[Federal Register Volume 85, Number 126 (Tuesday, June 30, 2020)]
[Notices]
[Pages 39246-39251]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14013]



[[Page 39246]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89148; File No. SR-NYSE-2019-67]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 
2, To Amend Chapter One of the Listed Company Manual To Modify the 
Provisions Relating to Direct Listings

June 24, 2020.
    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) \1\ of the Securities 
Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ a 
proposed rule change to amend Chapter One of the Listed Company Manual 
to modify the provisions relating 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.\4\ On 
February 13, 2020, pursuant to Section 19(b)(2) of the Exchange Act,\5\ 
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.\6\ On March 26, 2020, the Commission instituted 
proceedings to determine whether to approve or disapprove the proposed 
rule change, as modified by Amendment No. 1.\7\ On June 22, 2020, the 
Exchange filed Amendment No. 2 to the proposed rule change, which 
superseded the proposed rule change as modified by Amendment No. 1, and 
is described in Items I and II below, which Items have been prepared by 
the Exchange. On June 24, 2020, the Commission extended the time period 
for approving or disapproving the proposal for an additional 60 
days.\8\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as modified by Amendment No. 2, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 87821 (December 20, 
2019), 84 FR 72065 (December 30, 2019) (``Notice''). Comments 
received on the Notice are available on the Commission's website at: 
https://www.sec.gov/comments/sr-nyse-2019-67/srnyse201967.htm.
    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities and Exchange Act Release No. 88190 (February 
13, 2020), 85 FR 9891 (February 20, 2020).
    \7\ See Securities and Exchange Act Release No. 88485 (March 26, 
2020), 85 FR 18292 (April 1, 2020).
    \8\ See Securities and Exchange Act Release No. 89147 (June 24, 
2020).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to (1) amend Chapter One of the Listed 
Company Manual (the ``Manual'') to modify the provisions relating to 
direct listings to permit a primary offering in connection with a 
direct listing and to specify how a direct listing qualifies for 
initial listing if it includes both sales of securities by the company 
and possible sales by selling shareholders, (2) modify the definition 
of ``Direct Listing'' in Rule 1.1, (3) add a definition of Issuer 
Direct Offering (``IDO'') Order to Rule 7.31 and describe how it would 
participate in a Direct Listing Auction in Rule 7.35A, and (4) remove 
references to Direct Listing Auctions from Rule 7.35C.\9\ The proposed 
rule change is available on the Exchange's website at www.nyse.com, at 
the principal office of the Exchange, and at the Commission's Public 
Reference Room.
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    \9\ The Exchange has previously filed a proposed rule change to 
amend Chapter One of the Manual to modify the provisions related to 
direct listings. See SR-NYSE-2019-67 and Amendment No. 1 to that 
filing. Amendment No. 2 to SR-NYSE-2019-67 proposes to (1) delete 
from the filing the proposed amendment to Section 102.01A proposing 
to provide additional time under certain circumstances for companies 
listing in connection with a direct listing to meet the initial 
listing distribution standards and add provisions specifying how a 
direct listing qualifies for listing if it includes both sales of 
securities by the company and possible sales by selling 
shareholders, (2) amend Exchange Rules to add the IDO Order and 
describe how it would participate in a Direct Listing Auction for a 
Primary Direct Floor Listing and remove references to Direct Listing 
Auctions from Rule 7.35C. This Amendment No.2 to SR-NYSE-2019-67 
replaces Amendment No. 1 to SR-NYSE-2019-67 as originally filed and 
supersedes such filing in its entirety.
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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 self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those 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 parts of such statements.

