[Federal Register Volume 88, Number 114 (Wednesday, June 14, 2023)]
[Notices]
[Pages 38917-38926]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-12665]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97675; File No. SR-CboeBZX-2023-036]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Revise Certain of the Exchange's 
Initial Listing Standards

June 8, 2023.
    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 May 26, 2023, Cboe BZX Exchange, Inc. filed with the Securities and 
Exchange Commission the proposed rule change as described in Items I, 
II, and III, 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

    Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (``Commission'' or ``SEC'') 
a proposed rule change to revise certain of the Exchange's initial 
listing standards. The text of the proposed rule change is provided in 
Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, 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 38918]]

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

1. Purpose
    The Exchange proposes to make several amendments to increase its 
requirements for initial listing of certain Tier I and II securities 
and help assure adequate liquidity for such listed securities. 
Specifically, the Exchange proposes to (i) impose a new requirement 
that at least 50% of a company's Round Lot Holders \3\ must each hold 
``Unrestricted Securities'', as defined below, with a Market Value \4\ 
of at least $2,500; (ii) impose a new minimum average daily trading 
volume for securities trading over-the-counter (``OTC'') of at least 
2,000 shares over the 30 day period prior to listing (with trading 
occurring on more than half of those 30 days) including trading volume 
of the underlying security on the primary market with respect to an 
ADR; and (iii) increase the Exchange's requirements for initial listing 
to help assure adequate liquidity. The Exchange also proposes to adopt 
an alternative to the minimum $4 price requirement for companies that 
seek to list Tier II securities on the Exchange which meet the express 
exclusion from the definition of a ``penny stock'' contained in 
Exchange Act Rule 3a51-1(g).\5\ Such an amendment would allow a Company 
to list a Tier II security on the Exchange if it satisfies all existing 
and proposed listing standards except for the $4 price requirement.\6\ 
The proposed amendments are very similar to existing initial listing 
requirements on the Nasdaq Stock Market, LLC (``Nasdaq'').\7\
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    \3\ See Exchange Rule 14.1(a)(25).
    \4\ See Exchange Rule 14.1(a)(19).
    \5\ 17 CFR 240.3a51-1(g).
    \6\ See Rule 14.9(b)(1)(A).
    \7\ See generally Nasdaq Listing Rules Series 5000, 5200, 5300 
and 5500 as it pertains to the initial listing requirements designed 
to help assure adequate liquidity for listed securities. See Nasdaq 
Listing Rule 5505(a)(1)(B) and IM-5505-2 as it pertains to the 
alternative minimum $4 price requirement.
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    The Exchange proposes several amendments in this rule change to 
increase its requirements for initial listing securities and help 
assure adequate liquidity for listed securities. In addition to the 
changes described above, the Exchange proposes to revise its initial 
listing criteria to exclude ``Restricted Securities'', as defined 
below, from the Exchange's calculations of a company's Publicly Held 
Shares,\8\ Market Value \9\ of Publicly Held Shares, and Round Lot 
Holders \10\ (``Initial Liquidity Calculations''). To do so, the 
Exchange proposes to add new definitions to define ``Restricted 
Securities'', ``Unrestricted Publicly Held Shares'' and ``Unrestricted 
Securities''.\11\ The Exchange is not proposing to change the 
requirements for continued listing purposes at this time, but believes 
that these heightened initial listing requirements will result in 
enhanced liquidity for the companies that satisfy them on an ongoing 
basis.\12\ Further, the Exchange is not proposing to adopt the proposed 
initial listing requirements as it relates to Closed-End Funds, but 
rather to keep its initial listing requirements more closely aligned to 
another exchange.\13\ Each proposed change is described in more detail 
below.
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    \8\ See Exchange Rule 14.1(a)(22).
    \9\ See Exchange Rule 14.1(a)(19).
    \10\ See Exchange Rule 14.1(a)(25).
    \11\ As discussed further below, these proposed amendments to 
help assure adequate liquidity for listed securities are very 
similar to amendments to Nasdaq's proposed listing standards that 
have received Commission approval. See Securities Exchange Act 
Release Nos 85503 (April 3, 2019) 84 FR 14172 (April 9, 2019) (SR-
NASDAQ-2019-009) (Notice of Filing of Proposed Rule Change To Revise 
the Exchange's Initial Listing Standards Related to Liquidity) and 
86314 (July 5, 2019) 84 FR 33102 (July 11, 2019) (Notice of Filing 
of Amendment No. 3 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 3, To Revise the 
Exchange's Initial Listing Standards Related to Liquidity).
    \12\ Exchange staff may apply additional and more stringent 
criteria to a listed company that satisfies all of the continued 
listing requirements but where there are indications that there is 
insufficient liquidity in the security to support fair and orderly 
trading. In such circumstances, the Exchange would typically first 
allow the company to provide and implement a plan to increase its 
liquidity in the near term. See Exchange Rule 14.2.
    \13\ See section 101(g) of the NYSE American LLC (``NYSE 
American'' Company Guide.
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I. Restricted Securities
    The Exchange is proposing to modify its initial listing standards 
to exclude securities subject to resale restrictions from its Initial 
Liquidity Calculations. Currently, securities subject to resale 
restrictions are included in the Exchange's Initial Liquidity 
Calculations, however, such securities are not freely transferrable or 
available for outside investors to purchase and therefore do not truly 
contribute to a security's liquidity upon listing. Because the current 
Initial Liquidity Calculations include Restricted Securities, a 
security with a substantial number of Restricted Securities could 
satisfy the Exchange's initial listing requirements related to 
liquidity and list on the Exchange, even though there could be few 
freely tradable shares, resulting in a security listing on the Exchange 
that is illiquid. The Exchange is concerned because illiquid securities 
may trade infrequently, in a more volatile manner and with a wider bid-
ask spread, all of which may result in trading at a price that may not 
reflect their true market value. Less liquid securities also may be 
more susceptible to price manipulation, as a relatively small amount of 
trading activity can have an inordinate effect on market prices.
    To address this concern, the Exchange is proposing to adopt a new 
definition of ``Restricted Securities'' under Exchange Rule 
14.1(a)(24), which includes any securities subject to resale 
restrictions for any reason, including Restricted Securities (1) 
acquired directly or indirectly from the issuer or an affiliate of the 
issuer in unregistered offerings such as private placements or 
Regulation D offerings; \14\ (2) acquired through an employee stock 
benefit plan or as compensation for professional services; \15\ (3) 
acquired in reliance on Regulation S, which cannot be resold within the 
United States; \16\ (4) subject to a lockup agreement or a similar 
contractual restriction; \17\ or (5) considered ``restricted 
securities'' under Rule 144 of the Securities Act of 1933.\18\ The 
Exchange is also proposing to adopt a new definition of ``Unrestricted 
Securities'' under proposed Rule 14.1(a)(36), which means securities 
that are not Restricted Securities. In connection with these 
amendments, the Exchange is proposing to renumber the remaining 
provisions of Rule 14.1(a) to maintain an organized rule structure.
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    \14\ See e.g., 17 CFR 230.144(a)(3)(i) and (ii).
    \15\ See e.g., 17 CFR 230.701(g), which states that securities 
issued pursuant to certain compensatory benefit plans and contracts 
relating to compensation are considered restricted securities.
    \16\ See 17 CFR 230.144(a)(3)(v), which states that securities 
of domestic issuers acquired in a transaction in reliance on 
Regulation S are considered restricted securities.
    \17\ Securities issued in such transactions would typically 
include a ``restrictive'' legend stating that the securities cannot 
be freely resold unless they are registered with the SEC or in a 
transaction exempt from the registration requirements, such as the 
exemption available under Rule 144.
    \18\ See generally Securities and Exchange Commission Investor 
Publications, Rule 144: Selling Restricted and Control Securities 
(January 16, 2013), available at: https://www.sec.gov/reportspubs/investorpublications/investorpubsrule144htm.html. The Exchange would 
consider a security as subject to a resale restriction until any 
restrictive legends are removed, even if a safe harbor is available 
that permits the sale of the security at an earlier date.
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    The Exchange believes that these proposed amendments to the listing 
rules will enhance its listing criteria and better protect investors by 
helping to ensure that securities listed on the Exchange are liquid and 
have sufficient investor interest to support an exchange listing. 
Further, the proposed

