Notice2022-27497
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Listing Rules 5605 and 5606
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
December 20, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 243 (Tuesday, December 20, 2022)</title>
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[Federal Register Volume 87, Number 243 (Tuesday, December 20, 2022)]
[Notices]
[Pages 77903-77906]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-27497]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96500; File No. SR-NASDAQ-2022-075]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Listing Rules 5605 and 5606
December 14, 2022.
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 December 12, 2022, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III 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 Substance
of the Proposed Rule Change
The Exchange proposes to simplify implementation and compliance
tracking of Listing Rules 5605 and 5606, as described further below.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rules">https://listingcenter.nasdaq.com/rulebook/nasdaq/rules</a>, at
the principal office of the Exchange, 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
On December 1, 2020, the Exchange filed with the Commission a
proposed rule change to adopt listing rules to
[[Page 77904]]
advance board diversity and enhance transparency of diversity
statistics (``Board Diversity Proposal'').\3\ On August 6, 2021
(``Approval Date''), the Commission approved the proposal, as amended
(``Board Diversity Rules).\4\
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\3\ See Securities Exchange Act Release No. 90574 (December 4,
2020), 85 FR 80472 (SR-NASDAQ-2020-081).
\4\ Securities Exchange Act Release No. 92590 (August 6, 2021),
86 FR 44424 (August 12, 2021) (Approval order). Nasdaq filed an
amendment to the proposal on February 26, 2021. See Amendment No. 1,
available on the Commission's website at: <a href="https://www.sec.gov/comments/srnasdaq-2020-081/srnasdaq2020081-8425992-229601.pdf">https://www.sec.gov/comments/srnasdaq-2020-081/srnasdaq2020081-8425992-229601.pdf</a>.
Pursuant to Rule 5605(f)(1), ``Approval Date'' means the date that
the Commission issued an order granting the approval of this
proposed Rule 5605(f).
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At the time of filing of the Board Diversity Proposal, Nasdaq and
listed companies could not know when the proposal would be approved.
Since directors typically are elected in connection with the annual
shareholder meeting, Nasdaq wanted to assure that listed companies had
at least one year from the approval of the rules, or until their next
annual meeting, to take necessary actions to satisfy the requirements
of the Board Diversity Rules. Therefore, Nasdaq tied the initial
compliance deadlines in the Board Diversity Proposal to one year after
the approval date.\5\ Specifically, on August 8, 2022 (one year after
the Approval Date),\6\ Nasdaq-listed companies became subject to the
first compliance condition: disclosing their Board Diversity Matrix
(``Matrix'').\7\ Subsequent compliance conditions were similarly
scheduled to take effect starting two or more years from the Approval
Date.\8\
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\5\ See Rule 5605(f)(1); see also Rule 5605(f)(7) and 5606(e).
\6\ The Approval Date became August 8, 2022 because August 6,
2022 was a Saturday.
\7\ See Rule 5606.
\8\ See Rule 5605(f)(7).
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Nasdaq has found that this formulation of the compliance deadlines
is confusing and unnecessarily complicated. Therefore, Nasdaq now
proposes to make technical changes to Rule 5605(f)(3) (Alternative
Public Disclosure) and Rule 5605(f)(7) (Effective Dates/Transition) to
simplify the implementation of the Board Diversity Rules by eliminating
references to the Approval Date and the alternative deadline related to
the filing of materials for the company's annual meeting, and instead
requiring compliance by December 31st of the applicable year. Nasdaq is
also proposing to amend Rule 5605(f)(3) to provide additional
flexibility in how a company can notify Nasdaq about the alternative
public disclosure permissible under that rule. Additionally, Nasdaq is
proposing a technical amendment to Rule 5605(f)(3) to change an
erroneous reference to a non-existent Rule 5606(f)(2)(D).
Effective Dates
Pursuant to Rule 5605(f)(7)(A), Nasdaq currently requires each
company listed on The Nasdaq Global Select Market, The Nasdaq Global
Market and The Nasdaq Capital Market (including a Company with a
smaller board under Rule 5606(f)(2)(D)) to have, or explain why it does
not have, at least one Diverse \9\ director by the later of: (i) two
calendar years after the Approval Date, which is August 7, 2023 or (ii)
the date the Company files its proxy statement or its information
statement (or, if the Company does not file a proxy, in its Form 10-K
or 20-F) for the Company's annual shareholders meeting during the
calendar year of the First Effective Date,\10\ which can be no later
than December 31, 2023. The Exchange is proposing to replace this
deadline with December 31, 2023, which is the deadline under the
current rule for a company with a December 31st fiscal year-end to hold
its annual shareholder meeting during the calendar year of the First
Effective Date.
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\9\ Pursuant to Rule 5605(f)(1), ``Diverse'' means an individual
who self-identifies in one or more of the following categories:
Female, Underrepresented Minority, or LGBTQ+. ``Female'' means an
individual who self-identifies her gender as a woman, without regard
to the individual's designated sex at birth.
