81 FR 69881 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Modify Rule IM-5900-7 To Adjust the Entitlement to Services of Acquisition Companies

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 195 (October 7, 2016)

[Federal Register Volume 81, Number 195 (Friday, October 7, 2016)]
[Notices]
[Pages 69881-69884]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-24279]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79025; File No. SR-NASDAQ-2016-106]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Modify Rule IM-5900-7 To 
Adjust the Entitlement to Services of Acquisition Companies

October 3, 2016.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on September 22, 2016, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 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 the treatment of acquisition 
companies under IM-5900-7.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.com, 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Nasdaq proposes to modify IM-5900-7 to change the treatment of 
acquisition companies under that rule.
    Nasdaq offers complimentary services under IM-5900-7 to companies 
listing on the Nasdaq Global and Global Select Markets in connection 
with an initial public offering, upon emerging from bankruptcy, or in 
connection with a spin-off or carve-out from another company 
(``Eligible New Listings'') and to companies that switch their listing 
from the New York Stock Exchange (``NYSE'') to the Global or Global 
Select Markets (``Eligible Switches'').\4\
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    \4\ See Exchange Act Release No. 65963 (December 15, 2011), 76 
FR 79262 (December 21, 2011) (SR-NASDAQ-2011-122) (adopting IM-5900-
7); Exchange Act Release No. 72669 (July 24, 2014), 79 FR 44234 
(July 30, 2014) (SR-NASDAQ-2014-058) (adopting changes to IM-5900-
7); Exchange Act Release No. 78806 (September 9, 2016), 81 FR 63523 
(September 15, 2016) (SR-NASDAQ-2016-098). These adopting releases 
are collectively referred to as the ``Prior Filings.''
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    Nasdaq believes that the complimentary service program offers 
valuable services to newly listing companies, designed to help ease the 
transition of becoming a public company or switching markets, makes 
listing on Nasdaq more attractive to these companies, and also provides 
Nasdaq Corporate Solutions the opportunity to demonstrate the value of 
its services and forge a relationship with the company. The services 
offered include a whistleblower hotline, investor relations Web site, 
disclosure services for earnings or other press releases, webcasting, 
market analytic tools, and may include market advisory

[[Page 69882]]

