82 FR 47784 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Reduce the Fees for Certain Investment Management Entities and Eligible Portfolio Companies

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 197 (October 13, 2017)

[Federal Register Volume 82, Number 197 (Friday, October 13, 2017)]
[Notices]
[Pages 47784-47787]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-22160]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81838; File No. SR-NASDAQ-2017-100]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Reduce the Fees for Certain Investment Management Entities and Eligible 
Portfolio Companies

October 6, 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 September 26, 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, 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 reduce the fees for certain Investment 
Management Entities and Eligible Portfolio Companies.
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on January 1, 2018.
    The text of the proposed rule change is set forth below. Proposed 
new language is italicized; deleted text is in brackets.
* * * * *

5910. The Nasdaq Global Market (Including the Nasdaq Global Select 
Market)

* * * * *

IM-5910-1. All-Inclusive Annual Listing Fee

    (a)-(c) No change.
    (d) The All-Inclusive Annual Listing Fee will be calculated on 
total shares outstanding according to the following schedules:
    (1)-(3) No change.
    (4) Limited Partnerships [(effective January 1, 2017)]:

Up to 75 million shares $37,500
75+ to 100 million shares $50,000
100+ to 125 million shares $62,500
125+ to 150 million shares $67,500
Over 150 million shares $77,500

    (5) Investment Management Entities and Eligible Portfolio Companies 
(effective January 1, 2018):
    Nasdaq will apply a 50% fee discount to the annual fee otherwise 
owed under paragraph (d)(1) of this rule for Eligible Portfolio 
Companies and Investment Management Entities that have one or more 
Eligible Portfolio Companies. For purposes of this rule, an 
``Investment Management Entity'' is a company listed on Nasdaq or 
another national securities exchange that manages private investment 
vehicles not registered under the Investment Company Act. An ``Eligible 
Portfolio Company'' of an Investment Management Entity is a Nasdaq-
listed Company in which an Investment Management Entity has owned at 
least 20% of the common stock on a continuous basis since prior to that 
company's initial listing.
    In order to qualify for this discount in any calendar year, a 
Company, other than a new listing, must submit satisfactory proof to 
Nasdaq no later than December 31st of the prior year that it satisfies 
the requirements specified above. A new listing that satisfies these 
requirements is eligible for the discount upon listing.

[[Page 47785]]

    Notwithstanding the foregoing, if an Investment Management Entity 
or Eligible Portfolio Company would otherwise be subject to an All-
Inclusive Annual Fee that is lower than the fee provided for in this 
paragraph (5), then the alternative fee schedule shall apply.
    (e) No change.
* * * * *

5920. The Nasdaq Capital Market

* * * * *

IM-5920-1. All-Inclusive Annual Listing Fee

    (a)-(c) No change.
    (d) The All-Inclusive Annual Listing Fee will be calculated on 
total shares outstanding according to the following schedules:
    (1)-(3) No change.
    (4) Limited Partnerships [(effective January 1, 2017)]:
Up to 75 million shares $30,000
Over 75 million shares $37,500

    (5) Investment Management Entities and Eligible Portfolio Companies 
(effective January 1, 2018):
    Nasdaq will apply a 50% fee discount to the annual fee otherwise 
owed under paragraph (d)(1) of this rule for Eligible Portfolio 
Companies and Investment Management Entities that have one or more 
Eligible Portfolio Companies. For purposes of this rule, an 
``Investment Management Entity'' is a company listed on Nasdaq or 
another national securities exchange that manages private investment 
vehicles not registered under the Investment Company Act. An ``Eligible 
Portfolio Company'' of an Investment Management Entity is a Nasdaq-
listed Company in which an Investment Management Entity has owned at 
least 20% of the common stock on a continuous basis since prior to that 
company's initial listing.
    In order to qualify for this discount in any calendar year, a 
Company, other than a new listing, must submit satisfactory proof to 
Nasdaq no later than December 31st of the prior year that it satisfies 
the requirements specified above. A new listing that satisfies these 
requirements is eligible for the discount upon listing.
    Notwithstanding the foregoing, if an Investment Management Entity 
or Eligible Portfolio Company would otherwise be subject to an All-
Inclusive Annual Fee that is lower than the fee provided for in this 
paragraph (5), then the alternative fee schedule shall apply.
    (e) No change.
* * * * *

