[Federal Register Volume 75, Number 237 (Friday, December 10, 2010)]
[Notices]
[Pages 77036-77041]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-31078]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63448; File No. SR-BX-2010-059]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order
Instituting Proceedings To Determine Whether To Disapprove Proposed
Rule Change, as Modified by Amendment No. 1, To Create a Listing Market
on the Exchange
December 7, 2010.
I. Introduction
On August 20, 2010, NASDAQ OMX BX (``BX'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'' or
``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule
change to create a new listing market. The proposed rule change was
published for comment in the Federal Register on September 8, 2010.\3\
The Commission received three comments on the proposal.\4\ The
Commission subsequently extended the time period in 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, to December 7, 2010.\5\ On December 6, 2010, BX
submitted Amendment No. 1 to the proposed rule change.\6\ This order
institutes proceedings to determine whether to disapprove the proposed
rule change, as modified by Amendment No. 1. Institution of disapproval
proceedings, however, does not indicate that the Commission has
formulated any conclusions with respect to any of the issues involved.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 62818 (September 1,
2010), 75 FR 54665 (``Notice'').
\4\ See Letters to Elizabeth M. Murphy, Secretary, Commission,
from Tom A. Alberg, Managing Director and Founder, Madrona Venture
Group, dated December 1, 2010 (``Madrona Letter''); Michael R.
Trocchio, Bingham McCutchen LLP, dated October 3, 2010 (``Pink OTC
Markets Letter''); and William F. Galvin, Secretary of the
Commonwealth, Commonwealth of Massachusetts, dated September 28,
2010 (``MSD Letter'').
\5\ See Securities Exchange Act Release No. 63105 (October 14,
2010), 75 FR 64772 (October 20, 2010).
\6\ See infra Section II for a description of Amendment No. 1.
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II. Description of the Proposal \7\
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\7\ This description does not review every rule proposed by BX
that has been filed as part of its proposed rule change; rather, it
focuses on the most prominent rules considered in review of the BX's
proposal. See Notice, supra note 3, for a description of the
proposed rule change. See also Exhibit 5 to the Form 19b-4 for all
the rules proposed by BX, available at http://www.sec.gov/rules/sro/bx/2010/34-62818-ex5.pdf.
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The Exchange proposes to create a new listing market, to be called
the ``BX Venture Market.'' \8\ The Exchange has stated that it expects
that the securities listed on BX would not be classified as national
market system (``NMS'') securities.\9\ As a result, BX-listed
securities would not be subject to an NMS plan and would not be subject
to Regulation NMS under the Act.\10\ BX-listed securities would trade
on the Exchange and also could trade over-the-counter (``OTC'').\11\
Further, BX-listed securities would be considered penny stocks under
Exchange Act Rule 3a51-1, unless they qualify for an exemption from the
definition of a penny stock.\12\ No ``blue sky'' exemption would be
available under Section 18 of the Securities Act of 1933 or the rule
adopted thereunder,\13\ so companies would be required to satisfy state
law registration requirements and other state laws that regulate the
sale and offering of securities. In addition, BX would not list any
company that meets the quantitative (e.g., financial) requirements for
listing on The NASDAQ Stock Market LLC (``Nasdaq'').
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\8\ See Amendment No. 1. As originally proposed, the proposed
rule change provided that a BX-listed company should refer to its
listing as on the ``BX.''
\9\ See Notice, supra note 3.
\10\ See 17 CFR 242.600 et seq.
\11\ OTC trades of BX-listed securities would be reported to the
Financial Industry Regulatory Authority (``FINRA'') OTC Reporting
Facility. See Notice, supra note 3.
\12\ See 17 CFR 240.3a51-1.
\13\ 15 U.S.C. 77r; Securities Act Rule 146. In addition, 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. The proposed
listing rules would provide that the Exchange will take action to
delist any company listed on BX that attempts to rely on such an
exemption. Companies would also agree not to rely on any such
exemption as a provision of the BX Listing Agreement.
