Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Listing Rules on Independence of Compensation Committee Members, 76179-76182 [2013-29802]

Download as PDF Federal Register / Vol. 78, No. 241 / Monday, December 16, 2013 / Notices hear oral argument in an appeal by Absolute Potential, Inc. (f/k/a Absolute Waste Services, Inc.) from an initial decision of an administrative law judge. On February 15, 2012, the law judge found that Absolute Potential, Inc., an issuer whose common stock is registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, violated Exchange Act Section 13(a) and Exchange Act Rules 13a–1 and 13a–13 by failing to file timely quarterly and annual reports for any period after June 30, 2006. The law judge revoked the registration of the company’s stock pursuant to Exchange Act Section 12(j). Absolute filed certain annual and quarterly reports prior to, as well as after, the issuance of the law judge’s decision. Absolute Potential does not appeal the law judge’s findings of violation but, rather, the law judge’s determination to revoke its registration. Exchange Act Section 12(j) authorizes sanctions, including revocation, for reporting violations where it is ‘‘necessary or appropriate for the protection of investors.’’ Issues likely to be considered at oral argument include the extent to which, under the circumstances, sanctions are warranted. The duty officer has determined that no earlier notice was practicable. For further information, please contact the Office of the Secretary at (202) 551–5400. Dated: December 11, 2013. Elizabeth M. Murphy, Secretary. [FR Doc. 2013–29903 Filed 12–12–13; 11:15 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–71037; File No. SR– NASDAQ–2013–147] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Listing Rules on Independence of Compensation Committee Members pmangrum on DSK3VPTVN1PROD with NOTICES December 11, 2013. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on November 26, 2013, The NASDAQ Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Mar<15>2010 13:51 Dec 13, 2013 Jkt 232001 the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change The Exchange proposes to amend its listing rules on compensation committee composition. Specifically, Nasdaq proposes to amend Nasdaq Listing Rule 5605(d)(2)(A) and IM– 5605–6 to replace the prohibition on the receipt of compensatory fees by compensation committee members with a requirement that a board of directors instead consider the receipt of such fees when determining eligibility for compensation committee membership. The text of the proposed rule change is available on the Exchange’s Web site at https://nasdaq.cchwallstreet.com, at the principal office of the Exchange and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the ‘‘Dodd-Frank Act’’) 3 and Rule 10C–1 under the Act,4 Nasdaq amended its listing rules (the ‘‘Amended Rules’’) relating to compensation committee composition, responsibilities and authority earlier this year.5 Rule 10C–1 required Nasdaq to consider, in determining independence requirements for 3 Public Law 111–203, 124 Stat. 1376 (2010). CFR 240.10C–1. 5 See Securities Exchange Act Release No. 68640 (January 11, 2013), 78 FR 4554 (January 22, 2013) (SR–NASDAQ–2012–109). 4 17 PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 76179 compensation committee members, certain relevant factors, including the ‘‘source of compensation of a member of the board of directors of an issuer, including any consulting, advisory or other compensatory fee paid by the issuer to such member of the board of directors.’’ 6 Following consideration of this factor, Nasdaq adopted a prohibition on the receipt of compensatory fees by compensation committee members,7 which is the same standard applicable to audit committee members under Nasdaq’s listing rules and Rule 10A–3 under the Act.8 During the rulemaking process, Nasdaq received limited comment on the prohibition on the receipt of compensatory fees by compensation committee members.9 Over the past few months, however, Nasdaq has received feedback from listed companies and others that the prohibition on compensatory fees creates a burden on issuers at a time when regulatory burdens are higher than ever before. For example, there are companies in some industries (e.g., the energy and banking industries) where it is common to have directors who do a de minimis amount of business with the issuer and would, therefore, be ineligible to serve on the compensation committee under the Nasdaq rules. These companies may have difficulty recruiting a sufficient number of eligible directors to serve on their boards, given the different requirements for board, audit committee 6 17 CFR 240.10C–1(b)(1)(ii)(A). Nasdaq Listing Rule 5605(d)(2)(A), which states that each compensation committee member must not accept directly or indirectly any consulting, advisory or other compensatory fee from the company or any subsidiary thereof. 8 See Nasdaq Listing Rule 5605(c)(2)(A), which states that each audit committee member must meet the criteria for independence set forth in Rule 10A– 3(b)(1) under the Act. Under this rule, audit committee members may not accept directly or indirectly any consulting, advisory or other compensatory fee from the issuer or any subsidiary thereof. See 17 CFR 240.10A–3(b)(1). 9 Specifically, Nasdaq received only two comments objecting to the prohibition. See (i) Letter from Harold R. Carpenter, CFO, Pinnacle Financial Partners, Nashville, Tennessee, dated November 5, 2012; and (ii) Letter from Robert B. Lamm, Chair, Securities Law Committee, Society of Corporate Secretaries and Governance Professionals, New York, New York, dated December 7, 2012. Nasdaq also received three comments that supported the prohibition, but argued that in considering a director’s eligibility to serve on a compensation committee, a board should also consider fees paid to directors for service on the board and board committees. See (i) Letter from J. Robert Brown, Jr., University of Denver Sturm College of Law, dated October 30, 2012; (ii) Letter from Brandon J. Rees, Acting Director, Office of Investment, AFL–CIO, dated November 5, 2012; and (iii) Letter from Carin Zelenko, Director, Capital Strategies Department, International Brotherhood of Teamsters, dated November 5, 2012. All the comment letters are available at https://www.sec.gov/comments/srnasdaq-2012-109/nasdaq2012109.shtml. 