[Federal Register Volume 87, Number 68 (Friday, April 8, 2022)]
[Notices]
[Pages 20905-20912]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-07466]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94592; File No. SR-NASDAQ-2022-027]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Modify Certain Pricing 
Limitations for Companies Listing in Connection With a Direct Listing 
With a Capital Raise

April 4, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 21, 2022, The Nasdaq Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify certain pricing limitations for 
companies listing in connection with a Direct Listing with a Capital 
Raise in which the company will sell shares itself in the opening 
auction on the first day of trading on Nasdaq.
    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.

[[Page 20906]]

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

1. Purpose
    In 2021, Nasdaq adopted 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''); \3\ 
created a new order type (the ``CDL Order''), which is used during the 
Nasdaq Halt Cross (the ``Cross'') for the shares offered by the company 
in a Direct Listing with a Capital Raise; and established requirements 
for disseminating information, establishing the opening price and 
initiating trading through the Cross in a Direct Listing with a Capital 
Raise.\4\ For a Direct Listing with a Capital Raise, Nasdaq rules 
currently require 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 (the ``Pricing Range Limitation'').
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    \3\ 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.
    \4\ See Securities Exchange Act Release No. 91947 (May 19, 
2021), 86 FR 28169 (May 25, 2021) (the ``Approval Order'').
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    Nasdaq now proposes to modify the Pricing Range Limitation \5\ such 
that, provided other requirements are satisfied, a Direct Listing with 
a Capital Raise can also be executed in the Cross at a price that is at 
or above the price that is as low as 20% below the lowest price in the 
price range established by the issuer in its effective registration 
statement; \6\ or at a price above the highest price of such price 
range. Specifically, to execute at a price outside of the price range, 
the company's registration statement must contain a sensitivity 
analysis explaining how the company's plans would change if the actual 
proceeds from the offering were less than or exceeded the amount 
assumed in such price range and the company has publicly disclosed and 
certified to Nasdaq that the company does not expect that such price 
would materially change the company's previous disclosure in its 
effective registration statement. Nasdaq also proposes to make related 
conforming changes.
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    \5\ On February 24, 2022, the Commission issued an order 
disapproving a similar proposal by Nasdaq. Securities Exchange Act 
Release No. 94311 (February 24, 2022), 87 FR 11780 (March 2, 2022) 
(the ``Disapproval Order''). Nasdaq believes that this proposal 
addresses the issues raised by the Commission in the Disapproval 
Order.
    \6\ References in this proposal to the price range established 
by the issuer in its effective registration statement are to the 
price range disclosed in the prospectus in such registration 
statement. Separately, as explained in more details below, Nasdaq 
proposes to prescribe that the 20% threshold below the lowest price 
in the price range will be calculated based on the maximum offering 
price set forth in the registration fee table, consistent with the 
Instruction to paragraph (a) of Securities Act Rule 430A.
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Current Direct Listing With a Capital Raise Requirements
    Currently, a Direct Listing with a Capital Raise must begin trading 
on Nasdaq following the initial pricing through the Cross, which is 
described in Rules 4120(c)(9) and 4753.\7\
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    \7\ See Listing Rule IM-5315-2.
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    Currently, in addition to pricing within the Pricing Range 
Limitation,\8\ Rule 4120(c)(9) requires that in the case of a Direct 
Listing with a Capital Raise, for purposes of releasing securities for 
trading on the first day of listing, Nasdaq, in consultation with the 
financial advisor to the issuer, will make the determination of whether 
the security is ready to trade. In addition, under Rule 4120(c)(9)(B) 
Nasdaq will release the security for trading only if all market orders 
will be executed in the Cross. If there is insufficient buy interest to 
satisfy the CDL Order and all other market orders, or if the Pricing 
Range Limitation is not satisfied, 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 on 
the Exchange would be cancelled back to the entering firms.\9\
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    \8\ See Rule 4120(c)(9)(B).
    \9\ Nasdaq will postpone and reschedule the offering only if 
either or both such conditions are not met.
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Proposed Change to Rule 4120(c)(9)
    While many companies are interested in alternatives to traditional 
IPOs, based on conversations with companies and their advisors Nasdaq 
believes that there may be a reluctance to use the existing Direct 
Listing with a Capital Raise rules because of concerns about the 
Pricing Range Limitation.
    One potential benefit of a Direct Listing with a Capital Raise as 
an alternative to a traditional IPO is that it could maximize the 
chances of more efficient price discovery of the initial public sale of 
securities for issuers and investors. Unlike an IPO where the offering 
price is informed by underwriter engagement with potential investors to 
gauge interest in the offering, but ultimately decided through 
negotiations between the issuer and the underwriters for the offering, 
in a Direct Listing with a Capital Raise the initial sale price is 
determined based on market interest and the matching of buy and sell 
orders in an auction open to all market participants. In that regard, 
in the Approval Order the Commission stated that:

    The opening auction in a Direct Listing with a Capital Raise 
provides for a different price discovery method for IPOs which may 
reduce the spread between the IPO price and subsequent market 
trades, a potential benefit to existing and potential investors. In 
this way, the proposed rule change may result in additional 
investment opportunities while providing companies more options for 
becoming publicly traded.\10\
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    \10\ See Approval Order, 86 FR at 28177.

