83 FR 5650 - Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Amendment No. 3 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 3, To Amend Section 102.01B of the NYSE Listed Company Manual To Provide for the Listing of Companies That List Without a Prior Exchange Act Registration and That Are Not Listing in Connection With an Underwritten Initial Public Offering and Related Changes to Rules 15, 104, and 123D
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 27 (February 8, 2018)
Federal Register Volume 83, Issue 27 (February 8, 2018)
| Page Range | 5650-5655 | |
| FR Document | 2018-02501 |
[Federal Register Volume 83, Number 27 (Thursday, February 8, 2018)] [Notices] [Pages 5650-5655] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-02501] ======================================================================= ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-82627; File No. SR-NYSE-2017-30] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Amendment No. 3 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 3, To Amend Section 102.01B of the NYSE Listed Company Manual To Provide for the Listing of Companies That List Without a Prior Exchange Act Registration and That Are Not Listing in Connection With an Underwritten Initial Public Offering and Related Changes to Rules 15, 104, and 123D February 2, 2018. I. Introduction On June 13, 2017, New York Stock Exchange LLC (``NYSE'' or ``Exchange'') filed with the Securities and Exchange Commission (``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 (``Exchange Act'') \2\ and Rule 19b-4 thereunder,\3\ a proposed rule change to amend Section 102.01B of the NYSE Listed Company Manual to modify the provisions relating to the qualification of companies listing without a prior Exchange Act registration in connection with an underwritten initial public offering and amend Exchange rules to address the opening procedures on the first day of trading of such securities. The proposal, as modified by Amendment No. 3, would: (i) Eliminate the requirement in Footnote (E) of Section 102.01B (``Footnote (E)'') of the Manual to have a private placement market trading price if there is a valuation from an independent third-party of $250 million in market value of publicly- held shares; (ii) set forth several factors indicating when the independent third party providing the valuation would not be deemed ``independent'' under Footnote (E); (iii) amend NYSE Rule 15 to add a reference price for when a security is listed under Footnote (E); (iv) amend NYSE Rule 104 to specify Designated Market Maker (``DMM'') requirements when facilitating the opening of a security listed under Footnote (E) when there has been no sustained history of trading in a private placement trading market for such security; and (v) amend NYSE Rule 123D to specify that the Exchange may declare a regulatory halt prior to [[Page 5651]] opening a security that is the subject of an initial pricing upon Exchange listing and that has not, immediately prior to such initial pricing, traded on another national securities exchange or in the over- the-counter market. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 15 U.S.C. 78a. \3\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- The proposed rule change was published for comment in the Federal Register on June 20, 2017.\4\ The Commission received one comment in response to the Original Notice.\5\ The Exchange filed Amendment No. 1 to the proposed rule change on July 28, 2017, which, as noted below, was later withdrawn. On August 3, 2017, the Commission extended the time period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change to September 18, 2017.\6\ --------------------------------------------------------------------------- \4\ See Securities Exchange Act Release No. 80933 (June 15, 2017), 82 FR 28200 (June 20, 2017) (``Original Notice''). \5\ See letter to the Commission from James J. Angel, Ph.D., CFA, Georgetown University, dated July 28, 2017 (``Angel Letter''). \6\ See Securities Exchange Act Release No. 81309 (August 3, 2017), 82 FR 37244 (August 9, 2017). --------------------------------------------------------------------------- On August 16, 2017, the Exchange withdrew Amendment No. 1 and filed Amendment No. 2 to the proposed rule change, which superseded and replaced the proposed rule change in its entirety.\7\ The Commission published Amendment No. 2 for comment in the Federal Register on August 24, 2017.\8\ The Commission received no comments in response to this solicitation for comments. On September 15, 2017, the Commission instituted proceedings to determine whether to approve or disapprove the proposed rule change, as modified by Amendment No. 2.\9\ Following the Order Instituting Proceedings, the Commission received one additional comment letter.\10\ On December 8, 2017, the Exchange filed Amendment No. 3 to the proposed rule change, which superseded and replaced the proposed rule change in its entirety.\11\ On December 14, 2017, the Commission extended the time period for approving or disapproving the proposal for an additional 60 days until February 15, 2018.\12\ The Commission is publishing this notice to solicit comment on Amendment No. 3 to the proposed rule change from interested persons, and is approving the proposed rule change, as modified by Amendment No. 3, on an accelerated basis. --------------------------------------------------------------------------- \7\ See Notice, infra note 8, at n. 8, which describe the changes proposed in Amendment No. 2 from the original proposal. \8\ See Securities Exchange Act Release No. 81440 (August 18, 2017), 82 FR 40183 (August 24, 2017) (``Notice''). \9\ See Securities Exchange Act Release No. 81640 (September 15, 2017), 82 FR 44229 (September 21, 2017) (``Order Instituting Proceedings''). \10\ See letter to Brent J. Fields, Commission, from Cleary Gottlieb Steen & Hamilton LLP, dated October 12, 2017 (``Cleary Gottlieb Letter''). \11\ Amendment No. 3 revised the proposal to eliminate the proposed changes to Footnote (E) that would have allowed a company to list immediately upon effectiveness of an Exchange Act registration statement only, without any concurrent IPO or Securities Act of 1933 (``Securities Act'') registration. Except for removing this part of the proposal, the remaining proposed amendments in Amendment No. 3 are identical to those noticed for comment in Amendment No. 2. Amendment No. 3 also contained a complete restated Form 19b-4 under the Exchange Act, which contained the same discussions, statutory basis and other sections set forth in Amendment No. 2, with slight modifications to take into account the deleted provision. Amendment No. 3 is available at: https://www.sec.gov/comments/sr-nyse-2017-30/nyse201730-2782322-161654.pdf. \12\ See Securities Exchange Act Release No. 82332 (December 14, 2017), 82 FR 60442 (December 20, 2017). --------------------------------------------------------------------------- II. Description of the Proposed Rule Change, as Modified by Amendment No. 3 1. Listing Standards Generally, Section 102 of the Manual sets forth the minimum numerical standards for domestic companies, or foreign private issuers that choose to follow the domestic standards, to list equity securities on the Exchange. Section 102.01B of the Manual requires a listed company to demonstrate at the time of listing an aggregate market value of publicly-held shares of either $40 million or $100 million, depending on the type of listing.\13\ Section 102.01B also states that, in these cases, the Exchange relies on written representations from the underwriter, investment banker, or other financial advisor, as applicable, with respect to this valuation.\14\ While Footnote (E) states that the Exchange generally expects to list companies in connection with a firm commitment underwritten IPO, upon transfer from another market, or pursuant to a spin-off, Section 102.01B of the Manual also contemplates that companies that have not previously had their common equity securities registered under the Exchange Act, but which have sold common equity securities in a private placement, may wish to list their common equity securities on the Exchange at the time of effectiveness of a registration statement \15\ filed solely for the purpose of allowing existing shareholders to sell their shares.\16\ Specifically, Footnote (E) permits the Exchange, on a case by case basis, to exercise discretion to list such companies and provides that the Exchange will determine that such a company has met the $100 million aggregate market value of publicly-held shares requirement based on a combination of both (i) an independent third-party valuation (a ``Valuation'') \17\ of the company and (ii) the most recent trading price for the company's common stock in a trading system for unregistered securities operated by a national securities exchange or a registered broker-dealer (a ``Private Placement Market'').\18\ Under the current rules, the Exchange will attribute a market value of publicly-held shares to the company equal to the lesser of (i) the value calculable based on the Valuation and (ii) the value calculable based on the most recent trading price in a Private Placement Market.\19\ --------------------------------------------------------------------------- \13\ Section 102.01B of the Manual states that a company must demonstrate ``an aggregate market value of publicly-held shares of $40,000,000 for companies that list either at the time of their initial public offerings (``IPO'') (C) or as a result of spin-offs or under the Affiliated Company standard or, for companies that list at the time of their Initial Firm Commitment Underwritten Public Offering (C), and $100,000,000 for other companies (D)(E).'' Section 102.01B also requires a company to have a closing price, or if listing in connection with an IPO or Initial Firm Commitment Underwritten Public Offering, an IPO or Initial Firm Commitment Underwritten Public Offering price per share of at least $4.00 at the time of initial listing. \14\ See Section 102.01B, Footnote (C) of the Manual, which states that for companies listing at the time of their IPO or Initial Firm Commitment Underwritten Public Offering, the Exchange will rely on a written commitment from the underwriter to represent the anticipated value of the company's offering. For spin-offs, the Exchange will rely on a representation from the parent company's investment banker (or other financial advisor) in order to estimate the market value based upon the distribution ratio. \15\ The reference to a registration statement refers to a registration statement effective under the Securities Act. \16\ See Section 102.01B, Footnote (E) of the Manual. \17\ See Section 102.01B, Footnote (E) of the Manual, which sets forth specific requirements for the Valuation. Among other factors, any Valuation used for purposes of Footnote (E) must be provided by an entity that has significant experience and demonstrable competence in the provision of such valuations. \18\ Section 102.01B, Footnote (E) of the Manual also sets forth specific factors for relying on a Private Placement Market price, and states that the Exchange will examine the trading price trends for the stock in the Private Placement Market over a period of several months prior to listing and will only rely on such market if it is ``consistent with a sustained history [of trading] over that several month period.'' \19\ See Section 102.01B, Footnote (E) of the Manual. --------------------------------------------------------------------------- The Exchange proposed two changes to Footnote (E). First, the Exchange proposed to amend Footnote (E) to provide that, in the absence of any recent trading in a Private Placement Market, the Exchange will determine that a company has met its market value of publicly-held shares requirement if the company provides a recent Valuation evidencing a market value of [[Page 5652]] publicly-held shares of at least $250 million.