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

1. Purpose
    The Exchange proposes to amend (1) Chapter One of the Manual to 
modify the provisions relating to direct listings to permit a primary 
offering in connection with a direct listing and to specify how a 
direct listing qualifies for initial listing if it includes both sales 
of securities by the company and possible sales by selling 
shareholders, (2) Rule 1.1 (Definitions) to modify the definition of 
``Direct Listing,'' (3) Rules 7.31 (Orders and Modifiers) and 7.35A 
(DMM-Facilitated Core Open and Trading Halt Auctions) to add a 
definition of Issuer Direct Offering (``IDO'') Order and describe how 
it would participate in a Direct Listing Auction, and (4) remove 
references to Direct Listing Auctions in Rule 7.35C.\10\
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    \10\ Trading in all securities on the Exchange, including any 
Direct Listing Auctions, is subject to the Pillar trading rules. The 
term ``Direct Listing Auction'' is defined in Rule 7.35(a)(1)(E) to 
mean a Core Open Auction for the first day of trading on the 
Exchange of a security that is a Direct Listing. The term ``Core 
Open Auction'' is defined in Rule 7.35(a)(1)(A) to mean the Auction 
that opens trading at the beginning of the Core Trading Session, and 
for Exchange-listed securities, the term ``Core Trading Session'' is 
defined in Rule 7.34(a)(2)(B) to begin for each security with the 
Core Open Auction, which can take place during Core Trading Hours 
only, which, pursuant to Rule 1.1, begins at 9:30 a.m. Eastern Time 
through 4:00 p.m. Eastern Time.
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Amendments to the Manual
    Section 102.01B of the Manual includes initial listing requirements 
for a company that has not previously had its common equity securities 
registered under the Act, to list its common equity securities on the 
Exchange at the time of effectiveness of a registration statement filed 
solely for the purpose of allowing existing shareholders to sell their 
shares (a ``Selling Shareholder Direct Floor Listing'').\11\ To allow a 
company to sell shares on its own behalf in connection with its initial 
listing upon effectiveness of a registration statement, without a 
traditional underwritten public offering, the Exchange proposes to 
amend Section 102.01B. The proposed change would allow a company that 
has not previously had its common equity securities registered under 
the Act, to list its common equity securities on the Exchange at the 
time of effectiveness of a registration statement pursuant to which the 
company itself will sell

[[Page 39247]]

