Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Revisions and Restructuring of the NASDAQ Listing Rules, 15552-15560 [E9-7630]
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Federal Register / Vol. 74, No. 64 / Monday, April 6, 2009 / Notices
the national best bid or offer (‘‘NBBO’’).
The proposed rule change was
published for comment in the Federal
Register on February 23, 2009.3 The
Commission received no comments on
the proposal. This order approves the
proposed rule change.
II. Description of the Proposal
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The Exchange’s PIP currently allows
Options Participants to enter two-sided
orders for execution at a price that
improves upon the NBBO.4 The
customer side of the order (‘‘PIP Order’’)
is submitted to the PIP with a matching
guaranteed contra order (the ‘‘Primary
Improvement Order’’), equal to the full
size of the PIP Order. Under the current
rules of the Boston Options Exchange
Group, LLC (‘‘BOX’’), the Primary
Improvement Order must represent a
higher bid (lower offer) than that of the
NBBO at the time of the commencement
of the PIP. The PIP Order is then
exposed to all Options Participants to
give them an opportunity to participate
in the trade at the proposed cross price
or better.
The Exchange proposes to modify its
rules to permit an Options Participant to
enter a Primary Improvement Order into
the PIP at a price that is equal to the
NBBO at the time of the commencement
of the PIP. In addition, the Exchange
proposes that, at the commencement of
the PIP, all quotes and orders on the
BOX Book prior to the PIP Broadcast
that are equal to or better than 5 the
Primary Improvement Order price (i.e.,
the PIP start price), except any
proprietary quote or order from the
Options Participant who submitted the
Primary Improvement Order,6 will be
immediately executed against the PIP
Order in price/time priority.7 At the
conclusion of the PIP, the PIP Order will
be matched against the best prevailing
quote(s) or order(s) on BOX in
accordance with the current PIP rule,
except the Exchange proposes that any
3 See Securities Exchange Act Release No. 59407
(February 13, 2009), 74 FR 8132.
4 See BOX Rules Chapter V, Section 18(e).
5 BOX has clarified that there are two types of
quotes/orders that could have a price better than the
PIP start price: (1) An Auto Auction Order
(‘‘AAO’’); and (2) an order that is in the process of
being filtered by the BOX Trading Host pursuant to
BOX Rules Chapter V, Section 16. Electronic mail
from Wayne Pestone, Chief Legal Officer, Boston
Options Exchange, dated March 30, 2009.
6 These proprietary quotes or orders will continue
to be available for execution with all other types of
quotes and orders as currently permissible under
BOX Rules.
7 See proposed BOX Rules Chapter V, Section
18(e)(i). Orders on the BOX Book will include AAO
Limit Orders on the BOX Book. The AAO will
immediately execute against the PIP Order at the
AAO Limit Order Price (i.e. the displayed price at
the minimum trading increment).
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pre-PIP Broadcast proprietary quote or
order from the Options Participant who
submitted the Primary Improvement
Order will not be executed against the
PIP Order.8
III. Discussion
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange and, in particular,
with Section 6(b)(5) of the Act,9 which
requires, among other things, that the
rules of a national securities exchange
be designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to 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.10
The Commission believes that the
proposed rule change will continue to
provide customers with an opportunity
for price improvement over the NBBO.11
The Commission notes that once a
Primary Improvement Order is
submitted into the PIP auction, the
Primary Improvement Order may not be
cancelled.12 Therefore, the PIP Order
submitted to the PIP auction will be
guaranteed an execution price of at least
the NBBO and, moreover, will be given
an opportunity for execution at a price
better than the NBBO. Further, BOX’s
current rules provide for broad
participation in a PIP auction,13 which
should provide the opportunity for a
meaningful, competitive auction.
Moreover, the Commission believes that
the proposal may encourage increased
participation in the PIP by BOX
members willing to trade with the PIP
Order at the NBBO but not better than
the NBBO. Increased participation
would decrease the proportion of a PIP
8 See proposed BOX Rules Chapter V, Section
18(e)(iii).
9 15 U.S.C. 78f(b)(5).
10 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
11 The Commission notes that it also recently
approved an ISE proposed rule change that permits
ISE members to enter an order into the PIM at a
price that is equal to the NBBO when the ISE’s best
bid or offer is inferior to the NBBO. See Securities
Exchange Act Release No. 57847 (May 21, 2008), 73
FR 30987 (May 29, 2008) (SR–ISE–2008–29).
12 See BOX Rules Chapter V, Section 18(e)(ii).
13 See BOX Rules, Chapter V, Section 18(e)(i).
Specifically, BOX’s PIP permits market-makers to
submit competing orders for their own account and
all non-market-maker members (referred to as
‘‘Order Flow Providers’’) to submit competing
orders for their own account or for the account of
public customers or non-market-maker brokerdealers.
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Order that would be internalized by the
submitting Options Participant.
The Commission also notes that the
proposal will maintain the priority of
pre-existing orders on the BOX Book by
providing that all quotes and orders on
the BOX Book prior to the PIP Broadcast
that are equal to or better than the
Primary Improvement Order price will
be immediately executed against the PIP
Order in price/time priority (except any
proprietary quote or order from the
Options Participant that submitted the
Primary Improvement Order). Further,
the Commission notes that by
precluding these proprietary orders and
quotes from immediately executing
against the PIP Order, the proposal is
consistent with BOX rules that provide
that an Options Participant may not
execute as principal an order it
represents as agent unless the agency
order is given an opportunity to first
interact with other trading interest.14
Accordingly, the Commission finds
that the proposed rule change is
consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,15 that the
proposed rule change (SR–BX–2009–
008) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–7588 Filed 4–3–09; 8:45 am]
BILLING CODE
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59663; File No. SR–
NASDAQ–2009–018]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to
Revisions and Restructuring of the
NASDAQ Listing Rules
March 31, 2009.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 12,
2009, The NASDAQ Stock Market LLC
(‘‘Nasdaq’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
14 See
BOX Rules, Chapter V, Section 17.
U.S.C. 78s(b)(2).
16 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
15 15
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Federal Register / Vol. 74, No. 64 / Monday, April 6, 2009 / Notices
in Items I, II, and III below, which Items
have been prepared by Nasdaq. Nasdaq
included in its proposed rule change
Exhibit 5A, which is the text of the
proposed rule change; Exhibit 5B,
which is a copy of the current 4000
Series rules as they currently exist
which are being proposed for
amendment in Exhibit 5A; and Exhibit
5C, which is a table that shows the
location of the old rules to where they
now reside in the new rule text.3 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Nasdaq proposes a rule change to
reorganize the rules relating to the
qualification, listing, and delisting of
companies listed, or applying to list on
Nasdaq (‘‘Companies’’). Nasdaq is
proposing to house these rules, which
are currently found in the 4000 Series
of the Marketplace Rules, into a clearer
and more intuitive structure under a
new 5000 Series. In addition, Nasdaq
has taken this opportunity to eliminate
redundancies and clarify the language
used for the rule text. The text of the
proposed rule change is available from
Nasdaq’s Web site at https://
nasdaq.cchwallstreet.com, at Nasdaq’s
principal office, and at the
Commission’s Public Reference Room.
The new rules shall become operative
on April 13, 2009.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
Nasdaq included statements concerning
the purpose of, and basis for, the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below, and
is set forth in Sections A, B, and C
below.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
Nasdaq proposes to reorganize the
rules applicable to the qualification,
listing, and delisting of Companies on
Nasdaq (the ‘‘Listing Rules’’), which are
found in the Rule 4000 Series of the
Nasdaq manual (the ‘‘4000 Series’’), in
an effort to make the rules more
3 Exhibits 5A, 5B, and 5C are available on the
Commission’s Web site (https://www.sec.gov/).
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transparent and clear.4 As these rules
have evolved over the last thirty years,
they have become very complex and can
be difficult to navigate, especially for
those who are unfamiliar with their
structure. Nasdaq believes that there are
opportunities to reduce redundancies
and greatly improve the overall
organization of the Listing Rules. As
such, Nasdaq proposes to remove the
listing rules from the 4000 Series and
restate them in a simpler, more
transparent and reader-friendly format
in the proposed Rule 5000 Series (the
‘‘5000 Series’’), which is presently
unused.
Nasdaq represents that it is not
making any substantive changes to the
Listing Rules in this proposal. Rather, as
described in greater detail below,
Nasdaq proposes to: (1) Reorganize and
recast much of the old 4000 Series into
a more logical structure; (2) apply plain
English principles where needed; (3)
add descriptive titles and introductory
language; (4) define terms for
consistency; (5) delete obsolete or
incongruent rules; and (6) add or amend
rule text where appropriate to remove
ambiguity, to clarify existing practices,
and to resolve ongoing questions from
the public. To assist with understanding
the changes made to the Listing Rules,
Nasdaq created a table that maps the
location of every existing Listing Rule in
the 4000 Series to its place in the
proposed new 5000 Series. The table
provides both the old rule number and
rule text, together with the revised rule
text and new rule citation to the rule’s
location in the proposed 5000 Series. In
addition, the table provides a brief
description of the changes made to the
old rule. Nasdaq also notes in the table
rules that have been left in the 4000
Series,5 rules that have been deleted
altogether, and any newly-created rules
added to the proposed 5000 Series (such
as a new defined term). Nasdaq believes
that, when the table is read in
conjunction with this filing, readers will
have a clear understanding of the
changes made to the 4000 Series.
Organization
The current 4000 Series contains the
initial and continued listing standards
for all three Nasdaq market tiers: The
4 The Listing Rules are divided into different
sections within the 4000 Series, with each section
numbered as a 100th of 4000 (e.g., 4100 ‘‘General’’,
4200 ‘‘Definitions,’’ etc.). Nasdaq also refers to these
sections as Series when making reference to all
rules that fall under the section. For example, Rule
4310 would be said to reside in the 4300 Series.
Nasdaq uses the same convention for referring to
sections of the proposed 5000 Series.
5 Nasdaq determined to leave certain rules that do
not relate to the listing of Company securities in the
4000 Series.
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Nasdaq Global Select Market, The
Nasdaq Global Market, and The Nasdaq
Capital Market. In addition to listing
standards, the 4000 Series also contains
rules relating to trading of, and market
making in, Nasdaq securities, as found
in the 4100, 4600 and 4700 Series. The
rules relating to the listing of securities
are found in the 4200, 4300, 4400, 4500,
and 4800 Series. Specifically, the 4200
Series sets forth general definitions; the
4300 Series sets forth qualitative listing
standards for all Nasdaq market tiers, as
well as initial and continued listing
requirements for the Capital Market; the
4400 Series contains the initial listing
requirements for the Global Select
Market and Global Market, and the
continued listing requirements for the
Global Market, including requirements
for listing other securities, such as Index
Warrants and SEEDS; the 4500 Series
contains all the fees required to be paid
for listing on Nasdaq; and finally, the
4800 Series contains the requirements
and procedures regarding Nasdaq’s
appellate process for a Company denied
initial or continued listing.
Each of Nasdaq’s three market tiers
has its own specific listing standards
that are progressively more stringent
than the tier below. Today, the listing
rules are all derived from the rules
applicable to the Capital Market, so
readers must have a working knowledge
of the Capital Market rules to
understand the listing requirements of
the other tiers. The need to reference
back to the Capital Market rules when
reading the Global Market or Global
Select Market rules is often confusing,
and is made particularly difficult given
that the rules applicable to the Capital
Market and the other tiers are located far
from each other in the current rules.
Nasdaq proposes to organize the new
Listing Rules by placing all quantitative
tier-specific initial and continued listing
standards within individual rule
sections. Thus, the requirements for the
Nasdaq Global Select Market will be
contained in the proposed 5300 Series,
the requirements for the Nasdaq Global
Market will be contained in the
proposed 5400 Series, and the
requirements for the Nasdaq Capital
Market will be contained in the
proposed 5500 Series. Nasdaq is also
proposing to create a new 5000 Series
that contains general definitions
applicable to Companies, a new 5100
Series that contains a description of
Nasdaq’s discretionary authority, and a
new 5200 Series that contains
qualitative requirements relating to all
Companies seeking to list or already
listed on Nasdaq. Nasdaq is proposing
to create a new 5600 Series that contains
a stand-alone rule set dedicated to the
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corporate governance requirements for
all Nasdaq-listed Companies. Last,
Nasdaq is proposing a new 5700 Series
that contains the requirements for
listing other securities, a new 5800
Series that contains the requirements
and processes relating to a Company
that fails to meet a listing standard, and
a new 5900 Series that contains the fees
required to be paid for listing on
Nasdaq.
Within the proposed 5300, 5400 and
5500 Series, which, as noted, are each
dedicated to a particular market, Nasdaq
has organized all applicable quantitative
initial and continued listing standards.