7 See E:\FR\FM\16DEN1.SGM 16DEN1 76180 Federal Register / Vol. 78, No. 241 / Monday, December 16, 2013 / Notices pmangrum on DSK3VPTVN1PROD with NOTICES and compensation committee composition. Companies and their representatives have indicated that this additional burden could influence a company’s choice of listing venue. After weighing these comments, Nasdaq proposes to remove the prohibition on the receipt of compensatory fees by compensation committee members. Nasdaq proposes to state instead that in affirmatively determining the independence of any director who will serve on the compensation committee, a company’s board must consider the source of compensation of the director, including any consulting, advisory or other compensatory fee paid by the company to the director.10 In IM–5605–6, Nasdaq proposes to state that when considering the sources of a director’s compensation in determining independence for purposes of compensation committee service, the board should consider whether the director receives compensation from any person or entity that would impair the director’s ability to make independent judgments about the company’s executive compensation. Nasdaq proposes to remove the exception in the current rule that states that compensatory fees do not include: (i) fees received as a member of the compensation committee, the board of directors or any other board committee; or (ii) the receipt of fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service with the company (provided that such compensation is not contingent in any way on continued service).11 As a result, boards of director [sic] should consider such fees, in aggregate with all other sources of compensation of the director, to determine whether such compensation would impair the director’s judgment as a member of the compensation committee. This proposal is consistent with the approach of other exchanges, which do not exempt any types of fees 10 Nasdaq also proposes to add language to IM– 5605–6 to state that for purposes of the affirmative independence determination described in Rule 5605(d)(2)(A), any reference to the defined term ‘‘Company’’ includes any parent or subsidiary of the company. The term ‘‘parent or subsidiary’’ is intended to cover entities the company controls and consolidates with the company’s financial statements as filed with the Commission (but not if the company reflects such entity solely as an investment in its financial statements). This language is copied from IM–5605, which explains the interpretation of the definition of Independent Director in Rule 5605(a)(2). Since Rule 5605(d)(2)(A) describes an additional independence test for compensation committee members, Nasdaq believes it would be useful to repeat its construction of the term ‘‘Company’’ for independence purposes in the interpretive material for this rule. 11 See Nasdaq Listing Rule 5605(d)(2)(A). VerDate Mar<15>2010 13:51 Dec 13, 2013 Jkt 232001 from the analysis of compensation committee eligibility.12 In addition, during the rulemaking process on the Amended Rules, Nasdaq received several comments arguing that in determining eligibility for compensation committee membership, a board should consider the fees paid to directors for their service on the board or board committees.13 Nasdaq’s overall proposal is consistent with the Dodd-Frank Act and Rule 10C–1, which required Nasdaq to consider compensatory fees when determining eligibility for compensation committee membership, but did not require a prohibition on such fees. Even with the proposed change, a compensation committee member will not be allowed to receive unlimited fees from a company since such a member must continue to be an Independent Director as defined under Nasdaq Listing Rule 5605(a)(2).14 That definition excludes any director who: (i) Accepted any compensation from the company in excess of $120,000 during any period of twelve consecutive months within the prior three years; 15 or (ii) is a partner in, or a controlling shareholder or an executive officer of, any organization to which the company made, or from which the company received, payments for property or services in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenues for that year, or $200,000, whichever is more.16 Boards of directors would be required to consider, based on the company’s and the director’s unique circumstances, whether the receipt of any fees, even fees below these caps, would impair the director’s ability to make independent judgments about the company’s executive compensation, and therefore render the director ineligible to serve on the compensation committee. In addition, the proposal is consistent with Nasdaq’s approach to affiliation, which is the other specific factor enumerated in Rule 10C–1 that Nasdaq was required to consider in determining 12 See Section 303A.02(a)(ii)(A) of the NYSE Listed Company Manual; see also BATS Rule 14.10(c)(4)(A)(i)(a); see also NYSE Arca Equities Rule 5.3(k)(4)(ii); see also Section 805(c)(1) of the NYSE MKT Company Guide. 13 See footnote 9, supra. 14 See Nasdaq Listing Rule 5605(d)(2)(A). 15 See Nasdaq Listing Rule 5605(a)(2)(B). Nasdaq notes that this rule excludes compensation for board or board committee service from the $120,000 cap. However, any compensation for board or board committee service still must be considered for purposes of affirmatively determining the independence of any director who will serve on the compensation committee. 