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 proposes to reduce the fees for certain Investment 
Management Entities and Eligible Portfolio Companies. An Investment 
Management Entity for purposes of this provision would be defined as a 
company listed on Nasdaq or another national securities exchange which 
manages private investment vehicles that are not registered under the 
Investment Company Act. There are a small number of such companies that 
engage in the business of managing such private equity funds. Through 
these private equity funds, Investment Management Entities invest in 
private companies. An ``Eligible Portfolio Company'' of an Investment 
Management Entity is a Nasdaq-listed company in which the Investment 
Management Entity has owned at least 20% of the common stock on a 
continuous basis since prior to that company's initial listing.
    Investment Management Entities typically provide significant 
managerial and advisory assistance to their portfolio companies, in 
part, based on their familiarity, as a public company listed on a 
national securities exchange, with the requirements for an exchange 
listing. An Investment Management Entity will frequently seek to exit 
its funds' investment in a privately-held portfolio company by 
conducting an initial public offering (IPO) on behalf of that portfolio 
company. The Investment Management Entity does not typically sell 
shares in the IPO but, rather, shares not sold in the IPO are gradually 
sold off over a period of years in the public market. While these 
Investment Management Entities have control or influence over the 
decision making of their portfolio companies in both their pre- and 
post-public phases, the decision as to where to list is typically made 
jointly by the portfolio company's senior management team and the 
Investment Management Entity. Nasdaq benefits from its ongoing 
relationships with these Investment Management Entities (and members of 
the management teams that had previously dealt with Nasdaq) when 
competing for the listing of their portfolio companies. In addition, 
Nasdaq benefits from the efficiencies in dealing with portfolio 
companies that are benefiting from the guidance and experience of the 
Investment Management Entities to which they are related.
    Nasdaq incurs substantial costs in connection with its marketing to 
companies choosing a listing venue for their IPO. In those cases where 
the Exchange has a longstanding relationship with the Investment 
Management Entity controlling a listing applicant, Nasdaq's costs of 
marketing to the prospect company can be much lower than usual because 
of the Investment Management Entity's prior experience with Nasdaq. 
Typically, when pitching for the listing of a company that is choosing 
a listing venue for its IPO, Nasdaq incurs significant expense, 
including the time spent by its CEO and other senior management in 
preparing for and traveling to meetings with the prospect company, 
travel costs, the cost of developing pitching strategies and the cost 
of producing marketing materials. In addition, it has been the 
Exchange's experience that an Investment Management Entity puts high-
quality and experienced management teams in place at its portfolio 
companies prior to listing and that the Investment Management Entity 
continues to provide significant support to those companies after 
listing. Consequently, those companies require lower levels of support 
from Nasdaq's business and regulation departments to assist them in 
navigating the initial and continued listing process and Nasdaq devotes 
significantly smaller staff resources to those companies on average 
than to the typical newly-listed company that is not controlled prior 
to listing by an Investment Management Entity.
    Nasdaq believes that these cost savings attributable to its 
relationship with an Investment Management Entity allow for a reduction 
in continued listing fees to the Investment Management Entities that 
are significant shareholders in other Nasdaq-listed companies, as well 
as to those portfolio companies that have listed on Nasdaq as a 
consequence of those relationships. Nasdaq also believes that the 
proposed fee reduction would provide an incentive to Investment 
Management

[[Page 47786]]

