[Federal Register Volume 85, Number 126 (Tuesday, June 30, 2020)]
[Notices]
[Pages 39246-39251]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14013]
[[Page 39246]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89148; File No. SR-NYSE-2019-67]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change, as Modified by Amendment No.
2, To Amend Chapter One of the Listed Company Manual To Modify the
Provisions Relating to Direct Listings
June 24, 2020.
On December 11, 2019, New York Stock Exchange LLC (``NYSE'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities
Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ a
proposed rule change to amend Chapter One of the Listed Company Manual
to modify the provisions relating to direct listings. On December 13,
2019, the Exchange filed Amendment No. 1 to the proposed rule change,
which amended and replaced the proposed rule change in its entirety.
The proposed rule change, as modified by Amendment No. 1, was published
for comment in the Federal Register on December 30, 2019.\4\ On
February 13, 2020, pursuant to Section 19(b)(2) of the Exchange Act,\5\
the Commission designated a longer period within which to either
approve the proposed rule change, disapprove the proposed rule change,
or institute proceedings to determine whether to disapprove the
proposed rule change.\6\ On March 26, 2020, the Commission instituted
proceedings to determine whether to approve or disapprove the proposed
rule change, as modified by Amendment No. 1.\7\ On June 22, 2020, the
Exchange filed Amendment No. 2 to the proposed rule change, which
superseded the proposed rule change as modified by Amendment No. 1, and
is described in Items I and II below, which Items have been prepared by
the Exchange. On June 24, 2020, the Commission extended the time period
for approving or disapproving the proposal for an additional 60
days.\8\ The Commission is publishing this notice to solicit comments
on the proposed rule change, as modified by Amendment No. 2, from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ See Securities Exchange Act Release No. 87821 (December 20,
2019), 84 FR 72065 (December 30, 2019) (``Notice''). Comments
received on the Notice are available on the Commission's website at:
https://www.sec.gov/comments/sr-nyse-2019-67/srnyse201967.htm.
\5\ 15 U.S.C. 78s(b)(2).
\6\ See Securities and Exchange Act Release No. 88190 (February
13, 2020), 85 FR 9891 (February 20, 2020).
\7\ See Securities and Exchange Act Release No. 88485 (March 26,
2020), 85 FR 18292 (April 1, 2020).
\8\ See Securities and Exchange Act Release No. 89147 (June 24,
2020).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to (1) amend Chapter One of the Listed
Company Manual (the ``Manual'') to modify the provisions relating to
direct listings to permit a primary offering in connection with a
direct listing and to specify how a direct listing qualifies for
initial listing if it includes both sales of securities by the company
and possible sales by selling shareholders, (2) modify the definition
of ``Direct Listing'' in Rule 1.1, (3) add a definition of Issuer
Direct Offering (``IDO'') Order to Rule 7.31 and describe how it would
participate in a Direct Listing Auction in Rule 7.35A, and (4) remove
references to Direct Listing Auctions from Rule 7.35C.\9\ The proposed
rule change is available on the Exchange's website at www.nyse.com, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.
---------------------------------------------------------------------------
\9\ The Exchange has previously filed a proposed rule change to
amend Chapter One of the Manual to modify the provisions related to
direct listings. See SR-NYSE-2019-67 and Amendment No. 1 to that
filing. Amendment No. 2 to SR-NYSE-2019-67 proposes to (1) delete
from the filing the proposed amendment to Section 102.01A proposing
to provide additional time under certain circumstances for companies
listing in connection with a direct listing to meet the initial
listing distribution standards and add provisions specifying how a
direct listing qualifies for listing if it includes both sales of
securities by the company and possible sales by selling
shareholders, (2) amend Exchange Rules to add the IDO Order and
describe how it would participate in a Direct Listing Auction for a
Primary Direct Floor Listing and remove references to Direct Listing
Auctions from Rule 7.35C. This Amendment No.2 to SR-NYSE-2019-67
replaces Amendment No. 1 to SR-NYSE-2019-67 as originally filed and
supersedes such filing in its entirety.
