[Federal Register Volume 75, Number 173 (Wednesday, September 8, 2010)]
[Notices]
[Pages 54665-54671]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-22296]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62818; File No. SR-BX-2010-059]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing of Proposed Rule Change To Create a Listing Market on the
Exchange
September 1, 2010.
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 August 20, 2010, NASDAQ OMX BX, Inc. (``Exchange'') filed with the
Securities and Exchange Commission (``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 the
Substance of the Proposed Rule Change
The Exchange proposes to create a listing market, which will be
called ``BX.'' Following Commission approval, the Exchange will
announce the operational date of the new market in an Equity Trader
Alert and press release. The proposed rules will become effective on
the operational date.
The text of the proposed rule change is available at http://nasdaqomxbx.cchwallstreet.com, at BX's principal office, 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 connection with the acquisition of the former Boston Stock
Exchange by The NASDAQ OMX Group, Inc., the Exchange discontinued its
listing marketplace and delisted all securities previously listed on
the Exchange.\3\ Since January 2009, the Exchange has operated as a
trading venue only, allowing market participants to trade securities
listed on other national securities exchanges pursuant to unlisted
trading privileges.
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\3\ See Securities Exchange Act Release No. 59265 (January 16,
2009), 74 FR 4790 (January 27, 2009) (approving SR-BSE-2008-36
relating to the delisting of all securities from the Exchange in
connection with the Exchange's discontinuation of trading).
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The Exchange is proposing to begin listing securities again,
through the creation of a new listing market, to be called ``BX.'' BX
will have minimal quantitative listing standards, but have qualitative
requirements, which are, in many respects, similar to those required
for listing on The NASDAQ Stock Market (``Nasdaq'') and other national
securities exchanges.\4\ The Exchange believes that this market will
provide an attractive alternative to companies being delisted from
another national securities exchange for failure to meet quantitative
listing standards (including price or other market value measures) and
to smaller companies contemplating an initial exchange listing. The
Exchange further believes that the proposed listing venue will provide
a transparent, well-regulated marketplace for these companies and their
investors.\5\ As is currently the case with respect to the trading
occurring on the Exchange pursuant to unlisted trading privileges,
FINRA will regulate market activity and staff of the Exchange will
monitor real-time trading of securities listed on BX.
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\4\ The Exchange notes that not all qualitative requirements
imposed by other exchanges would be required. See Listing
Requirements, infra, for a full discussion of the proposed
quantitative and qualitative requirements for listing on BX.
\5\ The Exchange will propose in a separate rule filing changes
to the BX Equities Platform to govern trading of, and reporting of
transactions in, these listed securities and introducing and
modifying market data products to permit dissemination of accurate
quotation information and reporting of transactions.
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The Exchange expects that the securities listed on BX will not be
classified as national market system securities. As a result, BX-listed
securities will not be subject to a national market system plan and
will not be subject to Regulation NMS under
[[Page 54666]]
the Act.\6\ BX-listed securities will trade on the Exchange and could
be traded over-the-counter.\7\
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\6\ 17 CFR 242.600-612.
\7\ Over-the-counter trades of BX-listed securities would be
reported to the FINRA Over-the-Counter Reporting Facility.
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Listing Requirements
BX would list Common Stock, Preferred Stock, Ordinary Shares,
Shares or Certificates of Beneficial Interest of Trust, Limited
Partnership Interests, American Depositary Receipts (ADR), American
Depositary Shares (ADS), Units, Rights and Warrants. To be listed on
BX, companies will need to meet the following qualitative listing
standards, each of which is equivalent to the comparable listing
standard of Nasdaq or is derived from the Federal securities laws:
(a) The company must be registered under Section 12(b) of the Act
\8\ and current in its periodic filings with the Commission and, as a
result, subject to the requirements of the Sarbanes-Oxley Act of 2002
\9\ (proposed Rule 5210(a));
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\8\ 15 U.S.C. 781(b).
