[Federal Register Volume 85, Number 111 (Tuesday, June 9, 2020)]
[Notices]
[Pages 35358-35360]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12384]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88999; File No. SR-NYSE-2020-42]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Section 902.02 of the NYSE Listed Company Manual Concerning Pre-
Revenue Companies That Can Qualify for Reduced Listing and Annual Fees
June 3, 2020.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on May 21, 2020, New York Stock Exchange LLC (``NYSE'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the self-
regulatory organization. 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\ 15 U.S.C. 78a.
\3\ 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 amend Section 902.02 of the NYSE Listed
Company Manual (the ``Manual'') to modify the definition of a Pre-
Revenue Company contained in that rule. 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.
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
Section 902.02 of the Manual includes a provision providing for
modified listing and annual fees for companies that meet the definition
of a Pre-Revenue Company set forth in that rule. For purposes of this
provision, a ``Pre-Revenue Company'' is a company whose initial listing
date is on or after June 1, 2019, and which has not recorded revenue in
excess of $5 million in either (i) the most recent completed fiscal
year prior to listing or (ii) during the year of listing through the
most recently completed fiscal quarter before the listing date.\4\
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\4\ The Annual Fees of any company which qualifies as a Pre-
Revenue Company at the time of listing will be calculated quarterly
for the fiscal quarter in which it lists and in each of the
succeeding 12 full fiscal quarters, at a rate of one-fourth of the
applicable Annual Fee rate. The total fees (including Listing Fees
and Annual Fees, but excluding listing fees paid at the time of
initial listing) that may be billed to such an issuer during this
period will be subject to a $25,000 cap in the fiscal quarter in
which the issuer lists and in each of the succeeding 12 full fiscal
quarters. This fee cap is subject to the same exclusions as apply in
relation to the $500,000 per year fee cap described in the
subsection of Section 902.02 entitled ``Total Maximum Fee Payable in
a Calendar Year.'' If there are one or more fiscal quarters
remaining in the calendar year after the conclusion of the period
described herein, the issuer will, on a prorated basis, be billed
the regular Annual Fee subject to the $500,000 total fee cap for the
remainder of that calendar year.
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In adding the provisions specific to Pre-Revenue Companies,\5\ the
Exchange noted that its Global Market Capitalization Test (as set forth
in Section 102.01C of the Manual) allows the Exchange to list companies
that have not yet recorded any significant revenues, provided the
issuer has at least a $200 million global market capitalization and
meets the other requirements for listing. These companies are typically
engaged in research and development (in many cases they are
biotechnology companies focused on developing new drug candidates) or
are in the early stages of commercialization of a product. Generally, a
company of this kind relies primarily on the proceeds from its initial
public offering to fund its operations. As such, the fees charged by
the Exchange represent a more significant expense for these companies
than they do for other newly-listed companies and in many cases these
fees are an impediment to the Exchange in competing for the listing of
these companies. The adoption of the special provisions applicable to
Pre-Revenue Companies was intended to address the particular
difficulties faced by Pre-Revenue Companies in being able to pay the
Exchange's fees.
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\5\ See Exchange Act Release No. 85961 (May 29, 2019), 84 FR
25856 (June 4, 2019 (SR-NYSE- 2019-30).
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Since adopting the provisions for Pre-Revenue Companies, the
Exchange has observed that some companies that would otherwise qualify
as a Pre-Revenue Company will have a single revenue-generating event
that is not typical for a company at that stage in its life cycle. An
event of this nature renders the company ineligible for Pre-Revenue
Company status, notwithstanding the fact that the company has not
previously generated any material revenue and does not have the
prospect of generating any meaningful additional revenue for the
foreseeable future. An example of this sort of one-time revenue event
that the Exchange has observed is a one-time licensing payment received
by a biotechnology company that is otherwise fully engaged in pre-
commercial research and development activity and does not generate any
revenue in the ordinary course. The Exchange believes that a company
that has this sort of event that is anomalous given the nature of that
company's business can still be the kind of company for which the Pre-
Revenue Company provision was designed. Such a company continues to
face the same challenges faced by a Pre-Revenue Company. Consequently,
the Exchange now proposes to amend the definition of a Pre-Revenue
Company to provide that, in determining whether a company qualifies as
a Pre-Revenue Company, the Exchange will exclude from its calculations
any one-time non-recurring revenue items.\6\
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\6\ The determination of Pre-Revenue Company status is made at
the time of initial listing. Therefore, there are no companies
currently listed that would benefit from the proposed modification
to the definition of Pre-Revenue Company.