\20\ In proposing this change, the Exchange expressed the view that the current requirement of Footnote (E) to rely on recent Private Placement Market trading in addition to a Valuation may cause difficulties for certain companies that are otherwise clearly qualified for listing.\21\ The Exchange stated that some companies that are clearly large enough to be suitable for listing on the Exchange do not have their securities traded at all on a Private Placement Market prior to going public and, in other cases, the Private Placement Market trading is too limited to provide a reasonable basis for reaching conclusions about a company's qualification.\22\ In proposing to adopt a Valuation that must be at least two-and-a-half times the $100 million requirement of Section 102.01B of the Manual, the Exchange stated that this amount ``will give a significant degree of comfort that the market value of the company's shares will meet the [$100 million] standard upon commencement of trading on the Exchange,'' particularly because any such Valuation ``must be provided by an entity that has significant experience and demonstrable competence in the provision of such valuations.'' \23\ --------------------------------------------------------------------------- \20\ See proposed Section 102.01B, Footnote (E) of the Manual. The Commission notes that the Exhibit 5 to Amendment No. 3 contains the proposed rule language. Any references herein to the proposed rule language shall refer to the language available in Exhibit 5 to Amendment No. 3, which is available from the Exchange or on the Commission's website www.sec.gov. See also Notice, supra note 8. \21\ See Notice, supra note 8, at 40184. \22\ See id. \23\ Id. In its proposal, the Exchange stated that it believed that it is unlikely that any Valuation would reach a conclusion that was incorrect to the degree necessary for a company using this provision to fail to meet the $100 million requirement upon listing, in particular because any Valuation used for this purpose must be provided by an entity that has significant experience and demonstrable competence in the provision of such valuations. See id. --------------------------------------------------------------------------- Second, the Exchange proposed to further amend Footnote (E) by establishing certain criteria that would preclude a valuation agent from being considered ``independent'' for purposes of Footnote (E), which the Exchange believes will provide a significant additional guarantee of the independence of any entity providing such a Valuation.\24\ Specifically, the Exchange proposed that a valuation agent will not be deemed to be independent if: --------------------------------------------------------------------------- \24\ See id. ---------------------------------------------------------------------------At the time it provides such Valuation, the valuation agent or any affiliated person or persons beneficially own in the aggregate as of the date of the Valuation, more than 5% of the class of securities to be listed, including any right to receive any such securities exercisable within 60 days; The valuation agent or any affiliated entity has provided any investment banking services to the listing applicant within the 12 months preceding the date of the Valuation; \25\ or --------------------------------------------------------------------------- \25\ For purposes of this provision, ``investment banking services'' includes, without limitation, acting as an underwriter in an offering for the issuer; acting as a financial adviser in a merger or acquisition; providing venture capital, equity lines of credit, PIPEs (private investment, public equity transactions), or similar investments; serving as placement agent for the issuer; or acting as a member of a selling group in a securities underwriting. See proposed Section 102.01B, Footnote (E) of the Manual. --------------------------------------------------------------------------- The valuation agent or any affiliated entity has been engaged to provide investment banking services to the listing applicant in connection with the proposed listing or any related financings or other related transactions.\26\ --------------------------------------------------------------------------- \26\ See id. --------------------------------------------------------------------------- 2. Trading Rules The Exchange also proposed to amend Exchange Rules 15, 104 and 123D, governing the opening of trading, to specify procedures for the opening trade on the day of initial listing of a company that lists under the proposed amendments to Footnote (E) and did not have any recent trading in a Private Placement Market.\27\ --------------------------------------------------------------------------- \27\ See Notice, supra note 8, at 41085. --------------------------------------------------------------------------- Rule 15(b) provides that a DMM will publish a pre-opening indication \28\ before a security opens if the opening transaction on the Exchange is anticipated to be at a price that represents a change of more than the ``Applicable Price Range,'' \29\ from a specified ``Reference Price.'' \30\ Rule 15(c)(1) specifies that the Reference Price for a security (other than an American Depository Receipt) would be either (A) the security's last reported sale price on the Exchange; (B) the security's offering price in the case of an IPO; or (C) the security's last reported sale price on the securities market from which the security is being transferred to the Exchange.\31\ --------------------------------------------------------------------------- \28\ Rule 15(a) states that a pre-opening indication will include the security and the price range within which the opening price is anticipated to occur. Pre-opening indications are published on the Exchange's proprietary data feeds and the securities information processor (``SIP''). See Rule 15(a). The Exchange may also publish order imbalance information prior to the opening of a security. The order imbalance information contains the price at which opening interest may be executed in full. See Rule 15(g). \29\ See Rule 15(d) for a definition of ``Applicable Price Range.'' \30\ Rule 15(b) also provides that a DMM will publish a pre- opening indication if a security has not opened by 10:00 a.m. Eastern Time. See Rule 15(c) for a definition of ``Reference Price.'' \31\ See Rule 15(c)(1). --------------------------------------------------------------------------- The Exchange proposed to amend Rule 15(c)(1) to add new sub- paragraph (D) to specify the Reference Price for a security that is listed under Footnote (E). The Exchange proposed that if such security has had recent sustained trading in a Private Placement Market prior to listing, the Reference Price in such scenario would be the most recent transaction price in that market or, if no such sustained trading has occurred, the Reference Price used would be a price determined by the Exchange in consultation with a financial advisor to the issuer of such security.\32\ --------------------------------------------------------------------------- \32\ See proposed Rule 15(c)(1)(D). --------------------------------------------------------------------------- Rule 104(a)(2) provides that the DMM has a responsibility for facilitating openings and reopenings for each of the securities in which the DMM is registered as required under Exchange rules, which includes supplying liquidity as needed. The Exchange proposed to amend Rule 104(a)(2) to require the DMM to consult with the issuer's financial advisor when facilitating the opening on the first day of trading of a security that is listing under Footnote (E) and that has not had recent sustained history of trading in a Private Placement Market prior to listing, in order to effect a fair and orderly opening of such security.\33\ --------------------------------------------------------------------------- \33\ See proposed Rule 104(a)(2). The Exchange stated that this requirement is based in part on Nasdaq Rule 4120(c)(9), which requires that a new listing on Nasdaq that is not an IPO have a financial advisor willing to perform the functions performed by an underwriter in connection with pricing an IPO on Nasdaq. See Notice, supra note 8, at 40185. --------------------------------------------------------------------------- The Exchange stated that it believes that such a financial advisor would have an understanding of the status of ownership of outstanding shares in the company and would have been working with the issuer to identify a market for the securities upon listing.\34\ As a result, it believes such financial advisor would be able to provide input to the DMM regarding expectations of where such a new listing should be priced, based on pre-listing selling and buying interest and other factors that would not be available to the DMM through other sources.\35\ --------------------------------------------------------------------------- \34\ See Notice, supra note 8, at 40185. \35\ See id. The Exchange noted that despite the proposed obligation to consult with the financial advisor, the DMM would remain responsible for facilitating the opening of trading of such security, and the opening of such security must take into consideration the buy and sell orders available on the Exchange's book. See id. Accordingly, the Exchange stated that just as a DMM is not bound by an offering price in an IPO, and will open such a security at a price dictated by the buying and selling interest entered on the Exchange in that security, a DMM would not be bound by the input he or she receives from the financial advisor. See id. at 40185-86. --------------------------------------------------------------------------- [[Page 5653]] In its proposal, the Exchange stated that the proposed amendments to both Rule 15 and Rule 104 are designed to provide DMMs with information to assist them in meeting their obligations to open a new listing under the proposed amended text of Footnote (E).\36\ --------------------------------------------------------------------------- \36\ See id. at 40186. --------------------------------------------------------------------------- The Exchange further proposed to amend its rules to provide authority to declare a regulatory halt for a non-IPO new listing. As proposed, Rule 123D(d) would provide that the Exchange may declare a regulatory halt in a security that is the subject of an initial pricing on the Exchange and that has not been listed on a national securities exchange or traded in the over-the-counter market pursuant to FINRA Form 211 immediately prior to the initial pricing.\37\ In addition, proposed Rule 123D(d) would provide that this regulatory halt would be terminated when the DMM opens the security.