Each of these three Series uses a
numbering convention whereby the
rules applicable to initial listing range
from 01 to 49 and the continued listing
rule numbers range from 50 to 99. For
example, all initial listing rules
applicable to the Nasdaq Global Market
are housed in Rules 5405 through 5415,
while the Global Market continued
listing rules are housed in Rules 5450
through 5460. Nasdaq believes that both
new readers and those familiar with the
current rule structure will find the
information they seek much more
quickly under the new rule structure.
Nasdaq has also divided the
quantitative listing standards in the old
rules into two subcategories in the new
rules: listing requirements and listing
standards. Under the new rules, listing
requirements are quantitative metrics,
all of which a company must meet for
initial or continued listing on a
particular tier. Listing standards consist
of bundles of quantitative metrics;
however, unlike listing requirements, a
company must meet at least one listing
standard to become listed or to continue
listing. For example, the three Entry
Standards found in current Rule
4420(a)–(c) contain certain repetitive
quantitative requirements relating to bid
price, publicly held shares, and round
lot shareholders. Nasdaq took these
common quantitative metrics and
placed them in new Rule 5405(a) as
initial listing requirements. For each
bundle of quantitative requirements that
remained under each old entry
standard, Nasdaq created individual
listing standards. It should be noted
that, under old Entry Standard 3 found
in Rule 4420(c), Nasdaq was able to
create two new listing standards in the
proposed new 5000 Series, Rules
5405(b)(3) and (4).6 Under the old rule,
Entry Standard 3 contained an
alternative quantitative listing
requirement of either a market value of
6 The new listing standards are titled ‘‘Market
Value Standard’’ and ‘‘Total Assets/Total Revenue
Standard.’’
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listed securities of $75 million or total
assets and total revenue of $75 million
each.7 Nasdaq believes that the two
metrics are better understood as
separate, stand-alone listing standards.
The remaining Entry Standard 3
quantitative metrics are either captured
under the new listing requirements or
duplicated in each of the newly-created
listing standards. Like all changes
proposed by Nasdaq in this filing, this
new structure is not a substantive
change and in no way changes the
application of the listing standards
under the existing rules.
As noted, Nasdaq has created a standalone section in the proposed 5000
Series for rules that apply to all tiers of
securities,8 which includes an overview
of the application process,9
prerequisites for applying to list,10 and
other obligations and requirements for
listing.11 In addition, Nasdaq has
created a stand-alone section for listing
standards applicable to ‘‘other
securities,’’ which includes listing
requirements for Exchange Traded
Funds, Index-Linked Securities,
Selected Equity-linked Debt Securities,
Trust Issued Receipts, and Index
Warrants, as well as generic standards.12
Nasdaq’s corporate governance
standards are also contained in a single,
stand-alone section.13
Also included in the proposed 5000
Series are the rules relating to fees
currently found in the 4500 Series.
Nasdaq proposes moving the 4500
Series to the new 5900 Series with only
minor non-substantive changes that do
not affect the fees charged by Nasdaq.
Nasdaq proposes, however, moving Rule
4550, which relates to written
interpretations of Nasdaq rules, to the
proposed 5600 Series. Nasdaq believes
that it is more appropriate to move Rule
4550 to the proposed 5600 Series, which
relates to corporate governance
requirements, since the vast majority of
interpretations are requested for
corporate governance rules. Nasdaq has,
however, provided a cross-reference to
proposed new Rule 5600, which houses
Rule 4550, in the introductory
paragraph to the proposed 5900 Series.
7 Rule 4420(c)(6) requires that ‘‘The issuer has:
(A) A market value of listed securities of $75
million (currently traded issuers must meet this
requirement and the bid price requirement under
Rule 4420(c)(3) for 90 consecutive trading days
prior to applying for listing); or (B) total assets and
total revenue of $75 million each for the most
recently completed fiscal year or two of the last
three most recently completed fiscal years.’’
8 5200 Series.
9 Rule 5205.
10 Rule 5210.
11 Rules 5215–5290.
12 5700 Series.
13 5600 Series.
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Nasdaq has sought to clarify the
process that applies to companies that
fail to meet Nasdaq’s listing standards,
which is currently found in the 4800
Series. Although the 4800 Series rules
are roughly organized chronologically,
progressing from the initial
identification of a deficiency through
the Nasdaq hearings and appeals
processes, Nasdaq believes that the
individual sections could be
reorganized into a more intuitive
structure. With respect to the initial
identification of deficiencies, Nasdaq
has attempted to make clear both what
steps Nasdaq will take with respect to
particular deficiencies, and what
obligations and options deficient
companies may have. Nasdaq has also
reorganized the rule text relating to the
hearings and appellate processes, so that
in each section the reader will find all
information related to the process for
each level of review.
Nasdaq also identified instances of
unnecessary duplication of rule text
found in individual Series of the current
rules as well. For example, Rules 4310
and 4320 set forth certain listing
requirements applicable to domestic,
Canadian, non-Canadian foreign
securities, and American Depository
Receipts. Rule 4310 sets forth the listing
requirements for domestic and Canadian
securities, whereas Rule 4320 sets forth
the listing requirements for nonCanadian foreign securities and
American Depository Receipts.
Although stand alone rules, there is
much duplication of rule text between
the two rules. Accordingly, Nasdaq is
proposing to combine these rules and
any other such duplicative rule text,
where possible, throughout the
proposed 5000 Series. In combining
these two rules, Nasdaq has retained the
domestic and Canadian continued
listing market maker requirement that
allows one market maker entering a
stabilizing bid to count toward the total
number of market makers required by
the rules. Nasdaq notes that the
proposed new Capital Market continued
listing rules makes it permissive for
non-Canadian foreign securities to count
a market maker entering a stabilizing
bid toward the required number of
market makers, which was not explicitly
stated in the old rules.
Nasdaq determined to leave certain
rules that do not relate to the listing of
Company securities in the 4000 Series.
For example, Rules 4100 through 4120
relate to the trading of listed Company
securities on the market. Nasdaq
believes these rules are more
appropriately left in a stand-alone
section, apart from the proposed 5000
Series, which addresses the listing and
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delisting of Company securities.
Likewise, Nasdaq determined to leave
certain definitions found in the 4200
Series that do not relate to listed
Companies. Nasdaq also determined to
leave Rule 4370 in the 4000 Series. Rule
4370 concerns additional requirements
for the listing of Nasdaq or Nasdaq
affiliate securities on Nasdaq. Because
the rule is specific to Nasdaq and does
not apply to Companies generally,
Nasdaq determined it would be
confusing and add little value if placed
in the proposed 5000 Series.
Plain English
Nasdaq’s primary goal in reworking
the Listing Rules was to make them
more clear and transparent. As noted
above, the 4000 Series evolved over
many years and were drafted by
multiple individuals. As a consequence,
the 4000 Series was not written with a
consistent voice. Nasdaq has taken this
opportunity to, where needed, make
plain English changes to the 4000 Series
and re-write certain rule text with a
consistent voice to clarify provisions
that have historically caused confusion,
while ensuring not to change the
meaning of the reworked rules. In some
cases, this meant eliminating redundant
language throughout the proposed rule
text. In other instances, Nasdaq replaced
inconsistently used terms with a single
term used throughout the new rules.
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Descriptive Titles and Introductory
Language
Nasdaq renamed many existing rules,
using more descriptive titles that
provide a better cue as to what follows.
Nasdaq has also added descriptive
introductory language to many sections
of the proposed new 5000 Series, which
Nasdaq believes provides readers with a
logical roadmap to what follows in each
section. For example, Nasdaq has added
a new introduction to the Listing Rules
titled ‘‘5000 Series: The Qualification,
Listing, and Delisting of Companies’’
under which is provided a description
of what readers will find under each
section of the proposed 5000 Series.
Likewise, Nasdaq added descriptive
introductory language to the beginning
of the proposed 5000, 5400, 5600, and
5700 Series, and added to the proposed
5500 and 5800 Series rewritten
introductory language taken from the
4300 and 4800 Series, respectively.
Defined Terms
Nasdaq has created, modified, or
deleted several definitions in the
process of incorporating the 4000 Series
into the proposed new 5000 Series. In
certain cases, such as the new definition
of ‘‘Bid Price,’’ Nasdaq sought to add
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certainty to a term that had been used
in the Listing Rules, but not defined
historically. Nasdaq’s new definition
clarifies that the term ‘‘Bid Price’’ is the
closing bid price, which Nasdaq has
always used as the metric for
determining bid price. A common and
recurring inquiry by investors and
companies alike, Nasdaq believes that
the clarifying language will help to
answer a common question. In other
cases, Nasdaq modified a term or its
definition to make it more accurate or
precise. As another example, under the
old rules the Adjudicatory Body
responsible for reviewing decisions of
the Listing Qualifications Department
was named the Listing Qualifications
Panel, notwithstanding that it was in no
way associated with the Listing
Qualifications Department. When read
together with Rule 4815, which
generally prohibits ex parte
communications between the Listing
Qualifications Department and the
Listing Qualifications Panel, Nasdaq
thought it appropriate to rename the
Listing Qualifications Panel the
Hearings Panel so that there is no
confusion surrounding the
independence of the adjudicator.
Nasdaq is proposing to create a new
defined term, ‘‘Company,’’ as found in
new Rule 5000(a)(6). Both the terms
‘‘company’’ and ‘‘issuer’’ are used
synonymously throughout the current
4000 Series, however, neither term is
defined. In the proposed new definition,
Nasdaq is defining a Company as the
issuer of a security listed or applying to
list on Nasdaq. Nasdaq is also making it
clear that, for purposes of the 5000
Series, the term Company includes an
issuer that is not incorporated, such as
a limited partnership. Nasdaq notes that
the inclusion of issuers that are not
incorporated is consistent with Nasdaq’s
current rules, as such issuers are able to
list on Nasdaq pursuant to specific
listing rules.
In a similar regard, Nasdaq is
proposing to define a new term,
‘‘Shareholder.’’ In the current 4000
Series, there is no single defined term
that represents the owner of a security
that is listed or that is in the listing
application process. Nasdaq is
proposing in new Rule 5000(a)(37) to
define Shareholder as a record or
beneficial owner of a security listed or
applying to list. Nasdaq is including in
the definition of Shareholder limited
partners and owners of depository
receipts or units. The inclusive
definition of Shareholder does not
change in the proposed 5000 Series how
the rules applicable to such owners are
applied currently under the 4000 Series.
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Nasdaq has created new terms
‘‘Publicly Held Shares’’ and ‘‘Public
Holders’’ in proposed Rules 5000(a)(33)
and (a)(34).14 The new definition of
Publicly Held Shares is derived from
Rules 4310(c)(7)(C) and 4420(e). Rule
4310(c)(7)(C) is a Capital Market rule,
which states that shares held directly or
indirectly by any officer or director of
the Company and by any person who is
the beneficial owner of more than 10
percent of the total shares outstanding
are not considered to be publicly held.
Rule 4420(e) is a Global Market rule that
provides, among other things, that the
method for calculating beneficial
ownership when determining publicly
held shares shall be made in accordance
with Rule 13d–3 under the Act.15
Nasdaq has historically used the
methodology found in Rule 13d–3
under the Act 16 when determining
beneficial ownership for purposes of
calculating publicly held shares,
regardless of market. By also excluding
shares that are indirectly held by
officers and directors, the proposed
rules would also provide transparency
to Nasdaq’s view that immediate family
members of an Executive Officer,
director, or 10 percent holder are also
not Public Holders, and the shares they
hold are not Publicly Held Shares, to the
extent those shares are considered
beneficially owned by the Executive
Officer, director or 10 percent holder
pursuant to Rule 16a–1(a)(2) under the
Act.17
Nasdaq has also created a new
definition of ‘‘filed with Nasdaq’’ in
proposed Rule 5000(a)(15). The new
definition is derived from Rules
4310(c)(14) and 4320(e)(12), which
provide that Companies do not have to
submit paper copies of filings to Nasdaq
if these filings have been filed with the
Commission via the EDGAR System.
Nasdaq uses the term throughout the
4000 Series and proposed 5000 Series.
Nasdaq believes the addition of the new
definition will help inform readers of
how to satisfy the requirement in the
various contexts that it is used in the
rules.
14 The Commission notes that the proposed rule
text for new Rule 5000(a)(33) in Exhibit 5A is
correct. However, in Exhibit 5C, on page 569, the
column in the table setting forth the new rule text
does not have the correct definition for ‘‘Publicly
Held Shares.’’ Specifically, the definition for
Publicly Held Shares should read ‘‘* * * means
shares not held directly or indirectly by an officer,
director or any person who is the beneficial owner
of more than 10 percent of the total shares
outstanding. Determinations of beneficial
ownership in calculating publicly held shares shall
be made in accordance with Rule 13d–3 under the
Act.’’
15 17 CFR 240.13d–3.
16 Id.
17 17 CFR 240.16a–1(a)(2).
