Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 2, To Require Listed Companies to Publicly Disclose Compensation or Other Payments by Third Parties to Board of Director's Members or Nominees, 44400-44404 [2016-16123]
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Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Notices
13. The Interfund Lending Committee
will monitor the Interfund Loan Rates
charged and the other terms and
conditions of the Interfund Loans and
will make a quarterly report to each
Fund Board concerning the
participation of the Funds in the
Facility and the terms and other
conditions of any extensions of credit
under the Facility.
14. Each Fund Board, including a
majority of the Independent Fund Board
Members, will:
(a) review, no less frequently than
quarterly, the relevant Fund’s
participation in the Facility during the
preceding quarter for compliance with
the conditions of any order permitting
such transactions;
(b) establish the Bank Loan Rate
formula used to determine the interest
rate on Interfund Loans and review, no
less frequently than annually, the
continuing appropriateness of the Bank
Loan Rate formula; and
(c) review, no less frequently than
annually, the continuing
appropriateness of the relevant Fund’s
participation in the Facility.
15. In the event an Interfund Loan is
not paid according to its terms and such
default is not cured within two business
days from its maturity or from the time
the lending Fund makes a demand for
payment under the provisions of the
Interfund Lending Agreement, Lord
Abbett promptly will refer such loan for
arbitration to an independent arbitrator
selected by each Fund Board involved
in the loan who will serve as arbitrator
of disputes concerning Interfund
Loans.2 The arbitrator will resolve any
problem promptly, and the arbitrator’s
decision will be binding on both Funds.
The arbitrator will submit, at least
annually, a written report to each Fund
Board setting forth a description of the
nature of any dispute and the actions
taken by the Funds involved to resolve
the dispute.
16. Each Fund will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any transaction by it under the
Facility occurred, the first two years in
an easily accessible place, written
records of all such transactions setting
forth a description of the terms of the
transactions, including the amount, the
maturity, and the Interfund Loan Rate,
the rate of interest available at the time
the Interfund Loan is made on overnight
repurchase agreements and bank
borrowings, and such other information
2 If the dispute involves Funds with different
Fund Boards, the respective Fund Boards will select
an independent arbitrator that is satisfactory to each
Fund.
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presented to the Fund Board in
connection with the review required by
conditions (13) and (14).
17. The Interfund Lending Committee
will prepare and submit to each Fund
Board for review an initial report
describing the operations of the Facility
and the procedures to be implemented
to ensure that all Funds are treated
fairly. After the commencement of the
Facility, the Interfund Lending
Committee will provide quarterly
reports on the operations of the Facility
to each Fund Board. Each Fund’s chief
compliance officer, as defined in Rule
38a-1(a)(4) under the Act (a ‘‘Fund
CCO’’), shall prepare an annual report
for its Fund Board for each year that the
Fund participates in the Facility, which
report evaluates the Fund’s compliance
with the terms and conditions of the
application and the procedures
established to achieve such compliance.
Additionally, each Fund CCO will
also annually file a certification
pursuant to Item 77Q3 of Form N–SAR,
as such Form may be revised, amended,
or superseded from time to time (‘‘N–
SAR’’), for each year that the Fund
participates in the Facility, that certifies
that the Fund and Lord Abbett have
established procedures reasonably
designed to achieve compliance with
the terms and conditions of the order. In
particular, the certification will address
procedures designed to achieve the
following objectives:
(a) That the Interfund Loan Rate will
be higher than the Repo Rate, but lower
than the Bank Loan Rate;
(b) compliance with the collateral
requirements as set forth in the
application;
(c) compliance with the percentage
limitations on interfund borrowing and
lending;
(d) allocation of interfund borrowing
and lending demand in an equitable
manner and in accordance with
procedures established by the Fund
Board; and
(e) that the interest rate on any
Interfund Loan does not exceed the
interest rate on any third-party
borrowings of a borrowing Fund at the
time of the Interfund Loan.
Additionally, each Fund’s
independent registered public
accountants, in connection with their
audit examination of the Fund, will
review the operation of the Facility for
compliance with the conditions of the
application and their review will form
the basis, in part, of the auditor’s report
on internal accounting controls in Form
N–SAR.
18. No Fund will participate in the
Facility upon receipt of the requisite
regulatory and shareholder approval
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unless it has fully disclosed in its
prospectus and/or SAI all material facts
about its intended participation.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–16038 Filed 7–6–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78223; File No. SR–
NASDAQ–2016–013]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Amendment No. 2 and Order
Granting Accelerated Approval of a
Proposed Rule Change, as Modified by
Amendment No. 2, To Require Listed
Companies to Publicly Disclose
Compensation or Other Payments by
Third Parties to Board of Director’s
Members or Nominees
July 1, 2016.
I. Introduction
On March 15, 2016, 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’’ or
‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
require listed companies to publicly
disclose compensation or other
payments by third parties to board of
director’s members or nominees for
director. The proposed rule change was
published for comment in the Federal
Register on April 5, 2016.3 On May 18,
2016, Nasdaq filed Amendment No. 1 to
the proposal.4 On May 20, 2016, the
Commission extended the time period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to disapprove the
proposed rule change.5 On June 30,
2016, Nasdaq withdrew Amendment
No. 1 and filed Amendment No. 2 to the
proposal, which replaced and
superseded the original proposal in its
1 15
U.S.C.78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 77481
(Mar. 30, 2016), 81 FR 19678 (‘‘Notice’’).
4 See Letter to Brent J. Fields, Secretary,
Commission, from David Strandberg, Associate Vice
President, Nasdaq dated May 18, 2016.
5 See Securities Exchange Act Release No. 77879
(May 20, 2016), 81 FR 33571 (May 26, 2016).
