Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Amendment No. 3 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 3, To Amend the Definition of Family Member in Listing Rule 5605(a)(2) for Purposes of the Definition of Independent Director, 9816-9820 [2020-03320]
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Federal Register / Vol. 85, No. 34 / Thursday, February 20, 2020 / Notices
reason for granting the exemption from
use of E-Filing no longer exists.
Documents submitted in adjudicatory
proceedings will appear in the NRC’s
electronic hearing docket which is
available to the public at https://
adams.nrc.gov/ehd, unless excluded
pursuant to an order of the Commission
or the presiding officer. If you do not
have an NRC-issued digital ID certificate
as described above, click ‘‘cancel’’ when
the link requests certificates and you
will be automatically directed to the
NRC’s electronic hearing dockets where
you will be able to access any publicly
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hearing docket. Participants are
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privacy information, such as social
security numbers, home addresses, or
personal phone numbers in their filings,
unless an NRC regulation or other law
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information. For example, in some
instances, individuals provide home
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respect to copyrighted works, except for
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For further details with respect to this
action, see the licensee’s application
dated November 7, 2019 (ADAMS
Accession No. ML19325C593).
Attorney for licensee: Timothy P.
Matthews, Esq., Morgan, Lewis and
Bockius, 1111 Pennsylvania Avenue
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NRC Branch Chief: Jennifer L. DixonHerrity.
Dated at Rockville, Maryland, this 13th day
of February, 2020.
For the Nuclear Regulatory Commission.
Dennis J. Galvin,
Project Manager, Project Licensing Branch IV,
Division of Operating Reactor Licensing,
Office of Nuclear Reactor Regulation.
[FR Doc. 2020–03340 Filed 2–19–20; 8:45 am]
BILLING CODE 7590–01–P
POSTAL REGULATORY COMMISSION
[Docket No. CP2017–258]
New Postal Product
Postal Regulatory Commission.
Notice.
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AGENCY:
ACTION:
The Commission is noticing a
recent Postal Service filing for the
Commission’s consideration concerning
negotiated service agreements. This
notice informs the public of the filing,
SUMMARY:
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invites public comment, and takes other
administrative steps.
DATES: Comments are due: February 24,
2020.
ADDRESSES: Submit comments
electronically via the Commission’s
Filing Online system at https://
www.prc.gov. Those who cannot submit
comments electronically should contact
the person identified in the FOR FURTHER
INFORMATION CONTACT section by
telephone for advice on filing
alternatives.
FOR FURTHER INFORMATION CONTACT:
David A. Trissell, General Counsel, at
202–789–6820.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
II. Docketed Proceeding(s)
I. Introduction
The Commission gives notice that the
Postal Service filed request(s) for the
Commission to consider matters related
to negotiated service agreement(s). The
request(s) may propose the addition or
removal of a negotiated service
agreement from the market dominant or
the competitive product list, or the
modification of an existing product
currently appearing on the market
dominant or the competitive product
list.
Section II identifies the docket
number(s) associated with each Postal
Service request, the title of each Postal
Service request, the request’s acceptance
date, and the authority cited by the
Postal Service for each request. For each
request, the Commission appoints an
officer of the Commission to represent
the interests of the general public in the
proceeding, pursuant to 39 U.S.C. 505
(Public Representative). Section II also
establishes comment deadline(s)
pertaining to each request.
The public portions of the Postal
Service’s request(s) can be accessed via
the Commission’s website (https://
www.prc.gov). Non-public portions of
the Postal Service’s request(s), if any,
can be accessed through compliance
with the requirements of 39 CFR
3007.301.1
The Commission invites comments on
whether the Postal Service’s request(s)
in the captioned docket(s) are consistent
with the policies of title 39. For
request(s) that the Postal Service states
concern market dominant product(s),
applicable statutory and regulatory
requirements include 39 U.S.C. 3622, 39
1 See Docket No. RM2018–3, Order Adopting
Final Rules Relating to Non-Public Information,
June 27, 2018, Attachment A at 19–22 (Order No.
4679).
