[Federal Register Volume 86, Number 39 (Tuesday, March 2, 2021)]
[Notices]
[Pages 12245-12250]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-04222]



[[Page 12245]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91205; File No. SR-NASDAQ-2020-057]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 
1, To Allow Companies To List in Connection With a Direct Listing With 
a Primary Offering in Which the Company Will Sell Shares Itself in the 
Opening Auction on the First Day of Trading on Nasdaq and To Explain 
How the Opening Transaction for Such a Listing Will Be Effected

February 24, 2021.
    On September 4, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or 
the ``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 allow companies to list in connection with a 
primary offering in which the company will sell shares itself in the 
opening auction on the first day of trading on the Exchange and to 
explain how the opening transaction for such a listing will be 
effected. The proposed rule change was published for comment in the 
Federal Register on September 21, 2020.\3\ On November 4, 2020, 
pursuant to Section 19(b)(2) of the Act,\4\ the Commission designated a 
longer period within which to either approve or disapprove the proposed 
rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change.\5\ On December 17, 2020, the 
Commission instituted proceedings under Section 19(b)(2)(B) of the Act 
\6\ to determine whether to approve or disapprove the proposed rule 
change.\7\ On February 22, 2021, the Exchange filed Amendment No. 1 to 
the proposed rule change, which superseded the proposed rule change as 
originally filed, and is 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, as modified by 
Amendment No. 1, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 89878 (September 15, 
2020), 85 FR 59349 (September 21, 2020). Comments received on the 
proposal are available on the Commission's website at: https://www.sec.gov/comments/sr-nasdaq-2020-057/srnasdaq2020057.htm.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 90331 (November 4, 
2020), 85 FR 71708 (November 10, 2020).
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 90717 (December 17, 
2020), 85 FR 84025 (December 23, 2020).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to allow companies to list in connection with 
a primary offering in which the company will sell shares itself in the 
opening auction on the first day of trading on Nasdaq and to explain 
how the opening transaction for such a listing will be effected.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, 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 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
    Nasdaq is filing this amendment to SR-NASDAQ-2020-057 \8\ in order 
to: (i) Require for the security to be released for trading that the 
actual price calculated by the cross be at or above the lowest price 
and at or below the highest price of the price range established by the 
issuer in its effective registration statement; (ii) provide that the 
fourth tie-breaker used in calculating the Current Reference Price is 
the price that is closest to the lowest price of the price range 
disclosed by the issuer in its effective registration statement; (iii) 
provide that for purposes of qualifying a security under the Listing 
Rules Nasdaq will calculate the value of shares, and determine whether 
the company has met the applicable Market Value of Unrestricted 
Publicly Held Shares, bid price and market capitalization requirements, 
using a price per share equal to the lowest price in the price range 
disclosed by the issuer in its effective registration statement; (iv) 
provide that notwithstanding the provisions of Rule 4120(c)(8)(A), 
Nasdaq, in consultation with the financial advisor to the issuer, will 
make the determination of whether the security is ready to trade and 
whether to reschedule the offering as described in Rule 4120(c)(8)(A); 
and make minor technical changes to improve the clarity of this 
proposal. Nasdaq believes that this amendment addresses the issues 
raised by the Commission in the OIP.\9\ This amendment supersedes and 
replaces the Initial Proposal in its entirety.
---------------------------------------------------------------------------

    \8\ Securities Exchange Act Release No. 89878 (September 15, 
2020), 85 FR 59349 (September 21, 2020) (the ``Initial Proposal''). 
The Commission issued an Order Instituting Proceedings to Determine 
Whether To Approve or Disapprove the Initial Proposal. See 
Securities Exchange Act Release No. 90717 (December 17, 2020), 85 FR 
84025 (December 23, 2020) (the ``OIP'').
    \9\ Following approval of this proposed rule change Nasdaq 
intends to file a separate proposal with the Commission that will 
seek to modify the process for a Direct Listing with a Capital Raise 
so that it would operate in a manner similar to the Initial Proposal 
and will seek to address the remaining issues raised in the OIP.
---------------------------------------------------------------------------