2 17
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entirety.6 The Commission received
eight comments on the proposal by
seven commenters, as well as a response
to the comment letters from Nasdaq
regarding the proposal 7 This order
6 See Letter to Brent J. Fields, Secretary,
Commission, from David Strandberg, Associate Vice
President, Nasdaq dated June 30, 2016. In
Amendment No. 2, Nasdaq clarified, among other
things, that: The required disclosure must be made
no later than the date on which the relevant
company files or furnishes a definitive proxy or
information statement (or, if the company does not
file proxy or information statements, no later than
when the company files its next Form 10–K or Form
20–F); the proposed rule does not separately require
the initial disclosure of newly entered into
agreements or arrangements, provided that
disclosure is made pursuant to the rule for the next
shareholders’ meeting at which directors are
elected; a company must make the required
disclosure at least annually; the disclosure
requirement encompasses non-cash compensation
and other forms of payment obligation, such as
indemnification; all references in the proposed rule
to proxy or information statements are to the
definitive versions thereof; remedial disclosure
(when a company newly discovers an agreement
that should have been disclosed), regardless of its
timing, would not satisfy the annual disclosure
requirements; and a company that provides
disclosure in the current fiscal year pursuant to the
requirement in Item 5.02(d)(2) of Form 8–K would
not have to make separate disclosure under the
proposed rule, although disclosure under
Commission rules would not relieve a company of
its ongoing obligation under the proposed rule to
make annual disclosure. The amendment also
explicitly states that, if a company provides
disclosure in a definitive proxy or information
statement, including to satisfy the Commission’s
proxy disclosure requirements, sufficient to comply
with the proposed rule, the company’s obligation to
satisfy the rule is fulfilled regardless of the reason
for which such disclosure was made.
Amendment No. 2 also revised the proposal to
explicitly permit the required disclosure to be made
in an information statement in addition to other
ways specified in the proposal; limit the required
disclosure to the material terms of agreements or
arrangements relating to compensation and
payments in connection with a person’s board
service or candidacy; and permit Web site
disclosure through a hyperlink to another Web site,
provided that the other Web site is continuously
accessible. Amendment No. 2 also added that a
foreign private issuer would be permitted to follow
home country practice in lieu of the proposal’s
requirements provided that it complies with the
conditions set forth in Nasdaq Rule 5615. In
addition, the amendment revised the effective date
of the disclosure requirements to thirty days after
Commission approval of the proposed rule and
included a statement from Nasdaq that it would
notify listed companies of the effective date.
7 See Letters to Brent J. Fields, Secretary,
Commission, from Andrew A. Schwartz, Associate
Professor of Law, University of Colorado Law
School, Boulder, Colorado, dated April 25 and 26,
2016 (‘‘Schwartz Letters’’); Bobby Franklin,
President & CEO, National Venture Capital
Association, dated April 26, 2016 (‘‘NVCA Letter’’);
John Hayes, Chair, Corporate Governance
Committee, Business Roundtable, dated April 26,
2016 (‘‘Business Roundtable Letter’’); John Endean,
President, American Business Conference, dated
April 28, 2016 (‘‘American Business Conference
Letter’’); Marc M. Rossell, Chair, Securities
Regulation Committee, Bar of the City of New York,
dated May 20, 2016 (‘‘New York City Bar Letter’’);
Heather C. Briccette, President & CEO, The Business
Council of New York State, Inc., dated June 15,
2016 (‘‘NYS Business Council Letter’’); Darla
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grants approval of the proposed rule
change, as amended by Amendment No.
2.
II. Description of the Proposed Rule
Change as Modified by Amendment
No. 2
Nasdaq is proposing to adopt Rule
5250(b)(3) to require each listed
company to publicly disclose the
material terms of all agreements or
arrangements between any director or
nominee for director on the company’s
board and any person or entity other
than the company relating to
compensation or other payment in
connection with that person’s candidacy
or service as a director.8 The proposal
would require disclosure of all such
agreements and arrangements by no
later than the date on which the
company files or furnishes a definitive
proxy or information statement subject
to Regulation 14A or 14C under the Act
in connection with the Company’s next
shareholders’ meeting at which
directors are elected (or, if they do not
file proxy or information statements, no
later than when the Company files its
next Form 10–K or Form 20–F).9
The proposal as modified by
Amendment No. 2 would require a
listed company to disclose this
information either on or through the
company’ Web site or in the definitive
proxy or information statement 10 for the
next shareholders’ meeting at which
directors are elected (or, if the company
does not file proxy or information
statements, in its Form 10–K or Form
20–F). The proposed rule provides that
a company would not need to make
disclosure, however, of agreements and
arrangements that: (i) Relate only to
reimbursement of expenses in
connection with candidacy as a director;
(ii) existed prior to the nominee’s
candidacy (including as an employee of
the other person or entity) and the
nominees relationship with the third
party has been publicly disclosed in a
definitive proxy or information
statement or annual report (such as in
the director or nominee’s biography); or
(iii) have been disclosed under Item 5(b)
of Schedule 14A of the Act or Item
5.02(d)(2) of Form 8–K in the current
fiscal year.11 Such disclosure, however,
Stuckey, President & CEO, Society for Corporate
Governance, dated June 27, 2016 (‘‘Society for
Corporate Governance Letter’’). See also See Letter
to Brent J. Fields, Secretary, Commission, from
David Strandberg, Associate Vice President, Nasdaq
dated June 30, 2016 (‘‘Response Letter’’).
8 See proposed Rule 5250(b)(3)(A).
9 See proposed Rule 5250(b)(3). See also supra,
note 6 for a description of changes made in
Amendment No 2 as compared to the original filing.
10 See supra note 6.
11 See proposed Rule 5250(b)(3)(A).
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44401
pursuant to these provisions under
Schedule 14A and Form 8–K in (iii)
would not relieve a company of its
disclosure obligations under the
proposed rule.12
The proposed rule states that a
Company must make the disclosure
required by the rule at least annually
until the earlier of the resignation of the
director or one year following the
termination of the agreement or
arrangement.13 The proposed rule
further states that if a Company
discovers an agreement or arrangement
that should have been disclosed
pursuant to the proposed rule but was
not disclosed, then the Company must
promptly make the required disclosure
by filing a Form 8–K or 6–K, where
required by Commission rules, or by
issuing a press release.14 However, such
remedial disclosure, regardless of its
timing, would not satisfy the annual
disclosure requirements under the
proposed rule.15
The proposal further provides that if
a company undertakes reasonable efforts
to identify all such agreements or
arrangements, including asking each
director or nominee in a manner
designed to allow timely disclosure, and
makes the required remedial disclosure
promptly if it discovers an agreement or
arrangement that should have been
disclosed but was not, then the
company will not be considered
deficient with respect to the rule.16
The Exchange also proposes to make
a change to Nasdaq Listing Rule 5615,
which permits foreign private issuers to
follow their home country practice in
lieu of certain corporate governance
requirements of the Exchange, provided
that the issuer fulfills the conditions set
forth in that rule. Under the proposal,
the required disclosure of third-party
payments to directors will be included
among the rule provisions where a
foreign private issuer would be
permitted to follow home country
practice.17 To meet the conditions of
Rule 5615, a foreign private issuer
would be required to submit to Nasdaq
a written statement from an
independent counsel in its home
country certifying that the company’s
practices are not prohibited by the home
country’s laws. The issuer would also be
12 See
id.
proposed Rule 5250(b)(3)(B).