Entities to list on Nasdaq (or remain listed) themselves, as well as to 
list additional portfolio companies on Nasdaq. Accordingly, Nasdaq 
proposes to offer Eligible Portfolio Companies and Investment 
Management Entities that have one or more Eligible Portfolio Companies 
listed on Nasdaq a 50% discount to the annual fee otherwise owed by 
issuers of equity securities.
    A new listing that satisfies these requirements will be eligible 
for the discount upon listing based upon Nasdaq's review of public 
filings disclosing ownership. In order to qualify for this discount in 
any subsequent calendar year, an issuer must submit satisfactory proof 
to Nasdaq no later than December 31st of the prior year that it is 
eligible for the discount.\3\ Investment Management Entities that do 
not have Eligible Portfolio Companies listed on Nasdaq, are not 
eligible to receive the discount and will be billed on the same fee 
schedule as other equity securities.
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    \3\ Nasdaq will also review public filings to determine if a 
company remains eligible to receive a discount.
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    The proposed amendment will affect the All-Inclusive Annual Listing 
Fee schedule \4\ on the Nasdaq Global Market, the Nasdaq Global Select 
Market and the Nasdaq Capital Market.\5\ In 2014, when Nasdaq adopted 
the All-Inclusive Annual Listing Fee schedule, Nasdaq considered 
various factors that distinguish companies, including market tier, 
shares outstanding and security type, as well as the perceived use of 
various Nasdaq regulatory and support services by companies of various 
characteristics.\6\ Due to the relatively few Investment Management 
Entities and Eligible Portfolio Companies listed on the Exchange at 
that time, Nasdaq's analysis did not focus on the special 
characteristics of such companies. Upon further consideration, Nasdaq 
now believes that the cost savings attributable to its relationship 
with Investment Management Entities and generally lower levels of 
support required for Eligible Portfolio Companies and Investment 
Management Entities with listed Eligible Portfolio Companies warrant a 
reduced fee.
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    \4\ In 2014, Nasdaq adopted an All-Inclusive Annual Listing Fee 
schedule. Securities Exchange Act Release No. 73647 (November 19, 
2014), 79 FR 70232 (November 25, 2014) (SR-NASDAQ-2014-87). Since 
then, newly listed companies have been subject to the All-Inclusive 
fee structure and other listed companies could have elected to be on 
the All-Inclusive fee structure. All companies will be subject to 
the All-Inclusive fee structure effective January 1, 2018.
    \5\ Listing Rule 5910 provides that fee schedules for the Nasdaq 
Global Select Market are the same fee schedules as for the Nasdaq 
Global Market.
    \6\ See Securities Exchange Act Release No. 73647, supra note 4.
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    Nasdaq notes that American Depositary Receipts (ADRs), closed-end 
funds and limited partnerships also have different fee schedules than 
other listed equity securities. Nasdaq believes that the 
characteristics of ADRs, closed-end funds and limited partnerships are 
different than the characteristics of Investment Management Entities 
and Eligible Portfolio Companies and that it is therefore appropriate 
to apply a different fee schedule for Investment Management Entities 
and Eligible Portfolio Companies. If an Eligible Portfolio Company or 
an Investment Management Entity with listed Eligible Portfolio 
Companies lists ADRs, or is a closed-end fund or a limited partnership, 
its All-Inclusive fee will be the lower of: (i) The fee applicable to 
ADRs, closed-end funds or limited partnerships, as applicable, or (ii) 
the 50% fee discount to the fee applicable to other equity securities 
listed on the same tier.
    Nasdaq notes that no other company will be required to pay higher 
fees as a result of the proposed amendments and represents that the 
proposed fee change will have no impact on the resources available for 
its regulatory programs.
    The proposed fee change will be operative January 1, 2018.\7\
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    \7\ Nasdaq also proposes to delete an old effective date from 
IM-5910-1(d)(4) and IM-5920-1(d)(4).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\9\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees, and other 
charges among members and issuers and other persons using any facility 
or system which the Exchange operates or controls, and is not designed 
to permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4) and (5).
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    As a preliminary matter, Nasdaq competes for listings with other 
national securities exchanges and companies can easily choose to list 
on, or transfer to, those alternative venues. As a result, the fees 
Nasdaq can charge listed companies are constrained by the fees charged 
by its competitors and Nasdaq cannot charge prices in a manner that 
would be unreasonable, inequitable, or unfairly discriminatory.
    Nasdaq believes that the proposed fee change reducing the fee paid 
by Eligible Portfolio Companies and Investment Management Entities with 
listed Eligible Portfolio Companies is reasonable and not unfairly 
discriminatory because it recognizes the reduced regulatory and 
business costs Nasdaq incurs for listing these Investment Management 
Entities and Eligible Portfolio Companies. Specifically, Nasdaq 
benefits from significant cost and resource-utilization savings when 
listing portfolio companies of Investment Management Entities as it 
does not have to engage in significant marketing efforts because the 
decision makers at the Investment Management Entity are already 
familiar with Nasdaq. Typically when pitching for the listing of a 
company that is choosing a listing venue for its IPO, Nasdaq incurs 
significant expense, including: The time spent by its CEO and other 
senior management in preparing for and traveling to meetings with the 
prospect company, travel costs, the cost of developing pitching 
strategies and the cost of producing marketing materials. As Nasdaq 
saves much of this expense when pitching to a portfolio company of an 
Investment Management Entity with which Nasdaq has an established 
relationship, Nasdaq believes that it is reasonable to share some of 
those savings with listed Investment Management Entities and their 
Eligible Portfolio Companies. In addition, Nasdaq typically has lower 
costs and resource utilization in connection with the initial and 
continued listing of Eligible Portfolio Companies than with other new 
listings, as the Exchange benefits from dealing with the high-quality 
and experienced management teams Investment Management Entities put in 
place at portfolio companies prior to listing and the ongoing 
relationship those companies maintain with staff at the Investment 
Management Entity, who can share their experience as a public company 
listed on a national securities exchange. Nasdaq also believes that the 
proposed discount is reasonable in that it will create a reasonable 
commercial incentive for Investment Management Entities and the 
management of their portfolio companies to consider listing on Nasdaq 
and to remain listed.
    Nasdaq believes that it is not unfairly discriminatory to discount 
continued listing fees as a means of recognizing its cost savings 
related to the listing of an Investment Management Entity and its 
Eligible Portfolio Companies. This is because a significant portion of 
the Exchange's savings arise from the efficiencies it experiences on an 
ongoing basis in dealing with Eligible Portfolio Companies for such 
time as the Investment Management Entity retains a