tools such as stock surveillance. Depending on a company's market 
capitalization and whether it is an Eligible New Listing or an Eligible 
Switch, the value of the services provided range from $141,000 to 
$754,000, and one-time development fees of approximately $3,500 are 
waived.\5\ In addition, all companies listed on Nasdaq receive services 
from Nasdaq, including Nasdaq Online and the Market Intelligence Desk.
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    \5\ The exact values are set forth in IM-5900-7 and no change to 
these services or their values is proposed in this filing.
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    Generally, Nasdaq will not permit the initial or continued listing 
of a company that has no specific business plan or that has indicated 
that its business plan is to engage in a merger or acquisition with an 
unidentified company or companies. However, in the case of a company 
whose business plan is to complete an initial public offering and 
engage in a merger or acquisition with one or more unidentified 
companies within a specific period of time (an ``Acquisition 
Company''), Nasdaq will permit the listing if the company meets all 
applicable initial listing requirements, as well as the additional 
conditions described in IM-5101-2. These additional conditions 
generally require, among other things, that at least 90% of the gross 
proceeds from the initial public offering must be deposited in a 
``deposit account,'' as that term is defined in the rule, and that the 
company complete within 36 months, or a shorter period identified by 
the company, one or more business combinations having an aggregate fair 
market value of at least 80% of the value of the deposit account at the 
time of the agreement to enter into the initial combination.
    Acquisition Companies do not have operating businesses and tend to 
trade infrequently and in a tight range until the company completes an 
acquisition. In addition, Acquisition Companies issue few press 
releases and frequently do not have detailed Web sites. Therefore, upon 
listing, these companies do not generally need shareholder 
communication services, market analytic tools or market advisory tools, 
and generally would only benefit from the complimentary whistleblower 
hotline provided under IM-5900-7.\6\ Accordingly, Nasdaq proposes to 
provide that an Acquisition Company listing on the Global Market \7\ 
before it has satisfied the requirement of IM-5101-2(b), whether as an 
Eligible New Listing or an Eligible Switch, will not receive 
complimentary services under IM-5900-7.\8\
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    \6\ It typically takes more than two years for an Acquisition 
Company to identify a target and complete an acquisition. As a 
result, the term of any complimentary services offered to an 
Acquisition Company under IM-5900-7 as an Eligible New Listing would 
usually expire before the company acquired a target and began 
operating as an operating company that could benefit from the 
services.
    \7\ Rule 5310(i) provides that a company subject to IM-5101-2 is 
not eligible to list on the Global Select Market.
    \8\ To date, all companies listing under IM-5101-2 have listed 
on the Capital Market. The services described in IM-5900-7 are not 
available to companies listing on the Capital Market.
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    However, once an Acquisition Company completes a business 
combination with an operating company, the combined company is much 
like any other newly public company and could benefit from the 
complimentary services Nasdaq offers other newly public companies. 
Accordingly, Nasdaq proposes to include in the definition of an 
``Eligible New Listing'' that receives complimentary services under IM-
5900-7 an Acquisition Company that completes a business combination 
that satisfies the conditions in IM-5101-2(b) and that lists on the 
Global or Global Select Market in conjunction with that business 
combination.\9\
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    \9\ The company would receive the same services under IM-5900-7, 
with the same value, as any other Eligible New Listing.
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    For purposes of IM-5900-7, Nasdaq will treat a company previously 
listed on the Capital Market as listing on the Global or Global Select 
Market in conjunction with a business combination that satisfies the 
conditions in IM-5101-2(b) if it files an application to list on the 
Global or Global Select Market before completing the combination and 
demonstrates compliance with all applicable criteria within 60 days of 
completing the business combination. This additional time may be 
required, in some cases, to allow the issuance of shares in the 
transaction and then for the newly formed entity to obtain information 
from third parties to demonstrate compliance with the shareholder and 
public float requirements.
    If the Acquisition Company is listed on the Global Market at the 
time it completes a business combination that satisfies the conditions 
in IM-5101-2(b) and remains listed on the Global Market or transfers to 
the Global Select Market, the complimentary period will commence on the 
date of such business combination.\10\ If the Acquisition Company is 
listed on the Capital Market at the time it completes the business 
combination that satisfies the conditions in IM-5101-2(b), the 
complimentary period will commence on the date of listing on the Global 
or Global Select Market.\11\ In either case, however, if the company 
lists on the Global or Global Select Market and begins to use a 
particular service provided under IM-5900-7 within 30 days after the 
date of the business combination, the complimentary period for that 
service will begin on the date of first use.
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    \10\ An Acquisition Company must meet the initial listing 
requirements at the time of its business combination even if it is 
already listed on the Global Market. See IM-5101-2(d).
    \11\ An Acquisition Company that was listed on the Capital 
Market before the business combination would remain on the Capital 
Market until it demonstrates compliance with the applicable Global 
or Global Select Market initial listing criteria.
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    Nasdaq also proposes to delete a reference in the existing rule 
text to ``NASDAQ'' when referring to the Global and Global Select 
Markets, to conform to other references to the Global and Global Select 
Markets within the rule. Finally, Nasdaq proposes to update the 
introductory note in IM-5900-7 to include the specific date that a 
prior change to the rule was approved. This change is designed to ease 
understanding of the rule and eliminate the need to cross-reference the 
approval order for that prior change.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\12\ in general, and Section 
6(b)(4), in particular, in that the proposal is designed, among other 
things, to provide for the equitable allocation of reasonable dues, 
fees, and other charges among Nasdaq members and issuers and other 
persons using its facilities. Nasdaq also believes that the proposed 
rule change is consistent with Section 6(b)(5) in that it is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \12\ 15 U.S.C. 78f.
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    Nasdaq faces competition in the market for listing services,\13\ 
and competes, in part, by offering valuable services to companies. 
Nasdaq believes that it is reasonable to offer complimentary services 
to attract and retain listings as part of this competition. All 
similarly situated companies are eligible for the same package of 
services.
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    \13\ The Justice Department has noted the intense competitive 
environment for exchange listings. See ``NASDAQ OMX Group Inc. and 
IntercontinentalExchange Inc. Abandon Their Proposed Acquisition of 
NYSE Euronext After Justice Department Threatens Lawsuit'' (May 16, 
2011), available at http://www.justice.gov/atr/public/press_releases/2011/271214.htm.
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    Nasdaq also believes it is reasonable, and not unfairly 
discriminatory, to offer

