Self-Regulatory Organizations; New York Stock Exchange LLC; Order Approving a Proposed Rule Change as Modified by Amendment No. 1 To Amend Certain Corporate Governance Requirements, 63808-63812 [E9-28890]
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Federal Register / Vol. 74, No. 232 / Friday, December 4, 2009 / Notices
also be available for inspection and
copying at the Exchange’s principal
office. 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–CBOE–2009–089 and
should be submitted on or before
December 28, 2009.
II. Description of the Proposed Rule
Change
The Exchange proposes to amend
Section 303A of its Listed Company
Manual (‘‘Manual’’), which comprises
the Exchange’s corporate governance
standards for listed companies, and to
eliminate current Section 307.00,
regarding related party transactions.5
The changes, which would take effect
on January 1, 2010, include the
following:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–28891 Filed 12–3–09; 8:45 am]
A. Corporate Governance Disclosures
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–61067; File No. SR–NYSE–
2009–89]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Order
Approving a Proposed Rule Change as
Modified by Amendment No. 1 To
Amend Certain Corporate Governance
Requirements
November 25, 2009.
I. Introduction
On August 26, 2009, the New York
Stock Exchange LLC (‘‘NYSE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’),1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend certain of the Exchange’s
corporate governance requirements for
listed companies. NYSE filed
Amendment No. 1 to the proposed rule
change on September 10, 2009. The
proposal was published for comment in
the Federal Register on September 17,
2009.3 The Commission received two
comment letters on the proposal.4 This
order approves the proposed rule
change.
7 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 60653
(September 11, 2009), 74 FR 47831 (September 17,
2009), 74 FR 48615 (September 23, 2009)
(‘‘Notice’’).
4 See letters to Elizabeth M. Murphy, Secretary,
Commission, from Dorothy M. Donohue, Senior
Associate Counsel, Investment Company Institute,
dated October 8, 2009, and from Davis Polk &
Wardwell LLP, dated October 9, 2009 (‘‘Davis Polk
Letter’’).
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1. Disclosures Required by Regulation
S–K Under the Act
Section 303A of the Manual currently
requires a listed company to disclose
the identity of its independent directors,
the basis upon which its board may
determine that a director is
independent, and—if it is a controlled
company—any exemptions from the
independence requirements upon which
it has relied. Disclosures relating to the
same aspects of a company’s corporate
governance are now required by Item
407 of the Commission’s Regulation S–
K.6 The proposal would eliminate each
of the Exchange’s requirements that is
similar to a requirement of Item 407,
and incorporate directly into Section
303A the applicable requirement of Item
407.7
2. Disclosures Regarding Required Web
site Postings
A listed company is required by the
NYSE standards to post the charters of
its audit, compensation, and
nominating/corporate governance
committees, its corporate governance
guidelines, and its code of business
conduct and ethics on the company’s
Web site, and to state in its proxy
statement or annual report that these
documents are so posted. The proposal
would add that the listed company’s
Web site address must be included,8 but
would delete the current requirement
for the company to state that the
5 The Exchange states that current Section 307 is
duplicative of Section 314. Under the proposal,
current Section 303A.14 would be re-designated as
Section 307.
6 17 CFR 229.407.
7 Section 303A also revises the requirements
relating to reports by a company’s audit and
compensation committees that are required by the
Commission and are to be included in the
company’s annual proxy statement or annual
report. The proposed rule change would amend
these requirements to reference the disclosures
required by Item 407.
8 The proposal also would reorganize the website
posting requirements in the rule text. Further,
Section 303A.07 would state expressly that closedend funds are not subject to the requirement to post
their audit committee charters, consistent with
current practice.
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documents are available in print to any
shareholder who requests them.
3. Other Required Disclosures
Section 303A currently also requires
various other disclosures to be made in
the company’s proxy statement or
annual report.9 The Exchange proposes
to allow a company alternatively to
make these disclosures on its website.10
If a company chooses to do so, it would
be required to disclose this in its proxy
statement or annual report and provide
the website address.
Section 303A.11 of the Manual
currently requires a foreign private
issuer to disclose any significant ways
in which its corporate governance
practices differ from those required of
domestic companies under NYSE listing
standards. Under the proposal, a foreign
private issuer that is required to file an
annual report on Form 20–F with the
Commission would be required to
include the statement of significant
differences in that annual report.
The proposal also would eliminate
the requirement in Section 303A.12(a)
that a listed company disclose in its
annual report (or on Form 10–K if the
company does not prepare an annual
report to shareholders) that its chief
executive officer (‘‘CEO’’) filed the
certification regarding corporate
governance required by the Exchange,
and that the company complied with
Commission certification requirements
regarding public disclosure. The
Exchange proposes to revise Section
303A.12(b) to provide that the CEO of a
listed company must notify the
Exchange in writing after any executive
officer of the company becomes aware
of any non-compliance with Section
303A, as opposed to requiring
notification in the event of material noncompliance as provided by the current
rule.
B. Transition Periods for Newly-Listed
Companies
By way of background, NYSE’s rules
incorporate by reference Rule 10A–3
under the Act,11 which requires a listed
9 These disclosures concern contributions by the
listed company to tax exempt organizations;
executive sessions of non-management or
independent directors; communication with the
presiding director or the non-management or
independent directors; and simultaneous service of
an audit committee member on the audit
committees of more than three public companies.
10 The proposed rule change would further
provide that, if a listed company makes a required
Section 303A disclosure in its proxy statement or
annual report filed with the Commission, it may
incorporate such disclosure by reference from
another document that is filed with the Commission
to the extent permitted by applicable Commission
rules.
11 17 CFR 240.10A–3.
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company to have an audit committee
composed solely of independent
directors. Rule 10A–3 permits a
company listing in conjunction with an
initial public offering (‘‘IPO’’) to phase
in compliance with this requirement.
Under Rule 10A–3, all but one member
of the audit committee may be exempt
from the independence requirements of
the rule for ninety days from the date of
effectiveness of the issuer’s registration
statement under Section 12 of the Act or
the issuer’s registration statement under
the Securities Act of 1933 covering the
issuer’s initial public offering (‘‘IPO’’) of
securities to be listed by the issuer, and
a minority of the members of the
committee may be exempt from the
independence requirements of Rule
10A–3 for one year.12
The Exchange’s rules require that the
nominating and compensation
committees of a listed company also be
composed solely of independent
directors. However, companies listing in
conjunction with an IPO are permitted
a transition period for these committees
to be composed solely of independent
directors that is similar to that permitted
by Rule 10A–3 for audit committees: at
least one independent director member
at the time of listing, a majority of
independent director members within
ninety days of listing, and a fully
independent committee within one
year.13 The proposal would adjust this
transition schedule to allow the first
independent director member to be
appointed by the earlier of the date that
the IPO closes or five business days
from the listing date, rather than on the
listing date.14
The proposed rule change would
allow a similar phase-in period for a
company listing in conjunction with a
spin-off or a carve-out transaction. In
such transactions, there would need to
be one independent director member on
both the nominating and compensation
committees by the date the transaction
closes, at least a majority of
independent director members on each
committee within ninety days of the
listing date, and fully independent
committees within one year of the
listing date. A company listing upon
emergence from bankruptcy, for which
the NYSE rules already provide a
12 17
CFR 240.10A–3(b)(1)(iv)(A).
proposed rule change would define the
‘‘listing date’’ for purposes of the phase-in periods
in this section generally as the date the company’s
securities first trade on the Exchange.
