Notice2024-30898
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Modify Certain Initial Listing Liquidity Requirements
Primary source
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Published
December 30, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 249 (Monday, December 30, 2024)</title>
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[Federal Register Volume 89, Number 249 (Monday, December 30, 2024)]
[Notices]
[Pages 106717-106719]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-30898]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101978; File No. SR-NASDAQ-2024-084]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To Modify Certain Initial
Listing Liquidity Requirements
December 19, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 12, 2024, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III, below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to modify certain initial listing liquidity
requirements.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rules">https://listingcenter.nasdaq.com/rulebook/nasdaq/rules</a>, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Nasdaq is proposing to modify Listing Rules 5405 and 5505 to
require that a company listing on the Nasdaq Global Market or Nasdaq
Capital Market in connection with an initial public offering (``IPO'')
satisfy the applicable minimum Market Value of Unrestricted Publicly
Held Shares (``MVUPHS'') requirement solely from the proceeds of the
offering. Nasdaq is also proposing to make similar changes affecting
companies that uplist to Nasdaq from the U.S. over-the-counter market
(``OTC market'') in conjunction with a public offering.
Nasdaq Listing Rules require a company to have a minimum Market
Value of Unrestricted Publicly Held
[[Page 106718]]
Shares. For initial listing on the Nasdaq Global Market, a company must
have a minimum MVUPHS of $8 million under the Income Standard, $18
million under the Equity Standard, and $20 million under either the
Market Value or Total Assets/Total Revenue Standards.\3\ For initial
listing on the Nasdaq Capital Market, a company must have a minimum
MVUPHS of $5 million under the Net Income Standard, and $15 million
under either the Equity or Market Value of Listed Securities
Standards.\4\
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\3\ See Listing Rules 5405(b)(1)(C), 5405(b)(2)(C),
5405(b)(3)(B), and 5405(b)(4)(B).
\4\ See Listing Rules 5505(b)(1)(B), 5505(b)(2)(C), and
5505(b)(3)(C).
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Unrestricted Publicly Held Shares are shares that are not held by
an officer, director or 10% shareholder of the company and which are
not subject to resale restrictions of any kind.\5\ In the case of a
company listing in conjunction with a public offering, previously
issued shares registered for resale (``Resale Shares''), and not held
by an officer, director or 10% shareholder of the company, are counted
as Unrestricted Publicly Held Shares in addition to the shares being
sold in the offering.
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\5\ See Listing Rule 5005(a)(46).
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The MVUHPS standard is one of the core liquidity requirements
within the Nasdaq listing rules. Like the other liquidity requirements,
it is meant to ensure that there is sufficient liquidity to provide
price discovery and support an efficient and orderly market for the
company's securities. Nonetheless, Nasdaq has observed that the
securities companies that meet the applicable MVUPHS requirement by
including Resale Shares have experienced higher volatility on the date
of listing than those of similarly situated companies that meet the
requirement with only the proceeds from the offering. Nasdaq believes
that the Resale Shares may not contribute to liquidity to the same
degree as the shares sold in the public offering. As such, Nasdaq
believes it is appropriate to modify the rules to exclude the Resale
Shares from the calculation of MVUPHS for initial listing of companies
listing in conjunction with a public offering.
Accordingly, Nasdaq proposes to modify Listing Rules 5405(b) and
5505(b) to provide that a company listing in connection with an initial
public offering, including through the issuance of American Depository
Receipts, must satisfy the applicable MVUPHS requirement for each
initial listing standard for primary equity securities \6\ with the
proceeds of that offering.
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\6\ See footnotes 3 and 4, above.
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Related to this change, Nasdaq believes it also is appropriate to
apply a similar requirement to companies trading in the OTC market that
qualify for listing based on an offering. Specifically, a company
trading in the OTC market prior to listing must currently satisfy
either a minimum daily trading volume on the OTC market of 2,000 shares
over the past 30 trading days with trading occurring in at least 50% of
those days (the ``ADV Requirement'') or, alternatively, list in
connection with a firm commitment underwritten public offering of at
least $4 million.\7\ This alternative recognizes that where a company
is listing in connection with a significant firm commitment
underwritten public offering the liquidity characteristics of the prior
trading will change and reflect the offering, just like in an IPO, and
shares in the offering will be the primary source of liquidity upon
listing.
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\7\ See Listing Rules 5405(a) and 5505(a). This requirement is
the same under the listing rules of both the Nasdaq Global Market
and Nasdaq Capital Market.
