[Federal Register Volume 83, Number 223 (Monday, November 19, 2018)]
[Notices]
[Pages 58309-58315]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-25093]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84575; File No. SR-NASDAQ-2018-070]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Amendment Nos. 1, 2, and 3 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment Nos. 1, 2, and 3, to List and Trade Corporate Non-Convertible 
Bonds on Nasdaq

November 13, 2018.

I. Introduction

    On August 27, 2018, 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 list and trade corporate non-convertible bonds 
on the Exchange. The proposed rule change was published for comment in 
the Federal Register on September 6, 2018.\3\ On October 12, 2018, the 
Exchange filed Amendment No. 1 to the proposed rule change.\4\ On 
October 16, 2018, pursuant to Section 19(b)(2) of the Act,\5\ the 
Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\6\ On November 7, 2018, the Exchange filed Amendment No. 2 to 
the proposed rule change.\7\ On November 8, 2018, the Exchange filed 
Amendment No. 3 to the proposed rule change.\8\ The Commission received 
no comment letters on the proposed rule change. The Commission is 
publishing notice of the filing of Amendment Nos. 1, 2, and 3 to 
solicit comment from interested persons and is approving the proposed 
rule change, as modified by Amendment Nos. 1, 2, and 3 on an 
accelerated basis.
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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. 84001 (August 30, 
2018), 83 FR 45289 (``Notice'').
    \4\ In Amendment No. 1, the Exchange made clarifying and 
technical revisions to the proposal, including to the proposed rule 
text. The amendment is available at: https://www.sec.gov/comments/sr-nasdaq-2018-070/srnasdaq2018070-4514560-176013.pdf.
    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 84439, 83 FR 53339 
(October 22, 2018). The Commission designated December 5, 2018, as 
the date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \7\ In Amendment No. 2, the Exchange made additional clarifying 
and technical revisions to the proposal, including to the proposed 
rule text. The amendment is available at: https://www.sec.gov/comments/sr-nasdaq-2018-070/srnasdaq2018070-4629939-176409.pdf.
    \8\ In Amendment No. 3, the Exchange made two clarifying and 
technical revisions to the proposal, including to the proposed rule 
text. The amendment is available at: https://www.sec.gov/comments/sr-nasdaq-2018-070/srnasdaq2018070-4630086-176412.pdf.
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II. Description of the Proposal, as Modified by Amendment Nos. 1, 2, 
and 3

    The Exchange proposes to amend its rules to permit the initial and 
continued listing of non-convertible corporate debt securities 
(``bonds'' or ``non-convertible bonds'') on Nasdaq and to establish 
fees for listing those bonds.\9\ The Exchange also proposes to adopt 
rules to trade such listed non-convertible bonds.
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    \9\ Nasdaq rules currently provide for the initial and continued 
listing of convertible bonds. See Nasdaq Rule 5515 and 5560.
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A. Listing Rules

    For the initial listing of a non-convertible bond, the Exchange 
proposes to require that the following conditions be satisfied: (1) The 
principal amount outstanding or market value must be at least $5 
million; \10\ and (2) the issuer of the non-convertible bond must have 
one class of equity security that is listed on the Exchange, the New 
York Stock Exchange LLC (``NYSE''), or NYSE American LLC (``NYSE 
American'').\11\
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    \10\ See proposed Rule 5702(a)(1).
    \11\ See proposed Rule 5702(a)(2). The Exchange anticipates that 
it will not be ready, prior to the second quarter of 2019, to list 
non-convertible bonds of issuers whose equity securities are listed 
on NYSE or NYSE American. The Exchange states that it will post a 
notification via a trader alert at least seven days prior to 
accepting applications from issuers to list such non-convertible 
bonds.
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    The Exchange proposes the following requirements for the continued 
listing of a non-convertible bond: (1) The market value or principal 
amount of non-convertible bonds outstanding is at least $400,000; \12\ 
and (2) the issuer must be able to meet its obligations on the listed 
non-convertible bonds.\13\
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    \12\ See proposed Rule 5702(b)(1).
    \13\ See proposed Rule 5702(b)(2).
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    The Exchange proposes to amend its current Rule 5810(c)(3) to 
provide that the failure of an issuer of a non-convertible bond to meet 
the $400,000 public float requirement stipulated above for a period of 
30 consecutive business days will constitute a deficiency. In such an 
event, the Exchange's Listings Qualifications Department will promptly 
notify the deficient issuer, and the issuer will have a period of 180 
calendar days from such notification to regain compliance. Compliance 
will be deemed to be regained by meeting the $400,000 public

[[Page 58310]]