14 The ninety-day and one-year periods for the
phase-in of the NYSE independence requirements
for these two committees—as well as the one-year
deadline for a company to satisfy the Exchange’s
requirement that a listed company have a majority
of independent directors on its board—would begin
from the date of listing.
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similar phase-in period, would continue
to be required to have one independent
director by the date of listing, as under
the current rule. The same phase-in
would be specified for a company that
ceases to qualify as a controlled
company and thereby loses its
exemption from the independence
requirements for these committees, but
the first independent director member
would be required to be in place for the
nominating and compensation
committees by the date the company’s
status changes.
The NYSE also proposes to allow a
company listing in conjunction with an
IPO or a spin-off or carve-out
transaction a phase-in period with
respect to the provision in Section
303A.07(a) which requires a company to
have a minimum of three members on
its audit committee. Such companies
would be required to have at least one
member on their audit committees by
the listing date, at least two members
within ninety days of the listing date,
and at least three members within one
year of the listing date.15 This phase-in
of the minimum size requirement would
not be available to a company emerging
from bankruptcy or a company ceasing
to qualify as a controlled company.
Such companies would still be required
to have a minimum of three members on
their audit committees from the date of
listing on the NYSE or the date of the
status change, as applicable.
NYSE proposes new rules for
companies previously registered
pursuant to Section 12(g) of the Act 16
that list on the Exchange. Such
companies would be required to have a
majority independent board within one
year of the listing date. Their
nominating and compensation
committees would be required to have
at least one independent member by the
listing date, a majority of independent
members within ninety days, and fully
independent members within a year of
the listing date. Only independent
directors would be permitted on the
audit committee during the transition
period (unless an exemption is available
15 As noted above, all the members of the audit
committee must be independent as of the listing
date unless a phase-in is permitted pursuant to Rule
10A–3. Thus, although NYSE rules would permit a
phase-in of the number of members on the audit
committee, all those members would still need to
be independent (unless the company is allowed a
phase-in of the Rule 10A–3 independence
requirements). For example, a company listing in
conjunction with a spin-off might have only two
members on the audit committee on the date the
transaction closes (and could have as few as one).
However, both those members would still be
required to be independent (assuming the company
is ineligible for a phase-in of the Rule 10A–3
independence requirements).
16 15 U.S.C. 78l(g).
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under Rule 10A–3), but a phase-in
would be permitted with respect to the
committee size requirement: at least one
independent director member as of the
date of listing, two independent director
members within ninety days of the
listing date, and three independent
director members within one year of the
listing date.
A foreign private issuer is permitted
to follow its home country practice in
lieu of certain NYSE corporate
governance standards for domestic
listed companies. The proposed rule
change would set forth a transition
period for a foreign issuer that
determines that it no longer qualifies as
a foreign private issuer. The provision
references Rule 3b–4 under the Act,17
which enables a foreign private issuer to
test its status once a year on the last
business day of its second fiscal quarter
(‘‘Determination Date’’), and requires a
foreign private issuer to comply with
the reporting requirements and use the
forms prescribed for domestic
companies beginning on the first day of
the fiscal year following the
Determination Date.
In addition, under Section 303A.08 of
the NYSE standards, which concerns
shareholder approval of equity
compensation plans, a company that
ceases to be a foreign private issuer
would be granted a limited transition
period with respect to discretionary
plans and formula plans that were in
place prior to the date that its status
changed. A shareholder-approved
formula plan could continue to be used
after the end of the transition period if
it is amended to provide for a term of
ten years or less from the later of the
date of its original adoption or its most
recent shareholder approval. A formula
plan could be used without shareholder
approval if the grants after the date of
the status change are made only from
the shares available immediately before
the Determination Date.
Finally, pursuant to language
proposed in various sections of the
Introduction to Section 303A.00, the
proposal would permit the various types
of newly-listed companies to comply
with requirements for listed companies
to post certain documents on their
websites (discussed above) by the same
date they are required, respectively, to
have at least one independent director
member on their nominating and
compensation committees.
C. Other Proposed Revisions
The following section describes
several of the other, more substantive
changes included in the proposal:
17 17
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The Introduction to Section 303A
would include Section 303A.08,
‘‘Shareholder Approval of Equity
Compensation Plans’’ in the list of
sections with which closed end funds
must comply.18 Securities listed under
Section 703.22 of the Manual (‘‘Equity
Index-Linked Securities, CommodityLinked Securities and Currency-Linked
Securities’’) would be included among
the securities to which Section 303A
does not apply (except as otherwise
provided by Rule 10A–3 under the Act).
Controlled companies, which are
exempt from certain requirements,
currently are defined as companies of
which more than 50% of the voting
power is held by an individual, a group,
or another company. The definition
would be revised to make clear that the
50% criterion relates specifically to
voting power for the election of
directors. The proposal also would
clarify that references to a ‘‘listed
company’’ or ‘‘company’’ in the
provisions relating to director
independence include, in addition to
any parent or subsidiary in a
consolidated group with the listed
company, any such other company as is
relevant to any determination under the
applicable independence standards of
Section 303A.02(b).
The proposal would allow companies
to hold regular executive sessions of
independent directors as an alternative
to the sessions of non-management
directors currently required. A company
would be required to enable all
interested parties, not only
shareholders, to communicate concerns
regarding the company to these nonmanagement or independent directors.
The Exchange proposes to add
language to rule commentary in Section
303A.07 regarding audit committees to
make clear that, if a closed-end fund
chooses to voluntarily include a
‘‘Management’s Discussion of Fund
Performance’’ in its Form N–CSR, its
audit committee is required to meet to
review and discuss it. The Exchange
also proposes to clarify that telephonic
conference calls constitute meetings if
allowed by applicable corporate law.
Section 303A.10, requiring a listed
company to disclose to shareholders any
waiver from its code of business
conduct and ethics that is granted to an
executive officer or director, would be
amended to specify that the disclosure
must be made within four business days
of the determination by the company to
grant the waiver, through a press
release, Web site disclosure, or the filing
18 The Exchange states that the omission of this
section in the current rule was an oversight.
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of a current report on Form 8–K with
the Commission.
Finally, the Exchange proposes to
amend provision (c) of Section 303A.12
(Certification Requirements) to require
each listed company to submit an
interim Written Affirmation ‘‘as and
when required by the interim Written
Affirmation form specified by the
NYSE,’’ as opposed to ‘‘each time a
change occurs to the board or any of the
committees subject to Section 303A.’’