    Nasdaq proposes to (i) adopt Listing Rule IM-5315-2 to permit a 
company to list in connection with a primary offering in which the 
company will sell shares itself in the opening auction on the first day 
of trading on the Exchange (a ``Direct Listing with a Capital Raise''); 
\10\ (ii) amend Rule 4702 to add a new order type (the ``Company Direct 
Listing Order''), which will be used during the Nasdaq Halt Cross for 
the shares offered by the company in a Direct Listing with a Capital 
Raise; and (iii) amend Rules 4120(c)(9), 4753(a)(3) and 4753(b)(2) to 
establish requirements for disseminating information, establishing the 
opening price and initiating trading through the Nasdaq Halt Cross in a 
Direct Listing with a Capital Raise.
---------------------------------------------------------------------------

    \10\ A Direct Listing with a Capital Raise includes situations 
where 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.
---------------------------------------------------------------------------

Proposed Listing Rule IM-5315-2
    Listing Rule IM-5315-1 provides additional initial listing 
requirements for listing a company that has not previously had its 
common equity securities registered under the Act on the Nasdaq Global 
Select Market at the time of effectiveness of a registration statement 
filed solely for the purpose of allowing existing shareholders to sell 
their shares (a ``Direct Listing''). To

[[Page 12246]]

allow a company to also 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 adopt Listing Rule IM-5315-2.\11\ This proposed 
rule 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 Nasdaq Global Select Market at the time of 
effectiveness of a registration statement pursuant to which the company 
itself will sell shares in the opening auction on the first day of 
trading on the Exchange.
---------------------------------------------------------------------------

    \11\ The Commission did not identify any concerns with proposed 
Listing Rule IM-5315-2 in the OIP. Accordingly, the only change to 
proposed IM-5315-2 in this amendment is to reflect that the minimum 
price at which the company can sell shares is the lowest price in 
the price range disclosed by the issuer in its effective 
registration statement. In the Initial Proposal, Nasdaq proposed to 
allow the company to sell shares at up to a 20% discount to the 
lowest price in the price range disclosed in the effective 
registration statement and therefore also to calculate compliance 
with the listing requirements based on that same price.
---------------------------------------------------------------------------

    In considering the initial listing of a company in connection with 
a Direct Listing on the Nasdaq Global Select Market, Listing Rule IM-
5315-1 currently provides that the Exchange will determine that such 
company has met the applicable Market Value of Unrestricted Publicly 
Held Shares requirements based on the lesser of: (i) An independent 
third-party valuation of the company (a ``Valuation''); \12\ and (ii) 
the most recent trading price for the company's common stock in a 
Private Placement Market where there has been sustained recent trading. 
For a security that has not had sustained recent trading in a Private 
Placement Market \13\ prior to listing, Nasdaq will determine that such 
Company has met the Market Value of Unrestricted Publicly Held Shares 
requirement if the Company satisfies the applicable Market Value of 
Unrestricted Publicly Held Shares requirement and provides a Valuation 
evidencing a Market Value of Publicly Held Shares of at least 
$250,000,000.
---------------------------------------------------------------------------

    \12\ IM-5315-1 describes the requirement for a Valuation, 
including the experience and independence of the entity providing 
the Valuation.
    \13\ Nasdaq defines ``Private Placement Market'' in Listing Rule 
5005(a)(34) as a trading system for unregistered securities operated 
by a national securities exchange or a registered broker-dealer.
---------------------------------------------------------------------------

    In contrast, when applying this requirement to a Direct Listing 
with a Capital Raise, the Exchange and investors know the minimum price 
at which the company can sell shares in the offering because it is 
included in the company's registration statement, and therefore Nasdaq 
is proposing the following:
     Nasdaq will calculate the value of shares, including those 
being sold by the company and those held by public shareholders 
immediately prior to the listing, using a price per share equal to the 
lowest price in the price range disclosed by the issuer in its 
registration statement.\14\ Nasdaq also will determine whether the 
company has met the applicable bid price and market capitalization 
requirements based on the same per share price.
---------------------------------------------------------------------------

    \14\ As described below, the Nasdaq Halt Cross would not execute 
at a price that is below the bottom of the disclosed range. Thus, 
this is the minimum price at which the company could list in 
connection with a Direct Listing with a Capital Raise.
---------------------------------------------------------------------------

     In determining whether the company satisfies the Market 
Value of Unrestricted Publicly Held Shares for initial listing on the 
Nasdaq Global Select Market, the Exchange will deem such Company to 
have met the applicable requirement if the amount of the Company's 
Unrestricted Publicly Held Shares before the offering, along with the 
market value of the shares to be sold by the company in the Direct 
Listing with a Capital Raise is at least $110 million (or $100 million, 
if the Company has stockholders' equity of at least $110 million).\15\
---------------------------------------------------------------------------