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U.S.C. 3642, 39 CFR part 3010, and 39
CFR part 3020, subpart B. For request(s)
that the Postal Service states concern
competitive product(s), applicable
statutory and regulatory requirements
include 39 U.S.C. 3632, 39 U.S.C. 3633,
39 U.S.C. 3642, 39 CFR part 3015, and
39 CFR part 3020, subpart B. Comment
deadline(s) for each request appear in
section II.
II. Docketed Proceeding(s)
1. Docket No(s).: CP2017–258; Filing
Title: Notice of the United States Postal
Service of Filing Modification Seven to
a Global Plus 3 Negotiated Service
Agreement; Filing Acceptance Date:
February 13, 2020; Filing Authority: 39
CFR 3015.5; Public Representative:
Kenneth R. Moeller; Comments Due:
February 24, 2020.
This Notice will be published in the
Federal Register.
Erica A. Barker,
Secretary.
[FR Doc. 2020–03425 Filed 2–19–20; 8:45 am]
BILLING CODE 7710–FW–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88210; File No. SR–
NASDAQ–2019–049]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing of Amendment No. 3 and Order
Granting Accelerated Approval of a
Proposed Rule Change, as Modified by
Amendment No. 3, To Amend the
Definition of Family Member in Listing
Rule 5605(a)(2) for Purposes of the
Definition of Independent Director
February 13, 2020.
I. Introduction
On May 29, 2019, The NASDAQ
Stock Market LLC (‘‘Nasdaq’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend the definition of a family
member for purposes of determining the
independence of directors under Nasdaq
Rule 5605(a)(2). The proposed rule
change was published for comment in
the Federal Register on June 18, 2019.3
On August 1, 2019, the Commission
extended the time period within which
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 86095
(June 12, 2019), 84 FR 28379 (‘‘Notice’’).
2 17
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to either approve the proposed rule
change, disapprove the proposed rule
change, or institute proceedings to
determine whether to approve or
disapprove the proposed rule change, to
September 16, 2019.4 On September 13,
2019, the Commission instituted an
order instituting proceedings under
Section 19(b)(2)(B) of the Act (‘‘OIP’’) to
determine whether to approve or
disapprove the proposed rule change.5
The Commission received one comment
letter, from Nasdaq, in response to the
OIP.6 On December 12, 2019, the
Commission designated a longer period
for Commission action on the proposed
rule change.7 On January 30, 2020,
Nasdaq filed Amendment No. 1 to the
proposed rule change, which the
Exchange subsequently withdrew. On
January 31, 2020, Nasdaq filed
Amendment No. 2 to the proposed rule
change, which the Exchange
subsequently withdrew.8 On February
11, 2020, Nasdaq filed Amendment No.
3 to the proposed rule change. The
Commission is publishing notice of the
filing of Amendment No. 3 to solicit
comment from interested persons and is
approving the proposed rule change, as
modified by Amendment No. 3, on an
accelerated basis.
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II. Description of the Proposal, as
Modified by Amendment No. 3
Nasdaq has proposed to amend its
definition of ‘‘Family Member’’ for
purposes of determining whether a
director is independent under Nasdaq
Rule 5605(a)(2) to mean a person’s
spouse, parents, children, siblings,
mothers and fathers-in-law, sons and
daughters-in-law, brothers and sistersin-law, and anyone (other than domestic
4 See Securities Exchange Act Release No. 86545
(August 1, 2019), 84 FR 38704 (August 7, 2019).
5 See Securities Exchange Act Release No. 86969
(September 13, 2019), 84 FR 49353 (September 19,
2019).
6 See letter from Jeffrey S. Davis, Senior Vice
President and Senior Deputy General Counsel,
Nasdaq, to Vanessa A. Countryman, Secretary,
Commission, dated November 12, 2019.
7 See Securities Exchange Act Release No. 87721
(December 12, 2019), 84 FR 69401 (December 18,
2019).
