Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Approving a Proposed Rule Change To Modify Its Corporate Governance Rules, 43618-43620 [2012-18106]
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43618
Federal Register / Vol. 77, No. 143 / Wednesday, July 25, 2012 / Notices
Signed at Washington, DC on July 20, 2012.
David Michaels,
Assistant Secretary of Labor for Occupational
Safety and Health.
[FR Doc. 2012–18174 Filed 7–24–12; 8:45 am]
BILLING CODE 4510–26–P
OVERSEAS PRIVATE INVESTMENT
CORPORATION
Sunshine Act Meetings; OPIC Annual
Public Hearing
2:00 p.m., Thursday,
September 6, 2012.
PLACE: Offices of the Corporation,
Twelfth Floor Board Room, 1100 New
York Avenue NW., Washington, DC.
STATUS: Hearing OPEN to the Public at
2:00 p.m.
PURPOSE: Annual Public Hearing to
afford an opportunity for any person to
present views regarding the activities of
the Corporation.
TIME AND DATE:
srobinson on DSK4SPTVN1PROD with NOTICES
Procedures
Individuals wishing to address the
hearing orally must provide advance
notice to OPIC’s Corporate Secretary no
later than 5:00 p.m., Wednesday, August
29, 2012. The notice must include the
individual’s name, title, organization,
address, and telephone number, and a
concise summary of the subject matter
to be presented.
Oral presentations may not exceed ten
(10) minutes. The time for individual
presentations may be reduced
proportionately, if necessary, to afford
all participants who have submitted a
timely request an opportunity to be
heard.
Participants wishing to submit a
written statement for the record must
submit a copy of such statement to
OPIC’s Corporate Secretary no later than
5:00 p.m., Wednesday, August 29, 2012.
Such statement must be typewritten,
double-spaced, and may not exceed
twenty-five (25) pages.
Upon receipt of the required notice,
OPIC will prepare an agenda for the
hearing identifying speakers, setting
forth the subject on which each
participant will speak, and the time
allotted for each presentation. The
agenda will be available at the hearing.
A written summary of the hearing will
be compiled, and such summary will be
made available, upon written request to
OPIC’s Corporate Secretary, at the cost
of reproduction.
CONTACT PERSON FOR INFORMATION:
Information on the hearing may be
obtained from Connie M. Downs at (202)
336–8438, via email at
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connie.downs@opic.gov, or via facsimile
at (202) 408–0297.
SUPPLEMENTARY INFORMATION: OPIC is a
U.S. Government agency that provides,
on a commercial basis, political risk
insurance and financing in friendly
developing countries and emerging
democracies for environmentally sound
projects that confer positive
developmental benefits upon the project
country while creating employment in
the U.S. OPIC is required by section
231A(c) of the Foreign Assistance Act of
1961, as amended (the ‘‘Act’’) to hold at
least one public hearing each year.
Dated: July 23, 2012.
Connie M. Downs,
OPIC Corporate Secretary.
[FR Doc. 2012–18261 Filed 7–23–12; 4:15 pm]
BILLING CODE 3210–01–P
RAILROAD RETIREMENT BOARD
Sunshine Act Meetings
Notice is hereby given that the
Railroad Retirement Board will hold a
meeting on August 8, 2012, 10:00 a.m.
at the Board’s meeting room on the 8th
floor of its headquarters building, 844
North Rush Street, Chicago, Illinois
60611. The agenda for this meeting
follows:
Portion Open to the Public
(1) Executive Committee Reports.
(2) Proposal to Coordinate Additional
Fact-Finding with Social Security
Administration.
The person to contact for more
information is Martha P. Rico, Secretary
to the Board, Phone No. 312–751–4920.
Dated: July 20, 2012.
Martha P. Rico,
Secretary to the Board.
[FR Doc. 2012–18262 Filed 7–23–12; 4:15 pm]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67468; File No. SR–
NASDAQ–2012–062]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Order
Approving a Proposed Rule Change To
Modify Its Corporate Governance
Rules
July 19, 2012.