\9\ 15 U.S.C. 7201-7266.
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(b) The company must have a fully independent Audit Committee
comprised of at least three members and comply with the requirements of
SEC Rule 10A-3, promulgated under the Act \10\ (proposed Rule 5605(c));
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\10\ 17 CFR 240.10A-3.
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(c) The company must have independent directors make compensation
decisions for executive officers (proposed Rule 5605(d));
(d) The company will be prohibited from taking any corporate action
with the effect of nullifying, restricting or disparately reducing the
per share voting rights of holders of an outstanding class of the
company's common stock registered pursuant to Section 12 of the Act
(proposed Rule 5640);
(e) The company's auditor will be required to be registered with
the Public Company Accounting Oversight Board \11\ (proposed Rules
5210(b) and 5250(c)(3));
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\11\ See Section 102 of the Sarbanes-Oxley Act, 15 U.S.C. 7212.
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(f) The company will be required to hold an annual shareholders'
meeting and solicit proxies for each shareholders' meeting (proposed
Rule 5620);
(g) The company will be required to obtain shareholder approval for
the use of equity compensation (proposed Rule 5635);
(h) The company will be required to adopt a code of conduct,
applicable to all directors, officers and employees (proposed Rule
5610);
(i) The company will be required to conduct an appropriate review
and oversight of all related party transactions, to address potential
conflict of interest situations (proposed Rule 5630);
(j) The company will be required to disclose material information
through any Regulation FD compliant method (or combination of methods)
(proposed Rule 5250(b) and IM-5250-1);
(k) The listed securities must be eligible for a Direct
Registration Program operated by a clearing agency registered under
Section 17A of the Act \12\ (proposed Rules 5210(c) and 5255);
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\12\ 15 U.S.C. 78q-1.
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(l) Public ``shells'' would not be allowed to list (proposed Rule
5101); and
(m) The Exchange will conduct a public interest review of the
company and significant persons associated with it (proposed Rule 5101
and IM-5101-1).
In addition, BX would apply the following quantitative listing
standards, set out in proposed Rules 5505 (initial listing) and 5550
(continued listing), which are designed to assure a minimum level of
trading consistent with a public market for the securities:
(a) 200,000 publicly held shares;
(b) 200 public shareholders, at least 100 of which must be round
lot holders for initial listing, and 200 public shareholders for
continued listing;
(c) A market value of listed securities of at least $2 million for
initial listing and $1 million for continued listing;
(d) Two market makers; and
(e) A minimum initial listing price of $0.25 per share for
securities previously listed on a national securities exchange and
$1.00 per share for securities previously quoted in the over-the-
counter market. For continued listing, securities will be required to
maintain a minimum $0.05 per share bid price.
Further, with respect to companies not previously listed on a national
securities exchange, BX will also require for initial listing that the
company have either $1 million stockholders' equity or $5 million total
assets, a one year operating history, and a plan to maintain sufficient
working capital for the company's planned business for at least twelve
months after the first day of listing.
The Exchange would also require that rights and warrants will only
be eligible for initial and continued listing if the underlying
security is listed on BX or is a covered security, as described in
Section 18(b) of the Securities Act of 1933.\13\
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\13\ 15 U.S.C. 77r(b).
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The proposed listing standards are designed to allow companies that
are being delisted from another national securities exchange for
failure to meet that exchange's quantitative listing requirements the
opportunity to provide their investors with a better regulated, more
transparent trading environment than may otherwise be available in the
over-the-counter markets. In addition, the Exchange believes that
allowing these companies to continue trading on a national securities
exchange may enable some institutional investors to continue their
ownership stake in the company, which could provide greater stability
to the company's shareholder base and possibly avoid forced sales by
such investors.\14\ The Exchange also believes that companies currently
traded over-the-counter could view this market as an aspirational step
towards a listing on another national securities exchange. The Exchange
believes that the agreement of such companies to comply with the
Exchange's corporate governance standards and the application of the
Exchange's public interest authority will provide additional
protections to their investors than would be available in their present
trading venue. Moreover, the Exchange believes that a BX listing could
help such companies raise capital, in turn promoting job creation
within the United States. Finally, the Exchange believes that BX will
be a more attractive alternative to domestic companies that might
otherwise have considered a listing on non-U.S. junior markets, which
generally have lower listing requirements.