shares in the opening auction on the first day of trading on the 
Exchange (any such listing in which either (i) only the company itself 
is selling shares in the opening auction on the first day of trading or 
(ii) the company is selling shares and selling shareholders may also 
sell shares in such opening auction, is referred to herein as a 
``Primary Direct Floor Listing'').
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    \11\ Securities Exchange Act Release No. 82627 (February 2, 
2018), 83 FR 5650 (February 8, 2018) (SR-NYSE-2017-30).
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    In considering the initial listing of a company in connection with 
a Selling Shareholder Direct Floor Listing, Section 102.01B currently 
provides that the Exchange will determine that such company has met the 
applicable $100 million aggregate market value of publicly-held shares 
requirement based on a combination of both (i) an independent third-
party valuation of the company (a ``Valuation'') 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 (a ``Private Placement Market'').\12\ 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. Alternatively, in the 
absence of any recent trading in a Private Placement Market, Section 
102.01B provides that 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.
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    \12\ Section 102.01B currently provides (and the Exchange does 
not propose to amend that provision) that any Valuation used for 
this purpose in connection with a Selling Shareholder Direct Floor 
Listing must be provided by an entity that has significant 
experience and demonstrable competence in the provision of such 
valuations. The Valuation must be of a recent date as of the time of 
the approval of the company for listing and the evaluator must have 
considered, among other factors, the annual financial statements 
required to be included in the registration statement, along with 
financial statements for any completed fiscal quarters subsequent to 
the end of the last year of audited financials included in the 
registration statement. The Exchange will consider any market 
factors or factors particular to the listing applicant that would 
cause concern that the value of the company had diminished since the 
date of the Valuation and will continue to monitor the company and 
the appropriateness of relying on the Valuation up to the time of 
listing. In particular, the Exchange will examine the trading price 
trends for the stock in the Private Placement Market over a period 
of several months prior to listing and will only rely on a Private 
Placement Market price if it is consistent with a sustained history 
over that several month period evidencing a market value in excess 
of the Exchange's market value requirement. The Exchange may 
withdraw its approval of the listing at any time prior to the 
listing date if it believes that the Valuation no longer accurately 
reflects the company's likely market value.
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    In applying this requirement to a Primary Direct Floor Listing, the 
Exchange is proposing the following:
     A company would qualify for listing in connection with a 
Primary Direct Floor Listing if it will sell at least $100 million in 
market value of shares in the opening auction.
     If a company will sell less than $100 million in market 
value of shares in the opening auction, a company would qualify for 
listing in connection with a Primary Direct Floor Listing if the 
aggregate of the market value of publicly-held shares immediately prior 
to listing together with the market value of shares the 4company will 
sell in the opening auction totals at least $250 million with such 
market value calculated using a price per share equal to the lowest 
price of the price range established by the issuer in its registration 
statement.\13\
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    \13\ For example, if the company is selling five million shares 
in the opening auction and there are 45 million shares issued and 
outstanding immediately prior to the listing that are eligible for 
inclusion as publicly-held shares based on disclosure in the 
company's registration statement, then the market value of publicly-
held shares will be calculated based on a combined total of 50 
million shares. If the lowest price of the price range disclosed in 
the company's registration statement is $10 per share, the Exchange 
will attribute to the company a market value of publicly-held shares 
of $500 million.
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    Officers, directors or owners of more than 10% of the company's 
common stock prior to the opening auction may purchase shares sold by 
the company in the opening auction, provided that such purchases are 
not inconsistent with general anti-manipulation provisions, Regulation 
M, and other applicable securities laws. In addition, in the same way 
as for shares of a company listing following a traditional underwritten 
IPO, such an insider owner may purchase shares sold by other 
shareholders or sell its own shares in the opening auction and in 
trading after the opening auction, to the extent not inconsistent with 
general anti-manipulation provisions, Regulation M, and other 
applicable securities laws. Except as proposed for Primary Direct Floor 
Listings, shares held by these types of inside investors are not 
included in calculations of publicly-held shares for purposes of 
Exchange listing rules.\14\ The Exchange notes that such investors may 
acquire in secondary market trades shares sold by the issuer in a 
Primary Direct Floor Listing that were included when calculating 
whether the issuer meets the market value of publicly-held shares 
initial listing requirement. However, the Exchange believes that 
because of the enhanced publicly-held shares requirement for a listing 
in conjunction with a Primary Direct Floor Listing, which is much 
higher than the Exchange's minimum $40 million requirement for a 
traditional underwritten IPO, and the neutral nature of the opening 
auction process, companies using a Primary Direct Floor Listing would 
have an adequate public float and liquid trading market after the 
completion of the opening auction.
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    \14\ 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 under 
NYSE listing standards.
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    Any company listing in connection with a Primary Direct Floor 
Listing or a Selling Shareholder Direct Floor Listing would continue to 
be subject to and meet all other applicable initial listing 
requirements, including the requirements of Section 102.01A to have 400 
shareholders of round lots and 1.1 million publicly-held shares 
outstanding at the time of initial listing, and the requirement of 
Section 102.01B to have a price per share of at least $4.00 at the time 
of initial listing.
    In defining a Selling Shareholder Direct Listing in the proposed 
amended rule text, the Exchange proposes to include additional text 
specifying that the term Selling Shareholder Direct Listing is only 
used for listings where the company is listing without a related 
underwritten offering upon effectiveness of a registration statement 
registering only the resale of shares sold by the company in earlier 
private placements. This proposed added text is intended to clarify the 
application of the existing rule and does not substantively change it.
Amendments to Exchange Rules
Amendment to Definition of ``Direct Listing''
    Rule 1.1(f) currently defines the term ``Direct Listing'' to mean a 
security that is listed under Footnote (E) to Section 102.01B of the 
Manual, which currently only permits a company to list its common 
equity securities on the Exchange at the time of effectiveness of a 
registration statement filed solely for the purpose of allowing 
existing shareholders to sell their shares (i.e., a Selling Shareholder 
Direct Floor Listing). Because, as described above, the Exchange 
proposes to amend this Section of the Manual to describe both a Primary 
Direct Floor Listing and a Selling Shareholder Direct Floor Listing, 
the Exchange proposes to similarly amend Rule 1.1(f) to specify that a 
Direct Listing can be either a ``Selling

[[Page 39248]]