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Nasdaq is proposing to define a new
term, ‘‘Other Regulatory Authority’’ in
Rule 5000(a)(31). The new term
includes regulators other than the
Commission with which certain
Companies must file documentation. In
particular, certain Companies are
regulated by a bank or savings authority
identified in Section 12(i) under the
Act,18 and others may be subject to an
exemption issued by the Commission
that permits the listing of the security,
notwithstanding its failure to be
registered pursuant to Section 12(b)
under the Act.19 Nasdaq is proposing to
add the new defined term to certain
sections of 5000 Series concerning filing
obligations to make clear that filing
requirements are applicable to
Companies that are required to file with
the Commission or with an Other
Regulatory Authority.20
Nasdaq is proposing to define the
term ‘‘Public Reprimand Letter’’ in new
Rule 5805(j), which means a letter
issued by Staff or an Adjudicatory Body
in cases where the Company has
violated a Nasdaq corporate governance
or notification listing standard (other
than one required by Rule 10A–3 of the
Act 21) and Staff or the Adjudicatory
Body determines that delisting is an
inappropriate sanction. Although not a
defined term under the 4000 Series, the
term ‘‘public reprimand letter’’ occurs
throughout the Listing Rules and was
generally described by Rule 4801(k)(2),
which provides one of two alternate
definitions of the term ‘‘Staff
Determination,’’ and also under Rule
4811(e)(3), which describes an
Adjudicatory Body’s authority to issue
Decisions that are public reprimand
letters. In the proposed definition in
new Rule 5805(j), Nasdaq combines the
concept in the old rules that a public
reprimand letter may be issued by the
Staff or an Adjudicatory Body into the
definition of the new defined term.
Deleted Rules
Nasdaq has found that certain Listing
Rules have historically caused
confusion. In the majority of cases, such
rules required minor clarifying changes
18 15
U.S.C. 78l(i).
U.S.C. 78l(b).
20 The Commission notes that the proposed rule
text for new Rule 5205(b) in Exhibit 5A is correct.
However in Exhibit 5C, on page 398, the column
in the table setting forth the new rule text does not
use the new defined term Other Regulatory
Authority, and should read ‘‘A Company’s
compliance with the initial listing criteria will be
determined on the basis of the Company’s most
recent information filed with the Commission or
Other Regulatory Authority and information
provided to Nasdaq. The Company shall certify, at
or before the time of listing, that all applicable
listing criteria have been satisfied.’’
21 17 CFR 240.10A–3.
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or the application of plain English
principles. In other cases, however, the
confusion was due to a rule that ran
contrary to other Listing Rules. For
example, Nasdaq proposes deleting the
first sentence to Rule 4802(b), which
stated, ‘‘An issuer may file a written
request for an exception to any of the
standards set forth in the Rule 4000
Series at any time during the pendency
of a proceeding under the Rule 4800
Series.’’ Pursuant to Rule 4804, Nasdaq
informs a Company of its determination
to limit or prohibit the initial or
continued listing of a Company’s
securities by way of a staff
determination letter. Pursuant to Rule
4805, a company may request a hearing
within seven calendar days. Once a
Company makes a timely appeal, any
responses to additional staff deficiency
letters must be made within the sevencalendar day timeframe. Nasdaq
receives questions surrounding the
conflicting meanings of these rules
frequently. Nasdaq chose to eliminate
the first sentence to Rule 4802(b),
because, although a Company may
submit a written request for an
exception at any time in the hearings
process, only a timely submission made
pursuant to Rule 4805 is considered. As
such, the sentence had little meaning
when read together with the other rules.
In the current 4000 Series, Nasdaq’s
limited partnership rules incorporated
the text from FINRA Rule 2810. As a
consequence, much of the language
provided in Nasdaq’s limited
partnership rules mirror those of the
FINRA rule, and required Nasdaq to
define several terms used by FINRA. In
the proposed new Rule 5210(h), Nasdaq
has adopted the approach taken by the
American Stock Exchange with respect
to limited partnership rules and
mirrored Amex Rule 126, which
incorporates by reference FINRA Rule
2810. Accordingly, it was not necessary
to include in the proposed new 5000
Series certain defined terms, which
were provided in the old Listing Rules,
due to the inclusion of the FINRA Rule
2810 text. In addition, by referencing
FINRA Rule 2810, Nasdaq was able to
delete a substantial amount of text from
Rule 4430 that mirrored the FINRA rule.
This resulted in a much more
streamlined presentation of the limited
partnerships rules.
Nasdaq identified two rules that, by
design, have limited periods of
applicability and whose periods have
since expired. First, when Nasdaq
created the Global Select Market, it
adopted a series of new rules applicable
exclusively to the new market segment.
One such rule, IM 4425 described the
initial process that Nasdaq used to
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determine which Companies would be
assigned to the new market segment in
conjunction with its launch. As such,
the rule has no relevance to Companies
going forward and accordingly Nasdaq
has deleted it from the proposed new
5000 Series.
Similarly, in conjunction with
Nasdaq’s registration as a national
securities exchange Nasdaq adopted
Rule 4305, which described the process
for transitioning securities to the new
Nasdaq exchange from the Nasdaq
market. In particular, the rule made
clear that securities listed on the old
market’s Global Market or Capital
Market will be listed on the respective
Global Market or Capital Market of the
new Nasdaq exchange. The rule also
clarified that all notices and deficiencies
existing at the time of the transfer to the
Nasdaq exchange would continue to be
recognized as proper notices and
deficiencies. Nasdaq notes that Rule
4305 is no longer relevant to Companies
given that any notices or deficiencies
received by Companies while listed on
the old Nasdaq market have since been
resolved, either by such Companies
regaining compliance with listing
standards or by exhausting any available
appellate remedy. Accordingly, Rule
4305 no longer serves a purpose and has
not been included in the proposed new
5000 Series.
Added or Amended Rule Text
Nasdaq also proposes to amend rule
text to clarify the current application of
existing rules. For example, Rule
4310(c) provides a list of criteria that a
Company or its security must meet in
order to list on Nasdaq. Rule 4310(c)(11)
requires, among other things, that
Companies shall not currently be
suspended from trading by the
Commission pursuant to Section 12(k)
under the Act.22 Companies must also
be current in filing required reports
when listing on Nasdaq, and remain
current while listed on Nasdaq pursuant
to Rules 4310(c)(14) and 4320(e)(12).
Nasdaq has combined these
requirements in proposed new Rule
5210(e), which also clarifies that
suspensions by appropriate regulatory
authorities of a Company’s country of
domicile are covered by the rule.
Rules 4310(c)(14) and 4320(e)(12)
require Companies applying to list on
Nasdaq to provide three copies of all
reports and other documents filed or
required to be filed with the
Commission. Companies that file using
the Commission’s EDGAR System are
exempted from this requirement. Rule
4310(c)(14) further requires Companies
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that are not required to file reports with
the Commission to provide three copies
of reports required to be filed with its
appropriate regulatory authority to
Nasdaq in connection with its
application to list its securities. Nasdaq
proposes to require only one copy of
required reports for these Companies in
proposed Rule 5205(d). Nasdaq believes
that, for the few Companies that must
provide copies of reports to Nasdaq, a
single copy is sufficient for Nasdaq’s
purposes.
Nasdaq proposes combining Rule
4310(c)(15) with Rule 4330, which
describes a Company’s obligation to
provide information to Nasdaq, into
new Rule 5250(a). Rule 4310(c)(15)
requires Companies to provide full and
prompt responses to requests by Nasdaq
for information related to unusual
market activity or to events that may
have a material impact on trading of its
securities in Nasdaq. Rule 4330 sets
forth Nasdaq’s general authority to
request any additional information or
documentation, public or non-public,
deemed necessary to make a
determination regarding a security’s
initial or continued listing. In new Rule
5250(a) Nasdaq clarifies that the
responsibility to respond promptly to
requests for information applies to
requests both from Nasdaq, and from
FINRA, acting on behalf of Nasdaq.
FINRA provides certain regulatory
services to Nasdaq and must have access
to information to adequately perform
such services.
Rule 4310(c)(16) requires Companies
to promptly disclose to the public any
material information that would
reasonably be expected to affect the
value of its securities or influence
investors’ decisions. Pursuant to the
rule, if the information involves certain
events set forth in IM–4120–1,
Companies must provide prior notice of
the disclosure to Nasdaq’s MarketWatch
Department. Nasdaq is moving Rule
4310(c)(16) to proposed new Rule
5250(b)(1) with only minor changes.
Nasdaq has, however, added clarifying
language regarding the method by
which notices to the MarketWatch
Department should be made. As
described in IM–4120–1, and proposed
new IM–5250–1, prior notice of a
required disclosure should be made
through Nasdaq’s Web-based electronic
disclosure system.
Rule 4310(c)(23)(A), which applies to
all Nasdaq tiers, was modified in the
new rules to make clear that all
securities listed on both the Capital
Market and Nasdaq Global Market must
have a Committee on Uniform Securities
Identification Procedures number (a
‘‘CUSIP number’’) or foreign equivalent.
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Currently, Rule 4310(c)(23)(A) requires
that domestic securities have a CUSIP
number; however, the rule does not
require Canadian securities to have a
CUSIP. Rule 4320, which applies to
non-Canadian Foreign securities and
American Depository Receipts, also
does not have a similar identification
assignment requirement. A CUSIP
number is a security-specific number
that identifies stocks of all registered
U.S. and Canadian companies, and U.S.
government and municipal bonds.
Historically, Nasdaq has not explicitly
required Canadian securities listed on
Nasdaq to follow the general
requirement that Nasdaq-listed
securities have a CUSIP number;
however, as a practical matter, all
Canadian securities listed on Nasdaq
have a CUSIP number. Likewise,
although Nasdaq has not historically
required an equivalent to the CUSIP
number for non-Canadian foreign
securities, all such securities currently
listed on Nasdaq have an identifier. The
use of a CUSIP number or foreign
equivalent facilitates efficient clearing
and settlement processes. Nasdaq
believes that all securities listed on
Nasdaq should have such a number to
facilitate a fair and orderly market, and
to date, all listed Companies have such
a number. As such, Nasdaq is explicitly
requiring all Nasdaq-listed securities to
have a CUSIP number or equivalent, as
denoted in proposed new Rule
5210(g)(2).
Rule 4320(e)(1) sets forth the Capital
Market non-Canadian foreign securities
and American Depository Receipt initial
and continued listing requirements
regarding market makers. Nasdaq is
moving a part of Rule 4320(e)(1), which
discusses how such a deficiency is
determined and the timeframe in which
to regain compliance, to proposed new
Rule 5810(c)(3)(B). Unlike Rule
4310(c)(8)(A), which is the Capital
Market Domestic and Canadian
Company continued listing requirement
for Market Makers, Rule 4320(e)(1) is
silent on how a Company can regain
compliance with the non-Canadian
foreign securities and American
Depository Receipt continued listing
Market Maker requirement. As a matter
of practice, Nasdaq has applied the
same test to non-Canadian foreign
securities and American Depository
Receipts as Domestic and Canadian
issues. As such, proposed new Rule
5810(c)(3)(B) applies both to Domestic
and Canadian Companies, as well as
non-Canadian foreign securities and
American Depository Receipts, and
includes a description of how
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compliance can be achieved based on
Rule 4310(c)(8)(A).
Nasdaq is proposing to divide Rules
4310(c)(14) and 4320(e)(12), which set
forth the requirement that Companies
provide Nasdaq with three copies of all
reports and other documents filed or
required to be filed with the
Commission, into two new rules.
Proposed Rule 5205(d) applies to
Companies seeking initial listing, and in
which Nasdaq has proposed reducing
the number of paper copies of required
reports and documents that must
provided to Nasdaq by Companies that
do not file through EDGAR System from
three to one. Proposed Rule 5250(c)(1)
applies to the continued listing of
securities and allows Companies that do
not file through the Commission’s
EDGAR System to comply with the rule
by providing Nasdaq two copies of
required reports and documents, which
can be provided by e-mail. Nasdaq has
also added a requirement to both of the
proposed new rules not found in Rule
4320(e)(12) that requires annual reports
to contain audited financial statements.
Rule 4310(c)(14) requires that Domestic
and Canadian Companies have audited
financial statements in their annual
reports; however, there is not an
analogous requirement for securities
listed pursuant Rule 4320,
notwithstanding that Companies listing
non-Canadian foreign securities or
American Depository Receipts must
have audited financial statements in
their annual reports pursuant to Rule
4350(b)(1)(A). Accordingly, Nasdaq is
adding clarifying language to make it
clear that the audited financial
statement requirement applies equally
to all Companies.
Rules 4310(c)(22) and 4420(h)(3) set
forth the specific disclosure
requirements for Companies applying to
list units on the Capital Market and
Global Market, respectively. Nasdaq
proposes moving Rules 4310(c)(22) and
4420(h)(3) to new Rules 5225(b) and
5225(a), respectively. Although, no
changes are made to the rule text in the
new proposed rules, Nasdaq is making
clear that when determining eligibility
for listing units, all components of the
unit must meet Nasdaq initial listing
standards, including Rule 4310(a)(1), as
found in proposed Rule 5210(a)(1),
which require securities to be registered
pursuant to Section 12(b) under the
Act.23
Nasdaq has combined Rules 4340(b)
and 4450(f), which concern Nasdaq’s
process with respect to Companies in
bankruptcy or the liquidation process.