---------------------------------------------------------------------------
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 self-regulatory organization
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 those 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 parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend (1) Chapter One of the Manual to
modify the provisions relating to direct listings to permit a primary
offering in connection with a direct listing and to specify how a
direct listing qualifies for initial listing if it includes both sales
of securities by the company and possible sales by selling
shareholders, (2) Rule 1.1 (Definitions) to modify the definition of
``Direct Listing,'' (3) Rules 7.31 (Orders and Modifiers) and 7.35A
(DMM-Facilitated Core Open and Trading Halt Auctions) to add a
definition of Issuer Direct Offering (``IDO'') Order and describe how
it would participate in a Direct Listing Auction, and (4) remove
references to Direct Listing Auctions in Rule 7.35C.\10\
---------------------------------------------------------------------------
\10\ Trading in all securities on the Exchange, including any
Direct Listing Auctions, is subject to the Pillar trading rules. The
term ``Direct Listing Auction'' is defined in Rule 7.35(a)(1)(E) to
mean a Core Open Auction for the first day of trading on the
Exchange of a security that is a Direct Listing. The term ``Core
Open Auction'' is defined in Rule 7.35(a)(1)(A) to mean the Auction
that opens trading at the beginning of the Core Trading Session, and
for Exchange-listed securities, the term ``Core Trading Session'' is
defined in Rule 7.34(a)(2)(B) to begin for each security with the
Core Open Auction, which can take place during Core Trading Hours
only, which, pursuant to Rule 1.1, begins at 9:30 a.m. Eastern Time
through 4:00 p.m. Eastern Time.
---------------------------------------------------------------------------
Amendments to the Manual
Section 102.01B of the Manual includes initial listing requirements
for a company that has not previously had its common equity securities
registered under the Act, to list its common equity securities on the
Exchange at the time of effectiveness of a registration statement filed
solely for the purpose of allowing existing shareholders to sell their
shares (a ``Selling Shareholder Direct Floor Listing'').\11\ To allow a
company to sell shares on its own behalf in connection with its initial
listing upon effectiveness of a registration statement, without a
traditional underwritten public offering, the Exchange proposes to
amend Section 102.01B. The proposed change would allow a company that
has not previously had its common equity securities registered under
the Act, to list its common equity securities on the Exchange at the
time of effectiveness of a registration statement pursuant to which the
company itself will sell
[[Page 39247]]
shares in the opening auction on the first day of trading on the
Exchange (any such listing in which either (i) only the company itself
is selling shares in the opening auction on the first day of trading or
(ii) the company is selling shares and selling shareholders may also
sell shares in such opening auction, is referred to herein as a
``Primary Direct Floor Listing'').
---------------------------------------------------------------------------
\11\ Securities Exchange Act Release No. 82627 (February 2,
2018), 83 FR 5650 (February 8, 2018) (SR-NYSE-2017-30).
---------------------------------------------------------------------------
In considering the initial listing of a company in connection with
a Selling Shareholder Direct Floor Listing, Section 102.01B currently
provides that the Exchange will determine that such company has met the
applicable $100 million aggregate market value of publicly-held shares
requirement based on a combination of both (i) an independent third-
party valuation of the company (a ``Valuation'') 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'').\12\ 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. Alternatively, in the
absence of any recent trading in a Private Placement Market, Section
102.01B provides that the Exchange will determine that such company has
met its market value of publicly-held shares requirement if the company
provides a Valuation evidencing a market value of publicly-held shares
of at least $250 million.
---------------------------------------------------------------------------
\12\ Section 102.01B currently provides (and the Exchange does
not propose to amend that provision) that any Valuation used for
this purpose in connection with a Selling Shareholder Direct Floor
Listing must be provided by an entity that has significant
experience and demonstrable competence in the provision of such
valuations. The Valuation must be of a recent date as of the time of
the approval of the company for listing and the evaluator must have
considered, among other factors, the annual financial statements
required to be included in the registration statement, along with
financial statements for any completed fiscal quarters subsequent to
the end of the last year of audited financials included in the
registration statement. The Exchange will consider any market
factors or factors particular to the listing applicant that would
cause concern that the value of the company had diminished since the
date of the Valuation and will continue to monitor the company and
the appropriateness of relying on the Valuation up to the time of
listing. In particular, 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 a Private
Placement Market price if it is consistent with a sustained history
over that several month period evidencing a market value in excess
of the Exchange's market value requirement. The Exchange may
withdraw its approval of the listing at any time prior to the
listing date if it believes that the Valuation no longer accurately
reflects the company's likely market value.
