[Federal Register Volume 85, Number 44 (Thursday, March 5, 2020)]
[Notices]
[Pages 12953-12956]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04471]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88304; File No. SR-NASDAQ-2020-008]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 5702

February 28, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 14, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 5702 to allow the listing of 
non-convertible bonds issued by certain companies not listed on Nasdaq, 
NYSE American or NYSE and to remove language that is no longer 
applicable.
    The text of the proposed rule change is set forth below. Proposed 
new language is italicized; deleted text is in brackets.

5702. Debt Securities (Other Than Convertible Debt)

    (a) For initial listing of a non-convertible bond, the following 
conditions must be satisfied:
    (1) The principal amount outstanding or market value must be at 
least $5 million; and
    (2) the security must be characterized by one of the following 
conditions:
    (A) The issuer of the non-convertible bond must have one class of 
equity security that is listed on Nasdaq, NYSE American or the New York 
Stock Exchange (``NYSE'')[.];
    (B) an issuer of equity securities listed on Nasdaq, NYSE American 
or NYSE directly or indirectly owns a majority interest in, or is under 
common control with, the issuer of the non-convertible bond;
    (C) an issuer of equity securities listed on Nasdaq, NYSE American 
or NYSE has guaranteed the non-convertible bond;
    (D) a nationally recognized securities rating organization (an 
``NRSRO'') has assigned a current rating to the non-convertible bond 
that is no lower than an S&P Corporation ``B'' rating or equivalent 
rating by another NRSRO; or
    (E) if no NRSRO has assigned a rating to the issue, an NRSRO has 
currently assigned:
    (i) An investment grade rating to an immediately senior issue; or
    (ii) a rating that is no lower than an S&P Corporation ``B'' 
rating, or an equivalent rating by another NRSRO, to a pari passu or 
junior issue.
    [The Exchange anticipates that it will not be ready, prior to the 
Second Quarter of 2019, to list the non-convertible bonds of issuers 
whose equity securities are listed on NYSE American or NYSE. The 
Exchange will post a notification via a Trader Alert at least seven 
days prior to accepting applications from issuers to list such non-
convertible bonds.]
    (b)-(c) No change.
* * * * *

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    In November 2018, the Commission approved amendments to the 
Exchange's rules that permit the Exchange to list and trade non-
convertible corporate debt securities (referred to herein as ``bonds'' 
or ``non-convertible bonds'') on the Nasdaq Bond Exchange.\3\ Under the 
Exchange's listing rules, a non-convertible bond is eligible for 
initial listing on the Exchange only if it has a principal amount 
outstanding or market value of at least $5 million and its issuer 
concurrently lists at least one class of an equity security on Nasdaq, 
the New York Stock Exchange (``NYSE''), or NYSE American.\4\ In order 
to remain listed, a non-convertible bond must maintain a market value 
or principal amount outstanding of at least $400,000 and the issuer 
must continue to be able to meet its obligations on the listed non-
convertible bonds.\5\ A company that has non-convertible bonds listed 
on the Nasdaq Bond Exchange also must make prompt public disclosure of 
material information that would reasonably be expected to affect the 
value of its listed bonds or influence investors' decisions regarding 
such bonds.\6\
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    \3\ See Securities Exchange Act Release No. 84575 (November 13, 
2018), 83 FR 58309 (November 19, 2018) (approving SR-NASDAQ-2018-
070, as modified by Amendment Nos. 1-3) (``Approval Order'').
    \4\ Rule 5702(a).
    \5\ Rule 5702(b).
    \6\ Rule 5702(c). Companies must provide notice of such 
disclosure to Nasdaq's MarketWatch Department. This obligation to 
disclose material information includes material information about 
the company's equity securities to the extent the information would 
reasonably be expected to affect the value of, or influence 
investors' decisions to invest in, the listed bonds, even if those 
equity securities are listed on another national securities 
exchange.
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    While Rule 5702(a)(2) allows Nasdaq to list the non-convertible 
bonds of an issuer that concurrently lists at least one class of an 
equity security on Nasdaq, NYSE or NYSE American, the Exchange noted in 
its proposal for the Nasdaq Bond Exchange that upon the effective date 
of its proposal the Exchange would be capable of listing and trading 
non-convertible bonds only of issuers that list equity securities on 
Nasdaq.\7\ The Exchange stated that it expected to be ready to list and 
trade bonds of issuers with equity securities listed on NYSE or NYSE 
American by the second quarter of 2019.\8\
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    \7\ See Approval Order at footnote 11.
    \8\ See id.
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    On May 13, 2019, Nasdaq announced that it was prepared to list and 
trade bonds of issuers with equity securities listed on NYSE or NYSE 
American \9\ and Nasdaq began accepting applications to list those 
bonds on May 20, 2019. Given

