83 FR 27640 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Listing Standard for Paired Share Units

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 114 (June 13, 2018)

[Federal Register Volume 83, Number 114 (Wednesday, June 13, 2018)]
[Notices]
[Pages 27640-27643]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-12649]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83395; File No. SR-NASDAQ-2018-041]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Adopt Listing Standard for Paired Share Units

June 7, 2018.
    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 May 30, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``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 adopt a listing standard for Paired Share 
Units.
    The text of the proposed rule change is set forth below. Proposed 
new language is italicized; deleted text is in brackets.
* * * * *

The Nasdaq Stock Market Rules

* * * * *

5225. Listing Requirements for Units (other than Paired Share Units)

    No change.

5226. Paired Share Units

    A ``Paired Share Unit'' is a security consisting of a share of the 
common stock of a Company (the ``Parent'') and a share of the common 
stock of that Company's controlled subsidiary, which: (1) are attached 
together; and (2) only can be traded together as a unit pursuant to a 
pairing agreement. Instead of the requirements in Rule 5225 (except as 
indicated below), a Paired Share Unit can list on the Nasdaq Global or 
Global Select Markets if it meets the following requirements:
    (a) For initial and continued listing, the controlled subsidiary 
must be a real estate investment trust (the ``REIT'') and the Parent 
must maintain ownership control, including voting control, over the 
REIT.
    (b) For initial listing, the Parent and the REIT must each 
separately satisfy the entity-level requirements of Rule 5315(f)(3) or 
Rule 5405(b) (e.g., the stockholders' equity, income, market 
capitalization, assets, revenue and operating history requirements), as 
applicable, and the Paired Share Unit must satisfy the security-level 
requirements of Rule 5315 or Rule 5405 (e.g., the price, publicly held 
shares, holder, market value of publicly held shares and market maker 
requirements), as applicable.
    (c) For continued listing, the Parent and the REIT must each 
separately satisfy the applicable entity-level requirements of Rule 
5450(b) and the Paired Share Unit must satisfy the applicable security-
level requirements of Rules 5450(a) and 5450(b).
    (d) For initial and continued listing, the Parent and the REIT must 
each separately satisfy all other requirements of the listing rules 
applicable to a Company listing its primary equity security, including, 
without limitation, the corporate governance requirements in the Rule 
5600 Series.
    (e) For initial and continued listing, the common stock of the 
Parent, the common stock of the REIT and the Paired Share Unit must 
each be registered pursuant to Section 12(b) of the Act.
    (f) For initial and continued listing, the common stock of the 
Parent and the common stock of the REIT, as attached and traded 
together in the Paired Share Unit, must be the only securities of each 
of the Parent and the REIT available to public investors.
    (g) The provisions of Rules 5225(a)(2) and 5225(a)(3) are 
applicable to Paired Share Units.

[[Page 27641]]

    (h) In the event the common stock of the REIT becomes separately 
tradable from the common stock of the Parent, Nasdaq will immediately 
issue a Staff Delisting Determination for the Paired Share Unit 
pursuant to Listing Rule 5810(c)(1), and each of the Parent and the 
REIT must apply, and each of the Parent and the REIT, and their 
respective securities, must separately qualify for initial listing to 
remain listed on Nasdaq.
* * * * *

5810. Notification of Deficiency by the Listing Qualifications 
Department

    When the Listing Qualifications Department determines that a 
Company does not meet a listing standard set forth in the Rule 5000 
Series, it will immediately notify the Company of the deficiency. As 
explained in more detail below, deficiency notifications are of four 
types:
    (1)-(4) No change.
    Notifications of deficiencies that allow for submission of a 
compliance plan or an automatic cure or compliance period may result, 
after review of the compliance plan or expiration of the cure or 
compliance period, in issuance of a Staff Delisting Determination or a 
Public Reprimand Letter.
    (a)-(b) No change.

