Notice2022-11066
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Exempt Non-Convertible Bonds Listed Under Rule 5702 From Certain Corporate Governance Requirements
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
May 24, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 100 (Tuesday, May 24, 2022)</title>
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[Federal Register Volume 87, Number 100 (Tuesday, May 24, 2022)]
[Notices]
[Pages 31594-31596]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-11066]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94941; File No. SR-NASDAQ-2022-015]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To Exempt Non-Convertible Bonds Listed Under Rule
5702 From Certain Corporate Governance Requirements
May 18, 2022.
I. Introduction
On February 4, 2022, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to exempt non-convertible bonds listed under Rule
5702 from certain corporate governance requirements.\3\ The proposed
rule change was published for comment in the Federal Register on
February 23, 2022.\4\ On March 18, 2022, pursuant to Section 19(b)(2)
of the Act,\5\ the Commission designated a longer period within which
to approve the proposed rule change, disapprove the proposed rule
change, or institute proceedings to determine whether to disapprove the
proposed rule change.\6\ The Commission received no comment letters
regarding the proposed rule change. This order institutes proceedings
under Section 19(b)(2)(B) of the Act to determine whether to approve or
disapprove the proposed rule change.
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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. 94265 (February 16,
2022), 87 FR 10265 (February 23, 2022) (``Notice'').
\4\ Id.
\5\ 15 U.S.C. 78s(b)(2).
\6\ See Securities Exchange Act Release No. 94471 (March 18,
2022), 87 FR 16778 (March 24, 2022). The Commission designated May
24, 2022, as the date by which the Commission shall approve or
disapprove, or institute proceedings to determine whether to
disapprove, the proposed rule change.
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II. Description of the Proposed Rule Change
Generally, Nasdaq proposes to exempt issuers listing non-
convertible bonds under Rule 5702 from certain corporate governance
requirements.\7\ Specifically, Nasdaq proposes to amend Nasdaq Rule
5702 \8\ to exempt these issuers from the requirements relating to
Review of Related Party Transactions (Nasdaq Rule 5630),\9\ Shareholder
Approval (Nasdaq Rule 5635),\10\ and Voting Rights (Nasdaq Rule
5640).\11\ According to Nasdaq, it is appropriate to exempt these
issuers from governance requirements because the interests of bond
holders are protected contractually through the trust indenture, and
therefore, ``holders of non-convertible bonds do not expect to have
governance rights the way equity investors may.'' \12\
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\7\ Under proposed Rule 5702(d), if an issuer also lists its
common stock, voting preferred stock, or their equivalent on Nasdaq,
the corporate governance requirements under the Nasdaq 5600 Rule
Series would apply. See Notice, supra note 3, n. 8.
\8\ Rule 5702 contains the initial and continued listing
standards for non-convertible bonds, as well as disclosure
requirements for companies that list non-convertible bonds.
\9\ Rule 5630 requires certain companies to conduct an
appropriate review and oversight of all related party transactions
for potential conflict of interest situations on an ongoing basis.
\10\ Rule 5635 sets forth the circumstances under which
shareholder approval is required prior to an issuance of securities
in connection with: (i) The acquisition of the stock or assets of
another company; (ii) equity-based compensation of officers,
directors, employees, or consultants; (iii) a change of control; and
(iv) transactions other than public offerings.
\11\ Rule 5640 states that voting rights of existing
shareholders of publicly traded common stock registered under
Section 12 of the Act cannot be disparately reduced or restricted
through any corporate action or issuance.
\12\ See Notice, supra note 3, at 10266.
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In addition, Nasdaq proposes to consolidate under Nasdaq Rule 5702
other exemptions currently applicable to such issuers pursuant to
Nasdaq Rules 5605(f)(4), 5606(c), and 5616(a)(6)(A).\13\
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\13\ Rule 5615(a)(6)(A) exempts certain non-convertible bond
issuers from the requirements relating to Independent Directors (as
set forth in Rule 5605(b)), Compensation Committees (as set forth in
Rule 5605(d)), Director Nominations (as set forth in Rule 5605(e)),
Codes of Conduct (as set forth in Rule 5610), Meetings of
Shareholders (as set forth in Rule 5620(a)), and Audit Committees
(as set forth in Rule 5605(c), except for the applicable
requirements Commission Rule 10A-3). Rules 5605(f)(4) and Rule
5606(c) exempts certain non-convertible bond issuers from the
requirements related to Diverse Board Representation (as set forth
in Rule 5605(f)) and Board Diversity Disclosure (as set forth in
Rule 5606), respectively.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-
NASDAQ-2022-015 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \14\ to determine whether the proposed rule
change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change. Institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, as stated below, the
Commission seeks and encourages interested persons to provide
additional comment on the proposed rule change.
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\14\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\15\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of, and input from commenters with respect to, the consistency
of the proposal with Section 6(b)(5) of the Act, which requires, among
other things, that the rules of a national securities exchange be
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.\16\
Specifically, the Commission solicits comments on the sufficiency of
the Exchange's justification for exempting non-convertible bonds listed
under Rule 5702 from certain corporate governance requirements
enumerated above. As stated above, the Exchange justifies the proposed
rule change on the assertion that ``holders of non-convertible bonds do
not expect to have governance rights the way equity investors may.'' Do
commenters agree that holders of non-convertible bonds do not expect
that Nasdaq Rules pertaining to Review of Related Party Transactions,
Shareholder Approval, and Voting Rights to apply to their bond
holdings? And even if there is no such expectations, would non-
convertible bond holders benefit from any of these provisions?
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\15\ 15 U.S.C. 78s(b)(2)(B).
\16\ 15 U.S.C. 78f(b)(5).
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Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the [Act]
and the rules and regulations issued thereunder . . . is on the self-
regulatory organization that proposed the rule change.'' \17\ The
description of a proposed rule change, its purpose and operation, its
effect, and a legal analysis of its consistency with applicable
requirements must all be sufficiently detailed and specific to support
an affirmative Commission finding,\18\ and any failure of a self-
regulatory organization to provide this information may result in the
Commission not having a sufficient basis to make an affirmative finding
that a proposed rule change is consistent with the Act and the
applicable rules and regulations.\19\
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\17\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
\18\ See id.
\19\ See id.
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The Commission is instituting proceedings to allow for additional
consideration and comment on the issues raised herein, including as to
whether the proposal is consistent with the Act.
IV. 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 other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal is
consistent with Sections 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 that would be
facilitated by an oral presentation of views, data, and arguments, the
Commission will consider, pursuant to Rule 19b-4 under the Act,\20\ any
request for an opportunity to make an oral presentation.\21\
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\20\ 17 CFR 240.19b-4.
\21\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 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 Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, 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 proposal should be approved or
disapproved by June 14, 2022. Any person who wishes to file a rebuttal
to any other person's submission must file that rebuttal by June 28,
2022. Commission may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#582a2d343d753b3735353d362c2b182b3d3b763f372e"><span class="__cf_email__" data-cfemail="0c7e796069216f6361616962787f4c7f696f226b637a">[email protected]</span></a>. Please include
File Number SR-NASDAQ-2022-015 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2022-015. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal
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office of the Exchange. All comments received will be posted without
change. Persons submitting comments are cautioned that we do not redact
or edit personal identifying information from comment submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-NASDAQ-2022-
015, and should be submitted on or before June 14, 2022. Rebuttal
comments should be submitted by June 28, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-11066 Filed 5-23-22; 8:45 am]
BILLING CODE 8011-01-P
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