Notice2024-03336
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Corporate Governance Requirements, as Provided Under Exchange Rule 14.10 and Make Certain Other Changes to Its Listing Rules as Provided Under Exchange Rules 14.3, 14.6, 14.7, and 14.12
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
February 20, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 34 (Tuesday, February 20, 2024)</title>
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[Federal Register Volume 89, Number 34 (Tuesday, February 20, 2024)]
[Notices]
[Pages 12919-12937]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-03336]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99524; File No. SR-CboeBZX-2024-010]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Its Corporate Governance Requirements, as Provided Under Exchange Rule
14.10 and Make Certain Other Changes to Its Listing Rules as Provided
Under Exchange Rules 14.3, 14.6, 14.7, and 14.12
February 13, 2024.
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 January 29, 2024, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') 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
Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') proposes to
amend its Corporate Governance Requirements, as provided under Exchange
Rule 14.10 and make certain other changes to its listing rules as
provided under Exchange Rules 14.3, 14.6, 14.7, and 14.12. The text of
the proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the
Exchange's website (<a href="https://markets.cboe.com/us/equities/regulation/rule_filings/bzx/">https://markets.cboe.com/us/equities/regulation/rule_filings/bzx/</a>), at the Exchange's Office of the Secretary, 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
The Exchange proposes to amend the corporate governance
requirements as provided under Exchange Rule 14.10 and make certain
other related changes to its listing rules as provided under Exchange
Rules 14.3, 14.6, 14.7, and 14.12. The proposed changes are
substantively similar to the equivalent rule on another exchange.\3\
Specifically, the proposed changes will (1) modify the compensation-
related listing rules to align with that of other exchanges; (2) modify
the exemption to the Direct Registration Program (``DRP'') requirement
as it pertains to foreign issuers; (3) require listed Companies to
publicly disclose compensation or other payments by third parties to
any nominee for director or sitting director in connection with their
candidacy for or service on the Companies' Board of Directors; (4)
modify the listing requirements to change the definition of market
value for purposes of the shareholder approval rules and eliminate the
requirement for shareholder approval of issuances at a price less than
book value but greater than market value; (5) modify and clarify the
exemptions from certain corporate governance requirements; (6) modify
the definition of a ``Family Member'' as defined in Rule 14.10; (7)
modify the quorum requirement applicable to a non-U.S. company where
such company's home country law is in direct conflict with the
Exchange's quorum requirement; and (8) modify rule numbers and make
other ministerial clarifying changes. As noted above, the proposed
changes would result in Exchange Rules that are substantively similar
to the existing rules of Nasdaq and are supported by prior Commission
approval orders and immediately effective exchange proposals, as
discussed in further detail below.
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\3\ See the Nasdaq Stock Market LLC (``Nasdaq'') listing rules
series 5200 (General Procedures and Prerequisites for Initial and
Continued Listing on the Nasdaq Stock Market), 5600 (Corporate
Governance Requirements), and 5800 (Failure to Meeting Listing
Standards). Additionally, the chart provided in Item 8 below
summarizes each Nasdaq Rule and each corresponding proposed Exchange
Rule.
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[[Page 12920]]
(1) Compensation-Related Listing Rules
First, the Exchange proposes to amend Rule 14.10 to require a
Company listed on the Exchange to have a compensation committee and to
update its requirements for a compensation committee. In addition to
being consistent with the rules of another exchange,\4\ The Exchange
believes the proposed rule will be in accordance with Rule 10C-1 of the
Act.
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\4\ See Nasdaq listing rule 5605.
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(a) Requirement To Have a Compensation Committee
The Exchange's current listing rules require that compensation of
the chief executive officer and all other Executive Officers \5\ of a
Company must be determined, or recommended to the board for
determination, either by: (i) a compensation committee comprised solely
of Independent Directors; \6\ or as an alternative by (ii) Independent
Directors constituting a majority of the board's Independent Directors
in a vote in which only Independent Directors participate (the
``Alternative'').\7\ Now, the Exchange proposes to eliminate the
Alternative and instead require Exchange-listed Companies to have a
standing compensation committee with the responsibility for
determining, or recommending to the full board for determination, the
compensation of the chief executive officer and all other Executive
Officers of the Company. The Exchanges believes there are several
benefits from a board having a standing committee dedicated solely to
oversight of executive compensation. Specifically, directors on a
standing compensation committee may develop expertise in a Company's
executive compensation program in the same way that directors on a
standing audit committee develop expertise in a Company's accounting
and financial reporting processes. In addition, a formal committee
structure may help promote accountability to stockholders for executive
compensation decisions.\8\ Furthermore, no Company listed on the
Exchange relies on the Alternative. Given this, the Exchange does not
believe that eliminating the Alternative on the Exchange would impose
any undue burden to Companies listed on the Exchange.
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\5\ ``Executive Officer'' means those officers covered in Rule
16a-1(f) under the Act. See Exchange Rule 14.10(c)(1)(A).
\6\ See Exchanger Rule 14.10(c)(1)(B).
\7\ See Exchange Rule 14.10(c)(4)(B).
\8\ See Securities Exchange Act Nos. 68013 (October 9, 2012) 77
FR 62563 (October 15, 2012) (SR-NASDAQ-2012-109) (Notice of Filing
of Proposed Rule Change To Modify the Listing Rules for Compensation
Committees To Comply With Rule 10C-1 Under the Exchange Act and Make
Other Related Changes) 68640 (January 11, 2013) 78 FR 4554 (January
22, 2013) (Order Granting Accelerated Approval of Proposed Rule
Change as Modified by Amendment Nos. 1 and 2 To Amend the Listing
Rules for Compensation Committees To Comply With Rule 10C-1 Under
the Act and Make Other Related Changes).
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The proposal would rename existing Rule 14.10(c)(4) ``Compensation
Committee Requirements'' and would describe such requirements, many of
which are included under existing Rule 14.10(c)(4), as discussed
further below. The proposal to require Exchange-listed Companies to
have a standing compensation committee with the responsibility for
determining, or recommending to the full board for determination, the
compensation of the chief executive officer and all other Executive
Officers of the Company, is substantively similar to existing rules of
another Exchange \9\ that were approved by the Commission.\10\
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\9\ See Nasdaq Listing Rule 5605(d).
\10\ Supra note 10.
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(b) Compensation Committee Charter
The Exchange proposes to require each Company to certify that it
has adopted a formal written compensation committee charter and that
the compensation committee will review and reassess the adequacy of the
formal written charter on an annual basis, as provided under proposed
Rule 14.10(c)(4)(A).\11\ This proposal is similar to the Exchange's
current requirement for Companies to certify as to the adoption of a
formal written audit committee charter, except that the proposed
requirement for annual review and reassessment of the adequacy of the
compensation committee charter is written prospectively, rather than
retrospectively.\12\ In other words, the proposed compensation
committee charter requirement states that the compensation committee
will review and reassess the adequacy of the charter on an annual
basis, while the current audit committee charter requirement states
that the audit committee has reviewed and reassessed the adequacy of
the charter on an annual basis.\13\
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\11\ Smaller Reporting Companies may adopt either a formal
written compensation committee charter or a board resolution that
specifies the committee's responsibilities and authority, except
Smaller Reporting Companies are not required to specify the specific
compensation responsibilities and authority set forth in proposed
Exchange Rule 14.10(d)(4)(D). For further discussion, see the
section entitled ``Smaller Reporting Companies'' below.
\12\ See Exchange Rule 14.10(c)(3)(A). The proposed Rule is
substantively identical to Nasdaq Rule 5605(d)(1).
\13\ The Exchange proposes to make a conforming change and
technical and grammar corrections to its audit committee charter
requirement to clarify that Companies' annual review and
reassessment of the audit committee charter should be prospective.
This is consistent with the Exchange's current interpretation of its
audit committee charter requirement. By proposing this amendment,
the Exchange seeks to minimize differences between the audit
committee and compensation committee charter requirements and to
eliminate potential questions as to whether the Exchange intended a
discrepancy between these two requirements.
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The Exchange proposes that the compensation committee charter must
specify:
<bullet> the scope of the compensation committee's
responsibilities, and how it carries out those responsibilities,
including structure, processes and membership requirements;
<bullet> the compensation committee's responsibility for
determining, or recommending to the board for determination, the
compensation of the chief executive officer and all other Executive
Officers of the Company;
<bullet> that the chief executive officer of the Company may not be
present during voting or deliberations by the compensation committee on
his or her compensation; and
<bullet> the specific compensation committee responsibilities and
authority set forth in proposed Exchange Rule 14.10(c)(4)(D).
The requirement for the charter to specify the scope of the
compensation committee's responsibilities, and how it carries out those
responsibilities, including structure, processes and membership
requirements, is copied from the Exchange's similar listing rule
relating to audit committee charters.\14\ Furthermore, this requirement
is substantively similar to requirements on another exchange.\15\
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\14\ See Exchange Rule 14.10(c)(3)(A)(i).
\15\ See Nasdaq Listing Rule 5605(d)(1)(A).
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The requirement for the charter to specify the compensation
committee's responsibility for determining, or recommending to the
board for determination, the compensation of the chief executive
officer and all other Executive Officers of the Company, is based upon
the Exchange's current compensation-related listing rules.\16\ These
listing rules require that the compensation of a Company's chief
executive officer and all other Executive Officers must be determined
by (i) a compensation committee comprised solely of Independent
Directors or (ii) the Independent Directors constituting a majority of
the board's Independent Directors in a vote in which only Independent
Directors participate. As discussed above, the Exchange proposes to
eliminate the Alternative, and therefore, the compensation of a
Company's chief executive officer and all other Executive Officers must
be
[[Page 12921]]
determined, or recommended to the board for determination, by a
compensation committee comprised of Independent Directors. Going
forward, the Exchange proposes to implement this requirement by
requiring Companies to include it in their formal written compensation
committee charters.
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\16\ See Exchange Rule 14.10(c)(4)(B)(i) and (ii).
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The requirement for the charter to specify that the chief executive
officer of the Company may not be present during voting or
deliberations by the compensation committee on his or her compensation
is based upon the Exchange's current compensation-related listing
rules.\17\ Going forward, the Exchange proposes to implement this
requirement by requiring Companies to include it in their formal
written compensation committee charters as applicable.
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\17\ See Exchange Rule 14.10(c)(4)(B)(i).
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Finally, the requirement for the charter to specify the specific
compensation committee responsibilities and authority set forth in
proposed Exchange Rule 14.10(c)(4)(D) is modeled after the Exchange's
similar listing rule relating to audit committee charters.\18\
Moreover, it is substantively similar to rules of another exchange.\19\
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\18\ See Exchange Rule 14.10(c)(3(A)(iv), which requires that an
audit committee charter set forth the specific audit committee
responsibilities and authority set forth in Exchange Rule
14.10(c)(3)(C). Exchange Rule 14.10(c)(3)(C) states that an audit
committee must have the specific responsibilities and authority
necessary to comply with Rule 10A-3(b)(2), (3), (4) and (5) under
the Exchange Act, with certain exemptions. Rule 10A-3(b)(2), (3),
(4) and (5) under the Exchange Act concerns responsibilities
relating to: (i) registered public accounting firms; (ii) complaints
relating to accounting, internal accounting controls or auditing
matters; (iii) authority to engage advisors; and (iv) funding as
determined by the audit committee.
\19\ See Nasdaq Listing Rule 5605(d)(3).
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(c) Compensation Committee Size
Next, the Exchange proposes to impose a minimum size requirement of
the compensation committee of at least two members under proposed Rule
14.10(c)(4)(B). The proposal would move existing Rule 14.10(c)(4)(A) to
paragraph (B) and incorporate the proposed compensation committee size
requirement. Given the importance of compensation decisions to
stockholders, the Exchange believes that it is appropriate to have more
than one director responsible for these decisions. No Company currently
listed on the Exchange has a compensation committee of fewer than two
members. Given this, combined with the fact that another exchange \20\
also requires a minimum compensation committee size of two members, the
Exchange does not believe the proposal would cause undue hardship for
Exchange-listed companies.
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\20\ See Nasdaq Listing Rule 5605(d)(2).
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(d) Exceptional and Limited Circumstances Exception
The Exchange proposes to adopt Rule 14.10(c)(4)(C), which will
provide that notwithstanding proposed Rule 14.10(c)(4)(B) (Compensation
Committee Composition) if the compensation committee is comprised of at
least three members, one director who does not meet the requirements of
paragraph 14.10(c)(4)(B) and is not currently an Executive Officer or
employee or a Family Member of an Executive Officer, may be appointed
to the compensation committee if the board, under exceptional and
limited circumstances, determines that such individual's membership on
the committee is required by the best interests of the Company and its
Shareholders. A Company that relies on this exception must disclose
either on or through the Company's website or in the proxy statement
for the next annual meeting subsequent to such determination (or, if
the Company does not file a proxy, in its Form 10-K or 20-F), the
nature of the relationship and the reasons for the determination. In
addition, the Company must provide any disclosure required by
Instruction 1 to Item 407(a) of Regulation S-K regarding its reliance
on this exception. A member appointed under this exception may not
serve longer than two years.
The Exchange's current listing rules include similar exceptions for
audit and nominations committees.\21\ The Exchange believes such an
exception provides an important means to allow Companies flexibility as
to board and committee membership and composition in unusual
circumstances, which may be particularly important for smaller
Companies. Moreover, the proposed rule is substantively similar to
existing rules of another exchange.\22\
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\21\ See Exchange Rule 14.10(c)(3)(B)(ii).
\22\ See Nasdaq Listing Rule 5605(d)(2)(B).
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(e) Compensation Committee Responsibilities and Authority
The Exchange proposes to keep the Compensation Committee
Responsibilities and Authority provided under existing Rule
14.10(c)(4)(C) largely the same under proposed Rule 14.10(c)(4)(D), but
to make small modifications to restructure and organize the rule.
Specifically, the Exchange proposes to add a paragraph following
proposed Rule 14.10(c)(4)(D)(iv) providing that for the purposes of
this Rule, the compensation committee is not required to conduct an
independence assessment for a compensation adviser that acts in a role
limited to the following activities for which no disclosure is required
under Item 407(e)(3)(iii) of Regulation S-K: (a) consulting on any
broad-based plan that does not discriminate in scope, terms, or
operation, in favor of Executive Officers or directors of the Company,
and that is available generally to all salaried employees; and/or (b)
providing information that either is not customized for a particular
issuer or that is customized based on parameters that are not developed
by the adviser, and about which the adviser does not provide advice.
The proposed language is identical to that included in another
exchanges rules.\23\
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\23\ See Nasdaq Listing Rule 5605(d)(3).
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(f) Compensatory Fees
Existing Rule 14.10(c)(4)(A)(i) provides that in addition to
meeting the criteria listed under Rule 14.10(c)(1)(B), in evaluating
the independence of a director to determine if such director is
permitted to determine the compensation of Executive Officers as
described in Rule 14.10(c)(4)(B), the board of directors of a Company
shall consider the following factors: (a) the source of compensation of
the director, including any consulting, advisory or other compensatory
fee paid by the Company to such director; and (b) whether the director
is affiliated with the Company, a subsidiary of the Company, or an
affiliate of a subsidiary of the company. Now, the Exchange proposes to
move existing Rule 14.10(c)(4)(A)(i) to Rule 14.10(c)(4)(B) and to note
within the paragraph the requirement that each Company must have and
certify that it has and will continue to have a compensation committee
of at least two members. The Exchange also proposes to make other non-
substantive changes to Rule 14.10(c)(4)(B) to add clarity and so that
it is substantively identical to the equivalent Nasdaq rule.\24\
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\24\ See Nasdaq Rule 5605(d)(2)(A).
