[Federal Register Volume 85, Number 148 (Friday, July 31, 2020)]
[Notices]
[Pages 46198-46200]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-16572]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89403; File No. SR-NASDAQ-2020-038]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Defer Entry Fees for Acquisition Companies
July 27, 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 July 14, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III, 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 defer entry fees for Acquisition Companies
for one year from the date of listing and to make minor attendant
technical changes.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, 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 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
In 2009 Nasdaq adopted a rule (IM-5101-2) to impose additional
listing requirements on a company whose business plan is to complete an
initial public offering and engage in a merger or acquisition with one
or more unidentified companies within a specific period of time
(``Acquisition Companies'').\3\ Based on experience listing these
companies, Nasdaq proposes to modify the process of assessing entry
fees applicable to them on all three tiers of Nasdaq. Specifically, for
an Acquisition Company listed under IM-5101-2 on the Nasdaq Global or
Global Select Market, Nasdaq proposes to defer the entry fee described
in Listing Rule 5910(a)(1) for one year from the date of listing.
Similarly, for an Acquisition Company listed under IM-5101-2 on the
Nasdaq Capital Market, Nasdaq proposes to defer the entry fee described
in Listing Rule 5920(a)(1) for one year from the date of listing. For
the avoidance of doubt, in each case, such fee is owed to Nasdaq at the
time of listing based on the fee schedule in effect on the date of
listing but is assessed by Nasdaq on the first anniversary of the date
of listing.
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\3\ Securities Exchange Act Release No. 58228 (July 25, 2008),
73 FR 44794 (July 31, 2008) (adopting the predecessor to IM-5101-2).
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Acquisition Companies are formed to raise capital in an initial
public offering (IPO) with the purpose of using the proceeds to acquire
one or more unspecified businesses or assets to be identified after the
IPO. However, unlike other types of listed companies that have pre-
existing operations or that fund their operations by proceeds raised
from the IPO, following the IPO, an Acquisition Company funds a trust
account with an amount typically equal to 100% of the gross proceeds of
the IPO.\4\ As such, operating expenses are typically borne by the
Acquisition Company's sponsors, particularly during the initial post-
IPO period. The Acquisition Company's sponsor is the entity or
management team that forms the Acquisition Company and, typically, runs
the operations of the Acquisition Company until an appropriate target
company is identified and the business combination is consummated. The
funds in the trust account are typically invested in short-term U.S.
government securities or held as cash, earning interest over time.
Thus, Acquisition Company unique structure results in sponsor's extreme
fee sensitivity, particularly during the initial post-IPO period before
any substantial amount of interest is earned from the trust account.
Nasdaq believes that the market practice of depositing 100% of the
gross proceeds of the IPO in a trust account (rather than the minimum
required 90%) benefits shareholders and is consistent with investor
protection because it helps assure that shareholders exercising their
right to redeem their shares for a pro rata share of the trust account
will receive the full IPO price paid, rather than a lesser amount
guaranteed by Nasdaq rules.\5\ Accordingly, to encourage this market
practice Nasdaq believes it is appropriate to defer the payment of the
entry fees owed by an Acquisition Company listed on Nasdaq until the
first anniversary of the date of listing.
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\4\ While under Nasdaq's rules an Acquisition Company could pay
operating and other expenses, subject to a limitation that 90% of
the gross proceeds of the company's offering must be retained in
trust account, Nasdaq understands that marketplace demands typically
dictate that 100% of the gross proceeds from the IPO be kept in the
trust account and that only interest earned on that account be used
to pay taxes and a limited amount of operating expenses. See Listing
Rule IM-5101-2 (a).
\5\ See Listing Rule IM-5101-2 (d) and (e).
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Nasdaq believes that the proposed fee deferral would provide an
incentive to sponsors to list Acquisition Companies
[[Page 46199]]
on Nasdaq. Nasdaq also believes it is reasonable to balance its need to
remain competitive with other listing venues, while at the same time
ensuring adequate revenue to meet is regulatory responsibilities.
Nasdaq notes that the fee deferral will not cause any reduction to
Nasdaq's revenue and no other company will be required to pay higher
fees as a result of the proposed amendments and represents that the
proposed fee deferral will have no impact on the resources available
for its regulatory programs.
Nasdaq also proposes to amend Listing Rules 5910(a)(11) and
5920(a)(11) to clarify that Acquisition Companies listed under IM-5101-
2 are subject to the application fees described in these rules. This
will also help assure that there is no impact on the resources
available for Nasdaq's regulatory programs.