Under Rule 4300, Nasdaq has broad
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discretionary authority over the initial
and continued listing of securities on all
Nasdaq market tiers, including using
such authority when a Company files
for protection under any provision of
the Federal bankruptcy laws or
comparable foreign laws. Rule 4340(b)
details Nasdaq’s discretionary authority
to delist a Company should it file for
bankruptcy protection and describes
further a Company’s obligations should
Nasdaq not exercise its discretion to
delist. Rule 4450(f) is a Global Market
rule that restates Nasdaq’s authority to
delist a Company should it file for
bankruptcy stated in Rule 4340(b), but
also provides that Nasdaq may delist a
Company’s securities if it has
announced that liquidation has been
authorized by its board of directors and
that it is committed to proceed.
Although it has been a long-standing
practice of Nasdaq to exercise its
discretionary authority to delist a
Company from any market tier should
such a Company announce that
liquidation has been authorized by its
board, Rule 4340(b) was silent on how
Nasdaq would proceed in cases
involving Capital Market Companies.
Accordingly, Nasdaq is combining Rule
4340(b) and 4450(f) into new Rule
5110(b) so that it is clear that any
Nasdaq Company, regardless of tier,
may be delisted should it announce that
its board determined to liquidate the
Company.
Rule 4350(i)(3) describes what shares
are considered for calculations
involving shareholder approval. Often
confusing to Companies, Nasdaq has
rewritten the rule in proposed new Rule
5635(e)(1) to clarify the application of
the old rule by providing additional
detail on the method used to calculate
shares issued in a transaction, and the
method to determine the number of
shares outstanding. The new rule,
however, does not change the
application or calculation found in Rule
4350(i)(3).
Nasdaq proposes combining part of
Rule 4410(a) and Rule 4330 into new
Rule 5205(e). Rule 4410(a) is a Global
Market rule that requires, in part,
Companies to provide Nasdaq
information relevant to an initial listing
determination upon Nasdaq’s request.
Rule 4330 sets forth Nasdaq’s general
authority to request any additional
information or documentation, public or
non-public, deemed necessary to make
a determination regarding a security’s
initial or continued listing. Under the
new combined Rule 5205(e), Nasdaq is
applying the broader authority to
request any information or
documentation to make a an initial
listing determination found in Rule
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4330, which currently applies to all
market tiers. As a result, the new Rule
will be a more accurate reflection of the
already existing authority to request
information found under Rule 4330.
Nasdaq has made clarifying changes
to Rule 4426(f), which explains what
type of securities other than common
stock may be included in the Global
Select Market, as found under proposed
new Rule 5320. Nasdaq has clarified the
type of securities that may be listed on
the Global Select Market by using the
defined term Primary Equity Security to
replace the term ‘‘common stock’’ and
by noting the types of securities that are
not eligible to be listed with a cross
reference to the rule governing such
securities’ listing. The defined term
Primary Equity Security includes
common stock in addition to Ordinary
Shares, Shares or Certificates of
Beneficial Interest of Trust, Limited
Partnership Interests or American
Depositary Receipts or American
Depositary Shares, all of which are
eligible for listing on the Global Select
Market under the current rules.
Nasdaq has expanded the scope of the
4800 Series, now found in the 5800
Series, to include details on deficiency
processing. In the 4800 Series, for
example, a description of the
compliance periods available to a
Company that failed to meet the bid
price requirement was located in the
4310, 4320 and 4450 Series. In the new
rules, Nasdaq proposes consolidating all
these descriptions into the 5800 Series.
As a consequence, Nasdaq has changed
the introductory language to the 4800
Series that was previously contained in
Rule 4802(a) and now found in the
introduction to the 5800 Series to
include more than procedures for the
independent review of Nasdaq
determinations. The new 5800 Series
introduction describes all the
procedures for Companies found to be
deficient in Nasdaq listing
requirements.
Nasdaq is proposing to add new
clarifying language to Rule 4802(c),
found in proposed new Rule 5840(b).
The proposed new rule clarifies that
information compiled under the rule
will be made part of the record, which
includes any written notice provided by
the Adjudicator requesting information,
responses to the notice, and the
information considered. Although this
authority is also stated in Rule 4811,
which concerns the record on review in
a proceeding and can be found under
Rule 5840, Nasdaq believes that it is
appropriate to make this authority clear
under proposed Rule 5840(b) as well.
Nasdaq is proposing to make
clarifying changes to Rule 4803, as
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found in new Rule 5810. Rule 4803(a)
requires, among other things, staff of the
Listing Qualifications Department to
immediately notify a Company once the
staff has determined that the Company
does not meet a listing standard. This
requirement is found in proposed new
Rule 5810, which also provides
additional clarifying information
regarding the types of notifications sent
by staff to Companies that fail to meet
a listing standard. Nasdaq believes such
clarifying information is helpful to
Companies in understanding Nasdaq’s
deficiency notice process.
Nasdaq is proposing to make
clarifying changes to Rule 4803(a)(3),
which sets forth the process that Nasdaq
Listing Qualifications Department staff
will follow when it determines that a
Company does not meet a listing
standard that provides for a compliance
period or certain standards that provide
a cure period. The requirements of Rule
4803(a)(3) are found in proposed new
Rule 5810(c)(3). Proposed Rule
5810(c)(3) also provides greater detail
about the compliance periods and cure
periods afforded under the rules
implicated by Rule 4803(a)(3), since the
relevant language formerly located in
Rules 4310, 4320, 4350, 4360, and 4450
has been incorporated into proposed
new Rule 5810(c)(3). Nasdaq believes
that consolidating the applicable rules
under the new rule provides a more
useful format, and that providing more
descriptive information will help the
reader to better understand the
deficiency process.
Nasdaq is proposing to make
clarifying changes to Rule 4803(a)(4),
which states that Nasdaq will issue a
Staff Determination letter in all cases
not noted in Rules 4803(a)(1)–(3). This
requirement is found in proposed new
Rule 5810(c), but because the new rule
is structured as the introductory
paragraph for various types of notices
provided by staff, Nasdaq has added
new descriptive information to Rule
5810(c) that explains that the type of
deficiency identified by Listing
Qualifications Department staff will
determine whether the Company will
receive immediately a delisting
determination resulting in the
suspension of the Company’s securities
unless appealed, or if the Company will
be afforded the opportunity to provide
staff with a compliance plan, or receive
a cure period or compliance period
prior to receiving a delisting
determination.
Nasdaq proposes clarifying changes to
Rule 4804(a), as found in proposed new
Rules 5810(a)(1)–(3). The old rule was
significantly expanded to provide
greater detail on the types of letters
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issued by Staff, and the effects of these
letters. Rule 4804(a) only specifies what
is contained in a Staff Delisting
Determination. Proposed Rules
5810(a)(1)–(3) provide detail on what is
contained in each type of deficiency
letter. Similarly, Nasdaq has added
clarifying language to Rules 4804(c)–(d),
as found in proposed new Rule 5810(d).
Rules 4804(c)–(d) discuss the written
notices of additional deficiencies from
Staff to Companies under the review of
an Adjudicatory Body. New Rule
5810(d) provides more clarity on
notifications of additional deficiencies
that are identified by Staff for a
Company under the review of an
Adjudicatory Body.
Nasdaq Rule 4805 concerns requests
for hearings before the Hearings Panel.
Pursuant to the rule, a Company must
request a hearing within seven calendar
days of the Staff Determination. The
rule, however, is unclear on the form
that the request must be made (i.e., oral
or written). In contrast, Rule 4807
explicitly states that Companies
requesting a review by the Nasdaq
Listing and Hearing Review Council
must do so in writing. Rule 4808
concerns the reconsideration of both
Hearings Panel and Nasdaq Listing and
Hearing Review Council decisions.
Pursuant to Rule 4808(a), a Company
may request the Hearings Panel
reconsider a Hearings Panel Decision
upon the basis that a mistake of material
fact existed at the time of the Decision.
A similar provision applicable to
Nasdaq Listing and Hearing Review
Council Decisions is found in Rule
4808(b). Rules 4808(a) and (b), however,
are silent on the form that such requests
must be made. Although it is common
practice for Companies to submit
requests pursuant to Rules 4805 and
4808(a) and (b) in writing, Nasdaq
believes that such a practice should be
codified in the proposed 5800 Series.
Written requests not only provide
documentation of such requests, they
also become part of the written record
on review. Accordingly, Nasdaq is
taking this opportunity to harmonize the
process for these rules by requiring all
such request to be in writing, as
provided by proposed new Rules 5815,
5820(a), 5815(d)(5), and 5820(e)(4).
Nasdaq also proposes combining, in
part, Rules 4804(e) and 4805(a). Rule
4804 concerns written notices of staff
determinations, and paragraph (e) states
that a Company that fails to request a
Panel hearing timely after receiving a
Staff Determination, other than a Public
Reprimand, will be subject to
suspension and delisting. Rule 4805
concerns requests for Panel hearings,
and paragraph (a), among other things,
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sets forth the process for requesting a
Panel hearing timely, yet does not
mention that failure to request a hearing
timely will result in suspension and
delisting as discussed in Rule 4804(e).
Nasdaq is proposing to combine the two
rules into new Rule 5815(a)(2), which
will provide a central location for all
consequences resulting from failing to
request a Panel hearing timely, and will
make clear that such a failure will result
in the immediate suspension and
delisting.
Nasdaq is proposing to make
clarifying changes to Rule 4805(c), as
found in new Rule 5815(a)(5). Rule
4805(c) describes the nature of the
written submission that a Company may
provide as part of the hearings process,
which could state the specific grounds
for the Company’s contention that the
Staff Determination was in error, or
could request that the Hearings Panel
grant the Company an exception to the
listing standards, as permitted by Rule
4802. Proposed new Rule 5815(a)(5)
provides a more detailed description of
the submission that a Company may
submit to the Hearings Panel when
seeking an exception to the listing
standards. In particular, the new rule
provides that a Company’s submission
may be in the form of a written plan to
regain compliance with Nasdaq listing
standards together with a request that
the Panel grant the Company an
exception to the listing standards to
regain compliance, as permitted by
proposed new Rule 5815(c)(1)(A).
Although not stated in the old rule, the
ability to provide a plan of compliance
and request an exception is implied by
the fact that the Hearings Panel may
grant exceptions to the listing standards.
Nasdaq is also proposing to add further
clarifying language that makes clear that
the Hearings Panel will review the
written record prior to the hearing,
consistent with proposed new Rule
5840(a), which addresses the record on
review and captures much of the current
rule that addresses the record on review,
Rule 4811.
Nasdaq is proposing clarifying
changes to Rule 4806(a), which sets
forth the Panel Hearing process. Rule
4806(a) provides, among other things,
that a Company may make a
presentation as it deems appropriate to
the Hearings Panel. Rule 4806(a) does
not make a distinction between an oral
hearing and a written hearing. Much of
Rule 4806(a) is conveyed in new Rule
5815(a)(6), which concerns
presentations at Panel Hearings. In the
proposed new rule, Nasdaq is making it
clear that presentations by Companies
are allowed only at oral hearings. The
PO 00000
Frm 00131
Fmt 4703
Sfmt 4703
15559
limitation to oral hearings is consistent
with Nasdaq’s long-standing practice.
Nasdaq is proposing to add clarifying
language to Rule 4811(b), which
concerns additional documents
considered as part of the written record
in a proceeding. Rule 4811(b) provides
that if any additional information is
considered as permitted by Rule
4802(c), that information and any
written submission addressing the
significance of that information, shall be
made part of the record. Rule 4802(c)
provides, among other things, that an
Adjudicator may request additional
information from the Company or
Listing Qualifications Department, and
may consider information from any
source it deems relevant. Rule
4802(c)(2) provides that the Listing
Qualifications Department and
Company will be afforded written notice
and an opportunity to address the
significance of information from any
source the Adjudicatory Body deems
relevant to consider. Rule 4802(c)(2)
does not, however, note that the
information considered by Adjudicatory
Body and any written submissions
addressing the significance of such
information by the Listing
Qualifications Department or Company
will be made part of the record. Nasdaq
proposes combining Rules 4802(c)(2)
and 4811(b) into new Rule 5840(b)(2),
which will provide a single location for
the rules applicable to information from
sources other than the Listing
Qualifications Department and
Company considered by an
Adjudicatory Body.