---------------------------------------------------------------------------
In applying this requirement to a Primary Direct Floor Listing, the
Exchange is proposing the following:
A company would qualify for listing in connection with a
Primary Direct Floor Listing if it will sell at least $100 million in
market value of shares in the opening auction.
If a company will sell less than $100 million in market
value of shares in the opening auction, a company would qualify for
listing in connection with a Primary Direct Floor Listing if the
aggregate of the market value of publicly-held shares immediately prior
to listing together with the market value of shares the 4company will
sell in the opening auction totals at least $250 million with such
market value calculated using a price per share equal to the lowest
price of the price range established by the issuer in its registration
statement.\13\
---------------------------------------------------------------------------
\13\ For example, if the company is selling five million shares
in the opening auction and there are 45 million shares issued and
outstanding immediately prior to the listing that are eligible for
inclusion as publicly-held shares based on disclosure in the
company's registration statement, then the market value of publicly-
held shares will be calculated based on a combined total of 50
million shares. If the lowest price of the price range disclosed in
the company's registration statement is $10 per share, the Exchange
will attribute to the company a market value of publicly-held shares
of $500 million.
---------------------------------------------------------------------------
Officers, directors or owners of more than 10% of the company's
common stock prior to the opening auction may purchase shares sold by
the company in the opening auction, provided that such purchases are
not inconsistent with general anti-manipulation provisions, Regulation
M, and other applicable securities laws. In addition, in the same way
as for shares of a company listing following a traditional underwritten
IPO, such an insider owner may purchase shares sold by other
shareholders or sell its own shares in the opening auction and in
trading after the opening auction, to the extent not inconsistent with
general anti-manipulation provisions, Regulation M, and other
applicable securities laws. Except as proposed for Primary Direct Floor
Listings, shares held by these types of inside investors are not
included in calculations of publicly-held shares for purposes of
Exchange listing rules.\14\ The Exchange notes that such investors may
acquire in secondary market trades shares sold by the issuer in a
Primary Direct Floor Listing that were included when calculating
whether the issuer meets the market value of publicly-held shares
initial listing requirement. However, the Exchange believes that
because of the enhanced publicly-held shares requirement for a listing
in conjunction with a Primary Direct Floor Listing, which is much
higher than the Exchange's minimum $40 million requirement for a
traditional underwritten IPO, and the neutral nature of the opening
auction process, companies using a Primary Direct Floor Listing would
have an adequate public float and liquid trading market after the
completion of the opening auction.
---------------------------------------------------------------------------
\14\ Shares held by directors, officers, or their immediate
families and other concentrated holdings of 10 percent or more are
excluded in calculating the number of publicly-held shares under
NYSE listing standards.
---------------------------------------------------------------------------
Any company listing in connection with a Primary Direct Floor
Listing or a Selling Shareholder Direct Floor Listing would continue to
be subject to and meet all other applicable initial listing
requirements, including the requirements of Section 102.01A to have 400
shareholders of round lots and 1.1 million publicly-held shares
outstanding at the time of initial listing, and the requirement of
Section 102.01B to have a price per share of at least $4.00 at the time
of initial listing.
In defining a Selling Shareholder Direct Listing in the proposed
amended rule text, the Exchange proposes to include additional text
specifying that the term Selling Shareholder Direct Listing is only
used for listings where the company is listing without a related
underwritten offering upon effectiveness of a registration statement
registering only the resale of shares sold by the company in earlier
private placements. This proposed added text is intended to clarify the
application of the existing rule and does not substantively change it.
Amendments to Exchange Rules
Amendment to Definition of ``Direct Listing''
Rule 1.1(f) currently defines the term ``Direct Listing'' to mean a
security that is listed under Footnote (E) to Section 102.01B of the
Manual, which currently only permits a company to list its common
equity securities on the Exchange at the time of effectiveness of a
registration statement filed solely for the purpose of allowing
existing shareholders to sell their shares (i.e., a Selling Shareholder
Direct Floor Listing). Because, as described above, the Exchange
proposes to amend this Section of the Manual to describe both a Primary
Direct Floor Listing and a Selling Shareholder Direct Floor Listing,
the Exchange proposes to similarly amend Rule 1.1(f) to specify that a
Direct Listing can be either a ``Selling
[[Page 39248]]
Shareholder Direct Floor Listing'' or a ``Primary Direct Floor
Listing.''
