such initial 
pricing, traded on another national securities exchange or in the over-
the-counter market.
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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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    The proposed rule change was published for comment in the Federal 
Register on June 20, 2017.\4\ The Commission received one comment in 
response to the Original Notice.\5\ The Exchange filed Amendment No. 1 
to the proposed rule change on July 28, 2017, which, as noted below, 
was later withdrawn. On August 3, 2017, the Commission extended the 
time period within which to approve the proposed rule change, 
disapprove the proposed rule change, or institute proceedings to 
determine whether to approve or disapprove the proposed rule change to 
September 18, 2017.\6\
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    \4\ See Securities Exchange Act Release No. 80933 (June 15, 
2017), 82 FR 28200 (June 20, 2017) (``Original Notice'').
    \5\ See letter to the Commission from James J. Angel, Ph.D., 
CFA, Georgetown University, dated July 28, 2017 (``Angel Letter'').
    \6\ See Securities Exchange Act Release No. 81309 (August 3, 
2017), 82 FR 37244 (August 9, 2017).
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    On August 16, 2017, the Exchange withdrew Amendment No. 1 and filed 
Amendment No. 2 to the proposed rule change, which superseded and 
replaced the proposed rule change in its entirety.\7\ The Commission 
published Amendment No. 2 for comment in the Federal Register on August 
24, 2017.\8\ The Commission received no comments in response to this 
solicitation for comments. On September 15, 2017, the Commission 
instituted proceedings to determine whether to approve or disapprove 
the proposed rule change, as modified by Amendment No. 2.\9\ Following 
the Order Instituting Proceedings, the Commission received one 
additional comment letter.\10\ On December 8, 2017, the Exchange filed 
Amendment No. 3 to the proposed rule change, which superseded and 
replaced the proposed rule change in its entirety.\11\ On December 14, 
2017, the Commission extended the time period for approving or 
disapproving the proposal for an additional 60 days until February 15, 
2018.\12\ The Commission is publishing this notice to solicit comment 
on Amendment No. 3 to the proposed rule change from interested persons, 
and is approving the proposed rule change, as modified by Amendment No. 
3, on an accelerated basis.
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    \7\ See Notice, infra note 8, at n. 8, which describe the 
changes proposed in Amendment No. 2 from the original proposal.
    \8\ See Securities Exchange Act Release No. 81440 (August 18, 
2017), 82 FR 40183 (August 24, 2017) (``Notice'').
    \9\ See Securities Exchange Act Release No. 81640 (September 15, 
2017), 82 FR 44229 (September 21, 2017) (``Order Instituting 
Proceedings'').
    \10\ See letter to Brent J. Fields, Commission, from Cleary 
Gottlieb Steen & Hamilton LLP, dated October 12, 2017 (``Cleary 
Gottlieb Letter'').
    \11\ Amendment No. 3 revised the proposal to eliminate the 
proposed changes to Footnote (E) that would have allowed a company 
to list immediately upon effectiveness of an Exchange Act 
registration statement only, without any concurrent IPO or 
Securities Act of 1933 (``Securities Act'') registration. Except for 
removing this part of the proposal, the remaining proposed 
amendments in Amendment No. 3 are identical to those noticed for 
comment in Amendment No. 2. Amendment No. 3 also contained a 
complete restated Form 19b-4 under the Exchange Act, which contained 
the same discussions, statutory basis and other sections set forth 
in Amendment No. 2, with slight modifications to take into account 
the deleted provision. Amendment No. 3 is available at: https://www.sec.gov/comments/sr-nyse-2017-30/nyse201730-2782322-161654.pdf.
    \12\ See Securities Exchange Act Release No. 82332 (December 14, 
2017), 82 FR 60442 (December 20, 2017).
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 3

