[Federal Register Volume 87, Number 75 (Tuesday, April 19, 2022)]
[Notices]
[Pages 23300-23306]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-08281]



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SECURITIES AND EXCHANGE COMMISSION

Release No. 34-94708; File No. SR-NYSE-2022-14]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change To Modify Certain Pricing 
Limitations for Securities Listed on the Exchange Pursuant to a Primary 
Direct Floor Listing

April 13, 2022.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on April 7, 2022, New York Stock Exchange LLC (``NYSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the self-
regulatory organization. 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\ 15 U.S.C. 78s.
    \3\ 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 
securities listed on the Exchange pursuant to a Primary Direct Floor 
Listing. The proposed rule change is available on the Exchange's 
website at www.nyse.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

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

1. Purpose
    The Exchange recently amended Chapter One of the Listed Company 
Manual (the ``Manual'') to modify the provisions relating to direct 
listings to permit a primary offering in connection with a direct 
listing and to specify how a direct listing qualifies for initial 
listing if it includes both sales of securities by the company and 
possible sales by selling shareholders (a ``Primary Direct Floor 
Listing'').\4\ The Exchange also adopted Rule 7.31(c)(1)(D) defining 
the Issuer Direct Offering (``IDO'') Order for use by a company that 
wishes to sell its shares through a Primary Direct Floor Listing and 
modified Rule 7.35A to describe how the IDO Order would participate in 
a Direct Listing Auction, establish additional requirements for a DMM 
conducting a Direct Listing Auction for a Primary Direct Floor Listing, 
and specify how the Indication Reference Price would be determined for 
a security to be opened in a Direct Listing.\5\ Currently, under Rule 
7.35A(g)(2), the DMM will not conduct a Direct Listing Auction for a 
Primary Direct Floor Listing if (i) the Auction Price would be outside 
of the price range specified by the company in its effective 
registration statement (the ``Price Range Limitation'') \6\ and (ii) if 
there is insufficient interest to satisfy both the IDO Order and all 
better-priced sell orders in full.
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    \4\ See Securities Exchange Act Release No. 90768 (December 22, 
2020), 85 FR 85807 (December 29, 2020) (SR-NYSE-2019-67) (Order 
Setting Aside Action by Delegated Authority and Approving a Proposed 
Rule Change, as Modified by Amendment No. 2, to Amend Chapter One of 
the Listed Company Manual to Modify the Provisions Relating to 
Direct Listings) (the ``Approval Order'').
    \5\ Id.
    \6\ The Exchange notes that references in this rule filing 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. In addition, as explained 
in more detail below, the Exchange proposes that the 20% threshold 
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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    The Exchange now proposes to modify the Price Range Limitation to 
provide that a Direct Listing Auction for a Primary Direct Floor 
Listing may be conducted if the Auction Price is outside of the price 
range established by the company in its effective registration 
statement (the ``Issuer Price Range'') but is either (i) at or above 
the price that is 20% below the lowest price or at or below the price 
that is 20% above the highest price of the Issuer Price Range \7\ or 
(ii) above the price that is 20% above the highest price of the Issuer 
Price Range. The Exchange proposes that a Direct Listing Auction for a 
Primary Direct Floor Listing could proceed in these circumstances 
provided that the issuer has certified to the Exchange and publicly 
disclosed that: (i) It does not expect that the Auction Price would 
materially change the issuer's previous disclosure in its effective 
registration statement; (ii) the price range in the preliminary 
prospectus included in the effective registration statement is a bona 
fide price range in accordance with Item 501(b)(3) of Regulation S-K; 
and (iii) such registration statement contains a sensitivity analysis 
explaining how the issuer's plans would change if the actual proceeds 
from the offering differ from the amount assumed in the price range 
established by the issuer in its effective registration statement.
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    \7\ As discussed further below, the Exchange proposes to define 
the ``Primary Direct Floor Listing Auction Price Range'' as the 
price range that includes 20% below the lowest price and 20% above 
the highest price of the Issuer Price Range.
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Background
    The Exchange believes that, while many companies are interested in 
alternatives to the traditional initial public offering (``IPO''), 
companies and their advisors may be reluctant to use the Primary Direct 
Floor Listing under current Exchange rules because of concerns about 
the Price Range Limitation.
    One potential benefit of a Primary Direct Floor Listing 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, 
the initial sale price in a Primary Direct Floor Listing 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, the Commission noted in the Approval Order that:

    [B]ecause the price of securities issued by a company in a 
Primary Direct Floor Listing will be determined based on market 
interest and the matching of buy and sell orders, Primary Direct 
Floor Listings will provide an alternative way to price securities 
offerings that may better reflect prices in the aftermarket, and 
thus may allow for efficiencies in IPO pricing and

[[Page 23301]]

allocation. . . . The opening auction in a Primary Direct Floor 
Listing provides for a different price discovery method for IPOs 
which may reduce the spread between IPO price and subsequent market 
trades, a potential benefit to existing and potential investors.\8\
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    \8\ See Approval Order, 85 FR at 85816-17 (footnote omitted).