float requirement for a minimum of 10 consecutive business days, unless 
the Listing Qualifications Department exercises its discretion to 
extend this 10-day period as set forth in Rule 5810(c)(3)(G).
    The Exchange also proposes to amend its current Rule 5810(c)(1) to 
provide that the failure of an issuer to meet its obligations on the 
non-convertible bonds, as determined by the Exchange's Listings 
Qualifications Department, would result in immediate suspension and the 
commencement of delisting proceedings.
    In addition to the proposed quantitative requirements for listing 
non-convertible bonds, the issuer of listed bonds would have to comply 
with other requirements that are generally applicable to companies 
listed on Nasdaq pursuant to Rule 5250 (Obligations for Companies 
Listed on The Nasdaq Stock Market).\14\ The Exchange proposes to amend 
its current Rule 5250(e)(3) to require issuers of non-convertible bonds 
to provide at least 10 calendar days advance notice to the Exchange of 
certain corporate actions, including redemptions (full or partial 
calls), tender offers, changes in par value, and changes in identifier 
(e.g., CUSIP number or symbol). In addition, the Exchange proposes to 
amend the definition of a ``Substitution Listing Event'' in its Rule 
5005(a)(41) to provide that a change in the obligor of a listed debt 
security would constitute a Substitution Listing Event and thus require 
the issuer to notify the Exchange pursuant to Rule 5250(e)(4).\15\
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    \14\ See Nasdaq Rule 5250, requiring, among other things, that 
issuers provide certain information to the Exchange, make public 
disclosure of certain material information, and file all required 
periodic financial reports.
    \15\ The Exchange proposes to make this change with respect to 
convertible and non-convertible bonds.
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    In addition to the Exchange's rules that would apply to issuers of 
non-convertible bonds that list on Nasdaq,\16\ the Exchange states that 
such issuers would also be required to register non-convertible bonds 
listed on the Exchange with the Commission pursuant to Section 12(a) of 
the Act.\17\
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    \16\ In addition to Nasdaq Rule 5250, the Exchange notes that, 
currently, the Rule 5600 Series, which sets forth certain corporate 
governance requirements for listed issuers, would apply to non-
convertible bonds listed on the Exchange.
    \17\ Section 12(a) requires that, in order for an exchange 
member, broker or dealer to effect a transaction in a security on a 
national securities exchange, a registration must be effective ``as 
to such security for such exchange.'' See 15 U.S.C. 78(l)(a). The 
Exchange notes that, because the Exchange is proposing as an initial 
listing requirement that the issuer currently list a class of equity 
security on the Exchange, NYSE, or NYSE American, listed issuers of 
non-convertible bonds may already disclose certain information 
required by Section 12(a) of the Act.
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    Finally, the Exchange proposes to make a non-substantive change to 
its current Rule 5515(b)(4) to replace references to the American Stock 
Exchange with NYSE American.\18\
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    \18\ See Securities Exchange Act Release No. 80283 (Mar. 21, 
2017), 82 FR 15244 (Mar. 27, 2017) (SR-NYSEMKT-2017-14).
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B. Listing Fees

    The Exchange proposes to impose a non-refundable application fee of 
$5,000 to list a class of non-convertible bonds.\19\ The Exchange 
proposes to waive this application fee if a company will be switching 
the listing market for its non-convertible bonds from NYSE or NYSE 
American to the Exchange.\20\
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    \19\ See proposed Rule 5935(a).
    \20\ See id.
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    The Exchange also proposes to impose an annual fee of $5,000 on the 
issuer of each class of non-convertible bonds listed pursuant to Rule 
5702.\21\ A company that switches the listing market for its non-
convertible bonds from NYSE or NYSE American to the Exchange would not 
be liable for the annual fee until January 1 of the calendar year 
following the effective date of the non-convertible bonds listing on 
the Exchange.\22\
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    \21\ See proposed Rule 5935(b).
    \22\ See id.
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    The Exchange also proposes to clarify rule text relating to listing 
fees for convertible bonds.\23\
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    \23\ Rule 5920(a)(2) requires a company that submits an 
application to list any class of convertible debentures on the 
Nasdaq Capital Market to pay an application fee of $5,000 and a fee 
of $1,000 or $50 per million dollars face amount of debentures 
outstanding, whichever is higher. The Exchange proposes to clarify 
that the second fee is an entry fee, and that it is based upon the 
face amount of convertible bonds outstanding.
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C. Trading Rules

