Notice2023-19470
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify Requirements Relating to the Waiver of the Code of Conduct in Listing Rule 5610 and IM-5610
Primary source
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Published
September 11, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 174 (Monday, September 11, 2023)</title>
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[Federal Register Volume 88, Number 174 (Monday, September 11, 2023)]
[Notices]
[Pages 62417-62420]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-19470]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98285; File No. SR-NASDAQ-2023-031]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Modify Requirements Relating to the Waiver of the Code of Conduct in
Listing Rule 5610 and IM-5610
September 5, 2023.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 21, 2023, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. 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 modify the requirements related to the
waiver of the code of conduct in Listing Rules 5610 and IM-5610.
The text of the proposed rule change is set forth below. Proposed
new language is italicized; deleted text is in brackets.
* * * * *
The Nasdaq Stock Market Rules
* * * * *
[[Page 62418]]
5610. Code of Conduct
Each Company shall adopt a code of conduct applicable to all
directors, officers and employees, which shall be publicly
available. A code of conduct satisfying this rule must comply with
the definition of a ``code of ethics'' set out in section 406(c) of
the Sarbanes-Oxley Act of 2002 (``the Sarbanes-Oxley Act'') and any
regulations promulgated thereunder by the Commission. [See 17 CFR
228.406 and 17 CFR 229.406.] In addition, the code must provide for
an enforcement mechanism. Any waivers of the code for directors or
Executive Officers must be approved by the [B]board or a board
committee. Companies, other than Foreign Private Issuers, shall
disclose such waivers within four business days by filing a current
report on Form 8-K with the Commission or, in cases where a Form 8-K
is not required, by distributing a press release. Foreign Private
Issuers shall disclose such waivers within four business days either
by distributing a press release or including disclosure in a Form 6-
K[ or in the next Form 20-F or 40-F]. Alternatively, within four
business days, a Company, including a Foreign Private Issuer, may
disclose waivers on the Company's website in a manner that satisfies
the requirements of Item 5.05(c) of Form 8-K.
IM-5610. Code of Conduct
Ethical behavior is required and expected of every corporate
director, officer and employee whether or not a formal code of
conduct exists. The requirement of a publicly available code of
conduct applicable to all directors, officers and employees of a
Company is intended to demonstrate to investors that the board and
management of Nasdaq Companies have carefully considered the
requirement of ethical dealing and have put in place a system to
ensure that they become aware of and take prompt action against any
questionable behavior. For Company personnel, a code of conduct with
enforcement provisions provides assurance that reporting of
questionable behavior is protected and encouraged, and fosters an
atmosphere of self-awareness and prudent conduct.
Rule 5610 requires Companies to adopt a code of conduct
complying with the definition of a ``code of ethics'' under section
406(c) of the Sarbanes-Oxley Act of 2002 (``the Sarbanes-Oxley
Act'') and any regulations promulgated thereunder by the Commission.
[See 17 CFR 228.406 and 17 CFR 229.406.] Thus, the code must include
such standards as are reasonably necessary to promote the ethical
handling of conflicts of interest, full and fair disclosure, and
compliance with laws, rules and regulations, as specified by the
Sarbanes-Oxley Act. However, the code of conduct required by Rule
5610 must apply to all directors, officers, and employees. Companies
can satisfy this obligation by adopting one or more codes of
conduct, such that all directors, officers and employees are subject
to a code that satisfies the definition of a ``code of ethics.''
As the Sarbanes-Oxley Act recognizes, investors are harmed when
the real or perceived private interest of a director, officer or
employee is in conflict with the interests of the Company, as when
the individual receives improper personal benefits as a result of
his or her position with the Company, or when the individual has
other duties, responsibilities or obligations that run counter to
his or her duty to the Company. Also, the disclosures a Company
makes to the Commission are the essential source of information
about the Company for regulators and investors--there can be no
question about the duty to make them fairly, accurately and timely.
Finally, illegal action must be dealt with swiftly and the violators
reported to the appropriate authorities. Each code of conduct must
require that any waiver of the code for Executive Officers or
directors may be made only by the board or a board committee and
must be disclosed to Shareholders, along with the reasons for the
waiver. All Companies, other than Foreign Private Issuers, must
disclose such waivers within four business days by filing a current
report on Form 8-K with the Commission, providing website disclosure
that satisfies the requirements of Item 5.05(c) of Form 8-K, or, in
cases where a Form 8-K is not required, by distributing a press
release. Foreign Private Issuers must disclose such waivers within
four business days either by providing website disclosure that
satisfies the requirements of Item 5.05(c) of Form 8-K, by including
disclosure in a Form 6-K[ or in the next Form 20-F or 40-F] or by
distributing a press release. This disclosure requirement provides
investors the comfort that waivers are not granted except where they
are truly necessary and warranted, and that they are limited and
qualified so as to protect the Company and its Shareholders to the
greatest extent possible.