Nasdaq is proposing clarifying
changes to Rule 4811(e), which sets
forth the scope of what action an
Adjudicatory Body Decision may direct
if it is determined that a Company failed
to satisfy the quantitative standards or
qualitative considerations set forth in
the 4000 Series. Currently, Rule 4811(e)
applies equally to the Hearings Panel,
Listing Council and the Board. Nasdaq
is proposing to house rules generally
applicable to the review by the Hearings
Panel, Listing Council, and Board under
proposed new Rule Series 5815, 5820,
and 5825, respectively. Proposed Rules
5815(c)(1) and (2) address the scope of
the Hearings Panel’s discretion, and
contains the requirements found in Rule
4811(e). Unlike Rule 4811(e), which
describes only the action a Hearings
Panel may take in issuing a decision if
it concludes that a Company has failed
to satisfy a qualitative or quantitative
listing standard, proposed Rules
5815(c)(1) and (2) describe the possible
action the Hearings Panel may take in
issuing a decision and is not limited to
a determination that a Company has
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06APN1
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Federal Register / Vol. 74, No. 64 / Monday, April 6, 2009 / Notices
failed to meet a listing standard. As
such, proposed Rules 5815(c)(1) and (2)
provide significantly greater clarity on
the options available to the Hearings
Panel when issuing a decision by
including the alternatives should a
Company regain compliance with an
applicable standard during the Hearings
process. In that regard, the new rule
includes in Rule 5815(c)(1)(E) the
Panel’s options when determining that a
Company has evidenced compliance
with all the applicable listing standards.
2. Statutory Basis
Nasdaq believes that the proposed
rule change is consistent with the
provisions of Section 6 under the Act,24
in general and with Section 6(b)(5)
under the Act,25 in particular. Section
6(b)(5) 26 requires that Nasdaq’s rule be
designed 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.
Nasdaq believes that reorganizing the
Listing Rules into a new, more intuitive
structure will help avoid investor
confusion and foster better
understanding of Nasdaq’s listing
requirements among both investors and
companies alike. Nasdaq also believes
that the use of plain English and
descriptive language will help make the
Listing Rules more accessible to the
investing public. As such, Nasdaq
believes the proposed rule change will
promote just and equitable principles of
trade, remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and protect investors and the
public interest.
pwalker on PROD1PC71 with NOTICES
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.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
On December 3, 2007, Nasdaq
solicited comment from issuers on the
24 15
U.S.C. 78f.
25 15 U.S.C. 78f(b)(5).
26 Id.
VerDate Nov<24>2008
19:48 Apr 03, 2009
Jkt 217001
impact of the revisions to the rules.
Nasdaq received three responses to this
solicitation, two from representatives of
companies and one from a law firm.
One of the commentators voiced
support for the rule change. Two
commentators suggested minor changes
to enhance the readability and ease of
use of the new rules. Specifically, one
commentator suggested clarifying the
meaning of a particular sentence, and
the other suggested that Nasdaq use
hyperlinks throughout the rule text to
help readers navigate to rules or
interpretive material referenced in the
rule text. In response, Nasdaq has
amended the sentence consistent with
the comment. Nasdaq also plans on
using hyperlinks within its on-line
manual to simplify navigation.
The third commentator requested
clarification on Nasdaq’s changes so that
he could more fully reply. This
commentator did not provide a followon submission to Nasdaq.
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 after 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) of the Act 27 and Rule 19b–
4(f)(6) thereunder.28
At any time within 60 days of the
filing of the proposed rule change, the
Commission may summarily abrogate
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
27 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires the self-regulatory organization
to give the Commission 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. Nasdaq has
satisfied this requirement.
28 17
PO 00000
Frm 00132
Fmt 4703
Sfmt 4703
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2009–018 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2009–018. This
file number should be included on the
subject line if e-mail 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 Web site (https://www.sec.gov/
rules/sro.shtml). 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 inspection and copying 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 such filing also will be
available for inspection and copying at
the principal office of the Nasdaq
Exchange. All comments received will
be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NASDAQ–2009–018 and should be
submitted on or before April 27, 2009.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.29
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–7630 Filed 4–3–09; 8:45 am]
BILLING CODE 8010–01–P
29 17
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CFR 200.30–3(a)(12).
06APN1
]]>Agencies
[Federal Register Volume 74, Number 64 (Monday, April 6, 2009)]
[Notices]
[Pages 15552-15560]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-7630]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59663; File No. SR-NASDAQ-2009-018]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to Revisions and Restructuring of the NASDAQ Listing Rules
March 31, 2009.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 12, 2009, The NASDAQ Stock Market LLC (``Nasdaq'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described
[[Page 15553]]
in Items I, II, and III below, which Items have been prepared by
Nasdaq. Nasdaq included in its proposed rule change Exhibit 5A, which
is the text of the proposed rule change; Exhibit 5B, which is a copy of
the current 4000 Series rules as they currently exist which are being
proposed for amendment in Exhibit 5A; and Exhibit 5C, which is a table
that shows the location of the old rules to where they now reside in
the new rule text.\3\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Exhibits 5A, 5B, and 5C are available on the Commission's
Web site (https://www.sec.gov/).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq proposes a rule change to reorganize the rules relating to
the qualification, listing, and delisting of companies listed, or
applying to list on Nasdaq (``Companies''). Nasdaq is proposing to
house these rules, which are currently found in the 4000 Series of the
Marketplace Rules, into a clearer and more intuitive structure under a
new 5000 Series. In addition, Nasdaq has taken this opportunity to
eliminate redundancies and clarify the language used for the rule text.
The text of the proposed rule change is available from Nasdaq's Web
site at https://nasdaq.cchwallstreet.com, at Nasdaq's principal office,
and at the Commission's Public Reference Room. The new rules shall
become operative on April 13, 2009.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Nasdaq included statements
concerning the purpose of, and basis for, the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below, and is set forth in Sections A, B, and C below.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Nasdaq proposes to reorganize the rules applicable to the
qualification, listing, and delisting of Companies on Nasdaq (the
``Listing Rules''), which are found in the Rule 4000 Series of the
Nasdaq manual (the ``4000 Series''), in an effort to make the rules
more transparent and clear.\4\ As these rules have evolved over the
last thirty years, they have become very complex and can be difficult
to navigate, especially for those who are unfamiliar with their
structure. Nasdaq believes that there are opportunities to reduce
redundancies and greatly improve the overall organization of the
Listing Rules. As such, Nasdaq proposes to remove the listing rules
from the 4000 Series and restate them in a simpler, more transparent
and reader-friendly format in the proposed Rule 5000 Series (the ``5000
Series''), which is presently unused.
---------------------------------------------------------------------------
\4\ The Listing Rules are divided into different sections within
the 4000 Series, with each section numbered as a 100th of 4000
(e.g., 4100 ``General'', 4200 ``Definitions,'' etc.). Nasdaq also
refers to these sections as Series when making reference to all
rules that fall under the section. For example, Rule 4310 would be
said to reside in the 4300 Series. Nasdaq uses the same convention
for referring to sections of the proposed 5000 Series.
---------------------------------------------------------------------------
Nasdaq represents that it is not making any substantive changes to
the Listing Rules in this proposal. Rather, as described in greater
detail below, Nasdaq proposes to: (1) Reorganize and recast much of the
old 4000 Series into a more logical structure; (2) apply plain English
principles where needed; (3) add descriptive titles and introductory
language; (4) define terms for consistency; (5) delete obsolete or
incongruent rules; and (6) add or amend rule text where appropriate to
remove ambiguity, to clarify existing practices, and to resolve ongoing
questions from the public. To assist with understanding the changes
made to the Listing Rules, Nasdaq created a table that maps the
location of every existing Listing Rule in the 4000 Series to its place
in the proposed new 5000 Series. The table provides both the old rule
number and rule text, together with the revised rule text and new rule
citation to the rule's location in the proposed 5000 Series. In
addition, the table provides a brief description of the changes made to
the old rule. Nasdaq also notes in the table rules that have been left
in the 4000 Series,\5\ rules that have been deleted altogether, and any
newly-created rules added to the proposed 5000 Series (such as a new
defined term). Nasdaq believes that, when the table is read in
conjunction with this filing, readers will have a clear understanding
of the changes made to the 4000 Series.
---------------------------------------------------------------------------
\5\ Nasdaq determined to leave certain rules that do not relate
to the listing of Company securities in the 4000 Series.
---------------------------------------------------------------------------
Organization
The current 4000 Series contains the initial and continued listing
standards for all three Nasdaq market tiers: The Nasdaq Global Select
Market, The Nasdaq Global Market, and The Nasdaq Capital Market. In
addition to listing standards, the 4000 Series also contains rules
relating to trading of, and market making in, Nasdaq securities, as
found in the 4100, 4600 and 4700 Series. The rules relating to the
listing of securities are found in the 4200, 4300, 4400, 4500, and 4800
Series. Specifically, the 4200 Series sets forth general definitions;
the 4300 Series sets forth qualitative listing standards for all Nasdaq
market tiers, as well as initial and continued listing requirements for
the Capital Market; the 4400 Series contains the initial listing
requirements for the Global Select Market and Global Market, and the
continued listing requirements for the Global Market, including
requirements for listing other securities, such as Index Warrants and
SEEDS; the 4500 Series contains all the fees required to be paid for
listing on Nasdaq; and finally, the 4800 Series contains the
requirements and procedures regarding Nasdaq's appellate process for a
Company denied initial or continued listing.
Each of Nasdaq's three market tiers has its own specific listing
standards that are progressively more stringent than the tier below.
Today, the listing rules are all derived from the rules applicable to
the Capital Market, so readers must have a working knowledge of the
Capital Market rules to understand the listing requirements of the
other tiers. The need to reference back to the Capital Market rules
when reading the Global Market or Global Select Market rules is often
confusing, and is made particularly difficult given that the rules
applicable to the Capital Market and the other tiers are located far
from each other in the current rules.
Nasdaq proposes to organize the new Listing Rules by placing all
quantitative tier-specific initial and continued listing standards
within individual rule sections. Thus, the requirements for the Nasdaq
Global Select Market will be contained in the proposed 5300 Series, the
requirements for the Nasdaq Global Market will be contained in the
proposed 5400 Series, and the requirements for the Nasdaq Capital
Market will be contained in the proposed 5500 Series. Nasdaq is also
proposing to create a new 5000 Series that contains general definitions
applicable to Companies, a new 5100 Series that contains a description
of Nasdaq's discretionary authority, and a new 5200 Series that
contains qualitative requirements relating to all Companies seeking to
list or already listed on Nasdaq. Nasdaq is proposing to create a new
5600 Series that contains a stand-alone rule set dedicated to the
[[Page 15554]]
corporate governance requirements for all Nasdaq-listed Companies.
Last, Nasdaq is proposing a new 5700 Series that contains the
requirements for listing other securities, a new 5800 Series that
contains the requirements and processes relating to a Company that
fails to meet a listing standard, and a new 5900 Series that contains
the fees required to be paid for listing on Nasdaq.
Within the proposed 5300, 5400 and 5500 Series, which, as noted,
are each dedicated to a particular market, Nasdaq has organized all
applicable quantitative initial and continued listing standards. Each
of these three Series uses a numbering convention whereby the rules
applicable to initial listing range from 01 to 49 and the continued
listing rule numbers range from 50 to 99. For example, all initial
listing rules applicable to the Nasdaq Global Market are housed in
Rules 5405 through 5415, while the Global Market continued listing
rules are housed in Rules 5450 through 5460. Nasdaq believes that both
new readers and those familiar with the current rule structure will
find the information they seek much more quickly under the new rule
structure.
Nasdaq has also divided the quantitative listing standards in the
old rules into two subcategories in the new rules: listing requirements
and listing standards. Under the new rules, listing requirements are
quantitative metrics, all of which a company must meet for initial or
continued listing on a particular tier. Listing standards consist of
bundles of quantitative metrics; however, unlike listing requirements,
a company must meet at least one listing standard to become listed or
to continue listing. For example, the three Entry Standards found in
current Rule 4420(a)-(c) contain certain repetitive quantitative
requirements relating to bid price, publicly held shares, and round lot
shareholders. Nasdaq took these common quantitative metrics and placed
them in new Rule 5405(a) as initial listing requirements. For each
bundle of quantitative requirements that remained under each old entry
standard, Nasdaq created individual listing standards. It should be
noted that, under old Entry Standard 3 found in Rule 4420(c), Nasdaq
was able to create two new listing standards in the proposed new 5000
Series, Rules 5405(b)(3) and (4).\6\ Under the old rule, Entry Standard
3 contained an alternative quantitative listing requirement of either a
market value of listed securities of $75 million or total assets and
total revenue of $75 million each.\7\ Nasdaq believes that the two
metrics are better understood as separate, stand-alone listing
standards. The remaining Entry Standard 3 quantitative metrics are
either captured under the new listing requirements or duplicated in
each of the newly-created listing standards. Like all changes proposed
by Nasdaq in this filing, this new structure is not a substantive
change and in no way changes the application of the listing standards
under the existing rules.
---------------------------------------------------------------------------
\6\ The new listing standards are titled ``Market Value
Standard'' and ``Total Assets/Total Revenue Standard.''
\7\ Rule 4420(c)(6) requires that ``The issuer has: (A) A market
value of listed securities of $75 million (currently traded issuers
must meet this requirement and the bid price requirement under Rule
4420(c)(3) for 90 consecutive trading days prior to applying for
listing); or (B) total assets and total revenue of $75 million each
for the most recently completed fiscal year or two of the last three
most recently completed fiscal years.''
