[Federal Register Volume 85, Number 63 (Wednesday, April 1, 2020)]
[Notices]
[Pages 18292-18296]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06732]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88485; File No. SR-NYSE-2019-67]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change, as Modified by Amendment No. 1, To Amend Chapter 
One of the Listed Company Manual To Modify the Provisions Related to 
Direct Listings

March 26, 2020.

I. Introduction

    On December 11, 2019, New York Stock Exchange LLC (``NYSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend Chapter One of the 
Listed Company Manual (``Manual'') to modify the provisions related to 
direct listings. On December 13, 2019, the Exchange filed Amendment No. 
1 to the proposed rule change, which amended and replaced the proposed 
rule change in its entirety. The proposed rule change, as modified by 
Amendment No. 1, was published for comment in the Federal Register on 
December 30, 2019.\3\ On February 13, 2020, pursuant to Section 19(b(2) 
of the Exchange Act,\4\ the Commission designated a longer period 
within which to either approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change.\5\ The Commission has received 
twelve comment letters on the proposed rule change, including a 
response from the Exchange.\6\ This order institutes proceedings under 
Section 19(b)(2)(B) of the Exchange Act \7\ to determine whether to 
approve or disapprove the proposed rule change, as modified by 
Amendment No. 1.
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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. 87821 (December 20, 
2019), 84 FR 72065 (December 30, 2019) (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 88190 (February 13, 
2020), 85 FR 9891 (February 20, 2020). The Commission designated 
March 29, 2020, as the date by which it should approve, disapprove, 
or institute proceedings to determine whether to disapprove the 
proposed rule change.
    \6\ Comments received on the Notice are available on the 
Commission's website at: https://www.sec.gov/comments/sr-nyse-2019-67/srnyse201967.htm.
    \7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposal

    Section 102.01B, Footnote (E) of the Manual states that the 
Exchange generally expects to list companies in connection with a firm 
commitment underwritten initial public offering (``IPO''), upon 
transfer from another market, or pursuant to a spin-off, but also 
allows for the possibility of using a direct listing, as described 
below.\8\ Currently, Footnote (E) states that the Exchange recognizes 
that companies that have not previously had their common equity 
securities registered under the Exchange Act, but which have sold 
common equity securities in a private placement, may wish to list their 
common equity securities on the Exchange at the time of effectiveness 
of a registration statement \9\ filed solely for the purpose of 
allowing existing shareholders to sell their shares.\10\ The Exchange 
has proposed to define this type of direct listing already contemplated 
by the Exchange's rules as a ``Selling Shareholder Direct Floor 
Listing.'' \11\ In addition, the Exchange has proposed to recognize an 
additional type of direct listing in which a company would sell shares 
itself in the opening auction on the first day of trading on the 
Exchange in addition to, or instead of, facilitating sales by selling 
shareholders (a ``Primary Direct Floor

[[Page 18293]]