III. Discussion and Commission
Findings
After careful consideration of the
proposed rule change and the comments
received, the Commission finds that the
proposal is consistent with the Act and
the rules and regulations promulgated
thereunder applicable to a national
securities exchange and, in particular,
with Section 6(b)(5) of the Act 19 which
requires that the rules of an exchange be
designed, among other things, to
prevent fraudulent and manipulative
acts and practices; to promote just and
equitable principles of trade; and in
general, to protect investors and the
public interest. The Commission further
believes that the proposal is consistent
with Rule 10A–3 under the Act 20
concerning audit committee
requirements for listed issuers.
Corporate Governance Disclosures
The Commission believes that it is
reasonable for NYSE to revise its
disclosure provisions in its corporate
governance listing standards set forth in
Section 303A of the Manual to align
with the disclosure requirements of Item
407 of Regulation S–K, and to
incorporate such standards by reference
in those listing standards so as to reduce
burdens on listed companies. The
Commission notes that, as the Exchange
has stated, companies that are deficient
in their fulfillment of Item 407
disclosure requirements will be deemed
to be out of compliance with the
Exchange’s rules. Consequently, the
Exchange will be able to take actions
against a noncompliant company,
ranging from appending a below
compliance (‘‘BC’’) indicator to the
company’s ticker symbol, issuing a
public reprimand letter, and, in
appropriate cases, delisting.
In the Commission’s view, the
proposal improves upon the current
rules by stating clearly that a listed
company must provide its Web site
address when it discloses in its proxy
19 15
U.S.C. 78f(b)(5). In approving the proposal,
the Commission has considered the proposed rules’
impact on efficiency, competition and capital
formation. 15 U.S.C. 78c(f).
20 17 CFR 240.10A–3.
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statement or annual report, as required,
that its key committee charters, code of
ethics, and corporate governance
guidelines are posted on its Web site.
The Commission believes that it is
reasonable for the Exchange to allow a
company to fulfill its disclosure
obligations with respect to these
documents by posting them on its Web
site, without having to provide them in
print form. Certain of the disclosures
required by the Commission’s own rules
are permitted to be made on a
company’s Web site as long as the
company’s proxy statement makes
reference to the information and
provides a Web site address.21
As discussed above, the proposal also
would allow a company to make certain
other Exchange-required disclosures on
its Web site instead of in its proxy
statement or annual report, provided
that the company states in the proxy
statement or annual report that it has
done so and provides the Web site
address. The Commission believes that
it is reasonable for the Exchange to
provide companies with this alternative
approach with respect to the specified
disclosures. Similarly, the Commission
believes that the amendments to the
Exchange’s listing rules governing
disclosure by a foreign private issuer are
appropriate.
Transition Periods for Newly-Listed
Companies
The Commission believes that the
proposed amendments relating to the
phase-in period for specified companies
newly listing on the Exchange (or newly
becoming subject to certain corporate
governance listing standards as a result
of change in status) are reasonable. The
proposed rules would permit a phase-in
schedule similar to that allowed under
the current rules for a company listing
in conjunction with an IPO, and would
extend such a phase-in schedule
appropriately to companies listing in
conjunction with spin-off and carve-out
transactions, while offering an
acceptable minimal tolerance for the
special circumstances of each of these
types of new listings with respect to the
point in time that the standards would
begin to apply. The Commission notes
that the Exchange’s proposal does not
make adjustments for compliance with
any requirements of Rule 10A–3 under
the Act.
The Commission notes that a
company listing upon emerging from
21 See, e.g., Instruction 2 to Item 407 of Regulation
S–K. See also Securities Act Release No. 8732A;
Securities Exchange Act Release No. 54302A;
Investment Company Act Release No. 27444A
(August 29, 2006), 71 FR 53158 (September 8,
2006).
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bankruptcy will still be required to have
at least one independent director
member on its nominating and
compensation committees from the first
day of listing (i.e., the day the security
first trades on NYSE). A company that
has relied on the exemptions available
for controlled companies will be
required to meet this standard as of the
date its status changes.
The proposed rule change also would
allow a company listing in conjunction
with an IPO, a spin-off, or a carve-out
a phase-in period with respect to the
NYSE requirement that the audit
committee of a listed company have at
least three members. In the
Commission’s view, permitting a
company to have only one member on
its audit committee by the listing date,
at least two members within ninety days
of the listing date, and three members
within a year of the listing date, affords
a reasonable accommodation for such
companies. The Commission notes that
a company emerging from bankruptcy
will continue to be required to have at
least three members on its audit
committee from the day its securities
begin to trade on the Exchange.
The Commission further notes that
the proposed rule change does not grant
an exemption or phase-in period to any
newly-listed company with respect to
the provision set forth in Section
303A.07 of the Manual that requires
every listed company’s audit
committee—without distinction as to
the committee’s size—to have at least
one member who has accounting or
related financial management expertise.
In addition, Rule 10A–3 under the Act
requires at least one member of a listed
company’s audit committee to be
independent as of the listing date, even
when the company is allowed a phasein period with respect to the
independence of other audit committee
members.22 Thus, if a newly-listed
company that is eligible for a phase-in
period with respect to the size
requirement chooses to have initially
only one member on its audit
committee, that member would need to
be independent and also to meet the
NYSE financial expertise requirement.
With respect to NYSE’s Section
303A.08 governing shareholder
approval of equity compensation plans,
the Commission believes that it is
reasonable for NYSE to incorporate the
determination date in Rule 3b-4 under
the Act 23 for a transition period for a
company that ceases to be a foreign
private issuer and to provide its issuers
guidance on the continued use of
22 See
23 17
17 CFR 240.10A–3(b)(1)(iv).
CFR 240.3b-4.
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formula plans, both with and without
shareholder approval, after its status
changes from a foreign private issuer.
Other Proposed Revisions
The Commission understands that the
Exchange proposes to clarify in the
Introduction to Section 303A.00 that
closed-end funds are subject to Section
303A.08. The fact that this provision
does not currently appear to require
closed-end funds to comply with
Section 303A.08 apparently results from
an oversight on the part of the
Exchange. The inclusion of securities
governed by Section 703.22 of the
Manual (Equity Index-Linked Securities,
Commodity-Linked Securities and
Currency-Linked Securities) among the
list of preferred and debt securities to
which the NYSE governance standards
do not apply is an appropriate update of
the rules and is consistent with NYSE’s
treatment of similar securities.24 The
proposed amendment to the definition
of a controlled company is a revision
that has previously been filed with the
Commission by another exchange as a
‘‘non-controversial’’ proposed rule
change.25
The Commission agrees with the
Exchange that allowing companies to
hold executive sessions of independent
directors rather than of nonmanagement directors is consistent with
the intention of the current rule. The
proposal to require that all interested
parties, not only shareholders, be able to
communicate concerns regarding a
listed company to the director(s) also is
appropriate. The Commission further
believes that it is appropriate to provide
that if a closed-end fund voluntarily
includes a Management’s Discussion of
Fund Performance in its Form N–CSR,
its audit committee should be required
to meet and review it.