    \15\ See Listing Rules 5315(f)(2)(A) and (B) that require the 
Market Value of Unrestricted Publicly Held Shares for initial 
listing on the Nasdaq Global Select Market, not in connection with 
an IPO, of at least $110 million; or at least $100 million, if the 
company has stockholders' equity of at least $110 million, 
respectively. 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 unrestricted publicly-held shares based on 
disclosure in the company's registration statement, then the Market 
Value of Unrestricted 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 Unrestricted Publicly Held Shares of $500 million, based on a $10 
price per share.
---------------------------------------------------------------------------

    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. Shares held by these types of inside 
investors are not included in calculations of Publicly Held Shares for 
purposes of Exchange listing rules except that, as proposed with 
respect to a Direct Listing with a Capital Raise, all shares sold by 
the company in the offering and all shares held by Public Holders prior 
to the offering will be included in the calculation of Publicly Held 
Shares, even if some of these shares are purchased by inside 
investors.\16\ The Exchange notes that such investors may also acquire 
in secondary market trades shares sold by the issuer in a Direct 
Listing with a Capital Raise that were included when calculating 
whether the issuer meets the Market Value of Unrestricted Publicly Held 
Shares requirement for initial listing. However, the Exchange notes 
that a company listing in conjunction with a Direct Listing with a 
Capital Raise will be required to have a Market Value of Unrestricted 
Publicly Held Shares much higher than the Exchange's minimum $45 
million Market Value of Unrestricted Publicly Held Shares requirement 
for a traditional underwritten IPO.\17\ This heightened requirement, 
along with the ability of all investors to purchase shares in the 
opening process on the Exchange, should result in companies using a 
Direct Listing with a Capital Raise having adequate public float and a 
liquid trading market after the completion of the opening auction.
---------------------------------------------------------------------------

    \16\ Rule 5005(a)(35).
    \17\ See Listing Rules 5315(f)(2)(C) that requires the Market 
Value of Unrestricted Publicly Held Shares for initial listing on 
the Nasdaq Global Select Market, in connection with an IPO, of at 
least $45 million.
---------------------------------------------------------------------------

    Any company listing in connection with a Direct Listing with a 
Capital Raise would continue to be subject to, and required to meet, 
all other applicable initial listing requirements, including the 
requirements to have the applicable number of shareholders and at least 
1,250,000 Unrestricted Publicly Held Shares outstanding at the time of 
initial listing, and the requirement to have a price per share of at 
least $4.00 at the time of initial listing.\18\
---------------------------------------------------------------------------

    \18\ See Listing Rules 5315(f)(1), (e)(1) and (2), respectively. 
Rule 5315(f)(1) requires a security to have: (A) At least 550 total 
holders and an average monthly trading volume over the prior 12 
months of at least 1,100,000 shares per month; or (B) at least 2,200 
total holders; or (C) a minimum of 450 round lot holders and at 
least 50% of such round lot holders must each hold unrestricted 
securities with a market value of at least $2,500.
---------------------------------------------------------------------------

    Proposed Listing Rule IM-5315-2 also requires that securities 
listing in connection with a Direct Listing with a

[[Page 12247]]

Capital Raise must begin trading on Nasdaq following the initial 
pricing through the Nasdaq Halt Cross, which is described in Rules 
4120(c)(8) and 4753. To allow such initial pricing, the company must, 
in accordance with Rule 4120(c)(9), have a broker-dealer serving in the 
role of financial advisor to the issuer of the securities being listed, 
who is willing to perform the functions under Rule 4120(c)(8) that are 
performed by an underwriter with respect to an initial public 
offering.\19\ However, as described in detail below, Nasdaq proposes to 
modify Rule 4120(c)(9), in part related to certain functions that are 
performed by an underwriter in an IPO or a financial advisor in a 
Direct Listing, to require that in the case of a Direct Listing with a 
Capital Raise, Nasdaq, in consultation with the financial advisor to 
the issuer, will make the determination of whether the security is 
ready to trade and whether to postpone and reschedule the offering as 
described in Rule 4120(c)(8)(A).
---------------------------------------------------------------------------

