82 FR 16651 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 5710

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 64 (April 5, 2017)

[Federal Register Volume 82, Number 64 (Wednesday, April 5, 2017)]
[Notices]
[Pages 16651-16653]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-06684]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80348; File No. SR-NASDAQ-2017-032]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Nasdaq Rule 5710

March 30, 2017.
    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 March 22, 2017, 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 and II 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 amend Nasdaq Rule 5710 (Securities Linked 
to the Performance of Indexes and Commodities (Including Currencies)).
    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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Nasdaq Rule 5710 (Securities Linked 
to the Performance of Indexes and Commodities (Including Currencies)), 
which allows the listing of Linked Securities.\3\ The proposed rule 
change will modify language in Nasdaq Rule 5710(e) to reflect a 
substantially similar change previously made by NYSE Arca, Inc. 
(``Arca'') to Arca Rule 5.2(j)(6)(A)(e) \4\ so both the Nasdaq and Arca 
provisions will be substantively identical.
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    \3\ See Nasdaq Rule 5710, which in defining Linked Securities 
states that ``Nasdaq will consider for listing and trading equity 
index-linked securities (``Equity Index-Linked Securities'') and 
commodity-linked securities (``Commodity-Linked Securities''), fixed 
income index-linked securities (``Fixed Income Index-Linked 
Securities''), futures-linked securities (``Futures-Linked 
Securities'') and multifactor index-linked securities (``Multifactor 
Index-Linked Securities'' and, together with Equity Index-Linked 
Securities, Commodity-Linked Securities, Fixed Income Index-Linked 
Securities and Futures-Linked Securities, ``Linked Securities'') 
that in each case meet the applicable criteria of this Rule.''
    \4\ See Securities Exchange Act Release No. 56637 (Oct. 10, 
2007), 72 FR 58704 (Oct. 16, 2007) (SR-NYSEArca-2007-92). At the 
time of Arca's initial filing, this rule was Arca Rule 5.2(j)(6)(e).
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    Specifically, Nasdaq Rule 5710(e) states that for listing of a 
Linked Security,\5\ the issuer will be expected to have a minimum 
tangible net worth in excess of $250 million and exceed by at least 20% 
the earnings requirements set forth in Nasdaq Rule 5405(b)(1)(A).\6\ 
The proposed rule change deletes the portion of this rule that requires 
that a company exceed by at least 20% the earnings requirements set 
forth in Nasdaq Rule 5405(b)(1)(A).\7\
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    \5\ This requirement will also apply for continued listing 
effective August 1, 2017. See Securities Exchange Act Release No. 
79784 (Jan. 12, 2017), 82 FR 6664 (Jan. 19, 2017) (SR-NASDAQ-2016-
135).
    \6\ Nasdaq Rule 5405(b)(1)(A) requires a company under the 
``Income Standard'' alternative for the initial listing of a primary 
equity security on the Nasdaq Global Market to have ``Annual income 
from continuing operations before income taxes of at least 
$1,000,000 in the most recently completed fiscal year or in two of 
the three most recently completed fiscal years.''
    \7\ Id.
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    The proposed rule change will also modify the $250 million minimum 
tangible net worth requirement with a parenthetical stating that if the 
Linked Securities are fully and unconditionally guaranteed by an 
affiliate of the company, Nasdaq will rely on such affiliate's tangible 
net worth for purposes of this requirement.
    Nasdaq Rule 5710(e) also provides an alternative listing 
requirement where a company can list a Linked Security with tangible 
net worth requirement in excess of $150 million (instead of $250 
million), provided that the original issue price of all the company's 
other index-linked note offerings (combined with index-linked note 
offerings of the company's affiliates) listed on a national securities 
exchange does not exceed 25% of the company's tangible net worth.
    This alternative listing requirement also will be modified to be 
substantively identical to the Arca provision. Thus, while a company's 
listing of a Linked Security under the Nasdaq provision must currently 
also meet the requirement that the company also exceed by at least 20% 
the earnings requirements set forth in Nasdaq Rule 5405(b)(1)(A), that 
earnings test will likewise be deleted.\8\
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    \8\ Id.
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    The proposed rule change will both delete the Nasdaq language 
discussed above, as well as add the following substantively identical 
language from the Arca provision, to substantially conform the Nasdaq 
language to the Arca language. First, that the original issue price of 
the Linked Securities, combined with all of the company's other Linked 
Securities listed on a national securities exchange or otherwise 
publicly traded in the United States, must not be greater than 25 
percent of the company's tangible net worth at the time of issuance. 
Second, a parenthetical will be added following this to say that if the 
Linked Securities are fully and unconditionally guaranteed by an 
affiliate of the Company, Nasdaq will apply the provisions of this 
paragraph to such affiliate instead of the Company and will include in 
its calculation all Linked Securities that are fully and 
unconditionally guaranteed by such affiliate. Third, as with the Arca 
provision, a sentence at the end of this listing standard will state 
that Government issuers and supranational entities will be evaluated on 
a case-by-case basis.
    The Exchange believes that conforming Nasdaq's listing standards to 
Arca's does not impact investor protections and will enhance 
competition by establishing an equivalent listing standard across Arca 
and Nasdaq for Linked Securities. Although Nasdaq will be deleting the 
earnings test, investors will not be adversely affected since a Company 
will still be required to have at least either (i) $250 million, or 
(ii) $150 million in tangible net worth and subject to a maximum 
issuance threshold