Shareholder Direct Floor Listing'' or a ``Primary Direct Floor 
Listing.''
Amendment to Rules 7.31, 7.35A, and 7.35C
    The Exchange proposes to amend Rules 7.31 and 7.35A to add a new 
order type and describe how that new order type would participate in a 
Direct Listing Auction if a company chooses to list its common equity 
securities on the Exchange pursuant to a Primary Direct Floor Listing.
    Currently, under Rule 7.35A, a Direct Listing Auction operates 
similarly to an IPO Auction, including that the Exchange does not 
disseminate Auction Imbalance Information \15\ and a Designated Market 
Maker (``DMM'') may not effect the auction electronically.\16\ In 
addition, Rule 7.35A establishes how to determine the Indication 
Reference Price for a security that is a Direct Listing \17\ and a 
requirement for the DMM facilitating the opening on the first day of 
trading of a Direct Listing.\18\
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    \15\ See Rule 7.35(c)(3).
    \16\ See Rule 7.35A(c)(1)(C).
    \17\ See Rule 7.35A(d)(2)(A)(iv). Under Rule 7.35A(d), the 
Indication Reference Price is used by the DMM to determine whether a 
pre-opening indication would be required under that Rule. Currently, 
for a security that is a Direct Listing that has had recent 
sustained trading in a Private Placement Market prior to listing, 
the Indication Reference Price is most recent transaction price in 
that market or, if none, a price determined by the Exchange in 
consultation with a financial advisor to the issuer of such 
security.
    \18\ See Rule 7.35A(g)(1). Under Rule 7.35A(g), in addition to 
the DMM's responsibility for determining the Auction Price for Core 
Open Auction and selecting an Auction Price at which all better-
priced orders on the side of any imbalance can be satisfied, a DMM 
facilitating the opening on the first day of trading of a Direct 
Listing that has not had recent sustained history of trading in a 
Private Placement prior to listing, is required to consult with a 
financial advisor to the issuer of such security in order to effect 
a fair and orderly opening of such security.
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    Because a company would be offering shares in a Primary Direct 
Floor Listing, the Exchange proposes to modify the procedures for a 
Direct Listing Auction that would be used for a Primary Direct Floor 
Listing. These procedures would be applicable to any Primary Direct 
Floor Listing, as defined in Section 102.01B of the Manual. As 
proposed, to sell its shares in such an Auction, a company would use a 
proposed new order type, the IDO Order. As further proposed, a Primary 
Direct Floor Listing could be effected only if (i) the Auction Price 
would be within the price range specified by the company in its 
effective registration statement, and (ii) the full quantity of the IDO 
Order, i.e., the shares that the company seeks to sell in the Primary 
Direct Floor Listing, can be sold within that price range. In addition, 
all better-priced sell orders would need to be satisfied in such 
Auction as required by Rule 7.35A(g), and the shares being sold by the 
company would have priority over at-priced orders.\19\ Consistent with 
current rules, a Direct Listing Auction for a Primary Direct Floor 
Listing must be effected manually by the DMM, and, as provided for in 
Rule 7.35A(g), the DMM would be responsible for determining an Auction 
Price, provided that such price must be within the price range 
specified in the effective registration statement.
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    \19\ Pursuant to Rule 7.35(a)(5), the Auction Price is the price 
at which an Auction is conducted. A sell order is ``better-priced'' 
if it is priced lower than the Auction Price, and includes all sell 
Market Orders and Market-on-Open (``MOO'') Orders. See Rule 
7.35(a)(5)(A). A sell order is ``at-priced'' if it is priced equal 
to the Auction Price. See Rule 7.35(a)(5)(B).
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    To effect these changes, the Exchange proposes to amend Rule 
7.31(c)(1) to add new subparagraph (D) to describe the Issuer Direct 
Offering Order, which would also be referred to as an ``IDO Order.'' 
\20\ As proposed, an IDO Order would be a Limit Order to sell that is 
to be traded only in a Direct Listing Auction for a Primary Direct 
Floor Listing. The Exchange also proposes that:
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    \20\ The IDO Order would be an Auction-Only Order. An Auction-
