Notice2024-11700
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change to Rules 5605, 5615 and 5810 To Clarify and Modify Phase-In Schedules for Certain Corporate Governance Requirements and Clarify Applicability of Certain Cure Periods
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
May 29, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 104 (Wednesday, May 29, 2024)</title>
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[Federal Register Volume 89, Number 104 (Wednesday, May 29, 2024)]
[Notices]
[Pages 46528-46533]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-11700]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100208; File No. SR-NASDAQ-2024-019]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change to Rules 5605, 5615 and 5810
To Clarify and Modify Phase-In Schedules for Certain Corporate
Governance Requirements and Clarify Applicability of Certain Cure
Periods
May 22, 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 May 8, 2024, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to change Rules 5605, 5615 and 5810 to
clarify and modify phase-in schedules for certain corporate governance
requirements and clarify applicability of certain cure periods.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rules">https://listingcenter.nasdaq.com/rulebook/nasdaq/rules</a>, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Nasdaq is proposing to clarify and modify the phase-in schedules to
the independent director and committee requirement for certain
companies. Nasdaq is also proposing to clarify the applicability of
certain cure periods.
Initial Public Offerings
Nasdaq is proposing to clarify and modify the phase-in schedules to
the independent director and committee requirements for IPOs.
Specifically, Rule 5615(b)(1) currently references that a company
listing in connection with an IPO is permitted to phase in its
independent audit committee requirements in accordance with SEC Rule
10A-3(b)(1)(iv)(A) under the Act but does not restate the provisions of
this rule. Nasdaq proposes to amend Rule 5615(b)(1) by specifically
restating the phase-in provisions in the text of the rule and state
that a company shall be permitted to phase in its compliance with the
audit committee requirements set forth in Rule 5605(c)(2) as follows:
(1) one member must satisfy the requirements by the date the company's
securities first trade on Nasdaq (the ``Listing Date''); (2) a majority
of members must satisfy the requirements within 90 days of the
effective date of its registration statement; and (3) all members must
satisfy the requirements within one year of the effective date of its
registration statement.\3\
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\3\ See 17 CFR 240.10A-3(b)(1)(iv)(A).
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Rule 5605(c)(2)(A) requires a company to have a minimum of three
members on the audit committee. As a result, companies listed in
connection with an IPO which are not required to have a fully
independent audit committee until one year from the Listing Date may
appoint non-independent directors to the audit committee in order to
satisfy the three-person minimum requirement. Nasdaq proposes to amend
Rule 5615(b)(1) to provide that companies listing in conjunction with
an IPO may also phase in compliance with the three-person minimum on
the following schedule: at least one member by the Listing Date, at
least two members within 90 days of the Listing Date and at least three
members within one year of the Listing Date. This proposal is
consistent with the approach of the NYSE.\4\ Nasdaq notes that in the
NYSE Approval Order the Commission indicated that ``permitting a
company to have only one member on its audit committee by the listing
date, at least two members within ninety days of the listing date, and
three members within a year of the listing date, affords a reasonable
accommodation for [affected] companies.'' \5\
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\4\ See Section 303A.00 Introduction; of the NYSE Listed Company
Manual. See also Securities Exchange Act Release No. 61067 (November
25, 2009), 74 FR 63808 (December 4, 2009) (approving SR-NYSE-2009-
89) (the ``NYSE Approval Order'').
\5\ The NYSE Approval Order at 63811.
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Rule 5615(b)(1) currently allows companies listing in connection
with an IPO to phase in the requirements for their independent
nominations and compensation committees but requires one member to
satisfy the requirements at the time of listing. Some companies
expressed a concern that this requirement interferes with a common
practice to hold a meeting of a board of directors in order to appoint
additional independent directors shortly after the Listing Date, but
prior to the date IPO closes.\6\ To accommodate this practice, Nasdaq
proposes to amend Rule 5615(b)(1) to allow the companies to comply with
the requirement to have one independent director on the compensation
and nominations committees by appointing an independent director to
such a committee no later than the earlier of the date of the initial
public offering closes or five business days from the Listing Date.