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Additionally, the Exchange proposes to amend Interpretation and
Policy .07 to Rule 14.10 so that it is substantively identical to
Nasdaq Listing IM-5605-6. Currently, Interpretation and Policy .07
provides that independent director oversight of executive officer
compensation helps assure that appropriate incentives are in place,
consistent with the board's responsibility to maximize shareholder
value. The rule is intended to provide
[[Page 12922]]
flexibility for a Company to choose an appropriate board structure and
to reduce resource burdens, while ensuring Independent Director control
of compensation decisions. The Exchange proposes to modify
Interpretation and Policy .07 to provide that independent director
oversight of executive officer compensation helps assure that
appropriate incentives are in place, consistent with the board's
responsibility to act in the best interests of the corporation.
Compensation committees are required to have a minimum of two members
and be comprised only of Independent Directors as defined under Rule
14.10(c)(1)(B).
In addition, proposed Rule 14.10(c)(4)(B) includes an additional
independence test for compensation committee members. When considering
the sources of a director's compensation for this purpose, the board
should consider whether the director receives compensation from any
person or entity that would impair the director's ability to make
independent judgments about the Company's executive compensation.
Similarly, when considering any affiliate relationship a director has
with the Company, a subsidiary of the Company, or an affiliate of a
subsidiary of the Company, in determining independence for purposes of
compensation committee service, the board should consider whether the
affiliate relationship places the director under the direct or indirect
control of the Company or its senior management, or creates a direct
relationship between the director and members of senior management, in
each case of a nature that would impair the director's ability to make
independent judgments about the Company's executive compensation. In
that regard, while a board may conclude differently with respect to
individual facts and circumstances, the Exchange does not believe that
ownership of Company stock by itself, or possession of a controlling
interest through ownership of Company stock by itself, precludes a
board finding that it is appropriate for a director to serve on the
compensation committee. In fact, it may be appropriate for certain
affiliates, such as representatives of significant stockholders, to
serve on compensation committees since their interests are likely
aligned with those of other stockholders in seeking an appropriate
executive compensation program.
For purposes of the additional independence test for compensation
committee members described in proposed Rule 14.10(c)(4)(B), any
reference to the ``Company'' includes any parent or subsidiary of the
Company. The term ``parent or subsidiary'' is intended to cover
entities the Company controls and consolidates with the Company's
financial statements as filed with the Commission (but not if the
Company reflects such entity solely as an investment in its financial
statements).
Proposed Interpretation and Policy .07 would set forth the
compensation committee composition requirements for Smaller Reporting
Companies. Specifically, a Smaller Reporting Company must have a
compensation committee with a minimum of two members. Each compensation
committee member must be an Independent Director as defined under Rule
14.10(c)(1)(B). In addition, each such Smaller Reporting Company must
have a formal written compensation committee charter or board
resolution that specifies the committee's responsibilities and
authority set forth in proposed Rule 14.10(c)(4)(A)(i)-(iii). However,
in recognition of the fact that Smaller Reporting Companies may have
fewer resources than larger Companies, Smaller Reporting Companies are
not required to adhere to the additional compensation committee
eligibility requirements in proposed Rule 14.10(c)(4)(B), or to
incorporate into their formal written compensation committee charter or
board resolution the specific compensation committee responsibilities
and authority set forth in proposed Rule 14.10(c)(4)(D).
The Exchange also proposes to allow a Company that has ceased to be
a Smaller Reporting Company to phase-in a fully-compliant compensation
committee. Pursuant to Rule 12b-2 under the Act, a Company tests its
status as a Smaller Reporting Company on an annual basis at the end of
its most recently completed second fiscal quarter.\25\ A Company which
ceases to meet the requirements for Smaller Reporting Company status as
of the Determination Date will cease to be a Smaller Reporting Company
as of the beginning of the fiscal year following the Determination Date
(the ``Start Date'').
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\25\ See 17 CFR 240.12b-2.
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By six months from the Start Date (i.e., by six months after the
beginning of its fiscal year), a Company that has ceased to be a
Smaller Reporting Company must comply with the requirements of Rule
14.10(c)(4)(D) relating to certain compensation committee
responsibilities and authority.\26\ In addition, such a Company may
phase in its compliance with the additional compensation committee
composition requirements of Rule 14.10(c)(4)(B) relating to the receipt
of compensatory fees and affiliation as follows: (1) one member must
satisfy the requirements by six months from the Start Date; (2) a
majority of members must satisfy the requirements by nine months from
the Start Date; and (3) all members must satisfy the requirements by
one year from the Start Date. Since a Smaller Reporting Company is
required to have a compensation committee comprised of at least two
Independent Directors, a Company that has ceased to be a Smaller
Reporting Company may not use the phase-in schedule for the minimum
size requirement or the requirement that the committee consist only of
Independent Directors as defined under 14.10(c)(1)(B). During the
phase-in schedule, a Company that has ceased to be a Smaller Reporting
Company must continue to comply with the requirement to have a
compensation committee comprised of at least two Independent Directors
as defined under the Exchange's existing listing rules.
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\26\ By six months from the Start Date, such a Company also must
certify to the Exchange that: (i) it has complied with the
requirement in Rule 14.10(c)(4)(A) to have a compensation committee
charter including the content specified in Rule 14.110(c)(4)(A)(i)-
(iv); and (ii) it has complied, or will within the applicable phase-
in schedule comply, with the requirement in Rule 14.10(c)(4)(B)
regarding compensation committee composition.
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(g) Smaller Reporting Companies Exemption
The Exchange proposes to move existing Rule 14.10(e)(1)(F) to
proposed Rule 14.10(c)(4)(F) with amendments to conform to Nasdaq
Listing Rule 5605(d)(5). Current Rule 14.10(e)(1)(F) provides that
Smaller reporting companies, as defined in Rule 12b-2 under the Act,
are exempt from the Independent Director Oversight of Executive Officer
Compensation requirements set forth in Rule 14.10(c)(4), except that
compensation of the chief executive officer and all other Executive
Officers of the Company must be determined, or recommended to the Board
for determination, either by: (i) Independent Directors constituting a
majority of the Board's Independent Directors in a vote in which only
Independent Directors meeting the definition of Independent Director in
Rule 14.10(c)(1)(B) participate; or (ii) a compensation committee
comprised solely of Independent Directors meeting the definition of
Independent Director in Rule 14.10(c)(1)(B). The rule further provides
that the chief executive officer may not be present during voting or
deliberations.
[[Page 12923]]
Now, the Exchange proposes to delete subparagraphs (i) and (ii) in
existing Rule 14.10(e)(1)(F) and modify the proposed Rule to provide
that a Smaller Reporting Company is not subject to the requirements of
Rule 14.10(c)(4) except that a Smaller Reporting Company must have, and
certify that it has and will continue to have, a compensation committee
of at least two members, each of whom must be an Independent Director
as defined under Rule 14.10(c)(1)(B). Proposed Rule 14.10(c)(4)(F)
would also provide that a Smaller Reporting Company may rely on the
exception in Rule 14.10(c)(4)(C) and the cure period in Rule
14.10(c)(4)(E). In addition, a Smaller Reporting Company must certify
that it has adopted a formal written compensation committee charter or
board resolution that specifies the content set forth in Rule
14.10(c)(4)(A)(i)-(iii). A Smaller Reporting Company does not need to
include in its formal written compensation committee charter or board
resolution the specific compensation committee responsibilities and
authority set forth in Rule 14.10(c)(4)(D). As discussed above, the
proposed amendments to Interpretation and Policy .07 to Rule 14.10
would provide additional clarity to the requirements for Smaller
Reporting Companies and would make the policy substantively similar to
Nasdaq IM-5605-6.
(h) Conforming Changes and Correction of Typographical Errors
The Exchange proposes to capitalize the term ``Independent
Director'' throughout Rule 14.10(c)(3)(B) (Audit Committee Composition)
and the term ``Company'' throughout Rule 14.10.
The Exchange proposes to modify the Audit Committee Charter
requirement provided in Rule 14.10(c)(3)(A) to require a prospective
review of the adequacy of the formal written charter on an annual
basis,\27\ similar to that proposed for the Compensation Committee
Charter requirement under proposed Rule 14.10(c)(4)(A). Thus, proposed
Rule 14.10(c)(3)(A) would provide that Each Company must certify that
it has adopted a formal written audit committee charter and that the
audit committee will review and reassess the adequacy of the formal
written charter on an annual basis.
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\27\ The proposed Rule is substantively identical to Nasdaq Rule
5605(d)(1).
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Existing Rule 14.10(c)(1)(B) includes a paragraph that provides
that in addition to the requirements contained in this Rule
14.10(c)(1)(B), directors of a Company, in determining compensation of
Executive Officers as described in Rule 14.10(c)(4)(B) (relating to
compensation of Executive Officers), are also subject to additional
factors for determining independence under Rule 14.10(c)(4). The
Exchange proposes to delete this paragraph to conform to Nasdaq Rule
5605(a)(2)(G) and because the proposed compensation committee rules
would already address this issue in proposed Rule14.10(c)(4)(B).
The Exchange also proposes to correct certain typographical errors
in Rule 14.10(c)(1)(3) to maintain a clear Rulebook.
As discussed above, the Exchange notes that all of the proposed
changes to Rule 14.10(c) described above are substantively similar to
existing rules of another Exchange \28\ that were approved by the
Commission.\29\
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\28\ See Nasdaq Listing Rule 5605(d).
\29\ Supra notes 10 and 11.
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(2) Direct Registration Program
Exchange Rules 14.3(b)(3) and 14.7(c) provide that all securities
listed on the Exchange, with certain exceptions, must be eligible for a
DRP operated by a clearing agency registered under Section 17A of the
Act.\30\ When this requirement was initially adopted, the Exchange
recognized that the laws or regulations of certain foreign countries
might make it impossible for companies incorporated in those countries
to comply. Consequently, the rule permits a Foreign Private Issuer \31\
to follow its home country practice in lieu of this requirement when
prohibited from complying by a law or regulation in its home country.
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\30\ 15 U.S.C. 78q-1.
\31\ See Exchange Rule 14.1(a)(14).
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The Exchange now proposes to amend this exemption to extend its
application to all ``foreign issuers'' as that term is used in
Securities Exchange Act Rule 3b-4 \32\ rather than only to Foreign
Private Issuers.\33\ The Exchange believes this amendment is necessary
because the same legal or regulatory impediments to DRP eligibility
exist for a foreign issuer which is incorporated in a foreign
jurisdiction but which does not qualify for Foreign Private Issuer
status as is the case for a Foreign Private Issuer incorporated in the
same jurisdiction which is currently eligible to utilize the existing
exemption. Absent this extension of the scope of the exemption, the DRP
eligibility requirement would render it impossible for a foreign issuer
to list if it was not a Foreign Private Issuer but was incorporated in
a foreign jurisdiction whose law or regulation made compliance with the
DRP requirement impossible. As under the current exemption, a foreign
issuer will have to submit to the Exchange a written statement from an
independent counsel in the company's home country certifying that a law
or regulation in the home country prohibits compliance with the DRP
requirement in order to utilize the exemption.
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\32\ Exchange Act Rule 3b-4, 17 CFR 240.3b-4, defines the term
``foreign issuer'' as any issuer which is a foreign government, a
national of any foreign country or a corporation or other
organization incorporated or organized under the laws of any foreign
country.
\33\ The proposed amendments to the Exchange's DRP are
substantively similar to changes made by Nasdaq. See Securities and
Exchange Act Release No. 68238 (November 15, 2012) 77 FR 69911
(November 21, 2012) (SR-NASDAQ-2012-128) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change To Expand the
Exemption to the Direct Registration Program Requirement to All
Foreign Issuers Rather Than Only Foreign Private Issuers).
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The Exchange also proposes to amend the exemptions provided under
Rule 14.3(b)(3) to conform with those provided in existing Rule 14.7.
Specifically, Exchange Rule 14.7(a) provides that except as indicated
in Rule 14.7(c), all securities listed on the Exchange (except
securities which are book-entry only) must be eligible for a DRP
operated by a clearing agency registered under Section 17A of the Act.
Existing Rule 14.3(b)(3) provides that all securities initially listing
on the Exchange must be eligible for a DRP operated by a clearing
agency registered under Section 17A of the Act. It also provides that
this provision does not extend to: (i) additional classes of securities
of Companies which already have securities listed on the Exchange; (ii)
Companies which immediately prior to such listing had securities listed
on another registered securities exchange in the U.S.; or, (iii) non-
equity securities that are book-entry only. As these exemptions are not
provided in existing Rule 14.7 or other exchange rules, the Exchange
proposed to delete them from Rule 14.3(b)(3). The proposed rule changes
are substantively similar to existing rules on another exchange.\34\
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\34\ See Nasdaq Listing Rules 5210(c) and 5255(c).
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Exchange Rule 14.10(e)(1)(C) provides limited exemptions with
respect to certain corporate governance and reporting requirements for
Foreign Private Issuers and also provides that a Foreign Private Issuer
may follow its home country practice in lieu of the DRP requirement set
forth in Rules 14.3(b)(3) and 14.7. As the proposed exemption to the
DRP requirement expands beyond Foreign Private Issuers, the Exchange
proposes to delete the reference to Rules 14.3(b)(3) and 14.7
[[Page 12924]]
from Rule 14.10(e)(1)(C) and Interpretation and Policy .12 of Rule
14.10 to minimize confusion about the availability of such exemptions
to foreign issuers that do not qualify for Foreign Private Issuer
status.\35\
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\35\ The proposed rule changes are substantively identical to
Nasdaq Rule 5615(a)(3) and IM-5613-3.
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The Exchange also proposes to correct Rule inaccurate references in
Interpretation and Policy .12 to Rule 14.10 and Rule 14.10(e)(1)(C)(i).
Specifically, the Exchange proposes to make non-substantive changes to
modify incorrect references from Rule 14.7 to Rule 14.10 and from Rule
14.3(e)(4) to 14.6(d). Additionally, the Exchange proposes to correct a
title reference in Exchange Rule 14.10(e)(1)(C)(i) to correctly reflect
the title of Rule 14.10(g) (Notification of Noncompliance). The
Exchange also proposes to amend Interpretation and Policy .12 to Rule
14.10 to provide a more granular and accurate rule cite to the
applicable audit committee requirement for Foreign Private Issuers
provided under Rule 14.10(c)(3)(B)(i)(b). As discussed above, the
Exchange also proposes to delete references to the Exchange's DRP from
Interpretation and Policy .12. In place of the reference to the DRP
provided in Interpretation and Policy .12, the Exchange proposes to
reiterate the requirement that a Foreign Private Issuer must comply
with the voting rights requirement under Rule 14.10(j). Further, as
discussed below, the Exchange also proposes to add references to
proposed Rule 14.6(b)(3) to proposed Interpretation and Policy .12.
These proposed changes are also substantively similar to existing rules
on another exchange.\36\
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\36\ Id.