\38\ The Exchange stated its belief that it would be consistent with the protection of investors and the public interest for the Exchange, as a primary listing exchange, to have the authority to declare a regulatory halt for a security that is the subject of a non-IPO listing because it would ensure that a new listing that is not the subject of an IPO could not be traded before the security opens on the Exchange.\39\ --------------------------------------------------------------------------- \37\ See proposed Rule 123D(d). The Exchange proposed to renumber current subsection (d) of Rule 123D as subsection (e). See proposed Rule 123D(e). \38\ See proposed Rule 123D(d). The Exchange stated that proposed Rule 123D(d) is based in part on (i) Nasdaq Rule 4120(c)(9), which provides that the process for halting and initial pricing of a security that is the subject of an IPO on Nasdaq is also available for the initial pricing of any other security that has not been listed on a national securities exchange or traded in the over-the-counter market immediately prior to the initial public offering, provided that a broker-dealer serving in the role of financial advisor to the issuer of the securities being listed is willing to perform the functions under Nasdaq Rule 4120(c)(7)(B) that are performed by an underwriter with respect to an initial public offering; and (ii) Nasdaq Rule 4120(c)(8)(A), which provides that such halt condition shall be terminated when the security is released for trading on Nasdaq. See Notice, supra note 8, at 40186. \39\ See Notice, supra note 8, at 40186. --------------------------------------------------------------------------- III. Summary of Comments The Commission received two comments on the proposed rule change.\40\ Both commenters supported the proposal. --------------------------------------------------------------------------- \40\ See Angel Letter, supra note 5, and Cleary Gottlieb Letter, supra note 10. --------------------------------------------------------------------------- One commenter urged the Commission to approve the proposal promptly and without further delay.\41\ This commenter stated the belief that there is no public interest served in excluding the listing of a large company with many investors that does not need to raise additional capital through an IPO.\42\ The commenter further stated that in determining whether a company is large enough to meet the listing standards, if a company were to trade at a market capitalization far below the thresholds, the harm would be to the Exchange's reputation, not to the investing public.\43\ The commenter further discussed concerns about how NYSE will open the market for a security under the proposal when there is no reliable previous price or offering price.\44\ The commenter stated that if NYSE gets the ``offering price `wrong,' the secondary market trading will quickly find the market price at which supply equals demand within a few minutes if not a few seconds.'' \45\ --------------------------------------------------------------------------- \41\ See Angel Letter, supra note 5, at 1. \42\ See id. at 2. \43\ See id. at 3. \44\ See id. \45\ Id. --------------------------------------------------------------------------- The other commenter also supported the proposal.\46\ The commenter stated that, in terms of the lack of an offering price or price range for the securities, the factors that typically underpin the price determination in an IPO are all publicly available, such as knowledge of ``comparable public companies and the trading prices of their shares and the corresponding financial metrics of the new issuer.'' \47\ The commenter also stated that, in any case, ``the opening price will be quickly adjusted through normal market forces.'' \48\ Further, the commenter also did not believe that the lack of information on the number of shares that will likely be made available for sale was an issue because although the ``absence of a certain block of shares offered at the outset necessarily creates greater uncertainty . . . , that concern seems to be reasonably mitigated by the practical reality that an issuer is unlikely to incur the cost--both out of pocket and in management time--of undertaking an exchange listing without having sounded out its shareholders about their general interest in possibly selling shares.'' \49\ --------------------------------------------------------------------------- \46\ See Cleary Gottlieb Letter, supra note 10, submitted in response to the Order Instituting Proceedings. Several of the comments from this commenter focused on the Exchange's proposal to allow a company to list on the Exchange immediately upon effectiveness of an Exchange Act registration statement without any concurrent Securities Act registration. In Amendment No. 3, the Exchange removed this aspect of its proposal from its proposed rule change. Therefore, those comments that related solely to the deleted portion of the Exchange proposal are not relevant to the amended proposal. See Amendment No. 3, supra note 11. \47\ Cleary Gottlieb Letter, supra note 10, at 3. \48\ Id. \49\ Id. --------------------------------------------------------------------------- IV. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change, as modified by Amendment No. 3, is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to a national securities exchange.\50\ In particular, the Commission finds that the proposed rule change, as modified by Amendment No. 3, is consistent with Section 6(b)(5) of the Exchange Act,\51\ which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, 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. Section 6(b)(5) of the Exchange Act \52\ also requires that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \50\ In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). \51\ 15 U.S.C. 78f(b)(5). \52\ Id. --------------------------------------------------------------------------- The Commission has consistently recognized the importance of exchange listing standards. Among other things, such listing standards help ensure that exchange listed companies will have sufficient public float, investor base, and trading interest to provide the depth and liquidity necessary to promote fair and orderly markets.\53\ --------------------------------------------------------------------------- \53\ The Commission has stated in approving exchange listing requirements that the development and enforcement of adequate standards governing the listing of securities on an exchange is an activity of critical importance to the financial markets and the investing public. In addition, once a security has been approved for initial listing, maintenance criteria allow an exchange to monitor the status and trading characteristics of that issue to ensure that it continues to meet the exchange's standards for market depth and liquidity so that fair and orderly markets can be maintained. See, e.g., Securities Exchange Act Release Nos. 81856 (October 11, 2017), 82 FR 48296, 48298 (October 17, 2017) (SR-NYSE-2017-31); 81079 (July 5, 2017), 82 FR 32022, 32023 (July 11, 2017) (SR-NYSE-2017-11). The Commission notes that, in general, adequate listing standards, by promoting fair and orderly markets, are consistent with Section 6(b)(5) of the Exchange Act, in that they are, among other things, designed to prevent fraudulent and manipulative acts and practices, promote just and equitable principles of trade and protect investors and the public interest. --------------------------------------------------------------------------- The Exchange has stated that it typically expects a company to list in [[Page 5654]] connection with a firm commitment underwritten IPO, upon transfer from another market, or pursuant to a spin-off.\54\ The Exchange listing standards currently contain a provision, approved in 2008, that gives the Exchange discretion to list companies upon effectiveness of a registration statement under the Securities Act that is filed solely for the purpose of allowing existing shareholders to resell shares they obtained in earlier private placements if such companies can evidence $100 million of publicly held shares based on the lesser amount from a Valuation provided by an independent third party or the price in a Private Placement Market.\55\ --------------------------------------------------------------------------- \54\ See Notice, supra note 8, at 40183. \55\ According to the Exchange, companies listing their securities upon a selling shareholder registration statement have sold securities in one or more private placements and do not wish to raise cash in an offering at the time of listing, unlike a company listing in conjunction with its IPO. Because the Exchange believed such companies meeting all other listing standards should not be barred from listing, the Exchange proposed Footnote (E) to the listing standards which the Commission approved in 2008. In proposing Footnote (E) in 2008, the Exchange stated that with such companies, there is no public trading market to rely on to evaluate whether the company meets the market value standard as with a company transferring from another market, nor is there a public offering whose price would provide the basis for a letter of the type typically provided by underwriters for companies listing in conjunction with an IPO. See Section 102.01B, Footnote (E); Securities Exchange Act Release No. 58550 (September 15, 2008), 73 FR 54442, 54442-43 (September 19, 2008) (SR-NYSE-2008-68) (``NYSE 2008 Order''). See also notes 18-19 supra and accompanying text, describing the requirements in current rule to be able to rely on a Private Placement Market. --------------------------------------------------------------------------- As noted above, the Exchange has proposed to provide an alternative in cases where there is not sufficient Private Placement Market trading to establish a reliable price. The Exchange has also proposed additional standards concerning the independence of the third party agent providing the Valuation. The Commission believes that the proposed rule change will provide a means for a category of companies with securities that have not previously been traded on a public market and that are listing only upon effectiveness of a selling shareholder registration statement, without a related underwritten offering, and without recent trading in a Private Placement Market, to list on the Exchange. In particular, for such companies that otherwise meet NYSE's listing standards,\56\ the proposed rule change will provide that, in the absence of any recent trading in a Private Placement Market, the Exchange will determine that such company has met its market value of publicly-held shares requirement if the company provides a Valuation from an independent third party evidencing a market value of publicly-held shares of at least $250 million. According to the Exchange, ``[a]dopting a requirement that the Valuation must be at least two-and-a-half times the $100 million requirement will give a significant degree of comfort that the market value of the company's shares will meet the standard upon commencement of trading on the Exchange.'' \57\ The Commission believes that requiring a company that does not have a recent and sustained history of trading of its securities in a Private Placement Market to provide a Valuation of at