This proposal is consistent with the approach of the NYSE.\7\
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\6\ See e.g. NYSE IPO Guide, page 41 at <a href="https://www.nyse.com/publicdocs/nyse/listing/nyse_ipo_guide.pdf#process-timeline">https://www.nyse.com/publicdocs/nyse/listing/nyse_ipo_guide.pdf#process-timeline</a> (``After
building a book of demand, the lead bookrunners will agree on the
offering price with the company and shareholders, execute the
underwriting agreement and allocate the IPO to investors. The
following day, the company begins publicly trading on the NYSE or
another exchange, rings the opening bell and hosts other key
marketing events associated with being a public company. Two
business days later, the IPO closes, at which point stock is
delivered to investors against payment of the offering price, and
various legal opinions are delivered by counsel.'')
\7\ See Section 303A.00 Introduction; of the NYSE Listed Company
Manual. See also Securities Exchange Act Release No. 61067 (November
25, 2009), 74 FR 63808 (December 4, 2009) (approving SR-NYSE-2009-
89).
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[[Page 46529]]
Nasdaq is also proposing to correct a misleading rule reference in
Rule 5615(b)(1), which allows a Company not to adopt a nominations
committee but instead rely upon a majority of the Independent Directors
to discharge responsibilities under Rule 5605(b). The responsibilities
of the nominations committee are found in Rule 5605(e), not Rule
5605(b). Accordingly, new Rule 5615(b)(1)(C) allows a majority of the
Independent Directors to discharge responsibilities of the nominations
committee under Rule 5605(e).
Nasdaq is also proposing to eliminate the reference to Rule 5625 in
Rule 5615(b)(1) which states that: ``For purposes of . . . Rule 5625, a
Company shall be considered to be listing in conjunction with an
initial public offering only if it meets the conditions in Rule 10A-
3(b)(1)(iv)(A) under the Act, namely, that the Company was not,
immediately prior to the effective date of a registration statement,
required to file reports with the Commission pursuant to Section 13(a)
or 15(d) of the Act.'' By its terms, Rule 5625 (Notification of
Noncompliance) applies to any company listed on Nasdaq, including in
conjunction with an IPO, and requires that a ``Company must provide
Nasdaq with prompt notification after an Executive Officer of the
Company becomes aware of any noncompliance by the Company with the
requirements of this Rule 5600 Series.'' This notification of
noncompliance requirement of Rule 5625 is not affected or modified in
any way by the aforementioned reference in Rule 5615(b) because Rule
5625 applies to a Nasdaq-listed company regardless of whether it was
listed ``in conjunction with an initial public offering'' or not.
Moreover, Rule 5615(b)(1) does not provide an exemption from Rule 5625
for any company. Accordingly, Nasdaq proposes to eliminate the
references to Rule 5625 in Rule 5615(b)(1) to simplify the rules to
eliminate potential confusion without any substantive impact.
Companies Emerging From Bankruptcy
Rule 5615(b)(2) allows a company that is emerging from bankruptcy
to phase in independent nominations and compensation committees and
majority independent boards requirements. Nasdaq proposes to amend Rule
5615(b)(2) to codify its current position that a company emerging from
bankruptcy must comply with the audit committee composition
requirements set forth in Rule 5605(c)(2) \8\ by the Listing Date
unless an exemption is available pursuant to Rule 10A-3. Nasdaq also
proposes to make additional clarifications to improve the readability
of the rule without changing its substance, including to provide that
the applicable phase-in periods will be computed beginning on the
Listing Date.
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\8\ Rule 5605(c)(2) requires a company to have, an audit
committee of at least three members, which must meet certain
independence, professional competence and other requirements as
specified in the rule.
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Companies Transferring From National Securities Exchanges
Rule 5615(b)(3) provides that companies transferring from other
markets with a substantially similar requirement shall be afforded the
balance of any grace period afforded by the other market. Rule
5615(b)(3) further provides that companies transferring from other
listed markets that do not have a substantially similar requirement
shall be afforded one year from the date of listing on Nasdaq.
Nasdaq proposes to clarify that the phase-in period currently
contained in Rule 5615(b)(3) is applicable only to companies that
transfer securities registered pursuant to Section 12(b) of the Act \9\
from another national securities exchange to Nasdaq and to specify
requirements applicable to a company listing securities registered
pursuant to Section 12(g) of the Act,\10\ as described below.
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\9\ 15 U.S.C. 78l(b).
\10\ 15 U.S.C. 78l(g).