Listing'').\12\ Under the proposal, the Exchange would, on a case by 
case basis, exercise discretion to list companies that are listing in 
connection with a Selling Shareholder Direct Floor Listing or a Primary 
Direct Floor Listing.\13\
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    \8\ See Section 102.01B, Footnote (E) of the Manual.
    \9\ The reference to a registration statement refers to a 
registration statement effective under the Securities Act of 1933 
(``Securities Act'').
    \10\ See Section 102.01B, Footnote (E) of the Manual. See also 
Securities Exchange Act Release No. 82627 (February 2, 2018), 3 FR 
5650 (February 8, 2018) (SR-NYSE-2017-30) (approving proposed rule 
change to amend Section 102.01B of the Manual to modify the 
provisions relating to the qualifications of companies listing 
without a prior Exchange Act registration in connection with an 
underwritten IPO and amend the Exchange's rules to address the 
opening procedures on the first day of trading for such securities).
    \11\ See proposed Section 102.01B, Footnote (E) of the Manual. 
Under the proposal, the Exchange would remove a description of this 
type of direct listing as involving a company ``whose stock is not 
previously registered under the Exchange Act, where such company is 
listing without a related underwritten offering upon effectiveness 
of a registration statement registered only the resale of shares 
sold by the company in earlier private placements.'' See id.
    \12\ See proposed Section 102.01B, Footnote (E) of the Manual.
    \13\ See proposed Section 102.01B, Footnote (E) of the Manual.
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    With respect to a Selling Shareholder Direct Floor Listing, the 
Exchange has proposed to retain the existing standards regarding how 
the Exchange will determine whether a company has met its market value 
of publicly-held shares listing requirement. The Exchange will continue 
to determine that such company has met the $100 million aggregate 
market value of publicly-held shares requirement based on a combination 
of both (i) an independent third-party valuation (``Valuation'') of the 
company; and (ii) the most recent trading price for the company's 
common stock in a trading system for unregistered securities operated 
by a national securities exchange or a registered broker-dealer 
(``Private Placement Market'').\14\ The Exchange will attribute a 
market value of publicly-held shares to the company equal to the lesser 
of: (i) The value calculable based on the Valuation; and (ii) the value 
calculable based on the most recent trading price in a Private 
Placement Market.\15\ Alternatively, in the absence of any recent 
trading in a Private Placement Market, the Exchange will determine that 
such company has met its market value of publicly-held shares 
requirement if the company provides a Valuation evidencing a market 
value of publicly-held shares of at least $250 million.\16\
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    \14\ See proposed Section 102.01B, Footnote (E) of the Manual. 
For specific requirements regarding the Valuation and the 
independence of the valuation agent conducting such Valuation, see 
Section 102.01B, Footnote (E) of the Manual. Section 102.01B, 
Footnote (E) of the Manual also sets forth specific factors for 
relying on a Private Placement Market price. Generally, the Exchange 
will only rely on a Private Placement Market price if it is 
consistent with a sustained history over a several month period 
prior to listing evidencing a market value in excess of the 
Exchange's market value requirement.
    \15\ See Section 102.01B, Footnote (E) of the Manual.
    \16\ See Section 102.01B, Footnote (E) of the Manual.
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    With respect to a Primary Direct Floor Listing, the Exchange has 
proposed that it will deem a company to have met the applicable 
aggregate market value of publicly-held shares requirement if the 
company sells at least $100 million in market value of the shares in 
the Exchange's opening auction on the first day of trading on the 
Exchange.\17\ Alternatively, where a company is conducting a Primary 
Direct Floor Listing and sells shares in the opening auction with a 
market value of less than $100 million, the Exchange will determine 
that such company has met its market value of publicly-held shares 
requirement if the company provides a Valuation evidencing a market 
value of publicly-held shares of at least $250 million.\18\ According 
to the Exchange, these requirements would provide that any company 
conducting a Primary Direct Floor Listing would be of a suitable size 
for Exchange listing and that there would be sufficient liquidity for 
