[Federal Register Volume 85, Number 55 (Friday, March 20, 2020)]
[Notices]
[Pages 16163-16166]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05850]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88389; File No. SR-NASDAQ-2019-089]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Amendment No. 1 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To 
Amend Rule 5815 To Preclude Stay During Hearing Panel Review of Staff 
Delisting Determinations in Certain Circumstances

March 16, 2020.

I. Introduction

    On November 27, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Nasdaq Rule 5815 regarding review of 
Nasdaq Staff Delisting Determinations by Hearings Panels to preclude 
the stay of trading of a Company's securities during the review period 
in specified circumstances. The proposed rule change was published for 
comment in the Federal Register on December 17, 2019.\3\ On January 30, 
2020, pursuant to Section 19(b)(2) of the Act,\4\ 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.\5\ On 
March 13, 2020, the Exchange filed Amendment No. 1 to the proposed rule 
change, which superseded and replaced the proposed rule change in its 
entirety.\6\ The Commission has received no comment letters on the 
proposed rule change. The Commission is publishing notice of the filing 
of Amendment No. 1 to solicit comment from interested persons, and is 
approving the proposed rule change, as modified by Amendment No. 1, 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. 87716 (Dec. 11, 
2019), 84 FR 69007 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 88090, 85 FR 6655 
(Feb. 5, 2020). The Commission designated March 16, 2020, as the 
date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \6\ In Amendment No. 1, the Exchange removed a change proposed 
in the original filing to remove a stay where a special purpose 
acquisition company, or ``SPAC,'' does not satisfy the requirements 
described in IM-5101-2 that the company must meet initial listing 
requirements following the completion of a business combination with 
an operating company. Nasdaq stated in Amendment No. 1 that it was 
removing this portion of the proposed rule change while it re-
assesses the treatment of SPACs. Amendment No. 1 is available at: 
https://www.sec.gov/comments/sr-nasdaq-2019-089/srnasdaq2019089-6951085-212268.pdf.
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II. Description of the Proposal, as Modified by Amendment No. 1

    Pursuant to Nasdaq Rule 5815, when a Company \7\ receives a Staff 
Delisting Determination \8\ it may request in writing that the Hearings 
Panel \9\ review the matter in a written or an oral hearing. Under 
existing rules, a timely request for a hearing ordinarily will stay the 
suspension and delisting action pending the issuance of a written 
decision from the Hearings Panel (``Panel Decision'').\10\
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    \7\ The term ``Company'' means the issuer of a security listed 
or applying to list on Nasdaq. See Nasdaq Rule 5005(a)(6).
    \8\ A ``Staff Delisting Determination'' is a written 
determination by the Listing Qualifications Department to delist a 
listed Company's securities for failure to meet a continued listing 
standard. See Nasdaq Rule 5805(h).
    \9\ The ``Hearings Panel'' is an independent panel made up of at 
least two persons who are not employees or otherwise affiliated with 
Nasdaq or its affiliates, and who have been authorized by the Nasdaq 
Board of Directors. See Nasdaq Rule 5805(d).
    \10\ See Nasdaq Rule 5815(a)(1). In the case of a Staff 
Delisting Determination related to the requirements to timely file 
periodic reports with the Commission, the delisting action is only 
stayed for 15 calendar days unless the Company specifically requests 
and the Hearings Panel grants a further stay. See Nasdaq Rule 
5815(a)(1)(B).