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\14\ Many institutional investors have investment policies that
limit their ownership to securities listed on a national securities
exchange, or that prohibit the ownership of securities that only are
traded in the over-the-counter market.
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Nonetheless, the Exchange recognizes that the listing requirements
for BX will be lower than those of the NASDAQ Stock Market and other
national securities exchanges. As such, to avoid investor confusion,
the listing rules of BX will specify that a BX-listed company should
refer to its listing as on the ``BX'' market, unless otherwise required
by applicable rules or regulations, and that such company should not
represent that it is listed on The NASDAQ Stock Market. Similarly, in
describing this listing venue, the Exchange will generally refer to it
as ``BX'' and not as NASDAQ OMX BX.
The Exchange will have the discretionary authority to deny listing
to any otherwise qualified security when
[[Page 54667]]
necessary to preserve and strengthen the quality of and public
confidence in its market. Proposed IM-5101-1 provides a non-exclusive
description of circumstances where the Exchange may exercise that
discretion, including when an individual associated with the company
has a history of regulatory misconduct. In that regard, the Exchange
intends to conduct background investigations of officers and directors
and other significant people associated with a company in connection
with its review of applications for initial listing. The Exchange also
will not approve for initial listing, or allow the continued listing,
of shell companies.\15\ This prohibition is based on concerns that the
investors in shell companies are unaware of the ultimate business in
which they are investing and that trading in such securities is more
susceptible to market manipulation.
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\15\ Proposed Rule 5101 sets forth a number of factors that the
Exchange will consider in determining whether a Company is a shell,
including whether the Company is considered a ``shell company'' as
defined in Rule 12b-2 under the Act, 17 CFR 240.12b-2.
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The Exchange proposes that any company that meets the quantitative
(e.g., financial) requirements for listing on Nasdaq will not be
allowed to initially list on BX. This will assure that such companies
only become listed on the exchange with higher listing standards.
Given that the Exchange expects to list companies that do not meet
the quantitative listing requirements of the primary existing national
securities exchanges, it is expected that BX-listed companies will
include smaller companies and companies facing business or other
challenges. Thus, the proposed quantitative standards for BX were
deliberately structured to be lower than those of the other primary
exchanges. In that regard, the minimum price requirement for listing on
BX will be $0.25 per share for a security previously listed on another
national securities exchange and $1.00 per share for a security
previously quoted in the over-the-counter market or listing in
connection with its initial public offering. Until March 31, 2011, the
Exchange would consider any company that was listed on another national
securities exchange at any time since January 1, 2008, to be eligible
to list with a $0.25 per share price. The Exchange believes it
appropriate to consider a company delisted since January 1, 2008, as
previously quoted on another national securities exchange because the
BX market would not have been available to such companies when they
were delisted. The Exchange believes it is reasonable to look back to
January 1, 2008, when the financial markets began facing difficulties,
which resulted in an unusually large number of companies being
delisted. Furthermore, the Exchange believes it is appropriate to
continue this treatment until March 31, 2011, to assure that such
companies have an adequate opportunity to learn about BX and sufficient
time to complete their application and have that application processed
by the Exchange. After March 31, 2011, a company will be considered to
have been previously listed on a national securities exchange, and
therefore eligible to list with a $0.25 per share price, only if it was
listed on such an exchange at any time during the three months prior to
its listing on BX. The Exchange believes that this three-month period
will allow the company sufficient time to apply for listing on BX and
have its application processed.