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To qualify for initial listing on BX, a company must be registered
under Section 12(b) of the Act \14\ and be current in its periodic
filings with the Commission. The company would also be required to have
a fully independent audit committee comprised of at least three members
and comply with the requirements of Rule 10A-3 under the Exchange
Act.\15\ The company would be required to have its independent
directors make compensation decisions for executive officers (either by
having the independent directors meet in executive session or by having
them sit on a compensation committee), and independent directors would
be required to meet on a regular basis in executive sessions.\16\ The
company's
[[Page 77037]]
audit committee would be required to have a charter setting out its
responsibilities. The audit committee, or another independent body of
the board, would also be required to conduct appropriate review and
oversight of any related party transactions.
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\14\ 15 U.S.C. 78l(b).
\15\ 17 CFR 240.10A-3. Certain 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.
\16\ 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 OTC 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.
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BX has proposed the following quantitative listing standards for
the initial listing of securities that were not previously listed on a
national securities exchange: (1) $1 million of stockholders' equity or
$5 million total assets; (2) 200,000 publicly held shares; (3) 200
public shareholders, at least 100 of which must be round lot holders;
(4) $2 million market value of listed securities; (5) $1.00 minimum bid
price per share; (6) one year operating history; and (7) two registered
and active market makers. In addition, the company would also be
required to 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.
BX has proposed the following quantitative listing standards for
the initial listing of securities that have previously been listed on a
national securities exchange: (1) 200,000 publicly held shares; (2) 200
public shareholders, at least 100 of which must be round lot holders;
(3) $2 million market value of listed securities; (4) $0.25 minimum bid
price per share; and (5) two registered and active market makers. A
company would be considered to have been previously listed on another
national securities exchange if it was listed on such exchange at any
time during the three months before its listing on BX, or, until
September 30, 2011, if the company was listed on another national
securities exchange at any time between January 1, 2008 and September
30, 2011.\17\
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\17\ See Amendment No. 1. As originally proposed, a company
would be considered to have been previously listed on another
national securities exchange if it was listed on such exchange at
any time during the three months before its listing on BX, or until
March 31, 2011, if the company was listed on another national
securities exchange at any time between January 1, 2008 and March
31, 2011.
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The Exchange would have the discretionary authority to deny listing
to any otherwise qualified security when it is necessary to preserve
and strengthen the quality of, and public confidence in, its
market.\18\ The Exchange would conduct a public interest review of the
company and significant persons associated with it.\19\ In that regard,
the Exchange stated that it 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.\20\ In addition, the Exchange would not approve
for listing or allow the continued listing of ``shell'' companies.
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\18\ See infra Section II for examples of circumstances under
which the Exchange would exercise such discretionary authority, as
set out in Amendment No. 1.
\19\ See infra Section II for a more detailed discussion of
public interest reviews, as set out in Amendment No. 1.
\20\ See id.
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For continued listing on BX, a security would be required to
satisfy the following listing standards: (1) At least 200,000 publicly
held shares; (2) at least 200 public shareholders; (3) market value of
listed securities of at least $1 million; (4) minimum bid price of at
least $0.25 \21\ per share; and (5) at least two registered and active
market makers. If the security does not maintain the minimum $0.25 per
share bid price for twenty consecutive trading days,\22\ Exchange staff
would issue a Staff Delisting Determination and the security would be
suspended from trading on BX. A company could appeal that determination
to a Hearings Panel; however, such an appeal would not stay the
suspension of the security. During the Hearings Panel process, the
security could regain compliance by achieving a $0.25 \23\ per share
minimum bid price while trading on another venue, such as the OTC
market, for ten consecutive days. However, if the company has received
three or more Staff Delisting Determinations for failure to comply with
the minimum bid price requirement in the prior twelve months, the
company could only regain compliance by achieving a closing bid price
of $0.25 per share or more for at least twenty consecutive trading
days.\24\
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\21\ See Amendment No. 1. As originally proposed, a BX-listed
company would have been required to maintain a minimum bid price of
at least $0.05 per share.
\22\ See Amendment No. 1. As originally proposed, if a BX-listed
security does not maintain a minimum bid price of $0.05 per share
for ten consecutive trading days, Exchange staff would issue a Staff
Delisting Determination and the security would be suspended from
trading on BX.
\23\ See Amendment No. 1. As originally proposed, a BX-listed
company could regain compliance by achieving a $0.05 per share
minimum bid price while trading on another venue for ten consecutive
trading days.