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    The Exchange proposes to amend Nasdaq Rule 5815 to preclude the 
stay of a Staff Delisting Determination during the Hearings Panel 
review period in two specified circumstances. Under the proposal, a 
timely request for a hearing will not stay the suspension of the 
securities from trading pending the issuance of a written Panel 
Decision when the Staff Delisting Determination is related to one of 
the following deficiencies: (i) A Company whose application for initial 
listing has not been approved prior to consummation of a transaction 
whereby the Company combines with a non-Nasdaq entity, resulting in a 
change of control of the Company and potentially allowing the non-
Nasdaq entity to obtain a Nasdaq listing, as described in Nasdaq Rule 
5110(a) (such a Company is referred to herein as a ``Change of Control 
Company''); \11\ or (ii) a Company that has filed for protection under 
any provision of the federal bankruptcy laws, or comparable foreign 
laws, or that has announced that liquidation has been authorized by its 
board of directors and that it is committed to proceed, as described in 
Nasdaq Rule 5110(b).\12\ In both of these situations, under the 
proposal, the Company's securities will be suspended from trading on 
the Exchange during the pendency of the Hearings Panel review and will 
remain suspended unless the written Panel Decision issued after the 
hearing determines to reinstate the trading of the securities.\13\ As 
noted above, this would be in contrast to the application of the 
current rules that ordinarily stays the suspension of securities during 
the pendency of an appeal of a delisting determination to the Hearings 
Panel.\14\
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    \11\ Under Nasdaq Rule 5110(a) (Business Combinations with Non-
Nasdaq Entities Resulting in a Change of Control), a Company must 
apply for initial listing in connection with a transaction whereby 
the Company combines with a non-Nasdaq entity, resulting in a change 
of control of the Company and potentially allowing the non-Nasdaq 
entity to obtain a Nasdaq listing. If the Company's application for 
initial listing has not been approved prior to consummation of the 
transaction, Nasdaq will issue a Staff Delisting Determination. See 
Nasdaq Rule 5110(a). See also Notice, supra note 3, 84 FR at 69008. 
Nasdaq stated that a Company would only be subject to suspension 
under the proposal if it does not contest the applicability of Rule 
5110(a), or if the Hearings Panel has already concluded that the 
rule is applicable, and if the Company does not satisfy the initial 
inclusion requirements upon consummation of the transaction. See 
Notice, supra note 3, 84 FR at 69008, n.9 (referencing Nasdaq FAQ 
413, available at https://listingcenter.nasdaq.com/Material_Search.aspx?materials=413&mcd=LQ&criteria=2.)
    \12\ See proposed Nasdaq Rule 5815(a)(1)(B)(ii). Under Nasdaq 
Rule 5110(b) (Bankruptcy and Liquidation), Nasdaq staff may use its 
discretionary authority under the Rule 5100 Series to suspend or 
terminate the listing of a Company that has filed for protection 
under any provision of the federal bankruptcy laws or comparable 
foreign laws, or has announced that liquidation has been authorized 
by its board of directors and that it is committed to proceed, even 
though the Company's securities otherwise meet all enumerated 
criteria for continued listing on Nasdaq. See Nasdaq Rule 5110(b). 
See also Notice, supra note 3, 84 FR at 69009.
    \13\ See proposed Nasdaq Rule 5815(a)(1)(B)(ii). The Exchange 
also proposes to make non-substantive conforming changes to Nasdaq 
Rule 5815(a)(1)(A) and (B). See proposed Nasdaq Rule 5815(a)(1)(A) 
and (B).
    \14\ See supra note 10 and accompanying text.
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    The Exchange stated, among other things, in support of its proposal 
to eliminate the stay upon appeal for change of control situations that 
it believes because the Company is a new business entity that must meet 
initial listing standards it should not be traded during appeal since 
the new Company never established compliance with listing standards and 
that such trading could then mislead the investing public.\15\ As to 
Companies in bankruptcy or liquidation, the Exchange noted, among other 
things, that it believed continued trading during a delisting review by 
the Hearings Panel could expose shareholders to increased

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risks due to the limited information during bankruptcy proceedings and 
the uncertainty of outcomes.\16\
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    \15\ See Notice, supra note 3, 84 FR at 69008.
    \16\ 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 No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\17\ In particular, the 
Commission finds that the proposed rule change, as modified by 
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\18\ 
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. In addition, the Commission finds 
that the proposed rule change, as modified by Amendment No. 1, is 
consistent with Section 6(b)(7) of the Act,\19\ which requires, among 
other things, that the rules of a national securities exchange provide 
a fair procedure for the prohibition or limitation by the exchange of 
any person with respect to access to services offered by the exchange.