[[Page 38919]]

amendments to Rule 14.1(a) are substantively identical to Nasdaq Rules 
5005(a)(38) (definition of Restricted Security) and 5005(a)(47) 
(definition of Unrestricted Securities).
A. Publicly Held Shares
    The Exchange is proposing to modify its initial listing 
requirements related to Publicly Held Shares so that they are based 
only on shares of Unrestricted Securities. A company is required to 
have a minimum number of Publicly Held Shares in order to list its 
primary equity securities (including American Depositary Receipts or 
``ADRs'') \19\ on all tiers of the Exchange. A company is also required 
to have a minimum number of Publicly Held Shares in order to list its 
preferred stock or secondary classes of common stock as Tier I or Tier 
II securities on the Exchange. Currently, Exchange Rule 14.1(a)(22) 
defines ``Publicly Held Shares'' as ``shares not held directly or 
indirectly by an officer, director or any person who is the beneficial 
owner of more than 10 percent of the total shares outstanding. 
Determinations of beneficial ownership in calculating Publicly Held 
Shares shall be made in accordance with Rule 13d-3 under the Act.'' As 
discussed above, the current definition of Publicly Held Shares does 
not exclude securities subject to resale restrictions, which may result 
in a security with limited liquidity satisfying the Exchange's initial 
listing requirements related to Publicly Held Shares and qualifying to 
list on the Exchange.
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    \19\ Exchange Rule 14.1(a)(21) defines ``Primary Equity 
Security'' as ``a Company's first class of Common Stock, Ordinary 
Shares, Shares or Certificates of Beneficial Interest of Trust, 
Limited Partnership Interests or American Depositary Receipts 
(``ADRs'') or Shares (``ADSs'').
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    The Exchange proposes adding a new definition of ``Unrestricted 
Publicly Held Shares'' under Exchange Rule 14.1(a)(35), which would be 
defined as Publicly Held Shares excluding the newly defined 
``Restricted Securities.'' The Exchange proposes to revise references 
to ``Publicly Held Shares'' to ``Unrestricted Publicly Held Shares'' in 
the following rules:

----------------------------------------------------------------------------------------------------------------
                                                                                             Current required
              Rule No.                           Tier                  Security type        number of publicly
                                                                                                held shares
----------------------------------------------------------------------------------------------------------------
14.8(b)(1)(B).......................  Tier I....................  Primary Equity          At least 1,100,000
                                                                   Securities.             Shares.
14.8(d)(1)(A).......................  Tier I....................  Preferred Stock and     At least 200,000
                                                                   Secondary Classes of    Shares.
                                                                   Common Stock.
14.9(b)(1)(B).......................  Tier II...................  Primary Equity          At least 1,000,000
                                                                   Securities.             Shares.
14.9(c)(1)(C).......................  Tier II...................  Preferred Stock and     At least 200,000
                                                                   Secondary Classes of    Shares.
                                                                   Common Stock.
----------------------------------------------------------------------------------------------------------------

    As a result, only securities that are freely transferrable will be 
included in the calculation of Publicly Held Shares to determine 
whether a company satisfies the Exchange's initial listing criteria 
under these rules. The Exchange believes that excluding Restricted 
Securities will better reflect the liquidity of, and investor interest 
in, a security and therefore will better protect investors.
    In addition to the above, the Exchange proposes to revise Exchange 
Rule 14.3(a)(7) to reflect the change to ``Unrestricted Publicly Held 
Shares.'' \20\ The Exchange also proposes revising 14.3(c)(2) to state 
that in considering whether an ADR satisfies the initial listing 
requirements, the Exchange will consider the Unrestricted Publicly Held 
Shares of the underlying security, and that in determining whether 
shares of the underlying security are restricted for this purpose, the 
Exchange will only consider restrictions that prohibit the resale or 
trading of the underlying security on the foreign issuer's home country 
market, as discussed below. The Exchange notes that the proposed 
amendments to the Publicly Held Share requirements are very similar to 
existing listing standards on Nasdaq.\21\
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    \20\ Rule 14.3(a)(7) currently states that ``The computation of 
Publicly Held Shares and Market Value of Publicly Held Shares shall 
be as of the date of application of the Company.''
    \21\ The proposed changes to Rules 14.3(a)(7) and 14.3(c)(2) are 
substantively identical to Nasdaq Rules. See e.g., Nasdaq Listing 
Rules 5205(g) and 5215(b).
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B. Market Value of Publicly Held Shares
    The Exchange is proposing to modify its initial listing 
requirements related to Market Value of Publicly Held Shares so that it 
is based only on Unrestricted Shares. A company is required to have a 
minimum Market Value of Publicly Held Shares in order to list its 
primary equity securities (including ADRs) on both tiers of the 
Exchange. A company is also required to have a minimum Market Value of 
Publicly Held Shares in order to list its preferred stock or secondary 
classes of common stock as Tier I or Tier II securities on the 
Exchange. The calculation of ``Market Value of Publicly Held Shares'' 
does not exclude stock subject to resale restrictions. As discussed 
above, Restricted Securities may not contribute to liquidity and 
therefore the current calculation of Market Value of Publicly Held 
Shares may result in a security with limited true liquidity satisfying 
the listing requirements related to the Market Value of Publicly Held 
and qualifying to list.
    The Exchange proposes revising its initial listing requirements so 
that they are based on the Market Value of Publicly Held Shares, and 
therefore exclude Restricted Securities, in the following rules:

----------------------------------------------------------------------------------------------------------------
                                                                                             Current required
              Rule No.                        Market tier              Security type           market value
----------------------------------------------------------------------------------------------------------------
14.8(b)(2)(B)(iii)..................  Tier I....................  Primary Equity          At least $18 million
                                                                   Securities.             (Equity Standard).
14.8(b)(2)(C)(ii)...................  Tier I....................  Primary Equity          At least $20 million
                                                                   Securities.             (Market Value
                                                                                           Standard).
14.8(b)(2)(A)(iii)..................  Tier I....................  Primary Equity          At least $8 million
                                                                   Securities.             (Income Standard).
14.8(b)(2)(D)(ii)...................  Tier I....................  Primary Equity          At least $20 million
                                                                   Securities.             (Total Assets/Total
                                                                                           Revenue Standard).
14.8(d)(1)(B).......................  Tier I....................  Preferred Stock and     At least $4 million.
                                                                   Secondary Classes of
                                                                   Common Stock.
14.9(b)(2)(A)(ii)...................  Tier II...................  Primary Equity          At least $15 million
                                                                   Securities.             (Equity Standard).

[[Page 38920]]

 
14.9(b)(2)(B)(iii)..................  Tier II...................  Primary Equity          At least $15 million
                                                                   Securities.             (Market Value
                                                                                           Standard).
14.9(b)(2)(C)(iii)..................  Tier II...................  Primary Equity          At least $5 million
                                                                   Securities.             (Net Income
                                                                                           Standard).
14.9(c)(1)(D).......................  Tier II...................  Preferred Stock and     At least $3.5 million.
                                                                   Secondary Classes of
                                                                   Common Stock.
----------------------------------------------------------------------------------------------------------------

    As discussed above, the Exchange believes that excluding Restricted 
Securities from the calculation of Market Value of Publicly Held Shares 
will better reflect the liquidity of, and investor interest in, a 
security and therefore will better protect investors. Specifically, 
Market Value of Publicly Held Shares is an indication of the size and 
investor interest in a company. When Restricted Securities are included 
in those calculation, a company could technically meet the Exchange's 
requirement without actually having sufficient investor interest, 
resulting in a security that is illiquid. Less liquid securities may be 
more susceptible to price manipulation, as a relatively small amount of 
trading activity can have an inordinate effect on market prices and a 
company's Market Value of Publicly Held Shares.
    The Exchange notes that the proposed amendments as it relates to 
the Market Value of Publicly Held Shares referenced in the table above 
are very similar to existing listing standards on Nasdaq.\22\
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    \22\ See e.g., the listing standards on the Nasdaq Capital 
Market (Nasdaq Listing Rules 5505(b)(1)(B) (Equity Standard), 
5505(b)(2)(C) (Market Value Standard), 5505(b)(3)(C) (Net Income 
Standard), and 5510(a)(4) (standard applicable to Preferred Stock or 
Secondary Classes of Common Stock)).
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    The Exchange also proposes to revise Rule 14.3(a)(7) to reflect 
that the computation for Market Value of Unrestricted Publicly Held 
Shares shall be as of the date of the application of the company for 
all market tiers.\23\ This proposed change is substantively identical 
to Nasdaq Rule 5205(g). Lastly, the Exchange proposes revising Rule 
14.3(c)(2) to state that in considering whether an ADR satisfies the 
initial listing requirements, the Exchange will consider the Market 
Value of Unrestricted Publicly Held Shares of the underlying security, 
and that in determining whether shares of the underlying security are 
restricted for this purpose, the Exchange will only consider 
restrictions that prohibit the resale or trading of the underlying 
security on the foreign issuer's home country market, as discussed 
below. This change is substantively identical to Nasdaq Rule 5215(b).
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    \23\ Rule 14.3(a)(7) currently states that ``The computation of 
Publicly Held Shares and Market Value of Publicly Held Shares shall 
be as of the date of application of the Company.''
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C. Round Lot Holders
    The Exchange is proposing to revise the listing criteria related to 
the minimum number of Round Lot Holders for companies seeking to 
initially list primary equity securities (including ADRs), warrants, 
preferred stock, and secondary classes of common stock on the Exchange 
so that they are based on holders of Unrestricted Securities. 
Currently, the Exchange defines a ``Round Lot Holder'' \24\ as ``a 
holder of a Normal Unit of Trading'' \25\ and notes that ``beneficial 
holders will be considered in addition to holders of record.'' The 
Exchange defines a ``Round Lot or normal unit of trading'' as ``100 
shares of a security unless, with respect to a particular security, the 
Exchange determines that a normal unit of trading shall constitute 
other than 100 shares.'' A company is required to have a minimum number 
of Round Lot Holders in order to list securities on the Exchange. While 
this is another measure of liquidity designed to help assure that there 
will be sufficient investor interest and trading to support price 
discovery once a security is listed, as noted above, under existing 
rules, all the shares held by a holder could be Restricted Securities 
that do not contribute to liquidity.
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    \24\ See Exchange Rule 14.1(a)(25).
    \25\ See Exchange Rule 14.1(a)(24).
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    To address this concern, the Exchange is proposing to revise the 
definition of ``Round Lot Holder'' to mean a holder of a normal unit of 
trading of Unrestricted Securities.\26\ This change will impact the 
following rules:
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    \26\ The Exchange notes that the proposed definition is very 
similar to the definition of ``Round Lot Holder'' provided in Nasdaq 
Rule 5005(a)(41).