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(3) Public Disclosure
The Exchange proposes to add an additional obligation to make
public disclosure under proposed Rule 14.6(b)(3), which would require
the disclosure of third party director and nominee compensation,\37\
and is substantively similar to existing rules of another exchange.\38\
Current Exchange Rules require listed companies to make public
disclosure in several areas. For example, a listed company is required
to publicly disclose material information that would reasonably be
expected to affect the value of its securities or influence investors'
decisions as well as when non-independent directors serve on a
committee that generally requires only independent directors, such as
for a controlled company or under exceptional and limited
circumstances.\39\ A listed company is also required to file required
periodic reports with the Commission.\40\ A principal purpose of these
disclosure requirements is to protect investors and ensure these
investors have necessary information to make informed investment and
voting decisions.
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\37\ The Exchange notes that the proposal is substantively
similar to other proposed rules approved by the Commission. See
Securities and Exchange Act Nos. 77481 (March 30, 2016) 81 FR 19678
(April 5, 2016) (SR-NASDAQ-2016-013) (Notice of Filing of Proposed
Rule Change To Require Listed Companies to Publicly Disclose
Compensation or Other Payments by Third Parties to Board of
Director's Members or Nominees); 78223 (July 1, 2016) 81 FR 44400
(July 7, 2016) (Notice of Filing of Amendment No. 2 and Order
Granting Accelerated Approval of a Proposed Rule Change, as Modified
by Amendment No. 2, To Require Listed Companies to Publicly Disclose
Compensation or Other Payments by Third Parties to Board of
Director's Members or Nominees).
\38\ See Nasdaq Listing Rule 5250(b)(3).
\39\ See Exchange Rules 14.6(b)(1), 14.10(e)(3)(B),
14.10(c)(3)(B)(ii), and 14.10 (c)(5)(C).
\40\ See Exchange Rule 14.6(c).
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As noted above, now the Exchange proposes to adopt Rule 14.6(b)(3)
which would require the disclosure of third party director and nominee
compensation. The preamble to proposed Rule 14.6(b)(3) would provide
that Companies must disclose all agreements and arrangements in
accordance with this rule by no later than the date on which the
Company files or furnishes a proxy or information statement subject to
Regulation 14A or 14C under the Act in connection with the Company's
next shareholders' meeting at which directors are elected (or, if they
do not file proxy or information statements, no later than when the
Company files its next Form 10-K or Form 20-F).\41\
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\41\ The proposed rule is substantively identical to the
preamble of Nasdaq Rule 5250(b)(3).
---------------------------------------------------------------------------
Proposed Rule 14.6(b)(3)(A) would require a Company to disclose
either on or through the Company's website or in the proxy or
information statement for the next shareholders' meeting at which
directors are elected (or, if the Company does not file proxy or
information statements, in its Form 10-K or 20-F), the material terms
of all agreements and arrangements between any director or nominee for
director, and any person or entity other than the Company (the ``Third
Party''), relating to compensation or other payment in connection with
such person's candidacy or service as a director of the Company. A
Company need not disclose pursuant to this rule agreements and
arrangements that: (i) relate only to reimbursement of expenses in
connection with candidacy as a director; (ii) existed prior to the
nominee's candidacy (including as an employee of the other person or
entity) and the nominee's relationship with the Third Party has been
publicly disclosed in a proxy or information statement or annual report
(such as in the director or nominee's biography); or (iii) have been
disclosed under Item 5(b) of Schedule 14A of the Act or Item 5.02(d)(2)
of Form 8-K in the current fiscal year. Proposed Rule 14.6(b)(3)(A)
would further provide that disclosure pursuant to Commission rule shall
not relieve a Company of its annual obligation to make disclosure under
proposed subparagraph (B).\42\
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\42\ The proposed rule is substantively identical to Nasdaq Rule
5250(b)(3)(A).
---------------------------------------------------------------------------
Proposed Rule 14.6(b)(3)(B) would provide that a Company must make
the disclosure required in proposed subparagraph (A) at least annually
until the earlier of the resignation of the director or one year
following the termination of the agreement or arrangement.\43\ In
recognition that a company, despite reasonable efforts, may not be able
to identify all such agreements and arrangements, proposed Rule
14.6(b)(3)(C) would provide that if a Company discovers an agreement or
arrangement that should have been disclosed pursuant to proposed
subparagraph (A) but was not, the Company must promptly make the
required disclosure by filing a Form 8-K or 6-K, where required by SEC
rules, or by issuing a press release. Remedial disclosure under this
proposed subparagraph, regardless of its timing, does not satisfy the
annual disclosure requirements under proposed subparagraph (B).\44\
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\43\ The proposed rule is substantively identical to Nasdaq Rule
5250(b)(3)(B).
\44\ The proposed rule is substantively identical to Nasdaq Rule
5250(b)(3)(C).
---------------------------------------------------------------------------
Proposed Rule 14.6(b)(3)(D) would provide that a Company shall not
be considered deficient with respect to this paragraph for purposes of
Rule 14.12 if the Company has undertaken reasonable efforts to identify
all such agreements or arrangements, including asking each director or
nominee in a manner designed to allow timely disclosure, and makes the
disclosure required by proposed subparagraph (C) promptly upon
discovery of the agreement or arrangement. In all other cases, the
Company must submit a plan sufficient to satisfy Exchange staff that
the Company has adopted processes and procedures designed to identify
and disclose relevant agreements or arrangements.\45\ In cases where a
company is considered deficient for purposes of Rule 14.12, the company
[[Page 12925]]
must provide a plan to regain compliance as provided under proposed
Rule 14.12(f)(2)(A)(iv). Consistent with deficiencies from most other
rules that allow a company to submit a plan to regain compliance,\46\
the Exchange proposes to allow companies deficient under the proposed
rule 45 calendar days to submit a plan sufficient to satisfy Exchange
staff that the company has adopted processes and procedures designed to
identify and disclose relevant agreements and arrangements in the
future.\47\ If the company does not do so, it would be issued a Staff
Delisting Determination, which the company could appeal to a Hearings
Panel pursuant to Rule 14.12. This proposal to adopt new Exchange Rule
14.12(f)(2)(A)(iv) and to modify and renumber existing Rules
14.12(f)(2)(A)(iv) and (v) to provide for the proposed Rule
14.12(f)(2)(A)(iv) is substantively similar to existing rules on
another exchange.\48\
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\45\ The proposed rule is substantively identical to Nasdaq Rule
5250(b)(3)(D).
\46\ Pursuant to Rule 14.12(f)(2)(A), a company is provided 45
days to submit a plan to regain compliance with Rules 14.10(f)(3)
(Quorum), 14.10(h) (Review of Related Party Transactions), 14.10(i)
(Shareholder Approval), 14.6(c)(3) (Auditor Registration), 14.7
(Direct Registration Program), 14.10(d) (Code of Conduct),
14.10(e)(1)(D)(v) (Quorum of Limited Partnerships),
14.10(e)(1)(D)(vii) (Related Party Transactions of Limited
Partnerships), or 14.10(j) (Voting Rights). A company is generally
provided 60 days to submit a plan to regain compliance with the
requirement to timely file periodic reports contained in Rule
14.12(f)(2)(F).
\47\ The proposed rule is substantively identical to Nasdaq Rule
5810(c)(2), except as for the reference to board disclosure rules
which the Exchange is not proposing to adopte.
\48\ See Nasdaq Listing Rule 5810(c)(2)(A)(i) through (v).
---------------------------------------------------------------------------
Finally, proposed Rule 14.6(b)(3)(E) would provide that a Foreign
Private Issuer may follow its home country practice in lieu of the
requirements of Rule 14.6(b)(3) by utilizing the process described in
Rule 14.10(e)(1)(C). Consistent with other exemptions afforded certain
types of companies, the Exchange is also proposing to amend Exchange
Rule 14.10(e)(1)(C) to provide that a Foreign Private Issuer may follow
home country practice in lieu of the requirements of proposed Rule
14.6(b)(3). The proposal for this exemption is identical to an existing
exemption provided on another exchange.\49\
---------------------------------------------------------------------------
\49\ See Nasdaq Listing Rule 5615(a)(3).
---------------------------------------------------------------------------
The Exchange also proposes to adopt Interpretation and Policy .03
to Rule 14.6 to add clarity and additional guidance to the requirements
of proposed Rule 14.6(b)(3). Specifically, proposed Interpretation and
Policy .03 would provide that the terms ``compensation'' and ``other
payment'' as used in this proposed rule are intended to be construed
broadly. Therefore, the terms would apply to agreements and
arrangements that provide for non-cash compensation and other payment
obligations, such as health insurance premiums or indemnification, made
in connection with a person's candidacy or service as a director.
Further, at a minimum, the disclosure should identify the parties to
and the material terms of the agreement or arrangement relating to
compensation.\50\
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\50\ The Exchange notes that the proposal is substantively
similar to other proposed rules approved by the Commission. See
Securities and Exchange Act Nos. 77481 (March 30, 2016) 81 FR 19678
(April 5, 2016) (SR-NASDAQ-2016-013) (Notice of Filing of Proposed
Rule Change To Require Listed Companies to Publicly Disclose
Compensation or Other Payments by Third Parties to Board of
Director's Members or Nominees); 78223 (July 1, 2016) 81 FR 44400
(July 7, 2016) (Notice of Filing of Amendment No. 2 and Order
Granting Accelerated Approval of a Proposed Rule Change, as Modified
by Amendment No. 2, To Require Listed Companies to Publicly Disclose
Compensation or Other Payments by Third Parties to Board of
Director's Members or Nominees).
---------------------------------------------------------------------------
Proposed Interpretation and Policy .03 to Rule 14.6 would also
provide that Subject to exceptions provided in the rule, the disclosure
must be made on or through the Company's website or in the proxy or
information statement for the next shareholders' meeting at which
directors are elected in order to provide shareholders with information
and sufficient time to help them make meaningful voting decisions. A
Company posting the requisite disclosure on or through its website must
make it publicly available no later than the date on which the Company
files a proxy or information statement in connection with such
shareholders' meeting (or, if they do not file proxy or information
statements, no later than when the Company files its next Form 10-K or
Form 20-F). Disclosure made available on the Company's website or
through it by hyperlinking to another website, must be continuously
accessible. If the website hosting the disclosure subsequently becomes
inaccessible or that hyperlink inoperable, the company must promptly
restore it or make other disclosure in accordance with this rule. Rule
14.6(b)(3) does not separately require the initial disclosure of newly
entered into agreements or arrangements, provided that disclosure is
made pursuant to this rule for the next shareholders' meeting at which
directors are elected. In addition, for publicly disclosed agreements
and arrangements that existed prior to the nominee's candidacy and thus
not required to be disclosed in accordance with proposed Rule
14.6(b)(3)(A)(ii) but where the director or nominee's remuneration is
thereafter materially increased specifically in connection with such
person's candidacy or service as a director of the Company, only the
difference between the new and previous level of compensation or other
payment obligation needs be disclosed. All references in this rule to
proxy or information statements are to the definitive versions
thereof.\51\
---------------------------------------------------------------------------
\51\ Id.
---------------------------------------------------------------------------
(4) Market Value Definition and Shareholder Approval
Exchange Rule 14.10(i) sets forth the circumstances under which
shareholder approval is required prior to an issuance of securities in
connection with (1) the acquisition of the stock or assets of another
company; (2) a change of control; (3) equity-based compensation of
officers, directors, employees or consultants; and (4) private
placements. Specifically, under current Rule 14.10(i)(4), shareholder
approval is required prior to the issuance of securities in connection
with a transaction other than a public offering involving:
(A) the sale, issuance or potential issuance by the Company of
common stock (or securities convertible into or exercisable for common
stock) at a price less than the greater of book or market value which
together with sales by officers, directors or Substantial Shareholders
\52\ of the Company equals 20% or more of common stock or 20% or more
of the voting power outstanding before the issuance; or (B) the sale,
issuance or potential issuance by the Company of common stock (or
securities convertible into or exercisable common stock) equal to 20%
or more of the common stock or 20% or more of the voting power
outstanding before the issuance for less than the greater of book or
market value of the stock. Exchange Rule 14.1(a)(19) defines ``market
value'' as the closing bid price. Now, the Exchange proposes to make
certain changes to Rule 14.10(i) as described below, and to modify the
measure of market value for the purpose of Rule 14.10(i)(4) from the
closing bid price to the lower of: (i) BZX Official Closing Price \53\
as reflected on <a href="http://Cboe.com">Cboe.com</a> or (ii) the average BZX Official Closing Price
of the common stock as available on <a href="http://Cboe.com">Cboe.com</a> for the five trading days
immediately preceding the signing of the binding agreement.
---------------------------------------------------------------------------
\52\ See Exchange Rule 14.10(i)(5)(C).
\53\ See Exchange Rule 11.23(a)(3).
---------------------------------------------------------------------------
The Exchange also proposes to amend the preamble and to Rule
14.10(i) and
[[Page 12926]]
the title of Rule 14.10(i)(4) to replace references to ``private
placements'' with ``transactions other than public offerings'', which
conforms the language to that in existing Interpretation and Policy .18
to Rule 14.10. Private placements would continue to be considered
``transactions other than public offerings'' under the proposed rule
change, and the proposed change does not change the essence of the
current rule.
The Exchange notes that the proposed changes to Exchange Rule
14.10(i) and Interpretation and Policy .18 to Rule 14.10 are
substantively similar to rules of another Exchange that were previously
approved by the Commission.\54\
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\54\ See Securities Exchange Act Nos. 82702 (February 13, 2018)
83 FR 7269 (February 20, 2018) (SR-NASDAQ-2018-008) (Notice of
Filing of Proposed Rule Change To Modify the Listing Requirements
Contained in Listing Rule 5635(d) To Change the Definition of Market
Value for Purposes of the Shareholder Approval Rules and Eliminate
the Requirement for Shareholder Approval of Issuances at a Price
Less Than Book Value but Greater Than Market Value) and 84287
(September 26, 2018) 83 FR 49599 (October 2, 2018) (Notice of Filing
of Amendment No. 1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To Modify the
Listing Requirements Contained in Listing Rule 5635(d) To Change the
Definition of Market Value for Purposes of the Shareholder Approval
Rule and Eliminate the Requirement for Shareholder Approval of
Issuances at a Price Less Than Book Value but Greater Than Market
Value). See also Securities Exchange Act No. 88056 (January 28,
2020) 85 FR 6003 (February 3, 2020) (SR-NASDAQ-2020-004) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change to
Clarify the Term ``Closing Price'' in Rule 5635(d)(1)(A) Relating to
Shareholder Approval for Transactions Other Than Public Offerings).
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(a) Closing Price
The BZX Official Closing Price refers to the price disseminated to
the consolidated tape as the market center closing trade, which is
derived from the closing auction on the Exchange if a closing auction
occurs.\55\ The Exchange's closing auction is designed to gather the
maximum liquidity available for execution at the close of trading, and
to maximize the number of shares executed at a single price at the
close of the trading day. The closing auction promotes accurate closing
prices by offering specialized orders available only during the closing
auction and integrating those orders with regular orders submitted
during the trading day that are still available at the close. Further,
the Exchange believes the price of an executed trade is generally
viewed as a more reliable indicator of value than a bid quotation.
Given this combined with the fact that the proposal to use the official
closing price rather than the closing bid price is similar to the rules
of another exchange (except that it uses its own closing price) \56\
the Exchange believes it is appropriate to use the BZX Official Closing
Price rather than the closing bid price.
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\55\ If an issue does not have a closing auction (e.g., there is
insufficient interest to conduct a closing auction), the BZX
Official Closing Price will be the Final Last Sale Eligible Trade.
\56\ See Nasdaq Listing Rule 5635(d).