For continued listing, a security will be required to maintain a
minimum $0.05 per share bid price.\16\ If the security does not
maintain a minimum $0.05 per share bid price for ten consecutive
trading days, Exchange staff would issue a Staff Delisting
Determination and the security would be suspended from trading on
BX.\17\ A company could appeal that determination to a Hearings Panel,
however such an appeal would not stay the suspension of the
security.\18\ During the Hearings Panel process, the security could
regain compliance by achieving a $0.05 per share minimum bid price
while trading on another venue, such as the over-the-counter market,
for 10 consecutive days. However, if the company has received three or
more Staff Delisting Determinations for failure to comply with minimum
price requirement in the prior 12 months, the company could only regain
compliance by achieving a closing bid price of $0.25 per share or more
for at least 10 consecutive trading days. The Exchange believes that
this higher requirement for companies that were previously non-
compliant is appropriate to reduce the likelihood of future instances
of non-compliance and the concomitant investor confusion concerning the
ability of the company to remain listed. If the Hearings Panel
determines that the security has satisfied the applicable standard to
regain compliance, the trading halt would be terminated and the
security would resume trading on the Exchange.
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\16\ The Exchange notes there is also no price requirement for
initial or continued listing on the National Stock Exchange or for
continued listing on NYSE Amex and therefore that the proposed
continued listing requirement exceeds the requirement of those
exchanges.
\17\ Proposed Rule 4120(a)(12).
\18\ Proposed Rule 5815(a)(1)(C).
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To be eligible for initial listing, a company not previously listed
on a national securities exchange must have at least one year operating
history, a minimum of either $1 million in stockholders' equity or $5
million in total assets, and demonstrate that it has a plan to maintain
sufficient working capital for its planned business for at least twelve
months after the first day of listing. The Exchange believes that these
requirements will help assure that a company that was not previously
subject to exchange regulation nonetheless has a credible and
sustainable business.
The Exchange believes that the proposed public float, holder and
market maker requirements, together with the minimum market value of
listed securities requirement, will assure sufficient liquidity in
listed securities. In that regard, the Exchange notes that the
shareholder and publicly held shares requirements are comparable to, or
higher than, requirements for listing a preferred stock or secondary
class of common stock on the Nasdaq Capital Market, which require 100
round lot shareholders and 200,000 publicly held shares. The Exchange
is not aware of any difficulties in the trading in securities meeting
these requirements. Further, requiring two market makers will assure
competing quotations for potential buyers and sellers of the securities
listed on BX. Finally, the Exchange believes that the minimum market
value of listed securities requirement will help assure that the
company issuing the securities is of a sufficient size to generate
interest from investors and market participants. While these proposed
standards may be lower than those of other exchanges, investors will be
protected by the fact that securities listed on BX would be considered
penny stocks under Exchange Act Rule 3a51-1, unless they qualify for an
exemption from the definition of a penny stock.\19\ As such, broker-
dealers would be required to pre-approve their customers for trading in
[[Page 54668]]
penny stocks and investors will obtain the disclosures required to be
made by broker-dealers in connection with penny stock transactions,
providing them with trade and market information prior to effecting a
transaction. Further, there will be no ``blue sky'' exemption available
under Section 18 of the Securities Act of 1933,\20\ so companies will
be required to satisfy State law registration requirements and other
State laws that regulate the sale and offering of securities.
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\19\ 17 CFR 240.3a51-1. The Exchange is not seeking an exemption
from the penny stock rules for securities listed on BX, however a
security may be excluded from the definition of a penny stock as a
result of the security having a price in excess of $5 or its issuer
having net tangible assets in excess of $2 million (if the issuer
has been in continuous operation for at least three years) or $5
million (if the issuer has been in continuous operation for less
than three years) or average revenue of at least $6 million for the
last three years. Rule 3a51-1(d) and (g), 17 CFR 240.3a51-1(d) and
(g).