\24\ See Amendment No. 1. As originally proposed, a BX-listed
company could only regain compliance by achieving a closing bid
price of $0.25 per share for at least ten consecutive trading days.
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Description of Amendment No. 1
Amendment No. 1 makes the following modifications to the proposed
rule change:
Renames the market from ``BX'' to ``BX Venture Market'' to
distinguish the BX Venture Market from Nasdaq, provides that the
Exchange will monitor press releases issued by BX-listed companies and
annually review their Web sites to determine how a company is referring
to its listing, and provides that the Exchange will include information
on its Web site describing the differences between the BX Venture
Market and other national securities exchanges, including Nasdaq;
Provides that BX will disseminate quotation and
transaction information about BX-listed securities and that this
information will include a market center identifier;
Provides that BX will require data vendors to identify
when the BX Venture Market is the listing market for a security and
clearly differentiate those securities from securities listed on Nasdaq
or other exchanges or traded OTC when displaying information to
external users on their single security quotation screens;
States that listings and delistings will be processed by
the staff in Nasdaq's Listing Qualifications Department, who, according
to the Exchange, are extremely experienced in regulatory analysis;
states that BX will hire additional staff if the workload from the new
BX Venture Market proves ``sufficiently high''; and notes that the
staff within the Listing Qualifications Department is now, and will
continue to be, reviewed regularly by Nasdaq's Chief Regulatory Officer
and Regulatory Oversight Committee, and will also be reviewed by BX's
Regulatory Oversight Committee;
Prohibits the initial or continued listing of a company if
any executive officer or director was involved in any event that
occurred during the prior five years that is required to be disclosed
under Items 401(f)(2)-(8) of Regulation S-K and that, in the case of a
listed company, the company would be provided 30 days to remove the
executive officer or director or be issued a delisting notification;
Provides that the Exchange would use its discretionary
authority, where appropriate, to deny initial or continued listing in
cases where: (1) An executive officer or director has reported
misconduct that occurred between five and ten years before the
disclosure or misconduct not required to be disclosed under Item 401 of
Regulation S-K; or (2) an individual who is not an executive officer or
director, but who has significant influence or importance to the
company such as a control person or significant shareholder, has a
history of regulatory misconduct;
[[Page 77038]]
Indicates that in connection with initial listing
applications and when a new executive officer or director becomes
associated with a BX-listed company, BX will conduct background
investigations of executive officers, directors, and other significant
associated people using public databases, and will retain outside firms
to assist it in its review as needed, including investigative,
accounting, and law firms, and provides that BX's listing application
will solicit information about certain legal or administrative
proceedings against the company and its officers, directors, and 10% or
greater shareholders;
Provides that the head of the Exchange's Listing
Department will be involved in all decisions concerning whether to
permit or deny listing to a company based on a public interest concern
and that the Exchange's Chief Regulatory Officer will be required to
approve the initial or continued listing of any company that has
disclosed information about an executive officer, director, or control
person under Items 401(f)(2)-(8) of Regulation S-K that does not
trigger the automatic bar described above;
Increases the continued listing price from $0.05 to $0.25
per share and provides that the Exchange will issue a Staff Delisting
Determination and suspend a BX-listed security from trading on the
Exchange if such security does not maintain the minimum continued
listing price of $0.25 per share for twenty consecutive trading days,
rather than for the originally proposed ten consecutive trading days;
Shortens the periods that a non-compliant company may
remain listed by, for example, providing that a Hearings Panel would
only be permitted to grant 90 calendar days for a company to regain
compliance with a listing standard, instead of the 180 calendar days
available on Nasdaq and providing that a company that falls below the
market value of listed securities requirement would be provided a 90
calendar day compliance period, instead of the 180 days available to a
Nasdaq-listed company;
Undertakes to provide the Commission with: (1) Monthly
reports describing developments on the BX Venture Exchange, including a
list of companies added or removed from the market; and (2) quarterly
reports from the Exchange's Chief Regulatory Officer describing the
listing and surveillance activities of the Exchange;
Requires listed companies to provide the Exchange with
copies of any ``blue sky memoranda'' prepared in connection with the
issuance of shares, provides that BX will review these memoranda to
assure that the company is not inappropriately relying on such a state
blue sky exemption, agrees to take action to delist any BX-listed
company that attempts to rely on such an exemption, and provides that
companies will agree to not rely on any such exemption as a provision
of the BX listing agreement;
Represents that FINRA will regulate market activity on the
BX and that FINRA will enhance its review process by calibrating its
surveillance patterns to detect potential issues that may arise in low
priced stocks, noting that FINRA's review will include the trading of
BX-listed securities on the OTC market and that FINRA will review
activity of its member firms quoting on the BX when conducting reviews
of these firms, which will include ``focused exams'' concentrated on
sales practices and firm oversight;
States that the SMARTS Group, a Nasdaq OMX company, will
create a new suite of quoting and trading patterns to detect suspicious
activity in low priced and less widely traded securities; and
Provides that BX will disseminate quotation and
transaction information about BX-listed securities via several market
data products to ensure broad dissemination of quotation and last sale
information, and states that it is committed to ensuring that
quotations and transaction information from BX are consolidated with
similar information from OTC quotation and trading supervised by FINRA.