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    \17\ 15 U.S.C. 78f(b). In approving this proposed rule change, 
as modified by Amendment No. 1, the Commission has considered the 
proposed rule change's impact on efficiency, competition, and 
capital formation. See 15 U.S.C. 78c(f).
    \18\ 15 U.S.C. 78f(b)(5).
    \19\ 15 U.S.C. 78f(b)(7).
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    Nasdaq has proposed to eliminate the stay of suspension from 
trading of a Company's securities, upon appeal of a Staff Delisting 
Determination, during the pendency of the Hearings Panel's review where 
the Staff Delisting Determination is related to the following 
deficiencies: (i) A Change of Control Company whose application for 
initial listing was not approved prior to consummation of the change-
of-control transaction; or (ii) a Company undergoing bankruptcy or 
liquidation. As a result, even if appealed, Companies issued Staff 
Delisting Determinations related to such deficiencies will have their 
securities immediately suspended from trading unless and until the 
Hearings Panel issues a decision that reinstates the securities.
    With respect to the proposed removal of the stay during the 
pendency of the Hearings Panel's review upon appeal of a Nasdaq staff 
determination to delist a Change of Control Company that did not have 
its initial listing approved prior to consummation of the relevant 
transaction, the Commission believes immediate suspension of trading in 
such circumstances is appropriate and consistent with the Act. A Change 
of Control Company following the change of control transaction with a 
non-Nasdaq entity is a new business entity and, as a result, is 
required by Nasdaq's rules to demonstrate compliance with the 
Exchange's initial listing standards.\20\ The Commission believes, as 
the Exchange has also stated, that permitting such companies to trade 
on the Exchange during the pendency of the Hearings Panel review 
without having demonstrated compliance with the Exchange's initial 
listing standards, as is the case under the current rule, may be 
misleading to investors, because it gives the appearance that the 
Company has met the standards imposed by Nasdaq.
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    \20\ See supra note 11.
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    Nasdaq also noted in its proposal that the Change of Control 
Company could use the benefits of its Nasdaq listing and continued 
trading during the review process to achieve compliance with the 
initial listing requirements it does not satisfy.\21\ The Commission 
also believes that investor protection issues are raised if such a 
Company can use the continued listing and trading of its securities on 
the Exchange during the pendency of the hearing review process to try 
to achieve compliance with initial listing requirements that it has not 
met, even though the new Company never qualified initially for trading 
in the first instance like any new listing applicant is required to 
do.\22\ While Nasdaq stated in its proposal that newly listing 
Companies must demonstrate compliance with all initial listing 
requirements before they are listed,\23\ Nasdaq further noted that the 
Change of Control Companies covered by the proposed rule change are 
effectively new entities but have not completed the standard vetting 
process conducted by the Exchange of all new listed companies and 
demonstrated compliance with initial listing requirements.\24\
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    \21\ See Notice, supra note 3, 84 FR at 69008.
    \22\ See Securities Exchange Act Release No. 82478 (Jan. 9, 
2018) 83 FR 2278 (Jan. 16, 2018) (Nasdaq-2018-087) (Order 
Instituting Proceedings Relating to Special Purpose Acquisition 
Companies Listing Standards) (``The Commission notes that initial 
listing standards, absent an explicit exception, apply upon initial 
listing.'').
    \23\ See Notice, supra note 3, 84 FR at 69008-09.
    \24\ See id. at 69009 (``No company may trade on The Nasdaq 
Stock Market until it demonstrates compliance with the listings 
qualifications rules of the Exchange.''). The Commission notes that 
the fair procedure requirements under Section 6(b)(7) of the Act are 
consistent with, among other things, not automatically allowing a 
Company that invokes the appeal process to continue to trade during 
the appeal and gain the benefit of continued listing and trading 
during the pendency of that process and, in effect, gain additional 
time to achieve compliance with initial listing standards that the 
Company has not (and has never) met. See also discussion, infra, on 
Section 6(b)(7) under the Act.