    A successful IPO of shares requires sufficient investor interest. 
If an offering cannot be completed due to lack of investor interest, a 
company is likely to receive negative publicity, and the offering may 
be delayed or cancelled. The Price Range Limitation--which is imposed 
on a Primary Direct Floor Listing but not on an IPO--increases the 
probability of a failed offering because it contemplates there also 
being too much investor interest. In other words, if investor interest 
is greater than the company and its advisors anticipated, an offering 
would need to be delayed or cancelled.
    As the Commission has noted with respect to traditional firm 
commitment underwritten offerings, the IPO price, which is 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.\9\ The Exchange believes that the price 
range in a company's effective registration statement for a Primary 
Direct Floor Listing is similarly determined by the company and its 
advisors and, therefore, there may be instances of offerings where the 
price determined by the Direct Listing Auction would exceed the highest 
price of the price range in the company's effective registration 
statement.
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    \9\ See, e.g., Approval Order, 85 FR at 85816, n. 113.
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    As described above, under current Exchange Rules, the DMM would not 
conduct a Direct Listing Auction for a security subject to a Primary 
Direct Floor Listing if the Auction Price determined is above the 
highest price of the price range established by the issuer in its 
effective registration statement. In this case, the offering would be 
cancelled or postponed until the company amends its effective 
registration statement. At a minimum, such a delay could expose the 
company to risks associated with changing investor sentiment in the 
event of an adverse market event. As a result, the Exchange believes 
that companies may be reluctant to use this alternative method of going 
public despite its expected potential benefits because of the 
restrictions of the Price Range Limitation.
Proposed Rule Change
    In light of the above, the Exchange proposes to modify the Price 
Range Limitation such that a Direct Listing Auction for a Primary 
Direct Floor Listing could proceed even if the Auction Price is at or 
above the price that is 20% below the lowest price of the Issuer Price 
Range and at or below the price that is 20% above the highest price of 
such price range. Specifically, the Exchange proposes that the DMM 
could conduct the Direct Listing Auction, provided all other necessary 
conditions are satisfied, even if the Auction Price is outside of the 
Issuer Price Range, if the Auction Price would not be more than 20% 
below the lowest price or more than 20% above the highest price of such 
range and the company has, in its effective registration statement, 
specified the quantity of shares registered, as permitted by Securities 
Act Rule 457.\10\ The Exchange further proposes that a Direct Listing 
Auction could proceed if the Auction Price is a price that is greater 
than 20% above the highest price of the Issuer Price Range, provided 
that all other necessary conditions are satisfied, and the company has, 
in its effective registration statement, specified the quantity of 
shares registered, as permitted by Securities Act Rule 457. The 
Exchange also proposes that the 20% threshold 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 
430.
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    \10\ 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. The Exchange proposes to require that companies selling 
shares through a Primary Direct Floor Listing will register 
securities by specifying the quantity of shares registered and not a 
maximum offering amount.
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    When the Auction Price is either (i) outside of the Issuer Price 
Range but not more than 20% above or below such price range, or (ii) 
greater than 20% above the highest price of the Issuer Price Range, the 
Exchange proposes that the Direct Listing Auction would not proceed 
unless the company has publicly disclosed and certified to the Exchange 
that (i) the company does not expect that such offering price would 
materially change the company's previous disclosure in its effective 
registration statement; (ii) the price range in the preliminary 
prospectus included in the effective registration statement is a bona 
fide price range in accordance with Item 501(b)(3) of Regulation S-K; 
and (iii) the company's registration statement contains a sensitivity 
analysis explaining how the company's plans would change if the actual 
proceeds from the offering differ from the amount assumed in the price 
range established by the issuer in its effective registration 
statement.\11\ In such cases, the Exchange also proposes to provide the 
issuer with the opportunity to provide any necessary additional 
disclosures that are dependent on the price of the offering so that any 
such disclosures would be available to investors prior to the 
completion of the offering. Thus, the Exchange proposes that a Direct 
Listing Auction for a Primary Direct Floor Listing would not take place 
until the issuer confirms to the Exchange that no additional 
disclosures are required under federal securities laws based on the 
Auction Price determined by the DMM.
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    \11\ 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. A company could 
state, for example: ``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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    The Exchange believes that the additional requirements to permit a 
Direct Listing Auction to take place at an Auction Price that is 
outside of the Issuer Price Range (whether it is at or within the 
Primary Direct Floor Listing Auction Price Range or above the highest 
price of such price range), as proposed, would provide sufficient 
disclosures to allow investors to evaluate whether to participate in 
the Direct Listing Auction for a Primary Direct Floor Listing, 
including the opportunity to see how changes in share price may impact 
the company's disclosures.
    The Exchange believes that its proposal with respect to the Price 
Range Limitation for a Primary Direct Floor Listing 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.\12\ The Exchange believes such 
guidance would also allow for deviation of greater than 20% above the 
highest price of the price range in a company's registration, provided 
that such change would not materially change the previous