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Companies Listing Securities Previously Registered Under Section 12(g)
Nasdaq proposes to modify Rule 5615(b)(3) to provide that a company
with securities registered pursuant to Section 12(g) of the Act \11\
that lists those securities on Nasdaq must satisfy the audit committee
requirements set forth in the Rule 5605(c) except for the requirement
to have at least three members on the audit committee, as described
below, by the Listing Date, unless an exemption is available pursuant
to Rule 10A-3 under the Act.
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\11\ 15 U.S.C. 78l(g).
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Nasdaq proposes to modify Rule 5615(b)(3) to also provide that a
company with securities registered pursuant to Section 12(g) of the Act
that lists those securities on Nasdaq will be provided a similar phase-
in period as available to companies listing in connection with an IPO,
other than the audit committee requirements. Like a company conducting
an IPO, these companies would not have been subject to another
exchange's corporate governance standards at the time of their listing.
Therefore, Nasdaq proposes to allow these companies a similar phase-in
period as currently provided to an IPO, other than the audit committee
requirements, and require, on the nominations and compensation
committee, one independent director upon listing, a majority of
independent directors within 90 days of Listing Date, and a fully
independent committee within one year of Listing Date.\12\ The company
also would have twelve months from its Listing Date to comply with the
majority independent board requirement set forth in Rule 5605(b).
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\12\ The independent directors serving on the compensation
committee would also be required to satisfy the requirements of Rule
10C-1 under the Act.
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Under the revised rule, for a company with securities registered
pursuant to Section 12(g) of the Act that lists those securities on
Nasdaq, only directors who are independent, as defined in Rule
5605(a)(2), and meet the criteria for independence set forth in Rule
10A-3(b)(1) under the Act would be permitted on the audit committee
during the transition period (unless an exemption is available under
Rule 10A-3 under the Act).\13\ However, a phase-in period would be
permitted with respect to the committee size requirement: at least one
independent director member is required as of the date of listing, two
independent director members within ninety days of the Listing Date,
and three independent director members within one year of the Listing
Date.\14\ These changes adopt the same phase-in schedule for these
companies as is in place for a similar company listing on the New York
Stock Exchange (``NYSE'').\15\ The revised rule would also specify that
a company's compensation committee must have at least one member at the
time of listing
[[Page 46530]]
and at least two members within one year of listing.\16\
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\13\ Each member of the audit committee must also: (1) not have
participated in the preparation of the financial statements of the
company or any current subsidiary of the company at any time during
the past three years; and (2) be able to read and understand
fundamental financial statements, including a company's balance
sheet, income statement, and cash flow statement. See Rule
5605(c)(2)(A).
\14\ During the phase-in period a company must comply with the
requirement in Rule 5605(c)(2)(A) that every listed company's audit
committee--without distinction as to the committee's size--have at
least one member who has past employment experience in finance or
accounting, requisite professional certification in accounting, or
any other comparable experience or background which results in the
individual's financial sophistication.
\15\ See Section 303A.00 of the NYSE Listed Company Manual. See
also Securities Exchange Act Release No. 61067 (November 25, 2009),
74 FR 63808 (December 4, 2009) (approving SR-NYSE-2009-89).
\16\ See Securities Exchange Act Release No. 68013 (October 9,
2012), 77 FR 62563 (October 15, 2012) (Notice of Filing for SR-
NASDAQ-2012-109) at footnote 67. See also Securities Exchange Act
Release No. 34-68640 (January 11, 2013), 78 FR 4554 (January 22,
2013) (approving SR-NASDAQ-2012-109).
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Companies Listing in Connection With a Carve-Out or Spin-Off
Transaction
Nasdaq proposes to provide that a company listing in connection
with a carve-out or spin-off transaction will have a similar phase-in
period as currently available to companies listing in connection with
an IPO. Like a company conducting an IPO, these companies would not
have been subject to another exchange's corporate governance standards
at the time of their listing. Therefore, Nasdaq proposes to adopt Rule
5615(b)(4) \17\ specifying the phase-in provisions and stating that a
company shall be permitted to phase in its compliance with the audit
committee requirements set forth in Rule 5605(c)(2) as follows: (1) one
member must satisfy the requirements by the Listing Date; (2) a
majority of members must satisfy the requirements within 90 days of the
effective date of its registration statement; and (3) all members must
satisfy the requirements within one year of the effective date of its
registration statement.