8 In Amendment No. 3, Nasdaq provided
additional clarification and justification in support
of the proposed rule change, including a statement
that it was proposing to interpret the term
‘‘children’’ to exclude stepchildren; deleted and
revised certain language in the original proposal;
and clarified that the proposed rule change to
Nasdaq Rule 5605(a)(2) will not affect the
additional independence criteria for audit
committee members set forth in Nasdaq Rule
5605(c)(2), which incorporate the independence
requirements of Rule 10A–3 under the Act, 17 CFR
240.10A–3. Amendment No. 3 replaces and
supersedes the original proposal in its entirety and
is available at: https://nasdaq.cchwallstreet.com/
NASDAQ/pdf/nasdaq-filings/2019/SR-NASDAQ2019-049_Amendment_3.pdf.
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employees) who shares such person’s
home. As stated by Nasdaq, the purpose
of the proposed rule change is to
exclude domestic employees who share
the director’s home, and stepchildren
who do not share the director’s home,
from the types of relationships that
always preclude a finding that a director
is independent.9
Nasdaq rules require companies
listing on the Exchange to meet certain
standards, including that a majority of
the board of the directors of the
company (the ‘‘Board’’) be Independent
Directors, and that the company’s audit,
compensation and nominating
committees 10 be comprised solely of
Independent Directors.11 ‘‘Independent
Director’’ is defined in Nasdaq Rule
5605(a)(2) to mean a person other than
an executive officer or employee of the
company or any other individual having
a relationship which, in the opinion of
the company’s Board, would interfere
with the exercise of independent
judgment in carrying out the
responsibilities of a director.
Rule 5605(a)(2) also precludes a Board
finding of independence in specified
situations where a director or a
director’s Family Member, as defined in
the rule, has (or has had), certain
relationships with the listed company.
This list of relationships, commonly
referred to as ‘‘bright-line tests’’,
includes the following:
• A director who accepted or who has
a Family Member who accepted any
compensation from the company in
excess of $120,000 during any period of
twelve consecutive months within the
three years preceding the determination
of independence (with certain
exceptions, including a Family Member
who is an employee other than an
executive officer); 12
• A director who is a Family Member
of an individual who is, or at any time
during the past three years was,
employed by the company as an
executive officer;
• A director who is, or has a Family
Member who 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
9 See
Amendment No. 3, supra note 8, at 5.
the company does not have a nominating
committee, under Nasdaq Rule 5605(e)(1) nominees
for directors must be selected or recommended by
Independent Directors constituting a majority of the
Board’s Independent Directors in a vote in which
only Independent Directors participate.
11 See Nasdaq Rule 5605(b)–(e).
12 Nasdaq’s rules state that this criterion is
generally intended to capture situations where a
compensation is made directly to (or for the benefit
of) the director or a Family Member of the director.
See Nasdaq Rule IM–5605.
10 If
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9817
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
(with certain exceptions);
• A director of the company who is,
or has a Family Member who is,
employed as an executive officer of
another entity where at any time during
the past three years any of the executive
officers of the company serve on the
compensation committee of such other
entity; and
• A director who is, or has a Family
Member who is, a current partner of the
company’s outside auditor, or was a
partner or employee of the company’s
outside auditor who worked on the
company’s audit at any time during any
of the past three years.13
Nasdaq Rule 5605(a)(2) currently
defines Family Member as ‘‘a person’s
spouse, parents, children and siblings,
whether by blood, marriage or adoption,
or anyone residing in such person’s
home.’’ As noted by Nasdaq in its
proposal, this definition includes
stepchildren, as they are ‘‘children by
. . . marriage.’’ It also includes
domestic employees who reside in a
person’s home.
Nasdaq has proposed to re-define a
Family Member to mean ‘‘a person’s
spouse, parents, children, siblings,
mothers and fathers-in-law, sons and
daughters-in-law, brothers and sistersin-law, and anyone (other than domestic
employees) who shares such person’s
home.’’ According to Nasdaq, this
definition would make its definition of
Family Member identical to the
definition of ‘‘immediate family
member’’ in the corresponding
corporate governance rules of the New
York Stock Exchange (‘‘NYSE’’).14
Nasdaq has proposed further to interpret
the term ‘‘children’’ to exclude
stepchildren.15 As noted by Nasdaq,
13 Nasdaq Rule 5605(a)(2)(A) also prohibits a
director who is, or at any time during the past three
years was, employed by the company. Additional
criteria of independence apply with respect to
Board members and members of the audit and
compensation committees. See Nasdaq Rule 5605.