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disclosure. Accordingly, the Exchange believes that a company listing 
in connection with a Primary Direct Floor Listing could specify the 
quantity of shares registered, as permitted by Securities Act Rule 457, 
and, if 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 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) there is a deviation above the price 
range beyond the 20% threshold noted in Rule 430A if such deviation 
would not materially change the previous disclosures, in each case 
assuming the number of shares issued is not increased from the number 
of shares disclosed in the prospectus.
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    \12\ See Compliance & Disclosure Interpretation of Securities 
Act Rules #227.03 at https://www.sec.gov/corpfin/securities-act-rules.
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    Given that, as proposed, there may be a Primary Direct Floor 
Listing that could price outside of the price range of the company's 
effective registration statement and that there may be no upper limit 
above which the Direct Listing Auction could not proceed, the Exchange 
proposes to support price discovery transparency by providing readily 
available, real time pricing information to investors. Specifically, 
the DMM's pre-opening indications for a security to be opened in a 
Direct Listing Auction for a Primary Direct Floor Listing would 
continue to be published via the securities information processor 
(``SIP'') and proprietary data feeds. The Exchange would also make the 
Indication Reference Price available, free of charge, on a public 
website (such as www.nyse.com) on the day such Auction is anticipated 
to take place.
    In addition, to protect investors and enhance disclosure in 
connection with a Primary Direct Floor Listing, the Exchange proposes 
to adopt certain requirements for member organizations with respect to 
Primary Direct Floor Listings. Specifically, the Exchange proposes to 
require member organizations to provide to a customer, before that 
customer places an order to participate in the Direct Listing Auction 
for a Primary Direct Floor Listing, a notice describing the mechanics 
of pricing a security subject to a Direct Listing Auction for a Primary 
Direct Floor Listing, including information regarding the availability 
of pre-opening indications via the SIP and proprietary data feeds and 
the location of the public website where the Exchange will disseminate 
information relating to the Indication Reference Price.
    The Exchange further proposes to distribute, at least one business 
day prior to the commencement of trading of a security listing in 
connection with a Primary Direct Floor Listing, a regulatory bulletin 
that describes any special characteristics of the offering and the 
Exchange rules that apply to the pricing of a Primary Direct Floor 
Listing. The regulatory bulletin would also include information about 
the notice that member organizations would be required to provide 
customers, as proposed, and remind member organizations of their 
obligations pursuant to the Exchange rules that:
     Require member organizations 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 (Rule 
2090); and
     Require member organizations in recommending transactions 
for a security subject to a Direct Listing Auction for a Primary Direct 
Floor Listing 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 member organizations, 
and (ii) the customer can evaluate the special characteristics, and is 
able to bear the financial risks, of an investment in such security 
(Rule 2111).
    These member organization requirements are intended to remind 
members of their obligations to ``know their customers'' and would also 
serve to increase transparency regarding the pricing mechanisms 
applicable to a Primary Direct Floor Listing and help provide investors 
with sufficient price discovery information.
    For each Primary Direct Floor Listing, the Exchange proposes that 
its regulatory bulletin would also inform market participants that the 
Auction Price could be up to 20% below the lowest price of the price 
range in the company's effective registration statement and specify 
what that price is. The Exchange's regulatory bulletin would also 
indicate whether there is a price range outside of which the Direct 
Listing Auction for the Primary Direct Floor Listing could not proceed, 
based on the company's certification as described above.
Amendments to the Manual
    Section 102.01B(E) of the Manual provides that companies may be 
listed on the Exchange through a Primary Direct Floor Listing. More 
specifically, a company that has not previously had its common equity 
securities registered under the Act may list its common equity 
securities on the Exchange at the time of effectiveness of a 
registration statement pursuant to which the company itself will sell 
shares in the opening auction on the first day of trading on the 
Exchange. A Primary Direct Listing is any such listing in which either 
(i) only the company itself is selling shares in the opening auction on 
the first day of trading or (ii) the company is selling shares and 
selling shareholders may also sell shares in such opening auction.
    Section 102.01B(E) of the Manual also provides that, with respect 
to a Primary Direct Floor Listing, the Exchange will deem a company to 
have met the applicable aggregate market value of publicly-held shares 
requirement if the company will sell at least $100,000,000 in market 
value of shares in the Exchange's opening auction on the first day of 
trading on the Exchange. The Manual further provides that, where a 
company is conducting a Primary Direct Floor Listing and will sell 
shares in the opening auction with a market value of less than 
$100,000,000, the Exchange will determine that such company has met its 
market-value of publicly-held shares requirement if the aggregate 
market value of the shares the company will sell in the opening auction 
on the first day of trading and the shares that are publicly held 
immediately prior to the listing is at least $250,000,000 with such 
market value calculated using a price per share equal to the lowest 
price of the price range established by the issuer in its registration 
statement.
    To effect the changes to the Price Range Limitation described above 
and facilitate the possibility of a Direct Listing Auction for a 
Primary Direct Floor Listing pricing up to 20% below the price range 
disclosed in an issuer's effective registration statement, the Exchange 
proposes to modify Section 102.01B(E) of the Manual to provide that the 
Exchange would calculate the market value of such company's shares 
using a price per share equal to the lowest price of the price range 
established by the issuer in its registration statement, minus an 
amount equal to 20% of the highest price included in such price range, 
which will be referred to as the ``Primary Direct Floor Listing Minimum 
Price.'' As noted above, the Exchange proposes that a company listing 
its securities on the Exchange pursuant to a Primary Direct Floor 
Listing must have specified the quantity of shares registered, as 
permitted by Securities Act Rule 457, in its effective registration 
statement. Accordingly, the Exchange further