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\17\ Nasdaq proposes to renumber current Rule 5615(b)(4)
regarding phase-in schedule for a company ceasing to be a Smaller
Reporting Company to Rule 5615(b)(5).
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Nasdaq also proposes to allow these companies a similar phase-in
period as an IPO and require that a company listing in connection with
a carve-out or spin-off transaction shall have twelve months from its
Listing Date to comply with the majority independent board requirement
set forth in Rule 5605(b), and, on the nominations and compensation
committee, one independent director by the date the transaction closes,
a majority of independent directors within 90 days of the Listing Date,
and a fully independent committee within one year of the Listing
Date.\18\ Nasdaq also proposes to provide that, regarding the
requirement to have at least two members on the compensation committee,
a company's compensation committee must have at least one member by the
date the transaction closes and at least two members within one year of
the Listing Date.\19\
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\18\ The independent directors serving on the compensation
committee would also be required to satisfy the requirements of SEC
Rule 10C-1 under the Act.
\19\ See Securities Exchange Act Release No. 68013 (October 9,
2012), 77 FR 62563 (October 15, 2012) (Notice of Filing for SR-
NASDAQ-2012-109) at footnote 67. See also Securities Exchange Act
Release No. 34-68640 (January 11, 2013), 78 FR 4554 (January 22,
2013) (approving SR-NASDAQ-2012-109).
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Nasdaq's current policy is to treat companies listing in connection
with a carve-out or spin-off transaction as IPOs for purposes of phase-
in periods. Thus, Nasdaq allows such companies to phase in the
requirements for their independent nominations and compensation
committees but require one member to satisfy the requirements at the
time of listing. Some companies expressed a concern that this
requirement interferes with a common practice to hold a meeting of a
board of directors in order to appoint additional independent directors
shortly after the Listing Date, but prior to the date a carve-out or
spin-off transaction closes. To accommodate this practice, Nasdaq
proposes to allow the companies to comply with the requirement to have
one independent director on the compensation and nominations committees
by appointing an independent director to such a committee no later than
the date such carve-out or spin-off transaction closes. This proposal
is consistent with the approach of the NYSE.\20\
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\20\ See Section 303A.00 Introduction; of the NYSE Listed
Company Manual. See also Securities Exchange Act Release No. 61067
(November 25, 2009), 74 FR 63808 (December 4, 2009) (approving SR-
NYSE-2009-89).
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Rule 5605(c)(2)(A) requires a company to have a minimum of three
members on the audit committee. As a result, companies listed in
connection with a carve-out or spin-off transaction which are not
required to have a fully independent audit committee until one year
from the Listing Date may appoint non-independent directors to the
audit committee in order to satisfy the three-person minimum
requirement. Nasdaq proposes to provide that companies listing in
connection with a carve-out or spin-off transaction may also phase in
compliance with the three-person minimum on the following schedule: at
least one member by the Listing Date, at least two members within 90
days of the Listing Date and at least three members within one year of
the Listing Date.\21\ This proposal is consistent with the approach of
the NYSE.\22\
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\21\ See footnote 15 above.
\22\ See Section 303A.00 Introduction; of the NYSE Listed
Company Manual. See also Securities Exchange Act Release No. 61067
(November 25, 2009), 74 FR 63808 (December 4, 2009) (approving SR-
NYSE-2009-89).
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Companies Ceasing To Be a Smaller Reporting Company
Nasdaq proposes to amend the title of Rule 5615(b)(4), renumber it
to Rule 5615(b)(5) and add an introductory sentence to improve the
readability of the rule without changing its substance.
Companies Ceasing To Qualify as a Foreign Private Issuer
Pursuant to Rule 5615(a)(3), a Foreign Private Issuer, as defined
under SEC Rule 3b-4 under the Exchange Act of 1934 (the ``Act''), may
follow its home country practice in lieu of the requirements of the
Rule 5600 Series, provided, however, that such a Company is required to
comply with the Notification of Noncompliance requirement (Rule 5625),
the Voting Rights requirement (Rule 5640), the Diverse Board
Representation Rule (Rule 5605(f)), the Board Diversity Disclosure Rule
(Rule 5606), have an audit committee that satisfies Rule 5605(c)(3),
and ensure that such audit committee's members meet the independence
requirement in Rule 5605(c)(2)(A)(ii).