    A successful initial public offering of shares requires sufficient 
investor interest. If an offering cannot be completed due to lack of 
investor interest, there is likely to be a substantial amount of 
negative publicity for the company and the offering may be delayed or 
cancelled. The Pricing Range Limitation imposed on a Direct Listing 
with a Capital Raise (but not on a traditional IPO) increases the 
probability of such a failed offering because the offering cannot 
proceed without some delay not only for the lack of investor interest, 
but also if investor interest is greater than the company and its 
advisors anticipated. In the Approval Order, the Commission noted a 
frequent academic observation of traditional firm commitment 
underwritten offerings that the IPO price, established through 
negotiation between the underwriters and the issuer, is often lower 
than the price that the issuer could have obtained for the securities, 
based on a comparison of the IPO price to the closing price on the 
first day of trading.\11\ Nasdaq believes that the price range in a 
company's effective registration statement for a Direct Listing with a 
Capital Raise would similarly be determined by the company and its 
advisors and, therefore, there may be instances of offerings where the 
price determined by the Nasdaq opening auction will exceed the highest 
price of the price range in the company's effective registration 
statement.
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    \11\ See Approval Order, footnote 91.
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    As explained above, under the existing rule a security subject to a 
Direct Listing with a Capital Raise

[[Page 20907]]

