[Federal Register Volume 86, Number 19 (Monday, February 1, 2021)]
[Notices]
[Pages 7757-7759]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-02010]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90995; File No. SR-NASDAQ-2020-069]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Approving a Proposed Rule Change, as Modified by Amendment No. 1, To 
Exclude Special Purpose Acquisition Companies From the Requirement That 
at Least 50% of a Company's Round Lot Holders Each Hold Unrestricted 
Securities With a Market Value of at Least $2,500

January 26, 2021.

I. Introduction

    On October 8, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to exclude special purpose acquisition companies 
from the requirement that at least 50% of a company's round lot holders 
each hold unrestricted securities with a market value of at least 
$2,500. On October 21, 2020, 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 
October 28, 2020.\3\ On December 11, 2020, pursuant to Section 19(b)(2) 
of the Act,\4\ the Commission designated a longer period within which 
to approve or disapprove, or institute proceedings to determine whether 
to disapprove, the proposed rule change, as modified by Amendment No. 
1.\5\ This order approves 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. 90245 (October 22, 
2020), 85 FR 68400 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 90644, 85 FR 82005 
(December 17, 2020). The Commission designated January 26, 2021, as 
the date by which the Commission shall either approve or disapprove, 
or institute proceedings to determine whether to disapprove, the 
proposed rule change, as modified by Amendment No. 1.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1

    The Exchange has proposed to exclude companies listed pursuant to 
Nasdaq Rule IM-5101-2 whose business plan is to engage in a merger or 
acquisition with one or more unidentified companies within a specified 
period of time (``SPACs''), prior to the completion of any such merger 
or acquisition, from the requirement that at least 50% of the company's 
required minimum number of round lot holders must each hold 
unrestricted securities with a market value of at least $2,500 at the 
time of initial listing (``Required Minimum Amount'').\6\
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    \6\ Nasdaq defines ``round lot holder'' as a holder of a normal 
unit of trading of unrestricted securities. The number of beneficial 
holders will be considered in addition to holders of record. See 
Nasdaq Rule 5005(a)(40). Nasdaq defines ``normal unit of trading'' 
to mean 100 shares of a security unless, with respect to a 
particular security, Nasdaq determines that a normal unit of trading 
shall constitute other than 100 shares. See Nasdaq Rule 5005(a)(39). 
Nasdaq defines ``unrestricted securities'' to mean securities that 
are not restricted securities. See Nasdaq Rule 5005(a)(46). Nasdaq 
defines ``restricted securities'' to mean securities that are 
subject to resale restrictions for any reason, including, but not 
limited to, securities: (1) Acquired directly or indirectly from the 
issuer or an affiliate of the issuer in unregistered offerings such 
as private placements or Regulation D offerings; (2) acquired 
through an employee stock benefit plan or as compensation for 
professional services; (3) acquired in reliance on Regulation S, 
which cannot be resold within the United States; (4) subject to a 
lockup agreement or a similar contractual restriction; or (5) 
considered ``restricted securities'' under Rule 144. See Nasdaq Rule 
5005(a)(37). The number of required minimum number of round lot 
holders is 450 holders for the Nasdaq Global Select Market; 400 
holders for the Nasdaq Global Market; and 300 holders for the Nasdaq 
Capital Market. See Nasdaq Rules 5315(f)(1)(C), 5405(a)(3), and 
5505(a)(3). Nasdaq defines ``market value'' as the consolidated 
closing bid price multiplied by the measure to be valued. See Nasdaq 
Rule 5005(a)(23).
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    The Exchange states in its proposal that it imposed the Required 
Minimum Amount to help ensure that at least 50% of the required minimum 
number of shareholders hold a meaningful value of unrestricted 
securities and that a company has sufficient investor interest to 
support an exchange listing.\7\ The Exchange asserts that, prior to 
adopting the Required Minimum Amount, it had noticed problems with 
companies listing where a large number of round lot holders held 
exactly 100 shares, which would be worth only $400 in the case of a 
stock that is trading at the minimum bid price of $4 per share, or as 
little as $200 in the case of a stock listing under alternative price 
criteria.\8\ The Exchange further states that such holders held shares 
in the company prior to its IPO and that such amount was not a 
representation of genuine investor interest in the company sufficient 
to support an exchange listing.\9\ In proposing to adopt the standard, 
the Exchange stated that it believed the Required Minimum Amount was a 
more appropriate representation of genuine investor interest in the 
company and would make it more difficult to circumvent the round lot 
holder requirement through share transfers for no value.\10\
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    \7\ See Notice, supra note 3, at 68401; Securities Exchange Act 
Release No. 86314 (July 5, 2019), 84 FR 33102, 33107 (July 11, 2019) 
(order approving SR-NASDAQ-2019-009) (``Required Minimum Amount 
Approval Order''). In the Required Minimum Amount Approval Order, 
the Commission also approved Nasdaq's proposal to exclude restricted 
securities (see supra note 6) from the calculation of publicly held 
shares, market value of publicly held shares, and round lot holders 
for initial listing purposes. According to Nasdaq, these changes 
were designed to help ensure adequate distribution, shareholder 
interest, and a liquid trading market for a security. See Notice, 
supra note 3, at 68401; Required Minimum Amount Approval Order, 
supra, at 33103, 33108-09.
    \8\ See Notice, supra note 3, at 68401. See also Required 
Minimum Amount Approval Order, supra note 7, at 33109.
    \9\ See Notice, supra note 3, at 68401-02.
    \10\ See id. at 68401; Required Minimum Amount Approval Order, 
supra note 7, at 33109.
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    The Exchange states that it does not believe the Required Minimum 
Amount is as relevant to the listing of SPACs.\11\

