Notice2022-23870
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Adopt Listing Rule 5732 To Provide Listing Standards for Contingent Value Rights on Nasdaq Global Market
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
November 3, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 212 (Thursday, November 3, 2022)</title>
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[Federal Register Volume 87, Number 212 (Thursday, November 3, 2022)]
[Notices]
[Pages 66337-66339]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-23870]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96176; File No. SR-NASDAQ-2022-057]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To Adopt Listing Rule 5732 To
Provide Listing Standards for Contingent Value Rights on Nasdaq Global
Market
October 28, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 17, 2022, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
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\ 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 adopt Listing Rule 5732 to provide listing
standards for Contingent Value Rights on Nasdaq Global Market.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rules">https://listingcenter.nasdaq.com/rulebook/nasdaq/rules</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 Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Nasdaq proposes to adopt Listing Rule 5732 to provide listing
standards for Price-Based and Event-Based Contingent Value Rights (each
a ``CVR'' and collectively, ``CVRs'') on Nasdaq Global Market, which
are unsecured obligations of the issuer providing for a possible cash
payment at maturity.\3\ The Exchange believes that the proposed rule
change will increase competition by providing an additional listing
venue for CVRs, which can currently be listed on other securities
exchanges. CVRs are often used to bridge valuation gaps relating to
uncertain future events that may influence the value of a target
company and, more generally, may be employed to aid in the completion
of deals by helping to solve certain of the valuation and closing
challenges that the parties encounter.
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\3\ The proposed rule change is based on Section 703.18 of the
NYSE Listed Company Manual, related to initial listing of CVRs, and
the provisions of Section 802.01D applicable to ``Specialized
Securities'', related to continued listing of CVRs. See Securities
Exchange Act Release No. 26072 (May 30, 1990), 55 FR 23166 (June 6,
1990) (SR-NYSE-90-15) (adopting NYSE rules related to Price-Based
CVRs); Securities Exchange Act Release No. 86651 (August 13, 2019),
84 FR 42967 (August 19, 2019) (SR-NYSE-2019-14) (adopting NYSE rules
related to Event-Based CVRs).
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Specifically, the cash payment at maturity for a CVR can be based
upon the price performance of an affiliate's equity security (a
``Price-Based CVR'') or upon the occurrence of a specified event or
events related to the business of the issuer or an affiliate of the
issuer (an ``Event-Based CVR''). At maturity, the holder of a Price-
Based CVR is entitled to a cash payment if the average market price of
the related equity security is less than a pre-set target price. The
target price is established at the time the Price-Based CVR is issued.
Conversely, should the average market price of the related equity
security equal or exceed the target price, the Price-Based CVR would
expire worthless. Price-Based CVRs are generally distributed to
shareholders of an acquired company who are receiving shares of the
acquirer as acquisition consideration. The Price-Based CVRs provide the
acquiree's shareholders with some medium-term protection against poor
stock price performance of the shares of the acquirer by guaranteeing
them a specified cash payment if the acquirer's average stock price is
below a specified level at the time of maturity of the Price-Based CVR.
Event-Based CVRs are also typically issued to the shareholders of
an acquired entity as consideration in an acquisition transaction.
Event-Based CVRs entitle their holders to receive a specified cash
payment upon the occurrence of a specified event or events related to
the business of the issuer or an affiliate of the issuer prior to the
maturity date of the Event-Based CVR. The Event-Based CVR provides the
shareholders of the acquiree an additional interest in the medium-term
performance of the merged entity upon occurrence of its specified
event(s). An example of a typical Event-Based CVR occurs in mergers of
life sciences companies, when the CVR payment is triggered by the
receipt of FDA approval of a new drug application. Another example of
an Event-Based CVR is a CVR issued in connection with a merger whose
payment triggering event is the achievement of a specified level of
financial performance by the combined entity or by a division of the
combined entity representing the assets from the acquired company.
Event-Based CVRs, which are transferrable, have become increasingly
common in recent years, especially in connection with mergers of life
sciences companies.
For initial listing on the Nasdaq Global Market, the issuer must
have assets in excess of $100 million, satisfy the requirement of
Nasdaq Rule 5315(f)(3)(A) \4\ or have at least $200 million in global
market capitalization and satisfy the requirement of Rule
[[Page 66338]]
5315(f)(2)(A) and (B) \5\ related to Market Value of Unrestricted
Publicly Held Shares. In order to list a CVR, an issuer of the CVR must
not be considered non-compliant with the listing standards of the
national securities exchange where either the equity security to whose
price performance a Price-Based CVR, or in an Event-Based CVR, where
the primary equity security is linked or the issuer's common stock is
listed.