A Foreign Private Issuer that ceases to qualify as such under SEC
rules becomes subject to all relevant corporate governance requirements
of Rule 5605. Depending on the type of issuer, these may include the
requirement to have independent nominations and compensation committees
and a majority of independent directors. In addition, the company's
directors may be required to meet the definition of independence under
Rule 5605(a). Pursuant to Rule 3b-4 under the Act, a company must test
its status as a Foreign Private Issuer on an annual basis at the end of
its most recently completed second fiscal quarter (for purposes of this
subsection, the ``Foreign Private Issuer Determination Date''). Nasdaq
proposes to modify its rules to take into consideration Rule 3b-4 under
the Act. Under this rule, a company's determination that it fails to
qualify as a Foreign Private Issuer governs its eligibility to use the
forms and rules designated for Foreign Private Issuers beginning on the
first day of the fiscal year following the determination date,
effectively providing the company with a six-month grace period.
Similarly, Nasdaq proposes to require a company that ceases to be a
Foreign Private Issuer to be in compliance with the domestic company
requirements within the same timeframe of six months, except for the
requirement set forth in Rule 5605(c)(2)(A)(ii).
Specifically, the company shall have six months from the Foreign
Private Issuer Determination Date to comply with the majority
independent board requirement set forth in Rule 5605(b); the
independent compensation and nominations committee requirements
[[Page 46531]]
set forth in Rules 5605(d)(2) and (e)(1)(B); and audit committee
requirements set forth in Rule 5605(c)(2), including the three-person
audit committee requirement. During the phase-in period, a company
shall have an audit committee that satisfies Rule 5605(c)(3) and
members of such audit committee shall meet the criteria for
independence referenced in Rule 5605(c)(2)(A)(ii) (the criteria set
forth in Rule 10A-3(b)(1) under the Act, subject to the exemptions
provided in Rule 10A-3(c) under the Act). This proposal is consistent
with the approach of the NYSE.\23\
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\23\ See Section 303A.00 Introduction; of the NYSE Listed
Company Manual. See also Securities Exchange Act Release No. 61067
(November 25, 2009), 74 FR 63808 (December 4, 2009) (approving SR-
NYSE-2009-89).
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Preamble to Phase-In Rules
Nasdaq proposes to add an introductory paragraph to Rule 5615(b) to
improve the readability of the rules without changing its substance.
Nasdaq also proposes to codify its current policy that a company that
demonstrates compliance with a requirement during a phase-in period but
subsequently falls out of compliance with that requirement before the
end of the phase-in period, would not be considered deficient with the
requirement until the end of the phase-in period. This treatment is
consistent with treatment of a company that relied on a phase-in period
throughout its duration.
Unavailability of Grace Periods Following the Expiration of Phase-In
Periods
Nasdaq proposes to amend Rules 5605(b)(1), 5605(c)(4), 5605(d)(4),
and 5810(c)(3)(E) to codify its current position that a company relying
on any phase-in period in Rule 5615(b) is not eligible for a cure
period provided by Rule 5810(c)(3)(E), immediately following the
expiration of the phase-in period, unless the company complied with the
audit committee composition requirement in Rule 5605(c)(2)(A), the
compensation committee composition requirement in Rule 5605(d)(2)(A),
or the majority independent board requirement in Rule 5605(b)(1), as
applicable, during such phase-in period but fell out of compliance with
such requirement after having complied with the requirement before the
end of the phase-in period. Nasdaq also proposes to codify its current
policy that, if a company demonstrated compliance with the applicable
requirement during the phase-in period, but subsequently fell out of
compliance before the end of the phase-in period, for purposes of
computing the applicable cure period, the event that caused the failure
to comply is the event causing the company to fall out of compliance
after having complied with the requirement, and not the end of the
phase-in period. In these circumstances, as described above, the
company would not be considered deficient with the requirement until
the end of the phase-in period.
In a situation where a company lists on Nasdaq or becomes subject
to the requirements after it lists, relies on the phase-in period for
one of the independent committees or the independent board
requirements, and allows the phase-in period to run out without
demonstrating compliance with the rule, Nasdaq believes it is not
appropriate for the company to rely on the grace period immediately
thereafter thus effectively extending the phase-in period. In such a
case, Nasdaq will issue a Staff Delisting Determination letter to
delist the Company's securities.