    In conjunction with the Exchange's proposal to adopt listing rules 
for non-convertible bonds, the Exchange is proposing to trade such 
listed non-convertible bonds on an electronic system (``Nasdaq Bond 
Exchange'') and is proposing rules to govern such trading.\24\ The 
Exchange proposes that all orders in non-convertible bonds will be 
received, processed, executed, and reported by means of the Nasdaq Bond 
Exchange.\25\ The Exchange's proposed trading rules would apply to: (i) 
All transactions effected through the Nasdaq Bond Exchange; (ii) all 
bids and offers made through the Nasdaq Bond Exchange; (iii) the 
handling of orders and the conduct of accounts and other matters 
relating to bidding, offering, and trading through the Nasdaq Bond 
Exchange; and (iv) any non-convertible bond that is traded on the 
Nasdaq Bond Exchange.\26\
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    \24\ The Nasdaq Bond Exchange will only trade non-convertible 
bonds that are listed on the Exchange. See Proposed Rule 4000B(e). 
The Exchange states that the Nasdaq Bond Exchange will offer Members 
certain core trading functionality that will be competitive with the 
NYSE bond trading platform (``NYSE Bonds''). The Exchange states 
that the Nasdaq Bond Exchange and the proposed trading rules that 
govern it are based on NYSE Bonds and NYSE Rule 86, albeit a ``pared 
down version.'' See Notice, supra note 3, at 45292.
    \25\ See proposed Rule 4000B(a).
    \26\ See proposed Rule 4000B(b)(1).
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1. Order Types
    The Exchange proposes to allow Users \27\ of the Nasdaq Bond 
Exchange to enter two types of orders: (1) Nasdaq Bond Exchange Good 
for Day Limit Orders, and (2) Nasdaq Bond Exchange Fill-or-Kill All-Or-
None Orders. A Nasdaq Bond Exchange Good for Day Limit Order is an 
order to buy or sell a stated quantity of units of non-convertible 
bonds at a specified price or at a better price that, if not executed 
or cancelled, will expire at the end of the trading session on the day 
on which it is entered.\28\ A Nasdaq Bond Exchange Fill-or-Kill All-Or-
None Order is a market order that is to be executed immediately in its 
entirety against one or more contra parties at the best prices 
available, or if it is not executed immediately in its entirety, is 
cancelled.\29\ All orders on the Nasdaq Bond Exchange will be displayed 
and will be anonymous.\30\
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    \27\ A ``User'' is any Nasdaq Member that has elected to receive 
access to the Nasdaq Bond Exchange. See Proposed Rule 
4000B(b)(2)(D).
    \28\ See proposed Rule 4000B(b)(2)(B)(i).
    \29\ See proposed Rule 4000B(b)(2)(B)(ii).
    \30\ See Notice, supra note 3, at 45292.
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2. Trading Units
    The minimum unit of trading on the Nasdaq Bond Exchange will be one 
non-convertible bond unless the issuer otherwise specifies a larger 
minimum unit of trading in the bond indenture agreement.\31\ The Nasdaq 
Bond Exchange will accept and display bids and offers in bonds priced 
to three decimal places.\32\
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    \31\ See proposed Rule 4000B(c).
    \32\ See proposed Rule 4000B(d). The Exchange states that bonds 
priced to three decimal places is the market standard. See Notice, 
supra note 3, at 45292.
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3. Order Entry and Execution
    To post an order in a particular bond on the Nasdaq Bond Exchange, 
a User will be required to enter certain basic information including 
CUSIP number, order quantity, order type (e.g., Nasdaq Bond Exchange 
Good for Day Limit Order), price (up to three decimals), and

[[Page 58311]]