cannot be released for trading by Nasdaq if the actual price calculated 
by the Cross is above the highest price of the price range established 
by the issuer in its effective registration statement. In this case, 
Nasdaq would have to cancel or postpone the offering until the company 
amends its effective registration statement. At a minimum, such a delay 
exposes the company to market risk of changing investor sentiment in 
the event of an adverse market event. In addition, as explained above, 
the determination of the public offering price of a traditional IPO is 
not subject to limitations similar to the Pricing Range Limitation for 
a Direct Listing with a Capital Raise, which, in Nasdaq's view, could 
make companies reluctant to use this alternative method of going public 
despite its expected potential benefits. This reluctance could result 
in denying investors and companies the benefits of this different price 
discovery method.
    Accordingly, Nasdaq proposes to modify the Pricing Range Limitation 
such that in the case of the Direct Listing with a Capital Raise, a 
security could be released for trading by Nasdaq if the actual price at 
which the Cross would occur is as much as 20% below the lowest price of 
the price range established by the issuer in its effective registration 
statement. In addition, a security could be released for trading by 
Nasdaq if the actual price at which the Cross would occur was above the 
highest price in the price range established by the issuer in its 
effective registration statement.\12\ In such cases (whether lower or 
higher than the price range) the company will be required to specify 
the quantity of shares registered in its registration statement, as 
permitted by Securities Act Rule 457,\13\ and that registration 
statement will be required to contain a sensitivity analysis explaining 
how the company's plans would change if the actual proceeds from the 
offering are less than or exceed the amount assumed in the price range 
established by the issuer in its effective registration statement.\14\ 
In addition, the company will be required to publicly disclose and 
certify to Nasdaq prior to beginning of the Display Only Period that 
the company does not expect that such offering price would materially 
change the company's previous disclosure in its effective registration 
statement. The goal of these requirements is to have disclosure that 
allows investors to see how changes in share price ripple through 
critical elements of the disclosure.\15\
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    \12\ In the prior proposal, Nasdaq proposed different 
requirements based on whether the Cross would occur at a price that 
was within 20% of the price range. See Disapproval Order. Nasdaq is 
eliminating this proposed distinction and is proposing herein to 
treat all prices outside of the price range the same.
    \13\ Securities Act Rule 457 permits issuers to register 
securities either by specifying the quantity of shares registered, 
pursuant to Rule 457(a), or the proposed maximum aggregate offering 
amount. Nasdaq proposes to require that companies selling shares 
through a Direct Listing with a Capital Raise will register 
securities by specifying the quantity of shares registered and not a 
maximum offering amount. See also Compliance & Disclosure 
Interpretation of Securities Act Rules #227.03 at https://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm.
    \14\ The price range in the preliminary prospectus included in 
the effective registration statement must be a bona fide price range 
in accordance with Item 501(b)(3) of Regulation S-K.
    \15\ Sensitivity analysis disclosure may include but is not 
limited to: Use of proceeds; balance sheet and capitalization; and 
the company's liquidity position after the offering. An example of 
this disclosure could be: We will apply the net proceeds from this 
offering first to repay all borrowings under our credit facility and 
then, to the extent of any proceeds remaining, to general corporate 
purposes.
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    Nasdaq believes that this approach is consistent with SEC Rule 430A 
and question 227.03 of the SEC Staff's Compliance and Disclosure 
Interpretations, which generally allow a company to price a public 
offering 20% outside of the disclosed price range without regard to the 
materiality of the changes to the disclosure contained in the company's 
registration statement.\16\ Nasdaq believes such guidance also allows 
deviation above the price range beyond the 20% threshold if such change 
or deviation does not materially change the previous disclosure. 
Accordingly, Nasdaq believes that a company listing in connection with 
a Direct Listing with a Capital Raise can specify the quantity of 
shares registered, as permitted by Securities Act Rule 457, and, when 
an auction prices outside of the disclosed price range, use a Rule 
424(b) prospectus, rather than a post-effective amendment, when either 
(i) the 20% threshold noted in the instructions to Rule 430A is not 
exceeded, regardless of the materiality or non-materiality of resulting 
changes to the registration statement disclosure that would be 
contained in the Rule 424(b) prospectus, or (ii) when there is a 
deviation above the price range beyond the 20% threshold noted in the 
instructions to Rule 430A if such deviation would not materially change 
the previous disclosure, in each case assuming the number of shares 
issued is not increased from the number of shares disclosed in the 
prospectus. For purposes of this rule, the 20% threshold will be 
calculated based on the maximum offering price set forth in the 
registration fee table, consistent with the Instruction to paragraph 
(a) of Securities Act Rule 430A.\17\
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    \16\ Securities Act Rule 457 permits issuers to register 
securities either by specifying the quantity of shares registered, 
pursuant to Rule 457(a), or the proposed maximum aggregate offering 
amount. Nasdaq proposes to require that companies selling shares 
through a Direct Listing with a Capital Raise will register 
securities by specifying the quantity of shares registered and not a 
maximum offering amount. See also Compliance & Disclosure 
Interpretation of Securities Act Rules #227.03 at https://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm.
    \17\ Nasdaq believes that applying additional protections 
related to the disclosure requirements in the registration statement 
and the certifications to Nasdaq, as described above, to all 
instances where the Cross is executed outside the disclosed price 
range addresses an issue the Commission raised in the Disapproval 
Order. See footnote 5 above.
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    Nasdaq also proposes to adopt a new Price Volatility Constraint and 
disseminate information about whether the Price Volatility Constraint 
has been satisfied, which will indicate whether the security may be 
ready to trade. Prior to releasing a security for trading, Nasdaq 
allows a ``Pre-Launch Period'' of indeterminate length, during which 
price discovery takes place. The Price Volatility Constraint requires 
that the Current Reference Price has not deviated by 10% or more from 
any Current Reference Price during the Pre-Launch Period within the 
previous 10 minutes. The Pre-Launch Period will continue until at least 
five minutes after the Price Volatility Constraint has been satisfied. 
Nasdaq will also introduce the Near Execution Price which is the 
Current Reference Price at the time the Price Volatility Constraint has 
been satisfied; and set the Near Execution Time as such time. This 
change will provide investors with notice that the Cross nears 
execution and allows a period of at least five minutes for investors to 
modify their orders, if needed, based on the Near Execution Price, 
prior to the execution of the Cross and the pricing of the offering. 
Further, to assure that the Near Execution Price is a meaningful 
benchmark for investors, and that the offering price does not deviate 
substantially from the Near Execution Price, Nasdaq proposes to 
require, in addition to other the existing conditions stated in 
proposed Rule 4120(c)(9)(B)(vii), that the Cross may execute only if 
the actual price calculated by the Cross is no more than 10% below or 
above the Near Execution Price (the ``10% Price Collar'').
    Nasdaq notes that imbalance between the buy and sell orders could 
sometimes cause the Current Reference Price to fall outside the 10% 
Price Collar after the Price Volatility Constraint has been satisfied. 
Such price fluctuations could be temporary, and the Current Reference

[[Page 20908]]

