[Federal Register Volume 85, Number 22 (Monday, February 3, 2020)]
[Notices]
[Pages 6003-6005]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01912]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88056; File No. SR-NASDAQ-2020-004]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
to Clarify the Term ``Closing Price'' in Rule 5635(d)(1)(A) Relating to
Shareholder Approval for Transactions Other Than Public Offerings
January 28, 2020.
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 January 15, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to clarify Rule 5635(d)(1)(A) without
changing its substance. The text of the proposed rule change is set
forth below. Proposed new language is in italics; deleted text is in
brackets.
* * * * *
The Nasdaq Stock Market LLC Rules
* * * * *
5635. Shareholder Approval
This Rule sets forth the circumstances under which shareholder
approval is required prior to an issuance of securities in connection
with: (i) the acquisition of the stock or assets of another company;
(ii) equity-based compensation of officers, directors, employees or
consultants; (iii) a change of control; and (iv) transactions other
than public offerings. General provisions relating to shareholder
approval are set forth in Rule 5635(e), and the financial viability
exception to the shareholder approval requirement is set forth in Rule
5635(f). Nasdaq-listed Companies and their representatives are
encouraged to use the interpretative letter process described in Rule
5602.
(a) No change.
(b) No change.
(c) No change.
IM-5635-1. No change.
(d) Transactions other than Public Offerings
(1) For purposes of this Rule 5635(d):
(A) ``Minimum Price'' means a price that is the lower of: (i) the
Nasdaq Official Closing Price [closing price] (as reflected on
Nasdaq.com) immediately preceding the signing of the binding agreement;
or (ii) the average Nasdaq Official Closing Price [closing price] of
the common stock (as reflected on Nasdaq.com) for the five trading days
immediately preceding the signing of the binding agreement.
(B) No change.
(2) No change.
IM-5635-2. No change.
IM-5635-3. No change.
(e) No change.
(f) No change.
IM-5635-4. No change.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On September 26, 2018, the Exchange amended Rule 5635(d)(1)(A) to
change the definition of market value for purposes of the shareholder
approval rule and eliminate the requirement for shareholder approval of
issuances at a price less than book value but greater than market value
(the ``Amendment'').\3\ As revised, Rule 5635(d) requires a Nasdaq-
listed company to obtain shareholder approval prior to the issuance of
securities in connection with a transaction other than a public
offering \4\ involving the sale, issuance or potential issuance by the
company of common stock (or securities convertible into or exercisable
for common stock), which alone or together with sales by officers,
directors or Substantial Shareholders \5\ of the company, equals 20% or
more of the common stock or 20% or more of the voting power outstanding
before the issuance (a ``20% Issuance'') at a price that is less than
the Minimum Price. Rule 5635(d)(1)(A) defines ``Minimum Price'' as a
price that is the lower of: (i) The closing price (as reflected on
Nasdaq.com) immediately preceding the signing of the binding agreement;
or (ii) the average closing price of the common stock (as reflected on
Nasdaq.com) for the five trading days immediately preceding the signing
of the binding agreement.
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\3\ See Securities Exchange Act Release No. 84287 (September 26,
2018), 83 FR 49599 (October 2, 2018) (approving SR-Nasdaq-2018-008)
(the ``Approval Order'').
\4\ See Nasdaq Rule IM-5635-3 (Definition of a Public Offering).
\5\ An interest consisting of less than either 5% of the number
of shares of common stock or 5% of the voting power outstanding of a
Company or party will not be considered a substantial interest or
cause the holder of such interest to be regarded as a ``Substantial
Shareholder.'' See Nasdaq Rule 5635(e)(3).
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Prior to the Amendment, shareholder approval was required for a 20%
Issuance at a price less than the greater of book or market value.\6\
In the
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Exchange's proposal to use the closing price reported on Nasdaq.com,
rather than the market value, the Exchange explained that ``[t]he
closing price reported on Nasdaq.com is the Nasdaq Official Closing
Price, which is derived from the closing auction on Nasdaq and reflects
actual sale prices at one of the most liquid times of the day.'' \7\ At
the time, Nasdaq believed that ``codify[ing] within the rule that
Nasdaq.com is the appropriate source of the closing price information''
would ``assure that companies and investors use the Nasdaq Official
Closing Price when pricing transactions.'' \8\ However, Rule
5635(d)(1)(A) does not specify that the closing price refers to the
Nasdaq Official Closing Price, which may create confusion. Nasdaq
proposes to amend Rule 5635(d)(1)(A) to revise ``closing price (as
reflected on Nasdaq.com)'' to ``Nasdaq Official Closing Price (as
reflected on Nasdaq.com).'' \9\ The Exchange believes that this change
will reflect the Exchange's original intention in adopting the
Amendment.
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\6\ ``Market value'' is defined in Nasdaq Rule 5005(a)(23) as
the consolidated closing bid price multiplied by the measure to be
valued (e.g., a company's market value of publicly held shares is
equal to the consolidated closing bid price multiplied by a
company's publicly held shares). See Nasdaq Rule 5005(a)(23).
\7\ See Securities Exchange Act Release No. 82702 (February 13,
2018), 83 FR 7269 (February 20, 2018) at 7270. See also Approval
Order at 49602 (``the proposal to use the Nasdaq Official Closing
Price for purposes of market value should help to ensure
transparency to investors in calculating market value for purposes
of the rule.'').
\8\ Id.
\9\ See Nasdaq Rule 4754(b)(4) (``All orders executed in the
Nasdaq Closing Cross will be executed at the Nasdaq Closing Cross
price, trade reported anonymously, and disseminated via the
consolidated tape. The Nasdaq Closing Cross price will be the Nasdaq
Official Closing Price for stocks that participate in the Nasdaq
Closing Cross. Fifteen minutes after the close of trading, Nasdaq
will disseminate via the network processor a trade message setting
the Nasdaq Official Closing Price as the official Consolidated Last
Sale Price in each Nasdaq-listed security in which one round lot or
more is executed in the Nasdaq Closing Cross where the closing price
differs from the Consolidated Last Sale Price.'').
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\11\ 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 eliminating potential confusion and enhancing clarity and
transparency in its rules. The proposal is consistent with the
Exchange's original intent as approved by the Commission and does not
have any substantive effect on the rule.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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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. The proposed change is designed
to more clearly describe the current operation and original intent of
an existing rule without changing its substance and, therefore, Nasdaq
believes that the proposed change will not impose a burden on
competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \14\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \15\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay so that
Rule 5635(d)(1)(A) may be amended to reflect the Exchange's original
intent and reduce potential confusion for companies and investors.
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\14\ 17 CFR 240.19b-4(f)(6).
\15\ 17 CFR 240.19b-4(f)(6)(iii).
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The Commission believes that waiver of the operative delay should,
as noted by Nasdaq, help to avoid potential confusion for investors and
listed companies. The Commission further notes that the current
proposal is consistent with Nasdaq's original proposal to adopt the
current rule language.\16\ For these reasons, the Commission believes
that waiver of the 30-day operative delay is consistent with the
protection of investors and the public interest. Therefore, the
Commission hereby waives the operative delay and designates the
proposal as operative upon filing.\17\
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\16\ See supra note 7 and accompanying text.
\17\ For purposes only of waiving the 30-day operative delay,
the Commission also 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 the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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-2020-004 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-2020-004. 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
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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
the filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change. 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-2020-004 and should be submitted on or before February 24, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-01912 Filed 1-31-20; 8:45 am]
BILLING CODE 8011-01-P