I. Introduction
On May 17, 2012, The NASDAQ
Stock Market LLC (‘‘Nasdaq’’ or
‘‘Exchange’’) filed with the Securities
Frm 00048
Fmt 4703
II. Description of the Proposal
Nasdaq’s listing rules generally
require that a listed company’s audit,
compensation and nominations
committees consist of ‘‘independent
directors,’’ 5 as defined in Nasdaq Rule
5605(a)(2). A director is specifically
prohibited from being considered
independent under certain
circumstances.6 For example, a director
who is currently, or during the prior
three years was, employed by the
company, or a director who is a family
member of an individual who is, or at
any time during the prior three years
was, employed as an executive officer 7
by the company, may not be considered
independent.8
Nasdaq’s listing rules also include an
exception (‘‘Exception’’) to permit a
listed company, under exceptional and
limited circumstances, with proper
disclosure, and under specified
conditions to allow one nonindependent director to serve on the
audit, compensation, or nominations
committee for up to two years.9
Currently, a listed company may not
utilize the Exception for a non1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See infra note 9 and accompanying text.
4 See Securities Exchange Act Release No. 67076
(May 30, 2012), 77 FR 33261 (SR–NASDAQ–2012–
062) (‘‘Notice’’).
5 See paragraphs (c)(2)(A), (d), and (e)(1)(B) of
Nasdaq Rule 5605.
6 See Nasdaq Rule 5605(a)(2).
7 ‘‘Executive Officer’’ means those officers
covered in Rule 16a–1(f) under the Act, 17 CFR
240.16a–1(f). See Nasdaq Rule 5605(a)(1).
8 A director is not, however, barred from being
independent if he or she has a family member
employed by the company, provided that the family
member is not an executive officer of the company.
See Nasdaq Rule 5605(a)(2)(C).
9 See paragraphs (c)(2)(B), (d)(3) and (e)(3) of
Nasdaq Listing Rule 5605. The Exception, however,
does not permit a listed company to appoint to its
audit committee a director who does not meet the
independence criteria set forth in Section 10A(m)(3)
of the Exchange Act, 15 U.S.C. 78j–1(m)(3), and
Rule 10A–3 thereunder, 17 CFR. 240.10A–3(b)(1).
See also Nasdaq Rule 5605(c)(2)(B)(ii).
2 17
BILLING CODE 7905–01–P
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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
modify an exception to Nasdaq Rule
5605 that allows a non-independent
director of a listed company to serve on
its audit committee, compensation
committee or nominations committee
under exceptional and limited
circumstances.3 The proposal was
published for comment in the Federal
Register on June 5, 2012.4 The
Commission received no comments on
the proposal. This order approves the
proposed rule change.
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Federal Register / Vol. 77, No. 143 / Wednesday, July 25, 2012 / Notices
independent director who would
otherwise qualify if that director has a
family member who is an employee of
the listed company, even if that family
member is not an executive officer of
the company. Nasdaq notes, however,
that the same family relationship would
not otherwise preclude a director from
being considered independent.10
Nasdaq cites to the example of a director
who, until one year ago, was employed
by a listed company and who has a son
who is a non-executive employee of the
company. The director, under ordinary
circumstances, cannot be considered
independent until three years after the
end of the director’s employment.11
Nasdaq notes that it is the director’s
own prior employment relationship that
precludes the director from being
considered independent. The son’s
employment does not preclude the
director from being considered
independent. Thus, three years after the
end of the director’s employment, the
company’s board of directors (‘‘board’’)
may determine that the director is
independent, even if the director’s son
is still a non-executive employee of the
company at that time. Nonetheless,
under the current rule, if the listed
company sought to appoint this same
director to its audit, compensation, or
nominations committee pursuant to the
Exception prior to the expiration of the
three-year lookback period, it would be
unable to do so solely because of the
son’s employment.