Nasdaq also proposes to amend Rule 5810(c)(3)(E) to describe
procedures for administering a cure period in the event a company fails
to comply with the compensation committee composition requirement under
Rule 5605(d)(2)(A) due to one vacancy. Specifically, as amended, Rule
5810(c)(3)(E) will provide that if a company fails to meet the
compensation committee composition requirement under Rule 5605(d)(2)(A)
due to one vacancy, or one compensation committee member ceases to be
independent due to circumstances beyond the member's reasonable
control, the Listing Qualifications Department will promptly notify the
company and inform it has until the earlier of its next annual
shareholders meeting or one year from the occurrence of the event that
caused the failure to comply with this requirement to cure the
deficiency. However, if the company's next annual shareholders' meeting
is held sooner than 180 days after the event that caused the
deficiency, then the company has 180 days from the event that caused
the deficiency to cure it.
Renumbering of Certain Rules and Other Clarifications
Nasdaq proposes to amend Rule 5615(c)(3) to clarify that the
applicable phase-in periods for companies ceasing to be a Controlled
Company will be computed beginning on the date the company ceases to be
a Controlled Company.
In light of the proposed clarifications and modifications described
above and to promote a coherent structure of the Listing Rules, Nasdaq
proposes to renumber Rules 5615(c)(1), 5615(c)(2), and 5615(c)(3) as
5615(a)(7)(A), 5615(a)(7)(B), and 5615(b)(7). Nasdaq also proposes to
amend the title of the proposed Rule 5615(b)(7) to improve the
readability of the rule without changing its substance and update cross
references to account for renumbering of the rules.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\24\ in general and with
Sections 6(b)(5) of the Act,\25\ in particular in that it is 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. The Exchange further
believes that the proposal is consistent with Rule 10A-3 under the Act
concerning audit committee requirements for listed companies.
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\24\ 15 U.S.C. 78f.
\25\ 15 U.S.C. 78f(b)(5).
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In approving substantially similar amendments by the NYSE, except
for the clarification of the unavailability of a grace period following
the expiration of a phase-in period, as described above, the Commission
indicated that it believes that:
the proposed amendments relating to the phase-in period for
specified companies newly listing on the [NYSE] (or newly becoming
subject to certain corporate governance listing standards as a
result of change in status) are reasonable. The proposed rules would
permit a phase-in schedule similar to that allowed under the current
rules for a company listing in conjunction with an IPO, and would
extend such a phase-in schedule appropriately to companies listing
in conjunction with spin-off and carve-out transactions, while
offering an acceptable minimal tolerance for the special
circumstances of each of these types of new listings with respect to
the point in time that the standards would begin to apply. The
Commission notes that the [NYSE's] proposal does not make
adjustments for compliance with any requirements of Rule 10A-3 under
the Act.
. . .
The proposed rule change also would allow a company listing in
conjunction with an IPO, a spin-off, or a carve-out a phase-in
period with respect to the NYSE requirement that the audit committee
of a listed company have at least three members. In the
[[Page 46532]]
Commission's view, permitting a company to have only one member on
its audit committee by the listing date, at least two members within
ninety days of the listing date, and three members within a year of
the listing date, affords a reasonable accommodation for such
companies.\26\
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\26\ See the NYSE Approval Order at 63,810.
The proposed rule change is also consistent with the provisions of
Section 6 of the Act,\27\ in general and with Sections 6(b)(5) of the
Act, in that it will clarify Nasdaq's current position as to the
applicability of the phase-in periods for independent board and
committee requirements for companies listing in connection with the IPO
and codify treatment of a carve-out or spin-off transaction in this
regard. The amended rules will also provide for treatment of companies
that ceased to qualify as a foreign private issuer, the eventuality on
which the rules are currently silent. This greater clarity and
uniformity of treatment will promote just and equitable principles of
trade. The proposed changes will enhance investor protection by making
the impacted rules more transparent and easier to understand. In
addition, Nasdaq will continue to protect investors and the public
interest by maintaining the current requirements for the audit,
nominations, and compensation committees, as well as the requirement
for a majority independent board.
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\27\ 15 U.S.C. 78f.