----------------------------------------------------------------------------------------------------------------
                                                                                             Current required
              Rule No.                        Market tier              Security type        number of round lot
                                                                                                  holders
----------------------------------------------------------------------------------------------------------------
14.8(b)(1)(C).......................  Tier I....................  Primary Equity          At least 400 Round Lot
                                                                   Securities.             Holders.
14.8(c)(4)..........................  Tier I....................  Warrants..............  At least 400 Round Lot
                                                                                           Holders.
14.8(d)(1)(D).......................  Tier I....................  Preferred Stock and     At least 100 Round Lot
                                                                   Secondary Classes of    Holders.
                                                                   Common Stock.
14.9(b)(1)(C).......................  Tier II...................  Primary Equity          At least 300 Round Lot
                                                                   Securities.             Holders.
14.9(c)(1)(B).......................  Tier II...................  Preferred Stock and     At least 100 Round Lot
                                                                   Secondary Classes of    Holders.
                                                                   Common Stock.
14.9(d)(1)(D).......................  Tier II...................  Warrants..............  At least 400 Round Lot
                                                                                           Holders.
----------------------------------------------------------------------------------------------------------------

    As a result of these changes, a holder of only Restricted 
Securities would not be considered in the Round Lot Holder count. The 
Exchange believes that these amendments will help ensure adequate 
distribution and investor interest in a listed security, which will 
result in a more liquid trading market and which will better protect 
investors. Illiquid securities may trade infrequently, in a more 
volatile manner and with a wider bid-ask spread, all of which may 
result in trading at a price that may not reflect their true market 
value. Less liquid securities also may be more susceptible to price 
manipulation, as a relatively small amount of trading activity can have 
an inordinate effect on market prices. The Exchange notes that these 
changes are very similar to listing standards on Nasdaq.\27\
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    \27\ See e.g., Nasdaq Listing Rule 5505(a)(3), 5510(a)(2) and 
5515(a)(4).
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    In addition to the above, the Exchange also proposes revising Rule 
14.3(c)(2) to state that in considering whether an

[[Page 38921]]

ADR satisfies this proposed change that determination of Round Lot 
Holders be based on holders of Unrestricted Securities, the Exchange 
will consider whether Round Lot Holders of the underlying security hold 
Unrestricted Shares of that underlying security, and that in 
determining whether shares of the underlying security are restricted 
for this purpose, the Exchange will only consider restrictions that 
prohibit the resale or trading of the underlying security on the 
foreign issuer's home country market, as discussed below. The Exchange 
will also apply the new minimum value requirement for Round Lot Holders 
to the underlying security, as proposed below, in addition to the 
minimum number of Round Lot Holders required by the applicable tier 
that the company is seeking to list on. The Exchange notes that this 
proposed change is substantively identical to existing Nasdaq Rule 
5215(b).
D. American Depository Receipts
    The Exchange proposes to revise Rule 14.3(c)(2) to specify how 
these new requirements apply to ADRs. Specifically, as under the 
current rule for calculating Publicly Held Shares, Market Value of 
Publicly Held Shares, and Round Lot Holders, the Exchange will continue 
to consider the underlying security in calculating the Unrestricted 
Publicly Held Shares and Market Value of Unrestricted Publicly Held 
Shares and in calculating the new definition of a Round Lot Holder. In 
determining whether shares of the underlying security are 
``restricted'' for these purposes, only restrictions that prohibit the 
resale or trading of the underlying security on the foreign issuer's 
home country market would result in those securities being considered 
restricted for purposes of the proposed rules. Thus, if the 
restrictions provided as examples in the new definition of ``Restricted 
Securities'' would restrict the underlying security from being freely 
sold or tradable on its home country market, the Exchange would also 
consider such restrictions when calculating ``Unrestricted Publicly 
Held Shares.'' The Exchange believes that this is appropriate because 
the purpose of the Initial Liquidity Calculations, and the proposed 
changes described herein, is to establish investor interest in the 
foreign issuer and ensure adequate liquidity and distribution of the 
foreign issuer's underlying security on its home country market, which 
is held by the depositary bank and represented by the ADR. For this 
reason, existing Rule 14.3(c)(2) currently looks to the underlying 
security when calculating Publicly Held Shares, Market Value of 
Publicly Held Shares, Round Lot and Public Holders \28\ and it is 
similarly appropriate to consider whether or not the underlying 
security is freely tradable in its home country market when determining 
Unrestricted Publicly Held Shares, Market Value of Unrestricted 
Publicly Held Shares, and Round Lot Holders. Excluding securities that 
are only restricted from resale or trading in the United States would 
not be an appropriate measure of investor interest in or liquidity of 
the underlying security because the underlying security will not be 
listed or trading in the U.S.\29\ Moreover, applying the new definition 
of Restricted Securities to securities trading on a foreign market, if 
the securities trading on the home country market are not already 
restricted by the examples set forth in the new definition of 
Restricted Securities, would unduly impose the requirements of a U.S. 
national securities exchange on those securities, which will not be 
listed in the U.S. The Exchange notes that this proposed change is 
substantively identical to existing Nasdaq Rule 5215(b).
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    \28\ See Exchange Rule 14.1(a)(23).
    \29\ For example, the underlying security may not be eligible to 
trade in the U.S., but that would not cause all shares of that 
security to be considered restricted if they are freely tradable on 
the foreign issuer's home country market.
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    In addition to the above, the Exchange proposes to revise the 
reference to Form S-12 in Rule 14.3(c)(2) \30\ to Form F-6 in order to 
refer to the current form required by the Commission to register ADRs 
under the Securities Act of 1933.\31\
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    \30\ Proposed Exchange Rule 14.3(c)(2) is very similar to Nasdaq 
Rule 5215(b).
    \31\ Securities Exchange Act Release No. 34-19612 (March 18, 
1983), 48 FR 12346 (March 24, 1983).
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II. Minimum Value Requirements for Holders
    The Exchange is also proposing to revise the listing rules related 
to Round Lot Holders listed in Part I.C. above to impose a new 
requirement related to the minimum investment amount held by 
shareholders. Under the current definition of a Round Lot, a 
shareholder may be considered a Round Lot Holder by holding exactly 100 
shares, which would be worth only $400 in the case of a stock that is 
trading at the minimum bid price of $4 per share. The Exchange believes 
that this minimal investment is not an appropriate representation of 
investor interest to support a listing on a national securities 
exchange. To address this concern, the Exchange proposes to require 
that for initial listing at least 50% of a company's required Round Lot 
Holders must each hold Unrestricted Securities with a Market Value of 
at least $2,500. The Exchange does not propose to impose this 
requirement on initial listings of warrants, however, because warrants 
do not have a minimum price requirement and may have little value at 
the time of issuance.\32\
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 77r(b).
---------------------------------------------------------------------------