[[Page 23303]]

proposes to amend Section 102.01B(E) to include this requirement.
Amendments To Exchange Rules
    To implement the changes to the Price Range Limitation described 
above, the Exchange also proposes the following changes to Rules 7.31 
and 7.35A.
Proposed Changes to Rule 7.31
    The Exchange proposes to modify Rule 7.31(c)(1)(D), which defines 
the IDO Order. Rule 7.31(c)(1)(D) currently provides that an IDO Order 
is a Limit Order to sell that is to be traded only in a Direct Listing 
Auction for a Primary Direct Floor Listing, and Rule 7.31(c)(1)(D)(ii) 
currently provides that the limit price of an IDO Order must be equal 
to the lowest price of the price range established by the issuer in its 
effective registration statement. The Exchange proposes to modify Rule 
7.31(c)(1)(D)(ii) to provide that the limit price of an IDO Order would 
be equal to the lowest price of the ``Primary Direct Floor Listing 
Auction Price Range'' and to redefine the ``Primary Direct Floor 
Listing Auction Price Range'' as 20% below the lowest price and 20% 
above the highest price of the price range established by the issuer in 
its effective registration statement. The Exchange also proposes to 
define ``Issuer Price Range'' as the price range established by the 
issuer in its effective registration statement. Thus, Rule 
7.31(c)(1)(D)(ii), as modified, would facilitate the proposed changes 
to the Price Range Limitation by providing that the limit price of an 
IDO Order would be equal to the price that is 20% below the lowest 
price of the Issuer Price Range.
    The Exchange further proposes to specify in Rule 7.31(c)(D)(ii) 
that, for purposes of determining the Primary Direct Floor Listing 
Price Range, the 20% threshold would 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.
Proposed Changes to Rule 7.35A
    Rule 7.35A sets forth rules pertaining to Core Open Auctions and 
Trading Halt Auctions facilitated by a DMM. Rule 7.35A(d) sets forth 
Exchange rules relating to pre-opening indications published by a DMM 
in connection with a DMM-facilitated auction. This Rule currently 
provides that a pre-opening indication will include the security and 
the price range within which the Auction Price is anticipated to occur 
and that a pre-opening indication--including for a Direct Listing 
Auction for a Primary Direct Floor Listing--will be published via the 
securities information processor and proprietary data feeds.
    Rule 7.35A(d)(2)(A) and the subparagraphs thereunder describe the 
Indication Reference Price for a security to be opened in a DMM-
facilitated auction. The Exchange proposes to amend Rule 
7.35A(d)(2)(A)(v), which currently provides that, for a security that 
is a Primary Direct Floor Listing, the Indication Reference Price will 
be the lowest price of the Primary Direct Floor Listing Auction Price 
Range. To effect the proposed requirement described above that the 
Exchange disseminate the Indication Reference Price on a public 
website, the Exchange proposes to add this requirement to Rule 
7.35A(d)(2)(A)(v). The Exchange also notes that, based on the proposed 
revision to the definition of Primary Direct Floor Listing Auction 
Price Range in Rule 7.31(c)(1)(D)(ii), the Indication Reference Price 
for a Primary Direct Floor Listing would be the price that is 20% below 
the lowest price of the Issuer Price Range, consistent with the 
proposed changes to the Price Range Limitation described above.
    Next, the Exchange proposes to modify Rule 7.35A(g)(2), which 
specifies the circumstances under which a DMM may not conduct a Direct 
Listing Auction for a Primary Direct Floor Listing. Structurally, the 