14 See proposed Rule 5250(b)(3)(C).
15 See id. See also supra note 6.
16 See proposed Rule 5250(b)(3)(D). The proposed
rule also provides that in, all other cases, the
Company must submit a plan that satisfies
Exchange staff that the Company has adopted
processes and procedures designed to identify and
disclose relevant agreements or arrangements.
17 See supra note 6.
13 See
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required to disclose in its annual filings
with the Commission (or, in certain
circumstances, on its Web site) that it
does not follow the proposed rule’s
requirements and briefly state the home
country practice it follows in lieu of
these requirements.
III. Comments on the Proposed Rule
Change and Nasdaq’s Response
As previously stated, the Commission
received a total of eight comment letters
from seven commenters.18 Four
commenters expressed general support
for the proposal.19 One of these
commenters stated that third-party
payment arrangements of the kind
covered by the proposal ‘‘present
numerous problems besides the obvious
potential conflict of interest that
shareholders should consider in voting
for board members.’’ 20 In addition, the
commenter believed that ‘‘the ability to
keep both arrangement and the terms
thereof secret provides ‘raiders’ and
other types of activists an unfair tactical
advantage over the incumbent board
members,’’ and that ‘‘if an insurgent
candidate is elected to the board,
secrecy around that board member’s
outside compensation can inhibit the
effective functioning of the board of
directors.’’ 21 Echoing similar beliefs,
another of these commenters stated that
full disclosure of the material terms of
third party arrangements with a director
is ‘‘a necessary element of
understanding and assessing the ability
of directors and director nominees to
fulfill their fiduciary duties.’’ 22 Another
commenter stated its belief that
‘‘investors need to know if there are
compensation arrangements for any
director in which an entity other than
the listed company is paying for that
particular director’s service.’’ 23
One comment letter stated its aim as
ensuring that Nasdaq was fully
informed as it considered whether to
move forward with the proposed rule
change, in view of what it described as
the somewhat complex arrangements
that can exist when a board member of
an issuer is a general partner of a
venture capital fund partnership that
owns a substantial interest in the issuer
and is also a member or an associate of
the venture capital firm that formed the
venture capital fund.24 This commenter
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18 See
supra note 7.
Schwartz Letters, Business Roundtable
Letter, American Business Conference Letter, and
Society for Corporate Governance Letter, supra note
7.
20 See American Business Conference Letter.
21 Id.
22 See Business Roundtable Letter.
23 See Society for Corporate Governance Letter.
24 See NVCA Letter, supra note 7.
19 See
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recommended that Nasdaq clarify the
conditions of the exemption in the rule
for pre-existing relationships as well as
the degree of detail needed in
disclosures required by the proposed
rule.25
Finally, two commenters
recommended that the proposed rule
change not be approved.26 One of these
commenters indicated uncertainty as to
whether the issues addressed by the
Exchange’s proposal are not adequately
covered by existing Commission rules.27
This commenter further believed that
the Commission should ‘‘promote
desirable uniformity in the nature of
required disclosures to investors about
director compensation arrangements at
public companies, without
differentiation based on the exchange on
which a company’s securities are
listed.’’ 28
The other commenter opposing
approval of the proposed rule change,
similarly, believed that proposal ‘‘may
be duplicative’’ because the
Commission already has rules that ‘‘may
already address the disclosures covered
in the proposed rule change.’’ 29 This
commenter argued that ‘‘approving
similar rules aimed at the same goal but
from a different regulator would make
compliance unnecessarily difficult and
would not be an efficient use of
resources,’’ adding that if more
disclosure was required by the proposal
than by the Commission’s rules,
‘‘investors in Nasdaq-listed companies
would be receiving different
information on these matters than
investors in companies listed on other
exchanges, which could lead to
confusion.’’ 30 The commenter further
argued that the Nasdaq proposal would
require companies to ‘‘unnecessarily
incur costs and expend energy without
any meaningful benefit to
shareholders.’’ 31
In its Response Letter, Nasdaq cited
the letters that had been received in
support of its proposed rule change,
noting that the submitters of these
letters shared the Exchange’s view that
the proposed disclosures would be
meaningful to shareholders and relevant
25 Id. The NVCA Letter also noted that potential
restrictions on the ability of individuals who
receive compensation to serve as a director could
adversely affect venture capital firms due to the
structure of venture capital funds. See id. The
Commission knows that this is not within the scope
of the Nasdaq proposed rule change.
26 See New York City Bar Letter and NYS
Business Council Letter, supra note 7.
27 See New York City Bar Letter id.
28 Id. The commenter cited, in this regard, the
Commission’s Disclosure Effectiveness Project.
29 See NYS Business Council Letter, supra note 7.
30 Id.
31 Id.
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to their investment and voting
decisions. In response to the view of
opposing commenters that existing
Commission regulations may already
require the disclosure mandated by the
proposed rule, Nasdaq noted that the
proposal would not require separate
disclosure when disclosure sufficient to
satisfy the proposed rule has been made
by a company under existing
Commission proxy rules.
Acknowledging that there are various
Commission rules that may, in some
circumstances, apply to third party
director payments, Nasdaq stated,
nonetheless, that the nature, scope and
timing of these required disclosures may
not in all cases be the same as the
disclosure mandated by its proposal.32
Nasdaq averred that it had considered
the concerns raised in the comment
letters, but believes the proposal as
amended adequately addresses them.33
IV. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange.34 In particular, the
Commission finds that the proposed
rule change is consistent with the
requirements of Section 6(b)(5) of the
Act,35 which requires, among other
things, that the Exchange’s rules be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest; and
not be designed to permit, among other
things, unfair discrimination between
issuers.
The development, implementation,
and enforcement of standards governing
the initial and continued listing of
securities on an exchange are activities
of critical importance to financial
markets and the investing public.
Listing requirements, among other
things, serve as a means for an exchange
to provide listed status only to
companies that meet certain initial and
continued quantitative and qualitative
32 Nasdaq cited its proposal’s ongoing annual and
remedial disclosure requirements as examples. See
supra note 7.