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    The Commission further believes that the Exchange's proposal to 
remove the stay during the pendency of a Hearings Panel's review and 
immediately suspend trading where Nasdaq Staff has determined to delist 
a Company in bankruptcy or liquidation and the Company has appealed 
that determination is consistent with the Act. In such situations, the 
Company has acknowledged it is having insurmountable financial 
difficulties and the Commission believes there are investor protection 
concerns with allowing such securities to continue to trade during the 
appeal process. For example, the Exchange stated that continued listing 
of a Company's securities on the Exchange during the pendency of 
bankruptcy proceedings exposes investors to increased risk due to the 
uncertainty of the outcome and the limited information provided during 
bankruptcy proceedings.\25\ In addition, the Exchange stated that, in 
its experience with respect to bankrupt or liquidating Companies, there 
is generally no residual equity for the current stockholders.\26\ 
Furthermore, the Commission believes that continued trading of the 
Company's shares during the duration of the Hearings Panel's review 
could be misleading to investors and, as Nasdaq stated, can create 
confusion about the Company's ability to satisfy Nasdaq's initial 
listing requirements upon emerging from bankruptcy as required under 
Nasdaq Rule 5110(b). While a Company emerging from bankruptcy 
protection may continue to be listed and traded on the Exchange if the 
Company demonstrates compliance with the Exchange's initial listing 
standards, Nasdaq represented that of 37 Staff Delisting Determinations 
related to bankruptcy between 2016 and 2018, only one Company remained 
listed and demonstrated compliance with the initial listing 
requirements upon emerging from bankruptcy.\27\
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    \25\ See Notice, supra note 3, 84 FR at 69009.
    \26\ See id.
    \27\ See id. at 69009, n.12.
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    As the Commission has previously noted, the development and 
enforcement of meaningful listing

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standards \28\ for an exchange is of substantial importance to 
financial markets and the investing public. Among other things, listing 
standards provide the means for an exchange to screen issuers that seek 
to become listed, and to provide listed status only to those that are 
bona fide companies that have or will have sufficient public float, 
investor base, and trading interest likely to generate depth and 
liquidity sufficient to promote fair and orderly markets. Meaningful 
listing standards also are important given investor expectations 
regarding the nature of securities that have achieved an exchange 
listing, and the role of an exchange in overseeing its market and 
assuring compliance with its listing standards.\29\ Allowing 
essentially new Companies that have not demonstrated compliance with 
the Exchange's initial listing standards to continue trading on the 
Exchange during the pendency of the Hearings Panel's review of a Staff 
Delisting Determination may be confusing to investors and raises 
investor protection concerns.\30\ Similar investor protection concerns 
are present with allowing Companies that have sought bankruptcy 
protection or that have announced a liquidation to continue trading on 
the Exchange during the pendency of the Hearings Panel's review.\31\ 
The Commission believes that Nasdaq's proposal will further the 
purposes of Section 6(b)(5) of the Act by, among other things, 
protecting investors and the public interest by preventing continued 
trading on the Exchange in such a Company's securities unless and until 
the Hearings Panel determines that continued trading on Nasdaq is 
appropriate.
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    \28\ The Commission notes that this reference to ``listing 
standards'' is referring to both initial and continued listing 
standards.
    \29\ See, e.g., Securities Exchange Act Release Nos. 65708 (Nov. 
8, 2011), 76 FR 70799 (Nov. 15, 2011) (SR-NASDAQ-2011-073) (order 
approving a proposal to adopt additional listing requirements for 
companies applying to list after consummation of a ``reverse 
merger'' with a shell company), and 57785 (May 6, 2008), 73 FR 27597 
(May 13, 2008) (SR-NYSE-2018-17) (order approving a proposal to 
adopt new initial and continued listing standards to list securities 
of special purpose acquisition companies). See also Securities 
Exchange Act Release No. 81856 (October 11, 2017), 82 FR 48296, 
48298 (Oct. 17, 2017) (SR-NYSE-2017-31) (stating that 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 so that fair and orderly markets can 
be maintained).