Only Order is a Limit or Market Order that is to be traded only in 
an auction pursuant to the Rule 7.35 Series (for Auction-Eligible 
Securities) or routed pursuant to Rule 7.34 (for UTP Securities). 
See Rule 7.31(c). Rule 7.31(c)(1) specifies the Auction-Only Orders 
that are available for a Core Open Auction or Trading Halt Auction.
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     Only one IDO Order may be entered on behalf of the issuer 
and only one member organization may enter an IDO Order on behalf of an 
issuer (proposed Rule 7.31(c)(1)(D)(i)); \21\
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    \21\ Because an IDO Order would not be entered by the DMM, the 
Exchange proposes to amend the last sentence Rule 7.31(c) to add the 
IDO Order to the list of order types not available to the DMM. The 
amended sentence would provide (new text italicized): ``MOO, MOC, 
LOC, IDO, and Closing IO Orders are not available to DMMs.''
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     the limit price of the IDO Order must be equal to the 
lowest price of the price range established by the issuer in its 
effective registration statement (``Primary Direct Floor Listing 
Auction Price Range'') (proposed Rule 7.31(c)(1)(D)(ii));
     the IDO Order must be for the quantity of shares offered 
by the issuer, as disclosed in the prospectus in the effective 
registration statement (proposed Rule 7.31(c)(1)(D)(iii));
     an IDO Order may not be cancelled or modified (proposed 
Rule 7.31(c)(1)(D)(iv)); and
     an IDO Order must be executed in full in the Direct 
Listing Auction (proposed Rule 7.31(c)(1)(D)(v)).
    Next, the Exchange proposes to amend Rule 7.35A to establish 
additional requirements for a DMM conducting a Direct Listing Auction 
for a Primary Direct Floor Listing.
    First, the Exchange proposes that the Indication Reference Price 
applicable to a security that is a Primary Direct Floor Listing would 
be the lowest price of the price range established by the issuer in its 
effective registration statement. In a Primary Direct Floor Listing, a 
company would be issuing new shares and would be required to establish 
a price range for such securities in its effective registration 
statement. Because the Exchange proposes that a Primary Direct Floor 
Listing could not open below the lowest price of such price range, the 
Exchange proposes that the Indication Reference Price for such security 
would be the lowest price of that price range.\22\ To effect this 
change, the Exchange proposes to amend Rule 7.35A(d)(2)(A) to add new 
subparagraph (v) that would provide that, for a security that is a 
Primary Direct Floor Listing, the Indication Reference Price would be 
the lowest price of the Primary Direct Floor Listing Auction Price 
Range.
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    \22\ For example, if the Primary Direct Floor Listing Auction 
Price Range is $10.00 to $20.00, the Indication Reference Price 
would be $10.00.
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    Second, the Exchange proposes to amend Rule 7.35A(g) regarding the 
Auction Price that the DMM is responsible for determining. As noted 
above, the Exchange proposes that a Primary Direct Floor listing must 
open at a price within the Primary Direct Floor Listing Auction Price 
Range, as set forth in the effective registration statement issued by 
the company. In addition, the Exchange proposes that such Auction would 
be conducted only if the IDO Order and all better-priced sell orders 
can be satisfied at such price. To effect such changes, proposed Rule 
7.35A(g)(2) would provide that a DMM would not conduct a Direct Listing 
Auction for a Primary Direct Floor Listing if:
     The Auction Price would be below the lowest price or above 
the highest price of the Primary Direct Floor Listing Auction Price 
Range (proposed Rule 7.35A(g)(2)(A)); \23\ or
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    \23\ For example, if the Primary Direct Floor Listing Auction 
Price Range is $10.00 to $20.00, the Direct Listing Auction would 
not be conducted at a price below $10.00 or above $20.00.
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     there is insufficient buy interest to satisfy both the IDO 
Order and all better-priced sell orders in full (proposed Rule 
7.35A(g)(2)(B)).
    Because the DMM is responsible for determining the Auction Price, 
these proposed rule changes would make the DMM responsible for 
determining