least $250 million should provide the Exchange with a reasonable level of assurance that the company's market value supports listing on the Exchange and the maintenance of fair and orderly markets thereby protecting investors and the public interest in accordance with Section 6(b)(5) of the Exchange Act. --------------------------------------------------------------------------- \56\ Companies listing upon an effective registration statement would have to meet the distribution requirements set forth in Section 102.01A (i.e., that the company have 400 beneficial holders of round lots of 100 shares and 1,100,000 publicly-held shares), the requirements of Section 102.01B (which includes a $4.00 price requirement at the time of initial listing), and one of the financial standards set forth in Section 102.01C of the Manual (i.e., the Earnings Test or the Global Market Capitalization Test), as well as comply with all other applicable NYSE rules, including the corporate governance requirements. \57\ See Notice, supra note 8, at 40184. Further, in approving Footnote (E) in 2008, the Commission recognized that ``the most recent trading price in a Private Placement Market may be an imperfect indication as to the value of a security upon listing, in part because the Private Placement Markets generally do not have the depth and liquidity and price discovery mechanisms found on public trading markets.'' NYSE 2008 Order, supra note 55, at 54443. --------------------------------------------------------------------------- Exchange rules also seek to ensure that the Valuation is reliable by requiring it to be provided by an independent third party that has significant experience and demonstrable competence in providing valuations of companies.\58\ The proposed rule change establishes additional independence criteria, pursuant to which the valuation agent will not be ``independent'' if the valuation agent, or any affiliated person, owns in the aggregate more than 5% of the securities to be listed,\59\ or has provided investment banking services to the company in the 12 months prior to the Valuation or in connection with the listing.\60\ The Commission believes that, consistent with Section 6(b)(5) of Exchange Act and the protection of investors, these new independence requirements should help to ensure that the Valuation is reliable.\61\ --------------------------------------------------------------------------- \58\ See Footnote (E) for additional requirements for the Exchange to be able to rely on the Valuation. \59\ This calculation of ownership will include any right to receive such securities exercisable within 60 days. \60\ See supra notes 24-26, and accompanying text. \61\ The Commission also notes that companies listing pursuant to the new proposed provision will be required to meet the distribution requirements of Section 102.01A of the Manual, the requirements of Section 102.01(B) of the Manual, and one of the financial standards in Section 102.01C of the Manual, which are the same requirements that apply to most equity listings on the Exchange. See note 56, supra. --------------------------------------------------------------------------- The Exchange also has proposed to amend certain of its procedures to address how the DMM is to establish the Reference Price in connection with the opening, on the first day of trading, of a security listed under Footnote (E).\62\ Specifically, for a security with sustained trading in a Private Placement Market, the Reference Price will be the most recent transaction price in that market; otherwise the Reference Price will be determined by the Exchange in consultation with a financial advisor to the issuer. The DMM will also be required to consult with the financial advisor to the issuer where there is no recent sustained history of trading in order to effect a fair and orderly opening of such security.\63\ The Commission believes that the proposed changes should help establish a reliable Reference Price, and provide additional information to the DMM, and thereby facilitate the opening by the DMM, when trading first commences on the Exchange for certain securities not listed in connection with an underwritten IPO, and should help to promote fair and orderly markets. The Commission believes these changes, consistent with Section 6(b)(5) of the Exchange Act, are reasonably designed to protect investors and the public interest and promote just and equitable principles of trade for the opening of securities listed under the new standards. --------------------------------------------------------------------------- \62\ Under Rule 15 a DMM is required to publish a pre-opening indication before a security opens if the opening transaction on the Exchange is anticipated to be at a price that represents a change of more than the ``Applicable Price Range'' from a specified Reference Price. Under Rule 15, for example, the ``Applicable Price Range'' for determining whether to publish a pre-opening indication is 5% for securities with a Reference Price over $3.00. \63\ In its proposal, the Exchange stated that such ``financial advisor would be able to provide input to the DMM regarding expectations of where such a new listing should be priced, based on pre-listing selling and buying interest and other factors that would not be available to the DMM through other sources.'' See Notice, supra note 8, at 40185. --------------------------------------------------------------------------- Finally, the Exchange has proposed that it be permitted to declare a regulatory halt in certain securities that are the subject of an initial pricing on the Exchange, and have not been listed on an exchange or quoted in an over- [[Page 5655]] the-counter quotation medium immediately prior thereto. Such regulatory halt will be terminated when the DMM opens the security, and is for the limited purpose of precluding other markets from trading a security until the Exchange has completed the initial pricing process. The Commission believes this proposed change also should facilitate the initial opening by the DMM of certain securities not listed in connection with an underwritten IPO, and thereby promote fair and orderly markets and the protection of investors.\64\ --------------------------------------------------------------------------- \64\ The proposed regulatory halt allows the Exchange to have a similar opening procedure for securities listed pursuant to Footnote (E) as an IPO security under Section 12(f) of the Exchange Act and Rule 12f-2, since such securities raise similar issues in terms of initial pricing on the first day of trading. See 15 U.S.C. 78l(f); 17 CFR 240.12f-2. Similar to unlisted trading privilege rules that prevent other exchanges from trading an IPO security until the primary listing market has reported the first opening trade, the regulatory halt will allow the DMM to complete the initial pricing and open the security before other markets can trade. --------------------------------------------------------------------------- For the reasons set forth above, the Commission finds that the proposed rule change, as modified by Amendment No. 3, is consistent with the Exchange Act. V. Solicitation of Comments on Amendment No. 3 Interested persons are invited to submit written data, views, and arguments concerning whether Amendment No. 3 is consistent with the Exchange 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-NYSE-2017-30 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-NYSE-2017-30. 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-NYSE-2017-30, and should be submitted on or before March 1, 2018. VI. Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 3 The Commission finds good cause to approve the proposed rule change, as modified by Amendment No. 3, prior to the thirtieth day after the date of publication of the notice of Amendment No. 3 in the Federal Register. The Commission notes that the proposed rule change, as modified by Amendment No. 3 remains identical to the version published for notice and comment on August 24, 2017,\65\ except for the proposed deletion described above,\66\ and that the only comments the Commission received on this proposed rule change were in support of the proposal. The Commission also has found that the proposal, as modified by Amendment No. 3, is consistent with the Exchange Act for the reasons discussed herein. Accordingly, the Commission finds good cause for approving the proposed rule change, as modified by Amendment No. 3, on an accelerated basis, pursuant to Section 19(b)(2) of the Exchange Act.\67\ --------------------------------------------------------------------------- \65\ See Notice, supra note 8. \66\ See note 11, supra. \67\ 15 U.S.C. 78s(b)(2). --------------------------------------------------------------------------- VII. Conclusion It is Therefore Ordered, pursuant to Section 19(b)(2) of the Exchange Act,\68\ that the proposed rule change (SR-NYSE-2017-30), as modified by Amendment No. 3 thereto, be, and hereby is, approved on an accelerated basis. --------------------------------------------------------------------------- \68\ Id. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\69\ --------------------------------------------------------------------------- \69\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Brent J. Fields, Secretary. [FR Doc. 2018-02501 Filed 2-7-18; 8:45 am] BILLING CODE 8011-01-P
![5650 Federal Register / Vol. 83, No. 27 / Thursday, February 8, 2018 / Notices
SUMMARY: The Commission is noticing a requirements include 39 U.S.C. 3622, 39 SECURITIES AND EXCHANGE
recent Postal Service filing for the U.S.C. 3642, 39 CFR part 3010, and 39 COMMISSION
Commission’s consideration concerning CFR part 3020, subpart B. For request(s)
[Release No. 34–82627; File No. SR–NYSE–
negotiated service agreements. This that the Postal Service states concern 2017–30]
notice informs the public of the filing, competitive product(s), applicable
invites public comment, and takes other statutory and regulatory requirements Self-Regulatory Organizations; New
administrative steps. include 39 U.S.C. 3632, 39 U.S.C. 3633, York Stock Exchange LLC; Notice of
DATES: Comments are due: February 12, 39 U.S.C. 3642, 39 CFR part 3015, and Filing of Amendment No. 3 and Order
2018. 39 CFR part 3020, subpart B. Comment Granting Accelerated Approval of
ADDRESSES: Submit comments deadline(s) for each request appear in Proposed Rule Change, as Modified by
electronically via the Commission’s section II. Amendment No. 3, To Amend Section
Filing Online system at http:// 102.01B of the NYSE Listed Company
www.prc.gov. Those who cannot submit II. Docketed Proceeding(s) Manual To Provide for the Listing of
comments electronically should contact Companies That List Without a Prior
1. Docket No(s).: CP2014–4; Filing Exchange Act Registration and That
the person identified in the FOR FURTHER
Title: USPS Notice of Change in Prices Are Not Listing in Connection With an
INFORMATION CONTACT section by
Pursuant to Amendment to Parcel Underwritten Initial Public Offering and
telephone for advice on filing
alternatives. Return Service Contract 5; Filing Related Changes to Rules 15, 104, and
Acceptance Date: February 1, 2018; 123D
FOR FURTHER INFORMATION CONTACT: Filing Authority: 39 CFR 3015.5; Public
David A. Trissell, General Counsel, at Representative: Christopher C. Mohr; February 2, 2018.
