Notice2024-06579
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Amendment No. 3 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment Nos. 2 and 3, To Create a New, Non-Trading Limited Underwriter Membership Class and Impose Related Requirements for Principal Underwriting Activity
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
March 28, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 89 Issue 61 (Thursday, March 28, 2024)</title>
</head>
<body><pre>
[Federal Register Volume 89, Number 61 (Thursday, March 28, 2024)]
[Notices]
[Pages 21629-21636]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-06579]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99846; File No. SR-NASDAQ-2023-022]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Amendment No. 3 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 2 and
3, To Create a New, Non-Trading Limited Underwriter Membership Class
and Impose Related Requirements for Principal Underwriting Activity
March 22, 2024.
I. Introduction
On July 12, 2023, The Nasdaq Stock Market LLC (``Nasdaq'' or
``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 create a new, non-trading limited underwriter
membership class and impose related requirements for principal
underwriting activity in connection with a company applying for initial
listing on the exchange with a transaction involving an underwriter.
The proposed rule change was published for comment in the Federal
Register on July 31, 2023.\3\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 97985 (July 25,
2023), 88 FR 49508 (``Notice'').
---------------------------------------------------------------------------
On September 12, 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\ On September 29, 2023, the Commission instituted proceedings
under section 19(b)(2)(B) of the Act \6\ to determine whether to
approve or disapprove the proposed rule change.\7\ On September 29,
2023, the Exchange filed Amendment No. 1 to the proposed rule change,
which amended and replaced the proposed rule change in its entirety.\8\
On January 22, 2024, the Exchange filed Amendment No. 2 to the proposed
rule change which amended and replaced the proposed rule change, as
modified by Amendment No. 1, in its entirety.\9\ On January 26, 2024,
the Commission extended the time period for approving or disapproving
the proposal to March 27, 2024.\10\ The proposed rule change, as
modified by Amendment No. 2, was published for comment in the Federal
Register on February 23, 2024.\11\ On March 18, 2024, the Exchange
filed Amendment No. 3 to the proposed rule change.\12\ The Commission
has received no comment letters on the proposed rule change. The
Commission is publishing this notice to solicit comments on Amendment
No. 3 from interested persons and is approving the proposed rule
change, as modified by Amendment Nos. 2 and 3, on an accelerated basis.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 98366, 88 FR 63999
(Sept. 18, 2023). The Commission designated October 29, 2023, as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to approve or disapprove,
the proposed rule change.
\6\ 15 U.S.C. 78s(b)(2)(B).
\7\ See Securities Exchange Act Release No. 98606, 88 FR 68894
(Oct. 4, 2023).
\8\ Amendment No. 1 is available at <a href="https://www.sec.goc/comments/sr-nasdaq-2023-022/srnasdaq2023022-267740-644342.pdf">https://www.sec.goc/comments/sr-nasdaq-2023-022/srnasdaq2023022-267740-644342.pdf</a>
(``Amendment No. 1''). In Amendment No. 1, the Exchange, among other
things: (i) removed a proposed exemption from registration for
certain investment banking representatives associated solely with
Limited Underwriting Members; (ii) removed proposed rule language
from proposed General 3, Section 1032(a), which provided that any
person shall be eligible to become associated persons of a Limited
Underwriting Member; (iii) removed General 4 from the list of rules
applicable to Limited Underwriting Members in proposed General 3,
Section 1031(c)(1); and (iv) revised proposed General 3, Section
1031(c)(2) to clarify that associated persons of Limited
Underwriting Members shall at all times be properly qualified and
registered under the Financial Industry Regulatory Authority
(``FINRA'') rules. Further, the Exchange provided additional reasons
it is not proposing to apply certain existing rules to Limited
Underwriting Members.
\9\ Amendment No. 2 is available at <a href="https://www.sec.goc/comments/sr-nasdaq-2023-022/srnasdaq2023022-414859-982462.pdf">https://www.sec.goc/comments/sr-nasdaq-2023-022/srnasdaq2023022-414859-982462.pdf</a>. In
Amendment No. 2, the Exchange, among other things: (i) updated the
numbering in Listing Rule 5210 to account for recently added rule
language and a related reference to Listing Rule 5210 in proposed
General 3, Section 1031(b); (ii) excluded General 3, Section 1032
from the rules the Exchange proposes to apply to Limited
Underwriting Members (see infra note 14 and accompanying text) under
proposed General 3, Section 1031(c)(1); (iii) added General 9,
Section 21 to the rules the Exchange proposes to apply to Limited
Underwriting Members under proposed General 3, Section 1031(c)(1);
(iv) updated Equity 7, Section 10 to reflect a recent change in the
membership fee; and (v) added a statutory basis for the imposition
of fees. Amendment No. 2 superseded Amendment No. 1, so the changes
made in Amendment No. 1, unless otherwise amended, are incorporated
into Amendment No. 2. See supra note 8.
\10\ See Securities Exchange Act Release No. 99433, 89 FR 6559
(Feb. 1, 2024).
\11\ See Securities Exchange Act Release No. 99557 (Feb. 16,
2024), 89 FR 13779 (``Amendment No. 2'').
\12\ Amendment No. 3 is available at <a href="https://www.sec.gov/comments/sr-nasdaq-2023-022/srnasdaq2023022-447779-1145462.pdf">https://www.sec.gov/comments/sr-nasdaq-2023-022/srnasdaq2023022-447779-1145462.pdf</a>
(``Amendment No. 3''). In Amendment No. 3, the Exchange modified the
proposal by: (i) adding back proposed rule language from the
original proposal to General 3, Section 1031(a)(2) about eligibility
to become an associated person and modifying the title of General 3,
Section 1031(a) to reflect that change; (ii) adding back language
from the original proposal to include General 4 (Registration
Requirements), which includes registration, qualification, and
continuing education requirements, to the list of rules applicable
to Limited Underwriting Members in General 3, Section 1031(c)(1);
and (iii) excluding General 5, Rule 9400 from the list of rules
applicable to Limited Underwriting Members in General 3, Section
1031(c)(1) for the reasons described below. Amendment No. 3 also
updated the purpose section to reflect the changes described above,
made other clarifying changes, and added a statutory basis
explanation for consistency with section 6(b)(2) of the Act.