33 In this regard, Nasdaq specifically mentioned
the concerns raised in the NVCA Letter around
board service by venture capital board members.
34 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
35 15 U.S.C. 78f(b)(5).
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criteria that help to ensure that fair and
orderly markets can be maintained once
the company is listed. The corporate
governance standards embodied in the
listing standards of national securities
exchanges, in particular, play an
important role in assuring that
exchange-listed companies observe good
governance practices, including that
listed companies provide adequate
disclosure to allow investors to make
informed investment and voting
decisions. The Commission has long
encouraged exchanges to adopt and
strengthen their corporate governance
listing standards in order to, among
other things, provide greater
transparency into the governance
processes of listed issuers and enhance
investor confidence in the securities
markets.
The majority of the commenters, as
described above, were supportive of the
proposal and thought it was important
to ensure that investors have material
information about third party payments
to nominees and existing directors. Two
commenters, however, requested that
the Commission not approve the
Nasdaq’s proposal.36 The commenters
were concerned that the Exchange
requirements may be duplicative of
Commission disclosure requirements
and that disclosure of director
compensation is a matter more suited to
uniform regulation by the Commission.
The Commission recognizes that there
may be some overlap with Commission
disclosure requirements. Depending on
the facts and circumstances, various
provisions under the federal securities
laws, such as Items 401(a) and 402(k) of
Regulation S–K, Item 5(b) of Schedule
14A, and Item 5.02(d) of Form 8–K, may
require disclosure of third party
compensation arrangements with or
payments to nominees and/or board
members.37 We note that it is not
unusual for national securities
exchanges to adopt disclosure
requirements in their listing rules that
supplement or overlap with disclosure
requirements otherwise imposed under
the federal securities laws. For example,
notwithstanding the requirements
imposed by the federal securities laws
to report certain material events shortly
after they occur on Form 8–K, national
36 See New York City Bar Letter and Business
Council Letter, supra note 7.
37 In addition to these specific disclosure
requirements, information about third party
compensation arrangements may be required under
other provisions of the federal securities laws
which require disclosure of any additional material
information necessary to make the statements
included in the relevant filing, in light of the
circumstances under which they are made, not
misleading. See, e.g., Exchange Act Rules 10b–5,
14a–9, and 14c–6.
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securities exchanges maintain separate,
broader disclosure rules that require
prompt disclosure of material
information.38 These and other
disclosure-related listing standards help
to ensure that listed companies
maintain compliance with the
disclosure requirements under the
federal securities laws and contribute to
the maintenance of fair and orderly
markets by providing investors with
material and current information
necessary for informed investment and
voting decisions.
The proposal contains certain
exceptions to address some of the
concerns raised by commenters about
overlap with Commission rules. For
example, an exception is provided for
disclosure of arrangements or
agreements that have been disclosed
under Item 5(b) of Schedule 14A or Item
5.02(d) of Form 8–K in the current fiscal
year. In addition, in Amendment No. 2,
Nasdaq made clear that if, in response
to a Commission disclosure
requirement, a company provides
disclosure in a definitive proxy or
information statement sufficient to
comply with the proposed rule, such
disclosure would also satisfy the
company’s disclosure obligation under
the Nasdaq rule. Further, the proposal
permits listed companies, to the extent
the disclosure is not otherwise required
in a proxy or information statement, to
disclose the information on a Web site,
either directly or through a hyperlink.
This should help to mitigate any
disclosure burden on companies that
have already provided the required
disclosure in a prior Commission filing
because the rule only would require the
company to post a link to that filing on
its Web site.
To the extent, there are certain factual
scenarios that would require disclosure
not otherwise required under
Commission rules, we believe that it is
within the purview of a national
securities exchange to impose
heightened governance requirements,
consistent with the Act, that are
designed to improve transparency and
accountability into corporate decision
making and promote investor
confidence in the integrity of the
securities markets.39
Concerning the instant proposal, to
the extent that it would, in certain
38 See, e.g., NYSE Section 202.05; Nasdaq Rule
5250(b)(1).
39 For example, the Commission has previously
determined that exchange listing standards relating
to audit committee independence requirements that
included heightened requirements beyond those
specifically mandated by Rule 10A–3 were
consistent with the Act. See Securities Exchange
Act Release No. 48745 (Nov. 4, 2003), 68 FR 64154
(Nov. 12, 2003).
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44403
situations, provide investors and market
participants additional information to
make informed investment and voting
decisions, we believe it is consistent
with the requirements of Section 6(b)(5)
of the Act.
Finally, the Commission notes that
certain changes and clarifications were
made to the proposal by Nasdaq in
response to comments. Amendment No.
2 clarified that non-cash compensation
includes indemnification and further
clarified in the proposed rule language
that the material terms of the agreement
or arrangement that need to be disclosed
are those relating to compensation and
not limited to cash payments. Further,
Nasdaq amended the rule language
concerning an exception to disclosure
relating to relationships that existed
prior to a nominee’s candidacy. That
proposed change states that no
additional disclosure is required if the
prior relationship between the nominee
and the third party has been publicly
disclosed in a definitive proxy or annual
report. The Exchange further clarified in
the amended rule language in proposed
IM–5250–2 the timing of when the
disclosure needs to be made when the
disclosure is posted on the Company’s
Web site. These changes, among the
others made in Amendment No. 2, help
to clarify the proposal and address some
of the concerns expressed by the
commenters.
V. Solicitation of Comments on
Amendment No. 2
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether Amendment No. 2 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–2016–013 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2016–013. 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/
E:\FR\FM\07JYN1.SGM
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44404
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Notices
srobinson on DSK5SPTVN1PROD with NOTICES
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, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office 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–2016–013 and should be
submitted on or before July 28, 2016.
VI. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 2
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment No. 2, prior to
the 30th day after the date of
publication of the notice of Amendment
No. 2 in the Federal Register. As noted
above, in Amendment No. 2, the
exchange clarified various aspects of the
proposed rule’s applicability and
included new provisions that enhance
the proposal.40 The Commission
believes the clarifications in
Amendment No. 2 would provide
market participants with greater
transparency regarding the requirements
for listed companies to disclose
compensation or other payments by
third parties to board of director’s
members or nominees under Nasdaq’s
rules. In addition, in Amendment No. 2,
the Exchange revised the proposed date
of effectiveness of the proposed rule
change.41 The Commission believes this
revision will allow listed companies
appropriate time to comply with the
proposed rule change.