    \19\ As noted below, the Exchange also proposes to amend Rule 
4120(c)(9) to specify that any services provided by such financial 
advisor to the issuer of a security, including a company listing in 
connection with a Direct Listing with a Capital Raise, must provide 
such services in a manner that is consistent with all federal 
securities laws, including Regulation M and other anti-manipulation 
requirements.
---------------------------------------------------------------------------

Amendment to Rule 4702
    The Exchange proposes to amend Rule 4702 to add a new order type, 
the ``Company Direct Listing Order'' or ``CDL Order'', which will be 
used for the company's order in a Direct Listing with a Capital Raise. 
This will be a market order entered for the quantity of shares offered 
by the issuer, as disclosed in an effective registration statement for 
the offering that will execute at the price determined in the Nasdaq 
Halt Cross. A CDL Order may be entered only on behalf of the issuer and 
the CDL Order may not be cancelled or modified. Only one Nasdaq member, 
representing the issuer, may enter a CDL Order during a Direct Listing 
with a Capital Raise. The price of the CDL Order will be set in 
accordance with Rule 4120(c)(9)(B) that requires, among other things, 
that the CDL Order is executed at or above the lowest price and at or 
below the highest price of the price range established by the issuer in 
its effective registration statement.
    Under Nasdaq rules, a market order, such as the CDL Order, must be 
executed in full at the price determined in the Nasdaq Halt Cross. In 
addition, all orders priced better than the price determined in the 
Nasdaq Halt Cross also would need to be satisfied.\20\
---------------------------------------------------------------------------

    \20\ The Commission did not identify any concerns with the 
proposed changes to Rule 4702 in the OIP. Accordingly, no changes to 
that proposed rule are proposed in this amendment. Nasdaq notes that 
the proposed CDL Order is similar in some respects to a limit order 
because it cannot execute at a price less than the lowest price in 
the price range disclosed by the issuer in its effective 
registration statement. As a market order, the CDL Order is 
guaranteed to execute in the Nasdaq Halt Cross.
---------------------------------------------------------------------------

Amendments to Rules 4120(c)(9), 4753(a)(3) and 4753(b)(2)
    Nasdaq proposes to amend Rules 4120(c)(9), 4753(a)(3) and 
4753(b)(2) to establish requirements for disseminating information, 
establishing the opening price and initiating trading through the 
Nasdaq Halt Cross in a Direct Listing with a Capital Raise.
    Under the proposal, in the case of the Direct Listing with a 
Capital Raise, a security shall not be released for trading by Nasdaq 
unless the actual price calculated by the cross is at or above the 
lowest price and at or below the highest price of the price range 
established by the issuer in its effective registration statement.\21\ 
This requirement would be in addition to the existing conditions 
described in Rule 4120(c)(8)(A)(i), (ii), and (iii), which would 
continue to apply, as modified by the proposed changes to Rule 
4120(c)(9), as described below.\22\
---------------------------------------------------------------------------

    \21\ See Proposed Rule 4120(c)(9)(B).
    \22\ Rule 4120(c)(8)(A) provides that a security will not be 
released for trading until Nasdaq receives notice from the 
underwriter of the IPO or financial advisor in the case of a Direct 
Listing that the security is ready to trade, the system verifies 
that all market orders will be executed in the Cross, and the price 
determined in the Cross satisfies a price validation test.
---------------------------------------------------------------------------

    Rules 4120(c)(8) and (9) provide that the underwriter of the IPO, 
or the financial advisor in a Direct Listing, respectively, provide 
notice to Nasdaq that the security subject to the Nasdaq Halt Cross is 
``ready to trade.'' \23\ These rules also provide that the underwriter 
of the IPO, or the financial advisor in a Direct Listing, with 
concurrence of Nasdaq, may determine at any point during the Halt Cross 
process up through the conclusion of the pre-launch period to postpone 
and reschedule the pricing of the security subject to the Nasdaq Halt 
Cross.
---------------------------------------------------------------------------

    \23\ Rule 4120(c)(8)(A)(i) provides that Nasdaq receives notice 
from the underwriter of the IPO that the security is ready to trade. 
The Nasdaq system will calculate the Current Reference Price at that 
time and display it to the underwriter. If the underwriter then 
approves proceeding, the Nasdaq system will conduct certain 
validation checks. Under this proposal, Nasdaq will take over these 
functions of the underwriter, as described in detail below.
---------------------------------------------------------------------------