[[Page 12954]]

that issuers whose equity securities are listed on NYSE American and 
NYSE can now list non-convertible bonds on the Nasdaq Bond Exchange, 
Nasdaq proposes to remove language in the rule describing how it 
intended to announce the launch of that capability.
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    \9\ See Nasdaq Data News #2019-3, available at http://www.nasdaqtrader.com/TraderNews.aspx?id=dn2019-3.
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    In addition, Nasdaq also proposes to modify Rule 5702(a) to expand 
the types of non-convertible bonds eligible to be listed on the Nasdaq 
Bond Exchange. At present, only an issuer with a class of equity 
security that is listed on Nasdaq, NYSE American or NYSE (collectively 
referred to herein as a ``listed company'') can list non-convertible 
bonds on the Nasdaq Bond Exchange. Nasdaq proposes to expand the 
categories of debt that can be listed to also allow listing of non-
convertible bonds of affiliates of a listed company where: A listed 
company directly or indirectly owns a majority interest in, or is under 
common control with, the issuer of the non-convertible bond; or a 
listed company has guaranteed the non-convertible bond. In addition, 
for un-affiliated companies, Nasdaq proposes to allow listing of non-
convertible bonds where a nationally recognized securities rating 
organization (an ``NRSRO'') has assigned a current rating to the non-
convertible bond that is no lower than an S&P Corporation ``B'' rating 
or equivalent rating by another NRSRO; or if no NRSRO has assigned a 
rating to the issue, an NRSRO has currently assigned (i) an investment 
grade rating to an immediately senior issue of the same company, or 
(ii) a rating that is no lower than an S&P Corporation ``B'' rating, or 
an equivalent rating by another NRSRO, to a pari passu or junior issue 
of the same company.
    Nasdaq believes that non-convertible bonds satisfying these 
conditions, which are the same as the requirements for listing debt on 
NYSE American \10\ and convertible debt securities on Nasdaq,\11\ are 
appropriate for listing on the Nasdaq Bond Exchange. The current 
requirement that the issuer of a non-convertible bond security have a 
class of equity listed on Nasdaq, NYSE or NYSE American is designed so 
that ``only companies capable of meeting their financial obligations 
are eligible to have their non-convertible bonds listed on Nasdaq.'' 
\12\ Nasdaq notes that listed companies raise debt capital through a 
variety of structures designed to satisfy tax or regulatory 
obligations, including by the issuance of non-convertible bonds through 
entities they directly or indirectly own a majority interest in, or 
entities with which they are under common control. In these cases, it 
is appropriate to rely on the relationship with the listed company as 
evidence that the issuer of the non-convertible bond is capable of 
meeting its financial obligations because the issuer is a subsidiary or 
affiliate of the listed company. Similarly, in other cases, where the 
issuer of the non-convertible bond is not a subsidiary or affiliate of 
a listed company, a listed company may nonetheless guarantee the debt 
and in these cases the guarantee by the listed company serves to ensure 
that if the company cannot, then its guarantor is capable of meeting 
the financial obligations on the non-convertible bond. In each case, 
Nasdaq notes that debt is a senior security to the listed equity, so 
that it is appropriate to list that more senior security.
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    \10\ See Section 104 of the NYSE American Company Guide. In 
addition, NYSE has similar listing conditions, although the NYSE 
rule does not permit listing of debt securities where the issuer has 
equity securities listed on Nasdaq or NYSE American, is directly or 
indirectly owned by, or is under common control with, an issuer 
listed on Nasdaq or NYSE American, or where an issuer listed on 
Nasdaq or NYSE American has guaranteed the debt security. See 
Section 102.03 of the NYSE Listed Company Manual.
    \11\ See Nasdaq Listing Rule 5515(b)(4). While convertible debt 
can be converted into common stock, the debt characteristics of 