14 See Section 303A.02 of the NYSE Listed
Company Manual, which states in this regard: ‘‘An
‘immediate family member’ includes a person’s
spouse, parents, children, siblings, mothers and
fathers-in-law, sons and daughters-in-law, brothers
and sisters-in-law, and anyone (other than domestic
employees) who shares such person’s home.’’ See
also Amendment No. 3, at 8, in which Nasdaq
stated, among other things, that it had heard from
its listed companies and their legal counsel that the
current situation, where each market has a different
definition, complicates the preparation by listed
companies of director and officer questionnaires
that the companies need in order to analyze director
independence.
15 See Amendment No. 3, supra note 8, at 7.
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however, the relationship of a stepchild
who shares the same home with a
director would continue to be
considered a Family Member
relationship under the bright-line tests,
because the definition of a Family
Member will include anyone (other than
domestic employees) who shares the
director’s home.16 Nasdaq has also
proposed to exclude domestic
employees who reside in a director’s
home from the definition of Family
Member.
Concerning the aspect of the proposed
rule change relating to stepchildren,
Nasdaq noted in its proposal that, over
time, it had concluded that inclusion of
stepchildren in the definition of Family
Member for the purposes of the brightline tests makes the definition overinclusive. The Exchange further stated
that it believes that a director’s
relationship with his or her stepchildren
may or may not interfere with the
director’s exercise of independent
judgment, depending on the facts and
circumstances of the situation.17
The Exchange acknowledged in its
proposal that if a stepchild has been a
dependent of a director or was part of
the director’s household since being a
minor, the director’s relationship with
that stepchild is likely to be similar to
a relationship with a biological child.
However, the Exchange maintained, if
the director married a person who has
an adult child, the director never acted
in any capacity as a parent of this
stepchild, and the stepchild never
shared the director’s household, then
the director and stepchild are likely to
have an attenuated relationship that is
unlike the relationship of a parent and
a child.18
Nasdaq has concluded, therefore, that
a stepchild relationship should not
preclude a director from being
considered independent in all
circumstances. The Exchange believes,
rather, that a company’s Board is in the
best position to determine whether a
given relationship between a director
and stepchild is likely to interfere with
the director’s exercise of independent
judgment in carrying out his or her
responsibilities based on the facts and
circumstances.19 The Exchange noted in
its proposal that, under Nasdaq Rule
5605(a)(2) and IM–5605, the Board must
affirmatively determine that no
relationship exists that would interfere
with such independent judgment.20
16 See
id.
id.
18 See id.
19 See id., at 7–8.
20 See id., at 10.
17 See
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Nasdaq added that the proposed rule
change to the definition of Family
Member for purposes of the bright-line
tests of independence in Nasdaq Rule
5605(a)(2) would not affect the
additional independence criteria for
audit committee members set forth in
Nasdaq Rule 5605(c)(2), which
incorporate the independence
requirements of the Rule 10A–3 under
the Act.21
Concerning the aspect of the proposed
rule change that relates to domestic
employees who share a director’s home,
Nasdaq stated that the term Family
Member was not intended to capture
commercial relationships. Here, too, the
Exchange expressed the belief that it is
appropriate for the Board to review a
relationship between a director and a
domestic employee under a facts and
circumstances test.22
III. Summary of Comment Letter
As previously noted, the Commission
received one comment letter, from
Nasdaq, in response to the OIP. In its
letter, Nasdaq stated, among other
things, that it and NYSE appear to agree
that stepchildren should be excluded
from the definition of Family Member
(in Nasdaq’s rules) and immediate
family member (in NYSE’s rules).
