Notice2022-08281
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
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
April 19, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 75 (Tuesday, April 19, 2022)</title>
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[Federal Register Volume 87, Number 75 (Tuesday, April 19, 2022)]
[Notices]
[Pages 23300-23306]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-08281]
[[Page 23300]]
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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 <a href="http://www.nyse.com">www.nyse.com</a>, 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
[[Page 23302]]
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 <a href="https://www.sec.gov/corpfin/securities-act-rules">https://www.sec.gov/corpfin/securities-act-rules</a>.
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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 <a href="http://www.nyse.com">www.nyse.com</a>) 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:
<bullet> 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
<bullet> 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:
<bullet> 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));
<bullet> 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
<bullet> 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 <a href="https://www.sec.gov/news/speech/gensler-healthy-markets-associationconference-120921">https://www.sec.gov/news/speech/gensler-healthy-markets-associationconference-120921</a> (``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.
---------------------------------------------------------------------------
\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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#5d2f283138703e3230303833292e1d2e383e733a322b"><span class="__cf_email__" data-cfemail="c1b3b4ada4eca2aeacaca4afb5b281b2a4a2efa6aeb7">[email protected]</span></a>. Please include
File Number SR-NYSE-2022-14 on the subject line.
Paper Comments
<bullet> 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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
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