Price may return to and remain within the 10% Price Collar. The price 
fluctuation could also be lasting such that the Current Reference Price 
remains outside the 10% Price Collar. Given this, Nasdaq proposes to 
assess the Current Reference Price vis-[agrave]-vis the 10% Price 
Collar 30 minutes after the Near Execution Time. If at that time the 
Current Reference Price is outside the 10% Price Collar, all 
requirements of the Pre-Launch Period shall reset and must be satisfied 
again.\18\ Once the Price Volatility Constraint has been satisfied 
anew, the Current Reference Price at such time will become the updated 
Near Execution Price and such time will become the updated Near 
Execution Time. This process will continue iteratively, if new resets 
are triggered, until the Cross is executed, or the offering is 
postponed.
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    \18\ For the avoidance of doubt, while the Price Volatility 
Constraint cannot initially be satisfied sooner than ten minutes 
after the beginning of the Pre-Launch Period, if it is subsequently 
reset, the Price Volatility Constraint can be satisfied again in 
less than ten minutes because it would look back at prior pricing 
during the Pre-Launch Period (including pricing prior to the reset) 
to determine if the Current Reference Price has deviated by 10% or 
more from any Current Reference Price within the previous 10 
minutes.
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    If the Current Reference Price 30 minutes after the Near Execution 
Time is within the 10% Price Collar, price formation may continue 
without limitations until Nasdaq, in consultation with the financial 
advisor to the issuer, makes the determination that the security is 
ready to trade (and certain existing conditions restated in proposed 
Rule 4120(c)(9)(B)(vii) are met). However, if at any time 30 minutes 
after the Near Execution Time the Current Reference Price is outside 
the 10% Price Collar, all requirements of the Pre-Launch Period shall 
reset and must be satisfied again, in the same manner as described in 
the immediately preceding paragraph.
    Given that, as proposed, there may be a Direct Listing with a 
Capital Raise that could price outside the price range of the company's 
effective registration statement and that there may be no upside limit 
above which the Cross could not proceed, Nasdaq proposes to enhance 
price discovery transparency by providing readily available, real time 
pricing information to investors. To that end Nasdaq will disseminate, 
free of charge, the Current Reference Price on a public website, such 
as Nasdaq.com, during the Pre-Launch Period and indicate whether the 
Current Reference Price is within the price range established by the 
issuer in its effective registration statement. Once the Price 
Volatility Constraint has been satisfied, Nasdaq will also disseminate 
the Near Execution Price, the Near Execution Time and the 30-minute 
countdown from such time. The disclosure will indicate that the Near 
Execution Price and the Near Execution Time may be reset, as described 
above, if the security is not released for trading within 30 minutes of 
the Near Execution Time and the Current Reference Price at such time 
(or at any time thereafter) is more than 10% below or more than 10% 
above the Near Execution Price.
    In this way, investors interested in participating in the opening 
auction will be informed when volatility has settled to a range that 
will allow the open to take place and they will be informed of the 
price range at which the auction would take place. If the price moves 
outside, and remains outside this range, 30 minutes after the original 
range was set they will be informed of the new range and will have at 
least five minutes to reevaluate their investment decision.\19\
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    \19\ Nasdaq believes that the introduction, as described above, 
of the 10% Price Collar, the Near Execution Price, the Near 
Execution Time, the 30-minute reset and the five minute prohibition 
on executing the Cross after the Price Volatility Constraint has 
been satisfied addresses concerns the Commission raised in the 
Disapproval Order. See footnote 5 above. Specifically, in the 
Disapproval Order, the Commission stated that, as previously 
proposed, ``investors could be misled that the opening cross `nears 
execution' and that the disseminated Current Reference Price will 
likely be close to the opening auction price when, in fact, the 
auction may not occur for a considerable time and the opening 
auction price may differ substantially.'' As revised, the opening 
auction price must remain within 10% of the price publicly announced 
as the Near Execution Price for the auction to occur and investors 
will have enhanced disclosure about the possibility that the Price 
Volatility Constraint could be reset.
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    Nasdaq also proposes to prohibit market orders (other than by the 
Company through its CDL Order) from the opening of a Direct Listing 
with a Capital Raise. This will protect investors by assuring that 
investors only purchase shares at a price at or better than the price 
they affirmatively set, after having the opportunity to review the 
Company's effective registration statement including the sensitivity 
analysis describing how the Company will use any additional proceeds 
raised. Accordingly, an investor participating in a Direct Listing with 
a Capital Raise will make their initial investment decision prior to 
the launch of the offering by setting the price in their limit order 
above which they will not buy shares in the offering, but will also 
have an opportunity to reevaluate their initial investment decision 
during the price formation process of the Pre-Launch Period based on 
the Near Execution Price. Under the proposed rule, such investor will 
have at least five minutes once the Near Execution Price has been set 
and before the offering may be priced by Nasdaq to modify their order, 
if needed. As described above, all relevant price formation information 
will be disseminated by Nasdaq on a public website in real time.
    In addition, to protect investors and assure that they are informed 
about the attributes of a Direct Listing with a Capital Raise, Nasdaq 
proposes to impose specific requirements on Nasdaq members with respect 
to a Direct Listing with a Capital Raise. These rules will require 
members to provide to a customer, before that customer places an order 
to be executed in the Cross, a notice describing the mechanics of 
pricing a security subject to a Direct Listing with a Capital Raise in 
the Cross, including information regarding the location of the public 
website where Nasdaq will disseminate the Current Reference Price.
    To assure that members have the necessary information to be 
provided to their customers, Nasdaq proposes to distribute, at least 
one business day prior to the commencement of trading of a security 
listing in connection with a Direct Listing with a Capital Raise, an 
information circular to its members that describes any special 
characteristics of the offering, and Nasdaq's rules that apply to the 
initial pricing through the mechanism outlined in Nasdaq Rule 
4120(c)(9)(B) and Nasdaq Rule 4753 for the opening auction, including 
information about the notice they must provide customers and other 
Nasdaq rules that:
     Require members to use reasonable diligence in regard to 
the opening and maintenance of every account, to know (and retain) the 
essential facts concerning every customer and concerning the authority 
of each person acting on behalf of such customer; and
     require members in recommending transactions for a 
security subject to a Direct Listing with a Capital Raise to have a 
reasonable basis to believe that: (i) The recommendation is suitable 
for a customer given reasonable inquiry concerning the customer's 
investment objectives, financial situation, needs, and any other 
information known by such members, and (ii) the customer can evaluate 
the special characteristics, and is able to bear the financial risks, 
of an investment in such security.
    These member requirements are intended to remind members of their 
obligations to ``know their customers,'' increase transparency of the 
pricing mechanisms of a Direct Listing with a Capital Raise, and help 
assure that