III. Comment Letters
The Commission received three comment letters on the proposal. The
Massachusetts Securities Division (``MSD'') noted in its letter that,
although BX proposes qualitative listing standards that resemble those
of Nasdaq, the proposed quantitative listing standards will be far
lower.\25\ MSD then noted that the laws of Massachusetts and 11 other
states exempt securities listed on the ``Boston Stock Exchange'' from
their securities laws registration requirements.\26\ MSD stated its
belief that these exemptions were predicated on exchange-listed
companies having met certain minimum quality criteria.\27\ MSD noted
that the proposed rule change states that the BX market is not among
the national securities exchanges enumerated in Section 18(b) of the
Securities Act of 1933 and that the securities listed on BX will not be
preempted securities under that section.\28\ MSD also noted that the
Exchange will require its listed companies to agree not to claim any
state's exchange-listing exemption for their securities and will delist
securities of companies that claim such exemption.\29\ However, MSD
expressed concern that these requirements will not prevent unscrupulous
penny stock promoters or boiler room brokerages from asserting that the
securities they are offering and selling are exempt from state
registration because the securities are listed on the Exchange.\30\ MSD
expressed further concern that because the Exchange is owned by and is
under the supervision of the parent company of Nasdaq, the BX listing
market will inappropriately borrow some of the prestige of Nasdaq,
despite the steps that Nasdaq may take to promote BX as a separate
listing market.\31\
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\25\ See MSD Letter, supra note 4, at p. 2.
\26\ See id.
\27\ See id.
\28\ See id.
\29\ See id.
\30\ See id.
\31\ See id. at p. 3.
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Pink OTC Markets Inc. (``Pink OTC'') noted that there may be
investor confusion with respect to the differences between Nasdaq-
listed securities and BX-listed securities.\32\ Pink OTC further stated
its belief that it is important that market data relative to BX-listed
securities be disseminated in a manner that makes clear that BX-listed
securities are not NMS securities, nor do they meet the normally higher
listing standards for exchange-listed securities, including those of
Nasdaq.\33\ To alleviate investor confusion, Pink OTC suggested that
ticker symbols for BX-listed securities should differentiate such
securities from other securities that meet the higher listing standards
typically associated with listing on a national securities
exchange.\34\
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\32\ See Pink OTC Letter, supra note 4.
\33\ See id. at p. 2.
\34\ See id.
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Pink OTC also stated its belief that quotation and transaction
reports for BX-listed securities should not be disseminated under any
NMS plan, nor commingled with NMS data by an NMS plan processor.\35\ In
particular, Pink OTC stated its belief that Nasdaq should not be
permitted to disseminate BX-listed securities market data commingled
with the Nasdaq market data it disseminates under the Nasdaq UTP
Plan.\36\
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\35\ See id. at p. 3.
\36\ See id.
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With respect to the BX's proposed listing standards, Pink OTC
argued that BX should not be permitted to allow phase-in compliance
with the independent director requirements of
[[Page 77039]]
the audit and compensation committees for certain companies.\37\
Finally, Pink OTC recommended that the Commission consider requiring BX
to conduct background checks and other similar reviews of potential
listed companies and not merely rely on the documents presented by an
issuer during the listing process.\38\
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\37\ See id. at p. 6.