1. Listing Standards

    Generally, Section 102 of the Manual sets forth the minimum 
numerical standards for domestic companies, or foreign private issuers 
that choose to follow the domestic standards, to list equity securities 
on the Exchange. Section 102.01B of the Manual requires a listed 
company to demonstrate at the time of listing an aggregate market value 
of publicly-held shares of either $40 million or $100 million, 
depending on the type of listing.\13\ Section 102.01B also states that, 
in these cases, the Exchange relies on written representations from the 
underwriter, investment banker, or other financial advisor, as 
applicable, with respect to this valuation.\14\ While Footnote (E) 
states that the Exchange generally expects to list companies in 
connection with a firm commitment underwritten IPO, upon transfer from 
another market, or pursuant to a spin-off, Section 102.01B of the 
Manual also contemplates that companies that have not previously had 
their common equity securities registered under the Exchange Act, but 
which have sold common equity securities in a private placement, may 
wish to list their common equity securities on the Exchange at the time 
of effectiveness of a registration statement \15\ filed solely for the 
purpose of allowing existing shareholders to sell their shares.\16\ 
Specifically, Footnote (E) permits the Exchange, on a case by case 
basis, to exercise discretion to list such companies and provides that 
the Exchange will determine that such a company has met the $100 
million aggregate market value of publicly-held shares requirement 
based on a combination of both (i) an independent third-party valuation 
(a ``Valuation'') \17\ of the company and (ii) the most recent trading 
price for the company's common stock in a trading system for 
unregistered securities operated by a national securities exchange or a 
registered broker-dealer (a ``Private Placement Market'').\18\ Under 
the current rules, the Exchange will attribute a market value of 
publicly-held shares to the company equal to the lesser of (i) the 
value calculable based on the Valuation and (ii) the value calculable 
based on the most recent trading price in a Private Placement 
Market.\19\
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    \13\ Section 102.01B of the Manual states that a company must 
demonstrate ``an aggregate market value of publicly-held shares of 
$40,000,000 for companies that list either at the time of their 
initial public offerings (``IPO'') (C) or as a result of spin-offs 
or under the Affiliated Company standard or, for companies that list 
at the time of their Initial Firm Commitment Underwritten Public 
Offering (C), and $100,000,000 for other companies (D)(E).'' Section 
102.01B also requires a company to have a closing price, or if 
listing in connection with an IPO or Initial Firm Commitment 
Underwritten Public Offering, an IPO or Initial Firm Commitment 
Underwritten Public Offering price per share of at least $4.00 at 
the time of initial listing.
    \14\ See Section 102.01B, Footnote (C) of the Manual, which 
states that for companies listing at the time of their IPO or 
Initial Firm Commitment Underwritten Public Offering, the Exchange 
will rely on a written commitment from the underwriter to represent 
the anticipated value of the company's offering. For spin-offs, the 
Exchange will rely on a representation from the parent company's 
investment banker (or other financial advisor) in order to estimate 
the market value based upon the distribution ratio.
    \15\ The reference to a registration statement refers to a 
registration statement effective under the Securities Act.
    \16\ See Section 102.01B, Footnote (E) of the Manual.
    \17\ See Section 102.01B, Footnote (E) of the Manual, which sets 
forth specific requirements for the Valuation. Among other factors, 
any Valuation used for purposes of Footnote (E) must be provided by 
an entity that has significant experience and demonstrable 
competence in the provision of such valuations.
    \18\ Section 102.01B, Footnote (E) of the Manual also sets forth 
specific factors for relying on a Private Placement Market price, 
and states that the Exchange will examine the trading price trends 
for the stock in the Private Placement Market over a period of 
several months prior to listing and will only rely on such market if 
it is ``consistent with a sustained history [of trading] over that 
several month period.''
    \19\ See Section 102.01B, Footnote (E) of the Manual.
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    The Exchange proposed two changes to Footnote (E). First, the 
Exchange proposed to amend Footnote (E) to provide that, in the absence 
of any recent trading in a Private Placement Market, the Exchange will 
determine that a company has met its market value of publicly-held 
shares requirement if the company provides a recent Valuation 
evidencing a market value of