---------------------------------------------------------------------------
As noted, Nasdaq has created a stand-alone section in the proposed
5000 Series for rules that apply to all tiers of securities,\8\ which
includes an overview of the application process,\9\ prerequisites for
applying to list,\10\ and other obligations and requirements for
listing.\11\ In addition, Nasdaq has created a stand-alone section for
listing standards applicable to ``other securities,'' which includes
listing requirements for Exchange Traded Funds, Index-Linked
Securities, Selected Equity-linked Debt Securities, Trust Issued
Receipts, and Index Warrants, as well as generic standards.\12\
Nasdaq's corporate governance standards are also contained in a single,
stand-alone section.\13\
---------------------------------------------------------------------------
\8\ 5200 Series.
\9\ Rule 5205.
\10\ Rule 5210.
\11\ Rules 5215-5290.
\12\ 5700 Series.
\13\ 5600 Series.
---------------------------------------------------------------------------
Also included in the proposed 5000 Series are the rules relating to
fees currently found in the 4500 Series. Nasdaq proposes moving the
4500 Series to the new 5900 Series with only minor non-substantive
changes that do not affect the fees charged by Nasdaq. Nasdaq proposes,
however, moving Rule 4550, which relates to written interpretations of
Nasdaq rules, to the proposed 5600 Series. Nasdaq believes that it is
more appropriate to move Rule 4550 to the proposed 5600 Series, which
relates to corporate governance requirements, since the vast majority
of interpretations are requested for corporate governance rules. Nasdaq
has, however, provided a cross-reference to proposed new Rule 5600,
which houses Rule 4550, in the introductory paragraph to the proposed
5900 Series.
Nasdaq has sought to clarify the process that applies to companies
that fail to meet Nasdaq's listing standards, which is currently found
in the 4800 Series. Although the 4800 Series rules are roughly
organized chronologically, progressing from the initial identification
of a deficiency through the Nasdaq hearings and appeals processes,
Nasdaq believes that the individual sections could be reorganized into
a more intuitive structure. With respect to the initial identification
of deficiencies, Nasdaq has attempted to make clear both what steps
Nasdaq will take with respect to particular deficiencies, and what
obligations and options deficient companies may have. Nasdaq has also
reorganized the rule text relating to the hearings and appellate
processes, so that in each section the reader will find all information
related to the process for each level of review.
Nasdaq also identified instances of unnecessary duplication of rule
text found in individual Series of the current rules as well. For
example, Rules 4310 and 4320 set forth certain listing requirements
applicable to domestic, Canadian, non-Canadian foreign securities, and
American Depository Receipts. Rule 4310 sets forth the listing
requirements for domestic and Canadian securities, whereas Rule 4320
sets forth the listing requirements for non-Canadian foreign securities
and American Depository Receipts. Although stand alone rules, there is
much duplication of rule text between the two rules. Accordingly,
Nasdaq is proposing to combine these rules and any other such
duplicative rule text, where possible, throughout the proposed 5000
Series. In combining these two rules, Nasdaq has retained the domestic
and Canadian continued listing market maker requirement that allows one
market maker entering a stabilizing bid to count toward the total
number of market makers required by the rules. Nasdaq notes that the
proposed new Capital Market continued listing rules makes it permissive
for non-Canadian foreign securities to count a market maker entering a
stabilizing bid toward the required number of market makers, which was
not explicitly stated in the old rules.
Nasdaq determined to leave certain rules that do not relate to the
listing of Company securities in the 4000 Series. For example, Rules
4100 through 4120 relate to the trading of listed Company securities on
the market. Nasdaq believes these rules are more appropriately left in
a stand-alone section, apart from the proposed 5000 Series, which
addresses the listing and
[[Page 15555]]
delisting of Company securities. Likewise, Nasdaq determined to leave
certain definitions found in the 4200 Series that do not relate to
listed Companies. Nasdaq also determined to leave Rule 4370 in the 4000
Series. Rule 4370 concerns additional requirements for the listing of
Nasdaq or Nasdaq affiliate securities on Nasdaq. Because the rule is
specific to Nasdaq and does not apply to Companies generally, Nasdaq
determined it would be confusing and add little value if placed in the
proposed 5000 Series.
Plain English
Nasdaq's primary goal in reworking the Listing Rules was to make
them more clear and transparent. As noted above, the 4000 Series
evolved over many years and were drafted by multiple individuals. As a
consequence, the 4000 Series was not written with a consistent voice.
Nasdaq has taken this opportunity to, where needed, make plain English
changes to the 4000 Series and re-write certain rule text with a
consistent voice to clarify provisions that have historically caused
confusion, while ensuring not to change the meaning of the reworked
rules. In some cases, this meant eliminating redundant language
throughout the proposed rule text. In other instances, Nasdaq replaced
inconsistently used terms with a single term used throughout the new
rules.
Descriptive Titles and Introductory Language
Nasdaq renamed many existing rules, using more descriptive titles
that provide a better cue as to what follows. Nasdaq has also added
descriptive introductory language to many sections of the proposed new
5000 Series, which Nasdaq believes provides readers with a logical
roadmap to what follows in each section. For example, Nasdaq has added
a new introduction to the Listing Rules titled ``5000 Series: The
Qualification, Listing, and Delisting of Companies'' under which is
provided a description of what readers will find under each section of
the proposed 5000 Series. Likewise, Nasdaq added descriptive
introductory language to the beginning of the proposed 5000, 5400,
5600, and 5700 Series, and added to the proposed 5500 and 5800 Series
rewritten introductory language taken from the 4300 and 4800 Series,
respectively.
Defined Terms
Nasdaq has created, modified, or deleted several definitions in the
process of incorporating the 4000 Series into the proposed new 5000
Series. In certain cases, such as the new definition of ``Bid Price,''
Nasdaq sought to add certainty to a term that had been used in the
Listing Rules, but not defined historically. Nasdaq's new definition
clarifies that the term ``Bid Price'' is the closing bid price, which
Nasdaq has always used as the metric for determining bid price. A
common and recurring inquiry by investors and companies alike, Nasdaq
believes that the clarifying language will help to answer a common
question. In other cases, Nasdaq modified a term or its definition to
make it more accurate or precise. As another example, under the old
rules the Adjudicatory Body responsible for reviewing decisions of the
Listing Qualifications Department was named the Listing Qualifications
Panel, notwithstanding that it was in no way associated with the
Listing Qualifications Department. When read together with Rule 4815,
which generally prohibits ex parte communications between the Listing
Qualifications Department and the Listing Qualifications Panel, Nasdaq
thought it appropriate to rename the Listing Qualifications Panel the
Hearings Panel so that there is no confusion surrounding the
independence of the adjudicator.
Nasdaq is proposing to create a new defined term, ``Company,'' as
found in new Rule 5000(a)(6). Both the terms ``company'' and ``issuer''
are used synonymously throughout the current 4000 Series, however,
neither term is defined. In the proposed new definition, Nasdaq is
defining a Company as the issuer of a security listed or applying to
list on Nasdaq. Nasdaq is also making it clear that, for purposes of
the 5000 Series, the term Company includes an issuer that is not
incorporated, such as a limited partnership. Nasdaq notes that the
inclusion of issuers that are not incorporated is consistent with
Nasdaq's current rules, as such issuers are able to list on Nasdaq
pursuant to specific listing rules.
In a similar regard, Nasdaq is proposing to define a new term,
``Shareholder.'' In the current 4000 Series, there is no single defined
term that represents the owner of a security that is listed or that is
in the listing application process. Nasdaq is proposing in new Rule
5000(a)(37) to define Shareholder as a record or beneficial owner of a
security listed or applying to list. Nasdaq is including in the
definition of Shareholder limited partners and owners of depository
receipts or units. The inclusive definition of Shareholder does not
change in the proposed 5000 Series how the rules applicable to such
owners are applied currently under the 4000 Series.
Nasdaq has created new terms ``Publicly Held Shares'' and ``Public
Holders'' in proposed Rules 5000(a)(33) and (a)(34).\14\ The new
definition of Publicly Held Shares is derived from Rules 4310(c)(7)(C)
and 4420(e). Rule 4310(c)(7)(C) is a Capital Market rule, which states
that shares held directly or indirectly by any officer or director of
the Company and by any person who is the beneficial owner of more than
10 percent of the total shares outstanding are not considered to be
publicly held. Rule 4420(e) is a Global Market rule that provides,
among other things, that the method for calculating beneficial
ownership when determining publicly held shares shall be made in
accordance with Rule 13d-3 under the Act.\15\ Nasdaq has historically
used the methodology found in Rule 13d-3 under the Act \16\ when
determining beneficial ownership for purposes of calculating publicly
held shares, regardless of market. By also excluding shares that are
indirectly held by officers and directors, the proposed rules would
also provide transparency to Nasdaq's view that immediate family
members of an Executive Officer, director, or 10 percent holder are
also not Public Holders, and the shares they hold are not Publicly Held
Shares, to the extent those shares are considered beneficially owned by
the Executive Officer, director or 10 percent holder pursuant to Rule
16a-1(a)(2) under the Act.\17\
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\14\ The Commission notes that the proposed rule text for new
Rule 5000(a)(33) in Exhibit 5A is correct. However, in Exhibit 5C,
on page 569, the column in the table setting forth the new rule text
does not have the correct definition for ``Publicly Held Shares.''
Specifically, the definition for Publicly Held Shares should read
``* * * means shares not held directly or indirectly by an officer,
director or any person who is the beneficial owner of more than 10
percent of the total shares outstanding. Determinations of
beneficial ownership in calculating publicly held shares shall be
made in accordance with Rule 13d-3 under the Act.''
\15\ 17 CFR 240.13d-3.
\16\ Id.
\17\ 17 CFR 240.16a-1(a)(2).
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Nasdaq has also created a new definition of ``filed with Nasdaq''
in proposed Rule 5000(a)(15). The new definition is derived from Rules
4310(c)(14) and 4320(e)(12), which provide that Companies do not have
to submit paper copies of filings to Nasdaq if these filings have been
filed with the Commission via the EDGAR System. Nasdaq uses the term
throughout the 4000 Series and proposed 5000 Series. Nasdaq believes
the addition of the new definition will help inform readers of how to
satisfy the requirement in the various contexts that it is used in the
rules.
[[Page 15556]]
Nasdaq is proposing to define a new term, ``Other Regulatory
Authority'' in Rule 5000(a)(31). The new term includes regulators other
than the Commission with which certain Companies must file
documentation. In particular, certain Companies are regulated by a bank
or savings authority identified in Section 12(i) under the Act,\18\ and
others may be subject to an exemption issued by the Commission that
permits the listing of the security, notwithstanding its failure to be
registered pursuant to Section 12(b) under the Act.\19\ Nasdaq is
proposing to add the new defined term to certain sections of 5000
Series concerning filing obligations to make clear that filing
requirements are applicable to Companies that are required to file with
the Commission or with an Other Regulatory Authority.\20\
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\18\ 15 U.S.C. 78l(i).
\19\ 15 U.S.C. 78l(b).
\20\ The Commission notes that the proposed rule text for new
Rule 5205(b) in Exhibit 5A is correct. However in Exhibit 5C, on
page 398, the column in the table setting forth the new rule text
does not use the new defined term Other Regulatory Authority, and
should read ``A Company's compliance with the initial listing
criteria will be determined on the basis of the Company's most
recent information filed with the Commission or Other Regulatory
Authority and information provided to Nasdaq. The Company shall
certify, at or before the time of listing, that all applicable
listing criteria have been satisfied.''
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Nasdaq is proposing to define the term ``Public Reprimand Letter''
in new Rule 5805(j), which means a letter issued by Staff or an
Adjudicatory Body in cases where the Company has violated a Nasdaq
corporate governance or notification listing standard (other than one
required by Rule 10A-3 of the Act \21\) and Staff or the Adjudicatory
Body determines that delisting is an inappropriate sanction. Although
not a defined term under the 4000 Series, the term ``public reprimand
letter'' occurs throughout the Listing Rules and was generally
described by Rule 4801(k)(2), which provides one of two alternate
definitions of the term ``Staff Determination,'' and also under Rule
4811(e)(3), which describes an Adjudicatory Body's authority to issue
Decisions that are public reprimand letters. In the proposed definition
in new Rule 5805(j), Nasdaq combines the concept in the old rules that
a public reprimand letter may be issued by the Staff or an Adjudicatory
Body into the definition of the new defined term.
---------------------------------------------------------------------------
\21\ 17 CFR 240.10A-3.
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Deleted Rules
Nasdaq has found that certain Listing Rules have historically
caused confusion. In the majority of cases, such rules required minor
clarifying changes or the application of plain English principles. In
other cases, however, the confusion was due to a rule that ran contrary
to other Listing Rules. For example, Nasdaq proposes deleting the first
sentence to Rule 4802(b), which stated, ``An issuer may file a written
request for an exception to any of the standards set forth in the Rule
4000 Series at any time during the pendency of a proceeding under the
Rule 4800 Series.'' Pursuant to Rule 4804, Nasdaq informs a Company of
its determination to limit or prohibit the initial or continued listing
of a Company's securities by way of a staff determination letter.
