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Federal Register / Vol. 86, No. 39 / Tuesday, March 2, 2021 / Notices Capital Raise must begin trading on Nasdaq following the initial pricing through the Nasdaq Halt Cross, which is described in Rules 4120c8 and 4753.
To allow such initial pricing, the company must, in accordance with Rule 4120c9, have a broker-dealer serving in the role of financial advisor to the issuer of the securities being listed, who is willing to perform the functions under Rule 4120c8 that are performed by an underwriter with respect to an initial public offering.19
However, as described in detail below, Nasdaq proposes to modify Rule 4120c9, in part related to certain functions that are performed by an underwriter in an IPO or a financial advisor in a Direct Listing, to require that in the case of a Direct Listing with a Capital Raise, Nasdaq, in consultation with the financial advisor to the issuer, will make the determination of whether the security is ready to trade and whether to postpone and reschedule the offering as described in Rule 4120c8A.
Amendment to Rule 4702

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The Exchange proposes to amend Rule 4702 to add a new order type, the Company Direct Listing Order or CDL Order, which will be used for the companys order in a Direct Listing with a Capital Raise. This will be a market order entered for the quantity of shares offered by the issuer, as disclosed in an effective registration statement for the offering that will execute at the price determined in the Nasdaq Halt Cross. A
CDL Order may be entered only on behalf of the issuer and the CDL Order may not be cancelled or modified. Only one Nasdaq member, representing the issuer, may enter a CDL Order during a Direct Listing with a Capital Raise. The price of the CDL Order will be set in accordance with Rule 4120c9B that requires, among other things, that the CDL Order is executed at or above the lowest price and at or below the highest price of the price range established by the issuer in its effective registration statement.
Under Nasdaq rules, a market order, such as the CDL Order, must be executed in full at the price determined in the Nasdaq Halt Cross. In addition, all orders priced better than the price 19 As noted below, the Exchange also proposes to amend Rule 4120c9 to specify that any services provided by such financial advisor to the issuer of a security, including a company listing in connection with a Direct Listing with a Capital Raise, must provide such services in a manner that is consistent with all federal securities laws, including Regulation M and other antimanipulation requirements.

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determined in the Nasdaq Halt Cross also would need to be satisfied.20
Amendments to Rules 4120c9, 4753a3 and 4753b2
Nasdaq proposes to amend Rules 4120c9, 4753a3 and 4753b2 to establish requirements for disseminating information, establishing the opening price and initiating trading through the Nasdaq Halt Cross in a Direct Listing with a Capital Raise.
Under the proposal, in the case of the Direct Listing with a Capital Raise, a security shall not be released for trading by Nasdaq unless the actual price calculated by the cross is at or above the lowest price and at or below the highest price of the price range established by the issuer in its effective registration statement.21 This requirement would be in addition to the existing conditions described in Rule 4120c8Ai, ii, and iii, which would continue to apply, as modified by the proposed changes to Rule 4120c9, as described below.22
Rules 4120c8 and 9 provide that the underwriter of the IPO, or the financial advisor in a Direct Listing, respectively, provide notice to Nasdaq that the security subject to the Nasdaq Halt Cross is ready to trade. 23 These rules also provide that the underwriter of the IPO, or the financial advisor in a Direct Listing, with concurrence of Nasdaq, may determine at any point during the Halt Cross process up through the conclusion of the prelaunch period to postpone and reschedule the pricing of the security subject to the Nasdaq Halt Cross.
However, Nasdaq proposes to require that in the case of a Direct Listing with 20 The Commission did not identify any concerns with the proposed changes to Rule 4702 in the OIP.
Accordingly, no changes to that proposed rule are proposed in this amendment. Nasdaq notes that the proposed CDL Order is similar in some respects to a limit order because it cannot execute at a price less than the lowest price in the price range disclosed by the issuer in its effective registration statement. As a market order, the CDL Order is guaranteed to execute in the Nasdaq Halt Cross.
21 See Proposed Rule 4120c9B.
22 Rule 4120c8A provides that a security will not be released for trading until Nasdaq receives notice from the underwriter of the IPO or financial advisor in the case of a Direct Listing that the security is ready to trade, the system verifies that all market orders will be executed in the Cross, and the price determined in the Cross satisfies a price validation test.
23 Rule 4120c8Ai provides that Nasdaq receives notice from the underwriter of the IPO that the security is ready to trade. The Nasdaq system will calculate the Current Reference Price at that time and display it to the underwriter. If the underwriter then approves proceeding, the Nasdaq system will conduct certain validation checks.
Under this proposal, Nasdaq will take over these functions of the underwriter, as described in detail below.

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a Capital Raise, Nasdaq, in consultation with the financial advisor to the issuer, will make the determination of whether the security is ready to trade and whether to postpone and reschedule the offering as described in Rule 4120c8A. Specifically, Nasdaq auction technology displays the Current Reference Price, which is the price at which the auction can cross the largest number of securities subject to the Nasdaq Halt Cross. If the auction cannot match all the entered orders at the Current Reference Price, an imbalance on the buy or sell side is displayed and provided via Nasdaq data feeds. Nasdaq would determine that the security is ready to trade when Nasdaq believes, based on the displayed information referenced above, that a reasonable volume of securities will cross on the initial trade to minimize the immediate price volatility following the initial pricing.24 Nasdaq may consult with the financial advisor to the issuer as to the reasonableness of such volume but can determine that the security is ready to trade without such consultation. Once Nasdaq has determined that the security is ready to trade, which will satisfy the requirement of Rule 4120c8Ai, Nasdaq shall release the security for trading if the conditions described in Rules 4120c8Aii and iii are met and the actual price calculated by the Cross is at or above the lowest price and at or below the highest price of the price range established by the issuer in its effective registration statement.
If there is insufficient buy interest to satisfy the CDL Order, and all other market orders, as required by this proposed rule, or if the actual price calculated by the Cross is outside the price range established by the issuer in its effective registration statement, the Cross would not proceed and such security would not begin trading. In such event, because the Cross cannot be conducted, the Exchange would postpone and reschedule the offering and notify market participants via a Trader Update that the Direct Listing with a Capital Raise scheduled for that date has been cancelled and any orders for that security that have been entered 24 Rules 4120c8B and c9 provide that the financial advisor selects certain price bands for purposes of applying a price validation test that occurs once the financial advisor notifies Nasdaq that the security is ready to trade. Given that Nasdaq proposes that in connection with a Direct Listing with a Capital Raise Nasdaq, rather than the financial advisor, determines that the security is ready to trade, the financial advisor will have no purpose in setting the bands. Accordingly, because Nasdaq determines when the security is ready to trade, it is appropriate for Nasdaq to set the price bands. Nasdaq intends to set the price bands at zero.

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