[[Page 7758]]

In contrast to its observations regarding operating companies,\12\ the 
Exchange states that typically the only investors holding shares in a 
SPAC prior to an IPO are its founders and that all other round lot 
holders generally represent new investors in the SPAC's IPO.\13\ The 
Exchange therefore does not believe that SPACs present a similar risk 
as operating companies of circumventing the round lot holder 
requirement through share transfers for no value and represents that it 
has not observed this problem with SPACs.\14\ Further, the Exchange 
states that shareholders of SPACs are afforded the opportunity to 
redeem or tender their shares for a pro rata portion of the value of 
the IPO proceeds maintained in a trust account in connection with the 
SPAC's business combination, which must occur within 36 months of the 
IPO, and therefore, the SPAC structure provides an alternative 
liquidity mechanism that operating companies do not offer.\15\
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    \11\ See Notice, supra note 3, at 68401. Nasdaq Rule IM-5101-2 
sets forth requirements applicable to SPACs and requires, among 
other things, that at least 90% of the gross proceeds raised in the 
IPO and any concurrent sale by the SPAC of equity securities must be 
deposited in a trust account. See Nasdaq Rule IM-5101-2(a). Until a 
SPAC has completed business combinations meeting the requirements of 
IM-5101-2(b), each shareholder has the right to redeem their shares 
into a pro rata share of the aggregate amount in the deposit account 
if: (i) The shareholder votes against a business combination; or 
(ii) a shareholder vote on the business combination is not held for 
which the company must file and furnish a proxy or information 
statement subject to Regulation 14A or 14C under the Act. See Nasdaq 
Rules IM-5101-2(d) and (e).
    \12\ See supra notes 8-9 and accompanying text.
    \13\ See Notice, supra note 3, at 68401.
    \14\ See id.
    \15\ See id. at 68401-02. The Exchange also states that it 
believes the value of a SPAC prior to a business combination, unlike 
the value of an operating company, is not based solely on investor 
demand for the security but, in the Exchange's view, is based 
primarily on the value of the cash held in the trust account. See 
id.
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    The Exchange accordingly believes that SPACs should be excluded 
from the Required Minimum Amount and proposes to revise Nasdaq Rules 
5315(f)(1)(C) (for the Nasdaq Global Select Market), 5405(a)(3) (for 
the Nasdaq Global Market), and 5505(a)(3) (for the Nasdaq Capital 
Market) to exclude SPACs from the requirement to meet the Required 
Minimum Amount at the time of initial listing.\16\ The Exchange notes, 
however, that SPACs must continue to satisfy the Exchange's other 
initial listing requirements at the time of listing,\17\ including the 
SPAC listing rules, which, among other things, provide shareholders the 
right to redeem or convert their shares for a pro rata share of the 
trust account in conjunction with the business combination.\18\ 
Moreover, following a business combination, in order to remain listed, 
the combined company must meet Nasdaq's initial listing requirements, 
which include the Required Minimum Amount, at the time of the IPO.\19\ 
The Exchange states in its proposal that it believes that, although 
SPACs will be excluded from the Required Minimum Amount at the time of 
initial listing, requiring SPACs to satisfy Nasdaq's other initial 
listing standards \20\ would continue to help ensure that SPACs have 
sufficient public float, investor base, and trading interest likely to 
generate depth and liquidity to support exchange listing and trading, 
which should help to protect investors and the public interest.\21\
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    \16\ See id. at 68402.
    \17\ See id. These initial listing requirements currently 
include, among other things, a minimum number of unrestricted 
publicly held shares, minimum market value of unrestricted publicly 
held shares, minimum number of round lot holders of unrestricted 
shares, and minimum bid price. See id. at 68402 n.9. The Commission 
notes, as an example, that a SPAC listed on the Nasdaq Capital 
Market under the Market Value of Listed Securities Standard must 