convertible debt securities are the same as non-convertible bonds.
    \12\ Approval Order at 58313.
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    Nasdaq also believes that there are other indications that the 
issuer of a non-convertible bond is capable of meeting its financial 
obligations, besides the ties to a listed company described above. 
Specifically, in the case of these un-affiliated issuers, Nasdaq 
believes that it is appropriate to list bonds with a current rating 
from an NRSRO that is no lower than an S&P Corporation ``B'' rating or 
equivalent rating by another NRSRO because this is another third-party 
evaluation of the issuers ability to make interest payments and repay 
the loan upon maturity. Similarly, if a more junior issue of the same 
company, or an issue of the same company at the same priority in 
liquidation (a ``pari passu issue'') has a rating no lower than an S&P 
Corporation ``B'' rating or an equivalent rating by another NRSRO, than 
it is appropriate to presume that the company will also be capable of 
meeting its obligations on the non-convertible bonds to be listed 
because those bonds would be repaid in the same priority (if a pari 
passu issue) or sooner (if the other issue is more junior) as the ``B'' 
rated issue. Finally, if no NRSRO has assigned a rating to the issue to 
be listed, Nasdaq believes it is appropriate to consider the rating 
assigned to the next most senior issue of the same company. If that 
rating is an investment grade rating, which is higher than the ``B'' 
rating standard just described, then that also provides assurance that 
the company will be capable of meeting its financial obligations on the 
non-convertible bond to be listed.\13\ In assigning ratings, an NRSRO 
considers the ability of the issuer to make timely payments of interest 
and ultimate payment of principal to the related securities.\14\
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    \13\ See S&P Global ``Understanding Ratings'' available at 
https://www.spglobal.com/ratings/en/about/understanding-ratings, 
which identifies ratings of ``BBB'' or higher as investment grade, 
at least two levels higher than ``B'' ratings.
    \14\ See, e.g., Exhibit 2, Principles of Credit Ratings, to S&P 
Global Form NRSRO, available at https://www.standardandpoors.com/en_US/delegate/getPDF?articleId=2193671&type=COMMENTS&subType=REGULATORY.
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    Nasdaq will surveil non-convertible bonds listed under the new 
requirements in the same manner that it surveils other non-convertible 
bonds.\15\ An issuer listing non-convertible bonds under the proposed 
requirements will be subject to the existing continued listing 
requirement of Listing Rule 5702(b)(2) that it must be able to meet its 
obligations on the listed non-convertible bonds. These issuers are also 
subject to the requirement in Listing Rule 5702(c) to make prompt 
public disclosure of material information that would reasonably be 
expected to affect the value of its listed bonds or influence 
investors' decisions regarding such bonds, which will allow Nasdaq to 
timely review for events that may cause the issuer to be unable to meet 
its obligations on the listed non-convertible bonds. Thus, for example, 
an issuer would have to disclose if a non-convertible bond that was 
previously guaranteed is no longer guaranteed, or if the issuer or 
guarantor declares bankruptcy. An issuer would also have to disclose if 
its common stock is delisted, and Nasdaq would consider whether it is 
appropriate to continue the listing of the non-convertible bond of an 
issuer that was majority-owned, under common control, or guaranteed by 
a listed company, which has since been delisted. Nasdaq also would 
consider any changes in the rating assigned to the bond or other issues 
of the same company that were used to qualify the listed bond.
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    \15\ See Approval Order at 58313.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\16\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\17\ in particular, in that it is designed to 
promote just and equitable principles of