    However, Nasdaq proposes to require that in the case of a Direct 
Listing with a Capital Raise, Nasdaq, in consultation with the 
financial advisor to the issuer, will make the determination of whether 
the security is ready to trade and whether to postpone and reschedule 
the offering as described in Rule 4120(c)(8)(A). Specifically, Nasdaq 
auction technology displays the Current Reference Price, which is the 
price at which the auction can cross the largest number of securities 
subject to the Nasdaq Halt Cross. If the auction cannot match all the 
entered orders at the Current Reference Price, an imbalance on the buy 
or sell side is displayed and provided via Nasdaq data feeds. Nasdaq 
would determine that the security is ready to trade when Nasdaq 
believes, based on the displayed information referenced above, that a 
reasonable volume of securities will cross on the initial trade to 
minimize the immediate price volatility following the initial 
pricing.\24\ Nasdaq may consult with the financial advisor to the 
issuer as to the reasonableness of such volume but can determine that 
the security is ready to trade without such consultation. Once Nasdaq 
has determined that the security is ready to trade, which will satisfy 
the requirement of Rule 4120(c)(8)(A)(i), Nasdaq shall release the 
security for trading if the conditions described in Rules 
4120(c)(8)(A)(ii) and (iii) are met and the actual price calculated by 
the Cross is at or above the lowest price and at or below the highest 
price of the price range established by the issuer in its effective 
registration statement.
---------------------------------------------------------------------------

    \24\ Rules 4120(c)(8)(B) and (c)(9) provide that the financial 
advisor selects certain price bands for purposes of applying a price 
validation test that occurs once the financial advisor notifies 
Nasdaq that the security is ready to trade. Given that Nasdaq 
proposes that in connection with a Direct Listing with a Capital 
Raise Nasdaq, rather than the financial advisor, determines that the 
security is ready to trade, the financial advisor will have no 
purpose in setting the bands. Accordingly, because Nasdaq determines 
when the security is ready to trade, it is appropriate for Nasdaq to 
set the price bands. Nasdaq intends to set the price bands at zero.
---------------------------------------------------------------------------

    If there is insufficient buy interest to satisfy the CDL Order, and 
all other market orders, as required by this proposed rule, or if the 
actual price calculated by the Cross is outside the price range 
established by the issuer in its effective registration statement, the 
Cross would not proceed and such security would not begin trading. In 
such event, because the Cross cannot be conducted, the Exchange would 
postpone and reschedule the offering and notify market participants via 
a Trader Update that the Direct Listing with a Capital Raise scheduled 
for that date has been cancelled and any orders for that security that 
have been entered

[[Page 12248]]

on the Exchange, including the CDL Order, would be cancelled back to 
the entering firms.
    Because the CDL Order will be a market order, if the Halt Cross 
proceeds, that order will execute in full in the Halt Cross, along with 
orders priced at or better than the price determined in the Halt Cross. 
As noted above, the Halt Cross would not be allowed to proceed if the 
actual price calculated by the Cross is below the lowest price or above 
the highest price of the price range disclosed by the company in its 
effective registration statement.
    Nasdaq also proposes changes to Rules 4753(a)(3) and 4753(b)(2) to 
make adjustments to the calculation of the Current Reference Price, 
which is disseminated in the Nasdaq Order Imbalance Indicator, in the 
case of a Direct Listing with a Capital Raise and for how the price at 
which the Nasdaq Halt Cross will execute. In each case, where there are 
multiple prices that would satisfy the conditions for determining a 
price, Nasdaq proposes to modify the fourth tie-breaker for a Direct 
Listing with a Capital Raise, to use the lowest price of the price 
range disclosed by the issuer in its effective registration statement.
    In this Amendment No. 1, Nasdaq also proposes changes to address 
concerns raised by the Commission in the OIP relating to Rule 4120. 
Specifically, consistent with Nasdaq's original intent, as revised, the 
price bands established by Rule 4120(c)(8) cannot act to cause the Halt 
Cross to occur outside of the price range disclosed by the issuer in 
its effective registration statement because the actual price 
calculated by the Cross is required to be at or above the lowest price 
and at or below the highest price of the price range established by the 
issuer in its effective registration statement.\25\
---------------------------------------------------------------------------