[[Page 5652]]

publicly-held shares of at least $250 million.\20\ In proposing this 
change, the Exchange expressed the view that the current requirement of 
Footnote (E) to rely on recent Private Placement Market trading in 
addition to a Valuation may cause difficulties for certain companies 
that are otherwise clearly qualified for listing.\21\ The Exchange 
stated that some companies that are clearly large enough to be suitable 
for listing on the Exchange do not have their securities traded at all 
on a Private Placement Market prior to going public and, in other 
cases, the Private Placement Market trading is too limited to provide a 
reasonable basis for reaching conclusions about a company's 
qualification.\22\ In proposing to adopt a Valuation that must be at 
least two-and-a-half times the $100 million requirement of Section 
102.01B of the Manual, the Exchange stated that this amount ``will give 
a significant degree of comfort that the market value of the company's 
shares will meet the [$100 million] standard upon commencement of 
trading on the Exchange,'' particularly because any such Valuation 
``must be provided by an entity that has significant experience and 
demonstrable competence in the provision of such valuations.'' \23\
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    \20\ See proposed Section 102.01B, Footnote (E) of the Manual. 
The Commission notes that the Exhibit 5 to Amendment No. 3 contains 
the proposed rule language. Any references herein to the proposed 
rule language shall refer to the language available in Exhibit 5 to 
Amendment No. 3, which is available from the Exchange or on the 
Commission's website www.sec.gov. See also Notice, supra note 8.
    \21\ See Notice, supra note 8, at 40184.
    \22\ See id.
    \23\ Id. In its proposal, the Exchange stated that it believed 
that it is unlikely that any Valuation would reach a conclusion that 
was incorrect to the degree necessary for a company using this 
provision to fail to meet the $100 million requirement upon listing, 
in particular because any Valuation used for this purpose must be 
provided by an entity that has significant experience and 
demonstrable competence in the provision of such valuations. See id.
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    Second, the Exchange proposed to further amend Footnote (E) by 
establishing certain criteria that would preclude a valuation agent 
from being considered ``independent'' for purposes of Footnote (E), 
which the Exchange believes will provide a significant additional 
guarantee of the independence of any entity providing such a 
Valuation.\24\ Specifically, the Exchange proposed that a valuation 
agent will not be deemed to be independent if:
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    \24\ See id.
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     At the time it provides such Valuation, the valuation 
agent or any affiliated person or persons beneficially own in the 
aggregate as of the date of the Valuation, more than 5% of the class of 
securities to be listed, including any right to receive any such 
securities exercisable within 60 days;
     The valuation agent or any affiliated entity has provided 
any investment banking services to the listing applicant within the 12 
months preceding the date of the Valuation; \25\ or
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    \25\ For purposes of this provision, ``investment banking 
services'' includes, without limitation, acting as an underwriter in 
an offering for the issuer; acting as a financial adviser in a 
merger or acquisition; providing venture capital, equity lines of 
credit, PIPEs (private investment, public equity transactions), or 
similar investments; serving as placement agent for the issuer; or 
acting as a member of a selling group in a securities underwriting. 
See proposed Section 102.01B, Footnote (E) of the Manual.
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     The valuation agent or any affiliated entity has been 
engaged to provide investment banking services to the listing applicant 
in connection with the proposed listing or any related financings or 
other related transactions.\26\
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    \26\ See id.
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2. Trading Rules