\20\ 15 U.S.C. 77r. Some State laws and regulations may provide
an exemption from certain registration or ``blue sky'' requirements
for companies listed on the Boston Stock Exchange, based on the
higher listing standards previously applied by the former Boston
Stock Exchange. Proposed Rule 5001 would provide that the Exchange
will take action to delist any company listed on BX that attempts to
rely on such an exemption. Companies will also agree not to rely on
any such exemption as a provision of the BX Listing Agreement.
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The BX corporate governance requirements are generally comparable
to those of the other exchanges. The Exchange would require that a
listed company have an audit committee comprised of at least three
independent directors that also meet the requirements of SEC Rule 10A-
3.\21\ For a director to be considered an independent director, the
company's board would have to determine that the individual does not
have a relationship which, in the board's opinion, would interfere with
the exercise of independent judgment in carrying out the
responsibilities of a director.\22\ The board would be precluded from
finding a director independent based on certain relationships,
including if that director is currently an employee of the company or
was employed by the company during the prior three years (including as
an executive officer), accepted certain compensation or payments from
the company during the prior three years, or had a family member with
certain affiliations with the company.\23\
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\21\ 17 CFR 240.10A-3. See proposed Rule 5605(c)(2). Companies
may be eligible for a phase-in or cure period with respect to
certain of these requirements.
\22\ Proposed Rule 5605(a)(2) and IM-5605-1. The proposed
definition of an independent director is identical to Nasdaq's
definition of an independent director.
\23\ Id.
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The audit committee would be required to have a charter setting out
its responsibilities, including the committee's purpose of overseeing
the accounting and financial reporting processes of the company and the
audits of the company's financial statements and the responsibilities
and authority necessary to comply with SEC Rule 10A-3.\24\ The audit
committee, or another independent body of the board, will also be
required to conduct an appropriate review and oversight of any related
party transaction.\25\ The Exchange believes that this requirement will
limit the potential for self-dealing in connection with any related
party transactions.
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\24\ Proposed Rule 5605(c)(1).
\25\ Proposed Rule 5630.
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The Exchange would also require that independent directors make
compensation decisions concerning the chief executive officer and other
executive officers.\26\ Independent directors would be required to meet
on a regular basis in executive sessions.\27\ These requirements for
audit committees, compensation decisions, and executive sessions are
identical to those of Nasdaq and substantially similar to those of the
other national securities exchanges and the Exchange believes they will
serve to empower the independent directors of its listed companies.
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\26\ Proposed Rule 5605(d) and IM-5605-6. A company can satisfy
this requirement by having their independent directors make these
decisions in executive session, or by having independent directors
sit on a compensation committee. If the company chooses to use a
compensation committee and the committee is comprised of at least
three members, one director who is not independent as defined in
Rule 5605(a)(2) and is not a current officer or employee or a Family
Member of an officer or employee, may be appointed to the
compensation committee under exceptional and limited circumstances,
provided the company makes appropriate disclosure. Of course the
Exchange will adopt rules required by Section 952 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act following the
necessary SEC rulemaking related to that provision.
\27\ Proposed Rule 5605(b).
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While the Exchange would require that a listed company have at
least three independent directors to satisfy the audit committee
requirement described above, it would not require that a majority of
the company's board of directors be independent or an independent
nomination committee because the Exchange believes those requirements
could impose significant additional costs on these smaller companies
and therefore discourage companies from pursuing an otherwise
beneficial listing. In that regard, given the significant
responsibilities imposed on audit and compensation committee members,
directors who serve on these committees are sometimes reluctant to
serve on other committees. As such, if BX were to also require an
independent nominations committee, companies may have to increase the
size of their boards and add additional independent directors.
Similarly, requiring that independent directors comprise a majority of
a company's board could also require companies to add additional
independent directors. In each case, the need to add independent
directors would impose additional costs on the company.\28\ Moreover,
nothing in the Commission's rules or the Act mandate these
requirements.\29\ However, BX believes that the requirement for
executive sessions of the independent directors will provide a forum
for the independent directors to consider whether the governance
structure of the company is appropriate and raise any concerns,
notwithstanding the lack of a majority independence and nominations
committee requirement.