have at least one million unrestricted publicly held shares and a 
market value of unrestricted publicly held shares of at least $15 
million. See Nasdaq Rules 5505(a)(2) and 5505(b)(2)(C). See also 
Nasdaq Rule 5300 Series (The Nasdaq Global Select Market) and 5400 
Series (The Nasdaq Global Market).
    \18\ See Notice, supra note 3, at 68402-03. See also supra notes 
11, 15, and accompanying text.
    \19\ See Notice, supra note 3, at 68402.
    \20\ See supra note 17.
    \21\ See Notice, supra note 3, at 68402.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\22\ In particular, the 
Commission finds that the proposed rule change, as modified by 
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\23\ 
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.
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    \22\ 15 U.S.C. 78f(b). In approving this proposed rule change, 
as modified by Amendment No. 1, the Commission has considered the 
proposed rule change's impact on efficiency, competition, and 
capital formation. See 15 U.S.C. 78c(f).
    \23\ 15 U.S.C. 78f(b)(5).
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    The Commission has consistently recognized that the development and 
enforcement of meaningful listing standards for an exchange is of 
critical importance to financial markets and the investing public.\24\ 
Among other things, the Commission has stated that listing standards 
provide the means for an exchange to screen issuers that seek to become 
listed, and to provide listed status only to those that are bona fide 
companies that have or will have sufficient public float, investor 
base, and trading interest likely to generate depth and liquidity 
sufficient to promote fair and orderly markets.\25\ Meaningful listing 
standards are also important given investor expectations regarding the 
nature of securities that have achieved an exchange listing, and the 
role of an exchange in overseeing its market and assuring compliance 
with its listing standards.\26\
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    \24\ See infra notes 25-26.
    \25\ See, e.g., Securities Exchange Act Release Nos. 81856 
(October 11, 2017), 82 FR 48296, 48298 (October 17, 2017) (``SR-
NYSE-2017-31 Approval Order''); 81079 (July 5, 2017), 82 FR 32022, 
32023 (July 11, 2017) (``SR-NYSE-2017-11 Approval Order''); 65708 
(November 8, 2011), 76 FR 70799, 70802 (November 15, 2011) (``SR-
NASDAQ-2011-073 Approval Order''); 63607 (December 23, 2010), 75 FR 
82420, 82422 (December 30, 2010) (``SR-NASDAQ-2010-137 Approval 
Order''); 57785 (May 6, 2008), 73 FR 27597, 27599 (May 13, 2008) 
(``SR-NYSE-2008-17 Approval Order''); and 58228 (July 25, 2008), 73 
FR 44794, 44796 (July 31, 2008) (``SR-NASDAQ-2008-013 Approval 
Order''). 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 No. 82627 (February 2, 2018), 
83 FR 5650, 5653 n.53 (February 8, 2018) (``SR-NYSE-2017-30 Approval 
Order''); SR-NYSE-2017-31 Approval Order, 82 FR at 48298; SR-NYSE-
2017-11 Approval Order, 82 FR at 32023; SR-NASDAQ-2010-137 Approval 
Order, 75 FR at 82422; and SR-NYSE-2008-17 Approval Order, 73 FR at 
27599. The Commission has stated that adequate listing standards, by 
promoting fair and orderly markets, are consistent with Section 
6(b)(5) of the 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. See, e.g., SR-NYSE-2017-30 Approval Order, 83 
FR at 5653 n.53; Securities Exchange Act Release Nos. 87648 
(December 3, 2019), 84 FR 67308, 67314 n.42 (December 9, 2019) (SR-
NASDAQ-2019-059); and 88716 (April 21, 2020), 85 FR 23393, 23395 
n.22 (April 27, 2020) (SR-NASDAQ-2020-001).
    \26\ See, e.g., SR-NASDAQ-2011-073 Approval Order, supra note 
25, 76 FR at 70802; SR-NASDAQ-2010-137 Approval Order, supra note 
25, 75 FR at 82422; SR-NYSE-2008-17 Approval Order, supra note 25, 
73 FR at 27599; and SR-NASDAQ-2008-013 Approval Order, supra note 
25, 73 FR at 44796.
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    The Exchange has proposed to exclude SPACs, prior to the completion 
of a business combination, from the requirement to meet the Required 
Minimum Amount at the time of initial listing on the Nasdaq Global 
Select Market, Nasdaq Global Market, and Nasdaq Capital Market. As 
described above, the Exchange states that, unlike with operating 
companies where the

[[Page 7759]]