---------------------------------------------------------------------------
In addition, because prices are displayed from numerous data
sources on different websites, to provide transparency within the rule
to the appropriate price and assure that companies and investors use
the BZX Official Closing Price when pricing transactions, the Exchange
proposes to codify within the proposed Rule 14.10(i)(4)(A)(i) that
<a href="http://Cboe.com">Cboe.com</a> is the appropriate source of the closing price information.
(b) Five-Day Average Price
The Exchange proposes to amend Rule 14.10(i)(4) to define a new
concept as the ``Minimum Price'' and eliminate references to book value
and eliminating the current definition of market value \57\ from Rule
14.10(i)(4). Minimum Price would be defined under proposed Rule
14.10(i)(4)(A)(i) as price that is the lower of: (a) the BZX Official
Closing Price (as reflected on <a href="http://Cboe.com">Cboe.com</a>) for the five trading
immediately preceding the signing of the binding agreement; or (b) the
average BZX Official Closing Price of the common stock as reflected on
(<a href="http://Cboe.com">Cboe.com</a>) for the five trading days immediately preceding the signing
of the binding agreement. This means that the issuance would not
require an approval by company's shareholders, so long as it is at a
price that is greater than the lower of those measures.
---------------------------------------------------------------------------
\57\ ``Market value'' is defined in Exchange Rule 14.1(a)(19)
and is applicable to the shareholder approval rules as well as other
listing rules.
---------------------------------------------------------------------------
The Exchange believes that while investors and companies sometimes
prefer to use an average when pricing transactions, there are potential
negative consequences to using a five-day average as the sole measure
of whether shareholder approval is required. For example, in a
declining market, the five-day average closing price will be above the
current market price, which could make it difficult for companies to
close transactions because investors could buy shares at a lower price
in the market. Conversely, using a five-day average in a rising market
the five-day average closing price will appear to be at a discount to
the closing current market price. Further, if material news is
announced during the five-day period, the average price could be a
worse reflection of market value than the closing price after the news
is disclosed. The Exchange believes that these risks of using the five-
day average closing price are already accepted by the market, as
evidenced by the use of an average price in transactions that do not
require shareholder approval, such as those transactions where less
than 20% of the outstanding shares are being issued. Nonetheless, the
Exchange believes the proposal balances this risk because an issuance
would not require shareholder approval as long as the issuance occurs
at a price greater than the lower of the two proposed measures.
To improve the readability of the rule, the Exchange proposes to
eliminate references to book value and current definition of market
value from Rule 14.10(i)(4) and to instead reference the defined term
Minimum Price. The Exchange notes that the proposal is substantively
similar to existing rules of another exchange.\58\
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\58\ See Nasdaq Listing Rule 5635(d)(1)(A).
---------------------------------------------------------------------------
(c) Book Value
The Exchange proposes to eliminate the requirement for shareholder
approval of issuances at a price less than book value but greater than
market value. Book value is an accounting measure and its calculation
is based on the historic cost of assets, not their current value. As
such the Exchange believes that book value is not an appropriate
measure of whether a transaction is dilutive or should otherwise
require shareholder approval. Further, the proposal is substantively
similar to existing rules of another exchange.\59\
---------------------------------------------------------------------------
\59\ See Nasdaq Listing Rule 5635(d)(1)(B).
---------------------------------------------------------------------------
(d) Other Changes to the Shareholder Approval Requirement
The Exchange proposes to revise Exchange Rule 14.10(i)(4) to
provide that shareholder approval is required prior to a 20% issuance
at a price that is less than the Minimum Price. To improve the
readability of Exchange Rule 14.10(i)(4), the Exchange proposes to
define ``20% Issuance'' as ``a transaction, other than a public
offering \60\ as defined in Rule 14.10, Interpretation and Policy .18,
involving the sale, issuance or potential issuance by the Company of
common stock (or securities convertible into or exercisable for common
stock), which alone or together with sales by officers, directors or
Substantial Shareholders of the Company, equals 20% or more of the
common stock or 20% or more of the
[[Page 12927]]
voting power outstanding before the issuance.'' This definition
combines the situations described in existing Rule 14.10(i)(4)(A) and
(B) into one provision and makes no substantive change to the threshold
for quantity or voting power of shares being sold that would give rise
to the need for shareholder approval, although as described above, the
applicable pricing test will change.
---------------------------------------------------------------------------
\60\ Transactions other than public offerings is also the
proposed title to Rule 14.10(i)(4).
---------------------------------------------------------------------------
Finally, the Exchange proposes to amend Rule 14.10 Interpretations
and Policies .18 and .19, which describe how the Exchange applies the
shareholder approval requirements, to conform references to book and
market value with the new definition of Minimum Price, as described
above, and to utilize the newly defined term 20% Issuance. The Exchange
also proposes to correct an incorrect reference to the Exchange's rules
relating to a Company's failure to meeting listing standards from Rule
14.9 to 14.12.
As noted above, the proposed changes to Exchange Rule 14.10(i) and
Interpretation and Policy .18 to Rule 14.10 are substantively similar
to rules of another Exchange that were previously approved by the
Commission.\61\
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\61\ Supra notes 55 and 56.
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(5) Exemptions to Certain Corporate Governance Requirements
The Exchange proposes to amend and expand the exemptions available
to issuers of certain securities from some of the Exchange's corporate
governance requirements and to define certain of those securities as
``Derivative Securities''. The Exchange also proposes to amend Exchange
Rule 14.10 Interpretation and Policy .15 to modify the exemptions from
the annual meeting requirements. The Exchange notes that the proposed
changes would result in rules that are substantively similar to the
existing rules of other exchanges.\62\
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\62\ See Nasdaq Listing Rules 5615(a), IM-5615-4, and IM-5620;
NYSE Arca, Inc. (``NYSE Arca'') Rule 5.3-E.
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Exchange Rule 14.10(e) currently provides exemptions to issuers of
certain securities listed on the Exchange from portions of the
corporate governance requirements. Specifically, Exchange Rule
14.10(e)(1)(A) provides exemptions for asset-backed issuers \63\ and
other passive issuers \64\ from the provisions of Exchange Rule
14.10(c)(2) (Independent Directors), Exchange Rule 14.10(c)(3) (Audit
Committee Requirements), Exchange Rule 14.10(c)(4) (Independent
Director Oversight of Executive Officer Compensation), Exchange Rule
14.10(c)(5) (Independent Director Oversight of Director Nominations),
Exchange Rule 14.10(d) (Code of Conduct), and Exchange Rule 14.10(e)(3)
(Controlled Company Exemption). Exchange Rule 14.10(e)(1)(E) provides
exemptions for management investment companies registered under the
Investment Company Act of 1940 \65\ from the provisions of Exchange
Rule 14.10(c)(2) (Independent Directors), Exchange Rule 14.10(c)(4)
(Independent Director Oversight of Executive Officer Compensation),
Exchange Rule 14.10(c)(5) (Independent Director Oversight of Director
Nominations), and Exchange Rule 14.10(d) (Code of Conduct). In
addition, under Exchange Rule 14.10(e)(1)(E), management investment
companies are exempt from Exchange Rule 14.10(c)(3) (Audit Committee
Requirements), except for the provisions of Rule 10A-3 under the
Exchange Act.\66\
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\63\ Rule 14.10 Interpretation and Policy .10 defines as issuers
``that are organized as trusts or other unincorporated associations
that do not have a board of directors or persons acting in a similar
capacity and whose activities are limited to passively owning or
holding (as well as administering and distributing amounts in
respect of) securities, rights, collateral or other assets on behalf
of or for the benefit of the holders of the listed securities.''
\64\ Exchange Rule 14.10(e)(1)(A)(i)(b) includes Portfolio
Depositary Receipts as an example of a passive issuer.
\65\ 15 U.S.C. 80a.
\66\ 17 CFR 240.10A-3.
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Currently, products that can rely on the exemptions within Exchange
Rule 14.10(e)(1)(E) are Index Fund Shares (Exchange Rule 14.11(c)),
Managed Fund Shares (Exchange Rule 14.11(i)), Managed Portfolio Shares
(Exchange Rule 14.11(k)), ETF Shares (Exchange Rule 14.11(l)), and
Tracking Fund Shares (Exchange Rule 14.11(m)). Additionally, Rule 14.10
Interpretation and Policy .15 provides exemptions to issuers of certain
securities listed pursuant to the requirements of Exchange Rule
14.10(f) (Meetings of Shareholders). Currently, Portfolio Depositary
Receipts (Exchange Rule 14.11(b)), Index Fund Shares (Exchange Rule
14.11(c)), and Trust Issued Receipts (Exchange Rule 14.11(f)) are
exempt from the annual meeting requirements.\67\
---------------------------------------------------------------------------
\67\ Rule 14.10 Interpretation and Policy .15 also exempts
securities listed pursuant to Exchange Rule 14.11(h) (unless the
listed security is a common stock or voting preferred stock
equivalent).
---------------------------------------------------------------------------
The Exchange now proposes to add a definition of ``Derivative
Securities'' to Exchange Rule 14.10(e)(1)(F)(ii) (the ``Proposed
Definition''), as discussed in the ``Definition of Derivative
Securities'' section below. Further, the Exchange proposes to adopt
Rule 14.10(e)(1)(F)(i), which would provide that issuers whose only
securities listed on the Exchange are non-voting preferred securities,
debt securities or Derivative Securities, are exempt from the
requirements relating to Independent Directors (as set forth in Rule
14.10(c)(2)), Independent Director Oversight of Executive Officer
Compensation (as set forth in Rule 14.10(c)(4)), Director Nominations
(as set forth in Rule 14.10(c)(5)), Code of Conduct (as set forth in
Rule 14.10(d)), and Meetings of Shareholders (as set forth in Rule
14.10(f)). In addition, these issuers are exempt from the requirements
relating to Audit Committees (as set forth in Rule 14.10(c)(3)), except
for the applicable requirements of SEC Rule 10A-3. Notwithstanding, if
the issuer also lists its common stock or voting preferred stock, or
their equivalent on the Exchange it will be subject to all the
requirements of Exchange Rule 14.10. Rule 14.10(e)(1)(F)(i) will
continue to require such companies to comply with the requirements of
Exchange Rule 14.10(g), pursuant to which an issuer will provide the
Exchange with prompt notification after an executive officer of the
company becomes aware of any noncompliance by the company with the
requirements of Exchange Rule 14.10. The Exchange notes that proposed
Rule 14.10(e)(1)(F)(i) and (ii) are substantively similar to rules on
other exchanges.\68\
---------------------------------------------------------------------------
\68\ See Nasdaq Listing Rule 5615(a)(6) and Arca Rule 5.3-E. See
also Securities Exchange Act No. 86072 (June 10, 2019) 84 FR 27816
(June 14, 2019) (SR-NASDAQ-2019-039) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 5615 To
Allow Additional Issuers Who List Only Specific Securities To Be
Able To Avail Themselves of Certain Exemptions Under Corporate
Governance Requirements and To Amend Nasdaq Rule IM-5620 To Exclude
Additional Categories of Issuers Listing Only Specific Securities
From the Annual Shareholder Meeting Requirement); Securities
Exchange Act No. 83324 (May 24, 2018) 83 FR 25076 (May 31, 2018)
(SR-NYSEArca-2018-31) (Notice of Filing and Immediate Effectiveness
of Proposed Rule Change To Amend NYSE Arca Rule 5.3-E To Exclude
Certain Categories of Issuers From the Exchange's Annual Meeting
Requirement).
---------------------------------------------------------------------------
The Exchange also proposes to amend Exchange Rule 14.10
Interpretation and Policy .15 to amend the annual meeting requirements
of Exchange Rule 14.10(f) to clarify that issuers of only non-voting
preferred securities, debt securities or Derivative Securities \69\ are
not subject
[[Page 12928]]
to the rule. The Exchange believes that the proposed amendment is
appropriate because the holders of non-voting preferred securities,
debt securities or Derivative Securities do not have voting rights with
respect to the election of directors except in very limited
circumstances as required by federal or state law or their governing
documents. The rule will continue to state that if the Company also
lists common stock or voting preferred stock, or their equivalent, on
the Exchange, the Company will be subject to the annual meeting
requirements of Exchange Rule 14.10(f). The proposed change is
substantively identical to an existing rule on another exchange.\70\
---------------------------------------------------------------------------
\69\ The Exchange is proposing to expand the list of products
that are exempt from the annual meeting requirements of Exchange
Rule 14.10(f). The proposed list of products consists of: Commodity
Futures Trust Shares; Commodity Index Trust Shares; Commodity-Based
Trust Shares; Commodity-Linked Securities; Currency Trust Shares;
Equity Gold Shares; Equity Index-Linked Securities; Exchange-Traded
Fund Shares; Fixed Income Index-Linked Securities; Futures-Linked
Securities; Index Fund Shares; Index-Linked Exchangeable Notes;
Managed Fund Shares; Managed Portfolio Shares; Managed Trust
Securities; Multifactor Index-Linked Securities; Partnership Units;
Portfolio Depository Receipts; SEEDS; Tracking Fund Shares; Trust
Certificates; and Trust Issued Receipts. Portfolio Depositary
Receipts, Index Fund Shares and Trust Issued Receipts are currently
excluded from the annual meeting requirement Exchange Rule 14.10(f).
\70\ See Nasdaq Listing Rule IM-5620. See also Securities
Exchange Act No. 86072 (June 10, 2019) 84 FR 27816 (June 14, 2019)
(SR-NASDAQ-2019-039) (Notice of Filing and Immediate Effectiveness
of Proposed Rule Change To Amend Nasdaq Rule 5615 To Allow
Additional Issuers Who List Only Specific Securities To Be Able To
Avail Themselves of Certain Exemptions Under Corporate Governance
Requirements and To Amend Nasdaq Rule IM-5620 To Exclude Additional
Categories of Issuers Listing Only Specific Securities From the
Annual Shareholder Meeting Requirement).
---------------------------------------------------------------------------
Definition of ``Derivative Security''
The proposed definition of Derivative Security will include:
Commodity Futures Trust Shares; Commodity Index Trust Shares;
Commodity-Based Trust Shares; Commodity-Linked Securities; Currency
Trust Shares; Equity Gold Shares; Equity Index-Linked Securities; ETF
Shares; Fixed Income Index-Linked Securities; Futures-Linked
Securities; Index Fund Shares; Index-Linked Exchangeable Notes; Managed
Fund Shares; Managed Portfolio Shares; Managed Trust Securities;
Multifactor Index-Linked Securities; Partnership Units; Portfolio
Depository Receipts; Selected Equity-linked Debt Securities
(``SEEDS''); Tracking Fund Shares; Trust Certificates; and Trust Issued
Receipts. Each of these types of securities is similarly exempt from
the corporate governance requirements as proposed herein on another
exchange,\71\ as summarized in the table below:
---------------------------------------------------------------------------
\71\ See Nasdaq Listing Rules 5615(a), IM-5615-4, and IM-5620;
NYSE Arca Rule 5.3-E.
----------------------------------------------------------------------------------------------------------------
Product type Exchange rule Nasdaq rule NYSE arca rule
----------------------------------------------------------------------------------------------------------------
Commodity Futures Trust Shares....... 14.11(e)(7)............ Rule 5711(g)........... 8.204-E.
Commodity Index Trust Shares......... 14.11(e)(6)............ Rule 5711(f)........... 8.203-E.
Commodity-Based Trust Shares......... 14.11(e)(4)............ Rule 5711(d)........... 8.201-E.