    \25\ In addition, in the OIP the Commission expressed concern 
that the financial advisor could, in effect, cancel the non-
cancellable CDL Order by rescheduling the offering. To address this 
concern, this amendment modifies the rules to provide that Nasdaq, 
in consultation with the financial advisor to the issuer, will make 
the determination of whether the security is ready to trade and 
whether to postpone and reschedule the offering as described in Rule 
4120(c)(8)(A). Finally, the proposed changes to Rule 4753 have been 
modified to reflect that the lowest price at which the Nasdaq Halt 
Cross can occur is the lowest price of the price range disclosed by 
the issuer in its effective registration statement.
---------------------------------------------------------------------------

    Finally, Nasdaq proposes to amend Rule 4120(c)(9) to specify that 
the activities performed by a financial advisor under Rule 4120(c)(8) 
must be conducted in a manner that is consistent with all federal 
securities laws, including Regulation M and other anti-manipulation 
requirements.\26\ This change will apply to traditional Direct 
Listings, as described under IM-5315-1, IM-5405-1 and IM-5505-1, as 
well as to Direct Listings with a Capital Raise, as described under 
proposed IM-5315-2.
---------------------------------------------------------------------------

    \26\ Rule 4120(c)(8) describes the activities performed by an 
underwriter in an IPO and by a financial advisor in a Direct 
Listing.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\27\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\28\ 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.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78f(b).
    \28\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Nasdaq believes that the proposed amendment to the listing 
requirements is consistent with the protection of investors. The 
proposal would require that a company completing a Direct Listing with 
a Capital Raise have an aggregate market value of unrestricted 
publicly-held shares immediately prior to listing together with the 
market value of shares the company sells in the opening auction total 
at least $110 million (or $100 million, if the Company has 
stockholders' equity of at least $110 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 effective registration 
statement. While 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 or other shareholders in the opening transaction on 
Nasdaq, in the event that such purchases are not inconsistent with 
general anti-manipulation provisions, Regulation M, and other 
applicable securities laws, Nasdaq expects that a company expecting to 
sell a significant portion of its shares to officers, directors and 
existing significant shareholders would not undertake a public listing 
through a Direct Listing with a Capital Raise but would raise capital 
in a private placement or a similar transaction instead. Nasdaq also 
notes that a company may list on the Global Select Market in connection 
with its initial public offering with a market value of unrestricted 
publicly held shares of $45 million and that unlike a company listing 
in connection with a Direct Listing that could qualify for the price-
based initial listing requirements based on a Valuation, a company 
listing in connection with a Direct Listing with a Capital Raise, like 
an IPO, must qualify for such requirements based on the minimum price 
at which it could sell shares in the offering. The higher requirement, 
along with the ability of all investors to purchase shares in the 
opening process on the Exchange, should result in companies using a 
Direct Listing with a Capital Raise having adequate public float and a 
liquid trading market after the completion of the opening auction.
    Nasdaq also believes that it is consistent with the protection of 
investors to calculate the security's bid price and values derived from 
the security's price using a price per share equal to the lowest price 
of the price range disclosed by the issuer in its effective 
registration statement. Nasdaq will allow the Halt Cross to take place 
as low as this price, but no lower, and so this is the minimum price at 
which the company could be listed.
    The proposed requirement that a company that lists on the Nasdaq 
Global Select Markets through a Direct Listing with a Capital Raise 
must begin trading of the company's securities following the initial 
pricing through the Halt Cross will promote fair and orderly markets by 
protecting against volatility in the pricing and initial trading of 
securities covered by the proposed rule change because a substantial 
number of buy and sell orders is expected to be executed in the Halt 
Cross at a single price rather than in the secondary trading at 
fluctuating prices. Accordingly, Nasdaq believes these changes, as 
required by Section 6(b)(5) of the Exchange Act, are reasonably 
designed to protect investors and the public interest and promote just 
and equitable principles of trade for the opening of securities listing 
in connection with a Direct Listing with a Capital Raise on the Nasdaq 
Global Select Market.
    Nasdaq also believes that the proposed adoption of the CDL Order 
type in Rule 4702 and the addition of requirements to the operation of 
the Nasdaq Halt Cross in Rule 4120(c)(9) will remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because it would guarantee that the Nasdaq Halt Cross would only 
occur within the specified price range, as described above, and, if the 
Halt Cross occurs, all shares offered by the company would be sold at 
such price. Unlike an IPO, a company listing through a Direct Listing 
with a Capital Raise would not have an underwriter to

