Notice2023-12665
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
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
June 14, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 114 (Wednesday, June 14, 2023)</title>
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[Federal Register Volume 88, Number 114 (Wednesday, June 14, 2023)]
[Notices]
[Pages 38917-38926]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[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 (<a href="http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/">http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/</a>), 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: <a href="https://www.sec.gov/reportspubs/investorpublications/investorpubsrule144htm.html">https://www.sec.gov/reportspubs/investorpublications/investorpubsrule144htm.html</a>. 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:
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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).
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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.
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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).
---------------------------------------------------------------------------
\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:
<bullet> Exchange Rule 14.8(b)(1) to add new Rule 14.8(b)(1)(D) as
it pertains to Tier I primary equity securities;
<bullet> 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;
<bullet> 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;
<bullet> 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'').''
---------------------------------------------------------------------------
<bullet> 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
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#2c5e594049014f4341414942585f6c5f494f024b435a"><span class="__cf_email__" data-cfemail="d4a6a1b8b1f9b7bbb9b9b1baa0a794a7b1b7fab3bba2">[email protected]</span></a>. Please include
file number SR-CboeBZX-2023-036 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.
[[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 (<a href="https://www.sec.gov/rules/sro.shtml">https://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
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).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-12665 Filed 6-13-23; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on June 14, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.