    \30\ See In re Tassaway, Securities Exchange Act Release No. 
11291, 45 SEC. 706, 709, 1975 SEC LEXIS 2057, at *6 (Mar. 13, 1975) 
(``[P]rimary emphasis must be placed on the interests of prospective 
future investors . . . [who are] entitled to assume that the 
securities in [Nasdaq] meet [Nasdaq's] standards. Hence the presence 
in [Nasdaq] of non-complying securities could have a serious 
deceptive effect.''). See also In re Biorelease Corporation, 
Securities Exchange Act Release No. 35575, 1995 SEC LEXIS 818, at 
*13 (Apr. 6, 1995) (``[T]hough exclusion from the system may hurt 
existing investors, primary emphasis must be placed on the interests 
of prospective future investors. Prospective investors are entitled 
to assume that the securities listed [on Nasdaq] meet the system's 
listing standards.'').
    \31\ See supra note 27 and accompanying text.
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    The Commission further believes the proposed rule change is 
consistent with Section 6(b)(7) of the Act in that it provides a fair 
procedure for the prohibition or limitation by the Exchange of any 
person with respect to access to services offered. The Commission notes 
that pursuant to the proposal, a Company whose securities are suspended 
pending its appeal would be given the same opportunity it currently has 
to present its case to the Hearings Panel pursuant to current Nasdaq 
rules. Further, a Company's shares will be suspended unless and until 
the Hearings Panel issues a written decision determining that continued 
trading on Nasdaq is appropriate. If the Panel Decision determines to 
permit continued trading of the securities, the Company's shares can 
then resume trading on the Exchange.\32\ The Commission believes that 
limitations on trading of a Company's securities during the pendency of 
the Hearings Panel's review is appropriate in the situations prescribed 
by the proposed rule in light of the need to protect investors and the 
public interest and that the Nasdaq's hearings review process will 
continue, as it currently does, to provide a fair procedure for the 
review of Staff Delisting Determinations in accordance with Section 
6(b)(7) of the Act.\33\
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    \32\ See Nasdaq Rule 5815. Should the Hearings Panel decide the 
Company's securities should be delisted, the Company would be 
afforded an appeal of the Panel Decision to the Listing Counsel as 
would any listed company or new applicant denied listing. Id.
    \33\ See also supra note 24.
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IV. Accelerated Approval of the Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
1 in the Federal Register. Amendment No. 1 removed a change proposed in 
the original filing to remove a stay where a special purpose 
acquisition company, or ``SPAC,'' does not satisfy the requirements 
described in IM-5101-2 that the Company must meet initial listing 
requirements following the completion of a business combination with an 
operating company while Nasdaq reassesses the treatment of SPACs. The 
amendment did not modify the remaining two circumstances in which the 
Exchange has proposed to eliminate the stay of suspension from trading 
of a Company's securities following receipt of a Staff Delisting 
Determination during the pendency of the Hearings Panel's review--a 
Change of Control Company whose application for initial listing was not 
approved prior to consummation of the change-of-control transaction, or 
a Company undergoing bankruptcy or liquidation. The Commission also 
notes that these remaining aspects of the proposed rule change were 
noticed for comment in the Federal Register and no comments were 
received in response to that notice. The Commission has also found that 
the proposal, as modified by Amendment No. 1, is consistent with the 
Act for the reasons discussed herein. Accordingly, the Commission finds 
good cause, pursuant to Section 19(b)(2) of the Act,\34\ to approve the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis.
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    \34\ 15 U.S.C. 78s(b)(2).
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V. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 1 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 rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2019-089 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-2019-089. 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

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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-
NASDAQ-2019-089, and should be submitted on or before April 10, 2020.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\35\ that the proposed rule change (SR-NASDAQ-2019-089), as 
modified by Amendment No. 1, be, and it hereby is, approved on an 
accelerated basis.
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    \35\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
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    \36\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-05850 Filed 3-19-20; 8:45 am]
BILLING CODE 8011-01-P