Because Amendment No. 2 provided
additional transparency to the
disclosure requirements imposed by the
proposed rule change, enhanced its
provisions, and provided a revised date
of effectiveness which will allow listed
companies time to comply with the new
requirements, the Commission finds
good cause for approving the proposed
rule change, as modified by Amendment
No. 2, on an accelerated basis, pursuant
to Section 19(b)(2) of the Act.42
VII. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,43 that the
proposed rule change (SR–NASDAQ–
2016–013), as modified by Amendment
No. 2, be, and it hereby is, approved on
an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.44
Brent J. Fields,
Secretary.
[FR Doc. 2016–16123 Filed 7–6–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78203; File No. SR–ISE–
2016–15]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change To Extend the Penny Pilot
Program
June 30, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 29,
2016, the International Securities
Exchange, LLC (the ‘‘Exchange’’ or the
‘‘ISE’’) filed with the Securities and
Exchange Commission the proposed
rule change as described in Items I and
II below, which items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The ISE proposes to amend its rules
to extend a pilot program to quote and
to trade certain options classes in penny
increments (‘‘Penny Pilot Program’’).
The text of the proposed rule change is
available on the Exchange’s Web site
www.ise.com, at the principal office of
40 See
supra note 6.
41 See id.
VerDate Sep<11>2014
17:23 Jul 06, 2016
Jkt 238001
PO 00000
42 15
U.S.C. 78s(b)(2).
U.S.C. 78s(b)(2).
44 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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
self-regulatory organization 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 self-regulatory organization 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
Under the Penny Pilot Program, the
minimum price variation for all
participating options classes, except for
the Nasdaq–100 Index Tracking Stock
(‘‘QQQQ’’), the SPDR S&P 500 Exchange
Traded Fund (‘‘SPY’’) and the iShares
Russell 2000 Index Fund (‘‘IWM’’), is
$0.01 for all quotations in options series
that are quoted at less than $3 per
contract and $0.05 for all quotations in
options series that are quoted at $3 per
contract or greater. QQQQ, SPY and
IWM are quoted in $0.01 increments for
all options series. The Penny Pilot
Program is currently scheduled to
expire on June 30, 2016.3 The Exchange
proposes to extend the Penny Pilot
Program through December 31, 2016,
and to provide a revised date for adding
replacement issues to the Penny Pilot
Program. The Exchange proposes that
any Penny Pilot Program issues that
have been delisted may be replaced on
the second trading day following July 1,
2016. The replacement issues will be
selected based on trading activity for the
most recent six month period excluding
the month immediately preceding the
replacement (i.e., beginning December
1, 2015, and ending May 31, 2016). This
filing does not propose any substantive
changes to the Penny Pilot Program: All
classes currently participating will
remain the same and all minimum
increments will remain unchanged. The
Exchange believes the benefits to public
customers and other market participants
who will be able to express their true
prices to buy and sell options have been
43 15
Frm 00147
Fmt 4703
Sfmt 4703
3 See Exchange Act Release No. 75312 (June 26,
2015), 80 FR 38251 (July 2, 2015) (SR–ISE–2015–
21).
E:\FR\FM\07JYN1.SGM
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Agencies
[Federal Register Volume 81, Number 130 (Thursday, July 7, 2016)]
[Notices]
[Pages 44400-44404]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16123]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78223; File No. SR-NASDAQ-2016-013]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Amendment No. 2 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment No. 2, To
Require Listed Companies to Publicly Disclose Compensation or Other
Payments by Third Parties to Board of Director's Members or Nominees
July 1, 2016.
I. Introduction
On March 15, 2016, 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'' or ``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to require listed companies to
publicly disclose compensation or other payments by third parties to
board of director's members or nominees for director. The proposed rule
change was published for comment in the Federal Register on April 5,
2016.\3\ On May 18, 2016, Nasdaq filed Amendment No. 1 to the
proposal.\4\ On May 20, 2016, the Commission extended the time period
within which to approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
disapprove the proposed rule change.\5\ On June 30, 2016, Nasdaq
withdrew Amendment No. 1 and filed Amendment No. 2 to the proposal,
which replaced and superseded the original proposal in its
[[Page 44401]]
entirety.\6\ The Commission received eight comments on the proposal by
seven commenters, as well as a response to the comment letters from
Nasdaq regarding the proposal \7\ This order grants approval of the
proposed rule change, as amended by Amendment No. 2.
---------------------------------------------------------------------------
\1\ 15 U.S.C.78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 77481 (Mar. 30,
2016), 81 FR 19678 (``Notice'').
\4\ See Letter to Brent J. Fields, Secretary, Commission, from
David Strandberg, Associate Vice President, Nasdaq dated May 18,
2016.
\5\ See Securities Exchange Act Release No. 77879 (May 20,
2016), 81 FR 33571 (May 26, 2016).
\6\ See Letter to Brent J. Fields, Secretary, Commission, from
David Strandberg, Associate Vice President, Nasdaq dated June 30,
2016. In Amendment No. 2, Nasdaq clarified, among other things,
that: The required disclosure must be made no later than the date on
which the relevant company files or furnishes a definitive proxy or
information statement (or, if the company does not file proxy or
information statements, no later than when the company files its
next Form 10-K or Form 20-F); the proposed rule does not separately
require the initial disclosure of newly entered into agreements or
arrangements, provided that disclosure is made pursuant to the rule
for the next shareholders' meeting at which directors are elected; a
company must make the required disclosure at least annually; the
disclosure requirement encompasses non-cash compensation and other
forms of payment obligation, such as indemnification; all references
in the proposed rule to proxy or information statements are to the
definitive versions thereof; remedial disclosure (when a company
newly discovers an agreement that should have been disclosed),
regardless of its timing, would not satisfy the annual disclosure
requirements; and a company that provides disclosure in the current
fiscal year pursuant to the requirement in Item 5.02(d)(2) of Form
8-K would not have to make separate disclosure under the proposed
rule, although disclosure under Commission rules would not relieve a
company of its ongoing obligation under the proposed rule to make
annual disclosure. The amendment also explicitly states that, if a
company provides disclosure in a definitive proxy or information
statement, including to satisfy the Commission's proxy disclosure
requirements, sufficient to comply with the proposed rule, the
company's obligation to satisfy the rule is fulfilled regardless of
the reason for which such disclosure was made.