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change, as Modified by Amendment
Nos. 2 and 3
The Exchange is proposing to amend its rules to create a new
limited membership class for underwriters that are FINRA members
seeking only to serve as a principal underwriter for a company applying
to list on the Exchange (and not seeking access to transact on the
Exchange) and require a company applying for initial listing in
connection with a transaction involving an underwriter to have a
principal underwriter that is a Member \13\ or a broker or dealer
admitted to limited underwriting membership in the Exchange (``Limited
Underwriting Member'').\14\ The Exchange states that
[[Page 21630]]
underwriters play a critical role as gatekeepers to the capital markets
in connection with the trading of newly issued securities and that it
relies on underwriters to select the selling syndicate and ensure that
the shares are placed in a way that is reasonably designed to allow
liquid trading, consistent with Nasdaq's listing requirements, and the
successful introduction of the company to the market place.\15\
According to the Exchange, notwithstanding the important role of
underwriters, it does not currently require underwriters of companies
that are going public on the Exchange to be Members of the Exchange,
and as such, does not have authority to require responses to
investigative inquiries or to enforce its rules directly against non-
Member underwriters.\16\ The Exchange states that this proposal would
provide the Exchange with authority to directly obtain information from
Limited Underwriting Members,\17\ whether pre- or post-initial public
offering.\18\ The Exchange states that by creating a new, limited
underwriting membership class, it will provide firms seeking only to
perform principal underwriting activity on the Exchange (and not
seeking access to trade via the Nasdaq Market Center) \19\ with the
option of selecting a membership that is less burdensome (i.e., to
become a Limited Underwriting Member rather than a Member).\20\
---------------------------------------------------------------------------
\13\ The Exchange defines the term ``member'' or ``Nasdaq
Member'' (hereinafter referred to as ``Member'') to mean any
registered broker or dealer that has been admitted to membership in
the Exchange. See Nasdaq General 1, Section 1(b)(11). See also
Nasdaq Listing Rule 5005(a)(24) (defining ``Member'' to mean a
broker or dealer admitted to membership in Nasdaq).
\14\ See infra note 23. The Exchange states that ``principal
underwriter'' will have the same definition used in Rule 405
promulgated under the Securities Act of 1933 (``Securities Act''),
which is an underwriter in privity of contract with the issuer of
the securities as to which he is underwriter, and that such
definition provides that the term ``issuer'' in the definition of
``principal underwriter'' has the meaning given in Sections 2(4) and
2(11) of the Securities Act. 17 CFR 230.405. The Exchange states it
proposes to apply the proposed requirements to a principal
underwriter because the definition of principal underwriter points
to the lead underwriter, who is generally responsible for organizing
the offering, including tasks such as determining allocation of
shares and the offering price, in conjunction with the issuer.
Although offerings may require more than one underwriter, or a group
of underwriters known as an underwriting syndicate, the Exchange
proposes to focus on the lead underwriters given the substantial
role they typically play in the offering process. See Amendment No.
2, supra note 11, at 13780 n.11.
\15\ See Amendment No. 2, supra note 11, at 13780. The Exchange
states that it highlighted the important role of underwriters as
gatekeepers in the initial public offering (``IPO'') process and the
applicability of market rules and the federal securities laws in its
recent Equity Regulatory Alert (``Nasdaq Alert''), available at
<a href="https://www.nasdaqtrader.com/MicroNews.aspx?id=ERA2022-9">https://www.nasdaqtrader.com/MicroNews.aspx?id=ERA2022-9</a>. In the
Nasdaq Alert, among other things, the Exchange highlighted that
``Nasdaq members, as well as members of other self-regulatory
organizations, that underwrite IPOs, and that play other roles in
the offering process, should expect heightened focus when an IPO
experiences unusual price movements.'' See also <a href="https://www.nyse.com/publicdocs/nyse/markets/nyse/rule-interpretations/2022/NYSER_Reg_Memo_-_Regulatory_Scrutiny_in_Connection_with_IPOs_">https://www.nyse.com/publicdocs/nyse/markets/nyse/rule-interpretations/2022/NYSER_Reg_Memo_-_Regulatory_Scrutiny_in_Connection_with_IPOs_</a>(2022.11.17_final).pdf;
<a href="https://www.finra.org/rules-guidance/notices/22-25">https://www.finra.org/rules-guidance/notices/22-25</a> (similar
regulatory alerts issued by the New York Stock Exchange and FINRA,
respectively).
\16\ See Amendment No. 2, supra note 11, at 13781. The Exchange
states, however, that it has broad discretionary authority over the
initial and continued listing of securities in the Exchange and over
its Members in order to maintain the quality of and public
confidence in its market, to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of
trade, and to protect investors and the public interest. According
to the Exchange, it may request information from companies that are
going public on the Exchange and from Members who are permitted to
trade on the Exchange, who are required to respond to those
requests. The Exchange also states it may request information from
non-Members, including non-Member underwriters, but they are not
required to respond to these requests. See id. at 13781 n.17.
\17\ See infra note 23 and accompanying text.
\18\ See Amendment No. 2, supra note 11, at 13781 n.17. The
Exchange explains in its proposal that in the fall of 2022 it
observed, immediately following the pricing of certain IPOs on the
Exchange, instances of unusually high price spikes immediately
followed by dramatic price declines to at or below the offering
price. This occurred mostly with respect to small cap companies with
offerings of less than $25 million. According to the Exchange, these
extreme spikes may occur ``in the opening trade on an exchange or in
continuous trading on the day of, or days immediately following the
listing.'' Id. at 13780.
\19\ The Exchange defines ``Nasdaq Market Center'' to mean the
automated system for order execution and trade reporting owned and
operated by Nasdaq. See Nasdaq Equity 1, Section 1(a)(3).
\20\ The Exchange submitted a revised Membership Application as
Exhibit 3, in which the Exchange proposes to add a category for
Limited Underwriting Members and clarify that Limited Underwriting
Members are not subject to the requirement to provide an NSCC
account number.
---------------------------------------------------------------------------
The Exchange proposes to amend several of its rules in conjunction
with the adoption of the new limited underwriting membership class.
First, the Exchange proposes to amend its Listing Rule 5210
(Prerequisites for Applying to List on the Nasdaq Stock Market) to
impose a requirement that each company applying for initial listing in
connection with a transaction involving an underwriter have a principal
underwriter that is a Member or Limited Underwriting Member.\21\ In
proposed Listing Rule 5210(m), the Exchange will also specify that
``principal underwriter'' shall have the same definition used in Rule
405 promulgated under the Securities Act.\22\ Second, the Exchange
proposes to add a definition of ``Limited Underwriting Member'' to
General 1 (General Provisions), Section 1 to mean a broker or dealer
admitted to limited underwriting membership in Nasdaq.\23\ Third, as
discussed in more detail below, the Exchange also proposes to add a
new, limited underwriting membership rule, proposed Section 1031 to
General 3 (Membership and Access), within which, the Exchange proposes
to set forth the rules that will be applicable to Limited Underwriting
Members and their associated persons, the requirements for persons
eligible to become Limited Underwriting Members, and rules on Limited
Underwriting Member access to the Exchange.\24\ Finally, the Exchange
proposes to amend Equity 7, Section 10 to exempt Limited Underwriting
Members from being assessed a trading rights fee.\25\ The Exchange
states that Limited Underwriting Members would not be eligible to trade
on the Exchange, and accordingly, the Exchange proposes to add language
to Equity 7, Section 10(a) to specify that Limited Underwriting Members
would not be charged the monthly trading rights fee.\26\ Under the
proposal, Limited Underwriting Members would be subject to a $2,000
application fee (per Equity 7, Section 10(b)) and a $4,000 yearly
membership fee (per Equity 7, Section 10(a)).\27\
---------------------------------------------------------------------------
\21\ See Amendment No. 2, supra note 11, at 13781. The Exchange
states that this rule would cross reference the definition of
``Limited Underwriting Member'' in General 1, Section 1. The
Exchange further states that this proposed rule change primarily
impacts membership rules and other non-listing rules, which would
apply to the underwriters themselves. See id.