    The Exchange also proposed to amend Exchange Rules 15, 104 and 
123D, governing the opening of trading, to specify procedures for the 
opening trade on the day of initial listing of a company that lists 
under the proposed amendments to Footnote (E) and did not have any 
recent trading in a Private Placement Market.\27\
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    \27\ See Notice, supra note 8, at 41085.
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    Rule 15(b) provides that a DMM will publish a pre-opening 
indication \28\ before a security opens if the opening transaction on 
the Exchange is anticipated to be at a price that represents a change 
of more than the ``Applicable Price Range,'' \29\ from a specified 
``Reference Price.'' \30\ Rule 15(c)(1) specifies that the Reference 
Price for a security (other than an American Depository Receipt) would 
be either (A) the security's last reported sale price on the Exchange; 
(B) the security's offering price in the case of an IPO; or (C) the 
security's last reported sale price on the securities market from which 
the security is being transferred to the Exchange.\31\
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    \28\ Rule 15(a) states that a pre-opening indication will 
include the security and the price range within which the opening 
price is anticipated to occur. Pre-opening indications are published 
on the Exchange's proprietary data feeds and the securities 
information processor (``SIP''). See Rule 15(a). The Exchange may 
also publish order imbalance information prior to the opening of a 
security. The order imbalance information contains the price at 
which opening interest may be executed in full. See Rule 15(g).
    \29\ See Rule 15(d) for a definition of ``Applicable Price 
Range.''
    \30\ Rule 15(b) also provides that a DMM will publish a pre-
opening indication if a security has not opened by 10:00 a.m. 
Eastern Time. See Rule 15(c) for a definition of ``Reference 
Price.''
    \31\ See Rule 15(c)(1).
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    The Exchange proposed to amend Rule 15(c)(1) to add new sub-
paragraph (D) to specify the Reference Price for a security that is 
listed under Footnote (E). The Exchange proposed that if such security 
has had recent sustained trading in a Private Placement Market prior to 
listing, the Reference Price in such scenario would be the most recent 
transaction price in that market or, if no such sustained trading has 
occurred, the Reference Price used would be a price determined by the 
Exchange in consultation with a financial advisor to the issuer of such 
security.\32\
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    \32\ See proposed Rule 15(c)(1)(D).
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    Rule 104(a)(2) provides that the DMM has a responsibility for 
facilitating openings and reopenings for each of the securities in 
which the DMM is registered as required under Exchange rules, which 
includes supplying liquidity as needed. The Exchange proposed to amend 
Rule 104(a)(2) to require the DMM to consult with the issuer's 
financial advisor when facilitating the opening on the first day of 
trading of a security that is listing under Footnote (E) and that has 
not had recent sustained history of trading in a Private Placement 
Market prior to listing, in order to effect a fair and orderly opening 
of such security.\33\
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    \33\ See proposed Rule 104(a)(2). The Exchange stated that this 
requirement is based in part on Nasdaq Rule 4120(c)(9), which 
requires that a new listing on Nasdaq that is not an IPO have a 
financial advisor willing to perform the functions performed by an 
underwriter in connection with pricing an IPO on Nasdaq. See Notice, 
supra note 8, at 40185.
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    The Exchange stated that it believes that such a financial advisor 
would have an understanding of the status of ownership of outstanding 
shares in the company and would have been working with the issuer to 
identify a market for the securities upon listing.\34\ As a result, it 
believes such financial advisor would be able to provide input to the 
DMM regarding expectations of where such a new listing should be 
priced, based on pre-listing selling and buying interest and other 
factors that would not be available to the DMM through other 
sources.\35\
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    \34\ See Notice, supra note 8, at 40185.
    \35\ See id. The Exchange noted that despite the proposed 
obligation to consult with the financial advisor, the DMM would 
remain responsible for facilitating the opening of trading of such 
security, and the opening of such security must take into 
consideration the buy and sell orders available on the Exchange's 
book. See id. Accordingly, the Exchange stated that just as a DMM is 
not bound by an offering price in an IPO, and will open such a 
security at a price dictated by the buying and selling interest 
entered on the Exchange in that security, a DMM would not be bound 
by the input he or she receives from the financial advisor. See id. 
at 40185-86.

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[[Page 5653]]