Commodity-Linked Securities.......... 14.11(d)............... Rule 5710(k)(ii)....... 5.2-E(j)(6)(B)(II).
Currency Trust Shares................ 14.11(e)(5)............ Rule 5711(e)........... 8.202-E.
Equity Gold Shares................... 14.11(e)(2)............ Rule 5711(b)........... 5.2-E(j)(5).
Equity Index-Linked Securities....... 14.11(d)............... Rule 5710(k)(i)........ 5.2E(j)(6)(B)(I).
Exchange-Traded Fund Shares.......... 14.11(l)............... Rule 5704.............. 5.2-E(j)(8).
Fixed Income Index-Linked Securities. 14.11(d)............... 5710(k)(iii)........... 5.2E(j)(6)(B)(IV).
Futures-Linked Securities............ 14.11(d)............... 5710(k)(iv)............ 5.2E(j)(6)(B)(V).
Index Fund Shares *.................. 14.11(c)............... Rule 5750.............. 5.2E(j)(3).
Index-Linked Exchangeable Notes...... 14.11(e)(1)............ Rule 5711(a)........... 5.2-E(j)(4).
Managed Fund Shares.................. 14.11(i)............... Rule 5735.............. 8.600-E.
Managed Portfolio Shares............. 14.11(k)............... Rule 5745.............. 8.900-E.
Managed Trust Securities............. 14.11(e)(10)........... Rule 5711(j)........... 8.700-E.
Multifactor Index-Linked Securities.. 14.11(d)............... 5710(k)(v)............. 5.2E(j)(6)(B)(VI).
Partnership Units.................... 14.11(e)(8)............ Rule 5711(h)........... 8.300-E.
Portfolio Depository Receipts........ 14.11(b)............... Rule 5705.............. 8.100-E.
SEEDS................................ 14.11(e)(12)........... Rule 5715.............. 5.2-E(j)(2).
Tracking Fund Shares **.............. 14.11(m)............... Rule 5750.............. 8.601-E.
Trust Certificates................... 14.11(e)(3)............ Rule 5711(c)........... 5.2-E(j)(7).
Trust Issued Receipts................ 14.11(f)............... Rule 5720.............. 8.200-E.
----------------------------------------------------------------------------------------------------------------
* Index Fund Shares are generally equivalent to Investment Company Units listed pursuant to NYSE Arca Rule 5.2-
E(j)(3).
** Tracking Fund Shares are generally equivalent to Active Proxy Portfolio Shares listed pursuant to NYSE Arca
Rule 8.601-E and Proxy Portfolio Shares listed pursuant to Nasdaq Rule 5750.
Portfolio Depositary Receipts & Index Fund Shares
The Exchange believes it is appropriate that Portfolio Depositary
Receipts and Index Fund Shares are included in the Proposed Definition
and, therefore, entitled to the exemptions proposed herein because
these securities are currently exempt from the provisions Exchange Rule
14.10(c)(2) (Independent Directors), Exchange Rule 14.10(c)(4)
(Independent Director Oversight of Executive Officer Compensation),
Exchange Rule 14.10(c)(5) (Independent Director Oversight of Director
Nominations), Exchange Rule 14.10(d) (Code of Conduct), and Exchange
Rule 14.10(f) (Meetings of Shareholders).\72\ Further, both Portfolio
Depositary Receipts and Index Fund Shares are exempt from the same
corporate governance requirements on another exchange.\73\
---------------------------------------------------------------------------
\72\ See Exchange Rule 14.10(e)(1)(E) and Interpretation and
Policy .15 to Rule 14.10 for the exemptions for Index Fund Shares
and 14.10(e)(1)(A) and Interpretation and Policy .15 to Rule 14.10
for the exemptions regarding Portfolio Depositary Receipts.
\73\ See Securities Exchange Act No. 86072 (June 10, 2019) 84 FR
27816 (June 14, 2019) (SR-NASDAQ-2019-039) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq Rule
5615 To Allow Additional Issuers Who List Only Specific Securities
To Be Able To Avail Themselves of Certain Exemptions Under Corporate
Governance Requirements and To Amend Nasdaq Rule IM-5620 To Exclude
Additional Categories of Issuers Listing Only Specific Securities
From the Annual Shareholder Meeting Requirement).
---------------------------------------------------------------------------
Equity Index-Linked Securities, Commodity-Linked Securities, Fixed
Income Index-Linked Securities, Futures-Linked Securities, Multifactor
Index-Linked Securities, Index-Linked Exchangeable Notes, and SEEDs
The Exchange also believes it is appropriate that Equity Index-
Linked Securities, Commodity-Linked Securities, Fixed Income Index-
Linked Securities, Futures-Linked Securities, Multifactor Index-Linked
Securities,
[[Page 12929]]
Index-Linked Exchangeable Notes and SEEDS are included in the Proposed
Definition and, therefore, entitled to the exemptions proposed herein
because each are separate forms of unsecured debt of an issuer that is
already subject to the corporate governance and annual meeting
requirements of a national securities exchange and will continue to be
required under such rules.\74\
---------------------------------------------------------------------------
\74\ Exchange Rule 14.11(h)(1)(E), with which securities listed
pursuant to Rule 14.11(d), 14.11(f), and 14.11(h) must comply,
states, in part, the issuers of these securities must be ``listed on
the Exchange, the NYSE or NASDAQ, or must be an affiliate of a
Company listed on the Exchange, the NYSE or NASDAQ''.
---------------------------------------------------------------------------
If the issuer is listed on the Exchange, it is already subject to
the requirements of Exchange Rule 14.10. If the issuer is listed on
Nasdaq or NYSE Arca, it is already subject to corporate governance
standards that are substantively similar to the Exchange's corporate
governance rules as proposed herein. In addition, the Exchange believes
that it is appropriate to exempt these securities from the annual
meeting requirements of Exchange Rule 14.10(f) because the holders of
these securities have economic interests and other limited rights that
do not include voting rights. The Exchange notes that these issuers may
still be required to hold shareholder meetings, including special
meetings, as required by federal or state law or their governing
documents.
In addition, while unlike traditional debt securities, these
securities derive their value from the performance of an underlying
index or reference asset, they retain many of the same characteristics
as traditional debt securities \75\ and, therefore, the Exchange
believes it is consistent to treat them accordingly with regard to the
corporate governance and annual meeting requirements.
---------------------------------------------------------------------------
\75\ Like traditional debt securities, these securities are debt
of the issuer and have a specific date of maturity.
---------------------------------------------------------------------------
The Exchange notes that these securities are already similarly
exempted from the same corporate governance requirements on other
exchanges.\76\
---------------------------------------------------------------------------
\76\ Nasdaq Listing Rule 5615(a)(6) and Arca Rule 5.3-E. See
also Securities Exchange Act No. 86072 (June 10, 2019) 84 FR 27816
(June 14, 2019) (SR-NASDAQ-2019-039) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 5615 To
Allow Additional Issuers Who List Only Specific Securities To Be
Able To Avail Themselves of Certain Exemptions Under Corporate
Governance Requirements and To Amend Nasdaq Rule IM-5620 To Exclude
Additional Categories of Issuers Listing Only Specific Securities
From the Annual Shareholder Meeting Requirement); Securities
Exchange Act No. 83324 (May 24, 2018) 83 FR 25076 (May 31, 2018)
(SR-NYSEArca-2018-31) (Notice of Filing and Immediate Effectiveness
of Proposed Rule Change To Amend NYSE Arca Rule 5.3-E To Exclude
Certain Categories of Issuers From the Exchange's Annual Meeting
Requirement).
---------------------------------------------------------------------------
Equity Gold Shares
Similarly, the Exchange believes it is appropriate that Equity Gold
Shares are included in the Proposed Definition and, therefore, entitled
to the exemptions proposed herein because like such classes of
derivative securities, Equity Gold Shares are passive investment
vehicles that hold a beneficial interest in a specified commodity
trust. In addition, Equity Gold Shares are treated in a similar fashion
to Index Fund Shares under the existing Exchange rules.\77\ Therefore,
the Exchange believes it is appropriate that Equity Gold Shares are
included in the Proposed Definition and, therefore, entitled to the
exemptions proposed herein as Index Fund Shares are already exempt from
certain provisions of Exchange Rule 14.10. The Exchange notes that
Equity Gold Shares are already similarly exempted from the same
corporate governance requirements on other exchanges.\78\
---------------------------------------------------------------------------
\77\ Exchange Rule 14.11(e)(2)(A) states that ``while Equity
Gold Shares are not technically Index Fund Shares and thus not are
not covered by 14.11(c), all other rules that reference ``Index Fund
Shares'' shall also apply to Equity Gold Shares.''
\78\ Nasdaq Listing Rule 5615(a)(6) and Arca Rule 5.3-E. See
also Securities Exchange Act No. 86072 (June 10, 2019) 84 FR 27816
(June 14, 2019) (SR-NASDAQ-2019-039) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 5615 To
Allow Additional Issuers Who List Only Specific Securities To Be
Able To Avail Themselves of Certain Exemptions Under Corporate
Governance Requirements and To Amend Nasdaq Rule IM-5620 To Exclude
Additional Categories of Issuers Listing Only Specific Securities
From the Annual Shareholder Meeting Requirement); Securities
Exchange Act No. 83324 (May 24, 2018) 83 FR 25076 (May 31, 2018)
(SR-NYSEArca-2018-31) (Notice of Filing and Immediate Effectiveness
of Proposed Rule Change To Amend NYSE Arca Rule 5.3-E To Exclude
Certain Categories of Issuers From the Exchange's Annual Meeting
Requirement).
---------------------------------------------------------------------------
Trust Certificates
The Exchange believes it is appropriate that Trust Certificates are
included in the Proposed Definition and, therefore, entitled to the
exemptions proposed herein because these securities represent an
interest in a passive investment vehicle that are issued by entities
created solely to issue securities and invest in the underlying index
or reference assets. The trust does not have a board of directors and
the holders of Trust Certificates have no voting rights, unless
required under state law, with regard to corporate matters, including
election of trustees. Therefore, the Exchange believes that Trust
Certificates should be included in the Proposed Definition and should
not be subject to the annual meeting requirements of Exchange Rule
14.10(f). The Exchange notes that these issuers may still be required
to hold shareholder meetings, including special meetings, as required
by federal or state law or their governing documents. The Exchange
further notes that Trust Certificates are already similarly exempted
from the same corporate governance requirements on other exchanges.\79\
---------------------------------------------------------------------------
\79\ Id.
---------------------------------------------------------------------------
Commodity-Based Trust Shares, Currency Trust Shares, Commodity Index
Trust Shares, and Commodity Futures Trust Shares
The Exchange also believes it is appropriate that Commodity-Based
Trust Shares, Currency Trust Shares, Commodity Index Trust Shares, and
Commodity Futures Trust Shares are included in the Proposed Definition
and, therefore, entitled to the exemptions proposed herein because
shares of these securities are passive investment vehicles that hold a
beneficial interest in a specified commodity trust that is not managed
like a corporation and does not have officers or a board of directors.
These securities are already exempt from Exchange Rule 14.10(c)(2)
(Independent Directors), Exchange Rule 14.10(c)(4) (Independent
Director Oversight of Executive Officer Compensation), Exchange Rule
14.10(c)(5) (Independent Director Oversight of Director Nominations),
and Exchange Rule 14.10(d) (Code of Conduct). In addition, while
shareholders may have limited voting rights in certain circumstances,
they do not have the right to elect directors. Therefore, given the
limited voting rights, lack of directors or officers, and the passive
nature of the trust, the Exchange believes these securities should not
be subject to the annual meeting requirements of Exchange Rule
14.10(f). The Exchange notes that these issuers may still be required
to hold shareholder meetings, including special meetings, as required
by federal or state law or their governing documents. The Exchange also
notes that these securities are already similarly exempted from the
same corporate governance requirements on other exchanges.\80\
---------------------------------------------------------------------------
\80\ Id.
---------------------------------------------------------------------------
Partnership Units
The Exchange also believes that it is appropriate that Partnership
Units are included in the Proposed Definition and, therefore, entitled
to the exemptions proposed herein because Partnership Units are passive
[[Page 12930]]
investment vehicles that hold a beneficial interest in a specified
partnership that is not managed like a corporation and does not have a
board of directors. In addition, the Exchange believes Partnership
Units should not be subject to the annual meeting requirements of
Exchange Rule 14.10(f) because holders have limited voting rights and
the general partner oversees the operation of the partnership. The
Exchange notes that these issuers may still be required to hold
shareholder meetings, including special meetings, as required by
federal or state law or their governing documents. The Exchange notes
that Partnership Units are already similarly exempted from the same
corporate governance requirements on other exchanges.\81\
---------------------------------------------------------------------------
\81\ Id.
---------------------------------------------------------------------------
Trust Issued Receipts
The Exchange believes it is appropriate that Trust Issued Receipts
are included in the Proposed Definition and, therefore, entitled to the
exemptions proposed herein because Trust Issued Receipts are passive
investment vehicles that hold a beneficial interest in a specified
partnership that is not managed like a corporation and does not have a
board of directors. In addition, the Exchange believes that Trust
Issued Receipts should not be subject to the annual meeting
requirements of Exchange Rule 14.10(f) because these securities are
currently exempt from this rule.\82\ The Exchange notes that Trust
Issued Receipts are already similarly exempted from the same corporate
governance requirements on other exchanges.\83\
---------------------------------------------------------------------------
\82\ See Exchange Rule 14.10 Interpretation and Policy .15.
\83\ Nasdaq Listing Rule 5615(a)(6) and Arca Rule 5.3-E. See
also Securities Exchange Act No. 86072 (June 10, 2019) 84 FR 27816
(June 14, 2019) (SR-NASDAQ-2019-039) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 5615 To
Allow Additional Issuers Who List Only Specific Securities To Be
Able To Avail Themselves of Certain Exemptions Under Corporate
Governance Requirements and To Amend Nasdaq Rule IM-5620 To Exclude
Additional Categories of Issuers Listing Only Specific Securities
From the Annual Shareholder Meeting Requirement); Securities
Exchange Act No. 83324 (May 24, 2018) 83 FR 25076 (May 31, 2018)
(SR-NYSEArca-2018-31) (Notice of Filing and Immediate Effectiveness
of Proposed Rule Change To Amend NYSE Arca Rule 5.3-E To Exclude
Certain Categories of Issuers From the Exchange's Annual Meeting
Requirement).
---------------------------------------------------------------------------
Managed Fund Shares and ETF Shares
The Exchange believes it is appropriate that Managed Fund Shares
and ETF Shares are included in the Proposed Definition and, therefore,
entitled to the exemptions proposed herein because they currently
exempt from the provisions of Exchange Rule 14.10(c)(2) (Independent
Directors), Exchange Rule 14.10(c)(4) (Independent Director Oversight
of Executive Officer Compensation), Exchange Rule 14.10(c)(5)
(Independent Director Oversight of Director Nominations), and Exchange
Rule 14.10(d) (Code of Conduct).\84\ In addition, the Exchange believes
that it is appropriate to exempt Managed Fund Shares and ETF Shares
from the annual meeting requirements of Exchange Rule 14.10(f) because
like Index Fund Shares (which are currently provided an exemption from
the annual meeting) the aforementioned securities are issued by an
open-end investment company registered under the 1940 Act that are
available for creation and redemption on a continuous basis, and
require dissemination of an intraday portfolio value. These
requirements provide important investor protections and ensure that the
net asset value and the market price remain closely tied to one another
while maintaining a liquid market for the security. These protections,
along with the disclosure documents regularly received by investors,
allow shareholders of Managed Fund Shares and ETF Shares to value their
holdings on an ongoing basis and lessen the need for shareholders to
directly deal with management at an annual meeting. Therefore, the
Exchange further believes it is appropriate that these be afforded the
proposed exemptions to the annual meeting requirements. The Exchange
notes that these issuers may still be required to hold shareholder
meetings, including special meetings, as required by federal or state
law or their governing documents. The Exchange notes that Managed Fund
Shares and ETF Shares are already similarly exempted from the same
corporate governance requirements on other exchanges.\85\
---------------------------------------------------------------------------
\84\ See Exchange Rule 14.10(e)(1)(E).