Nasdaq believes that ‘‘NYSE interprets
the term ‘children’ to exclude
stepchildren, particularly in situation
where the stepchild relationship is
attenuated, namely where a person has
become a stepchild of a director as an
adult.’’ Nasdaq stated that it based this
understanding on information that it
said was provided by practitioners that
represent companies listed on both
Nasdaq and NYSE and from companies
previously listed on NYSE. Nasdaq
further noted that the Commission has
previously approved the proposed
definition as consistent with Section
6(b)(5) of the Act and added that it
believes that Commission disapproval of
its proposed rule change would promote
unfair competition.
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
21 Nasdaq Rule 5605(c)(2) requires that each
Company must have, and certify that it has and will
continue to have, an audit committee of at least
three members, each of whom must, among other
requirements, meet the criteria for independence set
forth in Rule 10A–3(b)(1) under the Act, in addition
to the requirements of Nasdaq Rule 5605(a)(2). See
also Nasdaq Rule IM–5605–4 (Audit Committee
Composition).
22 See Amendment No. 3, supra note 8, at 10.
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securities exchange.23 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,24 which requires,
among other things, that the rules of a
national securities exchange be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system and, in general, to protect
investors and the public interest.
As discussed above, Nasdaq has
proposed to define a Family Member,
for purposes of the bright-line tests of
whether a director qualifies as an
Independent Director, to mirror the
definition of ‘‘immediate family
member’’ under NYSE’s rules. The
Commission notes that other exchanges,
too, use the same or similar language in
their corporate governance rules, all of
which have been approved by the
Commission as consistent with the
Act.25 The Commission notes, in
addition, that it has received no
comments, other than the
aforementioned letter from the
Exchange, in support of its proposal in
response to the OIP.
As to Nasdaq’s proposal to interpret
the term ‘‘children’’ to exclude
stepchildren from the definition of
Family Member, Nasdaq explained in
support of its proposal that in some
cases a stepchild has been a dependent
or was part of the director’s household
since being a minor and the director/
stepchild relationship is likely then to
be similar to a relationship with a
biological child, who is covered by the
bright-line tests, while in other cases the
director and stepchild relationship is
attenuated, as in a situation where the
director is married to a person who has
an adult child who never shared the
23 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).
24 15 U.S.C. 78f(b)(5).
25 See, e.g., Securities Exchange Act Release Nos.
48863 (Dec. 1, 2003), 68 FR 68432 (Dec. 8, 2003)
(order approving File No. SR–Amex–2003–65, now
incorporated in NYSE American LLC Company
Guide at Section 803, Commentary .01); 49810 (June
4, 2004), 69 FR 32647 (June 10, 2004) (order
approving SR–PCX–2003–35, now incorporated in
the rules of NYSE Arca, Inc., at Rule 5.3–E(k)(5)(H));
and 49911 (June 24, 2004), 69 FR 39989 (July 1,
2004) (order approving File No. SR–CHX–2003–19,
now incorporated in the rules of NYSE Chicago,
Inc., at Article 22, Rule 19(o)). In addition to
approving Nasdaq’s proposed new rule text
defining Family Member for purposes of the brightline tests, which mirrors the rule language of these
other exchanges, the Commission is also approving
Nasdaq’s interpretation of ‘‘children’’ as excluding
stepchildren, an interpretation that the Commission
has not approved previously for other exchanges.
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Federal Register / Vol. 85, No. 34 / Thursday, February 20, 2020 / Notices
director’s household, and the director
never acted in any capacity as a parent
to the stepchild. As a result of these
different fact patterns, Nasdaq believes
it is appropriate to leave to the Board
the determination as to whether such a
relationship is likely to interfere with
the director’s exercise of independent
judgement in carrying out the director’s
responsibilities, based on the Board’s
analysis of the facts and circumstances
of the director/stepchild relationship.