[[Page 47787]]

significant investment and is thereby motivated to provide ongoing 
advice and assistance. These reduced costs are a non-discriminatory 
reason to charge an Investment Management Entity and its Eligible 
Portfolio Companies a lower All-Inclusive Annual Listing Fee.
    Currently, ADRs, closed-end funds and limited partnerships also pay 
lower All-Inclusive Annual Listing Fees than other issuers of equity 
securities. Nasdaq believes it is appropriate to apply a fee schedule 
to Investment Management Entities and Eligible Portfolio Companies that 
is different from those applicable to either ADRs, closed-end funds or 
limited partnerships due to their differing characteristics. 
Specifically, Nasdaq charges lower listing fees for ADRs because, among 
other differences, the U.S. listing is not typically the issuer of an 
ADR's primary listing.\10\ Similarly, Nasdaq charges lower listing fees 
for closed-end funds because they are particularly sensitive to the 
expenses they incur, given that they compete for investment dollars 
based on return.\11\ Finally, Nasdaq charges lower listing fees for 
limited partnerships because they are not subject to most corporate 
governance requirements.\12\ As a result, offering a different discount 
to Investment Management Entities and their Eligible Portfolio 
Companies on the All-Inclusive Annual Fee schedule than to ADRs, 
closed-end funds and limited partnerships is not inequitable or 
unfairly discriminatory.
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    \10\ See Securities Exchange Act Release No. 73647, supra note 
4.
    \11\ Id.
    \12\ See Securities Exchange Act Release No. 79770 (January 10, 
2017), 82 FR 4947 (January 17, 2017) (SR-NASDAQ-2016-173).
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    While the proposed fee reduction only applies to Investment 
Management Entities and their Eligible Portfolio Companies on the All-
Inclusive Annual Fee schedule, Nasdaq notes that all companies will 
transition to that fee schedule in 2018 at the same time that this fee 
change will become effective.
    Finally, Nasdaq believes that the proposed fees are consistent with 
the investor protection objectives of Section 6(b)(5) of the Act \13\ 
in that they are designed to promote just and equitable principles of 
trade, to remove impediments to a free and open market and national 
market system, and in general to protect investors and the public 
interest. Specifically, the amount of revenue forgone by allowing an 
Investment Management Entity and its Eligible Portfolio Companies to 
pay lower fees is not substantial, and the reduced fees may result in 
more Investment Management Entities and their Eligible Portfolio 
Companies listing on Nasdaq, thereby increasing the resources available 
for Nasdaq's listing compliance program, which helps to assure that 
listing standards are properly enforced and investors are protected. 
Consequently, Nasdaq believes that the potential loss of revenue from 
the reduction of fees for Investment Management Entities and their 
Eligible Portfolio Companies, as proposed, will not hinder its ability 
to fulfill its regulatory responsibilities.
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    \13\ 15 U.S.C. 78f(b)(5).
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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 market for 
listing services is extremely competitive and listed companies may 
freely choose alternative venues based on the aggregate fees assessed, 
and the value provided by each listing. This rule proposal does not 
burden competition with other listing venues, which are similarly free 
to set their fees. For these reasons, Nasdaq does not believe that the 
proposed rule change will result in any burden on competition for 
listings.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\14\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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 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-2017-100 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-2017-100. 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 such 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-2017-100, and should 
be submitted on or before November 3, 2017.
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    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-22160 Filed 10-12-17; 8:45 am]
 BILLING CODE 8011-01-P