FR 2021-00948

Nasdaq ISE, LLC is making changes to its membership rules by adopting the policies already in place at The Nasdaq Stock Market LLC. This shift aims to streamline the process and align it with its affiliated exchanges, such as Nasdaq and BX. The Securities and Exchange Commission (SEC) is seeking public opinion on this proposed change.

General Overview

The document lays out a plan by Nasdaq ISE to simplify and unify its membership procedures by referencing the rules of The Nasdaq Stock Market LLC. The focus is on creating consistent membership procedures across affiliated exchanges, potentially easing the application process for new members. The existing rules will still apply to applications submitted before these new rules officially take effect, to ensure a smooth transition.

Key Issues and Concerns

One major concern revolves around transparency. By referencing another organization's rulebook, changes may seem less transparent to stakeholders who do not refer to both documents. Stakeholders could miss critical updates unless they actively seek out these additional reference materials.

Another issue is the potential impact on competition. Harmonizing the rules across exchanges might risk standardizing them to a degree that limits competition by potentially centralizing control over membership procedures. This standardization could limit the flexibility for Nasdaq ISE to tailor its procedures to unique operational nuances.

The text presents complex legal jargon and numerous cross-references, making it challenging for those not specialized in securities regulation to grasp the full implications of the changes. This complexity requires stakeholders to be familiar with both Nasdaq ISE and Nasdaq rulebooks, further complicating full comprehension.

Impacts on the Public and Stakeholders

The proposed changes may broaden the appeal of joining Nasdaq ISE due to streamlined processes and alignment with other major exchanges. For prospective members, the new rules could mean a more straightforward, less burdensome process. However, current members might feel uncertain due to the transition lacking specific timelines, leading to potential confusion during this period.

Specific stakeholders, such as existing members, may find relief in the removal of outdated rule requirements, like those necessitating paper documents. Yet, the introduction of a host of procedural changes without an explicit impact analysis raises concerns on how these shifts will affect different members differently. The absence of analysis regarding potential impacts on members or the market at large is a significant oversight that could obscure the positive or negative ramifications of these changes.

Engagement and Implementation

The document does not mention stakeholder feedback or how such input has been integrated into the proposal, raising questions about engagement levels with affected parties. Additionally, it lacks discussion on the costs or resource requirements for both the exchange and its members to adapt to these changes.

Overall, while the proposal seeks to modernize and harmonize membership rules, it introduces potential challenges around transparency, competition, and stakeholder engagement. The public and stakeholders should have access to more comprehensive analysis and input opportunities to better navigate these changes.

The document mentions financial allocations in the context of preparing and maintaining reports by members of Nasdaq ISE, LLC. Specifically, it states that members located outside the United States are required to reimburse the Exchange for any examination expenses that exceed the costs associated with examining members within the continental United States. This requirement emphasizes the exchange of financial obligations for foreign members, ensuring that the additional expenses due to geographic location are not inadvertently subsidized by the exchange or domestic members.

Financial Obligations for Foreign Members

Foreign members have specific financial responsibilities, including the need to prepare reports in English and in U.S. dollars. This requirement aims to standardize operations and ensure that all reporting aligns with the U.S. regulatory framework. Additionally, the provision stipulates that foreign members must bear the additional examination costs, reflecting the practicality and fairness in financial distribution between domestic and foreign entities.

Relationship to Identified Issues

One of the issues with the proposed rule is the potential complexity and lack of transparency for stakeholders. The financial obligations for foreign members, such as bearing excess examination costs, may not be clearly outlined or easily accessible in the referenced rulebooks. This might cause confusion or unforeseen financial burdens on the part of these members if not communicated effectively.

Furthermore, the document does not discuss a cost-benefit analysis for both the exchange and its members regarding these financial obligations during the transition period. This lack of detail raises concerns about how these reimbursement requirements will be perceived and managed by foreign participants, especially in light of the proposed harmonization effort across exchanges, which seeks to standardize membership rules. It may inadvertently increase financial centralization and control if not thoughtfully implemented with considerations for all member types.

In summary, while the financial allocation requirements aim to maintain fair operational costs related to examinations, the potential complexities and opaque communication of these requirements need to be addressed as part of the wider rule harmonization efforts to ensure they do not burden or disadvantage foreign members in their exchange participation.