    In its proposal, the Exchange stated that the proposed amendments 
to both Rule 15 and Rule 104 are designed to provide DMMs with 
information to assist them in meeting their obligations to open a new 
listing under the proposed amended text of Footnote (E).\36\
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    \36\ See id. at 40186.
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    The Exchange further proposed to amend its rules to provide 
authority to declare a regulatory halt for a non-IPO new listing. As 
proposed, Rule 123D(d) would provide that the Exchange may declare a 
regulatory halt in a security that is the subject of an initial pricing 
on the Exchange and 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.\37\ In addition, 
proposed Rule 123D(d) would provide that this regulatory halt would be 
terminated when the DMM opens the security.\38\ The Exchange stated its 
belief that it would be consistent with the protection of investors and 
the public interest for the Exchange, as a primary listing exchange, to 
have the authority to declare a regulatory halt for a security that is 
the subject of a non-IPO listing because it would ensure that a new 
listing that is not the subject of an IPO could not be traded before 
the security opens on the Exchange.\39\
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    \37\ See proposed Rule 123D(d). The Exchange proposed to 
renumber current subsection (d) of Rule 123D as subsection (e). See 
proposed Rule 123D(e).
    \38\ See proposed Rule 123D(d). The Exchange stated that 
proposed Rule 123D(d) is based in part on (i) Nasdaq Rule 
4120(c)(9), which provides that the process for halting and initial 
pricing of a security that is the subject of an IPO on Nasdaq is 
also 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 immediately prior to the initial public 
offering, 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 Nasdaq Rule 4120(c)(7)(B) 
that are performed by an underwriter with respect to an initial 
public offering; and (ii) Nasdaq Rule 4120(c)(8)(A), which provides 
that such halt condition shall be terminated when the security is 
released for trading on Nasdaq. See Notice, supra note 8, at 40186.
    \39\ See Notice, supra note 8, at 40186.
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III. Summary of Comments

    The Commission received two comments on the proposed rule 
change.\40\ Both commenters supported the proposal.
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    \40\ See Angel Letter, supra note 5, and Cleary Gottlieb Letter, 
supra note 10.
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    One commenter urged the Commission to approve the proposal promptly 
and without further delay.\41\ This commenter stated the belief that 
there is no public interest served in excluding the listing of a large 
company with many investors that does not need to raise additional 
capital through an IPO.\42\ The commenter further stated that in 
determining whether a company is large enough to meet the listing 
standards, if a company were to trade at a market capitalization far 
below the thresholds, the harm would be to the Exchange's reputation, 
not to the investing public.\43\ The commenter further discussed 
concerns about how NYSE will open the market for a security under the 
proposal when there is no reliable previous price or offering 
price.\44\ The commenter stated that if NYSE gets the ``offering price 
`wrong,' the secondary market trading will quickly find the market 
price at which supply equals demand within a few minutes if not a few 
seconds.'' \45\
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    \41\ See Angel Letter, supra note 5, at 1.
    \42\ See id. at 2.
    \43\ See id. at 3.
    \44\ See id.
    \45\ Id.
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    The other commenter also supported the proposal.\46\ The commenter 
stated that, in terms of the lack of an offering price or price range 
for the securities, the factors that typically underpin the price 
determination in an IPO are all publicly available, such as knowledge 
of ``comparable public companies and the trading prices of their shares 
and the corresponding financial metrics of the new issuer.'' \47\ The 
commenter also stated that, in any case, ``the opening price will be 
quickly adjusted through normal market forces.'' \48\ Further, the 
commenter also did not believe that the lack of information on the 
number of shares that will likely be made available for sale was an 
issue because although the ``absence of a certain block of shares 
offered at the outset necessarily creates greater uncertainty . . . , 
that concern seems to be reasonably mitigated by the practical reality 
that an issuer is unlikely to incur the cost--both out of pocket and in 
management time--of undertaking an exchange listing without having 
sounded out its shareholders about their general interest in possibly 
selling shares.'' \49\
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    \46\ See Cleary Gottlieb Letter, supra note 10, submitted in 
response to the Order Instituting Proceedings. Several of the 
comments from this commenter focused on the Exchange's proposal to 
allow a company to list on the Exchange immediately upon 
effectiveness of an Exchange Act registration statement without any 
concurrent Securities Act registration. In Amendment No. 3, the 
Exchange removed this aspect of its proposal from its proposed rule 
change. Therefore, those comments that related solely to the deleted 
portion of the Exchange proposal are not relevant to the amended 
proposal. See Amendment No. 3, supra note 11.
    \47\ Cleary Gottlieb Letter, supra note 10, at 3.
    \48\ Id.
    \49\ Id.
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IV. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 3, is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to a national securities exchange.\50\ In 
particular, the Commission finds that the proposed rule change, as 
modified by Amendment No. 3, is consistent with Section 6(b)(5) of the 
Exchange Act,\51\ 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 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. Section 6(b)(5) 
of the Exchange Act \52\ also requires that the rules of an exchange 
not be designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \50\ 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).
    \51\ 15 U.S.C. 78f(b)(5).
    \52\ Id.
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    The Commission has consistently recognized the importance of 
exchange listing standards. Among other things, such listing standards 
help ensure that exchange listed companies will have sufficient public 
float, investor base, and trading interest to provide the depth and 
liquidity necessary to promote fair and orderly markets.\53\
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    \53\ The Commission has stated in approving exchange listing 
requirements that the development and enforcement of adequate 
standards governing the listing of securities on an exchange is an 
activity of critical importance to the financial markets and the 
investing public. In addition, once a security has been approved for 
initial listing, maintenance criteria allow an exchange to monitor 
the status and trading characteristics of that issue to ensure that 
it continues to meet the exchange's standards for market depth and 
liquidity so that fair and orderly markets can be maintained. See, 
e.g., Securities Exchange Act Release Nos. 81856 (October 11, 2017), 
82 FR 48296, 48298 (October 17, 2017) (SR-NYSE-2017-31); 81079 (July 
5, 2017), 82 FR 32022, 32023 (July 11, 2017) (SR-NYSE-2017-11). The 
Commission notes that, in general, adequate listing standards, by 
promoting fair and orderly markets, are consistent with Section 
6(b)(5) of the Exchange Act, in that they are, among other things, 
designed to prevent fraudulent and manipulative acts and practices, 
promote just and equitable principles of trade and protect investors 
and the public interest.
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    The Exchange has stated that it typically expects a company to list 
in