(c) Types of Deficiencies and Notifications

    The type of deficiency at issue determines whether the Company will 
be immediately suspended and delisted, or whether it may submit a 
compliance plan for review or is entitled to an automatic cure or 
compliance period before a Staff Delisting Determination is issued. In 
the case of a deficiency not specified below, Staff will issue the 
Company a Staff Delisting Determination or a Public Reprimand Letter.

(1) Deficiencies That Immediately Result in a Staff Delisting 
Determination

    Staff's notice will inform the Company that its securities are 
immediately subject to suspension and delisting when:
     A Company fails to timely solicit proxies;
     an Equity Investment Tracking Stock fails to comply with 
the additional continued listing requirements in Rule 5222(c) or a 
Staff Delisting Determination has been issued with respect to the 
security such Equity Investment Tracking Stock tracks;
     the common stock of the REIT in a Paired Share 
Unit listed under Rule 5226 becomes separately tradable from the common 
stock of the Parent; or
     Staff has determined, under its discretionary authority in 
the Rule 5100 Series, that the Company's continued listing raises a 
public interest concern.
    (2)-(4) No change.
    (d) 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Nasdaq Listing Rule 5225 provides the requirements to list units on 
the Nasdaq Stock Market. Listing Rule 5225(a)(1)(C) provides that all 
components of a unit listed on the Nasdaq Global or Global Select 
Market must be issued by the same issuer.
    Nasdaq notes that in limited circumstances the securities of a 
company and its controlled subsidiary are attached and only can be 
traded together as a ``Paired Share.'' Nasdaq proposes to adopt new 
Listing Rule 5226 to allow the listing of this specific type of unit, 
called a Paired Share Unit, on the Nasdaq Global or Global Select 
Markets \3\ under limited circumstances, even though one component of 
the unit is issued by a controlled subsidiary of the issuer of the 
other security in the unit and they are, therefore, not technically 
issued by the same issuer.
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    \3\ A Paired Share Unit would not be eligible to list on the 
Nasdaq Capital Market.
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    Under the proposed rule, a Paired Share Unit, consisting of a share 
of the common stock of a company (the ``Parent'') and a share of the 
common stock of that company's controlled subsidiary, which are 
attached together and can only be traded together as a unit pursuant to 
a pairing agreement, can be listed on the Nasdaq Global or Global 
Select Market provided it meets the following requirements.
    First, the controlled subsidiary must be a real estate investment 
trust (the ``REIT'') and the Parent must maintain ownership control, 
including voting control, over the REIT. Ownership control will be 
determined based on an analysis of the facts and circumstances 
surrounding the relationship between the Parent and the REIT, but will 
require that the Parent control at least a majority (i.e., over 50%) of 
the voting power of the REIT. In addition, the common stock of the 
Parent and the common stock of the REIT, as attached and traded 
together in the Paired Share Unit, must be the only security of each of 
the Parent and the REIT available to public investors, and the common 
stock of the Parent and the REIT must not trade separately. Thus, an 
investment in the Paired Share Unit represents an investment in the 
combined company and the only way for a public shareholder to invest in 
either company.
    For initial listing, the Parent and the REIT must each separately 
satisfy the entity-level requirements of Rule 5315(f)(3) or Rule 
5405(b), as applicable, and the Paired Share Unit must satisfy the 
security-level requirements of Rule 5315 or Rule 5405, as 
applicable.\4\ For continued listing, the Parent and the REIT must each 
separately satisfy the entity-level requirements of Rule 5450(b), and 
the Paired Share Unit must satisfy the security-level requirements of 
Rules 5450(a) and (b). For these purposes the entity-level requirements 
include the stockholders' equity, income, market capitalization, asset, 
revenue and operating history requirements, and the security-level 
requirements include the price, publicly held shares, holder, market 
value of publicly held shares and market maker requirements. While the 
Parent and the REIT may satisfy different entity-level listing 
standards, in such a case the Paired Share Unit must satisfy the higher 
security-level requirements of those different standards.\5\ In 
addition, for both initial and continued listing, the Parent and the 
REIT must each separately satisfy all other requirements of the listing 
rules applicable to a Company listing its primary equity security, 
including, without limitation,

