Notice2023-28868
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Adopt an Alternative to the Minimum $4 Price Requirement for Companies Seeking To List Tier II Securities on the Exchange
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
January 3, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 2 (Wednesday, January 3, 2024)</title>
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[Federal Register Volume 89, Number 2 (Wednesday, January 3, 2024)]
[Notices]
[Pages 425-427]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-28868]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99247; File No. SR-CboeBZX-2023-063]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To Adopt an Alternative to the Minimum $4 Price
Requirement for Companies Seeking To List Tier II Securities on the
Exchange
December 27, 2023.
On September 19, 2023, Cboe BZX Exchange, Inc. (``BZX'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to adopt an alternative to the minimum $4 price
requirement for companies seeking to list Tier II securities on the
Exchange. The proposed rule change was published for comment in the
Federal Register on October 2, 2023.\3\ On November 6, 2023, pursuant
to Section 19(b)(2) of the Act,\4\ the Commission designated a longer
period within which to approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
disapprove the proposed rule change.\5\ The Commission received two
comments letters on the proposed rule change.\6\ This order institutes
proceedings under Section 19(b)(2)(B) of the Act \7\ to determine
whether to approve or disapprove the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 98532 (Sept. 26,
2023) 88 FR 67852.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 98860, 88 FR 77647
(Nov. 13, 2023). The Commission designated December 31, 2023 as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\6\ Comments received on the proposed rule change are available
at: <a href="https://www.sec.gov/comments/sr-cboebzx-2023-063/srcboebzx2023063.htm">https://www.sec.gov/comments/sr-cboebzx-2023-063/srcboebzx2023063.htm</a>.
\7\ 15 U.S.C. 78s(b)(2)(B).
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I. Summary of the Proposed Rule Change <SUP>8</SUP>
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\8\ For a full description of all aspects of the proposed rule
change, please see the Notice, supra note 3.
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The Exchange proposes to adopt an alternative to the current
minimum $4 price requirement for companies seeking to list securities
on Tier II of the Exchange that are excluded from the definition of a
``penny stock'' under Exchange Act Rule 3a51-1(g) (the ``Penny Stock
Rule'').\9\ Specifically, under proposed Exchange Rule
14.9(b)(1)(A)(ii), a company whose security maintains a $2 or $3
closing price for at least five consecutive business days prior to
approval would qualify for listing as a Tier II security, if among
other things, it meets the net tangible assets or average revenue tests
of the alternative penny stock exclusion set forth in Exchange Act Rule
3a51-1(g) \10\ and meets all existing listing standards except for the
$4 price requirement. Such a company must instead have a minimum $3
price if it qualifies under the $5 million equity \11\ or $750,000 net
income alternatives \12\ or a minimum $2 price if it qualifies under
the $50 million market value of listed securities alternative.\13\ In
addition, a company qualifying under the proposed standard must have
either: (a) net tangible assets in excess of $2 million, if the company
has been in continuous operation for at least three years; or (b) net
tangible assets in excess of $5 million, if the company has been in
continuous operation for less than three years; or (c) average revenue
of at least $6 million for the last three years. For this purpose, net
tangible assets or revenue must be demonstrated on the company's most
recently filed audited financial statements, satisfying the
requirements of the Commission, and which are dated less than 15 months
prior to the date of listing.\14\
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\9\ 17 CFR 240.3a51-1(g).
\10\ See 17 CFR 240.3a51-1(g). A company seeking to qualify
under only the Market Value of Listed Securities Standard would,
among other things, also be required to maintain for 90 consecutive
trading days the market value of its listed securities at $50
million and the $2 price requirement prior to applying to list under
the alternative standard. See proposed Exchange Rule 14.9(b)(2)(B).
Under the Market Value of Listed Securities Standard, a company
would need to achieve, among other things: (A) market value of
listed securities of at least $50 million (current publicly traded
issuers must meet this requirement and the price requirement for 90
consecutive trading days prior to applying for listing if qualifying
to list only under the market value of listed securities standard);
(B) stockholders' equity of at least $4 million; and (C) market
value of publicly held shares of at least $15 million. The Exchange
proposes to revise Rule 14.9(b)(2)(B) in order to make it consistent
with the proposal. In particular, Rule 14.9(b)(2)(B)(i) would be
revised to delete the specific reference to $4 bid price
requirement, since an issuer seeking to initially list its
securities under the Market Value of Listed Securities Standard
using the proposed alternative price requirement would have to
maintain a closing price of at least $2 per share for 90 consecutive
trading days.
\11\ See Exchange Rule 14.9(b)(2)(A).
\12\ See Exchange Rule 14.9(b)(2)(C).
\13\ See proposed Exchange Rule 14.9(b)(2)(B).
\14\ The Exchange states that the proposed rule adopts the 15-
month requirement to assure consistency with the timing requirements
contained in Exchange Act Rule 3a51-1(g).