the security to be suitable for auction market trading.\19\
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    \17\ See proposed Section 102.01B, Footnote (E) of the Manual.
    \18\ See proposed Section 102.01B, Footnote (E) of the Manual.
    \19\ See Notice, supra note 3, 84 FR at 72067.
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    In addition, the Exchange has proposed to amend Section 102.01A of 
the Manual to provide certain exceptions to the requirement that a 
company listing in connection with a Primary Direct Floor Listing or a 
Selling Shareholder Direct Floor Listing comply with the applicable 
initial listing distribution requirements, which require at least 400 
round lot holders and 1.1 million publicly-held shares, at the time of 
initial listing.\20\ In each of the following cases, the Exchange has 
proposed to grant the company a grace period of up to 90 trading days 
from the date of initial listing (``Distribution Standard Compliance 
Period'') to comply with the applicable initial listing distribution 
requirements: (i) A company listing in connection with a Primary Direct 
Floor Listing in which it sells at least $250 million in market value 
of shares in the Exchange's opening auction on the first day of trading 
on the Exchange; (ii) a company listing in connection with a Primary 
Direct Floor Listing in which the aggregate amount of the market value 
of shares sold by the company in the opening auction and the market 
value of publicly-held shares demonstrated by the company immediately 
prior to the time of initial listing (in the manner set forth in 
Section 102.01B, Footnote (E) of the Manual) is at least $350 million; 
and (iii) a company listing in connection with a Selling Shareholder 
Direct Floor Listing in which it demonstrates at the time of initial 
listing (in the manner set forth in Section 102.01B, Footnote (E) of 
the Manual) that it has at least $350 million in aggregate market value 
of publicly held shares.\21\
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    \20\ See proposed Section 102.01A of the Manual. Section 102.01A 
requires a company to have 400 holders of 100 shares or more (or of 
a unit of trading if less than 100 shares) and 1,100,000 publicly-
held shares. Shares held by directors, officers, or their immediate 
families and other concentrated holdings of 10 percent or more are 
excluded in calculating the number of publicly-held shares. See 
Section 102.01A of the Manual.
    \21\ See proposed Section 102.01A of the Manual.
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    Under the proposal, any such company that fails to demonstrate its 
compliance with the applicable requirements of Section 102.01A within 
the Distribution Standard Compliance Period will be deemed to be below 
compliance with listing requirements.\22\ Any such company will have 
the right to submit a plan pursuant to the provisions of Sections 
802.02 or 802.03 of the Manual, as applicable, demonstrating its 
ability to gain compliance with the applicable requirements of Section 
102.01A of the Manual within a period not to exceed six months from the 
end of the Distribution Standard Compliance Period.\23\
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    \22\ See proposed Section 102.01A of the Manual; Notice, supra 
note 3, 84 FR at 72066.
    \23\ See proposed Section 102.01A of the Manual.
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    According to the Exchange, private companies generally do not have 
as many as 400 round lot holders, but that this typically is not a 
barrier to listing for a company undertaking an IPO because the 
underwriters are able to ensure that the shares sold in the IPO are 
distributed to sufficient accounts to meet the Exchange's distribution 
standards.\24\ However, the Exchange asserts that, in the absence of an 
underwritten transaction at the time of listing, the initial listing 
distribution standards may represent more of a challenge for a private 
company contemplating listing in connection with a Selling Shareholder 
Direct Floor Listing or a Primary Direct Floor Listing.\25\ The 
Exchange believes that a Primary Direct Floor Listing in which the 
company sells at least $250 million of its stock in the opening auction 
on the day of listing would provide an appropriately liquid trading 
market and make it highly likely that the company would meet the 
initial listing distribution standards quickly after initial 
listing.\26\ The Exchange notes that the market value of publicly-held 
shares requirement for initial listings other than direct listings and 
IPOs is $100 million, and that the proposed $350 million requirement to 
use the Distribution Compliance Period is far higher than what a newly-
listed company would have to demonstrate