16 See Nasdaq Listing Rule 5605(a)(2)(D). PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 eligibility for compensation committee membership. The Amended Rules require that boards of directors consider affiliation in determining compensation committee membership, but they do not include any outright prohibitions in this regard.17 Nasdaq is proposing some minor wording changes to Rule 5605(d)(2)(A) to make the affiliation prong more clear, in light of the revisions to the prong relating to compensatory fees; however, Nasdaq believes that substantively, the affiliation prong will remain unchanged following this proposed rule change. Nasdaq also proposes to add text to IM– 5605–6 to state that when considering any affiliate relationship a director has with the company, a subsidiary, or an affiliate of a subsidiary, in determining independence for purposes of compensation committee service, the board should consider whether the affiliate relationship places the director under the direct or indirect control of the company or its senior management, or creates a direct relationship between the director and members of senior management, in each case of a nature that would impair the director’s ability to make independent judgments about the Company’s executive compensation.18 Nasdaq also proposes to add language to Rule 5605(d)(2)(A) to clarify that in affirmatively determining the independence of any director who will serve on the compensation committee, the board of directors must consider all factors specifically relevant to determining whether a director has a relationship to the company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member. Nasdaq does not believe this is a substantive change since the existing rule requires compensation committee members to be Independent Directors as defined under Rule 5605(a)(2). This definition requires, among other things, that a company’s board make an affirmative determination that the director has no relationship which 17 See Nasdaq Listing Rule 5605(d)(2)(A). proposes to retain existing language in IM–5605–6 that states that while a board may conclude differently with respect to individual facts and circumstances, Nasdaq does not believe that ownership of a company’s stock by itself, or possession of a controlling interest through ownership of a company’s stock, precludes a board finding that it is appropriate for a director to serve on the compensation committee. In fact, it may be appropriate for certain affiliates, such as representatives of significant stockholders, to serve on compensation committees since their interests are likely aligned with those of other stockholders in seeking an appropriate executive compensation program. 18 Nasdaq E:\FR\FM\16DEN1.SGM 16DEN1 Federal Register / Vol. 78, No. 241 / Monday, December 16, 2013 / Notices would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The responsibilities of a director who serves on the compensation committee would include any responsibilities relating to compensation committee membership. However, Nasdaq believes it will be helpful to clarify this requirement in the text of Rule 5605(d)(2)(A), which describes the requirements for compensation committee composition. Finally, Nasdaq proposes a minor edit to the first sentence of Rule 5605(d)(2)(A) to split it into two sentences in light of the revisions to the rule described above.19 This edit clarifies that each compensation committee must consist of at least two members, and each committee member must be an Independent Director as defined under Rule 5605(a)(2). Companies are required to comply with the compensation committee composition aspects of the Amended Rules by the earlier of their first annual meeting after January 15, 2014, or October 31, 2014.20 As a result, Nasdaq believes it is important to implement the proposed change now, before companies propose changes to board and committee composition in connection with their 2014 annual meetings. pmangrum on DSK3VPTVN1PROD with NOTICES 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,21 in general, and furthers the objectives of Section 6(b)(5) of the Act,22 in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest. Specifically, the proposal removes impediments to and perfects the mechanism of a free and open market by allowing boards of directors greater flexibility in determining eligibility for compensation committee membership, consistent with the requirements of the Dodd-Frank Act and Rule 10C–1. Nasdaq will continue to protect investors and the public interest by maintaining overall caps on the amount of compensatory fees that may be 19 Nasdaq also proposes conforming edits to IM– 5605–6. 20 See Nasdaq Listing Rule 5605(d)(6). During the transition period, companies that are not yet required to comply with a particular provision of revised Rule 5605(d) and IM–5605–6 must continue to comply with the corresponding provision, if any, of Rule 5605A(d) and IM–5605A–6. 21 15 U.S.C. 78f(b). 22 15 U.S.C. 78f(b)(5). VerDate Mar<15>2010 13:51 Dec 13, 2013 Jkt 232001 76181 received by a compensation committee member from a company. However, a board of directors must consider, given the particular circumstances of a company and/or a director, whether any fees, even fees below the overall caps, would impair the director’s ability to make independent judgments about the company’s executive compensation, and therefore render the director ineligible to serve on the compensation committee. In addition, Nasdaq proposes other changes in the rule to clarify its interpretation of the additional independence test for compensation committee members in light of the change discussed above. Specifically, Nasdaq proposes to: (i) Delete an exception for certain types of compensatory fees that may be received by a compensation committee member; (ii) clarify the standard a board must use when considering certain affiliate relationships of a compensation committee member; (iii) explicitly state that as part of the independence test, a board of directors must consider all factors specifically relevant to determining whether a director has a relationship to the company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member; (iv) reiterate the definition of the term ‘‘Company’’ for purposes of the independence test; and (v) clarify that each compensation committee must be an Independent Director as defined under Rule 5605(a)(2). These changes will make Nasdaq’s compensation committee composition requirements more transparent and easier to understand. As a result, the changes will protect investors and the public interest. as a listing market, no other exchange prohibits compensatory fees to members of the compensation committee.24 This change will harmonize Nasdaq’s rule regarding compensation committee composition with the more flexible rules of the other exchanges. As a result, this proposal removes a potential competitive advantage for the other exchanges and thereby enhances competition among exchanges. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. The DoddFrank Act and Rule 10C–1 under the Act required each national securities exchange to adopt similar rules to Nasdaq’s Amended Rules. Like Nasdaq, each other exchange was required to consider compensatory fees when determining eligibility requirements for compensation committee membership. Other than Nasdaq and NASDAQ OMX BX,23 which is not currently operational IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule 23 Like Nasdaq, NASDAQ OMX BX adopted an outright prohibition on the receipt of compensatory fees by compensation committee members. See BX PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act 25 and subparagraph (f)(6) of Rule 19b–4 thereunder.26 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. Venture Market Listing Rule 5605(d)(2)(A). However, Nasdaq expects that NASDAQ OMX BX will file a proposed rule change to conform its rule to the Nasdaq rule. 24 See Section 303A.02(a)(ii)(A) of the NYSE Listed Company Manual; see also BATS Rule 14.10(c)(4)(A)(i)(a); see also NYSE Arca Equities Rule 5.3(k)(4)(ii); see also Section 805(c)(1) of the NYSE MKT Company Guide. 25 15 U.S.C. 78s(b)(3)(a)(ii). 26 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. E:\FR\FM\16DEN1.SGM 16DEN1 76182 Federal Register / Vol. 78, No. 241 / Monday, December 16, 2013 / Notices change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments SECURITIES AND EXCHANGE COMMISSION [Release No. 34–71030; File No. SR–OCC– 2013–18] • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NASDAQ–2013–147 on the subject line. Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change Concerning the Governance Committee Charter Paper Comments Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that, on November 26, 2013, the Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by OCC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. pmangrum on DSK3VPTVN1PROD with NOTICES All submissions should refer to File Number SR–NASDAQ–2013–147. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room at 100 F Street NE., Washington, DC 20549–1090 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal offices of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NASDAQ–2013–147, and should be submitted on or before January 6, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.27 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–29802 Filed 12–13–13; 8:45 am] December 11, 2013. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change This proposed rule change by The Options Clearing Corporation (‘‘OCC’’) concerns the charter of the Governance Committee (‘‘GC Charter’’) of OCC’s Board of Directors (‘‘Board’’). II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, OCC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. OCC has prepared summaries, set forth in sections (A), (B) and (C) below, of the most significant aspects of these statements. (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change This proposed rule change concerns the GC Charter. The Board authorized formation of the Governance Committee (‘‘GC’’) at its May 21, 2013, meeting and approved the GC Charter at its September 24, 2013, meeting. As set forth in the GC Charter, the purpose of the GC is to review the overall corporate governance of OCC and recommend improvements to OCC’s Board. The GC Charter describes the role the GC plays in assisting the Board in fulfilling its BILLING CODE 8011–01–P 1 15 27 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 13:51 Dec 13, 2013 2 17 Jkt 232001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00083 Fmt 4703 Sfmt 4703 responsibilities, as described in OCC’s By-Laws and Rules, as well as specifying the policies and procedures governing the membership and organization, scope of authority, and specific functions and responsibilities of the GC. In addition, the guidelines for the composition of the GC as well as the policies regarding its meeting schedule, quorum rules, minute-keeping and reporting requirements are set forth in the GC Charter and conform to applicable requirements specified in OCC’s By-Laws and Rules. The GC is composed of not fewer than five Directors with at least one Public Director, one Exchange Director and one Member Director. Management Directors will not be members of the GC. The Board will designate a GC Chair and if the Chair is not present at a meeting, the members who are present will designate a member to serve as the Acting Chair. The GC will meet at least four times a year and a majority of the GC members constitutes a quorum. The GC is permitted to call executive sessions from which guests of the GC may be excluded, and GC members are permitted to participate in all meetings by conference telephone call or other means of communication that permit all meeting participants to hear each other. The GC Chair, or the Chair’s designee, will report regularly to the Board on the GC’s activities. The GC Charter sets forth certain functions and responsibilities for the GC including, but not limited to, the following: review the composition of the Board as a whole, including the Board’s balance of participant and nonparticipant directors, business specialization, technical skills, diversity and other desired qualifications; review the Board’s Charter for consistency with regulatory requirements, transparency of the governance process and other sound governance practice and recommend changes to the Board, where appropriate; review the committee structure of the Board, including the GC, and recommend changes to the Board, where appropriate; review OCC’s policies and procedures for identifying and reviewing Board nominee candidates, including the criteria for Board nominees; develop and recommend to the Board a periodic process of self-evaluation of the role and performance of the Board, its committees and management in the governance of OCC; review OCC’s policies on conflicts of interest of directors, including the OCC Directors Code of Conduct and recommend changes, where appropriate; and, review OCC’s new director orientation program as well as OCC’s training and education E:\FR\FM\16DEN1.SGM 16DEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 78, Number 241 (Monday, December 16, 2013)]
[Notices]
[Pages 76179-76182]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29802]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71037; File No. SR-NASDAQ-2013-147]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Listing Rules on Independence of Compensation Committee 
Members