\85\ Nasdaq Listing Rule 5615(a)(6) and Arca Rule 5.3-E. See
also Securities Exchange Act Nos. 86072 (June 10, 2019) 84 FR 27816
(June 14, 2019) (SR-NASDAQ-2019-039) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 5615 To
Allow Additional Issuers Who List Only Specific Securities To Be
Able To Avail Themselves of Certain Exemptions Under Corporate
Governance Requirements and To Amend Nasdaq Rule IM-5620 To Exclude
Additional Categories of Issuers Listing Only Specific Securities
From the Annual Shareholder Meeting Requirement); 83324 (May 24,
2018) 83 FR 25076 (May 31, 2018) (SR-NYSEArca-2018-31) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
NYSE Arca Rule 5.3-E To Exclude Certain Categories of Issuers From
the Exchange's Annual Meeting Requirement); 88561 (April 3, 2020) 85
FR 19984 (April 9, 2020) (SR-NASDAQ-2019-090) (Notice of Filing of
Amendment No. 4 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 4, To Adopt
Nasdaq Rule 5704 Governing the Listing and Trading of Exchange
Traded Fund Shares); and 88625 (April 13, 2020) 85 FR 21479 (April
17, 2020) (SR-NYSEArca-2019-81) (Notice of Filing of Amendment No. 2
and Order Granting Accelerated Approval of a Proposed Rule Change,
as Modified by Amendment No. 2, to Adopt NYSE Arca Rule 5.2-E(j)(8)
Governing the Listing and Trading of Exchange-Traded Fund Shares).
---------------------------------------------------------------------------
Managed Portfolio Shares and Tracking Fund Shares
The Exchange believes it is appropriate that Managed Portfolio
Shares and Tracking Fund Shares are included in the Proposed Definition
and, therefore, entitled to the exemptions proposed herein because it
is currently exempt from certain provisions of Rule 14.10.\86\ In
addition, the Exchange believes that it is appropriate to exempt
Managed Portfolio Shares and Tracking Fund Shares from the annual
meeting requirements of Exchange Rule 14.10(f) because like Index Fund
Shares (which are currently provided an exemption from the annual
meeting) the aforementioned securities are issued by an open-end
investment company registered under the 1940 Act that are available for
creation and redemption on a continuous basis, and require
dissemination of an intraday portfolio value. These requirements
provide important investor protections and ensure that the net asset
value and the market price remain closely tied to one another while
maintaining a liquid market for the security. These protections, along
with the disclosure documents regularly received by investors, allow
shareholders of Managed Portfolio Shares and Tracking Fund Shares to
value their holdings on an ongoing basis and lessen the need for
shareholders to directly deal with management at an annual meeting.
Therefore, the Exchange further believes it is appropriate that these
be afforded the proposed exemptions to the annual meeting requirements.
The Exchange notes that these issuers may still be required to hold
shareholder meetings, including special meetings, as required by
federal or state law or their governing documents. The Exchange also
notes that Managed Portfolio Shares and Tracking Fund Shares are
already similarly exempted from the same corporate governance
requirements on another exchange.\87\
---------------------------------------------------------------------------
\86\ See Exchange Rule 14.10(e)(1)(E).
\87\ See Nasdaq Rule 5615(6)(B). See also Securities Exchange
Act No. 93467 (October 29, 2021) 86 FR 60930 (November 4, 2021) (SR-
NASDAQ-2021-083) (Notice of Filing and Immediate Effectiveness of
Proposed Rule Change To Exempt Certain Categories of Investment
Companies Registered Under the Investment Company Act of 1940 From
the Requirements To Obtain Shareholder Approval Prior to the
Issuance of Securities in Connection With Acquisitions of the Stock
or Assets of an Affiliated Registered Investment Company Under
Certain Conditions).
---------------------------------------------------------------------------
[[Page 12931]]
Managed Trust Securities
The Exchange believes that it is appropriate to exempt Managed
Trust Securities from the annual meeting requirements of Exchange Rule
14.10(f) because like Index Fund Shares (which are currently provided
an exemption from the annual meeting) the aforementioned securities are
issued by an open-end investment company registered under the 1940 Act
that are available for creation and redemption on a continuous basis
and require dissemination of an intraday portfolio value. These
requirements provide important investor protections and ensure that the
net asset value and the market price remain closely tied to one another
while maintaining a liquid market for the security. These protections,
along with the disclosure documents regularly received by investors,
allow shareholders of Managed Trust Securities to value their holdings
on an ongoing basis and lessen the need for shareholders to directly
deal with management at an annual meeting. Therefore, the Exchange
further believes it is appropriate that these be afforded the proposed
exemptions to the annual meeting requirements. The Exchange notes that
these issuers may still be required to hold shareholder meetings,
including special meetings, as required by federal or state law or
their governing documents. The Exchange also notes that Managed Trust
Securities are already similarly exempted from the same corporate
governance requirements on other exchanges.\88\
---------------------------------------------------------------------------
\88\ See Nasdaq Listing Rule 5615(a)(6)(B). See also Securities
Exchange Act No. 86072 (June 10, 2019) 84 FR 27816 (June 14, 2019)
(SR-NASDAQ-2019-039) (Notice of Filing and Immediate Effectiveness
of Proposed Rule Change To Amend Nasdaq Rule 5615 To Allow
Additional Issuers Who List Only Specific Securities To Be Able To
Avail Themselves of Certain Exemptions Under Corporate Governance
Requirements and To Amend Nasdaq Rule IM-5620 To Exclude Additional
Categories of Issuers Listing Only Specific Securities From the
Annual Shareholder Meeting Requirement); Securities Exchange Act No.
83324 (May 24, 2018) 83 FR 25076 (May 31, 2018) (SR-NYSEArca-2018-
31) (Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Amend NYSE Arca Rule 5.3-E To Exclude Certain Categories
of Issuers From the Exchange's Annual Meeting Requirement).
---------------------------------------------------------------------------
(6) Definition of ``Family Member''
The Exchange is proposing to modify the definition of ``Family
Member'' for purposes of director independence under Rule
14.10(c)(1)(B) to mean a person's spouse, parents, children, siblings,
mothers and fathers-in-law, sons and daughters-in-law, brothers and
sisters-in-law, and anyone (other than domestic employees) who shares
such person's home. The purpose of this rule change is to exclude
domestic employees who share the director's home, and stepchildren who
do not share the director's home, from the type of relationships that
always preclude a board from finding that a director is independent, as
described below. The proposed definition is substantively similar to a
proposal that has been considered and approved by the Commission.\89\
---------------------------------------------------------------------------
\89\ See Nasdaq Listing Rule 5605(a)(2). See also Securities and
Exchange Act Nos. 86095 (June 12, 2019) 84 FR 28379 (June 18, 2019)
(SR-NASDAQ-2019-049) (Notice of Filing of Proposed Rule Change To
Amend the Definition of Family Member in Listing Rule 5605(a)(2) for
Purposes of the Definition of Independent Director); and 88210
(February 13, 2020) 52 FR 9816 (February 20, 2020) (Notice of Filing
of Amendment No. 3 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 3, To Amend the
Definition of Family Member in Listing Rule 5605(a)(2) for Purposes
of the Definition of Independent Director).
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Rule 14.10(c)(1)(B) provides a list of certain relationships that
preclude a board from finding that a director is independent (the
``Bright-Line Independence Test''). These objective measures provide
transparency to investors and companies, facilitate uniform application
of the rules, and ease administration. The Exchange's Rules preclude a
director from being considered independent if the director has a family
member who, among other things, (i) accepted any compensation from the
Company in excess of $120,000 during any period of twelve consecutive
months within the three years preceding the determination of
independence (with certain exceptions); \90\ (ii) is, or at any time
during the past three years was, employed by the company as an
Executive Officer; \91\ (iii) is a partner in, or a controlling
Shareholder or an Executive Officer of, any organization to which the
Company made, or from which the Company received, payments for property
or services in the current or any of the past three fiscal years that
exceed 5% of the recipient's consolidated gross revenues for that year,
or $200,000, whichever is more (with certain exceptions); \92\ (iv) is
employed as an Executive Officer of another entity where at any time
during the past three years any of the Executive Officers of the
Company served on the compensation committee of such other entity; \93\
or (v) is a current partner of the Company's outside auditor, or was a
partner or employee of the Company's outside auditor who worked on the
Company's audit at any time during any of the past three years.\94\
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\90\ Rule 14.10(c)(1)(B)(ii).
\91\ Rule 14.10(c)(1)(B)(iii).
\92\ Rule 14.10(c)(1)(B)(iv).
\93\ Rule 14.10(c)(1)(B)(v).
\94\ Rule 14.10(c)(1)(B)(vi).
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Currently, for purposes of the Exchange's Rules, Family Member
means a person's spouse, parents, children and siblings, whether by
blood, marriage or adoption, or anyone residing in such person's
home.\95\ This definition includes stepchildren, as they are ``children
by . . . marriage.''
---------------------------------------------------------------------------
\95\ Rule 14.10(c)(1)(B)
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As noted above, the Exchange proposes to define a Family Member to
mean a person's spouse, parents, children, siblings, mothers and
fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law,
and anyone (other than domestic employees) who shares such person's
home. The Exchange also proposes to interpret the term ``children'' to
exclude stepchildren except that a relationship with a stepchild who
shares a home with the director would continue to fall under the
Bright-line Independence Test because the definition of a Family Member
will include anyone (other than domestic employees) who shares the
director's home. To comply with the Exchange's rules, it will expect
the Boards of its listed companies to continue to elicit through
director questionnaires the information necessary to make independence
determinations, which will need to include questions about stepchild
relationships. As noted in the order approving a substantively similar
rule, the Commission stated that it ``believes that this should help to
ensure that listed companies inquire about stepchild relationships so
that such companies can discern the essential facts and circumstances
to be able to make the affirmative findings necessary under Nasdaq
rules to determine a director is independent.'' \96\
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\96\ See Securities Exchange Act No. 88210 (February 13, 2020)
52 FR 9816 (February 20, 2020) (Notice of Filing of Amendment No. 3
and Order Granting Accelerated Approval of a Proposed Rule Change,
as Modified by Amendment No. 3, To Amend the Definition of Family
Member in Listing Rule 5605(a)(2) for Purposes of the Definition of
Independent Director).
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The Exchange has concluded that inclusion of stepchildren in the
definition of a Family Member makes the definition over-inclusive. The
Bright-line Independence Test is intended to identify relationships
that are likely to interfere with the exercise of independent judgment
in carrying out the director's responsibilities. In that regard the
Exchange believes that a director's relationship with their
stepchildren may or may not interfere
[[Page 12932]]
with the director's exercise of independent judgment based on the
particular facts and circumstances of the situation. If a stepchild has
been a dependent of a director or was a part of the director's
household since being a minor, the director's relationship with that
stepchild is likely to be similar to that with a biological child.
However, the Exchange believes if the director marries a person who has
an adult child, the director never acted in any capacity as a parent of
this stepchild, and the stepchild never shared the director's
household, then the director and stepchild are likely to have an
attenuated relationship that is unlike the relationship of a parent and
child. Because the determination as to whether such relationship is
likely to interfere with the exercise of independent judgment in
carrying out the director's responsibilities is based on facts and
circumstances, the Exchange believes a company's board is in the best
position to make such a determination. Accordingly, the Exchange
believes that a stepchild relationship should not preclude a director
from being considered independent in all circumstances.
Notwithstanding, if a stepchild shares a home with the director, such a
relationship would continue to fall under the Bright-line Independence
Test because the definition of a Family Member will include anyone
(other than domestic employees) who shares the director's home.
In addition, the Exchange believes that the proposed change would
align the language in its definition of a Family Member with the
comparable definition of a Family Member or an immediate family member
of the Nasdaq.\97\ When each market has a different definition, it
complicates the preparation by listed companies of director and officer
questionnaires that the companies need in order to analyze director
independence. In particular, this creates an added and unnecessary
burden when a company transfers its listing from one national
securities exchange to another. In such case, a director may have
already filled out an annual questionnaire based on the prior listing
exchange's definition of a family member but need to answer additional
questions because the definition of the exchange the listing is
transferred to is phrased differently.
---------------------------------------------------------------------------
\97\ See Nasdaq Listing Rule 5605(a)(2).
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The Exchange is also proposing to modify the definition of a
``Family Member'' for purposes of director independence under Rule
14.10(c)(1)(B) to exclude domestic employees who share a director's
home. The Exchange believes that the definition of a Family Member
should not include a domestic employee who shares a director's home
because this definition is not intended to capture commercial
relationships.
Accordingly, as described above the Exchange is proposing to modify
the definition of a Family Member for purposes of director independence
under Rule 14.10(c)(1)(B) to mean a person's spouse, parents, children,
siblings, mothers and fathers-in-law, sons and daughters-in-law,
brothers and sisters-in-law, and anyone (other than domestic employees)
who shares such person's home. This definition is identical to the
Nasdaq definition of a Family Member.\98\
---------------------------------------------------------------------------
\98\ Id.
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Additionally, the Exchange notes that the proposed rule change to
Rule 14.10(c)(1)(B) will not affect the additional independence
criteria for audit committee members set forth in Rule 14.10(c)(3),
which incorporate the independence requirements of SEC Rule 10A-3.\99\
Thus, the broader exclusion from the definition of Family Member, as it
applies to minor stepchildren not sharing the director's home, may not
be applied for purposes of determining the independence of audit
committee members, where the stricter standards of Rule 10A-3, as well
as Exchange Rule 14.10(c)(3), still apply.\100\
---------------------------------------------------------------------------
\99\ Rule 14.10(c)(3)(B) requires that each Company must have,
and certify that it has and will continue to have, an audit
committee of at least three members, each of whom must, among other
requirements, meet the criteria for independence set forth in Rule
10A-3(b)(1) under the Act, in addition to the requirements of Rule
14.10(c)(3)(B). See also Exchange Rule 14.10 Interpretation and
Policy .05 (Audit Committee Composition).
\100\ See Securities Exchange Act No. 88210 (February 13, 2020)
52 FR 9816 (February 20, 2020) (Notice of Filing of Amendment No. 3
and Order Granting Accelerated Approval of a Proposed Rule Change,
as Modified by Amendment No. 3, To Amend the Definition of Family
Member in Listing Rule 5605(a)(2) for Purposes of the Definition of
Independent Director).
---------------------------------------------------------------------------
Notwithstanding these changes, the Exchange notes that a company's
board must, under 14.10(c)(3)(B) and Interpretation and Policy .05,
affirmatively determine that no relationship exists that would
interfere with the exercise of independent judgment in carrying out the
director's responsibilities. To comply with the Exchange's rules, the
Exchange will expect listed companies' boards to continue to elicit
through director and officer questionnaires the information necessary
for the boards to make such determinations, which will need to include
questions about stepchild relationships. The Exchange believes that it
is appropriate for the board to review a relationship between a
director and a stepchild who does not share a home with the director or
a relationship between a director and a domestic employee under such
facts and circumstances test.