side (buy or sell).\33\ The terms of an order entered into the Nasdaq 
Bond Exchange may not be modified after entry.\34\ An order may be 
cancelled at any time, provided the order has not been executed.\35\
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    \33\ See Notice, supra note 3, at 45292.
    \34\ See proposed Rule 4000B(g)(2).
    \35\ See id.
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    The Nasdaq Bond Exchange will be an electronic order-driven 
matching system.\36\ Orders submitted by Users will be displayed, 
matched, and executed on a price/time priority basis.\37\ Orders that 
are marketable at the time of entry will be matched and executed.\38\ 
An order will be marketable when it enters the Nasdaq Bond Exchange 
system if contra side interest is available at that price or a better 
price.\39\ Nasdaq Bond Exchange Good for Day Limit Orders that are not 
marketable at the time of entry would post to the Nasdaq Bond Exchange 
order book.\40\
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    \36\ See Notice, supra note 3, at 45292.
    \37\ Specifically, buy and sell orders in the Nasdaq Bond 
Exchange will be displayed, matched, and executed in the Bond 
Trading Session in the following sequence: (i) According to price, 
with the highest bid price and the lowest offer price receiving 
highest priority; and (b) within each price, according to the time 
of the order entry in the Nasdaq Bond Exchange. See proposed Rule 
4000(g)(1).
    \38\ See Notice, supra note 3, at 45292.
    \39\ See id.
    \40\ See id.
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    The Nasdaq Bond Exchange will provide an exception to its normal 
price/time system to allow Users to avoid internalizing orders.\41\ 
Pursuant to proposed Rule 4000B(g)(1)(C), Users may direct that orders 
entered into the Nasdaq Bond Exchange not execute against orders 
entered under the same MPID, and Users using the FIX order entry 
protocol (discussed below) may assign to orders entered through a 
specific order entry port a unique group identification modifier that 
will prevent orders with such modifier from executing against each 
other. In such a case, a User may elect from the following options: (i) 
Regardless of the size of the interacting orders, cancelling the oldest 
order in full; or (ii) regardless of the size of the interacting 
orders, cancelling the most recent of the orders in full.\42\ The 
foregoing options may be applied to all orders entered under the same 
MPID or through a specific order entry port (i.e., the FIX order entry 
protocol).\43\
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    \41\ The Exchange states that Users may be interested in self-
match prevention in order to run multiple strategies at once that 
may sit on opposite sides of the book. See Notice, supra note 3, at 
45292.
    \42\ See proposed Rule 4000B(g)(1)(C).
    \43\ See id.
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    The Exchange will charge no fees for posting orders or executing 
trades on the Nasdaq Bond Exchange.\44\
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    \44\ See Notice, supra note 3, at 45292.
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4. Clearing
    According to the Exchange, most orders matched on the Nasdaq Bond 
Exchange will be locked-in trades and will be submitted without an 
omnibus account to the National Securities Clearing Corporation using 
Universal Trade Capture and then to the Depository Trust Company 
(``DTC'') for clearance and settlement.\45\ Settlement of corporate 
bond trades will be consistent with current convention, i.e., two day 
settlement, and bonds that are not eligible for settlement at DTC will 
be settled manually (``ex-clearing'') between the two 
counterparties.\46\
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    \45\ See id.
    \46\ See id.
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5. Bond Trading Session
    The Nasdaq Bond Exchange will have one trading session per trading 
day from 8:30 a.m. until 4:00 p.m. E.T. (``Bond Trading Session'') 
during which non-convertible bonds will be available for trading.\47\ 
There will be no pre-market or post-market session; the Nasdaq Bond 
Exchange will immediately start processing orders as they are entered 
upon opening.\48\ Orders submitted outside of the Bond Trading Session 
will not be accepted.\49\
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    \47\ See proposed Rule 4000B(f).
    \48\ See Notice, supra note 3, at 45293.
    \49\ See proposed Rule 4000B(f).
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6. Clearly Erroneous Executions
    All matters related to clearly erroneous transactions executed on 
the Nasdaq Bond Exchange will be initiated and adjudicated pursuant to 
Nasdaq Rule 11890, which governs the process for addressing clearly 
erroneous trades.\50\ A ``Clearly Erroneous Execution'' on the Nasdaq 
Bond Exchange refers to an execution involving an obvious error in any 
term of an order participating in such execution, such as price, unit 
of trading, or identification of the non-convertible bond.\51\
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    \50\ See proposed Rule 4000B(h).
    \51\ See proposed Rule 4000B(b)(2)(C).
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    A User that receives an erroneous execution may request the 
Exchange to review the transaction.\52\ A request for review of an 
execution must include certain information, including the time of the 
transaction, security symbol, number of bonds, price, side (bought or 
sold), and factual basis for believing that the trade is clearly 
erroneous.\53\ The request for review must be submitted within 30 
minutes of the trade in question.\54\ The other party (or parties) to 
the trade will be notified of the request for review.\55\ Thereafter, 
an Exchange official will review the transaction and make a 
determination as to whether it was clearly erroneous within 30 minutes 
of receipt of the complaint, but in no case later than the start of the 
Bond Trading Session on the following trading day.
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    \52\ See Nasdaq Rule 11890(a).
    \53\ See Rule 11890(a)(2) (as proposed to be amended).
    \54\ See Rule 11890(a)(2)(A).
    \55\ See Rule 11890(a)(2).
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    The Exchange proposes that, when determining whether a trade in 
non-convertible bonds listed on the Nasdaq Bond Exchange is clearly 
erroneous, a Nasdaq official may consider any and all relevant factors 
of an execution on a case by case basis including, but not limited to, 
the following: (i) Execution price; (ii) volume and volatility of a 
non-convertible bond; (iii) news released for the issuer of the non-
convertible bond and/or the related equity security; (iv) trading 
halts; (v) corporate actions; (vi) general market conditions; (vii) the 
rating of the non-convertible bond; (viii) interest and/or coupon rate; 
(ix) maturity date; (x) yield curves; (xi) prior print, if available 
within a reasonable time frame; (xii) executions inconsistent with the 
trading pattern of a non-convertible bond; (xiii) current day's trading 
high/low; (xiv) recent day's and week's trading high/low; (xv) 
executions outside the 52-week high/low; (xvi) effect of a single large 
order creating several prints at various prices; and (xvii) quotes and 
executions of other market centers.\56\
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    \56\ See proposed Rule 11890(a)(2)(C)(4). These criteria would 
be in lieu of the criteria presently used to determine clearly 
erroneous executions of equity securities, which are set forth in 
Rule 11890(a)(2)(C)(1)-(C)(3). See id.
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    The parties will be promptly notified of the reviewer's 
determination and, in the event that the Nasdaq official determines 
that the transaction in dispute is clearly erroneous, the official will 
declare the transaction null and void.\57\ If the reviewer determines 
that the execution is not clearly erroneous, then no corrective action 
will be taken in relation to the transaction.\58\ If one party does not 
agree with the determination, then that party may request further 
review or an appeal to the Nasdaq Review Council pursuant to

[[Page 58312]]