202–789–6820. Comments Due: February 12, 2018. I. Introduction
SUPPLEMENTARY INFORMATION:
2. Docket No(s).: MC2018–121 and On June 13, 2017, New York Stock
Table of Contents CP2018–164; Filing Title: USPS Request Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’)
I. Introduction to Add Priority Mail & First-Class filed with the Securities and Exchange
II. Docketed Proceeding(s) Package Service Contract 74 to Commission (‘‘Commission’’), pursuant
Competitive Product List and Notice of to Section 19(b)(1) 1 of the Securities
I. Introduction Exchange Act of 1934 (‘‘Exchange
Filing Materials Under Seal; Filing
The Commission gives notice that the Acceptance Date: February 2, 2018; Act’’) 2 and Rule 19b–4 thereunder,3 a
Postal Service filed request(s) for the Filing Authority: 39 U.S.C. 3642 and 39 proposed rule change to amend Section
Commission to consider matters related CFR 3020.30 et seq.; Public 102.01B of the NYSE Listed Company
to negotiated service agreement(s). The Representative: Timothy J. Schwuchow; Manual to modify the provisions
request(s) may propose the addition or Comments Due: February 12, 2018. relating to the qualification of
removal of a negotiated service companies listing without a prior
agreement from the market dominant or 3. Docket No(s).: MC2018–122 and Exchange Act registration in connection
the competitive product list, or the CP2018–165; Filing Title: USPS Request with an underwritten initial public
modification of an existing product to Add Parcel Select Contract 30 to offering and amend Exchange rules to
currently appearing on the market Competitive Product List and Notice of address the opening procedures on the
dominant or the competitive product Filing Materials Under Seal; Filing first day of trading of such securities.
list. Acceptance Date: February 2, 2018; The proposal, as modified by
Section II identifies the docket Filing Authority: 39 U.S.C. 3642 and 39 Amendment No. 3, would: (i) Eliminate
number(s) associated with each Postal CFR 3020.30 et seq.; Public the requirement in Footnote (E) of
Service request, the title of each Postal Representative: Christopher C. Mohr; Section 102.01B (‘‘Footnote (E)’’) of the
Service request, the request’s acceptance Comments Due: February 12, 2018. Manual to have a private placement
date, and the authority cited by the This notice will be published in the market trading price if there is a
Postal Service for each request. For each Federal Register. valuation from an independent third-
request, the Commission appoints an party of $250 million in market value of
officer of the Commission to represent Stacy L. Ruble, publicly-held shares; (ii) set forth
the interests of the general public in the Secretary. several factors indicating when the
proceeding, pursuant to 39 U.S.C. 505 [FR Doc. 2018–02545 Filed 2–7–18; 8:45 am] independent third party providing the
(Public Representative). Section II also valuation would not be deemed
BILLING CODE 7710–FW–P
establishes comment deadline(s) ‘‘independent’’ under Footnote (E); (iii)
pertaining to each request. amend NYSE Rule 15 to add a reference
The public portions of the Postal price for when a security is listed under
Service’s request(s) can be accessed via Footnote (E); (iv) amend NYSE Rule 104
the Commission’s website (http:// to specify Designated Market Maker
www.prc.gov). Non-public portions of (‘‘DMM’’) requirements when
the Postal Service’s request(s), if any, facilitating the opening of a security
can be accessed through compliance listed under Footnote (E) when there
with the requirements of 39 CFR has been no sustained history of trading
3007.40. in a private placement trading market
daltland on DSKBBV9HB2PROD with NOTICES
The Commission invites comments on for such security; and (v) amend NYSE
whether the Postal Service’s request(s) Rule 123D to specify that the Exchange
in the captioned docket(s) are consistent may declare a regulatory halt prior to
with the policies of title 39. For
request(s) that the Postal Service states 1 15 U.S.C. 78s(b)(1).
concern market dominant product(s), 2 15 U.S.C. 78a.
applicable statutory and regulatory 3 17 CFR 240.19b–4.
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![Federal Register / Vol. 83, No. 27 / Thursday, February 8, 2018 / Notices 5651
opening a security that is the subject of Commission extended the time period with a firm commitment underwritten
an initial pricing upon Exchange listing for approving or disapproving the IPO, upon transfer from another market,
and that has not, immediately prior to proposal for an additional 60 days until or pursuant to a spin-off, Section
such initial pricing, traded on another February 15, 2018.12 The Commission is 102.01B of the Manual also
national securities exchange or in the publishing this notice to solicit contemplates that companies that have
over-the-counter market. comment on Amendment No. 3 to the not previously had their common equity
The proposed rule change was proposed rule change from interested securities registered under the Exchange
published for comment in the Federal persons, and is approving the proposed Act, but which have sold common
Register on June 20, 2017.4 The rule change, as modified by Amendment equity securities in a private placement,
Commission received one comment in No. 3, on an accelerated basis. may wish to list their common equity
response to the Original Notice.5 The securities on the Exchange at the time
II. Description of the Proposed Rule
Exchange filed Amendment No. 1 to the of effectiveness of a registration
Change, as Modified by Amendment
proposed rule change on July 28, 2017, statement 15 filed solely for the purpose
No. 3
which, as noted below, was later of allowing existing shareholders to sell
withdrawn. On August 3, 2017, the 1. Listing Standards their shares.16 Specifically, Footnote (E)
Commission extended the time period Generally, Section 102 of the Manual permits the Exchange, on a case by case
within which to approve the proposed sets forth the minimum numerical basis, to exercise discretion to list such
rule change, disapprove the proposed standards for domestic companies, or companies and provides that the
rule change, or institute proceedings to foreign private issuers that choose to Exchange will determine that such a
determine whether to approve or follow the domestic standards, to list company has met the $100 million
disapprove the proposed rule change to equity securities on the Exchange. aggregate market value of publicly-held
September 18, 2017.6 Section 102.01B of the Manual requires shares requirement based on a
On August 16, 2017, the Exchange a listed company to demonstrate at the combination of both (i) an independent
withdrew Amendment No. 1 and filed time of listing an aggregate market value third-party valuation (a ‘‘Valuation’’) 17
Amendment No. 2 to the proposed rule of publicly-held shares of either $40 of the company and (ii) the most recent
change, which superseded and replaced million or $100 million, depending on trading price for the company’s common
the proposed rule change in its the type of listing.13 Section 102.01B stock in a trading system for
entirety.7 The Commission published also states that, in these cases, the unregistered securities operated by a
Amendment No. 2 for comment in the Exchange relies on written national securities exchange or a
Federal Register on August 24, 2017.8 representations from the underwriter, registered broker-dealer (a ‘‘Private
The Commission received no comments investment banker, or other financial Placement Market’’).18 Under the
in response to this solicitation for advisor, as applicable, with respect to current rules, the Exchange will
comments. On September 15, 2017, the this valuation.14 While Footnote (E) attribute a market value of publicly-held
Commission instituted proceedings to states that the Exchange generally shares to the company equal to the
determine whether to approve or expects to list companies in connection lesser of (i) the value calculable based
disapprove the proposed rule change, as on the Valuation and (ii) the value
modified by Amendment No. 2.9 proposal, the remaining proposed amendments in calculable based on the most recent
Following the Order Instituting Amendment No. 3 are identical to those noticed for trading price in a Private Placement
Proceedings, the Commission received comment in Amendment No. 2. Amendment No. 3 Market.19
also contained a complete restated Form 19b–4 The Exchange proposed two changes
one additional comment letter.10 On under the Exchange Act, which contained the same
December 8, 2017, the Exchange filed discussions, statutory basis and other sections set to Footnote (E). First, the Exchange
Amendment No. 3 to the proposed rule forth in Amendment No. 2, with slight proposed to amend Footnote (E) to
change, which superseded and replaced modifications to take into account the deleted provide that, in the absence of any
provision. Amendment No. 3 is available at: https:// recent trading in a Private Placement
the proposed rule change in its www.sec.gov/comments/sr-nyse-2017-30/
entirety.11 On December 14, 2017, the nyse201730-2782322-161654.pdf. Market, the Exchange will determine
12 See Securities Exchange Act Release No. 82332 that a company has met its market value
4 See Securities Exchange Act Release No. 80933 (December 14, 2017), 82 FR 60442 (December 20, of publicly-held shares requirement if
(June 15, 2017), 82 FR 28200 (June 20, 2017) 2017). the company provides a recent
13 Section 102.01B of the Manual states that a
(‘‘Original Notice’’). Valuation evidencing a market value of
5 See letter to the Commission from James J. company must demonstrate ‘‘an aggregate market
Angel, Ph.D., CFA, Georgetown University, dated value of publicly-held shares of $40,000,000 for
15 The reference to a registration statement refers
July 28, 2017 (‘‘Angel Letter’’). companies that list either at the time of their initial
6 See Securities Exchange Act Release No. 81309 public offerings (‘‘IPO’’) (C) or as a result of spin- to a registration statement effective under the
offs or under the Affiliated Company standard or, Securities Act.