[[Page 12249]]

guarantee that a specified number of shares would be sold by the 
company at a price consistent with disclosure in the company's 
effective registration statement. This certainty would be effected in 
two ways. First, the proposed CDL 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. The Nasdaq Halt Cross would only 
occur if all of the shares in this market order could be executed. 
Second, the Nasdaq Halt Cross would be required to occur at a price per 
share that is within the price range disclosed by the issuer in its 
effective registration statement. Nasdaq 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 the 
Nasdaq Halt Cross, including dissemination of information about the 
expected price.
    Nasdaq believes that the CDL Order and related clarifications will 
clearly define the method by which the issuer participates in the 
opening auction, to prevent the issuer from being in a position to 
improperly influence the price discovery process, and to design an 
auction that is otherwise consistent with the disclosures in the 
registration statement. Specifically, the CDL Order entered on the 
company's behalf could not be executed at a price below the low end or 
above the high end of the price range in the company's effective 
registration statement and, as a market order, the full quantity of 
shares in the CDL Order would have to be executed in the opening 
auction. In addition, the CDL Order cannot be modified and the 
financial advisor to the company will be unable to reschedule the 
offering once it begins. As such, Nasdaq believes that the proposed 
process provides reasonable assurance that the opening auction and 
subsequent trading promote fair and orderly markets and that the 
proposed rules are designed to prevent manipulative acts and practices, 
and protect investors and the public interest in accordance with 
Section 6(b)(5) of the Exchange Act.
    Nasdaq believes that it is consistent with the protection of 
investors and the public interest to require that in the case of a 
Direct Listing with a Capital Raise, Nasdaq, in consultation with the 
financial advisor to the issuer, will make the determination of whether 
the security is ready to trade and whether to postpone and reschedule 
the offering as described in Rule 4120(c)(8)(A) because Nasdaq would 
determine that the security is ready to trade when Nasdaq believes, 
based on the available information, that a reasonable volume of 
securities will cross on the initial trade to minimize the immediate 
price volatility following the initial pricing. Nasdaq also believes 
that its ability to consult the financial advisor to the issuer is 
consistent with the protection of investors because the financial 
advisor would be expected to gather relevant information in connection 
with the Direct Listing with a Capital Raise by engaging in certain 
price discovery activities with potential buyers and sellers and such 
information could be shared with Nasdaq. Nasdaq believes that as part 
of their regular activities as full-service broker-dealer, such firm's 
capital markets and sales and trading desk personnel may contact or be 
contacted by potential investors and current holders of the securities 
subject to the Nasdaq Halt Cross in the normal course of their 
activities and may, in that capacity, inform and educate interested 
persons regarding the company and obtain information regarding pre-
listing buying and selling interest in such securities (including with 
regard to price, volume and timing expectations), which information may 
also be provided to Nasdaq in order to support an effective price 
discovery process by Nasdaq.
    Nasdaq notes that, as described above, Nasdaq will be able to 
postpone and reschedule the offering only if there is insufficient buy 
interest to satisfy the CDL Order, and all other market orders, as 
required by this proposed rule, or if the actual price calculated by 
the Cross is outside the price range established by the issuer in its 
effective registration statement.
    Nasdaq also believes that it is consistent with the protection of 
investors and the public interest to remind financial advisors in a 
Direct Listing, including Direct Listings with a Capital Raise, that 
activities in connection with the listing must be conducted in a manner 
that is consistent with the federal securities laws, including 
Regulation M and other anti-manipulation requirements.
    Nasdaq believes that the proposed rule change to modify the fourth 
tie-breaker used in calculating the Current Reference Price 
disseminated in the Nasdaq Order Imbalance Indicator and the price at 
which the Nasdaq Halt Cross will occur, protects investors and the 
public interest. For a Direct Listing, in using the Halt Cross to 
initiate the initial trading in the company's securities, the Current 
Reference Price and price at which the Nasdaq Halt Cross will occur may 
be based on the most recent transaction price in a Private Placement 
Market where the security has had recent sustained trading in such a 
market over several months; otherwise the price will be determined by 
the Exchange in consultation with a financial advisor to the issuer. 
For an IPO, however, the fourth tie-breaker used in calculating the 
Current Reference Price, is the price that is closest to the Issuer's 
Initial Public Offering Price. Because a Direct Listing with a Capital 
Raise is similar to an IPO in that the company sells securities in the 
offering, the proposed rule change provides that the forth tie-breaker 
in calculating the Current Reference Price for such security is the 
lowest price of the price range disclosed by the issuer in its 
effective registration statement, which is the minimum price at which 
the Halt Cross will occur.
    Finally, while a commenter expressed concerns that that the 
expansion of direct listings would compound problems that shareholders 
face in tracing their share purchases to a registration statement,\29\ 
the Commission has previously considered and rejected these 
concerns.\30\ In that regard, the Commission has determined that 
investor protection concerns relating to tracing challenges are not 
unique to direct listings, including where the company itself would 
sell shares in the opening auction on the first day of trading on the 
Exchange in addition to, or instead of, facilitating sales by selling 
shareholders (``Primary Direct Floor Listing''), and stated that it did 
not expect ``any such tracing challenges in this context to be of such 
magnitude as to render the proposal inconsistent with the Act.'' \31\ 
On the other hand, the Commission found that allowing a Primary Direct 
Floor Listing ``will provide benefits to existing and potential 
investors relative to firm