[[Page 20909]]

investors have sufficient price discovery information.
    In each instance of a Direct Listing with a Capital Raise, Nasdaq's 
information circular \20\ will inform the market participants that the 
auction could price up to 20% below the lowest price of the price range 
in the company's effective registration statement and specify what that 
price is. Nasdaq will also indicate in such circular whether or not 
there is an upside limit above which the Cross could not proceed, based 
on the company's certification, as described above. Nasdaq will also 
remind the market participants that Nasdaq prohibits market orders 
(other than by the Company) from the opening of a Direct Listing with a 
Capital Raise.
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    \20\ The Information circular is an industry wide free service 
provided by Nasdaq.
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    To assure that the issuer has the ability, prior to the completion 
of the offering, to provide any necessary additional disclosures that 
are dependent on the price of the offering, Nasdaq proposes to 
introduce to the operation of the Cross a brief Post-Pricing Period, in 
circumstances where the actual price calculated by the Cross is outside 
of the price range established by the issuer in its effective 
registration statement. Specifically, in such circumstances, Nasdaq 
will initiate a Post-Pricing Period following the calculation of the 
actual price. During the Post-Pricing Period the issuer must confirm to 
Nasdaq that no additional disclosures are required under federal 
securities laws based on the actual price calculated by the Cross. 
During the Post-Pricing Period no additional orders for the security 
may be entered in the Cross and no existing orders in the Cross may be 
modified. The security shall be released for trading immediately 
following the Post-Pricing Period. If the Company cannot provide the 
required confirmation, then Nasdaq will postpone and reschedule the 
offering.
Proposed Conforming Changes to Listing Rule IM-5315-2
    Listing Rule IM-5315-2 allows 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.
    Listing Rule IM-5315-2 provides that in determining whether a 
company listing in connection with a Direct Listing with a Capital 
Raise satisfies the Market Value of Unrestricted Publicly Held Shares 
\21\ 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 Exchange's opening auction 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).
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    \21\ See Listing Rules 5005(a)(23) and 5005(a)(45).
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    Listing Rule IM-5315-2 further provides that, for this purpose, the 
Market Value of Unrestricted Publicly Held Shares will be calculated 
using a price per share equal to the lowest price of the price range 
disclosed by the issuer in its effective registration statement.
    Because Nasdaq proposes to allow the opening auction to price up to 
20% below the lowest price of the price range established by the issuer 
in its effective registration statement, Nasdaq proposes to make a 
conforming change to Listing Rule IM-5315-2 to provide that the price 
used to determine such company's compliance with the Market Value of 
Unrestricted Publicly Held Shares is the price per share equal to the 
price that is 20% below the lowest price of the price range disclosed 
by the issuer in its effective registration statement. Nasdaq will 
determine that the company has met the applicable bid price and market 
capitalization requirements based on the same per share price. This 
price is the minimum price at which the company could sell its shares 
in the Direct Listing with a Capital Raise transaction and so assures 
that the company will satisfy these requirements at any price at which 
the auction successfully executes.
    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.\22\
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    \22\ 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.
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Proposed Conforming Changes to Rules 4753(a)(3)(A) and 4753(b)(2)
    Nasdaq proposes to amend Rules 4753(a)(3)(A) and 4753(b)(2) to 
conform the requirements for disseminating information and establishing 
the opening price through the Cross in a Direct Listing with a Capital 
Raise to the proposed amendment to allow the opening auction to price 
as much as 20% below the lowest price of the price range established by 
the issuer in its effective registration statement.
    Specifically, Nasdaq proposes changes to Rules 4753(a)(3)(A) 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 Cross will execute. These rules currently 
provide that where there are multiple prices that would satisfy the 
conditions for determining a price, the fourth tie-breaker for a Direct 
Listing with a Capital Raise is the price that is closest to the lowest 
price of the price range disclosed by the issuer in its effective 
registration statement.\23\
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    \23\ To illustrate: The bottom of the range is $10. More than 
one price exists within the range under the previous set of tie-
breakers such that both $10.15 and $10.25, satisfy all other 
requirements. The operation of the fourth tie-breaker will result in 
the auction price of $10.15 because it is the price that is closest 
to $10.
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    To conform these rules to the modification of the Pricing Range 
Limitation change, as described above, Nasdaq proposes to modify the 
fourth tie-breaker for a Direct Listing with a Capital Raise, to use 
the price closest to the price that is 20% below the lowest price of 
the price range disclosed by the issuer in its effective registration 
statement.\24\
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    \24\ Note that using the price that is 20% below the lowest 
price of the price range disclosed by the issuer in its effective 
registration statement as a tie-breaker (rather than the price 
representing the bottom of the range) does not change the outcome in 
the example in footnote 23 above because $10.15 is the price that is 
closest to either.
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    Lastly, Nasdaq proposes to clarify several provisions of the 
existing rules by restating the provisions of Rules 4120(c)(8)(A) and 
(c)(9)(A) in a clear and direct manner without substantively changing 
them. Specifically, Nasdaq proposes to clarify the mechanics of the 
Cross by specifying that Nasdaq will initiate a 10-minute Display Only 
Period only after the CDL Order had been entered. This clarification 
simply states what is already implied by the rule because the Cross and 
the offering may not proceed without the company's order to sell the 
securities in a Direct Listing with a Capital Raise. Similarly,