\10\ The ``First Effective Date'' is defined as two calendar
years after the Approval Date. See Rule 5605(f)(7)(A).
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Similarly, pursuant to Rule 5605(f)(7)(B), Nasdaq currently
requires all companies listed on The Nasdaq Global Select Market or The
Nasdaq Global Market to have, or explain why it does not have, at least
two Diverse directors by the later of: (i) four calendar years after
the Approval Date (``Second NGS/NGM Effective Date''), which is August
6, 2025 or (ii) the date the Company files its proxy statement or its
information statement (or, if the Company does not file a proxy, in its
Form 10-K or 20-F) for the Company's annual shareholders meeting during
the calendar year of the Second NGS/NGM Effective Date, which can be no
later than December 31, 2025. The Exchange is proposing to replace this
deadline with December 31, 2025, which is the deadline under the
current rule for a company with a December 31st fiscal year-end to hold
its annual shareholder meeting during the calendar year of the Second
NGS/NGM Effective Date.
Lastly, Rule 5605(f)(7)(C) currently requires each Company listed
on The Nasdaq Capital Market to have, or explain why it does not have,
at least two Diverse directors by the later of: (i) five calendar years
after the Approval Date (``Second NCM Effective Date''), which is
August 6, 2026 or (ii) the date the Company files its proxy statement
or its information statement (or, if the Company does not file a proxy,
in its Form 10-K or 20-F) for the Company's annual shareholders meeting
during the calendar year of the Second NCM Effective Date, which is no
later than December 31, 2026. The Exchange is proposing to replace this
deadline with December 31, 2026, which is the deadline under the
current rule for a company with a December 31st fiscal year-end to hold
its annual shareholder meeting during the calendar year of the Second
NCM Effective Date.
Nasdaq is also proposing to align the proposed December 31st
deadlines for Rule 5605(f)(7) with the Rule 5606(f)(3) deadline for
companies to explain why they do not meet the diversity objectives of
Rule 5606(f)(2). Therefore, Nasdaq is proposing to amend Rule
5606(f)(3) to allow for companies to provide such disclosure on or
before December 31st.
Additionally, Rule 5606(e) provides a deadline for a company's
initial Matrix disclosure and requires a company to annually disclose
the Matrix thereafter, but the current rule does not provide a specific
deadline for subsequent disclosures, other than that such disclosure
must be made in the same manner as, and concurrently with, the
disclosure required in Rule 5605(f)(3) for those companies that are
subject to that provision. Therefore, Nasdaq is proposing to modify
Rule 5606(b) to specify the method of disclosure, which is the same as
outlined in Rule 5605(f)(3), and the December 31st annual deadline for
the required Matrix disclosure.
Nasdaq believes that using December 31st as the applicable deadline
for various elements of the diversity objectives of Rule 5605(f) and
Matrix disclosure of Rule 5606 aligns these deadlines with the end of
the fiscal year for most companies,\11\ which is also the deadline for
those companies to hold their annual meeting under Nasdaq's rules.\12\
As such, Nasdaq believes that aligning the deadline for these
disclosures with the December 31st
[[Page 77905]]
deadline for most companies to hold the annual meeting will simplify
both compliance and compliance monitoring with these rules.\13\ In that
regard, Nasdaq notes that while companies tend to hold their annual
meetings at a similar time each year, they are not required to do so,
and do not necessarily file their proxies or information statements at
the same time each year. Moreover, neither Nasdaq nor investors know
ahead of time when a company will file their proxy statements or
information statements. Establishing a single deadline for all
companies will therefore simplify Nasdaq's ability to review for
instances of non-compliance and give investors a final date to expect a
company's disclosure.
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\11\ Approximately 80% of Nasdaq-listed companies subject to the
rule have a December 31st fiscal year-end.
\12\ See Rule 5620 (requiring most listed companies to hold an
annual meeting of shareholders no later than one year after the end
of the Company's fiscal year-end). Under Rules 5605(f)(3) and
5606(b), companies can include disclosure about why they do not meet
the applicable diversity objectives of Rule 5605(f)(2) and the
Matrix in the proxy or information statement for their annual
meeting.
\13\ Of course, companies will continue to be able to comply
earlier than the proposed December 31st deadline.
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Notice to Nasdaq
Currently, if a Nasdaq-listed company posts its Matrix disclosure
or its explanation for why the company does not satisfy the diverse
director objective on its website, then the company must also submit a
URL link to the disclosure through the Nasdaq Listing Center within one
business day after posting on the company's website.\14\ To provide
additional flexibility to companies, Nasdaq is proposing to also allow
companies to submit the URL link via email to
``<a href="/cdn-cgi/l/email-protection#3e5a4c57485750595a57485b4c4d574a477e505f4d5a5f4f105d5153"><span class="__cf_email__" data-cfemail="cfabbda6b9a6a1a8aba6b9aabdbca6bbb68fa1aebcabaebee1aca0a2">[email protected]</span></a>''. Nasdaq notes that providing the
additional alternative may simplify compliance for companies and will
not affect Nasdaq's ability to review for instances of non-compliance.
