[Federal Register Volume 85, Number 79 (Thursday, April 23, 2020)]
[Notices]
[Pages 22777-22780]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08592]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88685; File No. SR-NASDAQ-2020-021]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Permit a Longer Period of Time for Companies To Regain Compliance With 
the Bid Price and Market Value of Publicly Held Shares Continued 
Listing Requirements by Tolling the Compliance Periods Through and 
Including June 30, 2020

April 17, 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 April 16, 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 permit a longer period of time for 
companies to regain compliance with the bid price and market value of 
publicly held shares continued listing requirements by tolling the 
compliance periods through and including June 30, 2020. Nasdaq has 
filed this proposal under Exchange Act Rule 19b-4(f)(6) \3\ and 
requests that the Commission waive the 30-day operative delay period 
contained in Exchange Act Rule 19b-4(f)(6)(iii).\4\
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    \3\ 17 CFR 240.19b-4(f)(6).
    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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

[[Page 22778]]

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
    Given current market conditions, Nasdaq proposes to provide issuers 
of common stock, preferred stock, secondary classes of common stock, 
shares or certificates of beneficial interest of trusts, limited 
partnership interests, American Depositary Receipts, subscription 
receipts, and their equivalents temporary relief from the continued 
listing bid price \5\ and market value of publicly held shares \6\ 
requirements (collectively, the ``Price-based Requirements''). The 
proposed relief will allow companies that are out of compliance with 
the Price-based Requirements additional time to regain compliance.
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    \5\ Nasdaq's continued listing requirements relating to bid 
price are set forth in Rules 5450(a)(1), 5460(a)(3), 5550(a)(2), and 
5555(a)(1) and the related compliance periods are set forth in Rule 
5810(c)(3)(A).
    \6\ Nasdaq's continued listing requirements relating to market 
value of publicly held shares are set forth in Rules 5450(b)(1)(C), 
5450(b)(2)(C), 5450(b)(3)(C), 5460(a)(2), 5550(a)(5), and 
5555(a)(4), and the related compliance period is set forth in Rule 
5810(c)(3)(D).
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    In December 2019, COVID-19 began to spread and disrupt company 
operations and supply chains and impact consumers and investors, 
resulting in a dramatic slowdown in production and spending. By March 
11, 2020, the World Health Organization characterized COVID-19 as a 
pandemic.\7\ To slow the spread of the disease, federal and state 
officials implemented social-distancing measures, placed significant 
limitations on large gatherings, limited travel, and closed non-
essential businesses.
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    \7\ See WHO Director-General's Opening Remarks at the Media 
Briefing on COVID-19 (March 11, 2020) available at  https://www.who.int/dg/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing-on-covid-19-11-march-2020.
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    One unavoidable consequence of the actions being taken to reduce 
the spread of COVID-19 is a reduction, or complete interruption, in 
revenue for many companies. For example, many communities have mandated 
that all restaurants and entertainment facilities close for a period of 
time. Similarly, companies in the travel sector have seen significant 
declines in bookings, even where they are allowed to continue to 
operate. Thus, these businesses will have little or no revenue to 
offset normal operating expenses and any increased costs associated 
with the crisis, which can depress their stock prices until more 
certainty around the end of these protective measures is available.
    These necessary measures also have affected equity markets, which 
have seen significant declines.\8\ In response, governments around the 
world have acted swiftly and decisively to provide relief to regulated 
entities and are undertaking efforts to stabilize the economy and 
assist affected companies and their employees.\9\ The Commission, in 
particular, has recognized the importance of functioning markets in 
this environment \10\ and has granted issuers and broker-dealers relief 
and extensions from existing deadlines, in order to allow these 
entities, as well as the Commission itself, to focus on fighting the 
deadly virus and preserving functioning capital markets.\11\
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    \8\ In the United States, Level 1 market wide circuit breaker 