Each code of conduct must also contain an enforcement mechanism
that ensures prompt and consistent enforcement of the code,
protection for persons reporting questionable behavior, clear and
objective standards for compliance, and a fair process by which to
determine violations.
* * * * *
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.
* * * * *
(b) Not applicable.
(c) Not applicable.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Nasdaq is proposing to amend Listing Rules 5610 and IM-5610 to
provide that waivers of the code of conduct for directors or executive
officers may be approved by a board committee rather than exclusively
by the board, as this rule currently requires and to require that
Foreign Private Issuers must disclose such waivers within four business
days.
Ethical behavior is required and expected of every corporate
director, officer and employee whether or not a formal code of conduct
exists. The requirement of a publicly available code of conduct
applicable to all directors, officers and employees of a company is
intended to demonstrate to investors that the board and management of
Nasdaq companies have carefully considered the requirement of ethical
dealing and have put in place a system to ensure that they become aware
of and take prompt action against any questionable behavior. For
company personnel, a code of conduct with enforcement provisions
provides assurance that reporting of questionable behavior is protected
and encouraged, and fosters an atmosphere of self-awareness and prudent
conduct.
Listing Rules 5610 and IM-5610 require companies to adopt a code of
conduct applicable to directors, officers, and employees, which shall
be publicly available. A code of conduct satisfying this rule must
comply with the definition of a ``code of ethics'' set out in section
406(c) of the Sarbanes-Oxley Act of 2002 and any regulations
promulgated thereunder by the Commission.\3\ In addition, the code must
provide for an enforcement mechanism. Any waivers of the code for
directors or executive officers must be approved by the board and
publicly disclosed to shareholders, along with the reasons for the
waiver. Companies, other than foreign private issuers, must disclose
such waivers within four business days by filing a current report on
Form 8-K with the Commission or, in cases where a Form 8-K is not
required, by distributing a press release. Foreign private issuers must
disclose such waivers either by distributing a press release or
including disclosure in a Form 6-K or in the next Form 20-F or 40-F.\4\
Nasdaq believes this
[[Page 62419]]
disclosure requirement provides investors the comfort that waivers are
not granted except where they are truly necessary and warranted, and
that they are limited and qualified so as to protect the company and
its shareholders to the greatest extent possible.
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\3\ See 17 CFR 229.406.
\4\ See Listing Rule 5610. Alternatively, a company, including a
foreign private issuer, may disclose waivers on the company's
website in a manner that satisfies the requirements of Item 5.05(c)
of Form 8-K. If a company elects to disclose the information through
its website, such information must remain available on the website
for at least a 12-month period. Following the 12-month period, the
company must retain the information for a period of not less than
five years. See also instructions to Item 16B of Form 20-F.
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By expressly setting out the inherent obligation of ethical conduct
in this manner, Nasdaq provides assurance to investors, regulators and
itself that each of its issuers has in place a system to focus
attention throughout the company on the obligation of ethical conduct,
encourage reporting of potential violations, and deal fairly and
promptly with questionable behavior.
Nasdaq is proposing to allow waivers of the code to be approved
either by the board of directors or a committee of the board. This
would give listed companies flexibility to place the oversight of a
company's code of conduct within the jurisdiction of a particular
committee if that structure is more effective and appropriate, while
following the obligations of ethical conduct required by Listing Rules
5610 and IM-5610. The approach of delegating oversight authority to a
board committee is also consistent with the provisions of Listing Rule
5630 that requires approval of related party transactions by the
company's audit committee or another independent body of the board of
directors.\5\ In addition, Nasdaq believes that the proposed change
would align the requirements of this rule with the requirements of Rule
303A.10 of the Listed Company Manual of the New York Stock Exchange
(``NYSE'').\6\
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\5\ See Listing Rule 5630.
\6\ In 2002, the NASD, through its subsidiary, The Nasdaq Stock
Market, Inc., filed with the Commission a proposed rule change to
amend NASD Rules to adopt the code of conduct requirements. See
Securities Exchange Act Release No. 48125 (July 2, 2003), 68 FR
41194 (July 10, 2003) (SR-NASD-2002-139) (``Nasdaq Code of Conduct
Proposal''). At about the same time, NYSE proposed similar changes
to its listing standards. See Securities Exchange Act Release No.