[[Page 39249]]

whether the Direct Listing Auction can proceed. If there is 
insufficient buy interest and the DMM cannot price the Auction and 
satisfy the IDO Order as required by this proposed rule, the Direct 
Listing Auction would not proceed and such security would not begin 
trading. If a Direct Listing Auction cannot be conducted, the Exchange 
would notify market participants via Trader Update that the Primary 
Direct Floor Listing has been cancelled and any orders for that 
security that have been entered on the Exchange, including the IDO 
Order, would be cancelled back to the entering firms.
    Third, the Exchange proposes that when the limit price of the IDO 
Order (which is already required to be at the lowest price in Primary 
Direct Floor Listing Price Range) is equal to the Auction Price, i.e., 
an at-priced IDO Order, the IDO Order would have priority over other 
orders at that price. As noted above, under Rule 7.35A(g), all better-
priced interest is guaranteed to participate in the opening auction for 
a Primary Direct Floor Listing. If the IDO Order is better-priced, 
i.e., if the Direct Listing Auction is priced above the limit price of 
the IDO Order, the IDO Order would be a better-priced order guaranteed 
to participate in such Auction. However, under Rule 7.35A(h)(2), at-
priced orders are not guaranteed to participate in an Auction and are 
allocated as provided for in Rule 7.35A(h)(2)(A)-(D). Because an IDO 
Order must be executed in full in order for the DMM to conduct the 
Direct Listing Auction, the Exchange does not believe that an at-priced 
IDO Order should be subject to the allocation process specified in Rule 
7.35A(h)(2) because it may result in a partial execution of the IDO 
Order. Providing priority to an at-priced IDO Order would increase the 
potential for the IDO Order to be executed in full, and therefore for 
the Primary Direct Floor Listing to proceed. To effect such change, the 
Exchange proposes new subparagraph (4) in Rule 7.35A(h), regarding 
Auction Allocation, to provide that an IDO Order would be guaranteed to 
participate in the Direct Listing Auction at the Auction Price and that 
if the limit price of the IDO Order is equal to the Auction Price, the 
IDO Order would have priority at that price.
    Fourth, unlike a Direct Listing Auction for a Selling Shareholder 
Direct Floor Listing, the registration statement for a Primary Direct 
Floor Listing would include a price range within which the company 
anticipates selling shares it is offering. Accordingly, Rules 
7.35A(d)(2)(A)(iv) \24\ and 7.35A(g)(1) \25\ are not applicable to a 
Primary Direct Floor Listing and the Exchange proposes to provide that 
the requirements of those Rules would be applicable only to a Selling 
Shareholder Direct Floor Listing by amending the text of those Rules to 
replace the term ``Direct Listing'' with the term ``Selling Shareholder 
Direct Floor Listing.''
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    \24\ Rule 7.35A(d)(2)(A)(iv) currently provides what the 
Indication Reference Price will be ``for a security that is a Direct 
Listing that has had recent sustained trading in a Private Placement 
Market prior to listing, the most recent transaction price in that 
market or, if none, a price determined by the Exchange in 
consultation with a financial advisor to the issuer of such 
security.''
    \25\ Rule 7.35A(g)(1) currently provides: ``When facilitating 
the opening on the first day of trading of a Direct Listing that has 
not had recent sustained history of trading in a Private Placement 
prior to listing, the DMM will consult with a financial advisor to 
the issuer of such security in order to effect a fair and orderly 
opening of such security.'' The Exchange proposes a non-substantive 
amendment to Rule 7.35A(g)(1) to add the word ``Market'' after 
``Private Placement.''
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    The Exchange further notes that any services provided by a 
financial advisor to the issuer of a security listing in connection 
with a Selling Shareholder Direct Floor Listing or a Primary Direct 
Floor Listing (the ``financial advisor'') and the DMM assigned to that 
security must provide such services in a manner that is consistent with 
all federal securities laws, including Regulation M and other anti-
manipulation requirements. For example, when a financial advisor 
provides a consultation to the Exchange as required by Rule 
7.35A(d)(2)(A)(iv), when the DMM consults with a financial advisor as 
required by Rule 7.35A(g)(1), or when a financial advisor otherwise 
assists or consults with the DMM as to pricing or opening of trading in 
Selling Shareholder Direct Floor Listing or Primary Direct Floor 
Listing, the financial advisor and DMM will not act inconsistent with 
Regulation M,\26\ and other anti-manipulation provisions of the federal 
securities laws, or Exchange Rule 2020.\27\ The Exchange has retained 
the Financial Industry Regulatory Authority, Inc. (``FINRA'') pursuant 
to a regulatory services agreement to monitor such compliance with 
Regulation M and other anti-manipulation provisions of the federal 
securities laws and Rule 2020.\28\ To promote clarity and transparency 
in Exchange rules regarding the consultation requirements of Rules 
7.35A(d)(2)(A)(iv) and 7.35A(g)(1), the Exchange proposes to add 
Commentary .10 to Rule 7.35A to provide:
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    \26\ For example, in connection with the Selling Shareholder 
Direct Floor Listing of Spotify Technology S.A, the Commission's 
Division of Trading and Markets provided a no-action letter relating 
to Regulation M that discussed, in part, the role of the financial 
advisor and the DMM in such listing. See Letter from Josephine J. 
Tao, Assistant Director, Division of Trading and Markets, United 
States Securities and Exchange Commission to Ms. Dana G. Fleischman, 
Latham & Watkins LLP, dated March 23, 2018, available here: https://www.sec.gov/divisions/marketreg/mr-noaction/2018/spotify-technology-032318-regm.pdf.
    \27\ Exchange Rule 2020, which is identical to FINRA Rule 2020, 
provides that ``[n]o member or member organization shall effect any 
transaction in, or induce the purchase or sale of, any security by 
means of any manipulation, deceptive or other fraudulent device or 
contrivance'' (``Rule 2020'').
    \28\ The Exchange expects to issue regulatory guidance in 
connection with a company conducting a Primary Direct Floor Listing. 
Such regulatory guidance would include a reminder to member 
organizations that activities in connection with a Primary Direct 
Floor Listing, like activities in connection with other listings, 
must be conducted in a manner not inconsistent with Regulation M and 
other anti-manipulation provisions of the federal securities laws 
and Exchange Rule 2020.