(August 3, 2017), 82 FR 37244 (August 9, 2017). 16 See Section 102.01B, Footnote (E) of the
7 See Notice, infra note 8, at n. 8, which describe
for companies that list at the time of their Initial
Firm Commitment Underwritten Public Offering Manual.
the changes proposed in Amendment No. 2 from (C), and $100,000,000 for other companies (D)(E).’’ 17 See Section 102.01B, Footnote (E) of the
the original proposal. Section 102.01B also requires a company to have a Manual, which sets forth specific requirements for
8 See Securities Exchange Act Release No. 81440
closing price, or if listing in connection with an IPO the Valuation. Among other factors, any Valuation
(August 18, 2017), 82 FR 40183 (August 24, 2017) or Initial Firm Commitment Underwritten Public used for purposes of Footnote (E) must be provided
(‘‘Notice’’). Offering, an IPO or Initial Firm Commitment by an entity that has significant experience and
9 See Securities Exchange Act Release No. 81640
Underwritten Public Offering price per share of at demonstrable competence in the provision of such
(September 15, 2017), 82 FR 44229 (September 21, least $4.00 at the time of initial listing. valuations.
2017) (‘‘Order Instituting Proceedings’’). 14 See Section 102.01B, Footnote (C) of the 18 Section 102.01B, Footnote (E) of the Manual
10 See letter to Brent J. Fields, Commission, from
Manual, which states that for companies listing at also sets forth specific factors for relying on a
daltland on DSKBBV9HB2PROD with NOTICES
Cleary Gottlieb Steen & Hamilton LLP, dated the time of their IPO or Initial Firm Commitment Private Placement Market price, and states that the
October 12, 2017 (‘‘Cleary Gottlieb Letter’’). Underwritten Public Offering, the Exchange will Exchange will examine the trading price trends for
11 Amendment No. 3 revised the proposal to rely on a written commitment from the underwriter the stock in the Private Placement Market over a
eliminate the proposed changes to Footnote (E) that to represent the anticipated value of the company’s period of several months prior to listing and will
would have allowed a company to list immediately offering. For spin-offs, the Exchange will rely on a only rely on such market if it is ‘‘consistent with
upon effectiveness of an Exchange Act registration representation from the parent company’s a sustained history [of trading] over that several
statement only, without any concurrent IPO or investment banker (or other financial advisor) in month period.’’
Securities Act of 1933 (‘‘Securities Act’’) order to estimate the market value based upon the 19 See Section 102.01B, Footnote (E) of the
registration. Except for removing this part of the distribution ratio. Manual.
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![5652 Federal Register / Vol. 83, No. 27 / Thursday, February 8, 2018 / Notices
publicly-held shares of at least $250 securities to be listed, including any which the security is being transferred
million.20 In proposing this change, the right to receive any such securities to the Exchange.31
Exchange expressed the view that the exercisable within 60 days; The Exchange proposed to amend
current requirement of Footnote (E) to • The valuation agent or any affiliated Rule 15(c)(1) to add new sub-paragraph
rely on recent Private Placement Market entity has provided any investment (D) to specify the Reference Price for a
trading in addition to a Valuation may banking services to the listing applicant security that is listed under Footnote
cause difficulties for certain companies within the 12 months preceding the date (E). The Exchange proposed that if such
that are otherwise clearly qualified for of the Valuation; 25 or security has had recent sustained
listing.21 The Exchange stated that some • The valuation agent or any affiliated trading in a Private Placement Market
companies that are clearly large enough entity has been engaged to provide prior to listing, the Reference Price in
to be suitable for listing on the Exchange investment banking services to the such scenario would be the most recent
do not have their securities traded at all listing applicant in connection with the transaction price in that market or, if no
on a Private Placement Market prior to proposed listing or any related such sustained trading has occurred, the
going public and, in other cases, the financings or other related Reference Price used would be a price
Private Placement Market trading is too transactions.26 determined by the Exchange in
limited to provide a reasonable basis for consultation with a financial advisor to
reaching conclusions about a company’s 2. Trading Rules the issuer of such security.32
qualification.22 In proposing to adopt a Rule 104(a)(2) provides that the DMM
The Exchange also proposed to amend
Valuation that must be at least two-and- has a responsibility for facilitating
Exchange Rules 15, 104 and 123D,
a-half times the $100 million openings and reopenings for each of the
governing the opening of trading, to
requirement of Section 102.01B of the securities in which the DMM is
specify procedures for the opening trade
Manual, the Exchange stated that this registered as required under Exchange
on the day of initial listing of a company
amount ‘‘will give a significant degree of rules, which includes supplying
that lists under the proposed
comfort that the market value of the liquidity as needed. The Exchange
amendments to Footnote (E) and did not
company’s shares will meet the [$100 proposed to amend Rule 104(a)(2) to
have any recent trading in a Private
million] standard upon commencement require the DMM to consult with the
Placement Market.27
of trading on the Exchange,’’ issuer’s financial advisor when
particularly because any such Valuation Rule 15(b) provides that a DMM will
publish a pre-opening indication 28 facilitating the opening on the first day
‘‘must be provided by an entity that has of trading of a security that is listing
significant experience and demonstrable before a security opens if the opening
transaction on the Exchange is under Footnote (E) and that has not had
competence in the provision of such recent sustained history of trading in a
valuations.’’ 23 anticipated to be at a price that
represents a change of more than the Private Placement Market prior to
Second, the Exchange proposed to
‘‘Applicable Price Range,’’ 29 from a listing, in order to effect a fair and
further amend Footnote (E) by
specified ‘‘Reference Price.’’ 30 Rule orderly opening of such security.33
establishing certain criteria that would
15(c)(1) specifies that the Reference The Exchange stated that it believes
preclude a valuation agent from being
Price for a security (other than an that such a financial advisor would have
considered ‘‘independent’’ for purposes
American Depository Receipt) would be an understanding of the status of
of Footnote (E), which the Exchange
either (A) the security’s last reported ownership of outstanding shares in the
believes will provide a significant
additional guarantee of the sale price on the Exchange; (B) the company and would have been working
independence of any entity providing security’s offering price in the case of an with the issuer to identify a market for
such a Valuation.24 Specifically, the IPO; or (C) the security’s last reported the securities upon listing.34 As a result,
Exchange proposed that a valuation sale price on the securities market from it believes such financial advisor would
agent will not be deemed to be be able to provide input to the DMM
independent if: 25 For purposes of this provision, ‘‘investment regarding expectations of where such a
• At the time it provides such banking services’’ includes, without limitation, new listing should be priced, based on
Valuation, the valuation agent or any acting as an underwriter in an offering for the pre-listing selling and buying interest
issuer; acting as a financial adviser in a merger or and other factors that would not be
affiliated person or persons beneficially acquisition; providing venture capital, equity lines
own in the aggregate as of the date of the of credit, PIPEs (private investment, public equity
available to the DMM through other
Valuation, more than 5% of the class of transactions), or similar investments; serving as sources.35
placement agent for the issuer; or acting as a
20 See proposed Section 102.01B, Footnote (E) of
member of a selling group in a securities 31 See Rule 15(c)(1).