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\4\ Specifically, to satisfy Nasdaq Rule 5315(f)(3)(A) a
Company, other than a closed end management investment company, must
aggregate income from continuing operations before income taxes of
at least $11 million over the prior three fiscal years, (ii)
positive income from continuing operations before income taxes in
each of the prior three fiscal years, and (iii) at least $2.2
million income from continuing operations before income taxes in
each of the two most recent fiscal years.
\5\ See Nasdaq Rule 5315(f)(2)(A) and (B) requiring (i) a Market
Value of at least $110 million; or (ii) a Market Value of at least
$100 million, if the Company has stockholders' equity of at least
$110 million.
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Also, the CVR issue must have a minimum of 400 holders; a minimum
of 1 million CVRs outstanding; a minimum of $4 million market value; a
minimum life of one year; and a minimum $4.00 bid price. While these
distribution and liquidity standards applicable to CVRs can help to
ensure there should be adequate depth, liquidity, and investor interest
to support an exchange listing, the issuer requirements will provide
some minimum level of indicia that the issuer of a CVR should be able
to meet any future payment obligations to shareholders of Event-Based,
as well as Price-Based, CVRs pursuant to the applicable CVR agreement.
Prior to listing a CVR under the proposed rule, Nasdaq would issue
a circular as described in proposed Nasdaq Rule 5732(c) reminding its
members that because CVRs have certain unique characteristics investors
should be afforded an explanation of such special characteristics and
risks attendant to trading thereof, as well as the Exchange's know-
your-customer, suitability, and other rules applicable thereto. Nasdaq
will suggest to its members that transactions in CVRs be recommended
only to investors whose accounts have been approved for options trading
or whom the member firm has otherwise ascertained that CVRs are
suitable for. Like other financial products with unique features
trading on the Exchange, CVRs combine features of debt, equity, and
securities derivative instruments. Consequently, this product may be
more complex than straight stock, bond, or equity warrants. The
Exchange believes distribution of this information circular will help
to alert members to the special disclosure and suitability obligations
that apply to CVRs and that are relevant in making recommendations for
investors to purchase such securities.\6\
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\6\ In particular, the circular states, among other things, that
it is suggested that transactions in CVRs be recommended only to
investors whose accounts have been approved for options trading and
that members making recommendations in CVRs should make a
determination that the customer has such knowledge and experience in
financial matters that the customer may reasonably be expected to be
capable of evaluating the risks and special characteristics, and is
financially able to bear the risks, of a recommendation to invest in
CVRs. Nasdaq believes these requirements, among others set forth in
the circular, should help to ensure that members recommend
transactions only to those customers with an understanding of the
risks attendant to the trading of CVRs.
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While listed, the issuer of an Event-Based CVR will be required to
make public disclosure: (i) upon the occurrence of any event that must
occur as a condition to the issuer's obligation to make a cash payment
with respect to the CVR (or if such an event is deemed to have occurred
pursuant to the terms of the documents governing the CVR); or (ii) at
any such time as it becomes clear that a condition to the cash payment
with respect to the CVR has not been met as required by the documents
governing the terms of the CVR.\7\
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\7\ IM-5250-1. Disclosure of Material Information, among other
things, requires Nasdaq companies to notify Nasdaq's MarketWatch
Department prior to the distribution of certain material news at
least ten minutes prior to public announcement of the news when the
public release of the information is made from 7:00 a.m. to 8:00
p.m. ET. Trading halts are instituted, among other reasons, to
ensure that material information is fairly and adequately
disseminated to the investing public and the marketplace, and to
provide investors with the opportunity to evaluate the information
in making investment decisions.
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Nasdaq will delist a CVR pursuant to the provisions of the Listing
Rule 5800 Series if the CVR fails to maintain any of the following: (1)
at least 100,000 Publicly Held Shares; (2) at least 100 Holders; or (3)
at least $1 million Market Value of Listed Securities. In addition,
Nasdaq would delist the CVR if either the equity security to whose
price performance a Price-Based CVR is linked or the issuer's common
stock does not remain listed. Also, Nasdaq would delist an Event-Based
CVR once the occurrence of the specified event or events related to the
business of the issuer or an affiliate of the issuer has occurred or
once it goes beyond the time that the specified event or events should
have occurred.