\22\ See id.
\23\ See id. at 13781-82.
\24\ See id.
\25\ See id. at 13782-83. Specifically, the Exchange proposes to
exempt Limited Underwriting Members from the trading rights fee of
$1,250 per month that is charged to Members. See id.
\26\ See id.
\27\ See id. These are the application and yearly membership
fees that currently apply to Members.
---------------------------------------------------------------------------
Specifically, as to proposed General 3, Section 1031 requirements
on eligibility for membership, the Exchange proposes to state in
General 3, Section 1031(a)(1) that any registered broker or dealer
shall be eligible for limited underwriting membership in the Exchange,
except such registered brokers or dealers as are excluded under General
3, Rule 1002(b) and in General 3, Section 1031(a)(2) that any person
shall be eligible to become an associated persons of a Limited
Underwriting Member, except such persons as are excluded under General
3, Rule 1002(b).\28\ The Exchange states that proposed General 3,
Section 1031(a) is consistent with the existing rules for persons
eligible to become Members and associated persons of Members in General
3, Rule 1002(a).\29\ Further, under the proposal to be eligible for
membership, Limited Underwriting
[[Page 21631]]
Members shall at all times be members of FINRA and associated persons
of Limited Underwriting Members shall at all times be properly
qualified and registered under FINRA rules.\30\
---------------------------------------------------------------------------
\28\ See id.; Amendment No. 3, supra note 12, at 3-4 and 7-8.
According to the Exchange, General 3, Rule 1002(b) provides, in
relevant part, that subject to certain exceptions, no registered
broker or dealer shall be admitted to membership, and no Member
shall be continued in membership, if such broker, dealer, or Member
fails or ceases to satisfy the qualification requirements
established by the Exchange rules, or if such broker, dealer, or
Member is or becomes subject to a statutory disqualification, or if
such broker, dealer, or Member fails to file such forms as may be
required in accordance with such process as the Exchange may
prescribe. See id. at 13781 n.20; Amendment No. 3, supra note 12, at
3-4 and 7-8.
\29\ See Amendment No. 3, supra note 12, at 8.
\30\ See Amendment No. 2, supra note 11, at 13782. According to
the Exchange, Limited Underwriting Members would be eligible to
waive-in to Exchange membership, as provided for in General 3,
Section 1013(b). Prospective Limited Underwriting Members would need
to submit a membership application in which they would select
``Waive-In Membership'' for the application type and ``Limited
Underwriting Member of NQX'' for the nature of intended activity.
For ``waive-in'' applicants, the Exchange states it relies
substantially upon FINRA's determination to approve the applicant
for FINRA membership when the Exchange evaluates the applicant for
Exchange membership. See id. at 13782 n.23.
---------------------------------------------------------------------------
Proposed General 3, Section 1031(b) will also provide that (i) a
limited underwriting membership provides no rights to transact on the
Exchange and (ii) a limited underwriting membership is solely to allow
a firm that is not otherwise a Member to serve as a principal
underwriter for a company seeking to list on the Exchange, as set forth
in proposed Listing Rule 5210(m).\31\ Proposed General 3, Section
1031(c)(1) also states that, for purposes of interpreting and applying
the rules applicable to Limited Underwriting Members (as described
below), references to ``Member,'' ``Members,'' or ``membership'' shall
be functionally equivalent to ``Limited Underwriting Member,''
``Limited Underwriting Members,'' or ``limited underwriting
membership,'' respectively.\32\
---------------------------------------------------------------------------
\31\ See id. Proposed Listing Rule 5210(m) applies to companies
seeking to initially list on the Exchange in connection with a
transaction involving an underwriter. See also supra notes 21-22 and
accompanying text.
\32\ See Amendment No. 2, supra note 11, at 13782.
---------------------------------------------------------------------------
The Exchange proposes to apply a limited ruleset to its newly
proposed limited underwriting membership class.\33\ Specifically, the
Exchange proposes to provide in new General 3, Section 1031(c)(1) that
Limited Underwriting Members and their associated persons are subject
only to the following rules: \34\ General 1 (General Provisions);
General 2 (Organization and Administration), with the exception of
Sections 6(a) and 22; General 3 (Membership and Access), with the
exception of Section 1032; General 4 (Registration Requirements);
General 5 (Discipline), with the exception of Rules 8211, 9400, and
9557; General 9 (Regulation), Sections 1, 20, and 21; and Equity 7,
Section 10 (Pricing Schedule, Membership Fees).\35\ The Exchange states
that it proposes to apply only those rules it deems appropriate to a
firm serving as a principal underwriter, including those rules it deems
critical to such firms.\36\ The Exchange further states that a firm
registering as a Limited Underwriting Member on the Exchange would
remain subject to all applicable rules of the Commission and any other
self-regulatory organization (``SRO'') of which it is a member,
including the FINRA.\37\
---------------------------------------------------------------------------
\33\ See id. at 13781. The Exchange states that Members, unlike
Limited Underwriting Members, are subject to all of the Exchange's
rules (which includes the limited ruleset applicable to the newly
proposed limited underwriting membership class). See id. at 13781
n.21.
\34\ There are multiple sections and rules under the various
``General Rules'' numerical provisions. References to ``rules''
herein generally include all the sections and rules within the
applicable General numerical provisions that would apply to Limited
Underwriter Members with the exceptions noted.
\35\ See id. at 13781; Amendment No. 3, supra note 12, at 4-5.
\36\ See Amendment No. 2, supra note 11, at 13781.
\37\ See id.
---------------------------------------------------------------------------
In its proposal, the Exchange set forth its reasons for including
the specified rules in General 3, Section 1031(c)(1) that apply to
Limited Underwriting Members. As to its proposal to apply General 1 to
Limited Underwriting Members and their associated persons,\38\ the
Exchange states that General 1 provides defined terms that would be
applicable to Limited Underwriting Members and will also add a
definition of ``Limited Underwriting Member'' to General 1.\39\ The
Exchange also proposes to apply General 2 (with the exception of
Sections 6(a) and 22) to Limited Underwriting Members and their
associated persons.\40\ The Exchange states that the rules in General 2
relate to organization and administration including requirements
surrounding fees, limitations on affiliations, and a requirement for an
executive representative, among other obligations.\41\ The Exchange
proposes to specifically exclude General 2, Sections 6(a) and Section
22, as General 2, Section 6(a) states that General Equity and Options
Rules and Equity Rules shall apply to all members and persons
associated with a member, which, according to the Exchange, is not
accurate in the case of Limited Underwriting Members, and General 2,
Section 22 relates to sponsored participants \42\ and client access to
the Nasdaq Market Center via a Member, which, according to the
Exchange, is not applicable to underwriting activity.\43\
---------------------------------------------------------------------------
\38\ See id. at 13782.