Finally, Nasdaq proposes to amend the reference in Listing Rule
5920(a)(1) to correctly cross reference Listing Rule 5920(a)(11), which
describes the assessment of application fees on the Nasdaq Capital
Market.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\6\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\7\ in particular, in that it provides
for the equitable allocation of reasonable dues, fees and other charges
among members and issuers and other persons using any facility, and is
not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(4) and (5).
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As a preliminary matter, Nasdaq competes for listings with other
national securities exchanges and companies can easily choose to list
on, or transfer to, those alternative venues. As a result, the fees
Nasdaq can charge listed companies are constrained by the fees charged
by its competitors and Nasdaq cannot charge prices in a manner that
would be unreasonable, inequitable, or unfairly discriminatory.
Nasdaq believes that the proposed rule change to defer the entry
fees described in Listing Rules 5910(a)(1) and 5920(a)(1) for one year
from the date of listing is reasonable and not unfairly discriminatory
because it recognizes the unique structure Acquisition Companies that
results in sponsor's extreme fee sensitivity, particularly during the
initial post-IPO period before any substantial amount of interest is
earned from the trust account. Unlike other companies, which have pre-
existing operations and immediate access to the IPO proceeds,
Acquisition Companies are unique because at least 90%, and typically
100%, of the IPO proceeds are held in trust for the shareholders and
are not available to fund their operations. Acquisition Companies also
do not have any prior operations that generate cash that could be used
to fund their operations. Nasdaq also believes that the proposed fee
deferral is reasonable in that it will create a commercial incentive
for sponsors to list Acquisition Companies on Nasdaq. Nasdaq competes
for listings, in part, by the level of its listing fees, and the
proposed deferral of the entry fees for Acquisition Companies based on
the unique issues associated with their structure is similarly a
reasonable basis on which for Nasdaq to distinguish itself from
competitors.
Nasdaq also notes that no other company will be required to pay
higher fees as a result of the proposed amendments. Therefore, Nasdaq
believes that allowing an Acquisition Company to pay entry fees on a
deferred basis is reasonable and not inequitable or unfairly
discriminatory.
Finally, Nasdaq believes that the proposal to defer such fees is
consistent with the investor protection objectives of Section 6(b)(5)
of the Act in that they are designed to promote just and equitable
principles of trade, to remove impediments to a free and open market
and national market system, and in general to protect investors and the
public interest. Specifically, the amount of revenue deferred by
allowing Acquisition Companies to pay entry fees one year from the date
of listing is not substantial, and the fee deferral may result in more
Acquisition Companies listing on Nasdaq, thereby increasing the
resources available for Nasdaq's listing compliance program, which
helps assure that listing standards are properly enforced and investors
are protected. In addition, Nasdaq believes that the market practice of
depositing 100% of the gross proceeds of the IPO in a trust account for
the benefit of shareholders (rather than the required 90%) benefits
those shareholders and is consistent with the investor protection goals
of the Act because it helps assure that shareholders exercising their
right to redeem their shares for a pro rata share of the trust account
will receive the full IPO price paid, rather than a lesser amount
guaranteed by Nasdaq rules.
Nasdaq believes that the potential impact on revenue from the entry
fee deferral, as proposed, will not hinder its ability to fulfill its
regulatory responsibilities.
Nasdaq also believes that the proposed rule change to amend Listing
Rules 5910(a)(11) and 5920(a)(11) to clarify that Acquisition Companies
listed under IM-5101-2 are subject to the application fees described in
these rules and to amend the reference in Listing Rule 5920(a)(1) to
correctly cross reference Listing Rule 5920(a)(11), which describes the
assessment of application fees, is designed to promote just and
equitable principles of trade by eliminating potential confusion about
Nasdaq rules by clarifying these rules and updating an inaccurate
cross-reference, without changing the substance of the rules.
B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended. The market for
listing services is extremely competitive and listed companies may
freely choose alternative venues based on the aggregate fees assessed,
and the value provided by each listing. This rule proposal does not
burden competition with other listing venues, which are similarly free
to set their fees. For these reasons, Nasdaq does not believe that the
proposed rule change will result in any burden on competition for
listings.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\8\
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\8\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
[[Page 46200]]
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-2020-038 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-2020-038. 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 submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-NASDAQ-2020-038 and should be submitted on or before
August 21, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-16572 Filed 7-30-20; 8:45 am]
BILLING CODE 8011-01-P