Currently, Section 303A.10 of the
Manual provides that waivers of a
company’s code of business ethics and
conduct must be ‘‘promptly disclosed to
shareholders’’ and does not specify how
such disclosure should be made. The
proposed rule change sets a timeframe
that is consistent with the requirements
set by the Commission in Item 5.05 of
Form 8–K 26 regarding such waivers,
and improves the listing standard by
24 See, e.g., Introduction to Section 303A.00 of the
Manual, excepting Equity-Linked Debt Securities,
Trust Issued Receipts, and Other Securities listed
pursuant to Section 703.19 of the Manual, from
certain corporate governance standards.
25 See Securities Exchange Act Release No. 59424
(Feb. 19, 2009), 74 FR 8831 (Feb. 26, 2009) (SR–
NASDAQ–2009–009).
26 17 CFR 249.308.
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63811
setting forth specific alternatives by
which the disclosures may be made.
The proposal would remove the
provision in Section 303A.12(a) that
requires a company to disclose in its
annual report to shareholders (or, if the
company does not prepare an annual
report, in its annual Form 10–K) the
specified certifications regarding any
non-compliance filed with the NYSE
and the Commission. The Exchange
states that that this provision has caused
confusion because it relates to
certifications made in the prior year.
Further, the Commission now requires a
company to provide certifications by its
principal executive officer and principal
financial officer as an exhibit to the
company’s Form 10–Q and 10–K, and
the Commission’s disclosure
requirements now include detailed
provisions relating to a company’s
obligation to file a Form 8–K in
instances where the company notifies
the Exchange or the Exchange notifies
the company of non-compliance with
Exchange listing standards. In addition,
the NYSE appends a BC indicator to the
ticker symbol of an issuer that is noncompliant with the Exchange’s
corporate governance standards. In view
of these changes, the Commission agrees
that it is reasonable to delete the
certification disclosure requirement of
Section 303A.12(a). The Commission
also believes that it is reasonable to
allow NYSE to modify Section
303A.12(c) to require companies to
submit a Written Affirmation as and
when required by the Exchange’s
interim Written Affirmation form, as
opposed to each time a change occurs to
the board or any of the committees
subject to Section 303A.
The two comment letters on the
proposed rule change generally support
its revisions, but oppose the amendment
to require the CEO of a company to
notify the NYSE after any executive
officer becomes aware of ‘‘any’’ noncompliance with Section 303A, rather
than ‘‘any material’’ non-compliance.27
The commenters believe that public
companies should not be burdened with
a duty to report minor or inadvertent
breaches, and that investors could
overlook material instances of noncompliance among the many
inconsequential matters that would
need to be reported under the proposal.
One commenter was concerned that,
upon notification of such matters, ‘‘the
NYSE may be compelled to include the
company on the list of noncompliant
companies (after the proper notice
period) and to disseminate a BC
indicator for that company over the
27 See
E:\FR\FM\04DEN1.SGM
supra, note 5.
04DEN1
63812
Federal Register / Vol. 74, No. 232 / Friday, December 4, 2009 / Notices
consolidated tape.’’ 28 This commenter
states: ‘‘Because the noncompliant
company list and BC indicator give no
further detail about the company’s
infraction or degree of noncompliance,
investors may assume that a company is
in danger of being delisted when only
a relatively minor infraction exists.’’ 29
The Commission believes that it is not
unreasonable for the NYSE to require a
company that is listed on its facility to
notify the Exchange when it becomes
aware that it is out of compliance with
the Exchange’s listing standards. With
respect to the concern that the BC
indicator provides no details about the
reasons why the BC indicator was
appended to the company’s stock
symbol, the NYSE’s Web site provides
the reason why a company has been
placed on the non-compliant list.30
Finally, the Commission believes that
the technical and other minor changes
in the proposal improve and add to the
clarity of the Exchange’s corporate
governance listing rules.
SECURITIES AND EXCHANGE
COMMISSION
IV. Conclusion
BILLING CODE 1505–01–D
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,31 that the
proposed rule change (SR–NYSE–2009–
89), as amended, be, and hereby is,
approved.
OFFICE OF THE UNITED STATES
TRADE REPRESENTATIVE
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–28890 Filed 12–3–09; 8:45 am]
BILLING CODE 8011–01–P
28 See
Davis Polk Letter.
mstockstill on DSKH9S0YB1PROD with NOTICES
29 Id.
30 See https://www.nyse.com/regulation/nyse/
bcindex.html. The Web site lists companies that are
non-compliant with the Exchange’s corporate
governance listing standards separately from those
non-compliant with other standards, and states: ‘‘A
noncompliant issuer is added to the list seven
business days after the NYSE notifies the issuer of
the deficiency; if the noncompliance results from a
death or illness of a director, the issuer is added to
the list six months after the event. An issuer is
removed from the list one business day after the
NYSE determines that the issuer is in compliance
with NYSE corporate governance listing standards.’’
The reason why a company is on the list can be
seen via a link entitled, ‘‘View more information on
issuers noncompliant with NYSE corporate
governance standards.’’
31 15 U.S.C. 78s(b)(2).
32 17 CFR 200.30–3(a)(12).
VerDate Nov<24>2008
17:26 Dec 03, 2009
Jkt 220001
[Release No. 34–61008; File No. SR–
NASDAQ–2009–094]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Require
That Companies Provide Nasdaq With
at least Ten Minutes Prior Notification
When Releasing Material Information
and Eliminate a Potential
Inconsistency With Commission
Guidance on the Use of Company
Websites To Satisfy Public Disclosure
Requirements
Correction
In notice document E9–27998
beginning on page 61186 in the issue of
Monday, November 23, 2009, make the
following correction:
On page 61186, in the second column,
the docket number is corrected to read
as set forth above.
[FR Doc. Z9–27998 Filed 12–03–09; 8:45 am]
[Docket No. WTO/DS394]
WTO Dispute Settlement Proceeding
Regarding China—Measures Related
to the Exportation of Various Raw
Materials
AGENCY: Office of the United States
Trade Representative.
ACTION: Notice; request for comments.
SUMMARY: The Office of the United
States Trade Representative (‘‘USTR’’) is
providing notice that on November 4,
2009, in accordance with the Marrakesh
Agreement Establishing the World
Trade Organization (‘‘WTO
Agreement’’), the United States
requested that the WTO Dispute
Settlement Body establish a dispute
settlement panel to review the U.S.
claims concerning restraints on the
export from China of various forms of
bauxite, coke, fluorspar, magnesium,
manganese, silicon carbide, silicon
metal, yellow phosphorus, and zinc (the
‘‘materials’’). That request may be found
at https://www.wto.org contained in a
document designated as WT/DS394/7.
USTR invites written comments from
the public concerning the issues raised
in this dispute.