Nasdaq has further noted that a
stepchild who shares a home with the
director would continue to be covered
by the bright-line tests through the
definition of Family Member, which
still includes anyone, other than a
domestic employee, who shares the
director’s home. Additionally, the
Commission notes that, as Nasdaq
points out, the Exchange’s rules place a
responsibility on the Board of a listed
company to make an affirmative
determination, beyond applying the
bright-line tests, that any individual
serving as an independent director has
no relationship that would impair his or
her independence.26
In addition, the Commission notes
that, in the proposal as modified by
Amendment No. 3, the Exchange stated
that, to comply with the Exchange’s
rules, it will expect the Boards of its
listed companies to continue to elicit
through director questionnaires the
information necessary to make
independence determinations, which, it
states, will need to include questions
about stepchild relationships. The
Commission believes that this should
help to ensure that listed companies
inquire about stepchild relationships so
that such companies can discern the
essential facts and circumstances to be
able to make the affirmative findings
necessary under Nasdaq rules to
determine a director is independent.
This is important given that Nasdaq will
no longer be including stepchildren
within the blanket exclusions of the
Family Member relationships identified
in the bright-line tests that
automatically disqualify a director from
being independent. The Commission
notes that the proposal, in the narrow
context of excluding stepchildren who
do not share the director’s home from
the definition of Family Member for
purposes of the bright-line tests, should
provide additional flexibility to Boards
by permitting them to consider the
independence of a director based on the
particular facts and circumstances of a
director and stepchild relationship,
while at the same time continuing to
require Boards to have the responsibility
26 See
supra, text accompanying note 20.
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to ensure that such a relationship would
not interfere with or impair a Board
member’s independence.27
The Commission also notes that the
Exchange’s proposal would permit a
finding of independence if there is a
company relationship with the minor
stepchild of a director who is not
sharing the director’s home, while Rule
10A–3 and Exchange Rule 5605(c)(2),
which incorporates the independence
requirements of Rule 10A–3, could
preclude a finding of independence in
such case for a director serving as a
member of an audit committee.
Exchange Rule 5605(c)(2) also
incorporates the independence
requirements of Rule 5605(a)(2) for a
director serving on the audit committee.
In the proposal as modified by
Amendment No. 3, to avoid any
confusion, Nasdaq has made clear that
the change it is proposing to the
interpretation of Family Member
concerning stepchildren in Nasdaq Rule
5605(a)(2), for purposes of the brightline tests in that provision, will not
affect the additional independence
criteria for audit committee members in
Nasdaq Rule 5605(c)(2), incorporating
the provisions of Rule 10A–3.28
Finally, the Commission believes that
it is reasonable for Nasdaq to exclude
domestic employees who share a
director’s home from the definition of
Family Member, as do other exchanges.
The Commission notes that Nasdaq
stated in its proposal that it believes that
it is appropriate for a company’s Board
to review a relationship between a
director and a domestic employee who
shares the director’s home under a facts
and circumstances test, as in the case of
a stepchild relationship.29 The
Commission also notes that this
proposed provision is consistent with
the rules of other exchanges.30 As noted
above with respect to other
relationships, the Board would continue
to need to make an affirmative
determination that such a domestic
employee relationship with the director
does not interfere with the director’s
independence, pursuant to the
requirements in Exchange Rule
5605(a)(2) and IM 5605.
27 See
Nasdaq Rule 5605(a)(2) and IM–5605.
Commission would expect the Exchange to
make clear to its listed companies that the proposed
broader exclusion from the definition of Family
Member, as it applies to minor stepchildren not
sharing the director’s home, may not be applied for
purposes of determining the independence of audit
committee members, where the stricter standards of
Rule 10A–3, as well as Exchange Rule 5605(c)(2),
still apply.
29 See Amendment No. 3, supra note 8, at 10.
30 See supra, note 25.
28 The
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9819
V. Accelerated Approval of the
Proposed Rule Change, as Modified by
Amendment No. 3
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment No. 3, prior to
the thirtieth day after the date of
publication of notice of the filing of
Amendment No. 3 in the Federal
Register. Amendment No. 3 provided
clarifications and additional
information regarding the justification
of the proposal and also made clear that
the proposed rule change would not
impact the applicability of the
Exchange’s additional independence
criteria for audit committee members set
forth in Nasdaq Rule 5605(c)(2), which
incorporate the independence
requirements of Rule 10A–3. In
Amendment No. 3, Nasdaq also stated
that Boards of its listed companies will
be expected to elicit the information
necessary for Boards to make
independence determinations and
specifically ask about stepchild
relationships. The Commission also
notes that the proposed rule language
being adopted herein was noticed for
comment in the Federal Register and no
comments were received in response to
that notice. The clarifications and
additional justification in Amendment
No. 3 have assisted the Commission in
evaluating the proposal under the Act.