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Given Nasdaq's observations about the liquidity characteristics of
IPOs with Resale Shares, Nasdaq believes it is appropriate to treat OTC
companies relying on an offering in a similar manner, given that the
liquidity in such listings is also expected to be supported by the
offering. Accordingly, Nasdaq proposes to modify the alternative to the
ADV requirement in Listing Rules 5405(a)(4) and 5505(a)(5). As revised,
a company relying on the alternative will be required to satisfy the
applicable MVUPHS requirements with only the proceeds from the
offering. As a result, Nasdaq also proposes to modify Listing Rules
5405(a)(4) and 5505(a)(5) to increase the size of the required public
offering for this alternative to the ADV Requirement from $4 million to
$5 million for Capital Market applicants and $8 million for Global
Market applicants to align with the minimum MVUHPS requirement for each
market.\8\ If the company qualifies under a different standard, instead
of the income standard, the minimum raise instead would have to satisfy
the MVUPHS requirement of the applicable standard.
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\8\ See footnotes 3 and 4, above.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\9\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\10\ in particular, in that it is designed to
promote just and equitable principles of trade, to 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. Specifically, Nasdaq believes that the proposal to modify
Listing Rules 5405(b) and 5505(b) to require that a company listing on
the Nasdaq Global Market or Capital Market in connection with an IPO
satisfy the applicable minimum MVUPHS requirement solely from the
proceeds of the offering is designed to protect investors and the
public interest and to remove impediments to and perfect the mechanism
of a free and open market and a national market system because Nasdaq
believes that the change will likely result in less volatile trading of
affected companies upon listing. As described above, the MVUHPS
standard is one of the core liquidity requirements within the Nasdaq
listing rules designed to ensure that there is sufficient liquidity to
provide price discovery and support an efficient and orderly market for
the company's securities. Based on Nasdaq's experience, companies that
meet the applicable MVUPHS requirement by including Resale Shares are
more likely to be subject to volatile trading on the date of listing
than similarly situated companies that meet the requirement with only
the proceeds from the offering. Nasdaq believes that this proposed
change will help ensure that the initial pool of liquidity available
for trading meets or exceeds the minimum applicable MVUHPS requirement.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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Nasdaq also believes that the proposal to modify Listing Rules
5405(a)(4) and 5505(a)(5) to require that a company that is trading on
the OTC market at the time of its application and that is listing in
conjunction with a firm commitment public offering in lieu of meeting
the ADV Requirement must satisfy the applicable MVUPHS requirements
with only the proceeds from the offering is designed to protect
investors and the public interest and to remove impediments to and
perfect the mechanism of a free and open market and a national market
system because, Nasdaq believes it is appropriate to align the minimum
offering size for this alternative to the ADV Requirement with the
minimum MVUHPS requirement for each market \11\ by modifying Listing
Rules 5405(a)(4) and 5505(a)(5) to set the minimum offering under this
alternative to $5 million on
[[Page 106719]]
the Capital Market and to $8 million on the Global Market because, in
the case where a company does not meet the ADV Requirement, the
offering serves as the primary source of price discovery in the same
way the offering does in an IPO, as described above. Moreover, failure
to align these requirements could allow a company to begin trading on
the OTC market and then uplist to Nasdaq a short time later with an
offering that does not satisfy the proposed new requirements for
companies listed in connection with an IPO, as described above.
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\11\ See text accompanying footnotes 3 and 4, above.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. While Nasdaq does not believe
there will be any impact on inter-market competition from the proposed
change, any impact on competition that does arise will be necessary to
better protect investors, in furtherance of a central purpose of the
Act. Moreover, each national securities exchange can elect how to
structure its listing requirements and respond in a competitive manner.
In that regard, Nasdaq notes, for example, that in 2019 Nasdaq first
enhanced its initial listing requirements to exclude holders of
restricted stock from the calculation of the market value of publicly
held shares and to impose a requirement that a minimum number of
shareholders hold at least $2,500 worth of unrestricted stock, however
New York Stock Exchange and NYSE American have not adopted comparable
requirements and compete for listings on such basis.\12\
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\12\ Securities Exchange Act Release No. 86314 (July 5, 2019),
84 FR 33102 (July 11, 2019) (approving SR-NASDAQ-2019-009).
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Nasdaq also believes that any impact on intra-market competition
from the proposed change affecting companies listing on the Nasdaq
Global and Capital Markets in connection with an IPO or uplisting form
the OTC market, as described above, will be necessary to better protect
investors, in furtherance of a central purpose of the Act. In that
regard, companies listing on Nasdaq through other means, such as those
listing on the Nasdaq Global Select Market or listing through a Direct
Listing, are already subject to higher initial listing standards than
companies impacted by this proposed change and Nasdaq has not observed
similar concerns with the trading of these companies' securities.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) by order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#4b393e272e66282426262e253f380b382e28652c243d"><span class="__cf_email__" data-cfemail="e092958c85cd838f8d8d858e9493a0938583ce878f96">[email protected]</span></a>. Please include
file number SR-NASDAQ-2024-084 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-2024-084. 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-NASDAQ-2024-084 and should
be submitted on or before January 21, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-30898 Filed 12-27-24; 8:45 am]
BILLING CODE 8011-01-P
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