[[Page 18294]]

under other circumstances.\27\ The Exchange believes that this 
heightened standard significantly increases the likelihood that a 
liquid trading market will develop after a Selling Shareholder Direct 
Floor Listing or Primary Direct Floor Listing, and therefore makes it 
likely that these companies will meet the initial distribution 
standards within the Distribution Standard Compliance Period.\28\
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    \24\ See Notice, supra note 3, 84 FR at 72066.
    \25\ See Notice, supra note 3, 84 FR at 72066.
    \26\ See Notice, supra note 3, 84 FR at 72066.
    \27\ See Notice, supra note 3, 84 FR at 72066.
    \28\ See Notice, supra note 3, 84 FR at 72066.
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III. Summary of Comment Letters Received

    The Commission has received twelve comment letters on the proposed 
rule change, including two letters from one commenter and a letter 
responding to the comments from the Exchange.\29\
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    \29\ See supra note 6.
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    Four commenters generally supported the proposal.\30\ One commenter 
stated that it supports alternative formats for IPOs, including direct 
listing proposals like the one proposed by the Exchange, and expressed 
the view that issuers should be offered choices that match their 
objectives so long as they protect the integrity of the markets and are 
fair and clear to investors, using transparent processes.\31\ Another 
commenter believed that allowing for multiple pathways for private 
companies to achieve exchange listing would encourage more companies to 
participate in public equity markets and provide investors a broader 
array of attractive investment opportunities.\32\ A third commenter 
stated that it strongly supports proposals designed to facilitate 
companies accessing the public equity markets, and expressed the view 
that the proposal appropriately updated the publicly-held shares and 
distribution requirements associated with direct listings in order to 
ensure the development of a liquid trading market.\33\ Finally, one 
commenter expressed general support for the proposal, but offered a 
variety of observations and concerns, including that the historical 
approach to IPO pricing is not sufficiently transparent, creates the 
opportunity for dramatic price swings, and is not fair to all qualified 
investors.\34\ In its view, all investors should have the opportunity 
to participate in a seamless process that also provides 
transparency.\35\
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    \30\ See Letter from Stephen John Berger, Managing Director, 
Global Head of Government & Regulatory Policy, Citadel Securities 
(February 18, 2020) (``Citadel Letter''), at 1; Letter from Paul 
Abrahimzadeh and Russell Chong, Co-Heads, U.S. Equity Capital 
Markets, Citigroup Global Markets Inc. (February 26, 2020) 
(``Citigroup Letter''); Letter from Matthew B. Venturi, Founder & 
CEO, ClearingBid, Inc. (January 21, 2020) (``ClearingBid Letter''), 
at 5; Letter from David Ludwig, Head of Americas Equity Capital 
Markets, Goldman Sachs Group, Inc. (February 7, 2020) (``Goldman 
Sachs Letter'').
    \31\ See Citigroup Letter, supra note 30. This commenter also 
believed that the direct listing format would afford broad 
participation in the capital formation process and help establish a 
shareholder base that has a long-term interest in partnering with 
management teams. See id.
    \32\ See Goldman Sachs Letter, supra note 30. This commenter 
also referenced the recent direct listings by Spotify Technology 
S.A. and Slack Technologies, Inc., and expressed the view that the 
development of a direct listing approach to becoming a public 
company has been a significant step forward in providing companies 
greater choice in their path to going public, and that the ability 
to include a primary capital raise in a direct listing will further 
enhance this flexibility. See id.
    \33\ See Citadel Letter, supra note 30, at 1. This commenter 
also referenced its role as the NYSE Designated Market Maker for 
both Spotify Technology S.A. and Slack Technologies, Inc., and 
stated that its experience has demonstrated that a direct listing 
can be an attractive alternative to the traditional IPO process. See 
id.
    \34\ See ClearingBid Letter, supra note 30, at 1.
    \35\ See ClearingBid Letter, supra note 30, at 5. This commenter 
also believed that, coupled with greater transparency for a truer 
indication of market demand via real-time price discovery, fair and 
equal market access can be provided to all investors, not just the 
largest institutions. See id.
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    Other commenters opposed the proposal. One commenter expressed the 
view that allowing companies to raise primary capital through a direct 