[[Page 5654]]

connection with a firm commitment underwritten IPO, upon transfer from 
another market, or pursuant to a spin-off.\54\ The Exchange listing 
standards currently contain a provision, approved in 2008, that gives 
the Exchange discretion to list companies upon effectiveness of a 
registration statement under the Securities Act that is filed solely 
for the purpose of allowing existing shareholders to resell shares they 
obtained in earlier private placements if such companies can evidence 
$100 million of publicly held shares based on the lesser amount from a 
Valuation provided by an independent third party or the price in a 
Private Placement Market.\55\
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    \54\ See Notice, supra note 8, at 40183.
    \55\ According to the Exchange, companies listing their 
securities upon a selling shareholder registration statement have 
sold securities in one or more private placements and do not wish to 
raise cash in an offering at the time of listing, unlike a company 
listing in conjunction with its IPO. Because the Exchange believed 
such companies meeting all other listing standards should not be 
barred from listing, the Exchange proposed Footnote (E) to the 
listing standards which the Commission approved in 2008. In 
proposing Footnote (E) in 2008, the Exchange stated that with such 
companies, there is no public trading market to rely on to evaluate 
whether the company meets the market value standard as with a 
company transferring from another market, nor is there a public 
offering whose price would provide the basis for a letter of the 
type typically provided by underwriters for companies listing in 
conjunction with an IPO. See Section 102.01B, Footnote (E); 
Securities Exchange Act Release No. 58550 (September 15, 2008), 73 
FR 54442, 54442-43 (September 19, 2008) (SR-NYSE-2008-68) (``NYSE 
2008 Order''). See also notes 18-19 supra and accompanying text, 
describing the requirements in current rule to be able to rely on a 
Private Placement Market.
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    As noted above, the Exchange has proposed to provide an alternative 
in cases where there is not sufficient Private Placement Market trading 
to establish a reliable price. The Exchange has also proposed 
additional standards concerning the independence of the third party 
agent providing the Valuation.
    The Commission believes that the proposed rule change will provide 
a means for a category of companies with securities that have not 
previously been traded on a public market and that are listing only 
upon effectiveness of a selling shareholder registration statement, 
without a related underwritten offering, and without recent trading in 
a Private Placement Market, to list on the Exchange. In particular, for 
such companies that otherwise meet NYSE's listing standards,\56\ the 
proposed rule change will provide that, in the absence of any recent 
trading in a Private Placement Market, the Exchange will determine that 
such company has met its market value of publicly-held shares 
requirement if the company provides a Valuation from an independent 
third party evidencing a market value of publicly-held shares of at 
least $250 million. According to the Exchange, ``[a]dopting a 
requirement that the Valuation must be at least two-and-a-half times 
the $100 million requirement will give a significant degree of comfort 
that the market value of the company's shares will meet the standard 
upon commencement of trading on the Exchange.'' \57\ The Commission 
believes that requiring a company that does not have a recent and 
sustained history of trading of its securities in a Private Placement 
Market to provide a Valuation of at least $250 million should provide 
the Exchange with a reasonable level of assurance that the company's 
market value supports listing on the Exchange and the maintenance of 
fair and orderly markets thereby protecting investors and the public 
interest in accordance with Section 6(b)(5) of the Exchange Act.
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    \56\ Companies listing upon an effective registration statement 
would have to meet the distribution requirements set forth in 
Section 102.01A (i.e., that the company have 400 beneficial holders 
of round lots of 100 shares and 1,100,000 publicly-held shares), the 
requirements of Section 102.01B (which includes a $4.00 price 
requirement at the time of initial listing), and one of the 
financial standards set forth in Section 102.01C of the Manual 
(i.e., the Earnings Test or the Global Market Capitalization Test), 
as well as comply with all other applicable NYSE rules, including 