Exchange proposes to amend Rule 7.35A(g)(2) such that the rule would 
specify requirements for a Direct Listing Auction for a Primary Direct 
Floor Listing to proceed, rather than specifying circumstances under 
which a DMM would not conduct a Direct Listing Auction for a Primary 
Direct Floor Listing.
    Rule 7.35A(g)(2)(A) currently provides that the DMM will not 
conduct a Direct Listing Auction for a Primary Direct Floor Listing if 
the Auction Price would be below the lowest price or above the highest 
price of the Primary Direct Floor Listing Auction Price Range. The 
Exchange proposes to modify this rule to specify that the Auction Price 
for a Direct Listing Auction for a Primary Direct Floor Listing may not 
be lower than the lowest price of the Primary Direct Floor Listing 
Auction Price Range. The Exchange notes that, based on the proposed 
revision to the definition of Primary Direct Floor Listing Auction 
Price Range in Rule 7.31(c)(1)(D)(ii), Rule 7.35A(g)(2)(A) would thus 
provide that the Auction Price for a Direct Listing Auction for a 
Primary Direct Listing would not be more than 20% below the lowest 
price of the Issuer Price Range, consistent with the proposed changes 
to the Price Range Limitation outlined above.
    To effect the proposed changes described above that would permit 
the DMM to conduct a Direct Listing Auction for a Primary Direct Floor 
Listing when the Auction Price is either (i) at or within the Primary 
Direct Floor Listing Price Range but outside of the Issuer Price Range, 
or (ii) above the highest price of the Primary Direct Floor Listing 
Auction Price Range, the Exchange proposes to amend Rule 7.35A(g)(2)(B) 
to provide that the Direct Listing Auction could proceed in such 
circumstances if the issuer has previously certified to the Exchange 
and publicly disclosed that:
     The issuer does not expect that the Auction Price would 
materially change its previous disclosure in its effective registration 
statement (proposed Rule 7.35A(g)(2)(B)(i)(a));
     The price range in the preliminary prospectus included in 
the effective registration statement is a bona fide price range in 
accordance with Item 501(b)(3) of Regulation S-K (proposed Rule 
7.35A(g)(2)(B)(i)(b)); and
     The registration statement contains a sensitivity analysis 
explaining how the issuer's plans would change if the actual proceeds 
from the offering differ from the amount assumed in the price range 
established by the issuer in its effective registration statement 
(proposed Rule 7.35A(g)(2)(B)(i)(c)).
    Proposed Rule 7.35A(g)(2)(B)(ii) would further provide that, when 
the Auction Price determined by the DMM is at or within the Primary 
Direct Floor Listing Auction Price Range but outside of the Issuer 
Price Range or is above the highest price of the Primary Direct Floor 
Listing Auction Price Range, the issuer would be required to confirm to 
the Exchange that no additional disclosures are required under the 
federal securities laws based on such price. This proposed change would 
permit issuers to comply with their disclosure obligations under 
federal securities laws and provide investors with access to the 
requisite disclosures before the offering would proceed, as detailed 
above. Upon receiving confirmation from the issuer that any such 
obligations have been met, the Exchange would relay that information to 
the DMM to proceed with the Direct Listing Auction.
    Finally, the Exchange proposes to add new subparagraph (C) under 
Rule 7.35A(g)(2). Proposed Rule 7.35A(g)(2)(C)(i) would reflect the 
requirement set forth in current Rule 7.35A(g)(2)(B) that the DMM may 
not conduct a Direct Listing Auction for a Primary Direct Floor Listing 
if there is