Amendment to Rules 7.31, 7.35A, and 7.35C
The Exchange proposes to amend Rules 7.31 and 7.35A to add a new
order type and describe how that new order type would participate in a
Direct Listing Auction if a company chooses to list its common equity
securities on the Exchange pursuant to a Primary Direct Floor Listing.
Currently, under Rule 7.35A, a Direct Listing Auction operates
similarly to an IPO Auction, including that the Exchange does not
disseminate Auction Imbalance Information \15\ and a Designated Market
Maker (``DMM'') may not effect the auction electronically.\16\ In
addition, Rule 7.35A establishes how to determine the Indication
Reference Price for a security that is a Direct Listing \17\ and a
requirement for the DMM facilitating the opening on the first day of
trading of a Direct Listing.\18\
---------------------------------------------------------------------------
\15\ See Rule 7.35(c)(3).
\16\ See Rule 7.35A(c)(1)(C).
\17\ See Rule 7.35A(d)(2)(A)(iv). Under Rule 7.35A(d), the
Indication Reference Price is used by the DMM to determine whether a
pre-opening indication would be required under that Rule. Currently,
for a security that is a Direct Listing that has had recent
sustained trading in a Private Placement Market prior to listing,
the Indication Reference Price is most recent transaction price in
that market or, if none, a price determined by the Exchange in
consultation with a financial advisor to the issuer of such
security.
\18\ See Rule 7.35A(g)(1). Under Rule 7.35A(g), in addition to
the DMM's responsibility for determining the Auction Price for Core
Open Auction and selecting an Auction Price at which all better-
priced orders on the side of any imbalance can be satisfied, a DMM
facilitating the opening on the first day of trading of a Direct
Listing that has not had recent sustained history of trading in a
Private Placement prior to listing, is required to consult with a
financial advisor to the issuer of such security in order to effect
a fair and orderly opening of such security.
---------------------------------------------------------------------------
Because a company would be offering shares in a Primary Direct
Floor Listing, the Exchange proposes to modify the procedures for a
Direct Listing Auction that would be used for a Primary Direct Floor
Listing. These procedures would be applicable to any Primary Direct
Floor Listing, as defined in Section 102.01B of the Manual. As
proposed, to sell its shares in such an Auction, a company would use a
proposed new order type, the IDO Order. As further proposed, a Primary
Direct Floor Listing could be effected only if (i) the Auction Price
would be within the price range specified by the company in its
effective registration statement, and (ii) the full quantity of the IDO
Order, i.e., the shares that the company seeks to sell in the Primary
Direct Floor Listing, can be sold within that price range. In addition,
all better-priced sell orders would need to be satisfied in such
Auction as required by Rule 7.35A(g), and the shares being sold by the
company would have priority over at-priced orders.\19\ Consistent with
current rules, a Direct Listing Auction for a Primary Direct Floor
Listing must be effected manually by the DMM, and, as provided for in
Rule 7.35A(g), the DMM would be responsible for determining an Auction
Price, provided that such price must be within the price range
specified in the effective registration statement.
---------------------------------------------------------------------------
\19\ Pursuant to Rule 7.35(a)(5), the Auction Price is the price
at which an Auction is conducted. A sell order is ``better-priced''
if it is priced lower than the Auction Price, and includes all sell
Market Orders and Market-on-Open (``MOO'') Orders. See Rule
7.35(a)(5)(A). A sell order is ``at-priced'' if it is priced equal
to the Auction Price. See Rule 7.35(a)(5)(B).
---------------------------------------------------------------------------
To effect these changes, the Exchange proposes to amend Rule
7.31(c)(1) to add new subparagraph (D) to describe the Issuer Direct
Offering Order, which would also be referred to as an ``IDO Order.''
\20\ As proposed, an IDO Order would be a Limit Order to sell that is
to be traded only in a Direct Listing Auction for a Primary Direct
Floor Listing. The Exchange also proposes that:
---------------------------------------------------------------------------
\20\ The IDO Order would be an Auction-Only Order. An Auction-
Only Order is a Limit or Market Order that is to be traded only in
an auction pursuant to the Rule 7.35 Series (for Auction-Eligible
Securities) or routed pursuant to Rule 7.34 (for UTP Securities).