Nasdaq believes that this distinction
in its listing rules is incongruous. If
employment of a director’s family
member, other than as an executive
officer, does not disqualify a director
from being considered independent, the
Exchange states that it sees no reason to
preclude a listed company from relying
on the Exception for that same director
where the listed company’s board
determines that the director’s
membership on the relevant committee
is required by the best interests of the
company and its shareholders.12
Nasdaq proposes to amend paragraphs
(c)(2)(B), (d)(3), and (e)(3) of Nasdaq
Rule 5605 to allow a director who is a
family member of a non-executive
employee of a listed company to serve
on the listed company’s audit
committee, compensation committee, or
nominations committee under
exceptional and limited circumstances
as long as the listed company’s board
10 See paragraphs (a), (c)(2)(B), (d)(3) and (e)(3) of
Nasdaq Rule 5605.
11 See Nasdaq Rule 5605(a)(2)(A), which provides
that a director who is, or at any time during the past
three years was, employed by a listed company may
not be considered independent.
12 See Notice, supra note 4.
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concludes that the director’s
membership on the relevant committee
is required by the best interests of the
company and its shareholders. Under
the proposed rule change, the board
would still be required, as under the
current version of the Exception, to
make an affirmative determination that
the non-independent director’s
membership on a committee is required
by the best interests of the company and
its shareholders. Nasdaq states that it
expects the board, in making such a
determination, to consider any family
relationship between the nonindependent director and a nonexecutive employee of the company.13
Under the proposed rule change, a
listed company, other than a foreign
private issuer, that relies on the
Exception for an audit committee
member would continue to be required
to comply with the disclosure
requirements set forth in Item 407(d)(2)
of Regulation S–K.14 A foreign private
issuer that relies on the Exception for an
audit committee member would
continue to be required to disclose in its
next annual report (e.g., Form 20–F or
40–F) the nature of the relationship that
makes the committee member not
independent and the reasons for the
board’s determination to rely on the
Exception.15
Similarly, a listed company that relies
on the Exception for a compensation or
nominations committee member would
continue to be required to disclose
either on or through the company’s Web
site or in the proxy statement for the
next annual meeting of the company (or,
if the company does not file a proxy, in
its Form 10–K or 20–F), the nature of
the relationship that makes the
committee member not independent
and the reasons for the determination to
rely on the Exception.16 A listed
company that relies on the Exception for
a compensation or nominations
committee member also would continue
to be required to provide any disclosure
required by Instruction 1 to Item 407(a)
of Regulation S–K regarding its reliance
on the Exception.17
13 Under both the current and proposed versions
of the Exception, a listed company could not rely
on the Exception for a director who has a family
member who is an executive officer of the listed
company. In addition, under both the current and
proposed versions of the Exception for audit
committees, a listed company could not rely on the
Exception for a director who does not meet the
criteria in Section 10A(m)(3) of the Act and the
rules thereunder to allow the director to serve on
the audit committee. See 15 U.S.C. 78j–1(m)(3) and
17 CFR 240.10A–3(b)(1).
14 See Nasdaq Rule 5605(c)(2)(B).
15 Id.
16 See paragraphs (d)(3) and (e)(3) of Nasdaq Rule
5605.
17 Id.
PO 00000
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Fmt 4703
Sfmt 4703
43619
Finally, the proposed rule change
would replace the term ‘‘officer’’ with
the defined term ‘‘Executive Officer’’ in
paragraphs (c)(2)(B), (d)(3), and (e)(3) of
Nasdaq Rule 5605. Nasdaq notes that it
has always interpreted these terms in
the same manner.18
III. Discussion and Commission
Findings
After carefully reviewing the
proposed rule change, 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.19 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,20 which, among other
things, requires that the rules of a
national securities exchange be
designed to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating 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.21
As the Exchange notes, in ordinary
circumstances, when a family member
of a director is employed by the listed
company, but not as an executive
officer, the director may still be deemed
independent. The Exchange believes
that it is incongruous for the same
relationship to preclude a company
from relying on the Exception where the
requirements of the Exception otherwise
18 See
Notice, supra note 4.
approving this proposed rule change, the
Commission has considered the proposed rule
change’s impact on efficiency, competition, and
capital formation. See 15 U.S.C. 78c(f).
20 15 U.S.C. 78f(b)(5).
21 The Commission notes that it recently adopted
new Rule 10C–1 under the Act, relating to the
independence of compensation committees of listed
issuers. See Securities Exchange Act Release No.