the procedures set forth in Rule 11890(c).\59\
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    \57\ See Rule 11890(a)(2)(B).
    \58\ See Notice, supra note 3, at 45293.
    \59\ The Exchange states that it expects that the existing 
Member representatives of the Nasdaq Review Council will adequately 
represent the interests of Users in appeals of clearly erroneous 
determinations. The Exchange represents that, if it becomes apparent 
to the Exchange that the roster of the Nasdaq Review Council does 
not adequately represent the interests of Users, then it will, at 
the appropriate time, consider nominating one or more Users to the 
Nasdaq Review Council. See Notice, supra note 3, at 45293, n. 33.
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    Rule 11890(b) provides that, in the event of any disruption or a 
malfunction in the operation of any electronic communications and 
trading facilities of the Exchange, including the Nasdaq Bond Exchange, 
in which the nullification of transactions may be necessary for the 
maintenance of a fair and orderly market or the protection of investors 
and the public interest, the President of the Exchange or any 
designated officer or senior level employee of the Exchange (each, a 
``Senior Official'') may, without the need for a request for review, 
review such transactions and determine if any are erroneous.\60\ In 
addition, Rule 11890(b) further provides that a Senior Official may, on 
his or her own motion, review potentially erroneous executions.\61\ In 
such situations, the Senior Official will rely on the criteria set 
forth in proposed Rule 11890(a)(2)(C)(4). Any such action of the Senior 
Official must be taken within 30 minutes of detection of the erroneous 
transaction (in extraordinary circumstances, no later than the start of 
the Bond Trading Session on the trading day following the date of 
execution(s) under review), and each party to the erroneous transaction 
will be notified of the situation and the specific action as soon as 
practicable.\62\ Subject to certain exceptions, a User may appeal an 
erroneous determination made by a Senior Official acting on his or her 
own motion or pursuant to a system disruption or malfunction to the 
Nasdaq Review Council.\63\
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    \60\ See Nasdaq Rule 11890(b)(i).
    \61\ See Nasdaq Rule 11890(b)(ii).
    \62\ See Nasdaq Rules 11890(b)(i)-(ii).
    \63\ See Nasdaq Rule 11890(c).
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7. Halting and Suspending Bond Trading on the Exchange
    The Exchange proposes to halt or suspend trading in a non-
convertible bond on the Nasdaq Bond Exchange in certain 
circumstances.\64\ Proposed Rule 4000B(i)(1) provides that the Exchange 
may halt or suspend trading in non-convertible bonds listed on the 
Nasdaq Bond Exchange when: (1) In the exercise of its regulatory 
function, the Exchange determines such action is necessary and 
appropriate to maintain a fair and orderly market, to protect 
investors, or is in the public interest, due to extraordinary 
circumstances or unusual market conditions; (2) a class of equity that 
is issued by the same issuer as the non-convertible bond has been 
halted or suspended by, or delisted from, the Exchange or its primary 
listing market (NYSE or NYSE American), as applicable; (3) news reports 
have a material impact on the non-convertible bond, its issuer, or 
related stock of its issuer; or (4) the non-convertible bond is to be 
called for redemption or will mature or become subject to retirement, 
and thereafter it will be subject to delisting. In the event of a 
trading halt or suspension under any of the foregoing circumstances, a 
halt or suspension message will be disseminated by the Exchange to 
subscribers to the Nasdaq Corporates Totalview Data Feed (discussed 
below) to signal the commencement and end of the halt or 
suspension.\65\ Upon commencement of a halt or suspension, all pending 
orders in the Nasdaq Bond Exchange will be cancelled and new orders 
entered into the Nasdaq Bond Exchange during a bond halt or suspension 
will not be accepted.\66\ The Nasdaq Bond Exchange will resume 
accepting new orders and trading once the Exchange declares an end to a 
bond halt or suspension.\67\
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    \64\ See proposed Rule 4000B(i)(1).
    \65\ See proposed Rule 4000B(i)(2).
    \66\ See id.
    \67\ See id.
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8. Dissemination of Trading Information
    The Exchange will disseminate via the Nasdaq Corporates Totalview 
Data Feed, a real-time data feed, best bid and offer information for 
non-convertible bonds for which there are orders posted to the Nasdaq 
Bond Exchange's order book, as well as last sale information (including 
sale price and trade size) for trades executed on the Nasdaq Bond 
Exchange.\68\ The Exchange states that the Nasdaq Corporates Totalview 
Data Feed would reflect all orders in time sequence in the Nasdaq Bond 
Exchange's order book.\69\ The Exchange states that the Nasdaq 
Corporates Totalview Data Feed will be available free of charge to 
those who request access and agree to the Exchange's terms.\70\
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    \68\ See proposed Rule 7050. The Exchange represents that, 
pursuant to FINRA Rule 6730(e)(2), transactions on the Nasdaq Bond 
Exchange need not be reported to FINRA's Trade Reporting and 
Compliance Engine because only bonds listed on Nasdaq may be traded 
on the Nasdaq Bond Exchange and the transaction information will be 
disseminated publicly. See Notice, supra note 3, at 45294 n. 43.
    \69\ See Notice, supra note 3, at 45294.
    \70\ See proposed Rule 7050. See also Notice, supra note 3, at 
45294.
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9. Access to the Nasdaq Bond Exchange System
    The Exchange proposes that Members \71\ of the Exchange that enter 
into a Nasdaq U.S. Services Agreement and elect to receive access to 
the Nasdaq Bond Exchange on their Member application form will be 
authorized Users and able to access the Nasdaq Bond Exchange.\72\ The 
Exchange states that existing Members of the Exchange will not be 
required to amend their Nasdaq U.S. Services Agreements to obtain 
access to the Nasdaq Bond Exchange; rather, they will be required to 
complete a form expressing their interest in becoming a Nasdaq Bond 
Exchange User.\73\
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    \71\ A ``Member'' means any registered broker or dealer that has 
been admitted to membership in Nasdaq. See Rule 0120(i).
    \72\ See proposed Rule 4000B(b)(2)(D) (defining ``User''). See 
also Notice, supra note 3, at 45294.
    \73\ See id.
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    The Exchange states that Users of the Nasdaq Bond Exchange will 
gain access to the system via direct or indirect electronic linkages 
utilizing the Financial Information Exchange or ``FIX'' protocol.\74\ 
The Nasdaq Bond Exchange will use the FIX protocol for message 
transmittal, including for the entry, modification, and cancellation of 
orders in non-convertible bonds.\75\ The Exchange states that Users may 
establish connectivity to the Nasdaq Bond Exchange either directly or 
through third-party connectivity providers.\76\ The Exchange will not 
charge any fees for FIX port connectivity to the Nasdaq Bond Exchange 
or to its disaster recovery system.\77\
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    \74\ See id.
    \75\ See id.
    \76\ See id. The Exchange notes that Users that purchase FIX 
port connectivity to the Exchange will need to obtain one or more 
additional FIX ports to connect to the Nasdaq Bond Exchange. 
Separately from port connectivity, the Exchange notes that Users 
will need to establish physical connections to the Nasdaq Bond 
Exchange, as set forth in General 8 of the Nasdaq Rules. In 
addition, the Exchange states that, to the extent that a User 
already purchases physical connectivity to the Exchange, that 
purchase will also provide for the User to connect to the Nasdaq 
Bond Exchange, and the User will not incur an additional fee for the 
new connection. The Exchange states that new Users that do not 
already purchase physical connectivity to the Exchange will need to 
do so pursuant to General 8 of the Nasdaq Rules. See id. at nn. 44-
45.
    \77\ See proposed Rule 7015(b).
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10. Reports and Recordkeeping
    The Exchange proposes that Users of the Nasdaq Bond Exchange will 
have to comply with all relevant rules of the