[[Page 27642]]

the corporate governance requirements in the Rule 5600 Series.
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    \4\ The provisions of Rule 5315(b), (c) and (d) would not apply 
because neither the Parent nor the REIT would be a closed end 
management investment company or a business development company.
    \5\ For example, if the Parent only satisfies the entity-level 
requirements of the income standard in Rule 5405(b)(1) and the REIT 
only satisfies the entity-level requirements of the market value 
standard in Rule 5405(b)(3), the Paired Share Unit must satisfy the 
higher market value of publicly held shares and market maker 
requirements in Rule 5405(b)(3).
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    While proposed Rule 5226 is a new rule for listing a specific type 
of unit on the Nasdaq Global or Global Select Markets, the provisions 
of Rule 5225(a)(2), which provides the minimum listing period and 
notice of withdrawal requirements for units, and Rule 5225(a)(3), which 
provides disclosure requirements for units, are applicable to Paired 
Share Units. The other provisions of Rule 5225(a) are either separately 
incorporated in the requirements for a Paired Share Unit or are not 
applicable. Specifically, the first sentence of Rule 5225(a)(1)(A), 
which requires all units to have at least one equity component, is 
incorporated in the definition of a Paired Share Unit because a Paired 
Share Unit must contain the common stock of the Parent and the REIT. 
Rule 5225(a)(1)(B) is not applicable because a Paired Share Unit does 
not contain debt components. As described above, the first sentence of 
Rule 5225(a)(1)(C) is not applicable because the Paired Share Unit is a 
special type of unit, which contains the common stock of a company and 
its controlled subsidiary. The remainder of the requirements in Rules 
5225(a)(1)(A) and (C) are addressed by the requirements of proposed 
Rules 5226(b), (c) and (d) that for initial and continued listing, 
respectively, the Parent and the REIT must each separately satisfy the 
entity-level requirements and all other requirements applicable to a 
company listing its primary equity security, and that the Paired Share 
Unit must satisfy the security-level requirements for listing on the 
Nasdaq Global or Global Select Market.
    Rule 5225(a)(4), which imposes market maker requirements for units, 
is incorporated in the requirement that the Paired Share Unit must 
satisfy the highest applicable market maker requirement under the 
listing standard that each the Parent and the REIT qualify. The minimum 
market maker requirements under any of those standards are at least as 
high as in Rule 5225(a)(4): Three market makers for initial listing and 
two market makers for continued listing.
    For initial and continued listing, the common stock of the Parent, 
the common stock of the REIT and the Paired Share Unit must each be 
registered pursuant to Section 12(b) of the Act. Finally, in the event 
the common stock of the REIT becomes separately tradable from the 
common stock of the Parent, Nasdaq will immediately issue a Staff 
Delisting Determination for the Paired Share Unit. Nasdaq proposes to 
modify Rule 5810(c)(1) to include this situation in the list of 
deficiencies where a company's securities are immediately subject to 
suspension and delisting. Each of the Parent and the REIT must apply, 
and each of the Parent and the REIT, and their respective securities, 
must separately qualify for initial listing to remain listed on Nasdaq.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\6\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\7\ 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, 
by allowing a unit to list on the Nasdaq Global or Global Select 
Markets where it includes the securities of a company and a REIT that 
is that company's controlled subsidiary if those entities each 
separately satisfy the entity-level listing requirements, the combined 
security satisfies the security-specific listing requirements, and the 
securities do not trade separately.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    In these situations, the security to be listed is substantially 
similar to a traditional unit in that one of the companies maintains 
ownership and voting control of the other, and the proposed rule would 
adopt additional protections ensuring that both entities and the 
combined security have achieved sufficient size and market interest for 
listing on Nasdaq to be appropriate. Under the proposed rule, each 
company with securities in the Paired Share Unit must satisfy all 
listing requirements applicable to a company listing its primary equity 
security on the Nasdaq Global or Global Select Markets and the security 
itself must satisfy all applicable requirements for listing as a 
primary equity security. In addition, the common stock of the Parent, 
the common stock of the REIT and the Paired Share Unit must each be 
registered pursuant to Section 12(b) of the Act. Accordingly, the 
proposed rule change continues to impose Nasdaq's existing listing 
requirements, which are designed protect investors and the public 
interest. Further, the additional requirements proposed will supplement 
those existing requirements with investor protections designed to 
ensure that one company controls the other in the combined security. In 
the event the common stock of the REIT becomes separately tradable from 
the common stock of the Parent, Nasdaq would immediately issue a Staff 
Delisting Determination for the Paired Share Unit, which would be 
subject to suspension and delisting. Each of the Parent and the REIT 
must apply, and each of the Parent and the REIT, and their respective 
securities, must separately qualify for initial listing to remain 
listed on Nasdaq. Thus, adopting the proposed rule to address this 
unique situation with appropriate investor protections will eliminate 
the impediment to listing such a unit on the Nasdaq Global and Global 
Select Markets.