67220 (June 20, 2012), 77 FR 28422 (June 27, 2012).
In accordance with Section 10C of the Act, which
was added by Section 952 of the Dodd-Frank Wall
Street Reform and Consumer Protection Act of
2010, new Rule 10C–1 directs each national
securities exchange to establish listing standards
that, among other things, require each member of
a listed issuer’s compensation committee to be a
member of the board of directors and to be
‘‘independent,’’ as defined in the listing standards
of the exchange adopted in accordance with Rule
10C–1. The exchanges must file with the
Commission, no later than September 25, 2012,
proposed rule changes that comply with the
requirements of Rule 10C–1, and must have final
rules or rule amendments that comply with Rule
10C–1 approved by the Commission no later than
June 27, 2013. The Commission expects that, in
submitting a proposed rule change in compliance
with Rule 10C–1, Nasdaq will discuss whether and
how its proposed rule change would relate to the
Exception and the Exchange’s instant proposed rule
change with respect to compensation committees.
19 In
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Federal Register / Vol. 77, No. 143 / Wednesday, July 25, 2012 / Notices
are satisfied. The Commission believes
that the Exchange’s view is not
unreasonable. In approving the
proposed rule change, the Commission
notes that in any instance in which a
listed company relies on the Exception,
the company’s board would continue to
be required under the proposal to
affirmatively determine that the director
does not have any relationship which,
in the opinion of the board, would
interfere with the exercise of
independent judgment in carrying out
the responsibilities of a director.22
The Commission further notes that a
listed company is permitted to use the
Exception only if its board, under
exceptional and limited circumstances,
determines that membership on the
committee by the individual is required
by the best interests of the company and
its shareholders. Moreover, the
Commission notes that any time an
issuer relies on the Exception, it is
required to make the public disclosures
indicated above.
Finally, the Commission believes that
replacing the undefined term ‘‘officer’’
with the defined term ‘‘Executive
Officer,’’ in keeping with the Exchange’s
longstanding interpretation of its listing
rules, clarifies the applicability of the
listing rules.
For the reasons discussed above, the
Commission finds that the rule change
is consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,23 that the
proposed rule change (SR–NASDAQ–
2012–062), be, and it hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–18106 Filed 7–24–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67471; File No. SR–FINRA–
2012–26]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Designation
of a Longer Period for Commission
Action on Proposed Rule Change
Relating to the Handling of Stop and
Stop Limit Orders
July 19, 2012.
On May 24, 2012, Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’)
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 FINRA’s rules relating
to the handling of stop and stop limit
orders. The proposed rule change was
published for comment in the Federal
Register on June 6, 2012.3 The
Commission received four comment
letters regarding the proposal.4
Section 19(b)(2) of the Act 5 provides
that within 45 days of the publication of
notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day from the
publication of notice of filing of this
proposed rule change is July 21, 2012.
The Commission is extending the
45-day time period.
The Commission finds that it is
appropriate to designate a longer period
within which to take action on this
proposed rule change. In particular,
extension of time will ensure the
Commission has sufficient time to
consider the Exchange’s proposal in
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 67085
(May 31, 2012), 77 FR 33537.
4 See Letters to Elizabeth M. Murphy, Secretary,
Commission, from Ann L. Vlcek, Managing Director
and Associate General Counsel, Securities Industry
and Financial Markets Association, dated June 26,
2012; Gary J. Sjostedt, Director, Order Routing and
Sales, TD Ameritrade, Inc., dated June 27, 2012;
Virgil F. Liptak, dated July 3, 2012; and Christopher
Nagy, President, KOR Trading LLC, dated July 9,
2012. The comment letters received by the
Commission are available at https://www.sec.gov/
comments/sr-finra-2012-026/finra2012026.shtml.
5 15 U.S.C. 78s(b)(2).
light of, among other things, the
comments received on the proposal. The
extension of time also will allow the
Commission sufficient time to consider
any responses to the comments.