Accordingly, the Commission finds
good cause, pursuant to Section 19(b)(2)
of the Act,31 to approve the proposed
rule change, as modified by Amendment
No. 3, on an accelerated basis.
VI. Solicitation of Comments on
Amendment No. 3 to the Proposed Rule
Change
Interested persons are invited to
submit written data, views, and
arguments concerning whether
Amendment No. 3 to the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2019–049 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–2019–049. This
31 15
E:\FR\FM\20FEN1.SGM
U.S.C. 78s(b)(2).
20FEN1
9820
Federal Register / Vol. 85, No. 34 / Thursday, February 20, 2020 / Notices
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 website (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 website 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NASDAQ–2019–049, and
should be submitted on or before March
12, 2020.
VII. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,32 that the
proposed rule change (SR–NASDAQ–
2019–049), as modified by Amendment
No. 3, be, and it hereby is, approved on
an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020–03320 Filed 2–19–20; 8:45 am]
lotter on DSKBCFDHB2PROD with NOTICES
BILLING CODE 8011–01–P
32 15
33 17
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(57).
VerDate Sep<11>2014
19:48 Feb 19, 2020
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88194; File No. SR–
NYSEArca–2020–12]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the NYSE Arca
Equities Fees and Charges
February 13, 2020.
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 February
3, 2020, NYSE Arca, Inc. (‘‘NYSE Arca’’
or the ‘‘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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
NYSE Arca Equities Fees and Charges
(‘‘Fee Schedule’’) to introduce an
alternative requirement to qualify for
the Tape B Tier 1 pricing tier. The
Exchange proposes to implement the fee
changes effective February 3, 2020. The
proposed rule change is available on the
Exchange’s website at www.nyse.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
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 those 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 parts of such
statements.
1 15
2 17
Jkt 250001
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00100
Fmt 4703
Sfmt 4703
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
Fee Schedule to introduce an alternative
requirement to qualify for the Tape B
Tier 1 pricing tier.
The proposed changes respond to the
current competitive environment where
order flow providers have a choice of
where to direct liquidity-providing
orders by offering further incentives for
ETP Holders 3 to send additional
displayed liquidity to the Exchange.
The Exchange proposes to implement
the fee changes effective February 3,
2020.
Background
The Commission has repeatedly
expressed its preference for competition
over regulatory intervention in
determining prices, products, and
services in the securities markets. In
Regulation NMS, the Commission
highlighted the importance of market
forces in determining prices and SRO
revenues and, also, recognized that
current regulation of the market system
‘‘has been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 4
As the Commission itself recognized,
the market for trading services in NMS
stocks has become ‘‘more fragmented
and competitive.’’ 5 Indeed, equity
trading is currently dispersed across 13
exchanges,6 31 alternative trading
systems,7 and numerous broker-dealer
internalizers and wholesalers, all
competing for order flow. Based on
publicly-available information, no
single exchange currently has more than
20% market share (whether including or
excluding auction volume).8 Therefore,
no exchange possesses significant
3 All references to ETP Holders in connection
with this proposed fee change include Market
Makers.
4 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
5 See Securities Exchange Act Release No. 51808,
84 FR 5202, 5253 (February 20, 2019) (File No. S7–
05–18) (Final Rule).
6 See Cboe U.S. Equities Market Volume
Summary, available at https://markets.cboe.com/us/
equities/market_share. See generally https://
www.sec.gov/fast-answers/
divisionsmarketregmrexchangesshtml.html.