    In connection with a Selling Shareholder Direct Floor Listing, 
the financial advisor to the issuer of the security being listed 
(``financial advisor'') and the DMM assigned to such security are 
reminded that any consultation that the financial advisor provides 
to the Exchange as required by paragraph (d)(2)(A)(iv) of this Rule 
and any consultation between the DMM and financial advisor as 
required by paragraph (g)(1) of this Rule are to be conducted in a 
manner that is consistent with the federal securities laws, 
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including Regulation M and other anti-manipulation requirements.

    Finally, the Exchange proposes to amend Rule 7.35C to remove 
references to Direct Listing Auctions. Rule 7.35C sets forth the 
procedures for the Exchange to facilitate an Auction for one or more 
securities if a DMM cannot facilitate an Auction under Rules 7.35A or 
7.35B and specifies how such Exchange-facilitated Auctions would 
function, including for a Direct Listing Auction. Because of the 
importance of the DMM to a Direct Listing Auction, the Exchange 
proposes that if a DMM is unable to manually facilitate a Direct 
Listing Auction, the Exchange would not proceed with either a Selling 
Shareholder Direct Floor Listing or a Primary Direct Floor Listing. To 
effect this change, the Exchange proposes to amend Rule 7.35C(a) to 
specify that the Exchange would not facilitate a Direct Listing Auction 
and amend Rules 7.35C(a)(3), (b)(1), and (b)(3) to delete references to 
a Direct Listing Auction.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Exchange Act,\29\ in general, and furthers the 
objectives of Section 6(b)(5) of the Exchange Act,\30\ in particular in 
that it is designed to

[[Page 39250]]

promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \29\ 15 U.S.C. 78f(b).
    \30\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed amendment to the Manual is 
consistent with the protection of investors. The proposal would require 
that a company in a Primary Direct Floor Listing (1) sell at least $100 
million of its listed securities in the opening auction, or (2) have an 
aggregate market value of publicly-held shares immediately prior to 
listing together with the market value of shares the company sells in 
the opening auction total at least $250 million, with such market value 
calculated using a price per share equal to the lowest price of the 
price range established by the issuer in its registration statement. 
The Exchange notes that a company may list on the NYSE in connection 
with its initial public offering with a market value of publicly-held 
shares of $40 million and that, in the Exchange's experience in listing 
IPOs, a liquid trading market develops after listing for issuers with a 
much smaller value of publicly-held shares than the Exchange 
anticipates would exist after the opening auction in a Primary Direct 
Floor listing under the proposed market value of publicly-held shares 
requirements. Consequently, the Exchange believes that 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.
    Officers, directors or owners of more than 10% of the company's 
common stock prior to the opening auction may purchase shares sold by 
the company in the opening auction, in the event that such purchases 
are not inconsistent with general anti-manipulation provisions, 
Regulation M, and other applicable securities laws. In addition, in the 
same way as for shares of a company listing following a traditional 
underwritten IPO, such an insider owner may purchase shares sold by 
other shareholders or sell its own shares in the opening auction and in 
trading after the opening auction, to the extent not inconsistent with 
general anti-manipulation provisions, Regulation M, and other 
applicable securities laws. Except as proposed for Primary Direct Floor 
Listings, shares held by these types of inside investors are not 
included in calculations of publicly-held shares for purposes of 
Exchange listing rules. The Exchange notes that after initial listing 
such investors may acquire in secondary market trades shares sold by 
the issuer in a Primary Direct Floor Listing that were included when 
calculating that issuer's compliance with the market value of publicly-
held shares initial listing requirement. However, the Exchange believes 
that because of the enhanced publicly-held shares requirement for a 
listing in conjunction with a Primary Direct Floor Listing, which is 
much higher than the Exchange's minimum $40 million requirement for a 
traditional underwritten IPO, and the neutral nature of the opening 
auction process, companies using a Primary Direct Floor Listing will 
have an adequate public float and liquid trading market after the 
completion of the opening auction.
    The Exchange believes that the proposed amendments to Exchange 
Rules to amend the definition of Direct Listing and Rules 7.31 and 
7.35A to describe how an IDO Order would participate in a Direct 
Listing Auction for a Primary Direct Floor Listing would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because they would guarantee that, if the 
Direct Listing Auction for a Primary Direct Floor Listing occurs, all 
shares offered by the company would participate.
    Unlike an IPO, a company undergoing a Primary Direct Floor Listing 
would not have an underwriter to guarantee that a specified number of 
shares would be sold by the company within a price range established in 
the company's effective registration statement. To ensure that the 
Direct Listing Auction is conducted consistent with an issuer's 
effective registration statement, the Exchange proposes that the Direct 
Listing Auction for a Primary Direct Floor Listing under Section 
102.01B of the Manual, would not proceed unless the quantity of shares 
specified in the IDO Order would be sold in such Auction within a price 
range specified by the company in its registration statement. This 
certainty would be effected in two ways. First, the proposed IDO Order 
would be required to be equal to the total number of shares disclosed 
as being offered by the company in the prospectus included in the 
effective registration statement filed in connection with its listing. 
If the IDO Order cannot be satisfied in full, then the Direct Listing 
Auction would not proceed. Second, the Direct Floor Auction for a 
Primary Direct Floor Listing would be required to be priced within the 
range established by the company in its effective registration 
statement.
    The Exchange further believes that these proposed changes would 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system because they are designed to 
function seamlessly with the existing process for a DMM-facilitated 
Direct Listing Auction, including the requirement that such Auction be 
facilitated manually by a DMM, the process for publishing pre-opening 
indications, and the requirement that all better-priced sell orders are 
guaranteed to participate in such Auction. In addition, the proposed 
changes are designed to protect investors and the public interest 
because they would provide an opportunity for the Primary Direct Floor 
Listing to proceed so that the issuer's securities can be listed and 
begin trading on the secondary market. Accordingly, the Exchange 
believes that it would be consistent with this goal for an at-priced 
IDO Order, which must be satisfied in full, to have priority over other 
at-priced orders if the limit price of the IDO Order is equal to the 
Auction Price. Proposed Rule 7.35A(h)(4) would eliminate the potential 
for a partial execution of the IDO Order and provide greater 
opportunity for the IDO Order to be executed in full, thus allowing the 
Direct Listing Auction to proceed.
    The Exchange believes the proposed amendments to Rule 7.35C would 
remove impediments to and perfect the mechanism of a fair and orderly 
market and a national market system because the Exchange believes that 
having the DMM manually facilitate a Direct Listing Auction would 
promote a fair and orderly auction process for such an Auction. 
Therefore, if the DMM is unavailable to facilitate such Direct Listing 
Auction manually, the Exchange would not proceed with facilitating a 
Direct Listing Auction for either a Selling Shareholder Direct Floor 
Listing or a Primary Direct Floor Listing.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed amendments 
would not impose any burden on competition, but would rather increase 
competition by

[[Page 39251]]

providing new pathways for companies to access the public markets.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as modified by Amendment No. 2, 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-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 July 21, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14013 Filed 6-29-20; 8:45 am]
BILLING CODE 8011-01-P