December 11, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 26, 2013, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend its listing rules on compensation 
committee composition. Specifically, Nasdaq proposes to amend Nasdaq 
Listing Rule 5605(d)(2)(A) and IM-5605-6 to replace the prohibition on 
the receipt of compensatory fees by compensation committee members with 
a requirement that a board of directors instead consider the receipt of 
such fees when determining eligibility for compensation committee 
membership.
    The text of the proposed rule change is available on the Exchange's 
Web site at https://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    As required by the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010 (the ``Dodd-Frank Act'') \3\ and Rule 10C-1 
under the Act,\4\ Nasdaq amended its listing rules (the ``Amended 
Rules'') relating to compensation committee composition, 
responsibilities and authority earlier this year.\5\ Rule 10C-1 
required Nasdaq to consider, in determining independence requirements 
for compensation committee members, certain relevant factors, including 
the ``source of compensation of a member of the board of directors of 
an issuer, including any consulting, advisory or other compensatory fee 
paid by the issuer to such member of the board of directors.'' \6\ 
Following consideration of this factor, Nasdaq adopted a prohibition on 
the receipt of compensatory fees by compensation committee members,\7\ 
which is the same standard applicable to audit committee members under 
Nasdaq's listing rules and Rule 10A-3 under the Act.\8\
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    \3\ Public Law 111-203, 124 Stat. 1376 (2010).
    \4\ 17 CFR 240.10C-1.
    \5\ See Securities Exchange Act Release No. 68640 (January 11, 
2013), 78 FR 4554 (January 22, 2013) (SR-NASDAQ-2012-109).
    \6\ 17 CFR 240.10C-1(b)(1)(ii)(A).
    \7\ See Nasdaq Listing Rule 5605(d)(2)(A), which states that 
each compensation committee member must not accept directly or 
indirectly any consulting, advisory or other compensatory fee from 
the company or any subsidiary thereof.
    \8\ See Nasdaq Listing Rule 5605(c)(2)(A), which states that 
each audit committee member must meet the criteria for independence 
set forth in Rule 10A-3(b)(1) under the Act. Under this rule, audit 
committee members may not accept directly or indirectly any 
consulting, advisory or other compensatory fee from the issuer or 
any subsidiary thereof. See 17 CFR 240.10A-3(b)(1).
---------------------------------------------------------------------------