halts were triggered on March 9, March 12, March 16, and March 18, 
2020. See also Phil Mackintosh, Putting the Recent Volatility in 
Perspective, available at https://www.nasdaq.com/articles/putting-the-recent-volatility-in-perspective-2020-03-05 (``Analysts showed 
that we saw the fastest `correction' in history (down 10% from a 
high), occurring in a matter of days. In the last week of February, 
the Dow fell 12.36% with notional trading of $3.6 trillion.'')
    \9\ See, e.g., the list of actions undertaken by the Board of 
Governors of the Federal Reserve System at https://www.federalreserve.gov/covid-19.htm. See also Families First 
Coronavirus Response Act, Public Law 116-127 and Coronavirus Aid, 
Relief, and Economic Security Act, Public Law 116-136.
    \10\ See, e.g., Chairman Jay Clayton, The Deep and Essential 
Connections Among Markets, Businesses, and Workers and the 
Importance of Maintaining those Connections in our Fight Against 
COVID-19 (March 24, 2020) available at https://www.sec.gov/news/public-statement/statement-clayton-covid-19-2020-03-24 (``The 
Securities and Exchange Commission and other financial regulators 
are focused on two overriding and interrelated issues. First, we are 
facing an unprecedented national challenge--a health and safety 
crisis that requires all Americans, for the sake of all Americans, 
to significantly change their daily behavior and, for many, to make 
difficult personal sacrifices. Second, the recognition that the 
continuing, orderly operation of our markets is an essential 
component of our national response to, and recovery from, COVID-19. 
The interrelationship between these issues cannot be overstated. Our 
health care, pharmaceutical, manufacturing, transportation, 
telecommunications and many other private-sector industries are 
critical to our collective response to COVID-19. The thousands of 
firms and entrepreneurs in these industries--and the millions of 
employees and contractors--that are working around the clock to 
fight COVID-19 depend on continued access to payments and 
credit.'').
    \11\ See SEC Coronavirus (COVID-19) Response available at 
https://www.sec.gov/sec-coronavirus-covid-19-response, which is 
being updated regularly with additional actions taken by the 
Commission. As of April 14, 2020, the Commission response includes 
(but is not limited to): Providing conditional relief for certain 
publicly traded company filing and proxy delivery obligations (March 
4 and 25, 2020); granting relief to reporting deadlines and in-
person meeting requirements for investment companies (March 13, 
2020); extending the industry compliance period for Consolidated 
Audit Trail reporting due to the fact that ``disruptions as a result 
of COVID-19 have placed new stresses and competing priorities on the 
infrastructure and staff required to implement the Consolidated 
Audit Trail'' (March 16, 2020); extending filing deadlines for 
certain reports required under Regulation A and Regulation 
Crowdfunding (March 26, 2020); and providing temporary relief for 
Business Development Companies investing in small and medium-sized 
businesses (April 8, 2020). See also Chairman Jay Clayton, Proposed 
Amendments to Modernize and Enhance Financial Disclosures; Other 
Ongoing Disclosure Modernization Initiatives; Impact of the 
Coronavirus; Environmental and Climate-Related Disclosure (Jan. 30, 
2020) available at https://www.sec.gov/news/public-statement/clayton-mda-2020-01-30 (``Yesterday, I asked the staff to monitor 
and, to the extent necessary or appropriate, provide guidance and 
other assistance to issuers and other market participants regarding 
disclosures related to the current and potential effects of the 
coronavirus. We recognize that such effects may be difficult to 
assess or predict with meaningful precision both generally and as an 
industry- or issuer-specific basis. This is an uncertain issue where 
actual effects will depend on many factors beyond the control and 
knowledge of issuers.'').
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    Nasdaq is seeing an increase in the number of companies whose 
securities are becoming non-compliant with the Price-based Requirements 
amidst the current market uncertainty \12\ and believes that relief is 
appropriate for the same reasons that the Commission has granted relief 
to its requirements. The decline in general investor confidence has 
resulted in depressed pricing for companies that otherwise remain 
suitable for continued listing. Similarly, Nasdaq believes that it is 
difficult for companies that are already non-compliant with these 
requirements to take action to regain compliance. For example, large 
daily market moves \13\ make it difficult for a company to predict what 
ratio may be required for a reverse stock split that will enable the 
company to achieve and maintain