(7) Quorum Requirement
The Exchange is proposing to modify Exchange Rules
14.10(e)(1)(D)(iv) and 14.10(f)(3)(ii) (the ``Quorum Rules'') to allow
the Exchange to accept a quorum less than 33\1/3\% of the outstanding
shares of a company's common voting stock where the Company is
incorporated outside of the U.S. and such Company's home country law
prohibits the company from establishing a quorum that satisfies the
Quorum Rules. The Exchange notes that these proposed rules are
substantively similar to existing rules of another exchange.\101\
---------------------------------------------------------------------------
\101\ See Nasdaq Listing Rules 5615(a)(4)(E) and 5620(c). See
Securities and Exchange Act Nos. 90883 (January 11, 2021) 86 FR 4158
(January 15, 2021) (SR-NASDAQ-2020-100) (Notice of Filing of
Proposed Rule Change To Modify the Quorum Requirement for Non-U.S.
Companies Under Certain Limited Circumstances); and 91567 (April 14,
2021) 86 FR 20556 (April 20, 2021) (Notice of Filing of Amendment
No. 1 and Order Granting Accelerated Approval of a Proposed Rule
Change, as Modified by Amendment No. 1, To Modify the Quorum
Requirement).
---------------------------------------------------------------------------
Exchange Rule 14.10(f)(3) establishes quorum requirements for an
annual meeting of shareholders for Exchange Companies listing common
stock or voting preferred stock, and their equivalents.\102\ Under this
rule, each company that is not a limited partnership must provide for a
quorum as specified in its by-laws for any meeting of the holders of
common stock; provided, however, that in no case shall such quorum be
less than 33\1/3\% of the outstanding shares of the company's common
voting stock (the ``Exchange Quorum Requirement''). The Exchange notes
that domestic listed companies are subject to quorum requirements under
the laws of their states of incorporation.\103\
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\102\ See Exchange Rule 14.10(f)(1).
\103\ For example, Delaware allows companies to establish their
own quorum requirements in their certificates of incorporation or
bylaws, provided that the quorum must be at least one-third of the
shares entitled to vote on the matter. In the absence of a quorum
provision in the company's certificate of incorporation or bylaws,
Delaware requires a quorum of 50% of the shares entitled to vote on
the matter. See Del. Code Sec. 216.
---------------------------------------------------------------------------
Now, the Exchange proposes to modify the Exchange Quorum
Requirement to allow the Exchange to accept any quorum requirement for
a non-U.S. company if such company's home country law mandates such
quorum for the shareholders' meeting and prohibits the company from
establishing the higher quorum required
[[Page 12933]]
by the Exchange Quorum Requirement. The Exchange proposes to require
that a company relying on this provision shall submit to the Exchange a
written statement from an independent counsel in such company's home
country describing the home country law that conflicts with the
Exchange quorum requirement. The Exchange also proposes to require such
counsel to certify that, as the result of the conflict with the home
country law, the company is prohibited from complying with the Exchange
Quorum Requirement, and the company cannot obtain an exemption or
waiver from that law. Finally, to assure appropriate disclosure, the
Exchange proposes to require that any company relying on this exception
from the Exchange Quorum Requirement must make a public announcement as
promptly as possible but not more than four business days following the
submission of the independent counsel's statement to the Exchange, as
described above, on or through the Company's website and either by
filing a Form 8-K, where required by SEC rules, or by issuing a press
release explaining the Company's reliance on the exception.\104\
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\104\ See Nasdaq Listing Rules 5615(a)(4)(E) and 5620(c). See
Securities and Exchange Act Nos. 90883 (January 11, 2021) 86 FR 4158
(January 15, 2021) (SR-NASDAQ-2020-100) (Notice of Filing of
Proposed Rule Change To Modify the Quorum Requirement for Non-U.S.
Companies Under Certain Limited Circumstances); and 91567 (April 14,
2021) 86 FR 20556 (April 20, 2021) (Notice of Filing of Amendment
No. 1 and Order Granting Accelerated Approval of a Proposed Rule
Change, as Modified by Amendment No. 1, To Modify the Quorum
Requirement).
---------------------------------------------------------------------------
In addition, to help assure continuous transparency, the Exchange
proposes to require that such website disclosure is maintained for the
period of time the company continues to rely on the exception from the
quorum requirements. Finally, to help assure the exception remains
appropriate, the Exchange proposes to require the company to update the
website disclosure at least annually to indicate that the company
continues to be prohibited under its home country law from complying
with the Exchange's quorum requirements as of the date of such
update.\105\
---------------------------------------------------------------------------
\105\ Id.
---------------------------------------------------------------------------
The Exchange also proposes to modify Exchange Rule
14.10(e)(1)(D)(iv) governing the quorum requirements for limited
partnerships listed on the Exchange to also reflect this change to the
Exchange Quorum Requirement.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\106\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \107\ requirements that the
rules of an 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. Additionally, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \108\ requirement that the rules
of an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\106\ 15 U.S.C. 78f(b).
\107\ 15 U.S.C. 78f(b)(5).
\108\ Id.
---------------------------------------------------------------------------
(1) Compensation-Related Listing Rules
The proposal first requires that the compensation of Executive
Officers must be determined by a compensation committee and eliminates
the existing Alternative for such compensation. Although the
Alternative to a formal committee in the Exchange's current rules may
be useful to a small number of prospective companies, the Exchange
believes that the heightened importance of compensation decisions and
oversight of executive compensation in today's environment, as well as
the benefits that can result for investors of having a standing
committee overseeing compensation matters, makes it appropriate and
consistent with investor protection and the public interest under
Section 6(b)(5) of the Act for the Exchange to raise its standards in
this regard.\109\ In the Commission's approval order for a similar
proposed rule change to Nasdaq rules, the Commission stated:
---------------------------------------------------------------------------
\109\ See Securities Exchange Act Nos. 68013 (October 9, 2012)
77 FR 62563 (October 15, 2012) (SR-NASDAQ-2012-109) (Notice of
Filing of Proposed Rule Change To Modify the Listing Rules for
Compensation Committees To Comply With Rule 10C-1 Under the Exchange
Act and Make Other Related Changes) 68640 (January 11, 2013) 78 FR
4554 (January 22, 2013) (Order Granting Accelerated Approval of
Proposed Rule Change as Modified by Amendment Nos. 1 and 2 To Amend
the Listing Rules for Compensation Committees To Comply With Rule
10C-1 Under the Act and Make Other Related Changes).
In making this determination the Commission is aware that Rule
10C-1 does not require listed companies of national securities
exchanges to have a committee dedicated to compensation matters.
Nevertheless, it is consistent with Section 6(b)(5) of the Act for
Nasdaq to require all its listed companies to have an independent
compensation committee overseeing executive compensation matters
because of the importance and accountability to investors that such
a formal structure can provide. The Commission also notes that some
of the other requirements of Rule 10C-1 apply only when a company
has a committee overseeing compensation matters. Thus, the
requirement to have a compensation committee will trigger the
additional protections for shareholders created by these
requirements.\110\
---------------------------------------------------------------------------
\110\ Id.
The Exchange also believes it is appropriate to raise its standards
to require the compensation committee of each issuer to have at least
two members, instead of permitting a sole individual to be responsible
for compensation policy, and that this furthers investor protection and
the public interest in accordance with Section 6(b)(5).\111\ The
Commission agreed in its approval of a substantively similar rule on
Nasdaq when it stated:
---------------------------------------------------------------------------
\111\ Id.
In light of the importance of compensation matters, the added
thought and objectivity that is likely to result when two or more
individuals deliberate over how much a listed company should pay its
executives, and what form such compensation should take, is
consistent with the goal of promoting more accountability to
shareholders on executive compensation matters. Moreover, given the
complexity of executive compensation packages for corporate
executives, it is reasonable for Nasdaq to require listed companies
to have the input of more than one committee member on such
matters.\112\
---------------------------------------------------------------------------
\112\ Id.
Moreover, no Companies currently listed on the Exchange has a
compensation committee of only one member. Therefore, the two-member
requirement will not be an onerous burden for Companies listed on the
Exchange and should strength their review of compensation matters.
The Exchange's proposal to require a compensation committee to have
a written charter detailing the committee's authority and
responsibility is also consistent with Section 6(b)(5) of the Act and
will provide added transparency for shareholders regarding how a
company determines compensation and may clarify and improved the
process itself. In an approval order for a substantively similar rule
on Nasdaq, the Commission stated that ``the requirement that listed
companies review and reassess the adequacy of the compensation's
[[Page 12934]]
committee charter on an annual basis will also help to ensure
accountability and transparency on an on-going basis.'' \113\
---------------------------------------------------------------------------
\113\ Id.
---------------------------------------------------------------------------
The Exchange believes that the proposed ``Exceptional and Limited
Circumstances'' provision, which allows one director who fails to meet
the Exchange's Independent Director definition to serve on a
compensation committee under certain conditions, is an appropriate
means to allow Companies flexibility as to board and committee
membership and composition in unusual circumstances, which may be
particularly important for smaller Companies. Further, the Commission
long ago approved as consistent with the Act the same exception and
concept in the context of the Exchange's Independent Director under
Exchange Rule 14.10(c)(1)(B), with respect to nominations committees
and audit committees, and approved a substantively similar provision on
another exchange.\114\
---------------------------------------------------------------------------
\114\ Id.
---------------------------------------------------------------------------
The Exchange believes the proposal to provide under proposed Rule
14.10(c)(4)(D), that for purposes of this Rule, the compensation
committee is not required to conduct an independence assessment for a
compensation adviser that acts in a role limited to certain activities
provided under Item 407(e)(3)(iii) of Regulation S-K will add clarity
to the Exchange's rules.
The Exchange believes its proposal to prohibit a director who
receives compensation or fees from a listed company (other than, among
other things, director compensation) from serving on the Company's
compensation committee will protect investors and the public interest.
Specifically, a director's receipt of compensatory fees from a company
(other than compensation for board and board committee service or
compensation under a retirement plan or prior service with the company
as described above) could render the member unwilling or unable to
provide a truly independent voice on executive compensation decisions.
The Exchange believes the restriction is warranted given the heightened
importance of executive compensation decisions in today's business
environment. Moreover, in its approval order of a similar Nasdaq
proposal,\115\ the Commission stated that it believes the restriction
will ``help to ensure that compensation committee members cannot
receive directly or indirectly fees that could potentially influence
their decisions on compensation matters.''
---------------------------------------------------------------------------
\115\ Id.
---------------------------------------------------------------------------
The Exchange believes its proposal to move Rule 14.10(e)(1)(F) to
proposed Rule 14.10(c)(4)(F) and to clarify the specific provisions
under which a Smaller Reporting Company is exempt from the requirements
of Rule 14.10(c) will provide additional clarity to the Exchange's
rulebook. As discussed above, Smaller Reporting Companies will continue
to be subject to the same requirements as all other Companies, except
the requirements relating to compensatory fees, affiliation and the
specific compensation committee responsibilities and authority set
forth in proposed Exchange Rule 14.10(c)(4)(C)(iv). The Exchange
believes that this hybrid approach does not discriminate unfairly
between issuers because it recognizes the fact that the `` `executive
compensation arrangements of [Smaller Reporting Companies] generally
are so much less complex than those of other public companies that they
do not warrant the more extensive disclosure requirements imposed on
companies that are not [Smaller Reporting Companies] and related
regulatory burdens that could be disproportionate for [Smaller
Reporting Companies].' '' \116\ In addition, the Exchange notes that
the Commission exempted Smaller Reporting Companies from Rule 10C-
1.\117\ As a result, this distinction does not discriminate unfairly
among issuers.
---------------------------------------------------------------------------
\116\ See Securities Exchange Act Release No. 67220 (June 20,
2012), 77 FR 38422, 38425 (June 27, 2012), at 38438 (quoting
Securities Exchange Act Release No. 54302A (August 29, 2006), 71 FR
53158, 53192 (September 8, 2006)).
\117\ See 17 CFR 240.10C-1(b)(5)(ii).
---------------------------------------------------------------------------
Finally, the Exchange believes the proposed non-substantive
ministerial changes to the language of Rule 14.10(c) will add clarity
to the Exchange's rulebook.
As noted above, all of the proposed changes to the Exchange's
compensation committee requirements are substantively similar to
proposed rules already considered and approved by the Commission.\118\
---------------------------------------------------------------------------
\118\ See Securities Exchange Act Nos. 68013 (October 9, 2012)
77 FR 62563 (October 15, 2012) (SR-NASDAQ-2012-109) (Notice of
Filing of Proposed Rule Change To Modify the Listing Rules for
Compensation Committees To Comply With Rule 10C-1 Under the Exchange
Act and Make Other Related Changes) 68640 (January 11, 2013) 78 FR
4554 (January 22, 2013) (Order Granting Accelerated Approval of
Proposed Rule Change as Modified by Amendment Nos. 1 and 2 To Amend
the Listing Rules for Compensation Committees To Comply With Rule
10C-1 Under the Act and Make Other Related Changes).
---------------------------------------------------------------------------
(2) Direct Registration Program
The proposed rule change as it pertains to the Exchange's DRP is
consistent with the investor protection objectives of the Act in that
it will provide a very limited exemption to the Exchange's DRP
eligibility requirements for foreign issuers that provide a letter from
home country counsel certifying that compliance with that requirement
is prohibited by home country law or regulation. Further, the proposed
rule change should facilitate cooperation and coordination among
clearing agencies, transfer agents, and broker-dealers by explaining
the basis upon which certain foreign issuers are not required to
participate in the DRP. This, in turn, should facilitate better
efficiency in the clearance and settlement of securities transactions
involving the securities of these foreign issuers and should facilitate
better efficiency in the transfer of such securities. The Exchange
notes that its proposal is substantively similar to proposed amendments
Nasdaq made to its Rules 5210(c) and 5255(c),\119\ and thus raises no
novel issues.
---------------------------------------------------------------------------
\119\ See Securities and Exchange Act Release No. 68238
(November 15, 2012) 77 FR 69911 (November 21, 2012) (SR-NASDAQ-2012-
128) (Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Expand the Exemption to the Direct Registration Program
Requirement to All Foreign Issuers Rather Than Only Foreign Private
Issuers).
---------------------------------------------------------------------------
(3) Public Disclosure
The proposal to require an additional public disclosure
accomplishes the objectives of the Act by enhancing transparency around
third party compensation and payments made in connection with board
service. The Exchange believes such disclosure has several benefits.
First, it would provide information to investors to help them make
meaningful investing and voting decisions. It would also address
potential concerns that undisclosed third-party compensation
arrangements may lead to conflicts of interest among directors and call
into question their ability to satisfy fiduciary duties. In an approval
for a substantively similar proposed rule change on another exchange,
the Commission stated ``to the extent that [the proposal] would, in
certain situations, provide investors and market participants
additional information to make informed investment and voting
decisions, we believe it is consistent with the requirements of Section
6(b)(5) of the Act.'' \120\
---------------------------------------------------------------------------
\120\ See Securities and Exchange Act Nos. 77481 (March 30,
2016) 81 FR 19678 (April 5, 2016) (SR-NASDAQ-2016-013) (Notice of
Filing of Proposed Rule Change To Require Listed Companies to
Publicly Disclose Compensation or Other Payments by Third Parties to
Board of Director's Members or Nominees); 78223 (July 1, 2016) 81 FR
44400 (July 7, 2016) (Notice of Filing of Amendment No. 2 and Order
Granting Accelerated Approval of a Proposed Rule Change, as Modified
by Amendment No. 2, To Require Listed Companies to Publicly Disclose
Compensation or Other Payments by Third Parties to Board of
Director's Members or Nominees).