[[Page 20910]]

Nasdaq proposes to clarify without changing the existing rule that 
Nasdaq shall select price bands for purposes of applying the price 
validation test in the Cross in connection with a Direct Listing with a 
Capital Raise. Under the price validation test, the System compares the 
Expected Price with the actual price calculated by the Cross to 
ascertain that the difference, if any, is within the price bands. 
Nasdaq shall select an upper price band and a lower price band. The 
default for an upper and a lower price band is set at zero. If a 
security does not pass the price validation test, Nasdaq may, but is 
not required to, select different price bands before recommencing the 
process to release the security for trading.\25\ Nasdaq also proposes 
to clarify that the ``actual price,'' as the term is used in the rule, 
is the Current Reference Price at the time the system applies the price 
bands test.
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    \25\ This function is provided by the underwriter in an IPO and 
by a Financial Advisor in a Direct Listing. The Commission 
previously approved Nasdaq performing this function. See Approval 
Order.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\26\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\27\ 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.
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    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(5).
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    Nasdaq believes that the proposed amendment to modify the Pricing 
Range Limitation is consistent with the protection of investors because 
this approach is similar to the pricing of an IPO where an issuer is 
permitted to price outside of the price range disclosed by the issuer 
in its effective registration statement in accordance with the SEC's 
Staff guidance, as described above.\28\ Specifically, Nasdaq believes 
that a company listing in connection with a Direct Listing with a 
Capital Raise can specify the quantity of shares registered, as 
permitted by Securities Act Rule 457, and, when an auction prices 
outside of the disclosed price range, use a Rule 424(b) prospectus, 
rather than a post-effective amendment, when either (i) the 20% 
threshold noted in the instructions to Rule 430A is not exceeded, 
regardless of the materiality or non-materiality of resulting changes 
to the registration statement disclosure that would be contained in the 
Rule 424(b) prospectus, or (ii) when there is a deviation above the 
price range beyond the 20% threshold noted in the instructions to Rule 
430A if such deviation would not materially change the previous 
disclosure, in each case assuming the number of shares issued is not 
increased from the number of shares disclosed in the prospectus. As a 
result, Nasdaq will allow the Cross to take place as low as 20% below 
the lowest price of the price range disclosed by the issuer in its 
effective registration statement, but no lower, and so this is the 
minimum price at which the company could be listed. In addition, to 
better inform investors and market participants, Nasdaq will issue an 
industry wide circular to inform the participants that the auction 
could price up to 20% below the lowest price of the price range in the 
company's effective registration statement and specify what that price 
is. Nasdaq will also indicate in such circular whether or not there is 
an upside limit above which the Cross could not proceed, based on the 
company's certification, as described above. Nasdaq will also remind 
the market participants that Nasdaq prohibits market orders (other than 
by the Company) from the opening of a Direct Listing with a Capital 
Raise.
---------------------------------------------------------------------------

    \28\ In a recent speech, SEC Chair Gary Gensler emphasized that 
an overarching principle of regulation is that like activities ought 
to be treated alike. See https://www.sec.gov/news/speech/gensler-healthy-markets-association-conference-120921.
---------------------------------------------------------------------------