[[Page 23304]]

insufficient buy interest to satisfy both the IDO Order and all better-
priced sell orders in full. The Exchange does not propose to change 
this requirement, other than adding clarifying text to specify that 
such orders would be satisfied at the Auction Price.
    Proposed Rule 7.35A(g)(2)(C)(ii) would set forth an additional 
requirement that must be satisfied before the DMM could conduct a 
Direct Listing Auction for a Primary Direct Floor Listing. This 
proposed change would reflect the proposed requirements described above 
regarding the regulatory bulletin to be distributed by the Exchange. 
Proposed Rule 7.35A(g)(2)(C)(ii) would provide that the DMM would not 
proceed with a Direct Listing Auction for a Primary Direct Floor 
Listing until it has been notified by the Exchange that the additional 
conditions set forth in new Commentary .20 to Rule 7.35A have been 
satisfied. Proposed Commentary .20 to Rule 7.35A would provide that the 
Direct Listing Auction for a Primary Direct Floor Listing for a 
security may not be conducted until the Exchange has notified the DMM 
that, at least one business day prior to the commencement of trading in 
such security, the Exchange has distributed a regulatory bulletin 
describing any special characteristics of the offering and the Exchange 
rules that apply to the pricing of the Primary Direct Floor Listing; 
the obligations of member organizations pursuant to Exchange Rules 2090 
and 2111; and the requirement that a member organization provide its 
customers with a notice with information regarding the Direct Listing 
Auction for a Primary Direct Floor Listing. This proposed change would 
(i) facilitate the requirements described above to provide member 
organizations with sufficient information so that they may in turn 
inform their customers, (ii) remind member organizations of their 
obligations to ``know their customers,'' (iii) increase transparency 
around the pricing mechanisms of a Primary Direct Floor Listing, and 
(iv) help provide investors with sufficient price discovery 
information.
    Proposed Rule 7.35A(g)(2)(C)(iii) would provide that the DMM would 
not conduct a Direct Listing Auction for a Primary Direct Floor Listing 
if the Auction Price is outside of the Issuer Price Range and the 
issuer has not satisfied the conditions set forth in proposed Rules 
7.35A(g)(2)(B)(i) and (ii). The Exchange proposes this rule to 
reinforce that a Direct Listing Auction for a Primary Direct Floor 
Listing could not proceed in these circumstances unless the issuer has 
made the requisite disclosures described in proposed Rule 
7.35A(g)(2)(B).
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Exchange Act,\13\ in general, and furthers the 
objectives of Section 6(b)(5) of the Exchange Act,\14\ in particular, 
in that it is designed to promote just and equitable principles of 
trade, to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed modification of the Price 
Range Limitation would promote just and equitable principles of trade, 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and protect investors and the 
public interest because the proposed approach is similar to the pricing 
of an IPO, where the issuer is permitted to price outside of the price 
range disclosed in its effective registration statement in accordance 
with the SEC Staff's guidance, as described above.\15\ Specifically, 
the Exchange believes that it is reasonable to permit the Direct 
Listing Auction for a Primary Direct Floor Listing to proceed if the 
Auction Price is at or within the Primary Direct Floor Listing Auction 
Price Range--that is, as low as 20% below the lowest price of the 
Issuer Price Range or as high as 20% above the highest price of such 
price range--because a company listing in connection with a Primary 
Direct Floor Listing could specify the quantity of shares registered, 
as permitted by Securities Act Rule 457, and, when the Auction Price is 
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 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) there is a deviation above the price range beyond 
the 20% noted in 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.
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    \15\ See Compliance & Disclosure Interpretation of Securities 
Act Rules #227.03, supra note 12. The Exchange also notes that, 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-associationconference-120921 (``Gensler Speech'').
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    In addition, in the event that the Auction Price is within the 
Primary Direct Floor Listing Auction Price Range but outside of the 
Issuer Price Range or is higher than the highest price of the Primary 
Direct Floor Listing Auction Price Range (i.e., above the price that is 
20% above the highest price of the Issuer Price Range), the Exchange 
proposes that the Direct Listing Auction for a Primary Direct Floor 
Listing could still proceed, but would not be conducted until the 
issuer has met disclosure requirements that would help provide 
investors with additional information regarding the offering, including 
a requirement that the issuer's effective registration statement 
contain a sensitivity analysis explaining how the issuer's plans would 
change if the actual proceeds from the Primary Direct Floor Listing are 
lower or higher than the amount assumed by the price range set forth in 
the registration statement. The Exchange also proposes to require that 
an issuer must have confirmed to the Exchange that no additional 
disclosures are required under the federal securities laws based on the 
Auction Price determined. The issuer would thus have the opportunity to 
provide any necessary additional disclosures that are dependent on the 
price of the offering prior to the completion of the offering. 
Accordingly, the Exchange believes that this proposed change is 
designed to promote just and equitable principles of trade and to 
remove impediments to and perfect the mechanism of a free and open 
market because it would allow an offering to proceed under certain 
circumstances when the Auction Price is outside of the Issuer Price 
Range--including where investor interest is greater than the company 
and its advisors anticipated (thereby promoting capital formation)--
while protecting investors by requiring that a company listing shares 
through a Primary Direct Floor Listing make applicable disclosures 
under the federal securities laws.
    The Exchange also believes that the proposed change is designed to 
promote investor protection because the Exchange would support price 
discovery transparency by providing readily available, real time 
pricing information to investors by