    The Exchange believes that adopting this amendment will help ensure 
that a majority of the required minimum number of unrestricted 
shareholders hold a meaningful value of Unrestricted Securities and 
that a company has sufficient investor interest to support an exchange 
listing. The Exchange also notes that the proposed rule is very similar 
to Nasdaq Rule 5505(a)(3) and 5510(a)(2).
III. Average Daily Trading Volume
    The Exchange is proposing to adopt an additional initial listing 
criteria for primary equity securities (including ADRs), preferred 
stock, and secondary classes of common stock, previously trading OTC in 
the United States. The new rules will require such securities to have a 
minimum average daily trading volume over the 30 trading days prior to 
listing of at least 2,000 shares a day (including trading volume of the 
underlying security on the primary market with respect to an ADR), with 
trading occurring on more than half of those 30 days (i.e., at least 16 
days). The Exchange believes that this will help ensure a liquid 
trading market, promote price discovery and establish an appropriate 
market price for listed securities.
    The Exchange is proposing to implement this new requirement by 
making additional amendments to:
     Exchange Rule 14.8(b)(1) to add new Rule 14.8(b)(1)(D) as 
it pertains to Tier I primary equity securities;
     Exchange Rule 14.8(d)(1) to add new Rule 14.8(d)(1)(F) as 
it pertains to Tier I preferred stock and secondary classes of common 
stock;
     Exchange Rule 14.9(b)(1) to add new Rule 14.9(b)(1)(E) 
(and re-letter existing Rule 14.9(b)(1)(E) to (F)) as it pertains to 
Tier II primary equity securities;
     Exchange Rule 14.9(c)(1) to add new Rule 14.9(c)(1)(F) 
\33\ as it pertains to Tier II preferred stock and secondary classes of 
common stock;
---------------------------------------------------------------------------

    \33\ Rule 14.1(a)(21) defines the term ``Primary Equity Security 
as a ``Company's first class of Common Stock, Ordinary Shares, 
Shares or Certificates of Beneficial Interest of Trust, Limited 
Partnership Interests or American Depositary Receipts (``ADRs'') or 
Shares (``ADSs'').''
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     In connection with the foregoing amendments, the Exchange 
is also

[[Page 38922]]

proposing to revise the cross-references in Rule 14.8(d)(1) and Rule 
14.9(c)(1) to add new Rules 14.8(d)(1)(F) and 14.9(c)(1)(F), 
respectively.
    The Exchange notes that the average daily trading volume 
requirement is very similar requirements on Nasdaq.\34\
---------------------------------------------------------------------------

    \34\ See e.g., to Nasdaq Rule 5505(a)(5), and 5510(a)(6).
---------------------------------------------------------------------------

    As noted above, the average daily trading volume requirement will 
also apply to ADRs. Currently, the Exchange considers the underlying 
security of an ADR when determining annual income from continuing 
operations, Publicly Held Shares, Market Value of Publicly Held Shares, 
stockholders' equity, Round Lot or Public Holders, operating history, 
Market Value of listed securities, and total revenue. The Exchange is 
proposing amend 14.3(c)(2) to state that the average daily trading 
volume of the underlying security of an ADR will be considered in the 
Exchange's computations for this new requirement. The Exchange would 
consider trading in the security underlying an ADR on the foreign 
issuer's primary market together with the average daily trading volume 
of the ADR in the U.S. OTC market in determining whether a foreign 
issuer seeking to list ADRs satisfies the requirement. The Exchange 
believes that this will help demonstrate adequate investor interest in 
the foreign issuer and the underlying security, which will help promote 
price discovery and establish an appropriate market price for the 
ADR.\35\ This proposed amendment is substantively identical to existing 
Nasdaq Rule 5215(b).
---------------------------------------------------------------------------

    \35\ ADR shares trade separately from the underlying securities, 
and often have slightly different values. However, ADR share values 
usually track closely with the value of the underlying security
---------------------------------------------------------------------------

    The Exchange is proposing to adopt an exemption from the proposed 
average daily trading volume requirement for securities (including 
ADRs) listed in connection with a firm commitment underwritten public 
offering of at least $4 million. The Exchange believes that the sale of 
securities in an underwritten public offering provides an additional 
basis for believing that a liquid trading market will likely develop 
for such securities after listing, since the offering process is 
designed to promote appropriate price discovery. Moreover, the 
underwriters in a firm commitment underwritten public offering will 
also generally make a market in the securities for a period of time 
after the offering, assisting in the creation of a liquid trading 
market. For these reasons, in part, the Exchange's rules already 
provide similar exemptions in other situations involving a firm 
commitment underwritten offering.\36\ The Exchange believes that the 
process of a firm commitment underwritten offering similarly supports 
an exception from the proposed average daily trading volume 
requirement. Finally, the Exchange believes that the proposed minimum 
$4 million firm commitment underwritten public offering is large enough 
to represent a fundamental change in how the company will trade 
following the offering, such that the prior trading volume will not be 
representative of the volume following the offering. In that regard, 
the Exchange notes that the minimum $4 million offering would be 
sufficient to satisfy the Exchange's one million share public float 
requirement at the minimum $4 price for listing for Tier II securities. 
This exemption will be included in new Rules 14.8(b)(1)(D), 
14.8(d)(1)(F), 14.9(b)(1)(E), and 14.9(c)(1)(F).\37\
---------------------------------------------------------------------------

    \36\ For example, Exchange Rule 14.2(c)(3)(D) provides an 
exemption from the requirements applicable to a company that was 
formed by a reverse merger if the company completes a firm 
commitment underwritten public offering where the gross proceeds to 
the company will be at least $40 million.
    \37\ The proposed exemptions are very similar to those on 
Nasdaq. See e.g., Nasdaq Rule 5505(a)(5) and 5510(a)(6).
---------------------------------------------------------------------------

IV. Minimum Price Requirement
    Rule 3a51-1 \38\ provides that ``penny stock'' means any equity 
security other than securities that meet certain exclusions. Rule 3a51-
1(g) provides an exclusion for a security if its issuer has either 
``[n]et tangible assets (i.e., total assets less intangible assets and 
liabilities) in excess of $2,000,000, if the issuer has been in 
continuous operation for at least three years, or $5,000,000, if the 
issuer has been in continuous operation for less than three years'' or 
``[a]verage revenue of at least $6,000,000 for the last three years.'' 
When the Commission made changes to Rule 3a51-1 concerning exchange-
listed securities, it specifically noted that it did not intend to 
foreclose reliance on the other exclusions available in Rule 3a51-1, 
including the exclusion available in Rule 3a51-1(g).\39\ Proposed Rule 
14.9(b)(1)(A)(ii) would only permit a company seeking to list a Tier II 
security to list with a $2 or $3 price if it satisfies the net tangible 
assets or revenue test of Rule 3a51-1(g) and, as such, securities 
listing under the proposed rule would not be penny stocks at the time 
of their listing. A company that qualifies for initial listing only 
under the proposed requirement could become a ``penny stock'' if it 
fails the net tangible assets and revenue tests after listing and does 
not satisfy any of the other exclusions from being a penny stock. In 
order to assist brokers' and dealers' compliance with the requirements 
of the Penny Stock Rules, the Exchange will monitor companies listed 
under the proposed alternative and publish a list of any company that 
initially listed under that requirement, which does not then meet the 
requirements of Rule 3a51-1(g), described above, or any of the other 
exclusions from being a penny stock contained in Rule 3a51-1.\40\ Such 
list will be updated on a daily basis.
---------------------------------------------------------------------------