listing ``would be a complete end run around the traditional 
underwriting process and . . . create a massive loophole in the 
regulatory regime that governs the offerings of securities to the 
public.'' \36\ This commenter believed that approval of the proposal 
would likely increase the number of companies that forego the 
traditional IPO process, and significantly increase the risks for 
retail investors, including by circumventing the due diligence 
process.\37\ The commenter expressed concern that direct listings could 
weaken certain shareholder investor protections, and recommended that 
the Commission make clear that financial advisors, exchanges, control 
shareholders, and directors involved in a direct listing automatically 
incur statutory underwriter liability under the Securities Act and be 
required to hold the regulatory capital necessary to act as a de facto 
underwriter.\38\
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    \36\ Letter from Christopher A. Iacovella, Chief Executive 
Officer, ASA (December 12, 2019) (``ASA Letter I''), at 1.
    \37\ See ASA Letter I, supra note 36, at 2. In this commenter's 
view, two recent high-profile direct listings--Spotify and Slack--
did not work out particularly well for retail investors, and a 
robust underwriting process would have uncovered more of these 
companies' vulnerabilities before these securities were offered to 
the public. See id.
    \38\ See ASA Letter I, supra note 36, at 2; Letter from 
Christopher A. Iacovella, Chief Executive Officer, American 
Securities Association (March 5, 2020) (``ASA Letter II''), at 2-3.
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    Another commenter noted that it had generally supported permitting 
direct listings, based on a belief that a direct listing should be a 
choice for companies considering a public listing that could be more 
cost-effective than an IPO while still providing necessary investor 
protections.\39\ However, this commenter expressed concern that 
shareholder legal rights under Section 11 of the Securities Act may be 
particularly vulnerable in the case of direct listings, and that 
investors in direct listing companies may have fewer legal protections 
than investors in IPOs.\40\ The commenter stated that it could not 
support direct listings as an alternative to IPOs if public companies 
could limit their liability for damages caused by untrue statements of 
fact or material omissions of fact within registration statements 
associated with direct listings.\41\ Finally, this commenter 
specifically opposed the Distribution Standard Compliance Period 
proposed by the Exchange. The commenter noted that the Exchange had 
provided no data to support its argument that issuers with at least 
$350 million in public float would quickly develop a liquid trading 
market and comply with the initial listing distribution requirements 
within the 90-day grace period and stated that, without evidence, the 
$350 million threshold ``appears arbitrary.'' \42\
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    \39\ See Letter from Jeffrey P. Mahoney, General Counsel, 
Council of Institutional Investors (January 16, 2020) (``CII 
Letter''), at 1-2.
    \40\ See CII Letter, supra note 39, at 2.
    \41\ See CII Letter, supra note 39, at 2-3. This commenter was 
particularly concerned about positions taken by the issuer in a 
recent lawsuit relating to the direct listing of Slack, and 
expressed the view that the issuer ``relies on (1) attacking the 
right of secondary market purchasers to bring a Section 11 claim; 
and (2) the inability to determine what shares were `covered' by 
Slack's registration statement.'' Id. at 2. Among other things, the 
commenter urged the Commission to explore establishing a system of 
traceable shares before approving a direct listing regime. See id. 
at 2-3.
    \42\ See CII Letter, supra note 39, at 4. Several additional 
commenters raised a variety of concerns with the proposal. For 
example, one commenter expressed the view that ``bailing out'' 
private market investors with reduced offering requirements would 
incent companies to remain private longer, reduce transparency, and 
impair price discovery. See Letter from Anonymous (December 4, 
2019). Another commenter took the position that direct listings are 
a method for insiders to ``rip-off'' IPO investors. See Letter from 
Allan Rosenbalm (December 4, 2019). Yet another commenter was 
critical of direct listings for a variety of reasons, and expressed 
the view, among other things, that they are ``an attempt to bypass 
the independent skilled investment banking and investment management 
professionals when establishing the initial market value of the 
company.'' See Letter from Anonymous (January 3, 2020).
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    The Exchange responded to several of the concerns raised by 
commenters. The Exchange disagrees that the absence of