The Exchange will rely on its existing trading surveillances,
administered by the Exchange, or the Financial Industry Regulatory
Authority (``FINRA'') on behalf of the Exchange, which are designed to
detect violations of Exchange rules and applicable federal securities
laws. The Exchange will monitor activity in CVRs to identify and deter
any potential improper trading activity in such securities and monitor
CVRs alongside the common equity securities of the issuer or its
affiliates, as applicable. In addition, the Exchange will adopt
enhanced surveillance procedures if necessary. Since news and
information concerning a company and its primary equity security or
common stock can have an impact on a company's Event-Based CVRs and
Price-Based CVRs, the surveillance should help to monitor the trading
activity in the Event-Based CVRs and Price-Based CVRs. In addition, if
the underlying security is listed and traded on another U.S. national
securities exchange, Nasdaq will communicate as needed and may obtain
information regarding trading from markets and other entities that are
members of ISG.\8\
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\8\ For a list of the current members of ISG, see
<a href="http://www.isgportal.org">www.isgportal.org</a>.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\9\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\10\ 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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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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The proposal to permit the listing of CVRs under proposed Listing
Rule 5732 is designed to protect investors and the public interest. The
purpose of the proposed rule change is to provide a transparent
regulated market for the trading of those securities. The listing of
Price-Based CVRs has been permitted under Section 703.18 of the New
York Stock Exchange LLC (``NYSE'') Listed Company Manual (``Section
703.18'') for many years, and several years ago NYSE also amended
Section 703.18 to accommodate Event-Based CVRs.\11\ The Exchange notes
that, with the exception of the payment triggering event, Event-Based
CVRs are identical in structure to Price-Based CVRs. Listed companies
have been issuing transferable Event-Based CVRs as acquisition
consideration for a number of years.\12\
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\11\ See Securities Exchange Act Release No. 26072 (May 30,
1990), 55 FR 23166 (June 6, 1990) (SR-NYSE-90-15) (adopting NYSE
rules related to Price-Based CVRs); Securities Exchange Act Release
No. 86651 (August 13, 2019), 84 FR 42967 (August 19, 2019) (SR-NYSE-
2019-14) (adopting NYSE rules related to Event-Based CVRs).
\12\ See, for example, CVRs listed by Sanofi (cash payment tied
to achieving sales targets of certain drugs) and Wright Medical
Group N.V. (cash payment tied to FDA approval of a certain drug and
achieving revenue milestones), which were both listed on the
Exchange under current Rule 5730. No similar CVRs are currently
listed at the time of this filing.
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The Exchange will distribute a circular as described in proposed
Listing Rule 5732(c) prior to the commencement of trading of any CVR
reminding its members that because CVRs have certain unique
characteristics investors should be afforded an explanation of such
special characteristics and risks attendant to trading thereof, as well
as the Exchange's know-your-customer, suitability, and other rules
applicable thereto. The Exchange believes that the distribution of this
circular will help address concerns, among others, that the complexity
of a CVR could lead to investor confusion and create certain risks. In
addition, the Exchange will monitor activity in CVRs, to identify and
deter any potential improper trading activity in such securities and
monitor CVRs together with the common equity securities of the issuer
or its affiliates, as applicable. The Exchange also will adopt enhanced
surveillance procedures if necessary. The Exchange believes these
measures will reduce the risks of manipulative or other improper
activity in connection with CVRs.
Proposed Listing Rule 5732 is designed to protect investors and the
public interest, as it requires that only larger, well capitalized
companies can list CVRs. The issuer requirements under proposed Listing
Rule 5732 are those applied to the initial listing of common stocks of
operating companies on the Nasdaq Global Select Market, and, as such,
the Exchange believes that they are sufficiently rigorous to be used in
connection with the listing of CVRs on Nasdaq Global Market. The
Exchange further believes that issuers that meet the Global Select
Market issuer qualification requirements are likely to be substantial
companies capable of meeting their financial obligations under the
terms of a listed CVR. The Exchange also notes that it will require
issuers of listed CVRs to have at least $100 million in total assets at
the time of original listing.
Nasdaq will delist a CVR pursuant to the provisions of the Listing
Rule 5800 Series if the CVR fails to maintain any of the following,
which are set forth in the continued listing requirements of Listing
Rule 5732(d): (1) at least 100,000 Publicly Held Shares; (2) at least
100 Holders; or (3) at least $1 million Market Value of Listed
Securities. In addition, Nasdaq would delist the CVR if either the
equity security to whose price performance a Price-Based CVR is linked
or the issuer's common stock does not remain listed. Also, Nasdaq would
delist an Event-Based CVR once the occurrence of the specified event or
events related to the business of the issuer or an affiliate of the
issuer has occurred or once it goes beyond the time that the specified
event or events should have occurred. This is designed to protect
investors and the public interest, as it ensures that issuers whose
CVRs are listed on the Exchange will meet the qualitative and
quantitative standards for listing on a national securities exchange on
a continuous basis.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule change will
increase competition by providing an additional listing venue for CVRs,
which can currently be listed on other securities exchanges and does
not impose any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the 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#681a1d040d450b0705050d061c1b281b0d0b460f071e"><span class="__cf_email__" data-cfemail="b0c2c5dcd59dd3dfddddd5dec4c3f0c3d5d39ed7dfc6">[email protected]</span></a>. Please include
File Number SR-NASDAQ-2022-057 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-NASDAQ-2022-057. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<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 the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2022-057, and should be submitted
on or before November 25, 2022.
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\13\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-23870 Filed 11-2-22; 8:45 am]
BILLING CODE 8011-01-P
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