[[Page 23305]]

disseminating pre-opening indications via the SIP and proprietary data 
feeds and publishing the Indication Reference Price on a public website 
on the day on which the Direct Listing Auction for a Primary Direct 
Floor Listing is anticipated to take place. Market participants would 
thus have ready access to up-to-date pricing information leading up to 
a Direct Listing Auction for a Primary Direct Floor Listing.
    In particular, the Exchange believes that making pre-opening 
indications readily available to market participants would provide 
price transparency to the market in connection with Primary Direct 
Floor Listings. Pre-opening indications, which are based on the DMM's 
assessment of interest eligible to participate in the Direct Listing 
Auction for a Primary Direct Floor Listing, would provide notice of 
when price volatility has subsided and price equilibrium has been met 
with respect to the orders that wish to participate in such Auction. In 
addition, Exchange rules establishing pre-opening indication procedures 
already include requirements such as that set forth in Rule 
7.35A(d)(4)(D), which provides that the DMM must wait for certain 
minimum specified periods after publishing a pre-opening indication and 
before opening a security. As the table below shows, the DMMs in the 
Selling Shareholder Direct Floor Listings that took place in 2020 and 
2021 indicated very tight and reliable anticipated opening price ranges 
irrespective of the amount of time between the last indication and 
opening auction:

----------------------------------------------------------------------------------------------------------------
                                                                                           Time elapsed between
                                                             Last pre-                       last pre-opening
   Date of direct listing auction           Symbol            opening      Auction price  indication and auction
                                                            indication                             open
----------------------------------------------------------------------------------------------------------------
9/30/2020..........................  PLTR                     9.95-10.05              10  10 minutes, 19
                                                                                           seconds.
9/30/2020..........................  ASAN                       26.75-27              27  2 minutes, 24 seconds.
3/10/2021..........................  RBLX                    64.25-64.75            64.5  3 minutes, 2 seconds.
5/19/2021..........................  SQSP                        47.5-48              48  2 minutes, 31 seconds.
5/26/2021..........................  ZIP                     19.75-20.25              20  16 minutes, 29
                                                                                           seconds.
9/29/2021..........................  WRBY                        54-54.5           54.05  12 minutes, 31
                                                                                           seconds.
----------------------------------------------------------------------------------------------------------------