\39\ See id.
\40\ See id.
\41\ See id.
\42\ See Nasdaq General 2, Section 22.
\43\ See Amendment No. 2, supra note 11, at 13782.
---------------------------------------------------------------------------
The Exchange also proposes to subject Limited Underwriting Members
and their associated persons to General 3 with the exception of Section
1032.\44\ The Exchange states that General 3 contains membership rules,
including an obligation to follow specified procedures for applying to
be a member, making changes to membership, or terminating
membership.\45\ In addition, the Exchange states that General 4
specifies registration, qualification, and continuing education
requirements, including requirements for persons engaged in the
securities business of a Member, and proposed to apply General 4 to
Limited Underwriting Members and their associated persons.\46\ The
Exchange states these requirements apply in the same manner as such
registration, qualification, and continuing education requirements that
apply to current Members.\47\ Limited Underwriting Members and their
associated persons would also be subject to FINRA's registration and
qualification rules, including, for example, requirements regarding
relevant examinations for underwriting (Series 79, Investment Banking,
IB) and supervision of underwriting (Series 79 plus Series 24,
Investment Banking Principal).\48\
---------------------------------------------------------------------------
\44\ The proposed rule change would also add new Section 1031 to
General 3, as described above, that is applicable to limited
underwriting memberships. See supra note 24 and accompanying text.
The Exchange states that it proposes to specifically exclude General
3, Section 1032 because such section includes requirements related
to Nasdaq Market Center Participant registration, which, according
to the Exchange, is inapplicable to Limited Underwriting Members
because they are not permitted to transact on the Nasdaq Market
Center. See Amendment No. 2, supra note 11, at 13782.
\45\ See Amendment No. 2, supra note 11, at 13781.
\46\ See Amendment No. 3, supra note 12, at 4-5 and 9-10.
\47\ See id. at 10.
\48\ See Amendment No. 2, supra note 11, at 13783. See also
FINRA Rules 1210 (Registration Requirements) and 1220 (Registration
Categories).
---------------------------------------------------------------------------
Limited Underwriting Members and their associated persons would
also have to comply with General 5 (with the exception of Rules 8211,
9400, and 9557), which, according to the Exchange, is critical to
subject Limited Underwriting Members to, as it contains the Exchange's
disciplinary rules.\49\ In particular, the Exchange notes General 5,
Rule 8210 that provides the Exchange with authority to require
information
[[Page 21632]]
from its Members.\50\ The Exchange is proposing to specifically exclude
General 5, Rules 8211, 9400, and 9557, which the Exchange represents
are not relevant to underwriting activity because these rules relate,
respectively, to trading data, expedited client suspension proceedings
for violations of General 9, Section 53 (concerning disruptive quoting
and trading), and FINRA carrying or clearing members.\51\ The Exchange
also states that the excluded rules from General 5 are inapplicable to
Limited Underwriting Members because such members are not permitted to
transact on the Exchange.\52\
---------------------------------------------------------------------------
\49\ See Amendment No. 2, supra note 11, at 13783. According to
the Exchange, General 5, Rule 8001 provides that the Exchange and
FINRA are parties to the FINRA Regulatory Contract (often referred
to as a Regulatory Services Agreement (``RSA'')) pursuant to which
FINRA has agreed to perform certain functions described in the
Exchange's rules on behalf of the Exchange. The Exchange does not
anticipate that the proposed rule change would have any material
impact on the current RSA. See id. at 13782 n.22.
\50\ See id. at 13782. Nasdaq General 5, Rule 8210 states
information must be provided by a member or persons associated with
a member or subject to Nasdaq's jurisdiction ``[f]or the purpose of
an investigation, complaint, examination or proceeding authorized by
the Nasdaq By-Laws or Rules, Nasdaq Regulation Department, including
FINRA staff.'' Nasdaq General 5, Rule 8210(a).
\51\ See id. at 13782; Amendment No. 3, supra note 12, at 10-11.
\52\ See Amendment No. 3, supra note 12, at 11.
---------------------------------------------------------------------------
Further, the Exchange proposes to subject Limited Underwriting
Members and their associated persons to General 9, Sections 1, 20, and
21.\53\ The Exchange states that it believes it is important to subject
Limited Underwriting Members to General 9, Section 1, which includes
general standards by which Members must abide, including the
requirement to observe just and equitable principles of trade.\54\ The
Exchange further states that General 9, Sections 20 and 21 require
Members to establish and maintain a system to supervise the activities
of each registered representative and associated person that is
reasonably designed to achieve compliance with applicable securities
laws and regulations and with applicable Nasdaq rules, to identify
principals who must establish, maintain, and enforce a system of
supervisory control policies and procedures that, among other things,
test that the member's supervisory procedures are reasonably designed
with respect to the activities of the member and its associated
persons, and to achieve compliance with applicable securities laws and
regulations, and with applicable Nasdaq rules.\55\ The Exchange states
its belief that it is important to apply these provisions on
supervision, as it would provide the Exchange with authority to assess
whether a Limited Underwriting Member has an adequate supervisory
system and written supervisory procedures in place.\56\ The Exchange
states that it does not propose to apply other sections of General 9,
except for Sections 1, 20, and 21, to Limited Underwriting Members at
this time.\57\ The Exchange states that although it acknowledges
certain other sections of General 9 could be applied to underwriters,
it is targeting limited inclusion of rules that it deems critical.\58\
Finally, the Exchange proposes to include Equity 7, Section 10 in
General 3, Section 1031(c)(1).\59\ The Exchange states that Equity 7,
Section 10 includes the membership and application fees applicable to
Limited Underwriting Members.\60\
---------------------------------------------------------------------------
\53\ See Amendment No. 2, supra note 11, at 13782.
\54\ See id.
\55\ See id.
\56\ See id.
\57\ See id.
\58\ See id. The Exchange further states that many of the
standards in General 9 are FINRA rules that are incorporated by
reference into the Exchange's rules; therefore, Limited Underwriting
Members would be subject to such FINRA rules by virtue of their
FINRA membership. See id. See, e.g., Nasdaq General 9, Section 30
(incorporating by reference FINRA Rule 4511).
\59\ See Amendment No. 2, supra note 11, at 13782.
\60\ See id. The Exchange acknowledges that there are
additional, existing rules that it could propose to apply to Limited
Underwriting Members but it is proposing to apply only a narrow
ruleset, as it does not intend to create comprehensive rules to
regulate underwriting activity. See id. at 13781-82.
---------------------------------------------------------------------------
The Exchange states that it proposes to avoid applying all those
Exchange rules not specified in proposed General 3, Section 1031(c)(1)
to Limited Underwriting Members in an effort to impose minimal burden
on Limited Underwriting Members, while still allowing the Exchange to
have regulatory authority over such Members.\61\ The Exchange states
that the Exchange rules that Limited Underwriting Members would not be
subject to under the proposal primarily relate to trading activity and
are, therefore, not relevant to the activities of Limited Underwriting
Members.\62\ The Exchange states that it proposes to apply a limited
ruleset, primarily to provide the Exchange with the authority to
require information directly from the Limited Underwriting Members and
enhance its tools for oversight with respect to the role the
underwriter plays in connection with a company listing on the
Exchange.\63\
---------------------------------------------------------------------------
\61\ See id. at 13782.