Accordingly, the Commission,
pursuant to Section 19(b)(2) of the Act,6
designates September 4, 2012, as the
date by which the Commission should
either approve or disapprove, or
institute proceedings to determine
whether to disapprove, this proposed
rule change.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–18108 Filed 7–24–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67470; File No. SR–
NYSEArca–2012–28]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Instituting
Proceedings to Determine Whether To
Approve or Disapprove a Proposed
Rule Change to List and Trade Shares
of the JPM XF Physical Copper Trust
Pursuant to NYSE Arca Equities Rule
8.201
July 19, 2012.
I. Introduction
On April 2, 2012, NYSE Arca, Inc.
(‘‘Exchange’’ or ‘‘NYSE Arca’’) 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 list and trade shares
(‘‘Shares’’) of JPM XF Physical Copper
Trust (‘‘Trust’’) pursuant to NYSE Arca
Equities Rule 8.201. The proposed rule
change was published for comment in
the Federal Register on April 20, 2012.3
The Commission initially received one
comment letter on the proposed rule
change.4 On May 30, 2012, the
1 15
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2 17
22 See
Nasdaq Rule 5605(a)(2).
U.S.C. 78s(b)(2).
24 17 CFR 200.30–3(a)(12).
23 15
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17:49 Jul 24, 2012
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Frm 00050
Fmt 4703
Sfmt 4703
6 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(31).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 66816
(April 16, 2012), 77 FR 23772 (‘‘Notice’’).
4 See letter from Vandenberg & Feliu, LLP
(‘‘V&F’’), received May 9, 2012 (‘‘V&F Letter’’). The
V&F Letter is available at https://www.sec.gov/
comments/sr-nysearca-2012-28/
nysearca201228.shtml. In a second comment letter,
V&F identified itself as a U.S. law firm that
represents RK Capital LLC, an international copper
merchant, and four end-users of copper: Southwire
Company, Encore Wire Corporation, Luvata, and
7 17
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]]>Agencies
[Federal Register Volume 77, Number 143 (Wednesday, July 25, 2012)]
[Notices]
[Pages 43618-43620]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-18106]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67468; File No. SR-NASDAQ-2012-062]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order
Approving a Proposed Rule Change To Modify Its Corporate Governance
Rules
July 19, 2012.
I. Introduction
On May 17, 2012, The NASDAQ Stock Market LLC (``Nasdaq'' 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 modify an exception to Nasdaq Rule 5605 that
allows a non-independent director of a listed company to serve on its
audit committee, compensation committee or nominations committee under
exceptional and limited circumstances.\3\ The proposal was published
for comment in the Federal Register on June 5, 2012.\4\ The Commission
received no comments on the proposal. This order approves the proposed
rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See infra note 9 and accompanying text.
\4\ See Securities Exchange Act Release No. 67076 (May 30,
2012), 77 FR 33261 (SR-NASDAQ-2012-062) (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposal
Nasdaq's listing rules generally require that a listed company's
audit, compensation and nominations committees consist of ``independent
directors,'' \5\ as defined in Nasdaq Rule 5605(a)(2). A director is
specifically prohibited from being considered independent under certain
circumstances.\6\ For example, a director who is currently, or during
the prior three years was, employed by the company, or a director who
is a family member of an individual who is, or at any time during the
prior three years was, employed as an executive officer \7\ by the
company, may not be considered independent.\8\
---------------------------------------------------------------------------
\5\ See paragraphs (c)(2)(A), (d), and (e)(1)(B) of Nasdaq Rule
5605.
\6\ See Nasdaq Rule 5605(a)(2).
\7\ ``Executive Officer'' means those officers covered in Rule
16a-1(f) under the Act, 17 CFR 240.16a-1(f). See Nasdaq Rule
5605(a)(1).
\8\ A director is not, however, barred from being independent if
he or she has a family member employed by the company, provided that
the family member is not an executive officer of the company. See
Nasdaq Rule 5605(a)(2)(C).