    During the rulemaking process, Nasdaq received limited comment on 
the prohibition on the receipt of compensatory fees by compensation 
committee members.\9\ Over the past few months, however, Nasdaq has 
received feedback from listed companies and others that the prohibition 
on compensatory fees creates a burden on issuers at a time when 
regulatory burdens are higher than ever before. For example, there are 
companies in some industries (e.g., the energy and banking industries) 
where it is common to have directors who do a de minimis amount of 
business with the issuer and would, therefore, be ineligible to serve 
on the compensation committee under the Nasdaq rules. These companies 
may have difficulty recruiting a sufficient number of eligible 
directors to serve on their boards, given the different requirements 
for board, audit committee

[[Page 76180]]

and compensation committee composition. Companies and their 
representatives have indicated that this additional burden could 
influence a company's choice of listing venue.
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    \9\ Specifically, Nasdaq received only two comments objecting to 
the prohibition. See (i) Letter from Harold R. Carpenter, CFO, 
Pinnacle Financial Partners, Nashville, Tennessee, dated November 5, 
2012; and (ii) Letter from Robert B. Lamm, Chair, Securities Law 
Committee, Society of Corporate Secretaries and Governance 
Professionals, New York, New York, dated December 7, 2012. Nasdaq 
also received three comments that supported the prohibition, but 
argued that in considering a director's eligibility to serve on a 
compensation committee, a board should also consider fees paid to 
directors for service on the board and board committees. See (i) 
Letter from J. Robert Brown, Jr., University of Denver Sturm College 
of Law, dated October 30, 2012; (ii) Letter from Brandon J. Rees, 
Acting Director, Office of Investment, AFL-CIO, dated November 5, 
2012; and (iii) Letter from Carin Zelenko, Director, Capital 
Strategies Department, International Brotherhood of Teamsters, dated 
November 5, 2012. All the comment letters are available at https://www.sec.gov/comments/sr-nasdaq-2012-109/nasdaq2012109.shtml.
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    After weighing these comments, Nasdaq proposes to remove the 
prohibition on the receipt of compensatory fees by compensation 
committee members. Nasdaq proposes to state instead that in 
affirmatively determining the independence of any director who will 
serve on the compensation committee, a company's board must consider 
the source of compensation of the director, including any consulting, 
advisory or other compensatory fee paid by the company to the 
director.\10\ In IM-5605-6, Nasdaq proposes to state that when 
considering the sources of a director's compensation in determining 
independence for purposes of compensation committee service, the board 
should consider whether the director receives compensation from any 
person or entity that would impair the director's ability to make 
independent judgments about the company's executive compensation.
---------------------------------------------------------------------------

    \10\ Nasdaq also proposes to add language to IM-5605-6 to state 
that for purposes of the affirmative independence determination 
described in Rule 5605(d)(2)(A), any reference to the defined term 
``Company'' includes any parent or subsidiary of the company. The 
term ``parent or subsidiary'' is intended to cover entities the 
company controls and consolidates with the company's financial 
statements as filed with the Commission (but not if the company 
reflects such entity solely as an investment in its financial 
statements). This language is copied from IM-5605, which explains 
the interpretation of the definition of Independent Director in Rule 
5605(a)(2). Since Rule 5605(d)(2)(A) describes an additional 
independence test for compensation committee members, Nasdaq 
believes it would be useful to repeat its construction of the term 
``Company'' for independence purposes in the interpretive material 
for this rule.
---------------------------------------------------------------------------

    Nasdaq proposes to remove the exception in the current rule that 
states that compensatory fees do not include: (i) fees received as a 
member of the compensation committee, the board of directors or any 
other board committee; or (ii) the receipt of fixed amounts of 
compensation under a retirement plan (including deferred compensation) 
for prior service with the company (provided that such compensation is 
not contingent in any way on continued service).\11\ As a result, 
boards of director [sic] should consider such fees, in aggregate with 
all other sources of compensation of the director, to determine whether 
such compensation would impair the director's judgment as a member of 
the compensation committee. This proposal is consistent with the 
approach of other exchanges, which do not exempt any types of fees from 
the analysis of compensation committee eligibility.\12\ In addition, 
during the rulemaking process on the Amended Rules, Nasdaq received 
several comments arguing that in determining eligibility for 
compensation committee membership, a board should consider the fees 
paid to directors for their service on the board or board 
committees.\13\
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    \11\ See Nasdaq Listing Rule 5605(d)(2)(A).
    \12\ See Section 303A.02(a)(ii)(A) of the NYSE Listed Company 
Manual; see also BATS Rule 14.10(c)(4)(A)(i)(a); see also NYSE Arca 
Equities Rule 5.3(k)(4)(ii); see also Section 805(c)(1) of the NYSE 
MKT Company Guide.
    \13\ See footnote 9, supra.
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    Nasdaq's overall proposal is consistent with the Dodd-Frank Act and 
Rule 10C-1, which required Nasdaq to consider compensatory fees when 
determining eligibility for compensation committee membership, but did 
not require a prohibition on such fees. Even with the proposed change, 
a compensation committee member will not be allowed to receive 
unlimited fees from a company since such a member must continue to be 
an Independent Director as defined under Nasdaq Listing Rule 
5605(a)(2).\14\ That definition excludes any director who: (i) Accepted 
any compensation from the company in excess of $120,000 during any 
period of twelve consecutive months within the prior three years; \15\ 
or (ii) is a partner in, or a controlling shareholder or an executive 
officer of, any organization to which the company made, or from which 
the company received, payments for property or services in the current 
or any of the past three fiscal years that exceed 5% of the recipient's 
consolidated gross revenues for that year, or $200,000, whichever is 
more.\16\ Boards of directors would be required to consider, based on 
the company's and the director's unique circumstances, whether the 
receipt of any fees, even fees below these caps, would impair the 
director's ability to make independent judgments about the company's 
executive compensation, and therefore render the director ineligible to 
serve on the compensation committee.
---------------------------------------------------------------------------