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As proposed under new Interpretation and Policies .01(a) to
Exchange Rule 14.9, an Exchange-listed security could become subject to
the Penny Stock Rule following initial listing if it no longer meets
the tangible assets or average revenue tests of the alternative
exclusion and does not qualify for another exclusion under the penny
stock rules. Further, unlike securities listed under the Exchange's
existing initial standards, which have a blanket exclusion from the
Penny Stock Rule, broker-dealers that effect recommended transactions
in securities that originally qualified for listing under the
Exchange's alternative price standard would, among other things, under
Exchange Act Rule 3a51-1(g), need to
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review current financial statements of the issuer to verify that it
meets the applicable net tangible assets or average revenue test, have
a reasonable basis for believing they remain accurate, and preserve
copies of those financial statements as part of its records. As
provided in proposed Interpretation and Policies .01 to Rule 14.9, in
order to assist brokers' and dealers' compliance with the requirements
of the Penny Stock Rule, the Exchange would 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 Exchange Act Rule 3a51-1(g), described above, or any of
the other exclusions from being a penny stock contained in Rule 3a51-
1.\15\ Such list would be updated on a daily basis.\16\
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\15\ 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. However, the Exchange
states 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.
\16\ See proposed Interpretations and Policies .01(a) to
Exchange Rule 14.9.
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If a company initially lists its security with a bid price below $4
under the alternative requirement contained in Rule 14.9(b)(1)(A)(ii),
but subsequently achieves a $4 closing price for at least five
consecutive business days and, at the same time, satisfies all other
initial listing criteria, it would no longer be considered as having
listed under the alternative requirement and the Exchange would notify
the Company that it has qualified for listing under the price
requirement contained in Rule 14.9(b)(1)(A)(i).\17\ If a security
obtains a $4 closing price, the Exchange would determine whether the
security meets all other initial listing requirements for Tier II
securities, including both the quantitative and qualitative
requirements.\18\ If the security meets all initial Tier II listing
requirements, it would satisfy the requirements for the exclusion
contained in Rule 3a51-1(a)(2) and would no longer be monitored by the
Exchange for compliance with the other exclusions from the definition
of a penny stock. Proposed Interpretations and Policies .01(a) to
Exchange Rule 14.9 would remind brokers and dealers that the list
published by the Exchange is only an aid and that the Penny Stock Rule
imposes specific obligations on brokers and dealers with respect to
transactions in penny stocks. Proposed Interpretation and Policy .01(b)
to Exchange Rule 14.9 provides that the proposed alternative price test
will be based on the BZX Official Closing Price \19\ in the security.
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\17\ See id.
\18\ The security would have to meet the $4 bid price
requirement contained in proposed Exchange Rule 14.9(b)(1)(A)(i). In
addition, proposed Rule 14.9(b)(2)(B) requires a company qualifying
only under the Market Value of Listed Securities requirement to
satisfy that requirement and the price requirement for 90
consecutive trading days prior to applying for listing. Such a
company would have to achieve a $4 bid price for 90 consecutive
trading days and a $4 closing price for five days, although these
periods may overlap.
\19\ See Exchange Rule 11.23(a)(3). 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.''
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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.\20\ 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.\21\
The Exchange states that requiring the minimum $2 or $3 closing price
to be maintained for a period of five days (as opposed to one day)
should reduce the risk that some might attempt to manipulate or
otherwise artificially inflate the closing price in order to allow a
security to qualify for listing. In addition, the Exchange represents
that it will exercise its discretionary authority to deny initial
listing if there are particular concerns about a company, such as its
ability to maintain compliance with continued listing standards or if
there are other public interest concerns.\22\
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\20\ See proposed Interpretations and Policies .01(b) to
Exchange Rule 14.9. The Exchange states that it will work with FINRA
to adopt surveillance procedures to monitor securities listed under
the proposed alternative as they approach $4. See Notice, supra note
3, at 67853. According to the Exchange, these procedures will be
designed to identify anomalous trading that could be indicative of
potential manipulation of the price. See id.
\21\ See proposed Interpretations and Policies .01(b) to
Exchange Rule 14.9.
\22\ See Exchange Rule 14.2. See also Notice, supra note 3, at
67854.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2023-063 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \23\ to determine whether the proposed rule
change should be approved or disapproved. Institution of proceedings is
appropriate at this time in view of the legal and policy issues raised
by the proposal. Institution of proceedings does not indicate that the
Commission has reached any conclusions with respect to any of the
issues involved. Rather, as described below, the Commission seeks and
encourages interested persons to provide additional comment on the
proposed rule change.
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\23\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\24\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of, and input from commenters with respect to, the consistency
of the proposal with Sections 6(b)(5) \25\ and 6(b)(8) \26\ of the Act.
Section 6(b)(5) of the Act requires that the rules of a national
securities exchange be designed, among other things, to promote just
and equitable principles of trade, 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 not
be designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. Section 6(b)(8) of the Act requires that the rules
of a national securities exchange not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
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\24\ Id.
\25\ 15 U.S.C. 78f(b)(5).