\62\ See id.
\63\ See id. at 13781. The Exchange represents that it will
consider whether additional existing rules that are not proposed in
the limited ruleset for Limited Underwriting Members or new rules
are warranted as the Exchange gains more experience in applying the
rules proposed. See id. at 13781-82.
---------------------------------------------------------------------------
The Exchange, in addition to the excluded rules described above,
has not proposed to apply the following rules to Limited Underwriting
Members at this time: General 6; General 7; General 8; Equity Rules
(with the exception of Equity 7, Section 10); and Options Rules.\64\
Specifically, the Exchange states that General 6 relates generally to
FINRA arbitration rules to which the Limited Underwriting Members would
be subject to directly by virtue of their FINRA membership and that the
Exchange does not propose to apply General 7 to Limited Underwriting
Members because it governs consolidated audit trail compliance and
would not apply to underwriting activity.\65\ The Exchange also states
that General 8 governs connectivity to the Exchange and would not be
relevant to Limited Underwriting Members given their lack of access to
trade on the Exchange, and similarly, the Equities Rules and the
Options Rules are generally not relevant to the activities of Limited
Underwriting Members due to their lack of access to trade on the
Exchange.\66\
---------------------------------------------------------------------------
\64\ See id. at 13783.
\65\ See id.
\66\ See id. The Exchange states that although Limited
Underwriting Members could access the Exchange via other means, such
as trading through another Member, Limited Underwriting Members
would have no direct access to trade on the Exchange. See id.
---------------------------------------------------------------------------
Finally, the Exchange is proposing to make the proposed rule change
described herein operative 60 days after publication of the
Commission's approval order of SR-NASDAQ-2023-022 in the Federal
Register, as this delay will allow time for firms involved with
upcoming IPOs to become Limited Underwriting Members, if they choose,
and for companies planning IPOs to select alternative underwriters if
their current firm is not, and does not intend to become, a Member or
Limited Underwriting Member.\67\
---------------------------------------------------------------------------
\67\ See id.
---------------------------------------------------------------------------
III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment Nos. 2 and 3, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\68\ Specifically, the
Commission finds that the proposed rule change, as modified by
Amendment Nos. 2 and 3, is consistent with section 6 of the Act. In
particular, the Commission finds that the proposal, as modified by
Amendment Nos. 2 and 3, is consistent with section 6(b)(5) \69\ of the
Act, which requires, among other
[[Page 21633]]
things, that the Exchange's rules be designed to prevent fraudulent and
manipulative acts and practices, 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, in general, to protect
investors and the public interest; and are not designed to permit
unfair discrimination between customers, issuers and brokers, or
dealers.\70\ Further, the Commission finds that the proposed rule
change, as amended, is consistent with (i) section 6(b)(1) of the
Act,\71\ which requires, among other things, that a national securities
exchange be able to comply and enforce compliance by its members and
persons associated with its members, with the provisions of the Act,
the rules and regulation thereunder, and the rules of the exchange,
(ii) section 6(b)(2) of the Act \72\ which requires that exchange rules
provide that any registered broker or dealer or natural person
associated with a registered broker or dealer may become a member of
such exchange and any person may become associated with a member
thereof, and (iii) sections 6(b)(6) \73\ and 6(b)(7) \74\ of the Act,
which require, among other things, that a national securities exchange
provide appropriate discipline for violations of the Act, rules and
regulations thereunder and exchange rules and fair procedures for the
disciplining of members and persons associated with its members and the
prohibition or limitation by the exchange of any person with respect to
access to services offered by the exchange or a member thereof.\75\
---------------------------------------------------------------------------
\68\ In approving this proposed rule change, as modified by
Amendment Nos. 2 and 3, the Commission has considered the proposed
rule change's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\69\ 15 U.S.C. 78f(b)(5).
\70\ See id. In addition, the Commission finds that the proposed
rule change as to the applicable fees is consistent with section
6(b)(4) of the Act that requires the Exchange's rules to provide for
the equitable allocation of reasonable dues, fees, and other charges
among its members and issuers and other persons using its
facilities. 15 U.S.C. 78f(b)(4).
\71\ 15 U.S.C. 78f(b)(1).
\72\ 15 U.S.C. 78f(b)(2).
\73\ 15 U.S.C. 78f(b)(6).
\74\ 15 U.S.C. 78f(b)(7).
\75\ The Commission previously found that the provisions on
Nasdaq Member voting for the Exchange Board of Directors ``including
that twenty percent of the directors be `Member Representative
Directors' and the means by which they are elected by members
provides for the fair representation of members in the selection of
directors and the administration of the Exchange consistent with the
requirement of section 6(b)(3) of the Act.'' See Securities Exchange
Act Release No. 53128 (Jan. 13, 2006), 71 FR 3550, 3553 (Jan. 23,
2006) (Commission order approving Nasdaq for registration as a
national securities exchange) (``Nasdaq Exchange Registration
Order''). The By-Laws of Nasdaq apply to Limited Underwriting
Members as they do to current Members. See, e.g., Nasdaq By-Laws
Article 1(t) (defining ``Nasdaq Member'' as ``any registered broker
or dealer that has been admitted to membership in the national
security exchange operated by the Company''). Limited Underwriting
Members would therefore also have the right to nominate, and vote
for, candidates for election as Member Representative Directors
under the By-Laws, as do current Members. See id. Article II (Annual
Election of Member Representative Directors and Other Actions by
Nasdaq Members). Given that the existing By-Law provisions apply
equally to Limited Underwriting Members, the proposal is similarly
consistent with section 6(b)(3) of the Act.
---------------------------------------------------------------------------
The proposal, as modified by Amendment Nos. 2 and 3, amends the
rules of the Exchange to provide for a new limited underwriting
membership class and would require companies applying to initially list
on the Exchange in connection with a transaction involving an
underwriter to use a principal underwriter that is either a Member or
Limited Underwriting Member of the Exchange.\76\ The Exchange has
proposed to add Section 1031 to General 3 (Membership and Access) that
sets forth the requirements applicable to Limited Underwriting Members
including certain limitations on Limited Underwriting Members.\77\ In
particular, a limited underwriting membership provides no rights to
trade on the Exchange and such limited underwriting membership is
solely for the purpose of allowing a firm that is not otherwise a
Member to serve as a principal underwriter for a company seeking to
initially list on the Exchange.\78\ A Limited Underwriting Member is
defined to mean a broker or dealer admitted to limiting underwriting
membership in the Exchange.\79\ As described above, similar to the
existing eligibility requirements for Members and their associated
persons, General 3, Section 1031(a) provides that any registered broker
or dealer is eligible for a limited underwriting membership and any
person shall be eligible to become an associated person of a Limited
Underwriting Member, except for those registered broker or dealers or
persons that are excluded under General 3, Rule 1002(b).\80\ These
provisions on eligibility are consistent with the Act, including
section 6(b)(2) of the Act, which requires the rules of an exchange to
provide that any registered broker or dealer or natural person
associated with a broker or dealer may become a member of such exchange
or associated with a member thereof subject to the provisions of
section 6(c) of the Act.\81\
---------------------------------------------------------------------------
\76\ See supra notes 13 and 14 and accompanying text.