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The proposed rule change is also designed to provide companies that
are newly listing on Nasdaq and becoming subject to certain corporate
governance listing standards as a result of this change in status a
reasonable transition period, similar to that allowed under the current
rules for a company listing in conjunction with an IPO and to that
allowed by the NYSE. In this regard, the proposed rule change is
designed to remove impediments to and perfect the mechanism of a free
and open market and a national market system.
The proposed rule change makes no adjustments for compliance with
any requirements of SEC Rules 10A-3 or 10C-1 under the Act, nor does
the proposed rule change grant an exemption or phase-in period with
respect to the requirement in Rule 5605(c)(2)(A) that every listed
company's audit committee--without distinction as to the committee's
size--have at least one member who has past employment experience in
finance or accounting, requisite professional certification in
accounting, or any other comparable experience or background which
results in the individual's financial sophistication. The revised rules
will also require that, for a company with securities registered
pursuant to Section 12(g) of the Act that lists those securities on
Nasdaq, only independent directors, as defined in Rule 5605(a)(2), be
permitted on the audit committee during the transition period. In
addition, SEC Rule 10A-3 under the Act requires at least one member of
a listed company's audit committee to be independent as of the Listing
Date, even when the company is allowed a phase-in period with respect
to the other audit committee members.\28\ As a result, Nasdaq believes
that the proposed rule change is designed to prevent fraudulent and
manipulative acts and practices and to protect investors and the public
interest.
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\28\ See 17 CFR 240.10A-3(b)(1)(iv) (providing an exemption for
an issuer that was not required to file reports with the Commission
pursuant to section 13(a) or 15(d) of the Act).
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To improve the readability of the rules Nasdaq proposes to renumber
certain rules and make other clarifying and conforming changes without
changing the substance of such rules. Nasdaq believes that the improved
readability of the rules will perfect the mechanism of a free and open
market by making the rules easier to understand and apply.
Finally, Nasdaq proposes to amend Listing Rules 5605(b)(1),
5605(c)(4), 5605(d)(4), and 5810(c)(3)(E) to codify its current
position that a company relying on any phase-in period in Rule 5615(b)
is not eligible for a cure period provided by Rule 5810(c)(3)(E),
immediately following the expiration of the phase-in period, unless the
Company demonstrated compliance with the applicable requirement during
such phase-in period. In a situation where a company lists on Nasdaq,
relies on the phase-in period for one of the independent committees or
the independent board requirements, and allows the phase-in period to
run out without gaining compliance with the rule, Nasdaq believes it is
not appropriate for the Company to rely on the grace period immediately
thereafter thus effectively extending the phase-in period. Nasdaq
believes that this rule change will protect investors and the public
interest by limiting the maximum time a company may remain listed
without fully complying with independent committees or the independent
board requirements.
Finally, Nasdaq believes that codifying Nasdaq's position regarding
the computation of the applicable phase-in periods, as well as other
clarifying changes will perfect the mechanism of a free and open market
by making the rules easier to understand and apply.
B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended. The proposed rule
change will have little or no impact on competition as it merely
eliminates potential confusion, clarifies Nasdaq current position as to
the applicability of its rules, and harmonizes Nasdaq's rules regarding
the applicability of the phase-in periods for audit, nominations, and
compensation committees, as well as the requirement for a majority
independent board with the requirements of the NYSE.\29\ Similarly,
Nasdaq believes that the proposed amendments will have little or no
impact on the intra market competition.
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\29\ See Section 303A.00 Introduction; of the NYSE Listed
Company Manual. See also Securities Exchange Act Release No. 61067
(November 25, 2009), 74 FR 63808 (December 4, 2009) (approving SR-
NYSE-2009-89).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) by order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be 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
[[Page 46533]]
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#c6b4b3aaa3eba5a9ababa3a8b2b586b5a3a5e8a1a9b0"><span class="__cf_email__" data-cfemail="b7c5c2dbd29ad4d8dadad2d9c3c4f7c4d2d499d0d8c1">[email protected]</span></a>. Please include
file number SR-NASDAQ-2024-019 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NASDAQ-2024-019. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NASDAQ-2024-019 and should
be submitted on or before June 20, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-11700 Filed 5-28-24; 8:45 am]
BILLING CODE 8011-01-P
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