    To assure that the issuer has the ability, prior to the completion 
of the offering, to provide any necessary additional disclosures that 
are dependent on the price of the offering, Nasdaq proposes to 
introduce to the operation of the Cross a brief Post-Pricing Period, in 
circumstances where the actual price calculated by the Cross is at or 
above the price that is 20% below the lowest price and below the lowest 
price of the price range established by the issuer in its effective 
registration statement; or is above the highest price of the price 
range established by the issuer in its effective registration 
statement. Specifically, in such circumstances, Nasdaq will initiate a 
Post-Pricing Period following the calculation of the actual price. 
During the Post-Pricing Period the issuer must confirm to Nasdaq that 
no additional disclosures are required under federal securities laws 
based on the actual price calculated by the Cross, with such 
confirmation ending the Post-Pricing Period. During the Post-Pricing 
Period no additional orders for the security may be entered in the 
Cross and no existing orders in the Cross may be modified. The security 
shall be released for trading immediately following the Post-Pricing 
Period. If the Company cannot provide the required confirmation, then 
Nasdaq will postpone and reschedule the offering. Nasdaq believes that 
this modification is designed to promote just and equitable principles 
of trade, to remove impediments to and perfect the mechanism of a free 
and open market because it will help assure that a company listing in 
connection with a Direct Listing with a Capital Raise complies with the 
disclosure requirements under federal securities laws and that 
investors receive all required information.
    Nasdaq believes that the proposal to allow a Direct Listing with a 
Capital Raise to price above any price above the price range of the 
company's effective registration statement is designed to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market investors because this approach 
is similar to that of pricing a traditional IPO. In addition, to 
protect investors Nasdaq proposes to enhance price discovery 
transparency by providing readily available, real time pricing 
information to investors. To that end Nasdaq will disseminate, free of 
charge, the Current Reference Price on a public website (such as 
Nasdaq.com) during the Pre-Launch Period and indicate whether the 
Current Reference Price is within the price range established by the 
issuer in its effective registration statement.
    Nasdaq believes that the provision prohibiting market orders (other 
than by the Company) from the opening of a Direct Listing with a 
Capital Raise is designed to protect investors because this provision 
will assure that investors only purchase shares at a price that is at, 
or better than, the price they affirmatively set, after having the 
opportunity to review the Company's effective registration statement 
including the sensitivity analysis describing how the Company will use 
any additional proceeds raised.
    Nasdaq also proposes to adopt a new Price Volatility Constraint and 
disseminate information about whether the Price Volatility Constraint 
has been satisfied, which will indicate whether the security may be 
ready to trade. The Price Volatility Constraint requires that the 
Current Reference Price has not deviated by 10% or more from any 
Current Reference Price within the previous 10 minutes. The Pre-Launch 
Period will continue until at least five minutes after the Price 
Volatility

[[Page 20911]]

Constraint has been satisfied. Nasdaq will also introduce the Near 
Execution Price which is the Current Reference Price at the time the 
Price Volatility Constraint has been satisfied; and set the Near 
Execution Time at such time. This change will provide investors with 
notice that the Cross nears execution and a period of at least five 
minutes to modify their orders, if needed, based on the Near Execution 
Price, prior to the execution of the Cross and the pricing of the 
offering. Further, to help assure that the offering price does not 
deviate substantially from the Near Execution Price, Nasdaq proposes to 
require, in addition to other conditions described above, that the 
Cross may execute only if the actual price calculated by the Cross is 
within the 10% Price Collar. Nasdaq believes that these changes are 
designed to protect investors and the public interest because an 
investor participating in a Direct Listing with a Capital Raise will 
make their initial investment decision prior to the launch of the 
offering by setting the price in their limit order above which they 
will not buy shares in the offering, but will also have an opportunity 
to reevaluate their initial investment decision during the price 
formation process of the Pre-Launch Period based on the Near Execution 
Price. Under the proposed rule, such investor will have at least five 
minutes once the Near Execution Price has been set and before the 
offering may be priced by Nasdaq to modify their order, if needed. 
While the auction may take longer than this five minute period to 
complete, investors are protected during this time because the Price 
Volatility Constraint will reset if the actual price calculated by the 
Cross is more than 10% below or above the Near Execution Price. Once 
the Price Volatility Constraint has been satisfied, Nasdaq proposes to 
disseminate the Near Execution Price and the Near Execution Time on a 
public website, such as Nasdaq.com.
    Nasdaq believes that the proposal to reset the Price Volatility 
Constraint, the Near Execution Price and the Near Execution Time in the 
circumstances described above is designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market investors because in certain circumstances an 
imbalance between the buy and sell orders could sometimes cause the 
Current Reference Price to fall outside the 10% Price Collar after the 
Price Volatility Constraint has been satisfied. These provisions will 
protect investors by increasing the information available to them in 
connection with the price formation process during the opening auction.
    To protect investors and increase transparency, Nasdaq also 
proposes to disseminate on a public website, such as Nasdaq.com, the 
30-minute countdown from the Near Execution Time and indicate that the 
Near Execution Price and the Near Execution Time may be reset, as 
described above, if the security is not released for trading within 30 
minutes of the Near Execution Time and the Current Reference Price at 
such time (or at any time thereafter) is outside the 10% Price Collar.
    In addition, to protect investors and assure that they are informed 
about the attributes of a Direct Listing with a Capital Raise, Nasdaq 
proposes to impose specific requirements on Nasdaq members with respect 
to a Direct Listing with a Capital Raise. These rules will require 
members to provide to a customer, before that customer places an order 
to be executed in the Cross, a notice describing the mechanics of 
pricing a security subject to a Direct Listing with a Capital Raise in 
the Cross, including information regarding the dissemination of the 
Current Reference Price on a public website such as Nasdaq.com.
    To assure that members have the necessary information to be 
provided to their customers, Nasdaq proposes to distribute, at least 
one business day prior to the commencement of trading of a security 
listing in connection with a Direct Listing with a Capital Raise, an 
information circular to its members that describes any special 
characteristics of the offering, and Nasdaq's rules that apply to the 
initial pricing through the mechanism outlined in Nasdaq Rule 
4120(c)(9)(B) and Nasdaq Rule 4753 for the opening auction, including 
information about the notice they must provide customers and other 
Nasdaq rules that:
     Require members to use reasonable diligence in regard to 
the opening and maintenance of every account, to know (and retain) the 
essential facts concerning every customer and concerning the authority 
of each person acting on behalf of such customer; and
     require members in recommending transactions for a 
security subject to a Direct Listing with a Capital Raise to have a 
reasonable basis to believe that: (i) The recommendation is suitable 
for a customer given reasonable inquiry concerning the customer's 
investment objectives, financial situation, needs, and any other 
information known by such members, and (ii) the customer can evaluate 
the special characteristics, and is able to bear the financial risks, 
of an investment in such security.
    These member requirements are consistent with the protection of 
investors because they are designed to remind members of its 
obligations to ``know their customers,'' increase transparency of the 
pricing mechanisms of a Direct Listing with a Capital Raise, and help 
assure that investors have sufficient price discovery information.
    Nasdaq believes that the Commission Staff has already concluded 
that pricing up to 20% below the lowest price and at a price above the 
highest price of the price range in the company's effective 
registration statement is appropriate for a company conducting an 
initial public offering notwithstanding it being outside of the range 
stated in an effective registration statement, and investors have 
become familiar with this approach at least since the Commission Staff 
last revised Compliance and Disclosure Interpretation 227.03 in January 
2009.\29\ Allowing Direct Listings with a Capital Raise to similarly 
price up to 20% below the lowest price and at a price above the highest 
price of the price range in the company's effective registration 
statement would be consistent with Chair Gensler's recent call to treat 
``like cases alike.'' \30\
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    \29\ https://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm.
    \30\ See https://www.sec.gov/news/speech/gensler-healthy-markets-association-conference-120921.
---------------------------------------------------------------------------