the corporate governance requirements.
    \57\ See Notice, supra note 8, at 40184. Further, in approving 
Footnote (E) in 2008, the Commission recognized that ``the most 
recent trading price in a Private Placement Market may be an 
imperfect indication as to the value of a security upon listing, in 
part because the Private Placement Markets generally do not have the 
depth and liquidity and price discovery mechanisms found on public 
trading markets.'' NYSE 2008 Order, supra note 55, at 54443.
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    Exchange rules also seek to ensure that the Valuation is reliable 
by requiring it to be provided by an independent third party that has 
significant experience and demonstrable competence in providing 
valuations of companies.\58\ The proposed rule change establishes 
additional independence criteria, pursuant to which the valuation agent 
will not be ``independent'' if the valuation agent, or any affiliated 
person, owns in the aggregate more than 5% of the securities to be 
listed,\59\ or has provided investment banking services to the company 
in the 12 months prior to the Valuation or in connection with the 
listing.\60\ The Commission believes that, consistent with Section 
6(b)(5) of Exchange Act and the protection of investors, these new 
independence requirements should help to ensure that the Valuation is 
reliable.\61\
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    \58\ See Footnote (E) for additional requirements for the 
Exchange to be able to rely on the Valuation.
    \59\ This calculation of ownership will include any right to 
receive such securities exercisable within 60 days.
    \60\ See supra notes 24-26, and accompanying text.
    \61\ The Commission also notes that companies listing pursuant 
to the new proposed provision will be required to meet the 
distribution requirements of Section 102.01A of the Manual, the 
requirements of Section 102.01(B) of the Manual, and one of the 
financial standards in Section 102.01C of the Manual, which are the 
same requirements that apply to most equity listings on the 
Exchange. See note 56, supra.
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    The Exchange also has proposed to amend certain of its procedures 
to address how the DMM is to establish the Reference Price in 
connection with the opening, on the first day of trading, of a security 
listed under Footnote (E).\62\ Specifically, for a security with 
sustained trading in a Private Placement Market, the Reference Price 
will be the most recent transaction price in that market; otherwise the 
Reference Price will be determined by the Exchange in consultation with 
a financial advisor to the issuer. The DMM will also be required to 
consult with the financial advisor to the issuer where there is no 
recent sustained history of trading in order to effect a fair and 
orderly opening of such security.\63\ The Commission believes that the 
proposed changes should help establish a reliable Reference Price, and 
provide additional information to the DMM, and thereby facilitate the 
opening by the DMM, when trading first commences on the Exchange for 
certain securities not listed in connection with an underwritten IPO, 
and should help to promote fair and orderly markets. The Commission 
believes these changes, consistent with Section 6(b)(5) of the Exchange 
Act, are reasonably designed to protect investors and the public 
interest and promote just and equitable principles of trade for the 
opening of securities listed under the new standards.
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    \62\ Under Rule 15 a DMM is required to publish a pre-opening 
indication before a security opens if the opening transaction on the 
Exchange is anticipated to be at a price that represents a change of 
more than the ``Applicable Price Range'' from a specified Reference 
Price. Under Rule 15, for example, the ``Applicable Price Range'' 
for determining whether to publish a pre-opening indication is 5% 
for securities with a Reference Price over $3.00.
    \63\ In its proposal, the Exchange stated that such ``financial 
advisor would be able to provide input to the DMM regarding 
expectations of where such a new listing should be priced, based on 
pre-listing selling and buying interest and other factors that would 
not be available to the DMM through other sources.'' See Notice, 
supra note 8, at 40185.
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    Finally, the Exchange has proposed that it be permitted to declare 
a regulatory halt in certain securities that are the subject of an 
initial pricing on the Exchange, and have not been listed on an 
exchange or quoted in an over-