    \38\ 17 CFR 240.3a51-1.
    \39\ See Securities Exchange Act Release No. 49037 (January 8, 
2004), 69 FR at 2535 (January 16, 2004) (text at footnote 41) (``In 
addition, we note that any security that satisfies one of the other 
exclusions in Rule 3a51-1 will not be a penny stock even if it fails 
to satisfy any of the proposed conditions for reported securities or 
for other exchange registered securities discussed above.'').
    \40\ The Exchange believes that the other exclusion most likely 
to be implicated would be Rule 3a51-1(d), 17 CFR 240.3a51-1(d), 
which provides an exclusion from the definition of a penny stock for 
a security with a minimum bid price of $5. Note, however, that if a 
Company obtains a $4 minimum bid price at a time when it meets all 
other initial listing requirements, the Exchange would no longer 
consider the company as having listed under the proposed alternative 
standard.
---------------------------------------------------------------------------

    The proposed alternative price test will be based on the BZX 
Official Closing Price \41\ in the security.\42\ The Exchange notes 
that the process for determining the BZX Official Closing Price is 
similar to such process on Nasdaq for determining the Nasdaq Official 
Closing Price.\43\ The Exchange also proposes that the required closing 
price must be achieved for at least five consecutive business days 
before approval of the listing application. The Exchange may extend the 
minimum five-day compliance period required to satisfy these tests 
based on any fact or circumstance, including the margin of compliance, 
the trading volume, the trend of the security's price, or information 
or concerns raised by other regulators concerning the trading of the 
security. If a security obtains a $4 closing price for five consecutive 
business days and, at the same time

[[Page 38923]]

satisfies all other initial listing criteria, it will no longer be 
considered as having listed under the alternative requirement. In such 
case the security will satisfy the requirements for the exclusion 
contained in Rule 3a51-1(a)(2) and no longer be monitored for 
compliance with the other exclusions from the definition of a penny 
stock.
---------------------------------------------------------------------------

    \41\ See BZX Rule 11.23(a)(3). The Exchange notes that the 
process for determining the BZX Official Closing Price is similar to 
the process on Nasdaq for determining the Nasdaq Official Closing 
Price.
    \42\ As provided in Exchange Rule 11.23(c)(2)(B), ``[f]or a BZX-
listed corporate security, the Closing Auction price will be the BZX 
Official Closing Price. In the event that there is no Closing 
Auction for a BZX-listed corporate security, the BZX Official 
Closing Price will be the price of the Final Last Sale Eligible 
Trade. See Exchange Rule 11.23(a)(9) for the definition of ``Final 
Last Sale Eligible Trade''.
    \43\ See Nasdaq Rule 4754. The Exchange notes that pursuant to 
Nasdaq Rule 4754(b)(5), Nasdaq may apply auxiliary procedures for 
the Closing Cross to ensure a fair and orderly market, where no such 
provision is available on BZX.
---------------------------------------------------------------------------

    The Exchange notes that the proposal to adopt an alternative to the 
minimum $4 price requirement for companies seeking to list Tier II 
securities on the Exchange is very similar to rules proposed by Nasdaq 
considered and approved by the Commission.\44\
---------------------------------------------------------------------------

    \44\ See Securities Exchange Act Nos. 66159 (January 13, 2012) 
77 FR 3021 (January 20, 2012) (SR-NASDAQ-2012-002) (Notice of Filing 
of Proposed Rule Change To Adopt an Alternative to the $4 Initial 
Listing Bid Price Requirement for the Nasdaq Capital Market of 
Either $2 or $3, if Certain Other Listing Requirements Are Met); 
66830 (April 18, 2012) 77 FR 24549 (April 24, 2012) (Notice of 
Filing of Amendment No. 1 and Order Granting Accelerated Approval to 
Proposed Rule Change, as Modified by Amendment No. 1, To Adopt an 
Alternative to the $4 Per Share Initial Listing Bid Price 
Requirement for the Nasdaq Capital Market of Either $2 Closing Price 
Per Share or $3 Closing Price Per Share, if Certain Other Listing 
Requirements are Met).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\45\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \46\ requirements that the rules 
of an exchange be designed to prevent fraudulent and manipulative acts 
and practices, 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.
---------------------------------------------------------------------------

    \45\ 15 U.S.C. 78f(b).
    \46\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As described below, the Exchange believes that the proposed rule 
changes in this filing are consistent with the investor protection 
requirement of Section 6(b)(5) of the Act because they each will enable 
the Exchange to help ensure that issuers seeking to list securities on 
the Exchange have sufficient public float, investor base, and trading 
interest likely to generate depth and liquidity. Illiquid securities 
may trade infrequently, in a more volatile manner and with a wider bid-
ask spread, all of which may result in trading at a price that may not 
reflect their true market value. Less liquid securities also may be 
more susceptible to price manipulation, as a relatively small amount of 
trading activity can have an inordinate effect on market prices.
I. Restricted Securities
    The proposed amendments will adopt new definitions of ``Restricted 
Securities'' and ``Unrestricted Securities'' in order to exclude 
securities that are subject to resale restrictions from the Exchange's 
Initial Liquidity Calculations. The Exchange believes that these 
amendments will bolster the Exchange's quantitative shareholder 
requirements, and as a result, better reflect and safeguard the 
liquidity of a security. The Exchange believes that adopting the new 
definitions of Restricted Securities and Unrestricted Securities will 
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 
securities subject to resale restrictions are not freely transferrable 
and therefore excluding Restricted Securities from the Exchange's 
Initial Liquidity Calculations will help ensure that the Exchange lists 
only companies with liquid securities and sufficient investor interest 
to support an exchange listing meeting the Exchange's listing criteria, 
which will better protect investors. Further, the proposed definitions 
are substantively identical to Nasdaq Rules 5005(a)(38) (definition of 
Restricted Security) and 5005(a)(47) (definition of Unrestricted 
Securities).
A. Publicly Held Shares
    The proposed amendments will adopt a new definition of 
``Unrestricted Publicly Held Shares'' and change the existing 
definition of ``Public Shareholders'' to ``Unrestricted Public 
Shareholders'' so that they each exclude Restricted Securities. The 
Exchange also proposes to revise its initial listing standards to 
conform the minimum number of Publicly Held Shares and Unrestricted 
Public Shareholders to the new or revised definitions. The Exchange 
believes that these changes will 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 it will help ensure that a security to be 
listed has adequate liquidity and is thus suitable for listing and 
trading on an exchange, which will reduce trading volatility and price 
manipulation, thereby protecting investors and the public interest.
    The Exchange notes that the proposed amendments to the Publicly 
Held Share requirements are very similar to existing listing standards 
on Nasdaq.\47\
---------------------------------------------------------------------------