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[[Page 12935]]
While there may be some overlap in the proposed disclosure
requirement with existing Commission disclosure requirements, it is not
unusual for a national securities exchange to adopt disclosure
requirements in their listing rules that supplement or overlap with
disclosure requirements otherwise imposed under federal securities
laws. Such disclosure-related listing standards ``help to ensure that
listed companies maintain compliance with the disclosure requirements
under the federal securities laws and contribute to the maintenance of
fair and orderly markets by providing investors with material and
current information necessary for informed investment and voting
decisions.'' \121\ Further, as the proposed public disclosure
requirement is substantively similar to a proposal already considered
and approved by the Commission, it raises no novel issues.\122\
---------------------------------------------------------------------------
\121\ Id.
\122\ Id.
---------------------------------------------------------------------------
(4) Market Value Definition and Shareholder Approval
The Exchange believes that the proposal to modify the measure of
market value for the purpose of Rule 14.10(i)(4) from the closing bid
price to the lower of: (i) the closing price (as reflected on
<a href="http://Cboe.com">Cboe.com</a>); or (ii) the average closing price of the common stock (as
reflected on <a href="http://Cboe.com">Cboe.com</a>) for the five trading days immediately preceding
the signing of the binding agreement will perfect the mechanism of a
free and open market and protect investors and the public interest.
Furthermore, the proposal is substantively similar to a proposed rule
that was previously approved by the Commission.\123\
---------------------------------------------------------------------------
\123\ See Securities Exchange Act Nos. 82702 (February 13, 2018)
83 FR 7269 (February 20, 2018) (SR-NASDAQ-2018-008) (Notice of
Filing of Proposed Rule Change To Modify the Listing Requirements
Contained in Listing Rule 5635(d) To Change the Definition of Market
Value for Purposes of the Shareholder Approval Rules and Eliminate
the Requirement for Shareholder Approval of Issuances at a Price
Less Than Book Value but Greater Than Market Value) and 84287
(September 26, 2018) 83 FR 49599 (October 2, 2018) (Notice of Filing
of Amendment No. 1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To Modify the
Listing Requirements Contained in Listing Rule 5635(d) To Change the
Definition of Market Value for Purposes of the Shareholder Approval
Rule and Eliminate the Requirement for Shareholder Approval of
Issuances at a Price Less Than Book Value but Greater Than Market
Value). See also Securities Exchange Act No. 88056 (January 28,
2020) 85 FR 6003 (February 3, 2020) (SR-NASDAQ-2020-004) (Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change to
Clarify the Term ``Closing Price'' in Rule 5635(d)(1)(A) Relating to
Shareholder Approval for Transactions Other Than Public Offerings).
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First, the Exchange believes using the proposed method for
determining the market value has the potential to provide a better
indication of the actual market value than the current use of closing
bid price under certain market conditions. The Exchange also believes
that the BZX Official Closing Price is less prone to manipulation than
are bid prices. In addition, the Exchange believes the proposal to use
the BZX Official Closing Price for purposes of market value should help
to ensure transparency to investors in calculating market value for
purposes of the proposed rule.
Second, allowing share issuances to be priced at the five-day
average of the closing price will further align the Exchange's
requirements with how many transactions are structured, such as
transactions where Exchange Rule 14.10(i) is not implicated because the
issuance is for less than 20% of the common stock and the parties rely
on the five-day average for pricing to smooth out unusual fluctuations
in price. In so doing, the proposed rule change will perfect the
mechanism of a free and open market. Further, allowing a five-day
average price continues to protect investors and the public interest
because it will allow companies and investors to price transactions in
a manner designed to eliminate aberrant pricing resulting from unusual
transactions on the day of a transaction. Maintaining the allowable
average at just a five-day period also protects investors by ensuring
the period is not too long, such that it would result in the price
being distorted by ordinary past market movements and other outdated
events. In a market that rises each day of the period, the five-day
average will be less than the price at the end of the period, but would
still be higher than the price at the start of such period. The
Exchange believes that where two alternative measures of value exist
that both reasonably approximate the value of listed securities,
defining the Minimum Price as the lower of those values allows issuers
the flexibility to use either measure because they can also sell
securities at a price greater than the Minimum Price without needing
shareholder approval. This flexibility, and the certainty that a
transaction can be structured at either value in a manner that will not
require shareholder approval, further perfects the mechanism of a free
and open market without diminishing the existing investor protections
of the 14.10(i).
The Exchange also believes that eliminating the requirement for
shareholder approval of issuances at a price less than book value but
greater than market value does not diminish the existing investor
protections of Exchange Rule 14.10(i)(4). Book value is primarily an
accounting measure calculated based on historic cost and is generally
perceived as an inappropriate measure of the current value of a stock.
Because book value is not an appropriate measure of the current value
of a stock, the elimination of the requirement for shareholder approval
of issuances at a price less than book value but greater than market
value will remove an impediment to, and perfect the mechanism of, a
free and open market, which currently unfairly burdens companies in
certain industries, without meaningfully diminishing investor
protections of Exchange Rule 14.10(i)(4).
The Exchange also believes that amending the title of 14.10(i)(4)
and the preamble to replace references to ``private placements'' to
``transactions other than public offerings'' to conform the language in
the title of 14.10(i)(4) and the preamble to the language in the rule
text and that of Rule 14.10 Interpretation and Policy .18, which
provides the definition of a public offering, will perfect the
mechanism of a free and open market by making the rule easier to
understand and apply. Private placements would continue to be
considered ``transactions other than public offerings'' under the
proposed rule change, and the proposed change does not change the
essence of the current rule.
The Exchange believes that amending Exchange Rule 14.10
Interpretation and Policy .18 and .19, which describe how the Exchange
applies the shareholder approval requirements, to conform references to
book and market value with the new definition of Minimum Price, as
described above, and to utilize the newly defined term 20% Issuance
will perfect the mechanism of a free and open market by eliminating
confusion caused by references to a measure that is no longer
applicable and by making the rule easier to understand and apply.
(5) Exemptions to Certain Corporate Governance Requirements
The Exchange believes that the proposed amendments to modify and
expand the exemptions available to issuers of certain securities from
some of the Exchange's corporate governance requirements are consistent
with the protection of investors. The Exchange believes that the
proposed exemptions for issuers of only non-voting preferred
[[Page 12936]]
stock, debt securities and Derivative Securities are consistent with
the protection of investors, as the holders of these securities do not
have voting rights with respect to the election of directors, except in
very limited circumstances, as required by state or federal law or
their governing documents. Moreover, such securities are generally
issued by an entity that is either (i) structured solely as vehicles
for the issuance of non-voting or derivative securities, or (ii) issued
by an operating company primarily listed on a national securities
exchange and therefore subject to the full corporate governance and
annual meeting requirements of that exchange.
Additionally, the net asset value of Derivative Securities that the
Exchange proposes to exclude from its annual meeting requirement is
determined by the market price of each fund's underlying securities or
other reference asset. Shareholders of such securities products listed
on the Exchange receive regular disclosure documents describing the
pricing mechanism for their securities and detailing how they can value
their holdings. Accordingly, holders of such securities can value their
investment on an ongoing basis. Because of these factors, the Exchange
believes there is a reduced need for shareholders to engage with
management of issuers of these securities and thus no need for the
issuers of such securities to hold annual shareholder meetings absent
the existence of other listed securities with director election voting
rights. Further, although the Exchange proposes to exclude issuers of
such securities from holding an annual meeting, such issuers may still
be required to hold special meetings as required by state or federal
law or their governing documents. The Exchange further notes that
issuers of only non-voting preferred stock, debt securities and
Derivative Securities are excluded from complying with substantially
similar requirements on other national securities exchanges.\124\
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\124\ See Nasdaq Listing Rule 5615(a)(6) and Arca Rule 5.3-E.
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An issuer that has non-voting preferred stock, debt securities and
Derivative Securities listed on the Exchange that also lists the
issuers common stock or voting preferred stock or their equivalent on
the Exchange will be subject to all the requirements of Exchange Rule
14.10.
(6) Definition Family Member
The Exchange believes the proposal to modify the definition of
Family Member as provided in Exchange Rule 14.10(c)(1)(B) will 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. In particular, the Exchange's rules currently prohibit
a director from being deemed independent in certain circumstances by
including director's stepchildren in the definition of a Family Member,
as described in more detail above. The rule also includes a domestic
employee who shares the director's home in the definition of a Family
Member, even though the relationship between the director and such
employee is commercial in nature.
Independent directors over time became a linchpin in the American
corporate governance. It is important for investors to have confidence
that individuals serving as independent directors do not have a
relationship with the listed company that would impair their
independence. As the importance of independent directors for listed
companies increased, so did the directors' workload and the risk of
litigation. In this environment, the Exchange believes that it is
appropriate not to prohibit directors from being considered independent
based on the aforementioned commercial or attenuated stepchild
relationships, but instead allow the board to review such a
relationship and determine whether a relationship exists that would
interfere with the exercise of independent judgment in carrying out the
director's responsibilities.
Additionally, the Exchange notes that the proposed rule change to
Rule 14.10(c)(1)(B) will not affect the additional independence
criteria for audit committee members set forth in Rule 14.10(c)(3),
which incorporate the independence requirements of SEC Rule 10A-3.\125\
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\125\ Rule 14.10(c)(3)(B) requires that each Company must have,
and certify that it has and will continue to have, an audit
committee of at least three members, each of whom must, among other
requirements, meet the criteria for independence set forth in Rule
10A-3(b)(1) under the Act, in addition to the requirements of Rule
14.10(c)(3)(B). See also Exchange Rule 14.10 Interpretation and
Policy .05 (Audit Committee Composition).
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Following the proposed rule change, the Exchange's definition of
Family Member will become identical with Nasdaq definition of a Family
Member, which the Commission has previously approved.\126\
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\126\ See Nasdaq Listing Rule 5605(a)(2). See also Securities
and Exchange Act Nos. 86095 (June 12, 2019) 84 FR 28379 (June 18,
2019) (SR-NASDAQ-2019-049) (Notice of Filing of Proposed Rule Change
To Amend the Definition of Family Member in Listing Rule 5605(a)(2)
for Purposes of the Definition of Independent Director); and 88210
(February 13, 2020) 52 FR 9816 (February 20, 2020) (Notice of Filing
of Amendment No. 3 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 3, To Amend the
Definition of Family Member in Listing Rule 5605(a)(2) for Purposes
of the Definition of Independent Director).
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(7) Quorum
The Exchange believes that the proposed amendments to Exchange
Rules 14.10(e)(1)(D)(iv) and 14.10(f)(3)(ii) are designed to protect
interests and the public interest because the proposal would eliminate
a conflict forcing a company to choose between following the Exchange's
rules or the law in its home jurisdiction. Further, while the
Exchange's Quorum Requirement would not apply, there would continue to
be other protections for shareholders provided by the company's home
country laws. The Exchange also believes the proposed amendments to
Exchange Rules 14.10(e)(1)(D)(iv) and 14.10(f)(3)(ii) are designed to
protect investors and the public interest because any company relying
on the proposed exception from the Exchange's Quorum Requirement will
be required to make public disclosure on or through the Company's
website and either by filing a Form 8-K, where required by SEC rules,
or by issuing a press release explaining the company's reliance on the
exception.
The Exchange believes that the proposed requirement that such
website disclosure is maintained for the period of time the company
continues to rely on the exception from the quorum requirements is
designed to protect investors and the public interest because such
website disclosure would help assure continuous transparency. The
Exchange also believes that the proposed requirement to update the
website disclosure at least annually to indicate that the company
continues to be prohibited under its home country law from complying
with the Exchange's quorum requirements as of the date of such update
is designed to protect investors and the public interest because such
disclosure would help the Exchange assure that the exception remains
appropriate.
The Exchange believes that the proposed amendments to correct
grammatical errors or incorrect rule references will improve the
readability and clarity of the Exchanges rulebook. The Exchange notes
that the proposed changes to the Exchange's quorum requirements are
substantively similar to existing rules on Nasdaq, and thus do not
present any new or novel issues.\127\
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\127\ See Nasdaq Listing Rules 5615(a)(4)(E) and 5620(c). See
Securities and Exchange Act Nos. 90883 (January 11, 2021) 86 FR 4158
(January 15, 2021) (SR-NASDAQ-2020-100) (Notice of Filing of
Proposed Rule Change To Modify the Quorum Requirement for Non-U.S.
Companies Under Certain Limited Circumstances); and 91567 (April 14,
2021) 86 FR 20556 (April 20, 2021) (Notice of Filing of Amendment
No. 1 and Order Granting Accelerated Approval of a Proposed Rule
Change, as Modified by Amendment No. 1, To Modify the Quorum
Requirement).
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[[Page 12937]]
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 that is not necessary or appropriate
in furtherance of the purposes of the Act. Instead, the Exchange
believes the proposed rule changes to conform certain applicable
listing rules so that they are substantively similar to corresponding
Nasdaq rules may enhance intermarket competition since the Exchange and
Nasdaq will have substantially similar listing requirements for
issuers.
Moreover, none of the proposed changes will unduly burden intra-
market competition. Participants will experience no competitive impact
from the proposed amendments as they are merely intended to the
Exchange's corporate governance requirements so that they are
substantively similar to those of other exchanges. Further, the
Exchange anticipates that all issuers with Companies listed on the
Exchange already comply with the proposed rules. Thus, the proposal
will have no material impact to such issuers.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
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 \128\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\129\
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\128\ 15 U.S.C. 78s(b)(3)(A)(iii).
\129\ 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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A proposed rule change filed under Rule 19b-4(f)(6) \130\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\131\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay to allow the
Exchange to implement the proposal as soon as possible. The Exchange
states that the proposal is substantively similar or identical to
Nasdaq listing rules series 5200 (General Procedures and Prerequisites
for Initial and Continued Listing on the Nasdaq Stock Market), 5600
(Corporate Governance Requirements), and 5800 (Failure to Meeting
Listing Standards). The Commission believes that waiver of the 30-day
operative delay is consistent with the protection of investors and the
public interest because the proposal does not raise any new or novel
issues. The proposed changes have also previously been subject to
notice and comment.\132\ Accordingly, the Commission hereby waives the
30-day operative delay and designates the proposal operative upon
filing.\133\
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\130\ 17 CFR 240.19b-4(f)(6).
\131\ 17 CFR 240.19b-4(f)(6)(iii).
\132\ See Section II. A, supra. As described above, some of the
proposed changes were also previously approved by the Commission.
\133\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of such 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. 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="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#becccbd2db93ddd1d3d3dbd0cacdfecddbdd90d9d1c8"><span class="__cf_email__" data-cfemail="1c6e697079317f7371717972686f5c6f797f327b736a">[email protected]</span></a>. Please include
file number SR-CboeBZX-2024-010 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-CboeBZX-2024-010. 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-CboeBZX-2024-010 and should
be submitted on or before March 12, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\134\
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\134\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-03336 Filed 2-16-24; 8:45 am]
BILLING CODE 8011-01-P
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