\77\ See supra note 24.
\78\ See supra note 31.
\79\ See supra note 23.
\80\ See supra note 28.
\81\ 15 U.S.C. 78f(b)(2) and 15 U.S.C. 78f(c).
---------------------------------------------------------------------------
In its proposal, as modified by Amendment Nos. 2 and 3, the
Exchange seeks to apply certain of its rules as set forth in General 1
through General 9 to Limited Underwriting Members while excluding the
application of others.\82\ The Exchange seeks to apply only specific
rules to Limited Underwriter Members that fall under areas related to
general provision definitions and standards, organization and
administration, membership and access, registration requirements,
discipline, regulation, and membership fees.\83\ As stated by the
Exchange, it proposes to apply only those rules it believes are
appropriate to a firm serving as a principal underwriter, and will,
among other things, provide the Exchange with authority to require
information from such underwriters thereby aiding in its oversight of
its market and helping to ensure fair and orderly markets.\84\ The
Exchange has also stated that firms registering as a Limited
Underwriting Members would still be subject to all applicable rules of
the Commission and any other SRO of which it is a member, including
FINRA.\85\
---------------------------------------------------------------------------
\82\ See proposed Nasdaq General 3, Section 1031(c)(1).
\83\ See supra notes 33-35.
\84\ See supra note 63.
\85\ See supra note 37. Proposed General 3, Section 1031(c)(2)
would require a Limited Underwriting Member to, at all times, be a
member of FINRA. See supra note 30.
---------------------------------------------------------------------------
Specifically, among others, the Exchange has proposed to apply
General 1 to Limited Underwriting Members because it contains defined
terms and standards that currently apply to Members that are equally
applicable to Limited Underwriting Members as well.\86\ The Exchange
also proposes to subject Limited Underwriting Members to General 2
(with the exception of sections 6(a) and 22) because it relates to
organization and administration including, among others, limitations on
affiliations \87\ and requirements to have an exchange
representative.\88\ The Exchange is applying General 3 (with the
exception of Section 1032 that applies to members who trade on Nasdaq's
Market Center) because
[[Page 21634]]
General 3 contains membership rules, including an obligation to follow
specified procedures for applying to be a member, making changes to
membership, or terminating membership.\89\
---------------------------------------------------------------------------
\86\ See supra notes 38-39 and accompanying text.
\87\ General 2, Section 4 states that no member or person
associated with a member shall be the beneficial owner of greater
than twenty percent (20%) of the then-outstanding voting securities
of the Nasdaq Stock Market, Inc. The Commission previously has
stated that ownership and voting restrictions are consistent with
the Act and that these ownership limitations should minimize the
potential that a person could improperly interfere with or restrict
the ability of the Commission or the Exchange to effectively carry
out their regulatory oversight responsibilities under the Act. See
Nasdaq Exchange Registration Order, supra note 75, at 3551-52. For
the same reasons, the Commission believes it is appropriate to apply
General 2, Section 4 to the limited underwriting membership class.
\88\ See supra notes 40-41 and accompanying text.
\89\ See supra notes 44-45.
---------------------------------------------------------------------------
General 4, which includes registration, qualification, and
continuing education requirements for Members and persons engaged in
the securities business of a Member, would also apply to Limited
Underwriting Members and their associated persons.\90\ General 4 would
apply in the same manner as it applies to current Members and their
associated persons.\91\ Under the proposal, Limited Underwriting
Members must at all times be members of FINRA and their associated
persons shall at all times be properly qualified and registered under
FINRA rules.\92\ Associated persons of Limited Underwriting Members
would therefore also be subject to FINRA's registration and
qualification requirements that includes examination requirements for
persons involved in underwriting and supervision of underwriting as
well as FINRA continuing education requirements.\93\
---------------------------------------------------------------------------
\90\ See supra note 46.
\91\ See Amendment No. 3, supra note 12, at 10.
\92\ See proposed General 3, Section 1031(c).
\93\ See supra note 48 and accompanying text.
---------------------------------------------------------------------------
The Exchange has additionally proposed to subject Limited
Underwriting Members to General 5 which contains the Exchange's
disciplinary rules,\94\ with the exception of Rules 8211 (submission of
trading data), 9400 (expedited client suspension proceedings for
violations of General 9, Section 53 concerning disruptive quoting and
trading activity), and 9557 (procedures for regulating activities on
FINRA carrying and clearing members).\95\ General 5, Rule 8210
provides, among other things, the Exchange with authority to require
information from Exchange Members, persons associated with Exchange
Members, and persons subject to the Exchange's jurisdiction for ``the
purpose of an investigation, complaint, examination or proceeding
authorized by the Nasdaq By-Laws or Rules, Nasdaq Regulation Department
including FINRA staff.'' \96\ General 5, Rule 9000 Series also
provides, among other things, the process and procedural requirements
for review of disciplinary matters including the opportunity for a
hearing.
---------------------------------------------------------------------------
\94\ See supra notes 49-52.
\95\ See supra note 51.
\96\ See supra note 50. In its filing, the Exchange states that
while it may request information from non-Members, including non-
Member underwriters, they are not required to respond to these
requests unlike companies going public on the Exchange and Members.
See supra note 16 and accompanying text.
---------------------------------------------------------------------------
The disciplinary rules that will be applicable to Limited
Underwriting Members and their associated persons (with the exception
of Rules 8211, 9400, and 9557 that are not relevant to the new
membership type as described above) \97\ are the same as those that
apply to existing Members of the Exchange and associated persons of
such Members. The Commission previously found that the Exchange's
disciplinary rules are consistent with the requirements of sections
6(b)(6) and 6(b)(7) of the Act in that they provide a fair procedure
for the disciplining of members and persons associated with
members.\98\ For similar reasons, the Commission believes that,
consistent with the requirements of sections 6(b)(6) and 6(b)(7),\99\
the Exchange's disciplinary rules and procedures should provide a fair
procedure for the disciplining of Limited Underwriting Members and
persons associated with such members, and for prohibiting or limiting
access with respect to services offered by the Exchange. The Commission
also believes for similar reasons as previously found, consistent with
the requirements of section 6(b)(1) of the Act,\100\ that the proposed
rules should provide the Exchange with the ability to enforce
compliance as to Limited Underwriting Members and their associated
persons with the provisions of the Act, the rules and regulations
thereunder, and the rules of the Exchange.\101\
---------------------------------------------------------------------------
\97\ See supra notes 49-52 and accompanying text.