---------------------------------------------------------------------------
Nasdaq's listing rules also include an exception (``Exception'') to
permit a listed company, under exceptional and limited circumstances,
with proper disclosure, and under specified conditions to allow one
non-independent director to serve on the audit, compensation, or
nominations committee for up to two years.\9\ Currently, a listed
company may not utilize the Exception for a non-
[[Page 43619]]
independent director who would otherwise qualify if that director has a
family member who is an employee of the listed company, even if that
family member is not an executive officer of the company. Nasdaq notes,
however, that the same family relationship would not otherwise preclude
a director from being considered independent.\10\ Nasdaq cites to the
example of a director who, until one year ago, was employed by a listed
company and who has a son who is a non-executive employee of the
company. The director, under ordinary circumstances, cannot be
considered independent until three years after the end of the
director's employment.\11\ Nasdaq notes that it is the director's own
prior employment relationship that precludes the director from being
considered independent. The son's employment does not preclude the
director from being considered independent. Thus, three years after the
end of the director's employment, the company's board of directors
(``board'') may determine that the director is independent, even if the
director's son is still a non-executive employee of the company at that
time. Nonetheless, under the current rule, if the listed company sought
to appoint this same director to its audit, compensation, or
nominations committee pursuant to the Exception prior to the expiration
of the three-year lookback period, it would be unable to do so solely
because of the son's employment.
---------------------------------------------------------------------------
\9\ See paragraphs (c)(2)(B), (d)(3) and (e)(3) of Nasdaq
Listing Rule 5605. The Exception, however, does not permit a listed
company to appoint to its audit committee a director who does not
meet the independence criteria set forth in Section 10A(m)(3) of the
Exchange Act, 15 U.S.C. 78j-1(m)(3), and Rule 10A-3 thereunder, 17
CFR. 240.10A-3(b)(1). See also Nasdaq Rule 5605(c)(2)(B)(ii).
\10\ See paragraphs (a), (c)(2)(B), (d)(3) and (e)(3) of Nasdaq
Rule 5605.
\11\ See Nasdaq Rule 5605(a)(2)(A), which provides that a
director who is, or at any time during the past three years was,
employed by a listed company may not be considered independent.
---------------------------------------------------------------------------
Nasdaq believes that this distinction in its listing rules is
incongruous. If employment of a director's family member, other than as
an executive officer, does not disqualify a director from being
considered independent, the Exchange states that it sees no reason to
preclude a listed company from relying on the Exception for that same
director where the listed company's board determines that the
director's membership on the relevant committee is required by the best
interests of the company and its shareholders.\12\
---------------------------------------------------------------------------
\12\ See Notice, supra note 4.
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Nasdaq proposes to amend paragraphs (c)(2)(B), (d)(3), and (e)(3)
of Nasdaq Rule 5605 to allow a director who is a family member of a
non-executive employee of a listed company to serve on the listed
company's audit committee, compensation committee, or nominations
committee under exceptional and limited circumstances as long as the
listed company's board concludes that the director's membership on the
relevant committee is required by the best interests of the company and
its shareholders. Under the proposed rule change, the board would still
be required, as under the current version of the Exception, to make an
affirmative determination that the non-independent director's
membership on a committee is required by the best interests of the
company and its shareholders. Nasdaq states that it expects the board,
in making such a determination, to consider any family relationship
between the non-independent director and a non-executive employee of
the company.\13\
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\13\ Under both the current and proposed versions of the
Exception, a listed company could not rely on the Exception for a
director who has a family member who is an executive officer of the
listed company. In addition, under both the current and proposed
versions of the Exception for audit committees, a listed company
could not rely on the Exception for a director who does not meet the
criteria in Section 10A(m)(3) of the Act and the rules thereunder to
allow the director to serve on the audit committee. See 15 U.S.C.
78j-1(m)(3) and 17 CFR 240.10A-3(b)(1).
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Under the proposed rule change, a listed company, other than a
foreign private issuer, that relies on the Exception for an audit
committee member would continue to be required to comply with the
disclosure requirements set forth in Item 407(d)(2) of Regulation S-
K.\14\ A foreign private issuer that relies on the Exception for an
audit committee member would continue to be required to disclose in its
next annual report (e.g., Form 20-F or 40-F) the nature of the
relationship that makes the committee member not independent and the
reasons for the board's determination to rely on the Exception.\15\
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\14\ See Nasdaq Rule 5605(c)(2)(B).
\15\ Id.