    \14\ See Nasdaq Listing Rule 5605(d)(2)(A).
    \15\ See Nasdaq Listing Rule 5605(a)(2)(B). Nasdaq notes that 
this rule excludes compensation for board or board committee service 
from the $120,000 cap. However, any compensation for board or board 
committee service still must be considered for purposes of 
affirmatively determining the independence of any director who will 
serve on the compensation committee.
    \16\ See Nasdaq Listing Rule 5605(a)(2)(D).
---------------------------------------------------------------------------

    In addition, the proposal is consistent with Nasdaq's approach to 
affiliation, which is the other specific factor enumerated in Rule 10C-
1 that Nasdaq was required to consider in determining eligibility for 
compensation committee membership. The Amended Rules require that 
boards of directors consider affiliation in determining compensation 
committee membership, but they do not include any outright prohibitions 
in this regard.\17\ Nasdaq is proposing some minor wording changes to 
Rule 5605(d)(2)(A) to make the affiliation prong more clear, in light 
of the revisions to the prong relating to compensatory fees; however, 
Nasdaq believes that substantively, the affiliation prong will remain 
unchanged following this proposed rule change. Nasdaq also proposes to 
add text to IM-5605-6 to state that when considering any affiliate 
relationship a director has with the company, a subsidiary, or an 
affiliate of a subsidiary, in determining independence for purposes of 
compensation committee service, the board should consider whether the 
affiliate relationship places the director under the direct or indirect 
control of the company or its senior management, or creates a direct 
relationship between the director and members of senior management, in 
each case of a nature that would impair the director's ability to make 
independent judgments about the Company's executive compensation.\18\
---------------------------------------------------------------------------

    \17\ See Nasdaq Listing Rule 5605(d)(2)(A).
    \18\ Nasdaq proposes to retain existing language in IM-5605-6 
that states that while a board may conclude differently with respect 
to individual facts and circumstances, Nasdaq does not believe that 
ownership of a company's stock by itself, or possession of a 
controlling interest through ownership of a company's stock, 
precludes a board finding that it is appropriate for a director to 
serve on the compensation committee. In fact, it may be appropriate 
for certain affiliates, such as representatives of significant 
stockholders, to serve on compensation committees since their 
interests are likely aligned with those of other stockholders in 
seeking an appropriate executive compensation program.
---------------------------------------------------------------------------

    Nasdaq also proposes to add language to Rule 5605(d)(2)(A) to 
clarify that in affirmatively determining the independence of any 
director who will serve on the compensation committee, the board of 
directors must consider all factors specifically relevant to 
determining whether a director has a relationship to the company which 
is material to that director's ability to be independent from 
management in connection with the duties of a compensation committee 
member. Nasdaq does not believe this is a substantive change since the 
existing rule requires compensation committee members to be Independent 
Directors as defined under Rule 5605(a)(2). This definition requires, 
among other things, that a company's board make an affirmative 
determination that the director has no relationship which

[[Page 76181]]

would interfere with the exercise of independent judgment in carrying 
out the responsibilities of a director. The responsibilities of a 
director who serves on the compensation committee would include any 
responsibilities relating to compensation committee membership. 
However, Nasdaq believes it will be helpful to clarify this requirement 
in the text of Rule 5605(d)(2)(A), which describes the requirements for 
compensation committee composition.
    Finally, Nasdaq proposes a minor edit to the first sentence of Rule 
5605(d)(2)(A) to split it into two sentences in light of the revisions 
to the rule described above.\19\ This edit clarifies that each 
compensation committee must consist of at least two members, and each 
committee member must be an Independent Director as defined under Rule 
5605(a)(2).
---------------------------------------------------------------------------