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. Nasdaq believes that the New 
York Stock Exchange currently lists securities similar to the Paired 
Share Unit described in the proposed rule change. Further, other 
markets could adopt comparable rules to the extent they believe it 
appropriate.

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 Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \8\ and Rule 19b-4(f)(6) thereunder.\9\ Because 
the 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 and Rule 19b-4(f)(6) thereunder.\10\
    A proposed rule change filed under Rule 19b-4(f)(6) \11\ normally 
does not become operative for 30 days after the

[[Page 27643]]

date of the filing. However, pursuant to Rule 19b-4(f)(6)(iii),\12\ the 
Commission may designate a shorter time if such action is consistent 
with the protection of investors and the public interest. In its filing 
with the Commission, Nasdaq has asked the Commission to waive the 30-
day operative delay so that the proposal may become operative 
immediately upon filing to allow Nasdaq to immediately list units 
issued by a company and its controlled subsidiary and compete with 
other exchanges for such listing. As noted above, Nasdaq states that 
the proposed rule will continue to impose all of the existing listing 
requirements applicable to units, supplemented by additional 
requirements and investor protections designed to address this specific 
type of unit.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 17 CFR 240.19b-4(f)(6).
    \10\ In addition, Rule 19b-4(f)(6)(iii) requires a self-
regulatory organization to give the Commission written notice of its 
intent to file 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.
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiver of the 30-day operative delay 
is consistent with the protection of investors and the public interest 
because the Paired Share Units for which Nasdaq proposes to adopt 
initial and continued listing requirements are substantially similar to 
the traditional units that may be listed pursuant to Nasdaq Rule 5225 
and the additional requirements in the proposal address the specific 
characteristics of Paired Share Units and how Nasdaq's existing listing 
rules will be applied. The Commission notes that a Paired Share Unit 
would consist of a share of common stock of a Company and a share of 
the common stock of a REIT that is that Company's controlled 
subsidiary, which are attached and only can be traded together. The 
proposed listing requirements would be substantially similar to 
existing listing requirements for units, but with clarification about 
how certain aspects will apply to a Paired Share Unit and its 
components and additional requirements designed to address issues 
relating to this specific type of unit. Therefore, the Commission 
designates the proposed rule change operative upon filing.\13\
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    \13\ For purposes only of waiving the operative delay, the 
Commission has 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 such 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 under 
Section 19(b)(2)(B) \14\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \14\ 15 U.S.C. 78s(b)(2)(B).
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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-2018-041 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-2018-041. 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 (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 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 10:00 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-2018-041, and should be submitted 
on or before July 5, 2018.
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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. 2018-12649 Filed 6-12-18; 8:45 am]
 BILLING CODE 8011-01-P