[[Page 16652]]

(depending on which requirement the Company is able to satisfy). Nasdaq 
will also take into consideration whether the Linked Securities are 
fully and unconditionally guaranteed by an affiliate of the Company. 
These conforming changes will provide a strong indication of the 
company's ability to make necessary payments on the Linked Security.
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.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change to conform 
Nasdaq Rule 5710(e) so that it is substantially similar to Arca Rule 
5.2(j)(6)(A)(e) will promote just and equitable principles of trade, 
and, in general protect investors and the public interest since it will 
promote the application of consistent listing standards for Linked 
Securities. Specifically, although Nasdaq will be deleting the earnings 
test, investors will not be adversely affected since a Company will 
still be required to have at least either (i) $250 million, or (ii) 
$150 million in tangible net worth and subject to a maximum issuance 
threshold (depending on which requirement the Company is able to 
satisfy). Nasdaq will also take into consideration whether the Linked 
Securities are fully and unconditionally guaranteed by an affiliate of 
the Company. The continuing minimum tangible net worth requirements 
coupled with the conforming changes will provide a strong indication of 
the company's ability to make necessary payments on the Linked 
Security.
    For these reasons, Nasdaq believes the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act.

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, as amended. Instead, the 
Exchange believes that the proposed rule change to conform Nasdaq Rule 
5710(e) so that it is substantially similar to Arca Rule 
5.2(j)(6)(A)(e) may enhance competition since Nasdaq and Arca \11\ will 
have substantially similar listing requirements for Linked Securities.
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    \11\ Supra note 4.
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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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and the text of the proposed rule change, 
at least five business days prior to the date of filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\14\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has 
requested that the Commission waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. The Exchange 
has stated that the proposal will lead to a more consistent initial and 
continued listing standard across Nasdaq and Arca for Linked Securities 
and thereby enhance competition. The Exchange also has noted that the 
proposed rule change is substantially similar to a change previously 
made by Arca.\15\ Based on the foregoing, the Commission believes that 
waiver of the 30-day operative delay is consistent with the protection 
of investors and the public interest. Therefore, the Commission hereby 
waives the 30-day operative delay and designates the proposed rule 
change to be operative upon filing.\16\
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    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ See supra note 4.
    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
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

     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-2017-032 on the subject line.

Paper Comments

     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-2017-032. 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

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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-2017-032 and should be submitted on or before 
April 26, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-06684 Filed 4-4-17; 8:45 am]
 BILLING CODE 8011-01-P