underwriting. See proposed Section 102.01B, 32 See proposed Rule 15(c)(1)(D).
the Manual. The Commission notes that the Exhibit
Footnote (E) of the Manual. 33 See proposed Rule 104(a)(2). The Exchange
5 to Amendment No. 3 contains the proposed rule 26 See id.
language. Any references herein to the proposed stated that this requirement is based in part on
27 See Notice, supra note 8, at 41085.
rule language shall refer to the language available Nasdaq Rule 4120(c)(9), which requires that a new
in Exhibit 5 to Amendment No. 3, which is 28 Rule 15(a) states that a pre-opening indication listing on Nasdaq that is not an IPO have a financial
available from the Exchange or on the will include the security and the price range within advisor willing to perform the functions performed
Commission’s website www.sec.gov. See also which the opening price is anticipated to occur. by an underwriter in connection with pricing an
Notice, supra note 8. Pre-opening indications are published on the IPO on Nasdaq. See Notice, supra note 8, at 40185.
21 See Notice, supra note 8, at 40184. Exchange’s proprietary data feeds and the securities 34 See Notice, supra note 8, at 40185.
22 See id. information processor (‘‘SIP’’). See Rule 15(a). The 35 See id. The Exchange noted that despite the
23 Id. In its proposal, the Exchange stated that it Exchange may also publish order imbalance proposed obligation to consult with the financial
believed that it is unlikely that any Valuation information prior to the opening of a security. The advisor, the DMM would remain responsible for
daltland on DSKBBV9HB2PROD with NOTICES
would reach a conclusion that was incorrect to the order imbalance information contains the price at facilitating the opening of trading of such security,
degree necessary for a company using this provision which opening interest may be executed in full. See and the opening of such security must take into
to fail to meet the $100 million requirement upon Rule 15(g). consideration the buy and sell orders available on
29 See Rule 15(d) for a definition of ‘‘Applicable
listing, in particular because any Valuation used for the Exchange’s book. See id. Accordingly, the
this purpose must be provided by an entity that has Price Range.’’ Exchange stated that just as a DMM is not bound
significant experience and demonstrable 30 Rule 15(b) also provides that a DMM will by an offering price in an IPO, and will open such
competence in the provision of such valuations. See publish a pre-opening indication if a security has a security at a price dictated by the buying and
id. not opened by 10:00 a.m. Eastern Time. See Rule selling interest entered on the Exchange in that
24 See id. 15(c) for a definition of ‘‘Reference Price.’’ security, a DMM would not be bound by the input
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![5654 Federal Register / Vol. 83, No. 27 / Thursday, February 8, 2018 / Notices
connection with a firm commitment will provide that, in the absence of any consistent with Section 6(b)(5) of
underwritten IPO, upon transfer from recent trading in a Private Placement Exchange Act and the protection of
another market, or pursuant to a spin- Market, the Exchange will determine investors, these new independence
off.54 The Exchange listing standards that such company has met its market requirements should help to ensure that
currently contain a provision, approved value of publicly-held shares the Valuation is reliable.61
in 2008, that gives the Exchange requirement if the company provides a The Exchange also has proposed to
discretion to list companies upon Valuation from an independent third amend certain of its procedures to
effectiveness of a registration statement party evidencing a market value of address how the DMM is to establish the
under the Securities Act that is filed publicly-held shares of at least $250 Reference Price in connection with the
solely for the purpose of allowing million. According to the Exchange, opening, on the first day of trading, of
existing shareholders to resell shares ‘‘[a]dopting a requirement that the a security listed under Footnote (E).62
they obtained in earlier private Valuation must be at least two-and-a- Specifically, for a security with
placements if such companies can half times the $100 million requirement sustained trading in a Private Placement
evidence $100 million of publicly held will give a significant degree of comfort Market, the Reference Price will be the
shares based on the lesser amount from that the market value of the company’s most recent transaction price in that
a Valuation provided by an independent shares will meet the standard upon market; otherwise the Reference Price
third party or the price in a Private commencement of trading on the will be determined by the Exchange in
Placement Market.55 Exchange.’’ 57 The Commission believes consultation with a financial advisor to
As noted above, the Exchange has that requiring a company that does not the issuer. The DMM will also be
proposed to provide an alternative in have a recent and sustained history of required to consult with the financial
cases where there is not sufficient trading of its securities in a Private advisor to the issuer where there is no
Private Placement Market trading to Placement Market to provide a recent sustained history of trading in
establish a reliable price. The Exchange Valuation of at least $250 million order to effect a fair and orderly opening
has also proposed additional standards should provide the Exchange with a of such security.63 The Commission
concerning the independence of the reasonable level of assurance that the believes that the proposed changes
third party agent providing the company’s market value supports listing should help establish a reliable
Valuation. on the Exchange and the maintenance of Reference Price, and provide additional
The Commission believes that the fair and orderly markets thereby information to the DMM, and thereby
proposed rule change will provide a protecting investors and the public facilitate the opening by the DMM,
means for a category of companies with interest in accordance with Section when trading first commences on the
securities that have not previously been 6(b)(5) of the Exchange Act. Exchange for certain securities not listed
traded on a public market and that are Exchange rules also seek to ensure in connection with an underwritten
listing only upon effectiveness of a that the Valuation is reliable by IPO, and should help to promote fair
selling shareholder registration requiring it to be provided by an and orderly markets. The Commission
statement, without a related independent third party that has believes these changes, consistent with
underwritten offering, and without significant experience and demonstrable Section 6(b)(5) of the Exchange Act, are
recent trading in a Private Placement competence in providing valuations of reasonably designed to protect investors
Market, to list on the Exchange. In companies.58 The proposed rule change and the public interest and promote just
particular, for such companies that establishes additional independence and equitable principles of trade for the
otherwise meet NYSE’s listing criteria, pursuant to which the valuation opening of securities listed under the
standards,56 the proposed rule change agent will not be ‘‘independent’’ if the new standards.
valuation agent, or any affiliated person, Finally, the Exchange has proposed
54 See Notice, supra note 8, at 40183. owns in the aggregate more than 5% of that it be permitted to declare a
55 According to the Exchange, companies listing the securities to be listed,59 or has regulatory halt in certain securities that
their securities upon a selling shareholder are the subject of an initial pricing on
registration statement have sold securities in one or
provided investment banking services to
more private placements and do not wish to raise the company in the 12 months prior to the Exchange, and have not been listed
cash in an offering at the time of listing, unlike a the Valuation or in connection with the on an exchange or quoted in an over-
company listing in conjunction with its IPO. listing.60 The Commission believes that,
Because the Exchange believed such companies 61 The Commission also notes that companies
meeting all other listing standards should not be listing pursuant to the new proposed provision will
barred from listing, the Exchange proposed publicly-held shares), the requirements of Section
102.01B (which includes a $4.00 price requirement be required to meet the distribution requirements of
Footnote (E) to the listing standards which the Section 102.01A of the Manual, the requirements of
Commission approved in 2008. In proposing at the time of initial listing), and one of the financial
standards set forth in Section 102.01C of the Section 102.01(B) of the Manual, and one of the
Footnote (E) in 2008, the Exchange stated that with financial standards in Section 102.01C of the
such companies, there is no public trading market Manual (i.e., the Earnings Test or the Global Market
Manual, which are the same requirements that
to rely on to evaluate whether the company meets Capitalization Test), as well as comply with all
apply to most equity listings on the Exchange. See
the market value standard as with a company other applicable NYSE rules, including the
note 56, supra.