Required Minimum Amount is necessary to demonstrate genuine investor 
interest in the operating company to support an exchange listing, SPACs 
do not present a similar risk of circumventing the round lot holder 
requirement through share transfers for no value and that removing this 
requirement will not impact the protection of investors.\27\
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    \27\ See supra note 14 and accompanying text.
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    Given the differences between SPACs and operating companies, 
including in their structure, and the rights of SPAC shareholders to 
convert or redeem their shares upon a business combination for a pro 
rata portion of the IPO proceeds maintained in a trust account, the 
Commission believes that it is reasonable and not unfairly 
discriminatory for the Exchange to exclude SPACs from the requirement 
to meet the Required Minimum Amount at the time of initial listing of 
the SPAC. Specifically, the Commission believes the Exchange has 
provided a reasonable basis for its proposal to differentiate SPACs 
from operating companies in terms of the requirement to comply with the 
Required Minimum Amount upon initial listing given that, in the 
Exchange's experience, SPACs do not appear to present a similar risk of 
circumventing the round lot holder requirement through share transfers 
for no value. As the Exchange states in its proposal, typically the 
only investors holding shares in a SPAC prior to an IPO are its 
founders, whereas other round lot holders generally represent new 
investors, in contrast to the Exchange's experience with operating 
companies.\28\
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    \28\ See supra notes 12-13 and accompanying text.
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    Further, the Exchange's other initial listing requirements will 
remain applicable to SPACs at the time of their initial listing 
including, among other things, that round lot holders hold unrestricted 
shares and that SPACs will continue to meet the minimum number and 
market value of unrestricted publicly held shares requirements as well 
as the other listing requirements on the applicable market tier, in 
addition to the specific listing criteria applicable to SPACs.\29\ As 
the Commission stated when approving the Exchange's amendments to 
exclude restricted securities from its calculation of a company's 
publicly held shares, market value of publicly held shares, and round 
lot holders for purposes of qualifying the company's securities for 
initial listing, the amendments ``should allow the Exchange to more 
accurately determine whether a security has adequate distribution and 
liquidity and is thus suitable for listing and trading on the 
Exchange.'' \30\ In addition, all initial listing requirements apply to 
the combined company upon consummation of a business combination, which 
would include the Required Minimum Amount. The Commission therefore 
believes the Exchange's current listing rules will continue to provide 
appropriate listing standards for SPAC securities, both prior to and 
after the completion of any business combination. Moreover, investors 
in SPACs will continue to have the ability to convert or redeem their 
shares for cash into a pro rata share of the amount in the trust 
account, pursuant to the provisions of Nasdaq Rules IM-5101-2(d) and 
(e).
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    \29\ For example, SPACs listed on the Nasdaq Capital Market 
under the Market Value of Listed Securities Standard would be 
required to have at least 1,000,000 unrestricted publicly held 
shares, at least 300 round lot holders that hold unrestricted 
shares, a minimum market value of listed securities of $50 million, 
a minimum market value of unrestricted publicly held shares of at 
least $15 million, and at least three registered and active market 
makers. See Nasdaq Rules 5505(a)-(b). See also Nasdaq Rules 5315(e)-
(f) (Nasdaq Global Select Market) and 5405(a)-(b) (Nasdaq Global 
Market). The Commission understands that, although Nasdaq's rules 
provide alternative standards to satisfy in lieu of the market value 
standards, SPACs typically list under the market value standard 
given that they have no prior operating history.
    \30\ Required Minimum Amount Approval Order, supra note 7, at 
33111. See also supra note 7.
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    These other listing requirements, taken together, should continue 
to help ensure that SPACs are listed only if there will be a sufficient 
market, with adequate depth and liquidity and with sufficient investor 
interest to support an exchange listing, and will continue to provide 
investors the redemption feature. The Commission also notes that the 
Exchange's proposal is consistent with SPAC listing standards on other 
listing exchanges that do not require round lot holders to hold 
unrestricted securities of a minimum market value amount.\31\ For the 
reasons discussed above, the Commission believes the Exchange's 
proposal is consistent with the requirements of Section 6(b)(5) of the 
Act and with the maintenance of fair and orderly markets under the Act.
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    \31\ See, e.g., New York Stock Exchange LLC (``NYSE'') Listed 
Company Manual Section 102.06. The Commission notes that NYSE's 
initial listing standards for SPACs, which require an aggregate 
market value of $100 million and market value of publicly-held 
shares of $80 million, are generally higher than those on Nasdaq. 
See supra notes 17 and 29. See also NYSE American LLC Company Guide 
Sections 102 and 119.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\32\ that the proposed rule change, as modified by Amendment No. 1 
(SR-NASDAQ-2020-069), be, and hereby is, approved.
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    \32\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-02010 Filed 1-29-21; 8:45 am]
BILLING CODE 8011-01-P