\26\ 15 U.S.C. 78f(b)(8).
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The Commission has consistently recognized the importance of
exchange listing standards. Among other things, such listing standards
help ensure that exchange-listed companies will have sufficient public
float, investor base, and trading interest to provide the depth and
liquidity necessary to promote fair and orderly markets.\27\ Under the
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proposed rule change, shares subject to resale restrictions
(``Restricted Securities'') are counted in the calculations of the
company's publicly held shares, market value of publicly held shares,
and round lot holder. The Commission believes that a company's publicly
held shares, market value of publicly held shares, and the number of
round lot holders are indicators of the liquidity of its shares. To the
extent Restricted Securities are counted when calculating a company's
publicly held shares, market value of publicly held shares, and round
lot holders, the company's shares could be less liquid, potentially
making them more susceptible to price manipulation.
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\27\ The Commission has stated in approving exchange listing
requirements that the development and enforcement of adequate
standards governing the listing of securities on an exchange is an
activity of critical importance to the financial markets and the
investing public. In addition, once a security has been approved for
initial listing, maintenance criteria allow an exchange to monitor
the status and trading characteristics of that issue to ensure that
it continues to meet the exchange's standards for market depth and
liquidity so that fair and orderly markets can be maintained. See,
e.g., Securities Exchange Act Release No. 91947 (May 19, 2021), 86
FR 28169 (May 25, 2021) (SR-NASDAQ-2020-057); Securities Exchange
Act Release Nos. 90768 (Dec. 22, 2020), 85 FR 85807, 85811 n.55
(Dec. 29, 2020) (SR-NYSE-2019-67) (``NYSE 2020 Order''); 82627 (Feb.
2, 2018), 83 FR 5650, 5653 n.53 (Feb. 8, 2018) (SRNYSE-2017-30)
(``NYSE 2018 Order''); 81856 (Oct. 11, 2017), 82 FR 48296, 48298
(Oct. 17, 2017) (SR-NYSE-2017-31); 81079 (July 5, 2017), 82 FR
32022, 32023 (July 11, 2017) (SR-NYSE-2017-11). The Commission has
stated that adequate listing standards, by promoting fair and
orderly markets, are consistent with Section 6(b)(5) of the Exchange
Act, in that they are, among other things, designed to prevent
fraudulent and manipulative acts and practices, promote just and
equitable principles of trade, and protect investors and the public
interest. See, e.g., NYSE 2020 Order, 85 FR at 85811 n.55; NYSE 2018
Order, 83 FR at 5653 n.53; Securities Exchange Act Release Nos.
87648 (Dec. 3, 2019), 84 FR 67308, 67314 n.42 (Dec. 9, 2019) (SR-
NASDAQ-2019-059); 88716 (Apr. 21, 2020), 85 FR 23393, 23395 n.22
(Apr. 27, 2020) (SR-NASDAQ-2020-001).
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Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the
[Exchange Act] and the rules and regulations issued thereunder . . . is
on the [SRO] that proposed the rule change.'' \28\ The description of a
proposed rule change, its purpose and operation, its effect, and a
legal analysis of its consistency with applicable requirements must all
be sufficiently detailed and specific to support an affirmative
Commission finding,\29\ and any failure of an SRO to provide this
information may result in the Commission not having a sufficient basis
to make an affirmative finding that a proposed rule change is
consistent with the Exchange Act and the applicable rules and
regulations.\30\ The Commission is instituting proceedings to allow for
additional consideration and comment on the issues raised herein.
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\28\ 17 CFR 201.700(b)(3).
\29\ See id.
\30\ See id.
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III. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their data, views, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposed rule change
is consistent with the Exchange Act and the rules and regulations
thereunder.
Although there do not appear to be any issues relevant to approval
or disapproval that would be facilitated by an oral presentation of
data, views, and arguments, the Commission will consider, pursuant to
Rule 19b-4 under the Act,\31\ any request for an opportunity to make an
oral presentation.\32\
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\31\ 17 CFR 240.19b-4.
\32\ Section 19(b)(2) of the Act, as amended by the Securities
Acts Amendments of 1975, Public Law 94-29 (Jun. 4, 1975), grants to
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is
appropriate for consideration of a particular proposal by a self-
regulatory organization. See Securities Acts Amendments of 1975,
Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75,
94th Cong., 1st Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by January 24, 2024. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
February 7, 2024.
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#89fbfce5eca4eae6e4e4ece7fdfac9faeceaa7eee6ff"><span class="__cf_email__" data-cfemail="0c7e796069216f6361616962787f4c7f696f226b637a">[email protected]</span></a>. Please include
file number SR-CboeBZX-2023-063 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-CboeBZX-2023-063.
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-2023-063 and
Should be submitted by January 24, 2024. Rebuttal comments should be
submitted by February 7, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(57).
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Christina Z. Milnor,
Assistant Secretary.
[FR Doc. 2023-28868 Filed 1-2-24; 8:45 am]
BILLING CODE 8011-01-P
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