[[Page 12955]]

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.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange notes that the proposed change to 
eliminate language from the rule that no longer is applicable will 
enhance the transparency of Nasdaq's listing rules and reduce 
confusion.
    In addition, the proposed rule change will allow the listing of 
non-convertible bonds issued by other companies capable of meeting 
their financial obligations on those bonds. The proposed new 
alternative conditions are designed to protect investors and the public 
interest by ensuring that the bond is issued or guaranteed by an entity 
listed on Nasdaq, NYSE American or NYSE; is issued by an entity under 
direct, indirect or common control with an issuer listed on Nasdaq, 
NYSE American or NYSE; that the issue to be listed (or an issue that is 
at the same priority or junior to the issue to be listed) is assigned a 
minimum ``B'' rating or its equivalent by an NRSRO; or that the next 
most senior issue to the issue to be listed is assigned an investment 
grade rating. These conditions are appropriate indicia that the issuer, 
or a guarantor, can meet its obligations on the debt. Moreover, these 
are the same additional conditions as for listing bonds on NYSE 
American and for listing convertible debt on Nasdaq and are similar to 
the conditions for listing bonds on NYSE.\18\ As such, the Commission 
has previously considered these criteria and approved listing 
requirements that rely upon them to provide assurance that an issuer is 
capable of meeting its financial obligations. In addition, investors 
are already familiar with the availability of bonds with these 
characteristics on listing exchanges. Finally, once listed, Nasdaq will 
be able to surveil for changes to these conditions that may implicate 
the ability of the issuer to meet its obligations on the listed non-
convertible bonds.
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    \18\ See Section 104 of the NYSE American Company Guide, Nasdaq 
Listing Rule 5515(b)(4) and Section 102.03 of the NYSE Listed 
Company Manual.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Rather, the proposed rule 
change will enhance competition among exchanges by allowing Nasdaq to 
list all of the same categories of debt securities as can currently be 
listed on NYSE American. In addition, the proposed rule change may 
enhance competition among issuers by allowing more issuers to list 
their non-convertible bonds on Nasdaq, provided they meet the 
requirements of the proposed rule.

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

    No written comments were either solicited or received.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \19\ and Rule 19b-4(f)(6) \20\ thereunder. 
Because the foregoing proposed rule change does not: (i) Significantly 
affect the protection of investors or the public interest; (ii) impose 
any significant burden on competition; and (iii) become operative for 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, it has become effective pursuant to 
Section 19(b)(3)(A) of the Act \21\ and Rule 19b-4(f)(6) \22\ 
thereunder.
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    \19\ 15 U.S.C. 78(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \23\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\24\ the Commission 
may designate a shorter time if such action is consistent with 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay. According to the 
Exchange, allowing these securities to list on Nasdaq immediately would 
benefit investors due to Nasdaq's real time surveillance of the non-
convertible bonds and enhanced transparency. The Commission also notes 
that the proposed listing requirements are substantially the same as 
NYSE American and therefore, the Exchange's proposal does not raise any 
new or novel issues. Therefore, the Commission believes that waving the 
30-day operative delay is consistent with the protection of investors 
and the public interest. Accordingly, the Commission designates the 
proposed rule change to be operative on upon filing.\25\
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    \23\ 17 CFR 240.19b-4(f)(6).
    \24\ 17 CFR 240.19b-4(f)(6).
    \25\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2020-008 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-2020-008. 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

[[Page 12956]]

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 tomake available publicly. All 
submissions should refer to File Number SR-NASDAQ-2020-008 and should 
be submitted on or before March 26, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-04471 Filed 3-4-20; 8:45 am]
 BILLING CODE 8011-01-P