Amendment No. 2 also revised the proposal to explicitly permit
the required disclosure to be made in an information statement in
addition to other ways specified in the proposal; limit the required
disclosure to the material terms of agreements or arrangements
relating to compensation and payments in connection with a person's
board service or candidacy; and permit Web site disclosure through a
hyperlink to another Web site, provided that the other Web site is
continuously accessible. Amendment No. 2 also added that a foreign
private issuer would be permitted to follow home country practice in
lieu of the proposal's requirements provided that it complies with
the conditions set forth in Nasdaq Rule 5615. In addition, the
amendment revised the effective date of the disclosure requirements
to thirty days after Commission approval of the proposed rule and
included a statement from Nasdaq that it would notify listed
companies of the effective date.
\7\ See Letters to Brent J. Fields, Secretary, Commission, from
Andrew A. Schwartz, Associate Professor of Law, University of
Colorado Law School, Boulder, Colorado, dated April 25 and 26, 2016
(``Schwartz Letters''); Bobby Franklin, President & CEO, National
Venture Capital Association, dated April 26, 2016 (``NVCA Letter'');
John Hayes, Chair, Corporate Governance Committee, Business
Roundtable, dated April 26, 2016 (``Business Roundtable Letter'');
John Endean, President, American Business Conference, dated April
28, 2016 (``American Business Conference Letter''); Marc M. Rossell,
Chair, Securities Regulation Committee, Bar of the City of New York,
dated May 20, 2016 (``New York City Bar Letter''); Heather C.
Briccette, President & CEO, The Business Council of New York State,
Inc., dated June 15, 2016 (``NYS Business Council Letter''); Darla
Stuckey, President & CEO, Society for Corporate Governance, dated
June 27, 2016 (``Society for Corporate Governance Letter''). See
also See Letter to Brent J. Fields, Secretary, Commission, from
David Strandberg, Associate Vice President, Nasdaq dated June 30,
2016 (``Response Letter'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change as Modified by Amendment
No. 2
Nasdaq is proposing to adopt Rule 5250(b)(3) to require each listed
company to publicly disclose the material terms of all agreements or
arrangements between any director or nominee for director on the
company's board and any person or entity other than the company
relating to compensation or other payment in connection with that
person's candidacy or service as a director.\8\ The proposal would
require disclosure of all such agreements and arrangements by no later
than the date on which the company files or furnishes a definitive
proxy or information statement subject to Regulation 14A or 14C under
the Act in connection with the Company's next shareholders' meeting at
which directors are elected (or, if they do not file proxy or
information statements, no later than when the Company files its next
Form 10-K or Form 20-F).\9\
---------------------------------------------------------------------------
\8\ See proposed Rule 5250(b)(3)(A).
\9\ See proposed Rule 5250(b)(3). See also supra, note 6 for a
description of changes made in Amendment No 2 as compared to the
original filing.
---------------------------------------------------------------------------
The proposal as modified by Amendment No. 2 would require a listed
company to disclose this information either on or through the company'
Web site or in the definitive proxy or information statement \10\ for
the next shareholders' meeting at which directors are elected (or, if
the company does not file proxy or information statements, in its Form
10-K or Form 20-F). The proposed rule provides that a company would not
need to make disclosure, however, of agreements and arrangements that:
(i) Relate only to reimbursement of expenses in connection with
candidacy as a director; (ii) existed prior to the nominee's candidacy
(including as an employee of the other person or entity) and the
nominees relationship with the third party has been publicly disclosed
in a definitive proxy or information statement or annual report (such
as in the director or nominee's biography); or (iii) have been
disclosed under Item 5(b) of Schedule 14A of the Act or Item 5.02(d)(2)
of Form 8-K in the current fiscal year.\11\ Such disclosure, however,
pursuant to these provisions under Schedule 14A and Form 8-K in (iii)
would not relieve a company of its disclosure obligations under the
proposed rule.\12\
---------------------------------------------------------------------------
\10\ See supra note 6.
\11\ See proposed Rule 5250(b)(3)(A).
\12\ See id.
---------------------------------------------------------------------------
The proposed rule states that a Company must make the disclosure
required by the rule at least annually until the earlier of the
resignation of the director or one year following the termination of
the agreement or arrangement.\13\ The proposed rule further states that
if a Company discovers an agreement or arrangement that should have
been disclosed pursuant to the proposed rule but was not disclosed,
then the Company must promptly make the required disclosure by filing a
Form 8-K or 6-K, where required by Commission rules, or by issuing a
press release.\14\ However, such remedial disclosure, regardless of its
timing, would not satisfy the annual disclosure requirements under the
proposed rule.\15\
---------------------------------------------------------------------------
\13\ See proposed Rule 5250(b)(3)(B).
\14\ See proposed Rule 5250(b)(3)(C).
\15\ See id. See also supra note 6.
---------------------------------------------------------------------------
The proposal further provides that if a company undertakes
reasonable efforts to identify all such agreements or arrangements,
including asking each director or nominee in a manner designed to allow
timely disclosure, and makes the required remedial disclosure promptly
if it discovers an agreement or arrangement that should have been
disclosed but was not, then the company will not be considered
deficient with respect to the rule.\16\
---------------------------------------------------------------------------
\16\ See proposed Rule 5250(b)(3)(D). The proposed rule also
provides that in, all other cases, the Company must submit a plan
that satisfies Exchange staff that the Company has adopted processes
and procedures designed to identify and disclose relevant agreements
or arrangements.
---------------------------------------------------------------------------
The Exchange also proposes to make a change to Nasdaq Listing Rule
5615, which permits foreign private issuers to follow their home
country practice in lieu of certain corporate governance requirements
of the Exchange, provided that the issuer fulfills the conditions set
forth in that rule. Under the proposal, the required disclosure of
third-party payments to directors will be included among the rule
provisions where a foreign private issuer would be permitted to follow
home country practice.\17\ To meet the conditions of Rule 5615, a
foreign private issuer would be required to submit to Nasdaq a written
statement from an independent counsel in its home country certifying
that the company's practices are not prohibited by the home country's
laws. The issuer would also be
[[Page 44402]]
required to disclose in its annual filings with the Commission (or, in
certain circumstances, on its Web site) that it does not follow the
proposed rule's requirements and briefly state the home country
practice it follows in lieu of these requirements.
---------------------------------------------------------------------------
\17\ See supra note 6.