[[Page 5655]]

the-counter quotation medium immediately prior thereto. Such regulatory 
halt will be terminated when the DMM opens the security, and is for the 
limited purpose of precluding other markets from trading a security 
until the Exchange has completed the initial pricing process. The 
Commission believes this proposed change also should facilitate the 
initial opening by the DMM of certain securities not listed in 
connection with an underwritten IPO, and thereby promote fair and 
orderly markets and the protection of investors.\64\
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    \64\ The proposed regulatory halt allows the Exchange to have a 
similar opening procedure for securities listed pursuant to Footnote 
(E) as an IPO security under Section 12(f) of the Exchange Act and 
Rule 12f-2, since such securities raise similar issues in terms of 
initial pricing on the first day of trading. See 15 U.S.C. 78l(f); 
17 CFR 240.12f-2. Similar to unlisted trading privilege rules that 
prevent other exchanges from trading an IPO security until the 
primary listing market has reported the first opening trade, the 
regulatory halt will allow the DMM to complete the initial pricing 
and open the security before other markets can trade.
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    For the reasons set forth above, the Commission finds that the 
proposed rule change, as modified by Amendment No. 3, is consistent 
with the Exchange Act.

V. Solicitation of Comments on Amendment No. 3

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 3 is consistent with the 
Exchange 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 [email protected]. Please include 
File Number SR-NYSE-2017-30 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2017-30. 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 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. 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-2017-30, and should be submitted on 
or before March 1, 2018.

VI. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 3

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 3, prior to the thirtieth day 
after the date of publication of the notice of Amendment No. 3 in the 
Federal Register. The Commission notes that the proposed rule change, 
as modified by Amendment No. 3 remains identical to the version 
published for notice and comment on August 24, 2017,\65\ except for the 
proposed deletion described above,\66\ and that the only comments the 
Commission received on this proposed rule change were in support of the 
proposal. The Commission also has found that the proposal, as modified 
by Amendment No. 3, is consistent with the Exchange Act for the reasons 
discussed herein. Accordingly, the Commission finds good cause for 
approving the proposed rule change, as modified by Amendment No. 3, on 
an accelerated basis, pursuant to Section 19(b)(2) of the Exchange 
Act.\67\
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    \65\ See Notice, supra note 8.
    \66\ See note 11, supra.
    \67\ 15 U.S.C. 78s(b)(2).
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VII. Conclusion

    It is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\68\ that the proposed rule change (SR-NYSE-2017-30), as 
modified by Amendment No. 3 thereto, be, and hereby is, approved on an 
accelerated basis.
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    \68\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\69\
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    \69\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2018-02501 Filed 2-7-18; 8:45 am]
 BILLING CODE 8011-01-P