    \19\ Nasdaq also proposes conforming edits to IM-5605-6.
---------------------------------------------------------------------------

    Companies are required to comply with the compensation committee 
composition aspects of the Amended Rules by the earlier of their first 
annual meeting after January 15, 2014, or October 31, 2014.\20\ As a 
result, Nasdaq believes it is important to implement the proposed 
change now, before companies propose changes to board and committee 
composition in connection with their 2014 annual meetings.
---------------------------------------------------------------------------

    \20\ See Nasdaq Listing Rule 5605(d)(6). During the transition 
period, companies that are not yet required to comply with a 
particular provision of revised Rule 5605(d) and IM-5605-6 must 
continue to comply with the corresponding provision, if any, of Rule 
5605A(d) and IM-5605A-6.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\21\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\22\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest. Specifically, the proposal removes impediments to and 
perfects the mechanism of a free and open market by allowing boards of 
directors greater flexibility in determining eligibility for 
compensation committee membership, consistent with the requirements of 
the Dodd-Frank Act and Rule 10C-1. Nasdaq will continue to protect 
investors and the public interest by maintaining overall caps on the 
amount of compensatory fees that may be received by a compensation 
committee member from a company. However, a board of directors must 
consider, given the particular circumstances of a company and/or a 
director, whether any fees, even fees below the overall caps, would 
impair the director's ability to make independent judgments about the 
company's executive compensation, and therefore render the director 
ineligible to serve on the compensation committee.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In addition, Nasdaq proposes other changes in the rule to clarify 
its interpretation of the additional independence test for compensation 
committee members in light of the change discussed above. Specifically, 
Nasdaq proposes to: (i) Delete an exception for certain types of 
compensatory fees that may be received by a compensation committee 
member; (ii) clarify the standard a board must use when considering 
certain affiliate relationships of a compensation committee member; 
(iii) explicitly state that as part of the independence test, a board 
of directors must consider all factors specifically relevant to 
determining whether a director has a relationship to the company which 
is material to that director's ability to be independent from 
management in connection with the duties of a compensation committee 
member; (iv) reiterate the definition of the term ``Company'' for 
purposes of the independence test; and (v) clarify that each 
compensation committee must be an Independent Director as defined under 
Rule 5605(a)(2). These changes will make Nasdaq's compensation 
committee composition requirements more transparent and easier to 
understand. As a result, the changes will protect investors and the 
public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Dodd-Frank Act and Rule 
10C-1 under the Act required each national securities exchange to adopt 
similar rules to Nasdaq's Amended Rules. Like Nasdaq, each other 
exchange was required to consider compensatory fees when determining 
eligibility requirements for compensation committee membership. Other 
than Nasdaq and NASDAQ OMX BX,\23\ which is not currently operational 
as a listing market, no other exchange prohibits compensatory fees to 
members of the compensation committee.\24\ This change will harmonize 
Nasdaq's rule regarding compensation committee composition with the 
more flexible rules of the other exchanges. As a result, this proposal 
removes a potential competitive advantage for the other exchanges and 
thereby enhances competition among exchanges.
---------------------------------------------------------------------------

    \23\ Like Nasdaq, NASDAQ OMX BX adopted an outright prohibition 
on the receipt of compensatory fees by compensation committee 
members. See BX Venture Market Listing Rule 5605(d)(2)(A). However, 
Nasdaq expects that NASDAQ OMX BX will file a proposed rule change 
to conform its rule to the Nasdaq rule.
    \24\ See Section 303A.02(a)(ii)(A) of the NYSE Listed Company 
Manual; see also BATS Rule 14.10(c)(4)(A)(i)(a); see also NYSE Arca 
Equities Rule 5.3(k)(4)(ii); see also Section 805(c)(1) of the NYSE 
MKT Company Guide.
---------------------------------------------------------------------------

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(ii) of the Act \25\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\26\
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    \25\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \26\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule

[[Page 76182]]

change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2013-147 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2013-147. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room at 100 F Street NE., 
Washington, DC 20549-1090 on official business days between the hours 
of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be 
available for inspection and copying at the principal offices of the 
Exchange. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NASDAQ-2013-147, and should be submitted on or before January 6, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
---------------------------------------------------------------------------

    \27\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29802 Filed 12-13-13; 8:45 am]
BILLING CODE 8011-01-P

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