[[Page 22779]]

compliance with the bid price requirement. Similarly, it could be 
harmful to existing shareholders for a company to sell securities at an 
artificially low price, solely to regain compliance with the market 
value of publicly held shares requirement. Moreover, the need to 
develop and implement actions to address potential or actual non-
compliance can draw management and board attention away from the more 
immediate needs of their employees and customers, as well as the 
communities where they operate.
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    \12\ For example, as of April 13, 2020, there were 154 
securities that were already deficient with the $1 price 
requirement. However, an additional 262 securities had closing bid 
prices below $1 for less than 30 days, and another 117 securities 
had closing bid prices between $1 and $1.50. On March 1, 2019, there 
were 119 securities that were deficient with the bid price 
requirement. Similarly, as of April 13, 2020, there were seven 
securities that were deficient with the applicable market value of 
publicly held shares requirement, but another 22 securities below 
the applicable requirement for less than 30 days. Only two 
securities were cited for non-compliance with this requirement 
during the period from January 1 through April 13, 2019.
    \13\ From March 13 to March 27, the S&P 500 index had four days 
with gains in excess of 6%, including two days with gains of more 
than 9% each, and also had five days with losses in excess of 2.9%, 
including daily losses of 5.2% and 12%. See https://www.cnbc.com/2020/03/28/crazy-volatility-forces-wall-street-strategists-to-suspend-sp-500-targets.html.
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    Accordingly, Nasdaq proposes to give companies that are out of 
compliance with the Price-based Requirements additional time to regain 
compliance by tolling the compliance periods through and including June 
30, 2020. Under this proposal, companies would be given additional time 
to regain compliance because the compliance periods for the Price-based 
Requirements would be tolled through and including June 30, 2020. 
However, throughout the tolling period, Nasdaq would continue to 
monitor these requirements and companies would continue to be notified 
about new instances of non-compliance with the Price-based Requirements 
in accordance with existing Nasdaq rules.\14\ Companies that are 
notified about non-compliance are required by Nasdaq rules to make a 
public announcement disclosing receipt of the notification by filing a 
Form 8-K, where required by SEC rules, or by issuing a press 
release.\15\ Starting on July 1, 2020, companies would receive the 
balance of any pending compliance period in effect at the start of the 
tolling period to come back into compliance with the applicable 
requirement.\16\ Similarly, companies that were in the Hearings process 
would return to that process at the same stage they were in when the 
tolling period began. If the company had received a temporary exception 
from the Hearings Panel before the tolling began, the company would 
receive the balance of the exception period beginning on July 1, 2020. 
A company in the Hearings process would nonetheless be delisted and not 
get the benefit of the tolling period if the company has had an oral or 
written hearing before a Hearings Panel and the Panel has reached a 
determination to delist, even if the Hearings Panel has not issued the 
written decision required by Rule 5815(d)(1) and Rule 5840(c) prior to 
the proposed rule change taking effect. Companies that are newly 
identified as non-compliant during the tolling period would have 180 
days to regain compliance, beginning on July 1, 2020.\17\ Nasdaq will 
continue to monitor securities to determine if they regain compliance 
with the Price-based Requirements during the tolling period.
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    \14\ See Rule 5810 (providing that the Nasdaq Listing 
Qualifications Department will immediately notify a company when it 
determines that the company does not meet a listing standard set 
forth in the Rule 5000 Series, and describing the types of 
notifications).
    \15\ See Rule 5810(b). Nasdaq also identifies companies in a 
compliance period or in the Hearings process as not satisfying the 
continued listing standards at https://listingcenter.nasdaq.com/NonCompliantCompanyList.aspx. During the tolling period, Nasdaq will 
continue to maintain that list of non-complaint companies and will 
add to the list companies that become non-compliant (including with 
the Price-based Requirements).
    \16\ For example, if a company is 120 days into its first 180-
day compliance period for a bid price deficiency when the tolling 
period starts and the company does not regain compliance before June 
30, 2020, the company would have an additional 60 days, starting on 
July 1, 2020, to regain compliance. The company may be eligible for 
a second 180-day compliance period if it satisfies the conditions 
for eligibility at the conclusion of the first compliance period.
    \17\ See Rules 5810(c)(3)(A) and 5810(c)(3)(D) describing the 
compliance periods available to a company that fails to meet the 
continued listing requirements for bid price and market value of 
publicly held shares, respectively.
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    Nasdaq believes that this temporary tolling of the compliance 
periods for the Price-based Requirements will permit companies to focus 
on running their businesses and the immediate health crisis caused by 
the COVID-19 pandemic, including its impact on their employees, 
customers, and communities, rather than satisfying Nasdaq's listing 
requirements. Moreover, this temporary tolling of the compliance 
periods would allow investments in these lower-priced securities 
without fear that the company will be delisted in the very near term.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\18\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\19\ in particular, in that it is designed 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. As a result of uncertainty related to the ongoing spread of 
the COVID-19 virus, the prices of securities listed on U.S. exchanges 
are experiencing large daily market moves, including rapid and 
significant declines. The proposed rule change is designed to reduce 
uncertainty by providing additional time for companies deficient in the 
Price-based Requirements to regain compliance with these standards 
during the current highly unusual market conditions, thereby protecting 
investors, facilitating transactions in securities, and removing an 
impediment to a free and open market. Notwithstanding the tolling of 
the compliance periods, important investor protections will remain and 
investors will be able to identify companies that are non-compliant 
with the requirements on Nasdaq's website. In addition, companies that 
become newly non-compliant with the Price-based Requirements will have 
to notify investors by issuing a Form 8-K, where required by SEC rules, 
or a press release. The proposed relief would apply in a non-
discriminatory manner and all companies listed on the Exchange that are 
or fall below the Price-based Requirements would be eligible to take 
advantage of it.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
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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. All companies listed on the 
Exchange that are or fall below the Price-based requirements while the 
compliance periods are tolled would benefit from the proposed rule 
change. In addition, the proposed rule change is not designed to have 
any effect on intermarket competition but instead seeks to address 
concerns Nasdaq has observed surrounding the application of the Price-
based Requirements to companies listed on Nasdaq. Other exchanges can 
craft relief based on their own rules and observations.