DATES: Although USTR will accept any
comments received during the course of
the dispute settlement proceedings,
PO 00000
Frm 00097
Fmt 4703
Sfmt 4703
comments should be submitted on or
before January 19, 2010 to be assured of
timely consideration by USTR.
ADDRESSES: Public comments should be
submitted electronically to https://
www.regulations.gov, docket number
USTR–2009–0016. If you are unable to
provide submissions by https://
www.regulations.gov, please contact
Sandy McKinzy at (202) 395–9483 to
arrange for an alternative method of
transmission. If (as explained below),
the comment contains confidential
information, then the comment should
be submitted by fax only to Sandy
McKinzy at (202) 395–3640.
FOR FURTHER INFORMATION CONTACT:
Shubha Sastry, Assistant General
Counsel, or Katherine Tai, Associate
General Counsel, Office of the United
States Trade Representative, 600 17th
Street, NW., Washington, DC 20508,
(202) 395–6139 or (202) 395–9589.
SUPPLEMENTARY INFORMATION: Pursuant
to Section 127(b) of the Uruguay Round
Agreements Act (‘‘URAA’’) (19 U.S.C.
3537(b)(1)), USTR is providing notice
that the United States has requested the
WTO Dispute Settlement Body to
establish a dispute settlement panel
pursuant to the WTO Understanding on
Rules and Procedures Governing the
Settlement of Disputes (‘‘DSU’’). Such
panel, which would hold its meetings in
Geneva, Switzerland, would be
expected to issue a report on its findings
and recommendations within
approximately nine months after it is
established.
Major Issues Raised by the United
States
China imposes restraints on the
export from China of various forms of
bauxite (‘‘bauxite’’ includes but is not
limited to items falling under the
following ten-digit Chinese Commodity
Codes, as listed in Attachment 1 of
Notice ‘‘2009 Export Licensing
Management Commodities List’’
(Ministry of Commerce and General
Administration of Customs, Notice
(2008) No. 100, January 1, 2009) (‘‘2009
Export Licensing List’’) and/or the
following eight-digit HS numbers as
listed in Table 7 of Notice Regarding the
2009 Tariff Implementation Program
(State Council Tariff Policy
Commission, shuiweihui (2008) No. 40,
January 1, 2009) (‘‘2009 Export Duty
List’’): 2508300000/25083000,
2606000000/26060000, 26204000), coke
(‘‘coke’’ includes but is not limited to
items falling under the following tendigit Chinese Commodity Codes as
listed in the 2009 Export Licensing List
and/or the eight-digit HS numbers as
listed in the 2009 Export Duty List:
E:\FR\FM\04DEN1.SGM
04DEN1
]]>Agencies
[Federal Register Volume 74, Number 232 (Friday, December 4, 2009)]
[Notices]
[Pages 63808-63812]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-28890]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61067; File No. SR-NYSE-2009-89]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Approving a Proposed Rule Change as Modified by Amendment No. 1 To
Amend Certain Corporate Governance Requirements
November 25, 2009.
I. Introduction
On August 26, 2009, the New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend certain of the Exchange's corporate
governance requirements for listed companies. NYSE filed Amendment No.
1 to the proposed rule change on September 10, 2009. The proposal was
published for comment in the Federal Register on September 17, 2009.\3\
The Commission received two comment letters on the proposal.\4\ This
order approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 60653 (September 11,
2009), 74 FR 47831 (September 17, 2009), 74 FR 48615 (September 23,
2009) (``Notice'').
\4\ See letters to Elizabeth M. Murphy, Secretary, Commission,
from Dorothy M. Donohue, Senior Associate Counsel, Investment
Company Institute, dated October 8, 2009, and from Davis Polk &
Wardwell LLP, dated October 9, 2009 (``Davis Polk Letter'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The Exchange proposes to amend Section 303A of its Listed Company
Manual (``Manual''), which comprises the Exchange's corporate
governance standards for listed companies, and to eliminate current
Section 307.00, regarding related party transactions.\5\ The changes,
which would take effect on January 1, 2010, include the following:
---------------------------------------------------------------------------
\5\ The Exchange states that current Section 307 is duplicative
of Section 314. Under the proposal, current Section 303A.14 would be
re-designated as Section 307.
---------------------------------------------------------------------------
A. Corporate Governance Disclosures
1. Disclosures Required by Regulation S-K Under the Act
Section 303A of the Manual currently requires a listed company to
disclose the identity of its independent directors, the basis upon
which its board may determine that a director is independent, and--if
it is a controlled company--any exemptions from the independence
requirements upon which it has relied. Disclosures relating to the same
aspects of a company's corporate governance are now required by Item
407 of the Commission's Regulation S-K.\6\ The proposal would eliminate
each of the Exchange's requirements that is similar to a requirement of
Item 407, and incorporate directly into Section 303A the applicable
requirement of Item 407.\7\
---------------------------------------------------------------------------
\6\ 17 CFR 229.407.
\7\ Section 303A also revises the requirements relating to
reports by a company's audit and compensation committees that are
required by the Commission and are to be included in the company's
annual proxy statement or annual report. The proposed rule change
would amend these requirements to reference the disclosures required
by Item 407.
---------------------------------------------------------------------------
2. Disclosures Regarding Required Web site Postings
A listed company is required by the NYSE standards to post the
charters of its audit, compensation, and nominating/corporate
governance committees, its corporate governance guidelines, and its
code of business conduct and ethics on the company's Web site, and to
state in its proxy statement or annual report that these documents are
so posted. The proposal would add that the listed company's Web site
address must be included,\8\ but would delete the current requirement
for the company to state that the documents are available in print to
any shareholder who requests them.
---------------------------------------------------------------------------
\8\ The proposal also would reorganize the website posting
requirements in the rule text. Further, Section 303A.07 would state
expressly that closed-end funds are not subject to the requirement
to post their audit committee charters, consistent with current
practice.
---------------------------------------------------------------------------
3. Other Required Disclosures
Section 303A currently also requires various other disclosures to
be made in the company's proxy statement or annual report.\9\ The
Exchange proposes to allow a company alternatively to make these
disclosures on its website.\10\ If a company chooses to do so, it would
be required to disclose this in its proxy statement or annual report
and provide the website address.
---------------------------------------------------------------------------
\9\ These disclosures concern contributions by the listed
company to tax exempt organizations; executive sessions of non-
management or independent directors; communication with the
presiding director or the non-management or independent directors;
and simultaneous service of an audit committee member on the audit
committees of more than three public companies.
\10\ The proposed rule change would further provide that, if a
listed company makes a required Section 303A disclosure in its proxy
statement or annual report filed with the Commission, it may
incorporate such disclosure by reference from another document that
is filed with the Commission to the extent permitted by applicable
Commission rules.
---------------------------------------------------------------------------
Section 303A.11 of the Manual currently requires a foreign private
issuer to disclose any significant ways in which its corporate
governance practices differ from those required of domestic companies
under NYSE listing standards. Under the proposal, a foreign private
issuer that is required to file an annual report on Form 20-F with the
Commission would be required to include the statement of significant
differences in that annual report.