[[Page 69883]]

complimentary services to a company described in IM-5101-2 that 
acquires an operating business, ceases to be an Acquisition Company, 
and lists (or remains listed) on the Global or Global Select Market. 
When a company described in IM-5101-2 acquires an operating business 
and ceases to be an Acquisition Company, the company is similar to 
other Eligible New Listings, such as initial public offerings, and will 
have increased need to focus on identifying and communicating with its 
shareholders. Like the other Eligible New Listings that receive 
complimentary services under the existing rule, these companies are 
transitioning to the traditional public company model and the 
complimentary services provided will help ease that transition. In 
addition, these companies will be purchasing many of these services for 
the first time, and offering complimentary services will provide Nasdaq 
Corporate Solutions the opportunity to demonstrate the value of its 
services and forge a relationship with the company at a time when it is 
choosing its service providers. For these reasons, Nasdaq believes it 
is not an inequitable allocation of fees nor unfairly discriminatory to 
offer the services to a company described in IM-5101-2 when it 
completes a business combination satisfying IM-5101-2(b).
    In addition, because Acquisition Companies described in IM-5101-2 
have little use for services upon listing, and because they will be 
eligible to receive services if they complete a business combination 
satisfying IM-5101-2(b), Nasdaq does not think it is unfairly 
discriminatory to modify the rule so that a company described in IM-
5101-2 does not receive services upon listing.
    An Acquisition Company could list on the Global Market at the time 
of its initial public offering, but never complete an acquisition that 
satisfies the requirements of IM-5101-2(b). While under the proposed 
rule change such a company would never receive complimentary services, 
Nasdaq does not believe that the services generally would be useful to 
the Acquisition Company and the Acquisition Company therefore would not 
suffer any meaningful detriment as a consequence.
    Allowing an Acquisition Company up to 30 days after completing a 
business combination to start using the complimentary services reflects 
Nasdaq's experience that it can take companies a period of time to 
review and complete necessary contracts and training following their 
becoming eligible for those services. Allowing this modest 30-day 
period, if the company needs it, helps ensure that the company will 
have the benefit of the full period permitted under the rule to 
actually use the services, thus giving companies the full intended 
benefit.
    Defining a company to be listing in conjunction with a business 
combination that satisfies the conditions in IM-5101-2(b) to include a 
company listed on the Capital Market that both filed an application to 
list on the Global or Global Select Market before completing the 
business combination and demonstrated compliance with all applicable 
criteria for the Global or Global Select Market within 60 days of 
completing the business combination reflects Nasdaq's experience that 
such a company may need a period of as long as 60 days to obtain 
information from third parties to demonstrate compliance with the 
listing requirements. Beginning the complimentary period for a company 
in this situation on the date of its listing on the Global or Global 
Select Market is consistent with the period provided to other Eligible 
New Listings and Eligible Switches, which begins on the date of 
listing. Moreover, prior to that point, there is no certainty as to 
whether the company will qualify for the Global or Global Select Market 
and be eligible to receive the services and, as a result, complimentary 
services could not be provided prior to that date. Nasdaq believes that 
this 60-day period appropriately recognizes the practical problem that 
a company may have with demonstrating compliance with the initial 
listing requirements for the Global or Global Select Market at exactly 
the time of its business combination. However, a company that takes 
advantage of this time period cannot further extend the start of the 
complimentary period by using an additional 30-day period to start 
using the complimentary services.
    Nasdaq further believes that it is not unfairly discriminatory to 
limit this 60-day period to Acquisition Companies transitioning from 
the Capital Market to the Global or Global Select Market and to not 
also extend it to Acquisition Companies already listed on the Global 
Market. An Acquisition Company that is listed on the Global Market was 
required to have 400 round lot holders upon initially listing and is 
required to have 400 total holders for continued listing. As a result, 
Nasdaq expects it would be rare for a company already on the Global 
Market to need additional time to demonstrate compliance with this, or 
other, initial listing requirement. Nasdaq believes that this is a non-
discriminatory reason to distinguish between these types of companies.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. The proposed rule 
change reflects Nasdaq's ongoing assessment of the competitive market 
for listings and does not place any unnecessary burden on that 
competition. In many cases, an Acquisition Company will consider 
transferring to a new listing venue when it completes a business 
combination. The proposed rule change will allow Nasdaq to compete to 
retain these companies by offering them a package of complimentary 
services that assists their transition to being a traditional public 
company.
    Nasdaq believes that when the complimentary period ends, a former 
Acquisition Company that had acquired an operating business will be 
more likely to continue to use the Nasdaq Corporate Solutions service 
or a competing service, whereas otherwise they may not be exposed to 
the value of these services and therefore may not purchase any. This 
will create additional users of the service class and enhance 
competition among service providers.
    In addition, other service providers can also offer similar 
services to companies, thereby increasing competition to the benefit of 
those companies and their shareholders. Accordingly, Nasdaq does not 
believe the proposed rule change will impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act, as amended.

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 60 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.

[[Page 69884]]

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

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2016-106 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2016-106. 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 Web site (http://www.sec.gov/rules/sro.shtml). 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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2016-106 and should 
be submitted on or before October 28, 2016.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-24279 Filed 10-6-16; 8:45 am]
 BILLING CODE 8011-01-P