See Rule 7.31(c). Rule 7.31(c)(1) specifies the Auction-Only Orders
that are available for a Core Open Auction or Trading Halt Auction.
---------------------------------------------------------------------------
Only one IDO Order may be entered on behalf of the issuer
and only one member organization may enter an IDO Order on behalf of an
issuer (proposed Rule 7.31(c)(1)(D)(i)); \21\
---------------------------------------------------------------------------
\21\ Because an IDO Order would not be entered by the DMM, the
Exchange proposes to amend the last sentence Rule 7.31(c) to add the
IDO Order to the list of order types not available to the DMM. The
amended sentence would provide (new text italicized): ``MOO, MOC,
LOC, IDO, and Closing IO Orders are not available to DMMs.''
---------------------------------------------------------------------------
the limit price of the IDO Order must be equal to the
lowest price of the price range established by the issuer in its
effective registration statement (``Primary Direct Floor Listing
Auction Price Range'') (proposed Rule 7.31(c)(1)(D)(ii));
the IDO Order must be for the quantity of shares offered
by the issuer, as disclosed in the prospectus in the effective
registration statement (proposed Rule 7.31(c)(1)(D)(iii));
an IDO Order may not be cancelled or modified (proposed
Rule 7.31(c)(1)(D)(iv)); and
an IDO Order must be executed in full in the Direct
Listing Auction (proposed Rule 7.31(c)(1)(D)(v)).
Next, the Exchange proposes to amend Rule 7.35A to establish
additional requirements for a DMM conducting a Direct Listing Auction
for a Primary Direct Floor Listing.
First, the Exchange proposes that the Indication Reference Price
applicable to a security that is a Primary Direct Floor Listing would
be the lowest price of the price range established by the issuer in its
effective registration statement. In a Primary Direct Floor Listing, a
company would be issuing new shares and would be required to establish
a price range for such securities in its effective registration
statement. Because the Exchange proposes that a Primary Direct Floor
Listing could not open below the lowest price of such price range, the
Exchange proposes that the Indication Reference Price for such security
would be the lowest price of that price range.\22\ To effect this
change, the Exchange proposes to amend Rule 7.35A(d)(2)(A) to add new
subparagraph (v) that would provide that, for a security that is a
Primary Direct Floor Listing, the Indication Reference Price would be
the lowest price of the Primary Direct Floor Listing Auction Price
Range.
---------------------------------------------------------------------------
\22\ For example, if the Primary Direct Floor Listing Auction
Price Range is $10.00 to $20.00, the Indication Reference Price
would be $10.00.
---------------------------------------------------------------------------
Second, the Exchange proposes to amend Rule 7.35A(g) regarding the
Auction Price that the DMM is responsible for determining. As noted
above, the Exchange proposes that a Primary Direct Floor listing must
open at a price within the Primary Direct Floor Listing Auction Price
Range, as set forth in the effective registration statement issued by
the company. In addition, the Exchange proposes that such Auction would
be conducted only if the IDO Order and all better-priced sell orders
can be satisfied at such price. To effect such changes, proposed Rule
7.35A(g)(2) would provide that a DMM would not conduct a Direct Listing
Auction for a Primary Direct Floor Listing if:
The Auction Price would be below the lowest price or above
the highest price of the Primary Direct Floor Listing Auction Price
Range (proposed Rule 7.35A(g)(2)(A)); \23\ or
---------------------------------------------------------------------------
\23\ For example, if the Primary Direct Floor Listing Auction
Price Range is $10.00 to $20.00, the Direct Listing Auction would
not be conducted at a price below $10.00 or above $20.00.
---------------------------------------------------------------------------
there is insufficient buy interest to satisfy both the IDO
Order and all better-priced sell orders in full (proposed Rule
7.35A(g)(2)(B)).
Because the DMM is responsible for determining the Auction Price,
these proposed rule changes would make the DMM responsible for
determining
[[Page 39249]]
whether the Direct Listing Auction can proceed. If there is
insufficient buy interest and the DMM cannot price the Auction and
satisfy the IDO Order as required by this proposed rule, the Direct
Listing Auction would not proceed and such security would not begin
trading. If a Direct Listing Auction cannot be conducted, the Exchange
would notify market participants via Trader Update that the Primary
Direct Floor Listing has been cancelled and any orders for that
security that have been entered on the Exchange, including the IDO
Order, would be cancelled back to the entering firms.