---------------------------------------------------------------------------
III. Comments on the Proposed Rule Change and Nasdaq's Response
As previously stated, the Commission received a total of eight
comment letters from seven commenters.\18\ Four commenters expressed
general support for the proposal.\19\ One of these commenters stated
that third-party payment arrangements of the kind covered by the
proposal ``present numerous problems besides the obvious potential
conflict of interest that shareholders should consider in voting for
board members.'' \20\ In addition, the commenter believed that ``the
ability to keep both arrangement and the terms thereof secret provides
`raiders' and other types of activists an unfair tactical advantage
over the incumbent board members,'' and that ``if an insurgent
candidate is elected to the board, secrecy around that board member's
outside compensation can inhibit the effective functioning of the board
of directors.'' \21\ Echoing similar beliefs, another of these
commenters stated that full disclosure of the material terms of third
party arrangements with a director is ``a necessary element of
understanding and assessing the ability of directors and director
nominees to fulfill their fiduciary duties.'' \22\ Another commenter
stated its belief that ``investors need to know if there are
compensation arrangements for any director in which an entity other
than the listed company is paying for that particular director's
service.'' \23\
---------------------------------------------------------------------------
\18\ See supra note 7.
\19\ See Schwartz Letters, Business Roundtable Letter, American
Business Conference Letter, and Society for Corporate Governance
Letter, supra note 7.
\20\ See American Business Conference Letter.
\21\ Id.
\22\ See Business Roundtable Letter.
\23\ See Society for Corporate Governance Letter.
---------------------------------------------------------------------------
One comment letter stated its aim as ensuring that Nasdaq was fully
informed as it considered whether to move forward with the proposed
rule change, in view of what it described as the somewhat complex
arrangements that can exist when a board member of an issuer is a
general partner of a venture capital fund partnership that owns a
substantial interest in the issuer and is also a member or an associate
of the venture capital firm that formed the venture capital fund.\24\
This commenter recommended that Nasdaq clarify the conditions of the
exemption in the rule for pre-existing relationships as well as the
degree of detail needed in disclosures required by the proposed
rule.\25\
---------------------------------------------------------------------------
\24\ See NVCA Letter, supra note 7.
\25\ Id. The NVCA Letter also noted that potential restrictions
on the ability of individuals who receive compensation to serve as a
director could adversely affect venture capital firms due to the
structure of venture capital funds. See id. The Commission knows
that this is not within the scope of the Nasdaq proposed rule
change.
---------------------------------------------------------------------------
Finally, two commenters recommended that the proposed rule change
not be approved.\26\ One of these commenters indicated uncertainty as
to whether the issues addressed by the Exchange's proposal are not
adequately covered by existing Commission rules.\27\ This commenter
further believed that the Commission should ``promote desirable
uniformity in the nature of required disclosures to investors about
director compensation arrangements at public companies, without
differentiation based on the exchange on which a company's securities
are listed.'' \28\
---------------------------------------------------------------------------
\26\ See New York City Bar Letter and NYS Business Council
Letter, supra note 7.
\27\ See New York City Bar Letter id.
\28\ Id. The commenter cited, in this regard, the Commission's
Disclosure Effectiveness Project.
---------------------------------------------------------------------------
The other commenter opposing approval of the proposed rule change,
similarly, believed that proposal ``may be duplicative'' because the
Commission already has rules that ``may already address the disclosures
covered in the proposed rule change.'' \29\ This commenter argued that
``approving similar rules aimed at the same goal but from a different
regulator would make compliance unnecessarily difficult and would not
be an efficient use of resources,'' adding that if more disclosure was
required by the proposal than by the Commission's rules, ``investors in
Nasdaq-listed companies would be receiving different information on
these matters than investors in companies listed on other exchanges,
which could lead to confusion.'' \30\ The commenter further argued that
the Nasdaq proposal would require companies to ``unnecessarily incur
costs and expend energy without any meaningful benefit to
shareholders.'' \31\
---------------------------------------------------------------------------
\29\ See NYS Business Council Letter, supra note 7.
\30\ Id.
\31\ Id.
---------------------------------------------------------------------------
In its Response Letter, Nasdaq cited the letters that had been
received in support of its proposed rule change, noting that the
submitters of these letters shared the Exchange's view that the
proposed disclosures would be meaningful to shareholders and relevant
to their investment and voting decisions. In response to the view of
opposing commenters that existing Commission regulations may already
require the disclosure mandated by the proposed rule, Nasdaq noted that
the proposal would not require separate disclosure when disclosure
sufficient to satisfy the proposed rule has been made by a company
under existing Commission proxy rules. Acknowledging that there are
various Commission rules that may, in some circumstances, apply to
third party director payments, Nasdaq stated, nonetheless, that the
nature, scope and timing of these required disclosures may not in all
cases be the same as the disclosure mandated by its proposal.\32\
Nasdaq averred that it had considered the concerns raised in the
comment letters, but believes the proposal as amended adequately
addresses them.\33\
---------------------------------------------------------------------------
\32\ Nasdaq cited its proposal's ongoing annual and remedial
disclosure requirements as examples. See supra note 7.
\33\ In this regard, Nasdaq specifically mentioned the concerns
raised in the NVCA Letter around board service by venture capital
board members.
---------------------------------------------------------------------------
IV. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\34\ In particular, the Commission finds that the proposed
rule change is consistent with the requirements of Section 6(b)(5) of
the Act,\35\ which requires, among other things, that the Exchange's
rules be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest; and not be designed to permit, among other things,
unfair discrimination between issuers.
---------------------------------------------------------------------------
\34\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\35\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The development, implementation, and enforcement of standards
governing the initial and continued listing of securities on an
exchange are activities of critical importance to financial markets and
the investing public. Listing requirements, among other things, serve
as a means for an exchange to provide listed status only to companies
that meet certain initial and continued quantitative and qualitative
[[Page 44403]]
criteria that help to ensure that fair and orderly markets can be
maintained once the company is listed. The corporate governance
standards embodied in the listing standards of national securities
exchanges, in particular, play an important role in assuring that
exchange-listed companies observe good governance practices, including
that listed companies provide adequate disclosure to allow investors to
make informed investment and voting decisions. The Commission has long
encouraged exchanges to adopt and strengthen their corporate governance
listing standards in order to, among other things, provide greater
transparency into the governance processes of listed issuers and
enhance investor confidence in the securities markets.