[[Page 58313]]

Exchange and the Commission in relation to reports and recordkeeping of 
transactions on the Nasdaq Bond Exchange, including, but not limited 
to, Rules 17a-3 and 17a-4 under the Act.\78\
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    \78\ See proposed Rule 4000B(j).
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11. Regulation and Surveillance
    The Exchange represents that it will regulate the Nasdaq Bond 
Exchange and enforce compliance with its rules by leveraging its 
existing infrastructure for operating a national securities exchange in 
compliance with Section 6 of the Act.\79\ The Exchange states that its 
existing disciplinary rules and processes, set forth in its Rule 8000 
and 9000 Series, will govern the discipline of Members that participate 
in corporate bond trading.\80\ The Exchange further represents that it 
will enforce its non-convertible bond listing requirements as well as 
perform real-time surveillance of trading on the Nasdaq Bond 
Exchange.\81\
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    \79\ See Notice, supra note 3, at 45294.
    \80\ See id.
    \81\ See id.
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    The Exchange states that its MarketWatch Department 
(``MarketWatch'') monitors real time trading in all Nasdaq securities 
during the trading day for price and volume activity.\82\ The Exchange 
states that MarketWatch will also perform real-time surveillance of the 
Nasdaq Bond Exchange for the purpose of maintaining a fair and orderly 
market at all times.\83\ For example, the MarketWatch will monitor 
trading on the Nasdaq Bond Exchange market on a real-time basis to 
identify unusual trading patterns and determine whether particular 
trading activity requires further regulatory investigation.\84\
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    \82\ See Notice, supra note 3, at 45291.
    \83\ See Notice, supra note 3, at 45294.
    \84\ See id.
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    The Exchange further notes that Nasdaq Regulation will oversee the 
process for determining and implementing trade halts and identifying 
and responding to unusual market conditions.\85\
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    \85\ See id.
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12. System Information
    The Exchange states that the Nasdaq Bond Exchange will operate out 
of the same data center in Carteret, New Jersey, as does Nasdaq and 
other exchanges owned by Nasdaq, Inc., but it will use equipment 
separate from that used by those other exchanges.\86\
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    \86\ See id. The Nasdaq Bond Exchange backup data center will be 
in Chicago, Illinois, and the Exchange represents that it will be 
designed to resume operations of the Nasdaq Bond Exchange, in the 
event of a system failure, in accordance with the requirements of 
Regulation Systems Compliance and Integrity. See id.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment Nos. 1, 2, and 3, is consistent with 
the requirements of Section 6 of the Act \87\ and the rules and 
regulations thereunder applicable to the Exchange.\88\ Specifically, 
the Commission finds that the proposed rule change is consistent with 
Section 6(b)(4) of the Act,\89\ which requires that the rules of a 
national securities exchange provide for the equitable allocation of 
reasonable dues, fees, and other charges among its members and issuers 
and other persons using its facilities, and Section 6(b)(5) of the 
Act,\90\ which requires, among other things, that the rules of an 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, 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 not be designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \87\ 15 U.S.C. 78f(b).
    \88\ In approving these 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).
    \89\ 15 U.S.C. 78f(b)(4).
    \90\ 15 U.S.C. 78f(b)(5).
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A. Listing Rules