    The Exchange thus believes that its existing pre-opening indication 
process provides significant investor protection measures based on the 
judgment applied by the DMM in refining the anticipated price range of 
a security to be opened in a Direct Listing Auction as appropriate and 
in determining that the price has reached stability, such that the 
Direct Listing Auction should proceed.\16\
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    \16\ The Exchange believes that it would be appropriate to 
permit Market Orders and MOO Orders (as defined in Rules 7.31(a)(1) 
and 7.31(c)(1)(B)) to participate in a Direct Listing Auction for a 
Primary Direct Floor Listing, given the safeguards provided by the 
pre-opening indication process. Although Market Orders and MOO 
Orders are unpriced orders, the Exchange believes that Market Orders 
and MOO Orders that participate in a Direct Listing Auction for a 
Primary Direct Listing would not be subject to extreme price 
volatility due to the DMM's role in refining pre-opening indications 
and determining the Auction Price, as well as the DMM's obligation 
under Rule 7.35A(g) to fill all better-priced interest. Moreover, 
investors submitting Market Orders and MOO Orders would have the 
benefit of readily available, real time pricing information to 
inform their decision to participate in the Auction. The Exchange 
also notes that data from IPOs (which are not subject to the Price 
Range Limitation) that took place in the last six calendar months 
indicates that MOOs made up a significant portion of opening auction 
volume and thus believes that allowing MOOs to participate in a 
Direct Listing Auction for a Primary Direct Floor Listing could 
encourage investor participation.
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    The Exchange believes that its proposal to issue a regulatory 
bulletin as outlined above would promote just and equitable principles 
of trade, remove impediments to and perfect the mechanism of a free and 
open market, and promote investor protection because it would provide 
member organizations with the necessary information to share with their 
customers regarding the Primary Direct Floor Listing. Specifically, the 
proposed regulatory bulletin would be distributed at least one business 
day prior to the commencement of trading in a security to be listed in 
connection with a Direct Listing Auction for a Primary Direct Floor 
Listing and would describe any special characteristics of the offering, 
as well as the Exchange Rules that apply to the pricing of a Direct 
Listing Auction for a Primary Direct Floor Listing. The regulatory 
bulletin would inform prospective participants in the Direct Listing 
Auction that the Auction Price could be up to 20% below the lowest 
price of the Issuer Price Range (and specify what that price is) and 
indicate whether there is a price range outside of which the Direct 
Listing Auction for a Primary Direct Floor Listing could not proceed 
based on the company's certification as described above. The Exchange 
also believes that the regulatory bulletin would further the protection 
of investors by reminding member organizations of their obligations 
pursuant to Exchange Rules 2090 and 2111 to ``know their customers,'' 
providing member organizations and their customers with information 
regarding the pricing mechanism of a Direct Listing Auction for a 
Primary Direct Floor Listing, and helping investors receive sufficient 
price discovery information.
    The Staff of the Commission in a Compliance and Disclosure 
Interpretation has indicated that pricing up to 20% below the lowest 
price and at a price above the highest price of the price range set 
forth in the company's effective registration statement is appropriate 
for a company conducting an IPO, notwithstanding that the price would 
be outside of the range stated in the company's effective registration. 
The Exchange believes that investors have become familiar with this 
approach at least since the Staff last revised Compliance and 
Disclosure Interpretation 227.03 in January 2009.\17\ Accordingly, the 
Exchange believes that allowing Direct Listing Auctions in connection 
with a Primary Direct Floor Listing 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 both Chair Gensler's recent call to treat ``like cases 
alike'' \18\ and the protection of investors.
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    \17\ See Compliance & Disclosure Interpretation of Securities 
Act Rules #227.03, supra note 12.
    \18\ See Gensler Speech, supra note 15.
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    The Exchange also believes that the proposed changes to the Manual 
are consistent with the protection of investors. Specifically, the 
proposed change to Section 102.01B(E) to specify that a company 
offering securities for sale in connection with a Primary Direct Floor 
Listing must register securities by specifying the quantity of shares 
registered, as permitted by Securities Act Rule 457(a), would promote 
investor protection because it would provide certainty regarding the 
number of shares available in connection with the Primary Direct Floor 
Listing, even if the Auction Price of such shares may be outside of the 
price range specified in the issuer's effective registration statement. 
The Exchange also believes that the proposed change to Section

[[Page 23306]]

102.01B(E) to reflect that the market value calculation of a company's 
shares would be based on a price per share equal to the lowest price of 
the price range established by the issuer in its registration 
statement, less an amount equal to 20% of the highest price included in 
such price range, is consistent with the protection of investors 
because it would not modify any other applicable listing requirements 
and would update the Manual to align with the proposed changes to the 
Price Range Limitation described herein.
    Finally, the Exchange believes that its proposed changes with 
respect to the Price Range Limitation would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because they would not change the existing process for a DMM-
facilitated Direct Listing Auction for a Primary Direct Floor Listing, 
but would eliminate a potential impediment to companies considering a 
Primary Direct Floor Listing, thereby encouraging capital formation. In 
addition, the proposed changes are designed to protect investors and 
the public interest because they would provide an expanded opportunity 
for a Primary Direct Floor Listing to proceed so that the issuer's 
securities can be listed and begin trading on the secondary market.

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

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Rather, the proposed change 
would increase competition by continuing to facilitate new pathways for 
companies to access the public markets.

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

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

III. 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 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 self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the 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-NYSE-2022-14 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2022-14. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSE-2022-14, and should be submitted on 
or before May 10, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-08281 Filed 4-18-22; 8:45 am]
BILLING CODE 8011-01-P