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\28\ The 2008-2009 Director Compensation Report prepared by the
National Association of Corporate Directors (available from http://www.nacdonline.org/) found that the median total direct compensation
per director was $78,060 for smaller companies (defined as companies
with annual revenues of $50 to $500 million).
\29\ See, e.g., Item 407(a) of Regulation S-K, which requires
disclosure of non-independent directors who serve on nomination
committees, implicitly allowing such service.
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Companies listing on BX will be permitted to phase in compliance
with the audit committee and compensation committee requirements
following their listing. With respect to the audit committee
requirements, a company listing in connection with its initial public
offering would be required to have one independent director on the
committee at the time of listing; a majority of independent members
within 90 days of the date of effectiveness of the company's
registration statement; and all independent members within one year of
the date of effectiveness of the company's registration statement. For
this purpose, a company will be considered to be listing in conjunction
with an initial public offering only if it meets the conditions in SEC
Rule 10A-3(b)(1)(iv)(A), namely that the company was not, immediately
prior to the effective date of its registration statement, required to
file reports with the Commission pursuant to Section 13(a) or 15(d) of
the Act.
With respect to the compensation committee requirement, a company
listing in connection with its initial public offering, upon emerging
from bankruptcy, or that otherwise was not subject to a substantially
similar requirement prior to listing (such as a company only traded in
the over-the-counter market) would be required to have one independent
director on the committee at the time of listing; a majority of
independent members within 90 days of listing; and all independent
members within one year of listing. For this purposes, a company
[[Page 54669]]
will be considered to be listing in conjunction with an initial public
offering if immediately prior to listing it does not have a class of
common stock registered under the Act.
A company that transfers to BX from another national securities
exchange with a substantially similar requirement will be immediately
subject to the audit and compensation committee requirements, provided
that the company will be afforded the balance of any grace period
afforded by the other market.
The Exchange will require companies to adopt a code of conduct
applicable to all directors, officers and employees.\30\ Any waivers of
the code for directors or executive officers must be approved by the
board and disclosed. The Exchange believes that this requirement will
help promote the ethical behavior of individuals associated with
companies listed on BX.
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\30\ Proposed Rule 5610.
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In addition, the Exchange will require shareholder approval when a
company adopts or materially amends a stock option or purchase plan or
other equity compensation arrangement pursuant to which stock may be
acquired by officers, directors, employees, or consultants.\31\ The
Exchange would not require shareholder approval for other share
issuances, however, given that the companies expected to list on the
Exchange may have a greater need to issue shares more frequently or
more quickly, due to their expected smaller size and the business
challenges they may be facing. As such, the Exchange believes that the
cost and delay associated with seeking approval for share issuances
would discourage companies from pursuing an otherwise beneficial
listing.\32\ Nonetheless, the Exchange will require listed Companies to
provide notice of any 5% change in its shares outstanding \33\ and the
Exchange Staff will review such issuances for public interest concerns,
such as issuances significantly below the market price or for the
benefit of related parties.
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\31\ Proposed Rule 5635.
\32\ In this regard, the proposed rules are comparable to the
rules of the National Stock Exchange, which require shareholder
approval for equity compensation issuances but not for other share
issuances. See National Stock Exchange Rule 15.6.
\33\ Proposed Rule 5250(e)(1).