\98\ See Nasdaq Exchange Registration Order, supra note 75, at
3558. Any changes to the disciplinary rules since the original
approval would have had to be submitted to the Commission under
section 19(b) of the Act and be consistent with the Act, in
particular with Section 6.
\99\ See 15 U.S.C. 78(b)(6) and (7).
\100\ See 15 U.S.C. 78(b)(1).
\101\ See Nasdaq Exchange Registration Order, supra note 75, at
3558.
---------------------------------------------------------------------------
The Exchange has also proposed to subject Limited Underwriting
Members to General 9, Sections 1, 20, and 21. General 9, Section 1
includes general standards by which Members must abide, such as
requiring Members to observe high standards of commercial honor and
just and equitable principles of trade. General 9, Section 20 requires
Members to establish and maintain a system to supervise the activities
of each registered representative and associated person. General 9,
Section 21 requires, among other things, for Members to test that their
supervisory procedures are reasonably designed to achieve compliance
with applicable securities laws and regulations and applicable Exchange
rules and requires an annual certification as to those procedures and
processes.\102\ As the Exchange states, applying provisions related to
supervision would provide the Exchange with authority to assess whether
a Limited Underwriting Member has an adequate supervisory system and
written supervisory procedures in place as to its activities.\103\
Further, applying standards of just and equitable principles of trade
to Limited Underwriting Members is consistent with the requirements in
section 6(b)(5) of the Act which states rules of the exchange must be
designed to promote such principles.\104\
---------------------------------------------------------------------------
\102\ See supra note 55. The Exchange's General 9, Sections 20
and 21 incorporate by reference several FINRA rules on these
matters. Although the Exchange acknowledges that certain other
sections of General 9 could apply to underwriters, the Exchange
states it has excluded the other rules in General 9 because it is
targeting limited inclusion of the rules it deems critical. The
Exchange further noted that many of the standards in General 9 are
FINRA rules that are incorporated by reference into the Exchanges
rules and therefore Limited Underwriting Members would be subject to
such FINRA rules as a result of their FINRA membership. See supra
note 58.
\103\ See supra note 56.
\104\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange has also proposed to exclude certain rules in addition
to the ones discussed above.\105\ As the Exchange described in its
proposal and above, many of the excluded rules are not relevant to
underwriting activities of Limited Underwriting Members because these
rules apply to those Members that have trading rights on the Exchange
in Nasdaq's Market Center \106\ and Limited Underwriting Members would
have no rights to directly transact on the Exchange.\107\ As to the
exclusion of General 6, as the Exchanges states, these rules generally
relate to FINRA arbitration rules and Limited Underwriting Member
activities would be subject to such arbitration rules by virtue of
being FINRA members.\108\
---------------------------------------------------------------------------
\105\ See supra note 66 and accompanying text.
\106\ See Nasdaq General 7 and General 8 (governing consolidated
audit trail and connectivity requirements, respectively); Equity
Rules and Options Rules (with the exception of Equity 7, Section
10). See also supra notes 64-66 and accompanying text.
\107\ See supra note 62. See also Amendment No. 2, supra note
11, at 13784. Limited Underwriting Members could access the Exchange
via other means, such as trading through another Member but have no
direct access to trade on the Exchange. See supra note 66.
\108\ See supra note 65.
---------------------------------------------------------------------------
The Exchange states it is proposing a limited ruleset to apply the
rules it believes are most critical, including providing the Exchange
authority to require information directly from
[[Page 21635]]
Limited Underwriting Members, to enhance its oversight and deter
potential violative conduct.\109\ The Commission believes that the
application of only specific Exchange rules to Limited Underwriting
Members and the exclusion of certain other rules, as proposed by the
Exchange, are reasonable and strikes the appropriate balance between
regulating Limited Underwriting Members and not imposing a burden on
competition not necessary or appropriate in furtherance of the purposes
of the Act.\110\ The limited ruleset is consistent with the purpose of
a limited underwriting membership that does not confer any access to
trading on the Exchange and only permits such member to act as a
principal underwriter for a company applying to initially list on the
Exchange.\111\
---------------------------------------------------------------------------
\109\ See supra note 63. See also Amendment No. 2, supra note
11, at 13783. The Exchange represented that as it adopts new rules
over time, it also would consider whether to apply such rules to
Limited Underwriting Members. See supra note 63.
\110\ 15 U.S.C. 78f(b)(8).
\111\ See proposed General 3, Section 1031(b). The Exchange has
represented that it would consider whether additional existing rules
that are not proposed in the limited ruleset for Limited
Underwriting Members or new rules are warranted as the Exchange
gains more experience in applying the rules proposed. The Exchange
acknowledged that there are other existing rules that it could
propose to apply to the new class of limited underwriting
membership, but stated it is only proposing a narrow rule set to
enhance its oversight with respect to the role the underwriter plays
in connection with a company listing on the Exchange. See supra note
63.
---------------------------------------------------------------------------
Further, as described above, in conjunction with the new limited
underwriting membership class, proposed Listing Rule 5210(m) will
require a company to use, as a prerequisite for applying for initial
listing on the Exchange with an underwriter, a principal underwriter
that is either a Member or Limited Underwriting Member. The Commission
has previously stated that listing standards provide the means for an
exchange to screen issuers that seek to become listed, and to provide
listed status only to those that are bona fide companies with
sufficient public float, investor base, and trading interest to provide
the depth and liquidity necessary to promote fair and orderly
markets.\112\ As the Exchange states, it relies on underwriters to
ensure shares are placed in a way that is reasonably designed to allow
liquid trading,\113\ and the proposal will allow it to require
responses from underwriters that currently are not Members of the
Exchange in response to investigative inquires.\114\ The requirement in
Listing Rule 5210(m) can help to support the Exchange in determining a
company's suitability for listing in order to, among other things,
prevent fraudulent and manipulative acts and practices and maintain
fair and orderly markets.
---------------------------------------------------------------------------
\112\ See, e.g., Securities Exchange Act Release Nos. 95220
(July 7, 2022), 87 FR 41780, 41785 (July 13, 2022) (SR-NASDAQ-2022-
027) (order approving direct listing with a capital raise); 86314
(July 5, 2019), 84 FR 33102, 33110 (July 11, 2019) (SR-NASDAQ-2019-
009) (order approving revisions to initial listing standard
calculations related to liquidity).
\113\ See supra note 15. See also Securities Exchange Act
Release No. 86314 (July 5, 2019) 84 FR 33102, 33111 (July 11, 2019)
(stating that the proposal ``should allow the Exchange to more
accurately determine whether a security has adequate distribution
and liquidity and is thus suitable for listing and trading on the
Exchange'').
\114\ See supra notes 16-18.