    The development and enforcement of adequate initial and continued 
listing standards for securities listed on a national securities 
exchange is of critical importance to financial markets and the 
investing public. The Commission believes that the Exchange's proposal 
is reasonably designed to determine which non-convertible bonds warrant 
listing on the Exchange and ensure that investors receive the 
protections of the Exchange's listing standards. Specifically, the 
Exchange's initial listing standards are reasonably designed to ensure 
that only companies capable of meeting their financial obligations are 
eligible to have their non-convertible bonds listed on Nasdaq, as the 
proposal requires these issuers to also have one class of equity 
security listed on Nasdaq, NYSE, or NYSE American. In addition, by 
limiting listing to non-convertible bond issues with a principal amount 
outstanding or a market value of at least $5 million, the proposal is 
reasonably designed to exclude from Nasdaq Bond Exchange securities 
that would not have sufficient liquidity for a fair and orderly market. 
Furthermore, as noted by the Exchange, the proposed initial listing 
standards for non-convertible bonds are substantially similar to those 
of NYSE and NYSE American.\91\
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    \91\ See Notice, supra note 3, at 45289-90. Both NYSE and NYSE 
American require that a debt issue have an aggregate market value or 
principal amount of no less than $5 million for initial listing. See 
Section 102.03 of the NYSE Listed Company Manual and Section 104 of 
the NYSE American Company Guide. NYSE also requires that the issuer 
of the debt security has equity securities listed on the exchange or 
the debt security meets an alternative standard. See Section 102.03 
of the NYSE Listed Company Manual. NYSE American requires that the 
issuer of the debt security has equity securities listed on the 
exchange, NYSE, or Nasdaq, or meets an alternative standard. See 
Section 104 of the NYSE American Company Guide.
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    For continued listing standards, the Exchange requires that the 
market value or principal amount of non-convertible bonds outstanding 
is at least $400,000 and the issuer must be able to meet its 
obligations on the listed non-convertible bonds. The Commission 
believes that such continued listing requirements for non-convertible 
bonds are reasonably designed to enable the Exchange to identify listed 
issuers that may have insufficient resources to meet their financial 
obligations or whose non-convertible bonds may lack adequate trading 
depth and liquidity. In addition, as noted by the Exchange, the 
proposed continued listing standards for non-convertible bonds are 
identical to the continued listing requirements for bonds imposed by 
NYSE American.\92\ Furthermore, the Commission notes that the 
Exchange's current rules allow Nasdaq to request additional 
information, either public or non-public, that it deems necessary to 
make a determination regarding a company's continued listing.\93\
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    \92\ See Notice, supra note 3, at 45290. See also Section 
1003(b)(iv) of the NYSE American Company Guide.
    \93\ See id. at 45290. See also Nasdaq Rule 5250(a)(1).
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    The Exchange represents that its proposal to amend Rule 5250(e)(3) 
to require an issuer to provide at least 10 calendar days advance 
notice of certain corporate actions related to non-convertible bonds 
listing on the Exchange will aid its Listings Qualification Department 
in assessing an issuer's compliance with the continued listing 
standards.\94\ The Commission believes that requiring an issuer of non-
convertible bonds to

[[Page 58314]]

report such events, as well as requiring an issuer of a convertible or 
non-convertible bond to report a change in the obligor of a listed debt 
security as a Substitution Listing event, is appropriate and consistent 
with the Act, as such information will help the Exchange make 
determinations regarding the suitablility of a debt security to stay 
listed on its market.
---------------------------------------------------------------------------

    \94\ See Notice, supra note 3, at 45295, n. 58.
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    The Commission further believes it is consistent with the Act for 
the Exchange to immediately institute delisting proceedings if the 
Exchange determines that an issuer is unable to meet its obligations on 
its non-convertible bonds, as bonds with little or no value may not be 
appropriate for continued listing on the Exchange. Furthermore, the 
Commission believes that providing a 180-day compliance period for an 
issuer that fails to meet the $400,000 market value or principal amount 
outstanding requirement is reasonably designed to ensure that the 
Exchange has an adequate procedure to permit an issuer to regain 
compliance before delisting a non-convertible bond that may lack 
adequate trading depth and liquidity and for which continued exchange 
trading may not be in the best interests of investors.

B. Trading Rules

    The Exchange proposes to establish a new electronic trading 
platform, the Nasdaq Bond Exchange, to trade non-convertible bonds and 
to implement rules governing the trading of such bonds. The Commission 
believes that the establishment of the Nasdaq Bond Exchange to trade 
non-convertible bonds is generally consistent with the Act and may 
foster price discovery and competition in the non-convertible bonds 
market. As described above, the proposal includes provisions regarding 
access, order entry, order types, manner of execution, priority, 
trading sessions, trading units, clearing, trade halt and suspension 
procedures, clearly erroneous executions, reports and recordkeeping, 
dissemination of trading information, and regulation and surveillance. 
The Commission finds that these provisions are reasonably designed to 
promote the efficient functioning of the Nasdaq Bond Exchange and are 
generally consistent with the Act. The Commission notes that the 
proposed rules closely parallel, and are substantially similar to, 
current NYSE Rule 86, which governs trading on NYSE Bonds, and which 
was filed with and approved by the Commission pursuant to Section 19(b) 
of the Act.\95\ In addition, the proposed anti-internalization 
exception to price-time priority execution set forth in proposed Rule 
4000B(g)(1)(C) is substantially similar to Nasdaq's anti-
internalization exception.\96\
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    \95\ See Securities Exchange Act Release No. 55496 (March 20, 
2007), 72 FR 14631 (March 28, 2007). The Commission notes that the 
Exchange's proposed trading rules and the Nasdaq Bond Exchange 
functionality are more limited in scope than NYSE Rule 86 and NYSE 
Bonds. The Nasdaq Bond Exchange, like NYSE Bonds, will display, 
match, and execute buy and sell orders on a price/time basis; 
however, unlike NYSE Bonds, the Nasdaq Bond Exchange will not 
conduct auctions or establish prices collars for orders. The Nasdaq 
Bond Exchange, like NYSE Bonds, will accept good-for-day limit 
orders and fill-or-kill orders; however, unlike NYSE Bonds, the 
Nasdaq Bond Exchange will not have additional order types (e.g., 
reserve orders, minimum quantity orders, good-til-cancelled orders, 
and timed orders). The Nasdaq Bond Exchange will have only one 
trading session each day as opposed to NYSE Bonds, which has three 
sessions. Furthermore, unlike NYSE Bonds, the Exchange is not 
proposing sponsored access to the Nasdaq Bond Exchange, nor is the 
Exchange proposing to have market makers on the Nasdaq Bond 
Exchange. See NYSE Rule 86. See also, Notice, supra note 3, at 
45292.
    \96\ See Nasdaq Rule 4757(a)(4). The Exchange states that 
proposed Rule 4000B(g)(1)(C) is based on Nasdaq Rule 4757(a)(4). See 
Notice, supra note 3, at 45292.
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    The Commission notes that the Nasdaq Bond Exchange will only trade 
non-convertible bonds that are listed on Nasdaq. The Commission further 
notes that the Exchange is not charging any fees to post or execute 
trades on the Nasdaq Bond Exchange or for FIX port connectivity to the 
Nasdaq Bond Exchange or for connectivity to the Nasdaq Bond Exchange's 
disaster recovery system. In addition, the Nasdaq Corporates Totalview 
Data Feed will be available free of charge to those who request access.
    Section 11(a) of the Act \97\ prohibits a member of a national 
securities exchange from effecting transactions on that exchange for 
its own account, the account of an associated person, or an account 
over which it or its associated person exercises investment discretion, 
unless an exception applies. The Commission notes that this general 
prohibition would not generally impact trading on the Nasdaq Bond 
Exchange because Rule 11a1-4(T) under the Act \98\ deems transactions 
in bonds on a national securities exchange for a member's own account 
to be consistent with Section 11(a). Similarly, the Commission notes 
that Section 11(b) of the Act \99\ and Rule 11b-1 thereunder,\100\ 
which pertain to specialists and market-makers, would not be implicated 
because there would be no specialists or market makers on the Nasdaq 
Bond Exchange.
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    \97\ 15 U.S.C. 78k(a).
    \98\ 17 CFR 240.11a1-4(T).
    \99\ 15 U.S.C. 78k(b).
    \100\ 17 CFR 240.11b-1.
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C. Listing Fees