transferring from another market, nor is there a corporate governance requirements. 62 Under Rule 15 a DMM is required to publish
57 See Notice, supra note 8, at 40184. Further, in
public offering whose price would provide the basis a pre-opening indication before a security opens if
for a letter of the type typically provided by approving Footnote (E) in 2008, the Commission the opening transaction on the Exchange is
underwriters for companies listing in conjunction recognized that ‘‘the most recent trading price in a anticipated to be at a price that represents a change
with an IPO. See Section 102.01B, Footnote (E); Private Placement Market may be an imperfect of more than the ‘‘Applicable Price Range’’ from a
Securities Exchange Act Release No. 58550 indication as to the value of a security upon listing, specified Reference Price. Under Rule 15, for
(September 15, 2008), 73 FR 54442, 54442–43 in part because the Private Placement Markets example, the ‘‘Applicable Price Range’’ for
(September 19, 2008) (SR–NYSE–2008–68) (‘‘NYSE generally do not have the depth and liquidity and determining whether to publish a pre-opening
price discovery mechanisms found on public
daltland on DSKBBV9HB2PROD with NOTICES
2008 Order’’). See also notes 18–19 supra and indication is 5% for securities with a Reference
accompanying text, describing the requirements in trading markets.’’ NYSE 2008 Order, supra note 55, Price over $3.00.
current rule to be able to rely on a Private at 54443. 63 In its proposal, the Exchange stated that such
58 See Footnote (E) for additional requirements for
Placement Market. ‘‘financial advisor would be able to provide input
56 Companies listing upon an effective the Exchange to be able to rely on the Valuation. to the DMM regarding expectations of where such
59 This calculation of ownership will include any
registration statement would have to meet the a new listing should be priced, based on pre-listing
distribution requirements set forth in Section right to receive such securities exercisable within selling and buying interest and other factors that
102.01A (i.e., that the company have 400 beneficial 60 days. would not be available to the DMM through other
holders of round lots of 100 shares and 1,100,000 60 See supra notes 24–26, and accompanying text. sources.’’ See Notice, supra note 8, at 40185.
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![Federal Register / Vol. 83, No. 27 / Thursday, February 8, 2018 / Notices 5655
the-counter quotation medium with respect to the proposed rule Amendment No. 3 thereto, be, and
immediately prior thereto. Such change that are filed with the hereby is, approved on an accelerated
regulatory halt will be terminated when Commission, and all written basis.
the DMM opens the security, and is for communications relating to the For the Commission, by the Division of
the limited purpose of precluding other proposed rule change between the Trading and Markets, pursuant to delegated
markets from trading a security until the Commission and any person, other than authority.69
Exchange has completed the initial those that may be withheld from the Brent J. Fields,
pricing process. The Commission public in accordance with the Secretary.
believes this proposed change also provisions of 5 U.S.C. 552, will be
[FR Doc. 2018–02501 Filed 2–7–18; 8:45 am]
should facilitate the initial opening by available for website viewing and
BILLING CODE 8011–01–P
the DMM of certain securities not listed printing in the Commission’s Public
in connection with an underwritten Reference Room, 100 F Street NE,
IPO, and thereby promote fair and Washington, DC 20549 on official SECURITIES AND EXCHANGE
orderly markets and the protection of business days between the hours of COMMISSION
investors.64 10:00 a.m. and 3:00 p.m. Copies of such
For the reasons set forth above, the filing also will be available for [Release No. 34–82623; File No. SR–IEX–
Commission finds that the proposed inspection and copying at the principal 2018–01]
rule change, as modified by Amendment office of the Exchange. All comments
No. 3, is consistent with the Exchange received will be posted without change. Self-Regulatory Organizations;
Act. Persons submitting comments are Investors Exchange LLC; Notice of
cautioned that we do not redact or edit Filing and Immediate Effectiveness of
V. Solicitation of Comments on personal identifying information from Proposed Rule Change To Modify the
Amendment No. 3 comment submissions. You should Default Handling of Market Orders
Interested persons are invited to submit only information that you wish Entered With a Time-in-Force of DAY
submit written data, views, and to make available publicly. All February 2, 2018.
arguments concerning whether submissions should refer to File Pursuant to Section 19(b)(1) 1 of the
Amendment No. 3 is consistent with the Number SR–NYSE–2017–30, and Securities Exchange Act of 1934 (the
Exchange Act. Comments may be should be submitted on or before March ‘‘Act’’) 2 and Rule 19b–4 thereunder,3
submitted by any of the following 1, 2018. notice is hereby given that, on January
methods: 22, 2018, the Investors Exchange LLC
VI. Accelerated Approval of Proposed
Electronic Comments Rule Change, as Modified by (‘‘IEX’’ or the ‘‘Exchange’’) filed with the
Amendment No. 3 Securities and Exchange Commission
• Use the Commission’s internet (the ‘‘Commission’’) the proposed rule
comment form (http://www.sec.gov/ The Commission finds good cause to
change as described in Items I, II and III
rules/sro.shtml); or approve the proposed rule change, as
below, which Items have been prepared
• Send an email to rule-comments@ modified by Amendment No. 3, prior to
by the self-regulatory organization. The
sec.gov. Please include File Number SR– the thirtieth day after the date of
Commission is publishing this notice to
NYSE–2017–30 on the subject line. publication of the notice of Amendment
solicit comments on the proposed rule
No. 3 in the Federal Register. The
Paper Comments change from interested persons.
Commission notes that the proposed
• Send paper comments in triplicate rule change, as modified by Amendment I. Self-Regulatory Organization’s
to Brent J. Fields, Secretary, Securities No. 3 remains identical to the version Statement of the Terms of Substance of
and Exchange Commission, 100 F Street published for notice and comment on the Proposed Rule Change
NE, Washington, DC 20549–1090. August 24, 2017,65 except for the Pursuant to the provisions of Section
All submissions should refer to File proposed deletion described above,66 19(b)(1) under the Securities Exchange
Number SR–NYSE–2017–30. This file and that the only comments the Act of 1934 (‘‘Act’’),4 and Rule 19b–4
number should be included on the Commission received on this proposed thereunder,5 Investors Exchange LLC
subject line if email is used. To help the rule change were in support of the (‘‘IEX’’ or ‘‘Exchange’’) is filing with the
Commission process and review your proposal. The Commission also has Securities and Exchange Commission
comments more efficiently, please use found that the proposal, as modified by (‘‘Commission’’) a proposed rule change
only one method. The Commission will Amendment No. 3, is consistent with to modify the default handling of market
post all comments on the Commission’s the Exchange Act for the reasons orders 6 entered with a time-in-force of
internet website (http://www.sec.gov/ discussed herein. Accordingly, the DAY.7 The Exchange has designated
rules/sro.shtml). Copies of the Commission finds good cause for this rule change as ‘‘non-controversial’’
submission, all subsequent approving the proposed rule change, as under Section 19(b)(3)(A) of the Act 8
amendments, all written statements modified by Amendment No. 3, on an and provided the Commission with the
accelerated basis, pursuant to Section notice required by Rule 19b–4(f)(6)
64 The proposed regulatory halt allows the 19(b)(2) of the Exchange Act.67 thereunder.9 The text of the proposed
Exchange to have a similar opening procedure for
securities listed pursuant to Footnote (E) as an IPO VII. Conclusion
69 17 CFR 200.30–3(a)(12).
security under Section 12(f) of the Exchange Act
and Rule 12f–2, since such securities raise similar
It is Therefore Ordered, pursuant to 1 15 U.S.C. 78s(b)(1).
Section 19(b)(2) of the Exchange Act,68
daltland on DSKBBV9HB2PROD with NOTICES
issues in terms of initial pricing on the first day of 2 15 U.S.C. 78a.
trading. See 15 U.S.C. 78l(f); 17 CFR 240.12f–2. that the proposed rule change (SR– 3 17 CFR 240.19b–4.
Similar to unlisted trading privilege rules that NYSE–2017–30), as modified by 4 15 U.S.C. 78s(b)(1).
prevent other exchanges from trading an IPO 5 17 CRF 240.19b–4.
security until the primary listing market has 65 See
reported the first opening trade, the regulatory halt Notice, supra note 8. 6 See Rule 11.190(a)(2).
66 See note 11, supra. 7 See Rule 11.190(c)(3).
will allow the DMM to complete the initial pricing
67 15 U.S.C. 78s(b)(2). 8 15 U.S.C. 78s(b)(3)(A).
and open the security before other markets can
trade. 68 Id. 9 17 CFR 240.19b–4.
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Document Created: 2018-02-08 00:16:23
Document Modified: 2018-02-08 00:16:23
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
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| Section | Notices | |
| FR Citation | 83 FR 5650 |
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