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[[Page 35359]]
The Exchange does not expect there to be a significant number of
listings in which this proposed revision of the definition of a Pre-
Revenue Company would be applicable. Consequently, the proposed rule
change would not affect the Exchange's commitment of resources to its
regulatory oversight of the listing process or its regulatory programs.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\7\ in general, and furthers the
objectives of Section 6(b)(4) \8\ of the Act, in particular, in that it
is designed to provide for the equitable allocation of reasonable dues,
fees, and other charges. The Exchange also believes that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\9\ in that
it is designed to 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.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(4).
\9\ 15 U.S.C. 78f(b)(5).
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The Proposed Change is Reasonable
The Exchange operates in a highly competitive marketplace for the
listing of equity securities. The Commission has repeatedly expressed
its preference for competition over regulatory intervention in
determining prices, products, and services in the securities markets.
The Exchange believes that the ever-shifting market share among the
exchanges with respect to new listings and the transfer of existing
listings between competitor exchanges demonstrates that issuers can
choose different listing markets in response to fee changes.
Accordingly, competitive forces constrain exchange listing fees. Stated
otherwise, changes to exchange listing fees can have a direct effect on
the ability of an exchange to compete for new listings and retain
existing listings.
Given this competitive environment, the Exchange believes that the
proposed fee waivers are reasonable because the cost of paying initial
listing fees and Annual acts as a disincentive to listing on the
Exchange for companies that do not yet generate significant recurring
revenues.
The Proposal is an Equitable Allocation of Fees
The Exchange believes that the proposal is equitable as it is
designed to address an anomaly in the treatment of companies that are
similar in nature to companies that meet the current definition of a
Pre-Revenue Company.
The Proposal is Not Unfairly Discriminatory
The Exchange believes that the proposal is not unfairly
discriminatory because the proposed waive is designed solely to avoid
the impact on a small group of issuers of an anomalous fee outcome
arising from the manner in which a one-time nonrecurring event causes
them to be treated differently for fee purposes than companies that are
similar to them in every other respect. Occasionally, a company will
receive a one-time non-recurring payment that causes it to be
ineligible for treatment as a Pre-Revenue Company for fee purposes,
notwithstanding the fact that it has not generated any recurring stream
of ordinary course revenue in the past and does not expect to do so for
the foreseeable future. A company in this situation is subject to the
same ongoing financial challenges as other companies that meet the
definition of a Pre-Revenue Company and the Exchange believes that it
is consistent with the purpose of the modified listing fees for a Pre-
Revenue Company to modify the definition of such a company to include a
company that would qualify but for the existence of a one-time, non-
recurring revenue item.
Finally, the Exchange believes that it is subject to significant
competitive forces, as described below in the Exchange's statement
regarding the burden on competition.
For the foregoing reasons, the Exchange believes that the proposal
is consistent with the Act.
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 that is not necessary or appropriate
in furtherance of the purposes of the Act.
Intramarket Competition.
The proposed waiver will be available to all similarly situated
issuers on the same basis. The Exchange does not believe that the
proposed modification of the definition of a Pre-Revenue Company will
have any meaningful effect on the competition among issuers listed on
the Exchange.
Intermarket Competition
The Exchange operates in a highly competitive market in which
issuers can readily choose to list new securities on other exchanges
and transfer listings to other exchanges if they deem fee levels at
those other venues to be more favorable. Because competitors are free
to modify their own fees in response, and because issuers may change
their listing venue, the Exchange does not believe its proposed
modification of the definition of a Pre-Revenue Company can impose any
burden on intermarket competition.
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. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \10\ of the Act and subparagraph (f)(2) of Rule
19b-4 \11\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \12\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\12\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
[[Page 35360]]
Send an email to [email protected]. Please include
File Number SR-NYSE-2020-42 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-2020-42. 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 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-NYSE-2020-42 and should be submitted on
or before June 30, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12384 Filed 6-8-20; 8:45 am]
BILLING CODE 8011-01-P