47672 (April 11, 2003) 68 FR 19051 (April 17, 2003) (``NYSE
Corporate Governance Proposal''). The Commission discussed and
approved both the Nasdaq Code of Conduct Proposal and the NYSE
Corporate Governance Proposal in one order (the ``2003 Order''). See
Securities Exchange Act Release No. 48745 (November 4, 2003), 68 FR
64154 (November 12, 2003).
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Nasdaq is also proposing to clarify that Foreign Private Issuers
are required to disclose any waivers of the code for directors or
executive officers within four business days by providing website
disclosure that satisfies the requirements of Item 5.05(c) of Form 8-K,
by including disclosure in a Form 6-K or by distributing a press
release. The disclosure of any code of conduct waivers provides
investors the comfort that waivers are not granted except where they
are truly necessary and warranted, and that they are limited and
qualified so as to protect the company and its shareholders to the
greatest extent possible. Accordingly, Nasdaq believes that Foreign
Private Issuers, like other Nasdaq listed companies, should be required
to make such disclosure within four business days by providing website
disclosure that satisfies the requirements of Item 5.05(c) of Form 8-K,
by including disclosure in a Form 6-K or by distributing a press
release rather than providing such disclosure in the next Form 20-F or
40-F.\7\
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\7\ Listing Rules 5610 and IM-5610 already specifically provide
that companies, other than Foreign Private Issuers, must disclose
code of conduct waivers within four business. Nasdaq is proposing to
remove references in Listing Rules 5610 and IM-5610 to Forms 20-F
and 40-F as an alternative disclosure venue for code of conduct
waivers.
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Finally, Nasdaq proposes to remove citation to 17 CFR 228.406 and
17 CFR 229.406 from the rule language, without changing the substance
of Rules 5610 and IM-5610, to maintain consistency within the rulebook.
2. Statutory Basis
The Exchange believes that its proposal is consistent with section
6(b) of the Act,\8\ in general, and furthers the objectives of section
6(b)(5) of the Act,\9\ 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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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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Nasdaq believes that the proposed amendments to Listing Rules 5610
and IM-5610 to provide that waivers of the code of conduct for
directors or executive officers may be approved by a board committee
and to require that Foreign Private Issuers must disclose such waivers
within four business days are designed to protect investors and the
public interest because there would continue to be other significant
protections for shareholders with respect to the waivers of the code of
conduct. Specifically, consistent with the provisions of Listing Rule
5630, waivers of the code of conduct for directors or executive
officers would be approved by the board or a board committee and
publicly disclosed, as described above. Nasdaq believes this disclosure
requirement provides investors the comfort that waivers are not granted
except where they are truly necessary and warranted, and that they are
limited and qualified so as to protect the company and its shareholders
to the greatest extent possible. The proposed amendment would make
Nasdaq's requirements regarding the granting of the waivers by the
board or a board committee of the code of conduct substantively similar
to those of the NYSE.\10\ In the 2003 Order, the Commission determined
that this approach is consistent with the requirements of the Exchange
Act.
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\10\ Nasdaq reviewed recent code of ethics disclosure of a
sample of NYSE listed companies and observed that a number of
companies provide for waivers to the code of conduct to be approved
by the board or a board committee.
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Finally, Nasdaq believes that removing citation from the rule
language is consistent with the requirements of the Exchange Act
because the removal does not change the substance of the rule.
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. The proposed rule change will
make Nasdaq requirements with respect to the waivers of the code of
conduct substantively similar to those of the NYSE. All listed
companies would be affected in the same manner by these changes. As
such, these changes are neither intended to, nor expected to, impose
any burden on competition.
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
[[Page 62420]]
19(b)(3)(A)(iii) of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A)(iii).
\12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires the Exchange to give the Commission written notice of its
intent to file the proposed rule change, along with a brief
description and text of 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 necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#e092958c85cd838f8d8d858e9493a0938583ce878f96"><span class="__cf_email__" data-cfemail="5c2e293039713f3331313932282f1c2f393f723b332a">[email protected]</span></a>. Please include
file number SR-NASDAQ-2023-031 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-2023-031. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NASDAQ-2023-031 and should
be submitted on or before October 2, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-19470 Filed 9-8-23; 8:45 am]
BILLING CODE 8011-01-P
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