\38\ See id. at p. 6-7.
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On the other hand, Madrona Venture Group noted that the BX listing
market will have listing requirements and costs that are tailored to
the economic reality of smaller companies, and that this market would
be extremely helpful to young, high growth emerging companies by
offering an alternative listing market for companies that wish to make
an initial public offering, but do not meet the initial quantitative
listing standards of the other national securities exchanges.\39\
Madrona Venture Group also stated its belief that the BX listing market
could bolster capital markets and provide opportunities for small
companies to transition from private to public ownership, to expand
their financial resources, and to raise the capital they need for
continued growth.\40\ Additionally, Madrona Venture Group stated its
belief that the BX listing market would attract companies and capital
that would otherwise be drawn to foreign markets, where regulatory
costs and litigation risks are lower.\41\
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\39\ See Madrona Letter, supra note 4, at p. 1.
\40\ See id.
\41\ See id. at p. 1-2.
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IV. Proceedings To Determine Whether To Disapprove SR-BX-2010-059 and
Grounds for Disapproval Under Consideration
The Exchange's proposal is presented as providing a transparent,
well-regulated marketplace for the listing of companies that are being
delisted from another national securities exchange for failure to meet
quantitative listing standards (including price or other market value
measures) and for companies with smaller market capitalization
contemplating an initial exchange listing. The Exchange believes that a
BX listing could help such companies raise capital, and in turn promote
job creation within the United States. The Exchange also believes that
there are benefits from exchange trading and surveillance.
For example, the Exchange believes that a BX listing would allow
the securities of companies that are being delisted from another
national securities exchange for failure to meet that exchange's
quantitative listing requirements to continue to trade on a national
securities exchange. This may enable some institutional investors to
continue their ownership stake in those companies, which in turn could
provide greater stability to the companies' shareholder base.\42\ In
addition, the Exchange believes that companies currently traded OTC
could view the BX Venture Market as an aspirational step towards a
listing on another national securities exchange and that the agreement
of such companies to comply with the Exchange's corporate governance
standards along with the application of the Exchange's public interest
authority will provide additional protections to their investors.
Finally, the Exchange believes that the BX Venture Market will be a
more attractive alternative for domestic companies that might otherwise
have considered a listing on non-U.S. junior markets which, according
to the Exchange, generally have less vigorous listing requirements.
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\42\ According to the Exchange, 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 OTC market. See
Notice, supra note 3.
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The proposed BX listing standards discussed above, however, are
significantly lower than the listing standards for other exchange-
listed securities.\43\ These lower listing standards on BX may raise
issues as to whether the proposed rule change is consistent with the
Act. Among other things, listing standards must be designed to assure
that there is sufficient liquidity for trading on an exchange and to
reduce the likelihood of manipulation and fraud.\44\ The Commission
believes that the development and enforcement of adequate standards
governing the initial and continued listing of securities on an
exchange are activities of critical importance to the financial markets
and the investing public.\45\ Listing standards serve as a means for an
exchange to screen issuers and to provide listed status only to bona
fide companies that have, or in the case of an initial public offering
will have, sufficient public float, investor base, and trading interest
to provide the depth and liquidity necessary to promote fair and
orderly markets.\46\ Adequate standards are especially important given
the expectations of investors regarding exchange trading and the
imprimatur of listing on a particular market.\47\ Once a security has
been approved for initial listing, continued listing standards allow an
exchange to monitor the status and trading characteristics of that
security to ensure that it continues to meet the exchange's standards
for market depth and liquidity so that fair and orderly markets can be
maintained, and so that only companies suitable for listing remain
listed on a national securities exchange.