[[Page 18295]]

underwriters creates a loophole in the regulatory regime that governs 
offerings of securities to the public.\43\ According to the Exchange, 
while underwriter involvement is often necessary to the success of an 
IPO or other public offering, underwriter participation in the public 
capital-raising process is not required by the Securities Act, and 
companies that do not require the services of an underwriter are not 
required to purchase them.\44\ In the Exchange's view, the due 
diligence process in primary direct listings is the responsibility of 
the gatekeepers who participate in the transaction, such as the 
company's board of directors, its senior management, and its 
independent accountants.\45\ The Exchange further stated that a company 
pursuing a Primary Direct Floor Listing would go through the same 
process of publicly filing a registration statement as an underwritten 
offering, and if a company's business model exhibits weaknesses, they 
will be exposed to the public prior to listing.\46\
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    \43\ See Letter from Elizabeth K. King, Chief Regulatory 
Officer, ICE, General Counsel & Corporate Secretary, NYSE (March 16, 
2020) (``NYSE Response Letter''), at 2.
    \44\ See NYSE Response Letter, supra note 43, at 2-3.
    \45\ See NYSE Response Letter, supra note 43, at 2-3. The 
Exchange took the position that IPOs carry a certain amount of risk 
for investors, that an underwritten IPO does not insulate investors 
from that risk, and that there is no reason to believe that 
companies with direct listings will perform any better or worse than 
companies with underwritten IPOs. See id. at 3.
    \46\ See NYSE Response Letter, supra note 43, at 4. The Exchange 
also took the position that the absence of lock-up agreements with 
pre-IPO shareholders in Primary Direct Floor Listings does not 
create short-term price instability, and at most it shifts the 
timing of such instability from six months after the offering to 
closer to the time of listing. See id.
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IV. Proceedings To Determine Whether To Approve or Disapprove SR-NYSE-
2019-67 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Exchange Act to determine whether the proposal 
should be approved or disapproved.\47\ Institution of such proceedings 
is appropriate at this time in view of the legal and policy issues 
raised by the proposed rule change, as discussed below. Institution of 
disapproval proceedings does not indicate that the Commission has 
reached any conclusions with respect to any of the issues involved.
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    \47\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Exchange Act, the Commission 
is providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis and input concerning the proposed rule change's consistency 
with the Exchange Act \48\ and, in particular, with Section 6(b)(5) of 
the Exchange Act, 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; and are not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.\49\
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    \48\ 15 U.S.C. 78f(b)(5).
    \49\ Id.
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    The Commission has consistently recognized the importance of 
exchange listing standards. Among other things, such listing standards 
help ensure that exchange-listed companies will have sufficient public 
float, investor base, and trading interest to provide the depth and 
liquidity necessary to promote fair and orderly markets.\50\
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    \50\ The Commission has stated in approving exchange listing 
requirements that the development and enforcement of adequate 
standards governing the listing of securities on an exchange is an 
activity of critical importance to the financial markets and the 
investing public. In addition, once a security has been approved for 
initial listing, maintenance criteria allow an exchange to monitor 
the status and trading characteristics of that issue to ensure that 
it continues to meet the exchange's standards for market depth and 
liquidity so that fair and orderly markets can be maintained. See, 
e.g., Securities Exchange Act Release Nos. 81856 (October 11, 2017), 
82 FR 48296, 48298 (October 17, 2017) (SR-NYSE-2017-31); 81079 (July 
5, 2017), 82 FR 32022, 32023 (July 11, 2017) (SR-NYSE-2017-11). The 
Commission notes that, in general, adequate listing standards, by 
promoting fair and orderly markets, are consistent with Section 
6(b)(5) of the Exchange Act, in that they are, among other things, 
designed to prevent fraudulent and manipulative acts and practices, 
promote just and equitable principles of trade, and protect 
investors and the public interest.
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    The Exchange is proposing to provide new exceptions to its initial 
listing standards for companies listing in connection with a Primary 
Direct Floor Listing or a Selling Shareholder Direct Floor Listing. 
Specifically, such companies would be granted a grace period of up to 
90 trading days to comply with the requirements to have at least 400 
round lot holders and 1.1 million publicly-held shares (i.e., the 
Distribution Standard Compliance Period), so long as they meet one of 
three $250 million or $350 million market value of shares tests. In 
support of its proposal, the Exchange simply expresses the belief that 
these heightened market value standards significantly increase the 
likelihood that a liquid trading market will develop after the listing, 
which the Exchange believes makes it likely that these companies will 
meet the initial distribution standards within the 90-trading day 
period. The Exchange, however, does not offer any further explanation 
as to why a higher market value of shares would lead to a potentially 
substantial increase in the number of shareholders in a relatively 
short time frame. In addition, the Exchange does not provide any data 
or other evidence to support its belief that companies with the 
specified market values are likely to have at least 400 round lot 
holders within 90 trading days of listing, regardless of the number of 
holders upon listing or other characteristics of the company. Further, 
the Exchange effectively is proposing not to enforce any minimum number 
of holders requirements for such companies for 90 trading days, and has 
not explained why potentially listing an issuer with a very small 
number of holders, and allowing it to trade for many months, would not 
risk undermining fair and orderly markets or the protection of 
investors, or otherwise would be consistent with Section 6(b)(5) and 
other relevant provisions of the Exchange Act. Finally, by first 
listing companies and only later enforcing compliance with the 
specified distribution standards, the Exchange would appear to be 
increasing the risk of delisting companies relatively soon after their 
listing, and the Exchange has not offered any assessment of this risk 
or the impact such delistings may have on investors in those securities 
or on fair and orderly markets.
    The Exchange also has proposed that, with respect to a Primary 
Direct Floor Listing, a company will be deemed to have met the 
applicable $100 million aggregate market value of publicly-held shares 
requirement if the company sells at least $100 million in market value 
of shares in the Exchange's opening auction on the first day of 
trading. The Exchange has not explained, however, how it would be 
assured that a company listing under this provision will actually sell 
shares valued at $100 million or more at the time the company is 
approved for listing, which necessarily will be in advance of the 
Exchange's opening auction. If the company is unable to sell shares 
with the requisite valuation in the opening auction, then it may not in 
fact have met the initial listing standards prior to listing and 
trading. This immediate compliance issue, and the potential for 
delisting, would appear to raise fair and orderly