Pursuant to Rule 4805, a company may request a hearing within seven
calendar days. Once a Company makes a timely appeal, any responses to
additional staff deficiency letters must be made within the seven-
calendar day timeframe. Nasdaq receives questions surrounding the
conflicting meanings of these rules frequently. Nasdaq chose to
eliminate the first sentence to Rule 4802(b), because, although a
Company may submit a written request for an exception at any time in
the hearings process, only a timely submission made pursuant to Rule
4805 is considered. As such, the sentence had little meaning when read
together with the other rules.
In the current 4000 Series, Nasdaq's limited partnership rules
incorporated the text from FINRA Rule 2810. As a consequence, much of
the language provided in Nasdaq's limited partnership rules mirror
those of the FINRA rule, and required Nasdaq to define several terms
used by FINRA. In the proposed new Rule 5210(h), Nasdaq has adopted the
approach taken by the American Stock Exchange with respect to limited
partnership rules and mirrored Amex Rule 126, which incorporates by
reference FINRA Rule 2810. Accordingly, it was not necessary to include
in the proposed new 5000 Series certain defined terms, which were
provided in the old Listing Rules, due to the inclusion of the FINRA
Rule 2810 text. In addition, by referencing FINRA Rule 2810, Nasdaq was
able to delete a substantial amount of text from Rule 4430 that
mirrored the FINRA rule. This resulted in a much more streamlined
presentation of the limited partnerships rules.
Nasdaq identified two rules that, by design, have limited periods
of applicability and whose periods have since expired. First, when
Nasdaq created the Global Select Market, it adopted a series of new
rules applicable exclusively to the new market segment. One such rule,
IM 4425 described the initial process that Nasdaq used to determine
which Companies would be assigned to the new market segment in
conjunction with its launch. As such, the rule has no relevance to
Companies going forward and accordingly Nasdaq has deleted it from the
proposed new 5000 Series.
Similarly, in conjunction with Nasdaq's registration as a national
securities exchange Nasdaq adopted Rule 4305, which described the
process for transitioning securities to the new Nasdaq exchange from
the Nasdaq market. In particular, the rule made clear that securities
listed on the old market's Global Market or Capital Market will be
listed on the respective Global Market or Capital Market of the new
Nasdaq exchange. The rule also clarified that all notices and
deficiencies existing at the time of the transfer to the Nasdaq
exchange would continue to be recognized as proper notices and
deficiencies. Nasdaq notes that Rule 4305 is no longer relevant to
Companies given that any notices or deficiencies received by Companies
while listed on the old Nasdaq market have since been resolved, either
by such Companies regaining compliance with listing standards or by
exhausting any available appellate remedy. Accordingly, Rule 4305 no
longer serves a purpose and has not been included in the proposed new
5000 Series.
Added or Amended Rule Text
Nasdaq also proposes to amend rule text to clarify the current
application of existing rules. For example, Rule 4310(c) provides a
list of criteria that a Company or its security must meet in order to
list on Nasdaq. Rule 4310(c)(11) requires, among other things, that
Companies shall not currently be suspended from trading by the
Commission pursuant to Section 12(k) under the Act.\22\ Companies must
also be current in filing required reports when listing on Nasdaq, and
remain current while listed on Nasdaq pursuant to Rules 4310(c)(14) and
4320(e)(12). Nasdaq has combined these requirements in proposed new
Rule 5210(e), which also clarifies that suspensions by appropriate
regulatory authorities of a Company's country of domicile are covered
by the rule.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78l(k).
---------------------------------------------------------------------------
Rules 4310(c)(14) and 4320(e)(12) require Companies applying to
list on Nasdaq to provide three copies of all reports and other
documents filed or required to be filed with the Commission. Companies
that file using the Commission's EDGAR System are exempted from this
requirement. Rule 4310(c)(14) further requires Companies
[[Page 15557]]
that are not required to file reports with the Commission to provide
three copies of reports required to be filed with its appropriate
regulatory authority to Nasdaq in connection with its application to
list its securities. Nasdaq proposes to require only one copy of
required reports for these Companies in proposed Rule 5205(d). Nasdaq
believes that, for the few Companies that must provide copies of
reports to Nasdaq, a single copy is sufficient for Nasdaq's purposes.
Nasdaq proposes combining Rule 4310(c)(15) with Rule 4330, which
describes a Company's obligation to provide information to Nasdaq, into
new Rule 5250(a). Rule 4310(c)(15) requires Companies to provide full
and prompt responses to requests by Nasdaq for information related to
unusual market activity or to events that may have a material impact on
trading of its securities in Nasdaq. Rule 4330 sets forth Nasdaq's
general authority to request any additional information or
documentation, public or non-public, deemed necessary to make a
determination regarding a security's initial or continued listing. In
new Rule 5250(a) Nasdaq clarifies that the responsibility to respond
promptly to requests for information applies to requests both from
Nasdaq, and from FINRA, acting on behalf of Nasdaq. FINRA provides
certain regulatory services to Nasdaq and must have access to
information to adequately perform such services.
Rule 4310(c)(16) requires Companies to promptly disclose to the
public any material information that would reasonably be expected to
affect the value of its securities or influence investors' decisions.
Pursuant to the rule, if the information involves certain events set
forth in IM-4120-1, Companies must provide prior notice of the
disclosure to Nasdaq's MarketWatch Department. Nasdaq is moving Rule
4310(c)(16) to proposed new Rule 5250(b)(1) with only minor changes.
Nasdaq has, however, added clarifying language regarding the method by
which notices to the MarketWatch Department should be made. As
described in IM-4120-1, and proposed new IM-5250-1, prior notice of a
required disclosure should be made through Nasdaq's Web-based
electronic disclosure system.
Rule 4310(c)(23)(A), which applies to all Nasdaq tiers, was
modified in the new rules to make clear that all securities listed on
both the Capital Market and Nasdaq Global Market must have a Committee
on Uniform Securities Identification Procedures number (a ``CUSIP
number'') or foreign equivalent. Currently, Rule 4310(c)(23)(A)
requires that domestic securities have a CUSIP number; however, the
rule does not require Canadian securities to have a CUSIP. Rule 4320,
which applies to non-Canadian Foreign securities and American
Depository Receipts, also does not have a similar identification
assignment requirement. A CUSIP number is a security-specific number
that identifies stocks of all registered U.S. and Canadian companies,
and U.S. government and municipal bonds. Historically, Nasdaq has not
explicitly required Canadian securities listed on Nasdaq to follow the
general requirement that Nasdaq-listed securities have a CUSIP number;
however, as a practical matter, all Canadian securities listed on
Nasdaq have a CUSIP number. Likewise, although Nasdaq has not
historically required an equivalent to the CUSIP number for non-
Canadian foreign securities, all such securities currently listed on
Nasdaq have an identifier. The use of a CUSIP number or foreign
equivalent facilitates efficient clearing and settlement processes.
Nasdaq believes that all securities listed on Nasdaq should have such a
number to facilitate a fair and orderly market, and to date, all listed
Companies have such a number. As such, Nasdaq is explicitly requiring
all Nasdaq-listed securities to have a CUSIP number or equivalent, as
denoted in proposed new Rule 5210(g)(2).
Rule 4320(e)(1) sets forth the Capital Market non-Canadian foreign
securities and American Depository Receipt initial and continued
listing requirements regarding market makers. Nasdaq is moving a part
of Rule 4320(e)(1), which discusses how such a deficiency is determined
and the timeframe in which to regain compliance, to proposed new Rule
5810(c)(3)(B). Unlike Rule 4310(c)(8)(A), which is the Capital Market
Domestic and Canadian Company continued listing requirement for Market
Makers, Rule 4320(e)(1) is silent on how a Company can regain
compliance with the non-Canadian foreign securities and American
Depository Receipt continued listing Market Maker requirement. As a
matter of practice, Nasdaq has applied the same test to non-Canadian
foreign securities and American Depository Receipts as Domestic and
Canadian issues. As such, proposed new Rule 5810(c)(3)(B) applies both
to Domestic and Canadian Companies, as well as non-Canadian foreign
securities and American Depository Receipts, and includes a description
of how compliance can be achieved based on Rule 4310(c)(8)(A).
Nasdaq is proposing to divide Rules 4310(c)(14) and 4320(e)(12),
which set forth the requirement that Companies provide Nasdaq with
three copies of all reports and other documents filed or required to be
filed with the Commission, into two new rules. Proposed Rule 5205(d)
applies to Companies seeking initial listing, and in which Nasdaq has
proposed reducing the number of paper copies of required reports and
documents that must provided to Nasdaq by Companies that do not file
through EDGAR System from three to one. Proposed Rule 5250(c)(1)
applies to the continued listing of securities and allows Companies
that do not file through the Commission's EDGAR System to comply with
the rule by providing Nasdaq two copies of required reports and
documents, which can be provided by e-mail. Nasdaq has also added a
requirement to both of the proposed new rules not found in Rule
4320(e)(12) that requires annual reports to contain audited financial
statements. Rule 4310(c)(14) requires that Domestic and Canadian
Companies have audited financial statements in their annual reports;
however, there is not an analogous requirement for securities listed
pursuant Rule 4320, notwithstanding that Companies listing non-Canadian
foreign securities or American Depository Receipts must have audited
financial statements in their annual reports pursuant to Rule
4350(b)(1)(A). Accordingly, Nasdaq is adding clarifying language to
make it clear that the audited financial statement requirement applies
equally to all Companies.
Rules 4310(c)(22) and 4420(h)(3) set forth the specific disclosure
requirements for Companies applying to list units on the Capital Market
and Global Market, respectively. Nasdaq proposes moving Rules
4310(c)(22) and 4420(h)(3) to new Rules 5225(b) and 5225(a),
respectively. Although, no changes are made to the rule text in the new
proposed rules, Nasdaq is making clear that when determining
eligibility for listing units, all components of the unit must meet
Nasdaq initial listing standards, including Rule 4310(a)(1), as found
in proposed Rule 5210(a)(1), which require securities to be registered
pursuant to Section 12(b) under the Act.\23\
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\23\ 15 U.S.C. 78l(b).
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Nasdaq has combined Rules 4340(b) and 4450(f), which concern
Nasdaq's process with respect to Companies in bankruptcy or the
liquidation process. Under Rule 4300, Nasdaq has broad
[[Page 15558]]
discretionary authority over the initial and continued listing of
securities on all Nasdaq market tiers, including using such authority
when a Company files for protection under any provision of the Federal
bankruptcy laws or comparable foreign laws. Rule 4340(b) details
Nasdaq's discretionary authority to delist a Company should it file for
bankruptcy protection and describes further a Company's obligations
should Nasdaq not exercise its discretion to delist. Rule 4450(f) is a
Global Market rule that restates Nasdaq's authority to delist a Company
should it file for bankruptcy stated in Rule 4340(b), but also provides
that Nasdaq may delist a Company's securities if it has announced that
liquidation has been authorized by its board of directors and that it
is committed to proceed. Although it has been a long-standing practice
of Nasdaq to exercise its discretionary authority to delist a Company
from any market tier should such a Company announce that liquidation
has been authorized by its board, Rule 4340(b) was silent on how Nasdaq
would proceed in cases involving Capital Market Companies. Accordingly,
Nasdaq is combining Rule 4340(b) and 4450(f) into new Rule 5110(b) so
that it is clear that any Nasdaq Company, regardless of tier, may be
delisted should it announce that its board determined to liquidate the
Company.
Rule 4350(i)(3) describes what shares are considered for
calculations involving shareholder approval. Often confusing to
Companies, Nasdaq has rewritten the rule in proposed new Rule
5635(e)(1) to clarify the application of the old rule by providing
additional detail on the method used to calculate shares issued in a
transaction, and the method to determine the number of shares
outstanding. The new rule, however, does not change the application or
calculation found in Rule 4350(i)(3).
Nasdaq proposes combining part of Rule 4410(a) and Rule 4330 into
new Rule 5205(e). Rule 4410(a) is a Global Market rule that requires,
in part, Companies to provide Nasdaq information relevant to an initial
listing determination upon Nasdaq's request. Rule 4330 sets forth
Nasdaq's general authority to request any additional information or
documentation, public or non-public, deemed necessary to make a
determination regarding a security's initial or continued listing.
Under the new combined Rule 5205(e), Nasdaq is applying the broader
authority to request any information or documentation to make a an
initial listing determination found in Rule 4330, which currently
applies to all market tiers. As a result, the new Rule will be a more
accurate reflection of the already existing authority to request
information found under Rule 4330.