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\43\ For example, BX would require a BX-listed company to have
only 200,000 publicly held shares, which is significantly lower than
the number of publicly held shares required by exchanges with active
listing programs today. See, e.g., NYSE Amex Company Guide Section
102(a) (requiring a minimum public distribution of 500,000 shares
and 800 public shareholders, or a minimum public distribution of 1
million shares and 400 public shareholders); NASDAQ Stock Market
Rule 5505(a)(2) (requiring a minimum of 1 million publicly held
shares); and NYSE Listed Company Manual Section 102.01A (requiring a
minimum of 1.1 million publicly held shares). Even ``Tier II''
listing standards require listed companies to have at least 250,000
publicly held shares. See, e.g., CBOE Rule 31.6(3) (requiring at
least 1 million publicly held shares for initial listing of research
and development type issuers).
\44\ See, e.g., Exchange Act Section 6(b)(5).
\45\ See, e.g., Securities Exchange Act Release No. 61912 (April
15, 2010), 75 FR 21094, 21094 (April 22, 2010) (SR-NYSE-2010-15).
\46\ See id.
\47\ See id.
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The Commission notes that the Exchange has submitted Amendment No.
1 in an effort to address certain potential concerns with the proposed
rule change. However, at this time and for the reasons noted below, the
Commission is instituting proceedings pursuant to Section 19(b)(2)(B)
of the Act \48\ to determine whether the proposed rule change should be
disapproved. Institution of such proceedings appears appropriate at
this time in view of the legal and policy issues raised by the
proposal. Institution of the proceedings, however, does not indicate
that the Commission has formulated any conclusions with respect to any
of the issues involved. Rather, as described in greater detail below,
the Commission seeks and encourages interested persons to comment on
the proposed rule change.
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\48\ 15 U.S.C. 78s(b)(2)(B).
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The section of the Act applicable to the proposed rule change that
provides the grounds for the disapproval (or approval) under
consideration is Section 6(b)(5),\49\ which requires that the rules of
an exchange be designed, among other things, to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system and, in general,
to protect investors and the public interest. Specifically, the
[[Page 77040]]
Exchange is proposing initial and continued listing standards that are
significantly lower than those of other exchanges with active listing
markets.\50\ Among other things, this raises issues as to whether BX-
listed securities could be more prone to manipulation by an individual
or a few shareholders who acquire a dominant interest in the publicly-
held shares compared to other exchange-listed securities. This issue is
particularly pronounced with smaller company stocks, which historically
have been the targets of manipulative schemes.\51\
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\49\ 15 U.S.C. 78f(b)(5).
\50\ See supra note 43.
\51\ See, e.g., Securities Act Release No. 8878 (December 19,
2007), 72 FR 73534, 73536 (December 27, 2007) (S7-10-07) (stating
that ``[i]t has been observed that the securities of smaller public
companies are comparatively more vulnerable to price manipulation
than the securities of larger public companies'').
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The proposed rule change also raises issues as to whether investors
will understand that BX-listed securities are very different from other
exchange-listed securities, and could pose substantially more
investment risk than those listed on other markets due, for example, to
their size, financial condition, or limited operational history. This
potential for investor confusion may be compounded because, as
exchange-listed securities, other exchanges could trade them on an
unlisted trading privileges (``UTP'') basis.\52\ Because the smaller
BX-listed securities may be traded UTP on the same platform as larger
companies listed by the primary listings markets, this raises issues as
to whether investors could have even more difficulty distinguishing
between BX-listed securities and other exchange-listed securities.
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\52\ Under Exchange Act Section 12(f)(1)(A) and Rule 12f-5
thereunder, a national securities exchange may trade exchange-listed
securities on a UTP basis. See 15 U.S.C. 78l(f)(1)(A) and 17 CFR
240.12f-5. Accordingly, other national securities exchanges would be
able to trade BX-listed securities, without obtaining additional
Commission approval.
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At the same time, as noted above, the Commission acknowledges that
the BX listing market would be an alternative to the OTC market and
could provide important benefits to this market segment, including
enhanced regulation and increased price transparency. In particular,
BX's proposed listing standards would be higher than the requirements
for quoting on the OTC Bulletin Board, which does not have any listing
requirements per se, but only requires issuers to remain current in
their filings with the Commission or other applicable regulatory
authorities. For example, as the Exchange notes, the agreement of BX-
listed companies to comply with the Exchange's corporate governance
standards and the application of the Exchange's public interest
authority could provide additional protections to investors than the
protections available at their present trading venue. The Commission
also notes that trading in BX-listed securities would be subject to
regulation through BX's trading rules and surveillance authority.