Third, the Exchange proposes that when the limit price of the IDO
Order (which is already required to be at the lowest price in Primary
Direct Floor Listing Price Range) is equal to the Auction Price, i.e.,
an at-priced IDO Order, the IDO Order would have priority over other
orders at that price. As noted above, under Rule 7.35A(g), all better-
priced interest is guaranteed to participate in the opening auction for
a Primary Direct Floor Listing. If the IDO Order is better-priced,
i.e., if the Direct Listing Auction is priced above the limit price of
the IDO Order, the IDO Order would be a better-priced order guaranteed
to participate in such Auction. However, under Rule 7.35A(h)(2), at-
priced orders are not guaranteed to participate in an Auction and are
allocated as provided for in Rule 7.35A(h)(2)(A)-(D). Because an IDO
Order must be executed in full in order for the DMM to conduct the
Direct Listing Auction, the Exchange does not believe that an at-priced
IDO Order should be subject to the allocation process specified in Rule
7.35A(h)(2) because it may result in a partial execution of the IDO
Order. Providing priority to an at-priced IDO Order would increase the
potential for the IDO Order to be executed in full, and therefore for
the Primary Direct Floor Listing to proceed. To effect such change, the
Exchange proposes new subparagraph (4) in Rule 7.35A(h), regarding
Auction Allocation, to provide that an IDO Order would be guaranteed to
participate in the Direct Listing Auction at the Auction Price and that
if the limit price of the IDO Order is equal to the Auction Price, the
IDO Order would have priority at that price.
Fourth, unlike a Direct Listing Auction for a Selling Shareholder
Direct Floor Listing, the registration statement for a Primary Direct
Floor Listing would include a price range within which the company
anticipates selling shares it is offering. Accordingly, Rules
7.35A(d)(2)(A)(iv) \24\ and 7.35A(g)(1) \25\ are not applicable to a
Primary Direct Floor Listing and the Exchange proposes to provide that
the requirements of those Rules would be applicable only to a Selling
Shareholder Direct Floor Listing by amending the text of those Rules to
replace the term ``Direct Listing'' with the term ``Selling Shareholder
Direct Floor Listing.''
---------------------------------------------------------------------------
\24\ Rule 7.35A(d)(2)(A)(iv) currently provides what the
Indication Reference Price will be ``for a security that is a Direct
Listing that has had recent sustained trading in a Private Placement
Market prior to listing, the most recent transaction price in that
market or, if none, a price determined by the Exchange in
consultation with a financial advisor to the issuer of such
security.''
\25\ Rule 7.35A(g)(1) currently provides: ``When facilitating
the opening on the first day of trading of a Direct Listing that has
not had recent sustained history of trading in a Private Placement
prior to listing, the DMM will consult with a financial advisor to
the issuer of such security in order to effect a fair and orderly
opening of such security.'' The Exchange proposes a non-substantive
amendment to Rule 7.35A(g)(1) to add the word ``Market'' after
``Private Placement.''
---------------------------------------------------------------------------
The Exchange further notes that any services provided by a
financial advisor to the issuer of a security listing in connection
with a Selling Shareholder Direct Floor Listing or a Primary Direct
Floor Listing (the ``financial advisor'') and the DMM assigned to that
security must provide such services in a manner that is consistent with
all federal securities laws, including Regulation M and other anti-
manipulation requirements. For example, when a financial advisor
provides a consultation to the Exchange as required by Rule
7.35A(d)(2)(A)(iv), when the DMM consults with a financial advisor as
required by Rule 7.35A(g)(1), or when a financial advisor otherwise
assists or consults with the DMM as to pricing or opening of trading in
Selling Shareholder Direct Floor Listing or Primary Direct Floor
Listing, the financial advisor and DMM will not act inconsistent with
Regulation M,\26\ and other anti-manipulation provisions of the federal
securities laws, or Exchange Rule 2020.\27\ The Exchange has retained
the Financial Industry Regulatory Authority, Inc. (``FINRA'') pursuant
to a regulatory services agreement to monitor such compliance with
Regulation M and other anti-manipulation provisions of the federal
securities laws and Rule 2020.\28\ To promote clarity and transparency
in Exchange rules regarding the consultation requirements of Rules
7.35A(d)(2)(A)(iv) and 7.35A(g)(1), the Exchange proposes to add
Commentary .10 to Rule 7.35A to provide:
---------------------------------------------------------------------------
\26\ For example, in connection with the Selling Shareholder
Direct Floor Listing of Spotify Technology S.A, the Commission's
Division of Trading and Markets provided a no-action letter relating
to Regulation M that discussed, in part, the role of the financial
advisor and the DMM in such listing. See Letter from Josephine J.