The majority of the commenters, as described above, were supportive
of the proposal and thought it was important to ensure that investors
have material information about third party payments to nominees and
existing directors. Two commenters, however, requested that the
Commission not approve the Nasdaq's proposal.\36\ The commenters were
concerned that the Exchange requirements may be duplicative of
Commission disclosure requirements and that disclosure of director
compensation is a matter more suited to uniform regulation by the
Commission.
---------------------------------------------------------------------------
\36\ See New York City Bar Letter and Business Council Letter,
supra note 7.
---------------------------------------------------------------------------
The Commission recognizes that there may be some overlap with
Commission disclosure requirements. Depending on the facts and
circumstances, various provisions under the federal securities laws,
such as Items 401(a) and 402(k) of Regulation S-K, Item 5(b) of
Schedule 14A, and Item 5.02(d) of Form 8-K, may require disclosure of
third party compensation arrangements with or payments to nominees and/
or board members.\37\ We note that it is not unusual for national
securities exchanges to adopt disclosure requirements in their listing
rules that supplement or overlap with disclosure requirements otherwise
imposed under the federal securities laws. For example, notwithstanding
the requirements imposed by the federal securities laws to report
certain material events shortly after they occur on Form 8-K, national
securities exchanges maintain separate, broader disclosure rules that
require prompt disclosure of material information.\38\ These and other
disclosure-related listing standards help to ensure that listed
companies maintain compliance with the disclosure requirements under
the federal securities laws and contribute to the maintenance of fair
and orderly markets by providing investors with material and current
information necessary for informed investment and voting decisions.
---------------------------------------------------------------------------
\37\ In addition to these specific disclosure requirements,
information about third party compensation arrangements may be
required under other provisions of the federal securities laws which
require disclosure of any additional material information necessary
to make the statements included in the relevant filing, in light of
the circumstances under which they are made, not misleading. See,
e.g., Exchange Act Rules 10b-5, 14a-9, and 14c-6.
\38\ See, e.g., NYSE Section 202.05; Nasdaq Rule 5250(b)(1).
---------------------------------------------------------------------------
The proposal contains certain exceptions to address some of the
concerns raised by commenters about overlap with Commission rules. For
example, an exception is provided for disclosure of arrangements or
agreements that have been disclosed under Item 5(b) of Schedule 14A or
Item 5.02(d) of Form 8-K in the current fiscal year. In addition, in
Amendment No. 2, Nasdaq made clear that if, in response to a Commission
disclosure requirement, a company provides disclosure in a definitive
proxy or information statement sufficient to comply with the proposed
rule, such disclosure would also satisfy the company's disclosure
obligation under the Nasdaq rule. Further, the proposal permits listed
companies, to the extent the disclosure is not otherwise required in a
proxy or information statement, to disclose the information on a Web
site, either directly or through a hyperlink. This should help to
mitigate any disclosure burden on companies that have already provided
the required disclosure in a prior Commission filing because the rule
only would require the company to post a link to that filing on its Web
site.
To the extent, there are certain factual scenarios that would
require disclosure not otherwise required under Commission rules, we
believe that it is within the purview of a national securities exchange
to impose heightened governance requirements, consistent with the Act,
that are designed to improve transparency and accountability into
corporate decision making and promote investor confidence in the
integrity of the securities markets.\39\
---------------------------------------------------------------------------
\39\ For example, the Commission has previously determined that
exchange listing standards relating to audit committee independence
requirements that included heightened requirements beyond those
specifically mandated by Rule 10A-3 were consistent with the Act.
See Securities Exchange Act Release No. 48745 (Nov. 4, 2003), 68 FR
64154 (Nov. 12, 2003).
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Concerning the instant proposal, to the extent that it would, in
certain situations, provide investors and market participants
additional information to make informed investment and voting
decisions, we believe it is consistent with the requirements of Section
6(b)(5) of the Act.
Finally, the Commission notes that certain changes and
clarifications were made to the proposal by Nasdaq in response to
comments. Amendment No. 2 clarified that non-cash compensation includes
indemnification and further clarified in the proposed rule language
that the material terms of the agreement or arrangement that need to be
disclosed are those relating to compensation and not limited to cash
payments. Further, Nasdaq amended the rule language concerning an
exception to disclosure relating to relationships that existed prior to
a nominee's candidacy. That proposed change states that no additional
disclosure is required if the prior relationship between the nominee
and the third party has been publicly disclosed in a definitive proxy
or annual report. The Exchange further clarified in the amended rule
language in proposed IM-5250-2 the timing of when the disclosure needs
to be made when the disclosure is posted on the Company's Web site.
These changes, among the others made in Amendment No. 2, help to
clarify the proposal and address some of the concerns expressed by the
commenters.
V. Solicitation of Comments on Amendment No. 2
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether Amendment No. 2
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-2016-013 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2016-013. 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/
[[Page 44404]]
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, 100 F
Street NE., Washington, DC 20549, on official business days between the
hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be
available for inspection and copying at the principal office 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-2016-013 and should be submitted on or before July 28, 2016.
VI. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 2
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 2, prior to the 30th day after the
date of publication of the notice of Amendment No. 2 in the Federal
Register. As noted above, in Amendment No. 2, the exchange clarified
various aspects of the proposed rule's applicability and included new
provisions that enhance the proposal.\40\ The Commission believes the
clarifications in Amendment No. 2 would provide market participants
with greater transparency regarding the requirements for listed
companies to disclose compensation or other payments by third parties
to board of director's members or nominees under Nasdaq's rules. In
addition, in Amendment No. 2, the Exchange revised the proposed date of
effectiveness of the proposed rule change.\41\ The Commission believes
this revision will allow listed companies appropriate time to comply
with the proposed rule change.
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\40\ See supra note 6.
\41\ See id.
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Because Amendment No. 2 provided additional transparency to the
disclosure requirements imposed by the proposed rule change, enhanced
its provisions, and provided a revised date of effectiveness which will
allow listed companies time to comply with the new requirements, the
Commission finds good cause for approving the proposed rule change, as
modified by Amendment No. 2, on an accelerated basis, pursuant to
Section 19(b)(2) of the Act.\42\
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\42\ 15 U.S.C. 78s(b)(2).
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VII. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\43\ that the proposed rule change (SR-NASDAQ-2016-013), as
modified by Amendment No. 2, be, and it hereby is, approved on an
accelerated basis.
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\43\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\44\
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\44\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-16123 Filed 7-6-16; 8:45 am]
BILLING CODE 8011-01-P