    \47\ See e.g., the listing standards on the Nasdaq Capital 
Market (Nasdaq Listing Rules 5505(a)(2) and 5510(a)(3)).
---------------------------------------------------------------------------

B. Market Value of Publicly Held Shares
    The proposed amendments will revise the definition of ``Market 
Value'' to exclude Restricted Securities from the calculation of Market 
Value of Unrestricted Publicly Held Shares as well as revise the 
Exchange's initial listing standards to conform the minimum Market 
Value to the new definition. The Exchange believes that these changes 
will 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 it 
will help ensure that a security to be listed has adequate liquidity 
and investor interest and is thus suitable for listing and trading on 
an exchange, which will reduce trading volatility and price 
manipulation, thereby protecting investors and the public interest.
    The Exchange notes that the proposed amendments as it relates to 
the Market Value of Publicly Held Shares are substantively identical to 
existing listing standards on Nasdaq.\48\
---------------------------------------------------------------------------

    \48\ See e.g., the listing standards on the Nasdaq Capital 
Market (Nasdaq Listing Rules 5505(b)(1)(B) (Equity Standard), 
5505(b)(2)(C) (Market Value Standard), 5505(b)(3)(C) (Net Income 
Standard), and 5510(a)(4) (standard applicable to Preferred Stock or 
Secondary Classes of Common Stock)).
---------------------------------------------------------------------------

C. Round Lot Holders
    The proposed amendments will exclude Restricted Securities from the 
calculation of the number of Round Lot Holders required to meet the 
Exchange's initial listing criteria by adopting a new definition of 
``Round Lot Holder'' which will exclude Restricted Securities. The 
Exchange believes that this amendment will 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 by helping ensure adequate 
distribution, shareholder interest and a liquid trading market of a 
security. The Exchange notes that these changes are very similar

[[Page 38924]]

to listing standards on Nasdaq,\49\ and the proposed definition of 
Round Lot Holder is substantively identical to Nasdaq Rule 5005(a)(41).
---------------------------------------------------------------------------

    \49\ See e.g., Nasdaq Listing Rule 5505(a)(3) and 5510(a)(2).
---------------------------------------------------------------------------

D. American Depository Receipts
    The proposed amendments will modify the Exchange's rules to state 
that when considering the security underlying an ADR, the Exchange will 
only consider restrictions that prohibit the resale or trading of the 
underlying security on the foreign issuer's home country market. 
However, any restrictions, including those provided as examples in the 
new definition of ``Restricted Securities,'' which would restrict the 
underlying security from being freely sold or tradable on its home 
country market would be considered by the Exchange when calculating 
``Unrestricted Publicly Held Shares.'' The Exchange believes that this 
is appropriate because the purpose of the Initial Liquidity 
Calculations, and the proposed changes described herein, is to 
establish investor interest in the foreign issuer and ensure adequate 
liquidity and distribution of the foreign issuer's underlying security 
on its home country market, which is held by the depositary bank and 
represented by the ADR. For this reason, existing Rule 14.3(c)(2) 
currently looks to the underlying security when calculating Publicly 
Held Shares, Market Value of Publicly Held Shares, Round Lot and public 
holders and it is similarly appropriate to consider whether or not the 
underlying security is freely tradable in its home country market when 
determining Unrestricted Publicly Held Shares, Market Value of 
Unrestricted Publicly Held Shares, and Round Lot Holders. Excluding 
securities that are only restricted from resale or trading in the 
United States would be not be an appropriate measure of investor 
interest in or liquidity of the underlying security because the 
underlying security will not be listed or trading in the U.S. Moreover, 
applying the new definition of Restricted Securities to securities 
trading on a foreign market, if the securities trading on the home 
country market are not already restricted by the examples set forth in 
the new definition of Restricted Securities, would unduly impose the 
requirements of a U.S. national securities exchange on those 
securities, which will not be listed in the U.S. For the foregoing 
reasons, the Exchange believes that this provision will 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.
    Further, the Exchange believes that this provision is not designed 
to permit unfair discrimination between customers, issuers, brokers, or 
dealers. While the Exchange's Initial Liquidity Calculations for ADRs 
would be calculated differently than other securities, these 
differences are not unfair because they recognize the unique structure 
of ADRs, as already reflected in the existing treatment of ADRs under 
the Exchange's rules, where the Exchange looks to the underlying 
security in order to ensure sufficient investor interest and adequate 
liquidity and distribution of the foreign issuer's underlying security, 
which is represented by the ADR.
    The Exchange notes that this proposed change is substantively 
identical to existing Nasdaq Rule 5215(b).
II. Minimum Value Requirements for Holders
    The Exchange proposes adopting a new requirement that at least 50% 
of a company's Round Lot Holders hold Unrestricted Securities with a 
Market Value of at least $2,500. The Exchange notes that the proposed 
$2,500 threshold is from 6.5 times to 12.5 times larger than the 
existing minimum investment, and the Exchange believes that this 
increased amount is a more appropriate representation of genuine 
investor interest in the company and will make it more difficult to 
circumvent the requirement through share transfers for no value. As 
such, the Exchange believes that these amendments will 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 by requiring more than half 
of the required number of shareholders hold a more significant 
investment in the company, and that the company will therefore have an 
adequate distribution, shareholder interest and a liquid trading market 
of a security.
    The Exchange also notes that the proposed rule is very similar to 
Nasdaq Rules.\50\
---------------------------------------------------------------------------

    \50\ See e.g., Nasdaq Listing Rules 5505(a)(3) and 5510(a)(2).
---------------------------------------------------------------------------