The proposal also would eliminate the requirement in Section
303A.12(a) that a listed company disclose in its annual report (or on
Form 10-K if the company does not prepare an annual report to
shareholders) that its chief executive officer (``CEO'') filed the
certification regarding corporate governance required by the Exchange,
and that the company complied with Commission certification
requirements regarding public disclosure. The Exchange proposes to
revise Section 303A.12(b) to provide that the CEO of a listed company
must notify the Exchange in writing after any executive officer of the
company becomes aware of any non-compliance with Section 303A, as
opposed to requiring notification in the event of material non-
compliance as provided by the current rule.
B. Transition Periods for Newly-Listed Companies
By way of background, NYSE's rules incorporate by reference Rule
10A-3 under the Act,\11\ which requires a listed
[[Page 63809]]
company to have an audit committee composed solely of independent
directors. Rule 10A-3 permits a company listing in conjunction with an
initial public offering (``IPO'') to phase in compliance with this
requirement. Under Rule 10A-3, all but one member of the audit
committee may be exempt from the independence requirements of the rule
for ninety days from the date of effectiveness of the issuer's
registration statement under Section 12 of the Act or the issuer's
registration statement under the Securities Act of 1933 covering the
issuer's initial public offering (``IPO'') of securities to be listed
by the issuer, and a minority of the members of the committee may be
exempt from the independence requirements of Rule 10A-3 for one
year.\12\
---------------------------------------------------------------------------
\11\ 17 CFR 240.10A-3.
\12\ 17 CFR 240.10A-3(b)(1)(iv)(A).
---------------------------------------------------------------------------
The Exchange's rules require that the nominating and compensation
committees of a listed company also be composed solely of independent
directors. However, companies listing in conjunction with an IPO are
permitted a transition period for these committees to be composed
solely of independent directors that is similar to that permitted by
Rule 10A-3 for audit committees: at least one independent director
member at the time of listing, a majority of independent director
members within ninety days of listing, and a fully independent
committee within one year.\13\ The proposal would adjust this
transition schedule to allow the first independent director member to
be appointed by the earlier of the date that the IPO closes or five
business days from the listing date, rather than on the listing
date.\14\
---------------------------------------------------------------------------
\13\ The proposed rule change would define the ``listing date''
for purposes of the phase-in periods in this section generally as
the date the company's securities first trade on the Exchange.
\14\ The ninety-day and one-year periods for the phase-in of the
NYSE independence requirements for these two committees--as well as
the one-year deadline for a company to satisfy the Exchange's
requirement that a listed company have a majority of independent
directors on its board--would begin from the date of listing.
---------------------------------------------------------------------------
The proposed rule change would allow a similar phase-in period for
a company listing in conjunction with a spin-off or a carve-out
transaction. In such transactions, there would need to be one
independent director member on both the nominating and compensation
committees by the date the transaction closes, at least a majority of
independent director members on each committee within ninety days of
the listing date, and fully independent committees within one year of
the listing date. A company listing upon emergence from bankruptcy, for
which the NYSE rules already provide a similar phase-in period, would
continue to be required to have one independent director by the date of
listing, as under the current rule. The same phase-in would be
specified for a company that ceases to qualify as a controlled company
and thereby loses its exemption from the independence requirements for
these committees, but the first independent director member would be
required to be in place for the nominating and compensation committees
by the date the company's status changes.
The NYSE also proposes to allow a company listing in conjunction
with an IPO or a spin-off or carve-out transaction a phase-in period
with respect to the provision in Section 303A.07(a) which requires a
company to have a minimum of three members on its audit committee. Such
companies would be required to have at least one member on their audit
committees by the listing date, at least two members within ninety days
of the listing date, and at least three members within one year of the
listing date.\15\ This phase-in of the minimum size requirement would
not be available to a company emerging from bankruptcy or a company
ceasing to qualify as a controlled company. Such companies would still
be required to have a minimum of three members on their audit
committees from the date of listing on the NYSE or the date of the
status change, as applicable.
---------------------------------------------------------------------------
\15\ As noted above, all the members of the audit committee must
be independent as of the listing date unless a phase-in is permitted
pursuant to Rule 10A-3. Thus, although NYSE rules would permit a
phase-in of the number of members on the audit committee, all those
members would still need to be independent (unless the company is
allowed a phase-in of the Rule 10A-3 independence requirements). For
example, a company listing in conjunction with a spin-off might have
only two members on the audit committee on the date the transaction
closes (and could have as few as one). However, both those members
would still be required to be independent (assuming the company is
ineligible for a phase-in of the Rule 10A-3 independence
requirements).
---------------------------------------------------------------------------
NYSE proposes new rules for companies previously registered
pursuant to Section 12(g) of the Act \16\ that list on the Exchange.
Such companies would be required to have a majority independent board
within one year of the listing date. Their nominating and compensation
committees would be required to have at least one independent member by
the listing date, a majority of independent members within ninety days,
and fully independent members within a year of the listing date. Only
independent directors would be permitted on the audit committee during
the transition period (unless an exemption is available under Rule 10A-
3), but a phase-in would be permitted with respect to the committee
size requirement: at least one independent director member as of the
date of listing, two independent director members within ninety days of
the listing date, and three independent director members within one
year of the listing date.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78l(g).
---------------------------------------------------------------------------
A foreign private issuer is permitted to follow its home country
practice in lieu of certain NYSE corporate governance standards for
domestic listed companies. The proposed rule change would set forth a
transition period for a foreign issuer that determines that it no
longer qualifies as a foreign private issuer. The provision references
Rule 3b-4 under the Act,\17\ which enables a foreign private issuer to
test its status once a year on the last business day of its second
fiscal quarter (``Determination Date''), and requires a foreign private
issuer to comply with the reporting requirements and use the forms
prescribed for domestic companies beginning on the first day of the
fiscal year following the Determination Date.
---------------------------------------------------------------------------
\17\ 17 CFR 240.3b-4.
---------------------------------------------------------------------------
In addition, under Section 303A.08 of the NYSE standards, which
concerns shareholder approval of equity compensation plans, a company
that ceases to be a foreign private issuer would be granted a limited
transition period with respect to discretionary plans and formula plans
that were in place prior to the date that its status changed. A
shareholder-approved formula plan could continue to be used after the
end of the transition period if it is amended to provide for a term of
ten years or less from the later of the date of its original adoption
or its most recent shareholder approval. A formula plan could be used
without shareholder approval if the grants after the date of the status
change are made only from the shares available immediately before the
Determination Date.
Finally, pursuant to language proposed in various sections of the
Introduction to Section 303A.00, the proposal would permit the various
types of newly-listed companies to comply with requirements for listed
companies to post certain documents on their websites (discussed above)
by the same date they are required, respectively, to have at least one
independent director member on their nominating and compensation
committees.