[[Page 18296]]

markets, investor protection, and other issues similar to those 
discussed above with respect to the Distribution Standard Compliance 
Period. The Exchange has not explained how this would be consistent 
with Section 6(b)(5) and other relevant provisions of the Exchange Act.
    Finally, the proposal, for the first time, would permit the 
Exchange to conduct a Primary Direct Floor Listing, either alone or in 
combination with a Selling Shareholder Direct Floor Listing, where the 
company being listed would sell shares in the opening auction on the 
first day of trading. In such a case, the company could be the only 
seller (or a dominant seller) participating in the opening auction, and 
thus could be in a position to uniquely influence the price discovery 
process. The Exchange, however, has not explained how its opening 
auction rules would apply in a Primary Direct Floor Listing, or how the 
Exchange would assure that the opening auction and subsequent trading 
promote fair and orderly markets, prevent manipulative acts and 
practices, protect investors, and otherwise would be consistent with 
Section 6(b)(5) and other relevant provisions of the Exchange Act.
    The Commission notes that, under the Commission's Rules of 
Practice, the ``burden to demonstrate that a proposed rule change is 
consistent with the Exchange Act and the rules and regulations issued 
thereunder . . . is on the self-regulatory organization [`SRO'] that 
proposed the rule change.'' \51\ The description of a proposed rule 
change, its purpose and operation, its effect, and a legal analysis of 
its consistency with applicable requirements must all be sufficiently 
detailed and specific to support an affirmative Commission finding,\52\ 
and any failure of an SRO to provide this information may result in the 
Commission not having a sufficient basis to make an affirmative finding 
that a proposed rule change is consistent with the Exchange Act and the 
applicable rules and regulations.\53\
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    \51\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \52\ See id.
    \53\ See id.
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    For these reasons, the Commission believes it is appropriate to 
institute proceedings pursuant to Section 19(b)(2)(B) of the Exchange 
Act \54\ to determine whether the proposal should be approved or 
disapproved.
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    \54\ 15 U.S.C. 78s(b)(2)(B).
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V. Commission's Solicitation of Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
view of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5) or any other provision of the Exchange 
Act, or the rules and regulations thereunder. Although there do not 
appear to be any issues relevant to approval or disapproval that would 
be facilitated by an oral presentation of views, data, and arguments, 
the Commission will consider, pursuant to Rule 19b-4, any request for 
an opportunity to make an oral presentation.\55\
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    \55\ Section 19(b)(2) of the Exchange Act, as amended by the 
Securities Act Amendments of 1975, Public Law 94-29 (June 4, 1975), 
grants the Commission flexibility to determine what type of 
proceeding--either oral or notice and opportunity for written 
comments--is appropriate for consideration of a particular proposal 
by a self-regulatory organization. See Securities Act Amendments of 
1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 
75, 94th Cong., 1st Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by April 22, 2020. Any person who wishes to file a rebuttal 
to any other person's submission must file that rebuttal by May 6, 
2020.
    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-NYSE-2019-67 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-NYSE-2019-67. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSE-2019-67 and should be submitted on 
or before April 22, 2020. Rebuttal comments should be submitted by May 
6, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\56\
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    \56\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06732 Filed 3-31-20; 8:45 am]
 BILLING CODE 8011-01-P