Tao, Assistant Director, Division of Trading and Markets, United
States Securities and Exchange Commission to Ms. Dana G. Fleischman,
Latham & Watkins LLP, dated March 23, 2018, available here: https://www.sec.gov/divisions/marketreg/mr-noaction/2018/spotify-technology-032318-regm.pdf.
\27\ Exchange Rule 2020, which is identical to FINRA Rule 2020,
provides that ``[n]o member or member organization shall effect any
transaction in, or induce the purchase or sale of, any security by
means of any manipulation, deceptive or other fraudulent device or
contrivance'' (``Rule 2020'').
\28\ The Exchange expects to issue regulatory guidance in
connection with a company conducting a Primary Direct Floor Listing.
Such regulatory guidance would include a reminder to member
organizations that activities in connection with a Primary Direct
Floor Listing, like activities in connection with other listings,
must be conducted in a manner not inconsistent with Regulation M and
other anti-manipulation provisions of the federal securities laws
and Exchange Rule 2020.
In connection with a Selling Shareholder Direct Floor Listing,
the financial advisor to the issuer of the security being listed
(``financial advisor'') and the DMM assigned to such security are
reminded that any consultation that the financial advisor provides
to the Exchange as required by paragraph (d)(2)(A)(iv) of this Rule
and any consultation between the DMM and financial advisor as
required by paragraph (g)(1) of this Rule are to be conducted in a
manner that is consistent with the federal securities laws,
---------------------------------------------------------------------------
including Regulation M and other anti-manipulation requirements.
Finally, the Exchange proposes to amend Rule 7.35C to remove
references to Direct Listing Auctions. Rule 7.35C sets forth the
procedures for the Exchange to facilitate an Auction for one or more
securities if a DMM cannot facilitate an Auction under Rules 7.35A or
7.35B and specifies how such Exchange-facilitated Auctions would
function, including for a Direct Listing Auction. Because of the
importance of the DMM to a Direct Listing Auction, the Exchange
proposes that if a DMM is unable to manually facilitate a Direct
Listing Auction, the Exchange would not proceed with either a Selling
Shareholder Direct Floor Listing or a Primary Direct Floor Listing. To
effect this change, the Exchange proposes to amend Rule 7.35C(a) to
specify that the Exchange would not facilitate a Direct Listing Auction
and amend Rules 7.35C(a)(3), (b)(1), and (b)(3) to delete references to
a Direct Listing Auction.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Exchange Act,\29\ in general, and furthers the
objectives of Section 6(b)(5) of the Exchange Act,\30\ in particular in
that it is designed to
[[Page 39250]]
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, 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 and is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78f(b).
\30\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed amendment to the Manual is
consistent with the protection of investors. The proposal would require
that a company in a Primary Direct Floor Listing (1) sell at least $100
million of its listed securities in the opening auction, or (2) have an
aggregate market value of publicly-held shares immediately prior to
listing together with the market value of shares the company sells in
the opening auction total at least $250 million, with such market value
calculated using a price per share equal to the lowest price of the
price range established by the issuer in its registration statement.
The Exchange notes that a company may list on the NYSE in connection
with its initial public offering with a market value of publicly-held
shares of $40 million and that, in the Exchange's experience in listing
IPOs, a liquid trading market develops after listing for issuers with a
much smaller value of publicly-held shares than the Exchange
anticipates would exist after the opening auction in a Primary Direct
Floor listing under the proposed market value of publicly-held shares
requirements. Consequently, the Exchange believes that these
requirements would provide that any company conducting a Primary Direct
Floor Listing would be of a suitable size for Exchange listing and that
there would be sufficient liquidity for the security to be suitable for
auction market trading.