C. Other Proposed Revisions
The following section describes several of the other, more
substantive changes included in the proposal:
[[Page 63810]]
The Introduction to Section 303A would include Section 303A.08,
``Shareholder Approval of Equity Compensation Plans'' in the list of
sections with which closed end funds must comply.\18\ Securities listed
under Section 703.22 of the Manual (``Equity Index-Linked Securities,
Commodity-Linked Securities and Currency-Linked Securities'') would be
included among the securities to which Section 303A does not apply
(except as otherwise provided by Rule 10A-3 under the Act).
---------------------------------------------------------------------------
\18\ The Exchange states that the omission of this section in
the current rule was an oversight.
---------------------------------------------------------------------------
Controlled companies, which are exempt from certain requirements,
currently are defined as companies of which more than 50% of the voting
power is held by an individual, a group, or another company. The
definition would be revised to make clear that the 50% criterion
relates specifically to voting power for the election of directors. The
proposal also would clarify that references to a ``listed company'' or
``company'' in the provisions relating to director independence
include, in addition to any parent or subsidiary in a consolidated
group with the listed company, any such other company as is relevant to
any determination under the applicable independence standards of
Section 303A.02(b).
The proposal would allow companies to hold regular executive
sessions of independent directors as an alternative to the sessions of
non-management directors currently required. A company would be
required to enable all interested parties, not only shareholders, to
communicate concerns regarding the company to these non-management or
independent directors.
The Exchange proposes to add language to rule commentary in Section
303A.07 regarding audit committees to make clear that, if a closed-end
fund chooses to voluntarily include a ``Management's Discussion of Fund
Performance'' in its Form N-CSR, its audit committee is required to
meet to review and discuss it. The Exchange also proposes to clarify
that telephonic conference calls constitute meetings if allowed by
applicable corporate law.
Section 303A.10, requiring a listed company to disclose to
shareholders any waiver from its code of business conduct and ethics
that is granted to an executive officer or director, would be amended
to specify that the disclosure must be made within four business days
of the determination by the company to grant the waiver, through a
press release, Web site disclosure, or the filing of a current report
on Form 8-K with the Commission.
Finally, the Exchange proposes to amend provision (c) of Section
303A.12 (Certification Requirements) to require each listed company to
submit an interim Written Affirmation ``as and when required by the
interim Written Affirmation form specified by the NYSE,'' as opposed to
``each time a change occurs to the board or any of the committees
subject to Section 303A.''
III. Discussion and Commission Findings
After careful consideration of the proposed rule change and the
comments received, the Commission finds that the proposal is consistent
with the Act and the rules and regulations promulgated thereunder
applicable to a national securities exchange and, in particular, with
Section 6(b)(5) of the Act \19\ which requires that the rules of an
exchange be designed, among other things, to prevent fraudulent and
manipulative acts and practices; to promote just and equitable
principles of trade; and in general, to protect investors and the
public interest. The Commission further believes that the proposal is
consistent with Rule 10A-3 under the Act \20\ concerning audit
committee requirements for listed issuers.
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78f(b)(5). In approving the proposal, the
Commission has considered the proposed rules' impact on efficiency,
competition and capital formation. 15 U.S.C. 78c(f).
\20\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------
Corporate Governance Disclosures
The Commission believes that it is reasonable for NYSE to revise
its disclosure provisions in its corporate governance listing standards
set forth in Section 303A of the Manual to align with the disclosure
requirements of Item 407 of Regulation S-K, and to incorporate such
standards by reference in those listing standards so as to reduce
burdens on listed companies. The Commission notes that, as the Exchange
has stated, companies that are deficient in their fulfillment of Item
407 disclosure requirements will be deemed to be out of compliance with
the Exchange's rules. Consequently, the Exchange will be able to take
actions against a noncompliant company, ranging from appending a below
compliance (``BC'') indicator to the company's ticker symbol, issuing a
public reprimand letter, and, in appropriate cases, delisting.
In the Commission's view, the proposal improves upon the current
rules by stating clearly that a listed company must provide its Web
site address when it discloses in its proxy statement or annual report,
as required, that its key committee charters, code of ethics, and
corporate governance guidelines are posted on its Web site. The
Commission believes that it is reasonable for the Exchange to allow a
company to fulfill its disclosure obligations with respect to these
documents by posting them on its Web site, without having to provide
them in print form. Certain of the disclosures required by the
Commission's own rules are permitted to be made on a company's Web site
as long as the company's proxy statement makes reference to the
information and provides a Web site address.\21\
---------------------------------------------------------------------------
\21\ See, e.g., Instruction 2 to Item 407 of Regulation S-K. See
also Securities Act Release No. 8732A; Securities Exchange Act
Release No. 54302A; Investment Company Act Release No. 27444A
(August 29, 2006), 71 FR 53158 (September 8, 2006).
---------------------------------------------------------------------------
As discussed above, the proposal also would allow a company to make
certain other Exchange-required disclosures on its Web site instead of
in its proxy statement or annual report, provided that the company
states in the proxy statement or annual report that it has done so and
provides the Web site address. The Commission believes that it is
reasonable for the Exchange to provide companies with this alternative
approach with respect to the specified disclosures. Similarly, the
Commission believes that the amendments to the Exchange's listing rules
governing disclosure by a foreign private issuer are appropriate.
Transition Periods for Newly-Listed Companies
The Commission believes that the proposed amendments relating to
the phase-in period for specified companies newly listing on the
Exchange (or newly becoming subject to certain corporate governance
listing standards as a result of change in status) are reasonable. The
proposed rules would permit a phase-in schedule similar to that allowed
under the current rules for a company listing in conjunction with an
IPO, and would extend such a phase-in schedule appropriately to
companies listing in conjunction with spin-off and carve-out
transactions, while offering an acceptable minimal tolerance for the
special circumstances of each of these types of new listings with
respect to the point in time that the standards would begin to apply.
The Commission notes that the Exchange's proposal does not make
adjustments for compliance with any requirements of Rule 10A-3 under
the Act.
The Commission notes that a company listing upon emerging from
[[Page 63811]]
bankruptcy will still be required to have at least one independent
director member on its nominating and compensation committees from the
first day of listing (i.e., the day the security first trades on NYSE).
A company that has relied on the exemptions available for controlled
companies will be required to meet this standard as of the date its
status changes.
The proposed rule change also would allow a company listing in
conjunction with an IPO, a spin-off, or a carve-out a phase-in period
with respect to the NYSE requirement that the audit committee of a
listed company have at least three members. In the Commission's view,
permitting a company to have only one member on its audit committee by
the listing date, at least two members within ninety days of the
listing date, and three members within a year of the listing date,
affords a reasonable accommodation for such companies. The Commission
notes that a company emerging from bankruptcy will continue to be
required to have at least three members on its audit committee from the
day its securities begin to trade on the Exchange.