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\14\ See Rule 5605(f)(3).
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Technical Changes
Nasdaq is proposing a technical amendment to Rule 5605(f)(3) to
change an erroneous reference to a non-existent Rule 5606(f)(2)(D). The
reference was intended to be 5605(f)(2)(D). Nasdaq is also proposing to
remove Rule 5606(e) since the rule became effective and operative over
a year ago and Nasdaq believes the provision is no longer relevant.
2. Statutory Basis
The Exchange believes that its proposal is consistent with section
6(b) of the Act,\15\ in general, and furthers the objectives of section
6(b)(1) of the Act,\16\ in particular, in that the Exchange is
organized and has the capacity to be able to carry out the purposes of
the Act and to comply and enforce compliance by its members and persons
associated with its member. The Exchange believe the proposal is also
consistent with section 6(b)(5) of the Act,\17\ in particular, in that
it is designed 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.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(1).
\17\ 15 U.S.C. 78f(b)(5).
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It is consistent with the Act to amend Rule 5605(f)(7) governing
the effective dates of the Diverse director objective. When proposing
changes to its rulebook, Nasdaq must ensure that the changes remain
consistent with other provisions. Presently, companies that opt to
publish the alternative public disclosure rather than satisfy the
Diverse director objective must do so in the same manner, and
concurrently with Rule 5606--the Matrix disclosure.\18\ The proposed
amendments to Rule 5605(f)(7) aligns the annual deadline for companies
that opt to explain why they do not satisfy the Diverse director
objective with the proposed annual deadline for the Matrix. Companies
will continue to have the option of publishing the disclosure sooner
than the proposed December 31st deadline.
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\18\ See Rule 5605(f)(3) and Rule 5606(b).
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Similarly, the Exchange's proposal to amend its rule requiring
Nasdaq-listed companies to publicly disclose board diversity statistics
using the Matrix, or a substantially similar format, at Rule 5606(e),
is consistent with the Act. Clarifying the date for subsequent Matrix
disclosures ensures that all Nasdaq-listed companies will disclose a
Matrix during each calendar year. Additionally, proposing December 31st
as the deadline each year simplifies compliance and more closely aligns
the deadline with the end of the fiscal year for most companies, which
is also their deadline to hold an annual meeting. Moreover, this
revised formulation provides all Nasdaq-listed companies with the same
compliance deadline, which is the same as the latest calendar date for
compliance under the current rule.\19\ As discussed above, Companies
will continue to have the option of publishing the disclosure sooner
than the proposed December 31st deadline. Nasdaq also believes that
having the same annual deadline date for all companies will simplify
Nasdaq's ability to track non-compliant companies and give investors a
final date to expect a company's disclosure.
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\19\ Currently, all Nasdaq-listed companies are required to file
an annual proxy or information statement by the end of the company's
fiscal year. The end of the fiscal year for most Nasdaq-listed
companies is December 31st. Therefore, Nasdaq is proposing to
simplify the deadlines by aligning the Board Diversity Rule
deadlines with the most company's fiscal year end.
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Additionally, it is consistent with the Act to amend Rule
5605(f)(3) to give companies an additional alternative for submitting
the URL link to their disclosures. The additional option of submitting
the URL via email simplifies compliance and gives companies flexibility
in meeting their requirements. Moreover, there will be no impact on
Nasdaq's ability to review for instances of non-compliance.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. All companies would continue to
be required to make the same disclosure of their board-level
statistical information and will have the same deadline for that
disclosure. Additionally, all companies would be given the same
flexibility of alternatively submitting the URL link to their
disclosure via email. Similarly, all companies would be given the same
maximum amount of time to publish their Matrix and to satisfy the
Diverse director objective.
Moreover, none of the proposed changes will unduly burden intra-
market competition among various Exchange participants. Participants
will experience no competitive impact from the proposals, as these
proposals are merely intended to assist companies in maintaining
compliance with the Board Diversity Rules by providing additional
flexibility, clarifying certain provisions, and maintaining consistency
among the provisions.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to section 19(b)(3)(A)(iii) of the Act \20\ and
[[Page 77906]]
subparagraph (f)(6) of Rule 19b-4 thereunder.\21\
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\20\ 15 U.S.C. 78s(b)(3)(A)(iii).
\21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or 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
<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#6012150c054d030f0d0d050e1413201305034e070f16"><span class="__cf_email__" data-cfemail="dfadaab3baf2bcb0b2b2bab1abac9facbabcf1b8b0a9">[email protected]</span></a>. Please include
File Number SR-NASDAQ-2022-075.
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-2022-075. 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 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-2022-075, and should be submitted
on or before January 10, 2023.
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)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-27497 Filed 12-19-22; 8:45 am]
BILLING CODE 8011-01-P
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