III. Average Daily Trading Volume
    The proposed amendments will generally impose a minimum average 
daily trading volume over the 30 trading days prior to listing of at 
least 2,000 shares a day (including trading volume of the underlying 
security on the primary market with respect to an ADR), with trading 
occurring on more than half of those 30 days (i.e., at least 16 days). 
This will apply to primary equity securities, preferred stock, 
secondary classes of common stock and ADRs previously trading OTC in 
the United States that apply to list securities on the Exchange. The 
Exchange believes this proposed change will 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 by helping to assure adequate 
liquidity and price discovery of a security. The Exchange believes that 
companies trading at least 2,000 shares a day over a period of 30 
trading days prior to listing, with trading occurring on more than half 
of those 30 days, can demonstrate sufficient investor interest to 
support sustained trading activity when listed on a national stock 
exchange.
    The proposed rule change will provide a limited exemption to this 
requirement for securities (including ADRs) listed in connection with a 
firm commitment underwritten public offering of at least $4 million. 
The Exchange believes that it is consistent with the protection of 
investors and the public interest, and not unfairly discriminatory, to 
exempt from the proposed average daily trading volume requirement 
securities satisfying this exemption because underwriters facilitate 
appropriate price discovery and will generally make a market in the 
securities for a period of time after the offering, assisting in the 
creation of a liquid trading market. Further, the Exchange believes 
that this exemption is consistent with the protection of investors and 
the public interest, and not unfairly discriminatory, because the 
proposed minimum $4 million firm commitment underwritten public 
offering is large enough to represent a fundamental change in how the 
company will trade following the offering, such that the prior trading 
volume will not be representative of the volume following the offering.
    Under the proposed rule, the Exchange would consider trading in the 
security underlying an ADR on the foreign issuer's primary market 
together with the average daily trading volume of the ADR in the U.S. 
OTC market in determining whether a foreign issuer seeking to list ADRs 
satisfies the requirement. The Exchange believes that this distinction 
is not unfairly discriminatory because the trading

[[Page 38925]]

volume in the underlying security on the foreign issuer's primary 
market represents interest in the foreign issuer's security and that 
interest is reasonably likely to be indicative of investor interest in 
the ADR.
    The proposed rule is very similar to Nasdaq Rules.\51\
---------------------------------------------------------------------------

    \51\ See e.g., 5505(a)(5) and 5510(a)(6).
---------------------------------------------------------------------------

IV. Minimum Price Requirement
    The proposed rule change will adopt a $2 and $3 initial listing 
price alternative for Tier II securities listed on the Exchange that is 
identical to a listing requirement on Nasdaq, which the Commission has 
already determined is consistent with these requirements.\52\
---------------------------------------------------------------------------

    \52\ Supra note 44.
---------------------------------------------------------------------------

    In this proposed rule amendment, the Exchange proposes to determine 
compliance with the new alternative based on a security's BZX Official 
Closing Price, instead of its bid price. The Exchange believes that 
this change will protect investors and the public interest by ensuring 
that a trade, reflecting the value of the security to both the buyer 
and seller, has taken place at the required price. The Exchange also 
proposes to require that a company meet the applicable closing price 
for at least five consecutive business days, which will protect 
investors and the public interest by helping to ensure that the company 
has achieved more than just fleeting compliance. In addition, the 
Exchange is providing additional information clarifying how it will 
determine compliance with the price requirements and how it will review 
a security that initially listed under the proposed alternative to 
determine if that security subsequently achieves a $4 price and meets 
the other initial listing requirements. The Exchange believes that this 
additional transparency will also help protect investors and the public 
interest.
    The Exchange believes that the proposed price requirement is 
sufficient to protect investors and would exercise its discretionary 
authority to deny initial listing if the Exchange was concerned about 
the ability of a Company to maintain compliance with the continued 
listing price or believed there were public interest concerns leading 
to the company's low stock price.
    The Exchange believes that the proposed price requirement is 
sufficient to protect investors and would exercise its discretionary 
authority to deny initial listing if the Exchange was concerned about 
the ability of the company to maintain compliance with the continued 
listing price or believed there were public interest concerns leading 
to the company's low stock price. Moreover, given that these companies 
have an exchange-listing available to them, prohibiting listing on the 
Exchange does not serve to protect investors and the Exchange believes 
that investors would be at least as well protected by having these 
companies instead listed on the Exchange, where they would be subject 
to oversight by the Exchange's regulatory staff. As such, the Exchange 
believes that the proposed rule change, as amended, is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, and, in general, to protect 
investors and the public interest.
    Section 6(b)(8) of the Act requires that the rules of an exchange 
not impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Finally, as noted above, the 
proposed rule change would adopt the identical initial listing price 
requirement on Nasdaq of $2 or $3 depending on the security's other 
characteristics. As such, the Exchange believes that its listing 
requirements would remain substantially similar to those of Nasdaq. In 
addition, as noted, the proposed rule change, as amended, would require 
that any security qualifying under this new price alternative also meet 
the requirements of Rule 3a51-1(g) \53\ and that these securities 
therefore would not be considered ``penny stocks'' under the Act at the 
time of their listing. To the extent that a security no longer 
qualified for the exclusion under Rule 3a51-1(g), or any of the other 
exclusions in Rule 3a51-1, the Exchange would notify the public by 
including the security in a list published on the Exchange's website.
---------------------------------------------------------------------------

    \53\ 17 CFR 240.3a51-1(g).
---------------------------------------------------------------------------

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    The Exchange believes the proposed rule change will not impose any 
unnecessary burden on intramarket competition as all domestic and 
foreign companies seeking to list primary equity securities, preferred 
stock, secondary classes of common stock or subscription receipts would 
be affected in the same manner by these changes. As discussed above, 
companies listing ADRs would be treated differently in some respects 
than companies listing other primary equity securities, but those 
differences reflect the unique characteristics of ADRs and does not 
impose an unnecessary burden on competition.
    The proposed rule changes will expand the competition for the 
listing of equity securities as they will enable the Exchange to 
compete for the listing of companies that are currently not qualified 
for listing on the Exchange but are qualified to list on other national 
securities exchanges. To the extent that companies prefer listing on a 
market with these proposed listing standards, other exchanges can 
choose to adopt similar enhancements to their requirements. As such, 
these changes are neither intended to, nor expected to, impose any 
burden on competition between exchanges.

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

    The Exchange neither solicited nor received comments on 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 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeBZX-2023-036 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.


[[Page 38926]]


All submissions should refer to file number SR-CboeBZX-2023-036. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-CboeBZX-2023-036 and should 
be submitted on or before July 5, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\54\
---------------------------------------------------------------------------

    \54\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-12665 Filed 6-13-23; 8:45 am]
BILLING CODE 8011-01-P