The Commission further notes that the proposed rule change does not
grant an exemption or phase-in period to any newly-listed company with
respect to the provision set forth in Section 303A.07 of the Manual
that requires every listed company's audit committee--without
distinction as to the committee's size--to have at least one member who
has accounting or related financial management expertise. In addition,
Rule 10A-3 under the Act requires at least one member of a listed
company's audit committee to be independent as of the listing date,
even when the company is allowed a phase-in period with respect to the
independence of other audit committee members.\22\ Thus, if a newly-
listed company that is eligible for a phase-in period with respect to
the size requirement chooses to have initially only one member on its
audit committee, that member would need to be independent and also to
meet the NYSE financial expertise requirement.
---------------------------------------------------------------------------
\22\ See 17 CFR 240.10A-3(b)(1)(iv).
---------------------------------------------------------------------------
With respect to NYSE's Section 303A.08 governing shareholder
approval of equity compensation plans, the Commission believes that it
is reasonable for NYSE to incorporate the determination date in Rule
3b-4 under the Act \23\ for a transition period for a company that
ceases to be a foreign private issuer and to provide its issuers
guidance on the continued use of formula plans, both with and without
shareholder approval, after its status changes from a foreign private
issuer.
---------------------------------------------------------------------------
\23\ 17 CFR 240.3b-4.
---------------------------------------------------------------------------
Other Proposed Revisions
The Commission understands that the Exchange proposes to clarify in
the Introduction to Section 303A.00 that closed-end funds are subject
to Section 303A.08. The fact that this provision does not currently
appear to require closed-end funds to comply with Section 303A.08
apparently results from an oversight on the part of the Exchange. The
inclusion of securities governed by Section 703.22 of the Manual
(Equity Index-Linked Securities, Commodity-Linked Securities and
Currency-Linked Securities) among the list of preferred and debt
securities to which the NYSE governance standards do not apply is an
appropriate update of the rules and is consistent with NYSE's treatment
of similar securities.\24\ The proposed amendment to the definition of
a controlled company is a revision that has previously been filed with
the Commission by another exchange as a ``non-controversial'' proposed
rule change.\25\
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\24\ See, e.g., Introduction to Section 303A.00 of the Manual,
excepting Equity-Linked Debt Securities, Trust Issued Receipts, and
Other Securities listed pursuant to Section 703.19 of the Manual,
from certain corporate governance standards.
\25\ See Securities Exchange Act Release No. 59424 (Feb. 19,
2009), 74 FR 8831 (Feb. 26, 2009) (SR-NASDAQ-2009-009).
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The Commission agrees with the Exchange that allowing companies to
hold executive sessions of independent directors rather than of non-
management directors is consistent with the intention of the current
rule. The proposal to require that all interested parties, not only
shareholders, be able to communicate concerns regarding a listed
company to the director(s) also is appropriate. The Commission further
believes that it is appropriate to provide that if a closed-end fund
voluntarily includes a Management's Discussion of Fund Performance in
its Form N-CSR, its audit committee should be required to meet and
review it.
Currently, Section 303A.10 of the Manual provides that waivers of a
company's code of business ethics and conduct must be ``promptly
disclosed to shareholders'' and does not specify how such disclosure
should be made. The proposed rule change sets a timeframe that is
consistent with the requirements set by the Commission in Item 5.05 of
Form 8-K \26\ regarding such waivers, and improves the listing standard
by setting forth specific alternatives by which the disclosures may be
made.
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\26\ 17 CFR 249.308.
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The proposal would remove the provision in Section 303A.12(a) that
requires a company to disclose in its annual report to shareholders
(or, if the company does not prepare an annual report, in its annual
Form 10-K) the specified certifications regarding any non-compliance
filed with the NYSE and the Commission. The Exchange states that that
this provision has caused confusion because it relates to
certifications made in the prior year. Further, the Commission now
requires a company to provide certifications by its principal executive
officer and principal financial officer as an exhibit to the company's
Form 10-Q and 10-K, and the Commission's disclosure requirements now
include detailed provisions relating to a company's obligation to file
a Form 8-K in instances where the company notifies the Exchange or the
Exchange notifies the company of non-compliance with Exchange listing
standards. In addition, the NYSE appends a BC indicator to the ticker
symbol of an issuer that is non-compliant with the Exchange's corporate
governance standards. In view of these changes, the Commission agrees
that it is reasonable to delete the certification disclosure
requirement of Section 303A.12(a). The Commission also believes that it
is reasonable to allow NYSE to modify Section 303A.12(c) to require
companies to submit a Written Affirmation as and when required by the
Exchange's interim Written Affirmation form, as opposed to each time a
change occurs to the board or any of the committees subject to Section
303A.
The two comment letters on the proposed rule change generally
support its revisions, but oppose the amendment to require the CEO of a
company to notify the NYSE after any executive officer becomes aware of
``any'' non-compliance with Section 303A, rather than ``any material''
non-compliance.\27\ The commenters believe that public companies should
not be burdened with a duty to report minor or inadvertent breaches,
and that investors could overlook material instances of non-compliance
among the many inconsequential matters that would need to be reported
under the proposal. One commenter was concerned that, upon notification
of such matters, ``the NYSE may be compelled to include the company on
the list of noncompliant companies (after the proper notice period) and
to disseminate a BC indicator for that company over the
[[Page 63812]]
consolidated tape.'' \28\ This commenter states: ``Because the
noncompliant company list and BC indicator give no further detail about
the company's infraction or degree of noncompliance, investors may
assume that a company is in danger of being delisted when only a
relatively minor infraction exists.'' \29\
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\27\ See supra, note 5.
\28\ See Davis Polk Letter.
\29\ Id.
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The Commission believes that it is not unreasonable for the NYSE to
require a company that is listed on its facility to notify the Exchange
when it becomes aware that it is out of compliance with the Exchange's
listing standards. With respect to the concern that the BC indicator
provides no details about the reasons why the BC indicator was appended
to the company's stock symbol, the NYSE's Web site provides the reason
why a company has been placed on the non-compliant list.\30\
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\30\ See https://www.nyse.com/regulation/nyse/bcindex.html. The
Web site lists companies that are non-compliant with the Exchange's
corporate governance listing standards separately from those non-
compliant with other standards, and states: ``A noncompliant issuer
is added to the list seven business days after the NYSE notifies the
issuer of the deficiency; if the noncompliance results from a death
or illness of a director, the issuer is added to the list six months
after the event. An issuer is removed from the list one business day
after the NYSE determines that the issuer is in compliance with NYSE
corporate governance listing standards.'' The reason why a company
is on the list can be seen via a link entitled, ``View more
information on issuers noncompliant with NYSE corporate governance
standards.''
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Finally, the Commission believes that the technical and other minor
changes in the proposal improve and add to the clarity of the
Exchange's corporate governance listing rules.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\31\ that the proposed rule change (SR-NYSE-2009-89), as amended,
be, and hereby is, approved.
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\31\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-28890 Filed 12-3-09; 8:45 am]
BILLING CODE 8011-01-P