Additionally, the BX listing market could make it easier for companies
with smaller market capitalization to raise capital, thereby promoting
job creation. Finally, permitting companies with smaller market
capitalization to list on BX could provide them with a viable
alternative for U.S. listing to listing on non-U.S. markets that may be
equivalent to the proposed BX market.
V. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data and arguments with respect to the
issues identified above, as well as any others they may have identified
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposed rule change
is inconsistent with Section 6(b)(5) or any other provision of the Act,
or the rules and regulations thereunder. Although there do not appear
to be any issues relevant to approval or disapproval which would be
facilitated by an oral presentation of views, data, and arguments, the
Commission will consider, pursuant to Rule 19b-4, any request for an
opportunity to make an oral presentation.\53\
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\53\ Section 19(b)(2) of the Act, as amended by the Securities
Acts Amendments of 1975, Public Law 94-29, 89 Stat. 97 (1975),
grants the Commission flexibility to determine what type of
proceeding--either oral or notice and opportunity for written
comments--is appropriate for consideration of a particular proposal
by a self-regulatory organization. See Securities Acts Amendments of
1975, Report of the Senate Committee on Banking, Housing and Urban
Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess.
30 (1975).
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Interested persons are invited to submit written data, views and
arguments regarding whether the proposed rule change should be
disapproved by January 24, 2011. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
February 8, 2011.
The Commission is asking that commenters address the merit of BX's
statements in support of the proposal, in addition to any other
comments they may wish to submit about the proposed rule change.
Specifically, the Commission is requesting comment on the following:
Do commenters agree with BX's belief that the proposed BX
listing market will provide a transparent, well-regulated marketplace
for companies with smaller market capitalization contemplating an
initial exchange listing and companies delisted from another national
securities exchange for failure to meet quantitative listing standards?
Why or why not?
Is the proposed vetting and due diligence process of
prospective issuers on the BX listing market sufficient to prevent
companies that might erode investor confidence (due to potential fraud)
in the market from listing? Why or why not?
Given that BX-listed companies are likely to be smaller
than listed companies on other exchanges, should BX undertake any
additional measures (including additional surveillances) to reduce the
risk of fraudulent and manipulative behavior with respect to the
listing and/or trading of BX-listed securities? Why or why not?
Do commenters believe there is any likelihood of investor
confusion regarding the BX listing market? Would investors be inclined
to believe that a BX-listed company is listed on Nasdaq? Are the
Exchange's proposed actions to reduce or avoid investor confusion
sufficient? Why or why not? If not, what additional measures should the
Exchange undertake?
Do the proposed initial and continued listing standards
for the BX listing market assure sufficient liquidity in listed
securities? Why or why not? Are there other listing criteria that
commenters would suggest to better assure sufficient liquidity in
listed securities?
Are the proposed initial and continued listing standards
for the BX listing market sufficiently designed to reduce the risk that
an individual or small group of shareholders will be in a position to
manipulate the listed security? Why or why not?
Are the proposed initial and continued listing standards
and the delisting process for the BX listing market sufficiently
designed to prevent stocks that are of a type that historically have
been prone to fraudulent schemes from being listed? Why or why not?
Do commenters believe that the proposed delisting and
appeals procedures and timeframes are sufficient and appropriate? Are
the timeframes too long or too short? Why or why not?
Are the proposed corporate governance standards for the BX
listing market sufficiently designed to assure
[[Page 77041]]
an appropriate level of corporate governance? Why or why not?
Do commenters agree with the Exchange's belief that a BX
listing could help companies raise capital and thus promote job
creation within the United States? Why or why not?
Has BX sufficiently addressed how quotations and
transactions reports relating to BX-listed securities will be
disseminated? Will this result in fragmentation of pricing information
relating to these securities? Will this undermine the ability of
investors to receive best execution? Why or why not?
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, Station Place, 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
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 publicly available. All
submissions should refer to File Number SR-BX-2010-059 and should be
submitted on or before January 24, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\54\
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\54\ 17 CFR 200.30-3(a)(57).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-31078 Filed 12-9-10; 8:45 am]
BILLING CODE 8011-01-P