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Review Process
Companies denied initial or continued listing would be afforded a
review process similar to that contained in the existing Rule 4800
Series of the Exchange's rules, which was modeled on the process
available to companies listed on Nasdaq.\34\ The Exchange's Listing
Qualifications staff only will be able to allow time-limited exceptions
for certain deficiencies from the continued listing standards, such as
the failure to file periodic reports, certain of the corporate
governance requirements and any quantitative deficiency which does not
contain a compliance period.\35\ Other of the continued listing
requirements would provide for automatic compliance periods, including
the market maker, market value of publicly held shares and audit
committee requirements.\36\ If the company fails to timely solicit
proxies or hold its annual meeting or fails to meet the minimum price
requirement, or if staff has public interest concerns in connection
with the company, Listing Qualifications staff will issue an immediate
delisting letter to the company.\37\ Any other deficiency would result
in the Listing Qualifications staff issuing a Public Reprimand Letter
or a delisting notification.\38\ Hearings Panels composed of
individuals not affiliated with the Exchange would be permitted to
grant additional time to companies that received a delisting
notification, or that were denied initial listing. A company could
appeal a decision of the Hearings Panel to the Exchange Listing and
Hearing Review Council, which is a committee appointed by the
Exchange's Board to act for the Board with respect to listing
decisions.\39\ The Listing and Hearing Review Council decision would be
final, unless it is called for a discretionary review by the Exchange
Board.
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\34\ Nasdaq Listing Rules 5800-5899.
\35\ Proposed Rule 5810(c)(2).
\36\ Proposed Rule 5810(c)(3).
\37\ Proposed Rule 5810(c)(1).
\38\ Proposed Rule 5810(c).
\39\ Section 6.1 of the By-Laws on NASDAQ OMX BX, Inc.
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Fees
Companies would be required to submit an application review fee of
$7,500 with their application for listing on BX, and would be required
to pay a $15,000 annual fee for the first class listed on the Exchange
and $5,000 for each additional class. The annual fee would be pro-rated
for a company's first year of their listing. The application review fee
will allow the Exchange to recover some of the costs associated with
the initial review of the company's application, including staff time
and the systems supporting the initial review process. The annual fee
would similarly offset the staff and system costs of continued
monitoring of the company. The proposed application and annual fees are
substantially less than those charged by other national securities
exchanges.\40\ Companies that were previously listed on Nasdaq would
receive a credit, which can only be used to offset the annual fee, for
any annual fees paid to Nasdaq during the same calendar year that they
initially list on BX, for the months following their delisting from
Nasdaq. The Exchange believes this credit is a reasonable allocation of
fees under the Act because the Exchange and Nasdaq have the same
ultimate parent, The NASDAQ OMX Group, Inc., and the company will have
paid Nasdaq a non-refundable fee to provide similar services as those
that will be provided by BX under its annual fee. As such, the Exchange
believes it would be inequitable to charge the company a second fee in
the same year to support the provision of those services.
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\40\ For example, the initial listing fees for listing common
stock on the NASDAQ Capital Market range from $50,000 to $75,000 and
the annual fees are $27,500; the initial listing fees for listing
common stock on NYSE Amex range from $50,000 to $70,000 and the
annual fees range from $27,500 to $40,000; the initial listing fees
for listing common stock on the New York Stock Exchange range from
$150,000 to $250,000 and the annual fees range from $38,000 to
$500,000. See Nasdaq Rule 5920(a)(1) and (c)(1)(A), NYSE Amex Listed
Company Guide Sections 140 and 141, and NYSE Listed Company Manual
902.03.
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Fees would also be assessed for certain one-time events, such as a
$7,500 fee for substitution listing events, a $2,500 fee for record-
keeping changes, and a $4,000 or $5,000 fee for a written or oral
hearing, respectively. These fees are identical to those charged on
Nasdaq.