Officers, directors or owners of more than 10% of the company's
common stock prior to the opening auction may purchase shares sold by
the company in the opening auction, in the event that such purchases
are not inconsistent with general anti-manipulation provisions,
Regulation M, and other applicable securities laws. In addition, in the
same way as for shares of a company listing following a traditional
underwritten IPO, such an insider owner may purchase shares sold by
other shareholders or sell its own shares in the opening auction and in
trading after the opening auction, to the extent not inconsistent with
general anti-manipulation provisions, Regulation M, and other
applicable securities laws. Except as proposed for Primary Direct Floor
Listings, shares held by these types of inside investors are not
included in calculations of publicly-held shares for purposes of
Exchange listing rules. The Exchange notes that after initial listing
such investors may acquire in secondary market trades shares sold by
the issuer in a Primary Direct Floor Listing that were included when
calculating that issuer's compliance with the market value of publicly-
held shares initial listing requirement. However, the Exchange believes
that because of the enhanced publicly-held shares requirement for a
listing in conjunction with a Primary Direct Floor Listing, which is
much higher than the Exchange's minimum $40 million requirement for a
traditional underwritten IPO, and the neutral nature of the opening
auction process, companies using a Primary Direct Floor Listing will
have an adequate public float and liquid trading market after the
completion of the opening auction.
The Exchange believes that the proposed amendments to Exchange
Rules to amend the definition of Direct Listing and Rules 7.31 and
7.35A to describe how an IDO Order would participate in a Direct
Listing Auction for a Primary Direct Floor Listing would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because they would guarantee that, if the
Direct Listing Auction for a Primary Direct Floor Listing occurs, all
shares offered by the company would participate.
Unlike an IPO, a company undergoing a Primary Direct Floor Listing
would not have an underwriter to guarantee that a specified number of
shares would be sold by the company within a price range established in
the company's effective registration statement. To ensure that the
Direct Listing Auction is conducted consistent with an issuer's
effective registration statement, the Exchange proposes that the Direct
Listing Auction for a Primary Direct Floor Listing under Section
102.01B of the Manual, would not proceed unless the quantity of shares
specified in the IDO Order would be sold in such Auction within a price
range specified by the company in its registration statement. This
certainty would be effected in two ways. First, the proposed IDO Order
would be required to be equal to the total number of shares disclosed
as being offered by the company in the prospectus included in the
effective registration statement filed in connection with its listing.
If the IDO Order cannot be satisfied in full, then the Direct Listing
Auction would not proceed. Second, the Direct Floor Auction for a
Primary Direct Floor Listing would be required to be priced within the
range established by the company in its effective registration
statement.
The Exchange further believes that these proposed changes would
remove impediments to and perfect the mechanism of a free and open
market and a national market system because they are designed to
function seamlessly with the existing process for a DMM-facilitated
Direct Listing Auction, including the requirement that such Auction be
facilitated manually by a DMM, the process for publishing pre-opening
indications, and the requirement that all better-priced sell orders are
guaranteed to participate in such Auction. In addition, the proposed
changes are designed to protect investors and the public interest
because they would provide an opportunity for the Primary Direct Floor
Listing to proceed so that the issuer's securities can be listed and
begin trading on the secondary market. Accordingly, the Exchange
believes that it would be consistent with this goal for an at-priced
IDO Order, which must be satisfied in full, to have priority over other
at-priced orders if the limit price of the IDO Order is equal to the
Auction Price. Proposed Rule 7.35A(h)(4) would eliminate the potential
for a partial execution of the IDO Order and provide greater
opportunity for the IDO Order to be executed in full, thus allowing the
Direct Listing Auction to proceed.
The Exchange believes the proposed amendments to Rule 7.35C would
remove impediments to and perfect the mechanism of a fair and orderly
market and a national market system because the Exchange believes that
having the DMM manually facilitate a Direct Listing Auction would
promote a fair and orderly auction process for such an Auction.
Therefore, if the DMM is unavailable to facilitate such Direct Listing
Auction manually, the Exchange would not proceed with facilitating a
Direct Listing Auction for either a Selling Shareholder Direct Floor
Listing or a Primary Direct Floor Listing.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed amendments
would not impose any burden on competition, but would rather increase
competition by
[[Page 39251]]
providing new pathways for companies to access the public markets.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Amendment No. 2, 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-NYSE-2019-67 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-NYSE-2019-67. 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-2019-67, and should be submitted on
or before July 21, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
---------------------------------------------------------------------------
\31\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14013 Filed 6-29-20; 8:45 am]
BILLING CODE 8011-01-P