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

    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

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19(b)(3)(A) of the Act \20\ and Rule 19b-4(f)(6) thereunder.\21\
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its 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) \22\ normally 
does not become operative for 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\23\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative immediately upon filing. The Exchange 
stated that the proposed rule change is designed to respond to the 
unprecedented uncertainty and resulting market declines related to the 
global spread of the COVID-19 virus. Specifically, the Exchange stated 
that the proposed rule change is designed to reduce uncertainty for 
certain companies and their shareholders by providing additional time 
for companies deficient in the Price-based Requirements to regain 
compliance with these standards during the current highly unusual 
market conditions. Nasdaq also stated that investors will still be able 
to identify companies that are non-compliant with the requirements on 
Nasdaq's website. In addition, Nasdaq noted that it will continue to 
notify companies about new instances of non-compliance and any newly 
non-compliant companies will have to notify investors by issuing a Form 
8-K, where required by SEC rules, or a press release.
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    \22\ 17 CFR 240.19b-4(f)(6).
    \23\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission notes that while the proposal provides additional 
time for companies to comply with the Price-based Requirements, new 
companies that are deficient with these standards during the tolling 
period will still continue to be notified by Nasdaq of the deficiency 
as they currently would be under normal circumstances with no tolling 
period, and would continue to be required to comply with the 
requirements of Nasdaq Rule 5810(b) to make a public announcement of 
the notification by filing a Form 8-K, where required by SEC rules, or 
by issuing a press release. In addition to requiring public 
announcement of a notification of a deficiency, companies so notified 
under Nasdaq Rule 5810(b) would also be required to disclose the rule 
upon which the deficiency is based and to describe each specific basis 
and concern identified by Nasdaq by which the company does not meet the 
listing standard. In addition, Nasdaq will continue to maintain and 
update the list of companies that are non-compliant with the Price-
based Requirements (as well as other deficiencies), including companies 
newly identified during the tolling period, so that shareholders and 
the public will have access to such information as they normally would 
without the tolling period. The Commission notes that the additional 
time to comply with the standards is meant to address the current 
unusual market conditions while continuing to ensure that shareholders 
and the public have relevant and accurate information concerning a 
company's deficiency with the Price-based Requirements. The Commission 
also notes that the proposal is a temporary measure designed to respond 
to current, unusual market conditions. For these reasons, the 
Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Accordingly, the Commission hereby waives the 30-day operative delay 
and designates the proposal operative upon filing.\24\
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    \24\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule change'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 such 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 shall institute proceedings under 
Section 19(b)(2)(B) \25\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \25\ 15 U.S.C. 78s(b)(2)(B).
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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-2020-021 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-2020-021. 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-2020-021 and should be submitted 
on or before May 14, 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. 2020-08592 Filed 4-22-20; 8:45 am]
 BILLING CODE 8011-01-P