[[Page 12250]]

commitment underwritten offerings'' \32\ because the structure ``has 
the potential to broaden the scope of investors that are able to 
purchase securities in an initial public offering, at the initial 
public offering price, rather than in aftermarket trading'' and ``may 
allow for efficiencies in IPO pricing and allocation.'' \33\ Similarly, 
while the commenter expressed concern that that the expansion of direct 
listings may lead to a decline in effective governance at U.S. public 
companies, presumably because of the lack of an underwriter in the 
offering, Nasdaq believes that this concern is unsubstantiated and 
challenges in this context are not of such magnitude as to render the 
proposal inconsistent with the Act. Moreover, in approving the Primary 
Direct Floor Listing proposal the Commission concluded that it ``does 
not view a firm commitment underwriting as necessary to provide 
adequate investor protection in the context of a registered offering.'' 
\34\ As a result, consistent with the purposes of the Act, the proposed 
rule change may provide investors with additional investment 
opportunities and companies with more options for becoming publicly 
traded.
---------------------------------------------------------------------------

    \29\ See Letter from Jeffrey P. Mahoney, General Counsel, 
Council of Institutional Investors to Secretary, Securities and 
Exchange Commission (October 8, 2020), available at https://www.sec.gov/comments/sr-nasdaq-2020-057/srnasdaq2020057-7888884-224228.pdf. See also Letter from Jeffrey P. Mahoney, General 
Counsel, Council of Institutional Investors to Secretary, Securities 
and Exchange Commission (January 13, 2021), available at https://www.sec.gov/comments/sr-nasdaq-2020-057/srnasdaq2020057-8241868-227781.pdf.
    \30\ Securities Exchange Act Release No. 89684 (August 26, 
2020), 85 FR 54454 (September 1, 2020) (approval by delegated 
authority of SR-NYSE-2019-67). On December 22, 2020, the Commission 
issued an order setting aside the action by delegated authority and 
approving the proposed rule change. Securities Exchange Act Release 
No. 90768 (December 22, 2020), 85 FR 85807 (December 29, 2020) (the 
``NYSE Approval'').
    \31\ NYSE Approval at 85816.
    \32\ Id.
    \33\ Id.
    \34\ Id. at 85815.
---------------------------------------------------------------------------

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. The proposed amendments would 
not impose any burden on competition, but would rather increase 
competition. In that regard, the Commission recently approved a similar 
proposal to allow a Primary Direct Floor Listing on the New York Stock 
Exchange.\35\ Allowing Nasdaq to have similar rules will give issuers 
interested in this pathway to access the capital markets a choice of 
listing venues, which will enhance competition among exchanges.
---------------------------------------------------------------------------

    \35\ See NYSE Approval, above footnote 30.
---------------------------------------------------------------------------

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. 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. 1, 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-2020-057 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-2020-057. 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-NASDAQ-2020-057, and should be submitted 
on or before March 23, 2021 .

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
---------------------------------------------------------------------------

    \36\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-04222 Filed 3-1-21; 8:45 am]
BILLING CODE 8011-01-P