Nasdaq has made clarifying changes to Rule 4426(f), which explains
what type of securities other than common stock may be included in the
Global Select Market, as found under proposed new Rule 5320. Nasdaq has
clarified the type of securities that may be listed on the Global
Select Market by using the defined term Primary Equity Security to
replace the term ``common stock'' and by noting the types of securities
that are not eligible to be listed with a cross reference to the rule
governing such securities' listing. The defined term Primary Equity
Security includes common stock in addition to Ordinary Shares, Shares
or Certificates of Beneficial Interest of Trust, Limited Partnership
Interests or American Depositary Receipts or American Depositary
Shares, all of which are eligible for listing on the Global Select
Market under the current rules.
Nasdaq has expanded the scope of the 4800 Series, now found in the
5800 Series, to include details on deficiency processing. In the 4800
Series, for example, a description of the compliance periods available
to a Company that failed to meet the bid price requirement was located
in the 4310, 4320 and 4450 Series. In the new rules, Nasdaq proposes
consolidating all these descriptions into the 5800 Series. As a
consequence, Nasdaq has changed the introductory language to the 4800
Series that was previously contained in Rule 4802(a) and now found in
the introduction to the 5800 Series to include more than procedures for
the independent review of Nasdaq determinations. The new 5800 Series
introduction describes all the procedures for Companies found to be
deficient in Nasdaq listing requirements.
Nasdaq is proposing to add new clarifying language to Rule 4802(c),
found in proposed new Rule 5840(b). The proposed new rule clarifies
that information compiled under the rule will be made part of the
record, which includes any written notice provided by the Adjudicator
requesting information, responses to the notice, and the information
considered. Although this authority is also stated in Rule 4811, which
concerns the record on review in a proceeding and can be found under
Rule 5840, Nasdaq believes that it is appropriate to make this
authority clear under proposed Rule 5840(b) as well.
Nasdaq is proposing to make clarifying changes to Rule 4803, as
found in new Rule 5810. Rule 4803(a) requires, among other things,
staff of the Listing Qualifications Department to immediately notify a
Company once the staff has determined that the Company does not meet a
listing standard. This requirement is found in proposed new Rule 5810,
which also provides additional clarifying information regarding the
types of notifications sent by staff to Companies that fail to meet a
listing standard. Nasdaq believes such clarifying information is
helpful to Companies in understanding Nasdaq's deficiency notice
process.
Nasdaq is proposing to make clarifying changes to Rule 4803(a)(3),
which sets forth the process that Nasdaq Listing Qualifications
Department staff will follow when it determines that a Company does not
meet a listing standard that provides for a compliance period or
certain standards that provide a cure period. The requirements of Rule
4803(a)(3) are found in proposed new Rule 5810(c)(3). Proposed Rule
5810(c)(3) also provides greater detail about the compliance periods
and cure periods afforded under the rules implicated by Rule
4803(a)(3), since the relevant language formerly located in Rules 4310,
4320, 4350, 4360, and 4450 has been incorporated into proposed new Rule
5810(c)(3). Nasdaq believes that consolidating the applicable rules
under the new rule provides a more useful format, and that providing
more descriptive information will help the reader to better understand
the deficiency process.
Nasdaq is proposing to make clarifying changes to Rule 4803(a)(4),
which states that Nasdaq will issue a Staff Determination letter in all
cases not noted in Rules 4803(a)(1)-(3). This requirement is found in
proposed new Rule 5810(c), but because the new rule is structured as
the introductory paragraph for various types of notices provided by
staff, Nasdaq has added new descriptive information to Rule 5810(c)
that explains that the type of deficiency identified by Listing
Qualifications Department staff will determine whether the Company will
receive immediately a delisting determination resulting in the
suspension of the Company's securities unless appealed, or if the
Company will be afforded the opportunity to provide staff with a
compliance plan, or receive a cure period or compliance period prior to
receiving a delisting determination.
Nasdaq proposes clarifying changes to Rule 4804(a), as found in
proposed new Rules 5810(a)(1)-(3). The old rule was significantly
expanded to provide greater detail on the types of letters
[[Page 15559]]
issued by Staff, and the effects of these letters. Rule 4804(a) only
specifies what is contained in a Staff Delisting Determination.
Proposed Rules 5810(a)(1)-(3) provide detail on what is contained in
each type of deficiency letter. Similarly, Nasdaq has added clarifying
language to Rules 4804(c)-(d), as found in proposed new Rule 5810(d).
Rules 4804(c)-(d) discuss the written notices of additional
deficiencies from Staff to Companies under the review of an
Adjudicatory Body. New Rule 5810(d) provides more clarity on
notifications of additional deficiencies that are identified by Staff
for a Company under the review of an Adjudicatory Body.
Nasdaq Rule 4805 concerns requests for hearings before the Hearings
Panel. Pursuant to the rule, a Company must request a hearing within
seven calendar days of the Staff Determination. The rule, however, is
unclear on the form that the request must be made (i.e., oral or
written). In contrast, Rule 4807 explicitly states that Companies
requesting a review by the Nasdaq Listing and Hearing Review Council
must do so in writing. Rule 4808 concerns the reconsideration of both
Hearings Panel and Nasdaq Listing and Hearing Review Council decisions.
Pursuant to Rule 4808(a), a Company may request the Hearings Panel
reconsider a Hearings Panel Decision upon the basis that a mistake of
material fact existed at the time of the Decision. A similar provision
applicable to Nasdaq Listing and Hearing Review Council Decisions is
found in Rule 4808(b). Rules 4808(a) and (b), however, are silent on
the form that such requests must be made. Although it is common
practice for Companies to submit requests pursuant to Rules 4805 and
4808(a) and (b) in writing, Nasdaq believes that such a practice should
be codified in the proposed 5800 Series. Written requests not only
provide documentation of such requests, they also become part of the
written record on review. Accordingly, Nasdaq is taking this
opportunity to harmonize the process for these rules by requiring all
such request to be in writing, as provided by proposed new Rules 5815,
5820(a), 5815(d)(5), and 5820(e)(4).
Nasdaq also proposes combining, in part, Rules 4804(e) and 4805(a).
Rule 4804 concerns written notices of staff determinations, and
paragraph (e) states that a Company that fails to request a Panel
hearing timely after receiving a Staff Determination, other than a
Public Reprimand, will be subject to suspension and delisting. Rule
4805 concerns requests for Panel hearings, and paragraph (a), among
other things, sets forth the process for requesting a Panel hearing
timely, yet does not mention that failure to request a hearing timely
will result in suspension and delisting as discussed in Rule 4804(e).
Nasdaq is proposing to combine the two rules into new Rule 5815(a)(2),
which will provide a central location for all consequences resulting
from failing to request a Panel hearing timely, and will make clear
that such a failure will result in the immediate suspension and
delisting.
Nasdaq is proposing to make clarifying changes to Rule 4805(c), as
found in new Rule 5815(a)(5). Rule 4805(c) describes the nature of the
written submission that a Company may provide as part of the hearings
process, which could state the specific grounds for the Company's
contention that the Staff Determination was in error, or could request
that the Hearings Panel grant the Company an exception to the listing
standards, as permitted by Rule 4802. Proposed new Rule 5815(a)(5)
provides a more detailed description of the submission that a Company
may submit to the Hearings Panel when seeking an exception to the
listing standards. In particular, the new rule provides that a
Company's submission may be in the form of a written plan to regain
compliance with Nasdaq listing standards together with a request that
the Panel grant the Company an exception to the listing standards to
regain compliance, as permitted by proposed new Rule 5815(c)(1)(A).
Although not stated in the old rule, the ability to provide a plan of
compliance and request an exception is implied by the fact that the
Hearings Panel may grant exceptions to the listing standards. Nasdaq is
also proposing to add further clarifying language that makes clear that
the Hearings Panel will review the written record prior to the hearing,
consistent with proposed new Rule 5840(a), which addresses the record
on review and captures much of the current rule that addresses the
record on review, Rule 4811.
Nasdaq is proposing clarifying changes to Rule 4806(a), which sets
forth the Panel Hearing process. Rule 4806(a) provides, among other
things, that a Company may make a presentation as it deems appropriate
to the Hearings Panel. Rule 4806(a) does not make a distinction between
an oral hearing and a written hearing. Much of Rule 4806(a) is conveyed
in new Rule 5815(a)(6), which concerns presentations at Panel Hearings.
In the proposed new rule, Nasdaq is making it clear that presentations
by Companies are allowed only at oral hearings. The limitation to oral
hearings is consistent with Nasdaq's long-standing practice.
Nasdaq is proposing to add clarifying language to Rule 4811(b),
which concerns additional documents considered as part of the written
record in a proceeding. Rule 4811(b) provides that if any additional
information is considered as permitted by Rule 4802(c), that
information and any written submission addressing the significance of
that information, shall be made part of the record. Rule 4802(c)
provides, among other things, that an Adjudicator may request
additional information from the Company or Listing Qualifications
Department, and may consider information from any source it deems
relevant. Rule 4802(c)(2) provides that the Listing Qualifications
Department and Company will be afforded written notice and an
opportunity to address the significance of information from any source
the Adjudicatory Body deems relevant to consider. Rule 4802(c)(2) does
not, however, note that the information considered by Adjudicatory Body
and any written submissions addressing the significance of such
information by the Listing Qualifications Department or Company will be
made part of the record. Nasdaq proposes combining Rules 4802(c)(2) and
4811(b) into new Rule 5840(b)(2), which will provide a single location
for the rules applicable to information from sources other than the
Listing Qualifications Department and Company considered by an
Adjudicatory Body.
Nasdaq is proposing clarifying changes to Rule 4811(e), which sets
forth the scope of what action an Adjudicatory Body Decision may direct
if it is determined that a Company failed to satisfy the quantitative
standards or qualitative considerations set forth in the 4000 Series.
Currently, Rule 4811(e) applies equally to the Hearings Panel, Listing
Council and the Board. Nasdaq is proposing to house rules generally
applicable to the review by the Hearings Panel, Listing Council, and
Board under proposed new Rule Series 5815, 5820, and 5825,
respectively. Proposed Rules 5815(c)(1) and (2) address the scope of
the Hearings Panel's discretion, and contains the requirements found in
Rule 4811(e). Unlike Rule 4811(e), which describes only the action a
Hearings Panel may take in issuing a decision if it concludes that a
Company has failed to satisfy a qualitative or quantitative listing
standard, proposed Rules 5815(c)(1) and (2) describe the possible
action the Hearings Panel may take in issuing a decision and is not
limited to a determination that a Company has
[[Page 15560]]
failed to meet a listing standard. As such, proposed Rules 5815(c)(1)
and (2) provide significantly greater clarity on the options available
to the Hearings Panel when issuing a decision by including the
alternatives should a Company regain compliance with an applicable
standard during the Hearings process. In that regard, the new rule
includes in Rule 5815(c)(1)(E) the Panel's options when determining
that a Company has evidenced compliance with all the applicable listing
standards.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 6 under the Act,\24\ in general and with
Section 6(b)(5) under the Act,\25\ in particular. Section 6(b)(5) \26\
requires that Nasdaq's rule be designed 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. Nasdaq believes that
reorganizing the Listing Rules into a new, more intuitive structure
will help avoid investor confusion and foster better understanding of
Nasdaq's listing requirements among both investors and companies alike.
Nasdaq also believes that the use of plain English and descriptive
language will help make the Listing Rules more accessible to the
investing public. As such, Nasdaq believes the proposed rule change
will promote just and equitable principles of trade, remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and protect investors and the public interest.
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\24\ 15 U.S.C. 78f.
\25\ 15 U.S.C. 78f(b)(5).
\26\ Id.
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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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
On December 3, 2007, Nasdaq solicited comment from issuers on the
impact of the revisions to the rules. Nasdaq received three responses
to this solicitation, two from representatives of companies and one
from a law firm. One of the commentators voiced support for the rule
change. Two commentators suggested minor changes to enhance the
readability and ease of use of the new rules. Specifically, one
commentator suggested clarifying the meaning of a particular sentence,
and the other suggested that Nasdaq use hyperlinks throughout the rule
text to help readers navigate to rules or interpretive material
referenced in the rule text. In response, Nasdaq has amended the
sentence consistent with the comment. Nasdaq also plans on using
hyperlinks within its on-line manual to simplify navigation.
The third commentator requested clarification on Nasdaq's changes
so that he could more fully reply. This commentator did not provide a
follow-on submission to Nasdaq.
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 after 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) of the Act \27\ and Rule 19b-
4(f)(6) thereunder.\28\
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\27\ 15 U.S.C. 78s(b)(3)(A).
\28\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the self-regulatory organization to give the Commission
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. Nasdaq
has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2009-018 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2009-018. This
file number should be included on the subject line if e-mail 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 Web site (https://www.sec.gov/rules/sro.shtml). 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 inspection
and copying 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 such filing also will be available for
inspection and copying at the principal office of the Nasdaq Exchange.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-NASDAQ-2009-
018 and should be submitted on or before April 27, 2009.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-7630 Filed 4-3-09; 8:45 am]
BILLING CODE 8010-01-P