Under Proposed Rule 5602, a company considering a specific action
or transaction can request an interpretation from the Exchange, and in
return, the Exchange will prepare a responsive letter as to how the
rules apply to the proposed action or transaction. No company is
required to request an interpretation, and staff will orally discuss
the application of the Exchange's rules with companies without any
additional charge. However, if the company seeks a written response,
the Exchange proposes to charge a $15,000 fee to recoup the cost of
staff's time in reviewing and responding to the request.\41\ The
Exchange believes that the fee is appropriate, as the written response
is applicable only to the company that requests it. The Exchange also
believes that the written interpretive process,
[[Page 54670]]
and the associated fee, will provide an additional public benefit in
that staff will prepare anonymous summaries of interpretations, as well
as frequently asked questions based on requests received from
companies, including those withdrawn before a written response is
issued. These summaries and questions will be posted on the Exchange's
Web site so that the general public, practitioners, and other companies
can better understand how the Exchange applies its rules and policies.
In this way, the overall need to request such interpretations is
minimized, thus reducing burdens on companies and staff alike.
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\41\ No fee would be charged in connection with requests
involving a company's initial listing application given that the
company will pay an application fee.
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Other Changes
As part of the proposed rule change, the Exchange is deleting
portions of the Rule 4000 Series related to the listing and trading of
securities eligible to be listed on BX and correcting cross-references
to those deleted sections. The Exchange is maintaining those provisions
of the Rule 4000 applicable to securities that will not be eligible to
be listed on BX, such as Portfolio Depository Receipts, Index Fund
Shares, Trust Issued Receipts, Securities Linked to the Performance of
Indexes and Commodities, and Managed Fund Shares, to enable the
continued trading of such securities on the Exchange pursuant to
unlisted trading privileges.
The Exchange is deleting Rule 4430, which provided listing criteria
for limited partnership rollup transactions using language that was
substantially similar to language contained in FINRA Rule 2310.
Instead, the Exchange addresses these issues in proposed Rule 5210(h).
This rule adopts the same approach taken by Nasdaq and NYSE AMEX by
incorporating the FINRA rule by reference.\42\ In this manner, BX
satisfies the requirement of Section 6(b)(9) of the Exchange Act,\43\
which requires that the rules of a national securities exchange
prohibit certain limited partnership rollup transactions.
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\42\ Nasdaq Rule 5210(h) and NYSE Amex Listed Company Guide
Section 126.
\43\ 15 U.S.C. 78f(b)(9).
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The Exchange is also moving the additional requirements applicable
to the listing of securities issued by NASDAQ OMX or its affiliates
from Rule 4370 to Rule 5701.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\44\ in general and with
Sections 6(b)(5) of the Act,\45\ in particular in that it is designed
to prevent fraudulent and manipulative acts and practices, 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. The proposed new listing
venue will advance these goals by allowing qualified issuers to list on
a transparent, well-regulated marketplace with increased transparency
about the trading of these securities, thereby protecting investors and
the public interest and helping to prevent fraudulent and manipulative
acts and practices.
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\44\ 15 U.S.C. 78f.
\45\ 15 U.S.C. 78f(b)(5).
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In addition, the Exchange believes that the proposed market is
consistent with Section 17B of the Act, which codifies Congress'
findings that it is in the public interest and appropriate for the
protection of investors and the maintenance of fair and orderly markets
to improve significantly the information available to brokers, dealers,
investors, and regulators with respect to quotations for and
transactions in penny stocks and that a fully implemented automated
quotation system for penny stocks would meet the information needs of
investors and market participants and would add visibility and
regulatory and surveillance data to that market. Section 17B further
instructs the Commission to facilitate the widespread dissemination of
reliable and accurate last sale and quotation information with respect
to penny stocks, as the Exchange will for securities listed on BX,
through one or more automated quotation systems operated by a
registered securities association or a national securities exchange,
providing reliable pricing information and reporting of transactions.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
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 e-mail to [email protected]. Please include
File Number SR-BX-2010-059 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BX-2010-059. This file
number should be included on the subject line if e-mail 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 Web site (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 Web site 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
[[Page 54671]]
a.m. and 3 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; the Commission does
not 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-BX-2010-059 and should be
submitted on or before September 29, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\46\
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\46\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-22296 Filed 9-7-10; 8:45 am]
BILLING CODE 8010-01-P