    Nasdaq believes that the proposed amendments to Listing Rule IM-
5315-2 and Rules 4753(a)(3)(A) and 4753(b)(2) to conform these rules to 
the modification of the Pricing Range Limitation is consistent with the 
protection of investors. These amendments would simply substitute 
Nasdaq's reliance on the price equal to the lowest price of the price 
range disclosed by the issuer in its effective registration statement 
to the price that is 20% below such lowest price, making it more 
difficult to meet the requirements. In the case of Listing Rule IM-
5315-2, a company listing in connection with a Direct Listing with a 
Capital Raise would still need to meet all applicable initial listing 
requirements based on the price that is 20% below the lowest price of 
the price range disclosed by the issuer in its effective registration 
statement. In the case of the Rules 4753(a)(3)(A) and 4753(b)(2) such 
price, which is the minimum price at which the Cross will occur, will 
serve as the fourth tie-breaker where there are multiple prices that 
would satisfy the conditions for determining the auction price, as 
described above. Nasdaq believes that this proposal to resolve a 
potential tie among the prices that satisfy all other requirements in 
the

[[Page 20912]]

Cross, by choosing the price that is closest to the price that is 20% 
below the range, is consistent with Section 6(b)(5) of the Act because 
it is designed to protect investors by providing them with the most 
advantageous offering price among possible alternative prices.
    Nasdaq also believes that the proposal, by eliminating an 
impediment to companies using a Direct Listing with a Capital Raise, 
will help removing potential impediments to free and open markets 
consistent with Section 6(b)(5) of the Exchange Act while also 
supporting capital formation.
    Finally, Nasdaq believes that the proposal to clarify several 
provisions of the existing rules without changing them is designed to 
remove impediments to and perfect the mechanism of a free and open 
market because such changes make the rules easier to understand and 
apply without changing their substance.

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. Nasdaq believes that allowing listing venues to improve 
their rules enhances competition among exchanges. Nasdaq also believes 
that this proposed change will give issuers interested in this pathway 
to access the capital markets additional flexibility in becoming a 
public company, and in that way promote competition among service 
providers, such as underwriters and other advisors, to such companies.

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

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2022-027 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-2022-027. 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-2022-027, and should be submitted 
on or before April 29, 2022.

    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. 2022-07466 Filed 4-7-22; 8:45 am]
BILLING CODE 8011-01-P