    The Commission believes that the proposed listing fees for non-
convertible bonds are an equitable allocation of reasonable fees. The 
Exchange states that the proposed $5,000 application fee and $5,000 
annual fee for listing non-convertible bonds will support the 
Exchange's regulatory program to review and qualify debt issuances for 
listing.\101\ In addition, the Exchange states that the proposed fees 
are competitive with the initial and annual fees that are currently 
assessed by NYSE American for the listing of bonds,\102\ and that the 
proposed $5,000 application fee is the same as the application fee it 
currently charges for convertible bonds.\103\
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    \101\ See Notice, supra note 3, at 45295.
    \102\ See id. NYSE American charges an initial listing fee for 
bonds of $100 per $1 million principal amount (or fraction thereof) 
with a minimum fee of $5,000 and a maximum fee of $10,000. NYSE 
American charges an annual fee of $5,000 for listed bonds and 
debentures of companies whose equity securities are not listed on 
NYSE American. See NYSE American Listed Company Guide Sections 140 
and 141.
    \103\ See Nasdaq Rule 5920.
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    The proposed application listing fees will be applicable to all 
issuers seeking to list non-convertible bonds on the Exchange, other 
than issuers that switch their listing to the Exchange from NYSE or 
NYSE American. The Commission believes that the proposed waiver of the 
application fee and the first year's annual fee for issuers that switch 
their listings to Nasdaq from NYSE or NYSE American is reasonable and 
not unfairly discriminatory. The Exchange states that less work is 
required to process a listing application for a security that is 
already listed on another exchange than it is to process an application 
for listing a new security.\104\ In addition, the Exchange states that 
issuers that have already paid their annual fees to NYSE or NYSE 
American would be disincentivized to switch their listings to the 
Exchange without the waiver.\105\ Finally, the Exchange notes that it 
currently waives certain listing and annual fees for issuers of equity 
securities who transfer their listings to the Exchange from another 
national securities exchange.\106\
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    \104\ See Notice, supra note 3, at 45295.
    \105\ See Notice, supra note 3, at 45296.
    \106\ See Securities Exchange Act Release No. 34-70418 (Sept. 
16, 2013), 78 FR 57909 (Sept. 20, 2013) (SR-NASDAQ-2013-115).
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IV. Solicitation of Comments on Amendment Nos. 1, 2, and 3 to the 
Proposed Rule Change

    Interested persons are invited to submit written data, views, and

[[Page 58315]]

arguments concerning whether Amendment Nos. 1, 2, and 3 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 [email protected]. Please include 
File Number SR-NASDAQ-2018-070 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-2018-070. 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-NASDAQ-2018-070 and should be submitted 
on or before December 10, 2018.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment Nos. 1, 2, and 3

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment Nos. 1, 2, and 3 prior to the 
thirtieth day after the date of publication of notice of the filing of 
Amendment Nos. 1, 2, and 3 in the Federal Register. The Commission 
notes that Amendment Nos. 1, 2, and 3 provide clarifications and 
additional information to the proposed rule change. The changes and 
additional information in Amendment Nos. 1, 2, and 3 assist the 
Commission in finding that the proposal is consistent with the Act. 
Accordingly, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Act,\107\ to approve the proposed rule change, as 
modified by Amendment Nos. 1, 2, and 3, on an accelerated basis.VI.
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    \107\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\108\ that the proposed rule change (SR-NASDAQ-2018-070), as 
modified by Amendment Nos. 1, 2, and 3, be, and it hereby is, approved.
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    \108\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\109\
---------------------------------------------------------------------------

    \109\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-25093 Filed 11-16-18; 8:45 am]
 BILLING CODE P