---------------------------------------------------------------------------
As described above, the proposal should provide greater
transparency and certainty with respect to the ability of, and the
manner in which, the Exchange is able to obtain information necessary
to meet its regulatory obligations and ensure fair and orderly markets
in connection with the listing of securities of a company applying for
initial listing on the Exchange with a transaction involving an
underwriter. Based on the above, the Commission finds that the proposed
rule change is reasonably designed, consistent with section 6(b)(5) of
the Act, among others, to prevent fraudulent and manipulative and
practices, promote just and equitable principles of trade, and, in
general, protect investors and the public interest.\115\
---------------------------------------------------------------------------
\115\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Finally, as is described above, the Exchange has proposed to apply
Equity 7, Section 10 to Limited Underwriting Members, as this section
includes the membership and application fees applicable to Limited
Underwriting Members.\116\ The Exchange has proposed to exempt Limited
Underwriting Members from the trading rights fee of $1,250 per month
that is normally charged to Members because such Limited Underwriting
Members have no direct trading rights on the Exchange.\117\ Limited
Underwriting Members would be subject to same $2,000 application fee
(per Equity 7, Section 10(b)) and $4,000 yearly membership fee (per
Equity 7, Section 10(a)) as other Members are currently charged.\118\
The Commission believes that the proposed fees applicable to Limited
Underwriting Members, in addition to the exclusion of the member
trading fee, is consistent with Section 6(b)(4) in that it provides for
the equitable allocation of reasonable dues, fees, and other charges
among its members.\119\
---------------------------------------------------------------------------
\116\ See supra note 25.
\117\ See supra notes 25-26.
\118\ See supra note 27.
\119\ 15 U.S.C. 78f(b)(4). The Exchange has also proposed to
delay implementation of its proposal until sixty days after
publication of the Commission's approval order of the filing
discussed herein. See supra note 67. This appears to be reasonable
to allow underwriters representing companies that have applied, or
about to apply, to list to become a Limited Underwriting Member or
Member if not already a Member or in the alternative allow a company
to select an alternative underwriter if such underwriter firm
chooses not to become a Limited Underwriting Member or Member.
---------------------------------------------------------------------------
For the forgoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment Nos. 2 and 3, is consistent with
the Act.
IV. Solicitation of Comments on Amendment No. 3 to the Proposed Rule
Change
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 3
to 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#87f5f2ebe2aae4e8eaeae2e9f3f4c7f4e2e4a9e0e8f1"><span class="__cf_email__" data-cfemail="e694938a83cb85898b8b83889295a6958385c8818990">[email protected]</span></a>. Please include
file number SR-NASDAQ-2023-022 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2023-022. 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,
[[Page 21636]]
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. 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-NASDAQ-2023-022 and
should be submitted on or before April 18, 2024.
V. Accelerated Approval of the Proposed Rule Change, as Modified by
Amendment Nos. 2 and 3
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment Nos. 2 and 3, prior to the thirtieth
day after the date of publication of notice of the filing of Amendment
Nos. 2 and 3 in the Federal Register. In Amendment No. 2, the Exchange
amended the proposal to, among other things, (i) exclude Section 1032
of General 3, a new provision, from the rules the Exchange proposes to
apply to Limited Underwriting Members under General 3, Section 1031(c);
(ii) add General 9, Section 21 to the rules the Exchange proposes to
apply to Limited Underwriting Members under General 3, Section 1031(c);
(iii) update existing rule language in Equity 7, Section 10 to reflect
changes in current text; (iv) remove a proposed exemption from
registration for certain banking representatives associated with
Limited Underwriting Members; and (v) add language to General 3,
Section 1031(c)(2) to clarify that associated persons of Limited
Underwriting Members shall at all times be properly qualified and
registered under FINRA rules.\120\ Amendment No. 2 also made some
numbering updates, provided additional rationale for the inclusion and
exclusion of certain rules, and provided additional language in the
statutory basis.\121\ Amendment No. 2 was published for comment in the
Federal Register and no comments were received.\122\
---------------------------------------------------------------------------
\120\ See supra note 9.
\121\ See id. Amendment No. 2 also removed proposed rule
language from proposed General 3, Section 1032(a), which provided
that any person shall be eligible to become an associated persons of
a Limited Underwriting Member, and removed General 4 from the list
of rules applicable to Limited Underwriting Members in proposed
General 3, General 1031(c)(1). As discussed below, these provisions
were put back into the proposal in Amendment No. 3. Additionally,
some of the changes described in Amendment No. 2 were originally
proposed in Amendment No. 1 but included in Amendment No. 2 since
Amendment No. 2 superseded Amendment No. 1. See supra notes 8 and
11.
\122\ See supra note 11. The Commission notes that the full 21-
day comment period has already ended.
---------------------------------------------------------------------------
In its Amendment No. 3, the Exchange added back proposed rule
language to General 3, Section 1032(a)(2) that was in the original
proposal about the eligibility of any person to become an associated
person of a Limited Underwriting Member, except such persons as are
excluded under General 3, Rule 1002(b).\123\ In Amendment No. 3, the
Exchange also provided additional language on the consistency of
General 3, Section 1032(a)(1) and (a)(2) with the requirements of
section 6(b)(2) of the Act.\124\ In Amendment No. 3, the Exchange also
amended the proposal to add General 4 (Registration Requirements) back
into the list of rules that a Limited Underwriting Member and their
associated persons must comply with, as originally proposed.\125\ The
proposed rule language changes to the proposal, as described above, are
identical to provisions that were in the original proposal and
published for comment.\126\ No comments were received in response to
that Notice. Amendment No. 3 also excluded General 5, Rule 9400 from
the list of rules that Limited Underwriting Members must comply with
because that rule relates to expedited procedures for certain trading
activity and Limited Underwriting Members have no trading rights on the
Exchange.\127\ Amendment No. 3 also provided updates and other
clarifying changes to, and justification for, the proposed rule change
in addition to adding the provisions described above.\128\
---------------------------------------------------------------------------
\123\ See supra note 28.
\124\ See Amendment No. 3, supra note 12, at 12-13.
\125\ See supra notes 35 and 46.
\126\ See Notice, supra note 3. As noted above, these provisions
were removed from the proposal in Amendment No. 2. See Amendment No.
2, supra note 11.
\127\ See supra note 51.
\128\ See Amendment No. 3, supra note 12.
---------------------------------------------------------------------------
The Commission believes Amendment Nos. 2 and 3 will help to
strengthen the Exchange proposal and support its consistency with the
Act. Amendment Nos. 2 and 3 assist the Commission in evaluating the
Exchange's proposal and in determining that it is consistent with the
Act. Amendment Nos. 2 and 3 also have raised no new or novel issues.
Accordingly, the Commission finds good cause, pursuant to section
19(b)(2) of the Act,\129\ to approve the proposed rule change, as
modified by Amendment Nos. 2 and 3, on an accelerated basis.
---------------------------------------------------------------------------
\129\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
VI. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\130\ that the proposed rule change (SR-NASDAQ-2023-022), as
modified by Amendment Nos. 2 and 3, be, and hereby is, approved on an
accelerated basis.
---------------------------------------------------------------------------
\130\ Id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\131\
---------------------------------------------------------------------------
\131\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06579 Filed 3-27-24; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on March 28, 2024.
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.