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Similarly, a listed company that relies on the Exception for a
compensation or nominations committee member would continue to be
required to disclose either on or through the company's Web site or in
the proxy statement for the next annual meeting of the company (or, if
the company does not file a proxy, in its Form 10-K or 20-F), the
nature of the relationship that makes the committee member not
independent and the reasons for the determination to rely on the
Exception.\16\ A listed company that relies on the Exception for a
compensation or nominations committee member also would continue to be
required to provide any disclosure required by Instruction 1 to Item
407(a) of Regulation S-K regarding its reliance on the Exception.\17\
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\16\ See paragraphs (d)(3) and (e)(3) of Nasdaq Rule 5605.
\17\ Id.
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Finally, the proposed rule change would replace the term
``officer'' with the defined term ``Executive Officer'' in paragraphs
(c)(2)(B), (d)(3), and (e)(3) of Nasdaq Rule 5605. Nasdaq notes that it
has always interpreted these terms in the same manner.\18\
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\18\ See Notice, supra note 4.
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III. Discussion and Commission Findings
After carefully reviewing the proposed rule change, 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.\19\ In particular, the Commission finds
that the proposed rule change is consistent with Section 6(b)(5) of the
Act,\20\ which, among other things, requires that the rules of a
national securities exchange be designed to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating 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.\21\
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\19\ In approving this proposed rule change, the Commission has
considered the proposed rule change's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
\20\ 15 U.S.C. 78f(b)(5).
\21\ The Commission notes that it recently adopted new Rule 10C-
1 under the Act, relating to the independence of compensation
committees of listed issuers. See Securities Exchange Act Release
No. 67220 (June 20, 2012), 77 FR 28422 (June 27, 2012). In
accordance with Section 10C of the Act, which was added by Section
952 of the Dodd-Frank Wall Street Reform and Consumer Protection Act
of 2010, new Rule 10C-1 directs each national securities exchange to
establish listing standards that, among other things, require each
member of a listed issuer's compensation committee to be a member of
the board of directors and to be ``independent,'' as defined in the
listing standards of the exchange adopted in accordance with Rule
10C-1. The exchanges must file with the Commission, no later than
September 25, 2012, proposed rule changes that comply with the
requirements of Rule 10C-1, and must have final rules or rule
amendments that comply with Rule 10C-1 approved by the Commission no
later than June 27, 2013. The Commission expects that, in submitting
a proposed rule change in compliance with Rule 10C-1, Nasdaq will
discuss whether and how its proposed rule change would relate to the
Exception and the Exchange's instant proposed rule change with
respect to compensation committees.
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As the Exchange notes, in ordinary circumstances, when a family
member of a director is employed by the listed company, but not as an
executive officer, the director may still be deemed independent. The
Exchange believes that it is incongruous for the same relationship to
preclude a company from relying on the Exception where the requirements
of the Exception otherwise
[[Page 43620]]
are satisfied. The Commission believes that the Exchange's view is not
unreasonable. In approving the proposed rule change, the Commission
notes that in any instance in which a listed company relies on the
Exception, the company's board would continue to be required under the
proposal to affirmatively determine that the director does not have any
relationship which, in the opinion of the board, would interfere with
the exercise of independent judgment in carrying out the
responsibilities of a director.\22\
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\22\ See Nasdaq Rule 5605(a)(2).
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The Commission further notes that a listed company is permitted to
use the Exception only if its board, under exceptional and limited
circumstances, determines that membership on the committee by the
individual is required by the best interests of the company and its
shareholders. Moreover, the Commission notes that any time an issuer
relies on the Exception, it is required to make the public disclosures
indicated above.
Finally, the Commission believes that replacing the undefined term
``officer'' with the defined term ``Executive Officer,'' in keeping
with the Exchange's longstanding interpretation of its listing rules,
clarifies the applicability of the listing rules.
For the reasons discussed above, the Commission finds that the rule
change is consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\23\ that the proposed rule change (SR-NASDAQ-2012-062), be, and it
hereby is, approved.
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\23\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-18106 Filed 7-24-12; 8:45 am]
BILLING CODE 8011-01-P