7 See FINRA ATS Transparency Data, available at
https://otctransparency.finra.org/otctransparency/
AtsIssueData. A list of alternative trading systems
registered with the Commission is available at
https://www.sec.gov/foia/docs/atslist.htm.
8 See Cboe Global Markets U.S. Equities Market
Volume Summary, available at https://
markets.cboe.com/us/equities/market_share/.
E:\FR\FM\20FEN1.SGM
20FEN1
]]>Agencies
[Federal Register Volume 85, Number 34 (Thursday, February 20, 2020)]
[Notices]
[Pages 9816-9820]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03320]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88210; File No. SR-NASDAQ-2019-049]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing of Amendment No. 3 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment No. 3, To
Amend the Definition of Family Member in Listing Rule 5605(a)(2) for
Purposes of the Definition of Independent Director
February 13, 2020.
I. Introduction
On May 29, 2019, The NASDAQ Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend the definition of a family member for
purposes of determining the independence of directors under Nasdaq Rule
5605(a)(2). The proposed rule change was published for comment in the
Federal Register on June 18, 2019.\3\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 86095 (June 12,
2019), 84 FR 28379 (``Notice'').
---------------------------------------------------------------------------
On August 1, 2019, the Commission extended the time period within
which
[[Page 9817]]
to either approve the proposed rule change, disapprove the proposed
rule change, or institute proceedings to determine whether to approve
or disapprove the proposed rule change, to September 16, 2019.\4\ On
September 13, 2019, the Commission instituted an order instituting
proceedings under Section 19(b)(2)(B) of the Act (``OIP'') to determine
whether to approve or disapprove the proposed rule change.\5\ The
Commission received one comment letter, from Nasdaq, in response to the
OIP.\6\ On December 12, 2019, the Commission designated a longer period
for Commission action on the proposed rule change.\7\ On January 30,
2020, Nasdaq filed Amendment No. 1 to the proposed rule change, which
the Exchange subsequently withdrew. On January 31, 2020, Nasdaq filed
Amendment No. 2 to the proposed rule change, which the Exchange
subsequently withdrew.\8\ On February 11, 2020, Nasdaq filed Amendment
No. 3 to the proposed rule change. The Commission is publishing notice
of the filing of Amendment No. 3 to solicit comment from interested
persons and is approving the proposed rule change, as modified by
Amendment No. 3, on an accelerated basis.
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 86545 (August 1,
2019), 84 FR 38704 (August 7, 2019).
\5\ See Securities Exchange Act Release No. 86969 (September 13,
2019), 84 FR 49353 (September 19, 2019).
\6\ See letter from Jeffrey S. Davis, Senior Vice President and
Senior Deputy General Counsel, Nasdaq, to Vanessa A. Countryman,
Secretary, Commission, dated November 12, 2019.
\7\ See Securities Exchange Act Release No. 87721 (December 12,
2019), 84 FR 69401 (December 18, 2019).
\8\ In Amendment No. 3, Nasdaq provided additional clarification
and justification in support of the proposed rule change, including
a statement that it was proposing to interpret the term ``children''
to exclude stepchildren; deleted and revised certain language in the
original proposal; and clarified that the proposed rule change to
Nasdaq Rule 5605(a)(2) will not affect the additional independence
criteria for audit committee members set forth in Nasdaq Rule
5605(c)(2), which incorporate the independence requirements of Rule
10A-3 under the Act, 17 CFR 240.10A-3. Amendment No. 3 replaces and
supersedes the original proposal in its entirety and is available
at: https://nasdaq.cchwallstreet.com/NASDAQ/pdf/nasdaq-filings/2019/SR-NASDAQ-2019-049_Amendment_3.pdf.
---------------------------------------------------------------------------
II. Description of the Proposal, as Modified by Amendment No. 3
Nasdaq has proposed to amend its definition of ``Family Member''
for purposes of determining whether a director is independent under
Nasdaq Rule 5605(a)(2) to mean a person's spouse, parents, children,
siblings, mothers and fathers-in-law, sons and daughters-in-law,
brothers and sisters-in-law, and anyone (other than domestic employees)
who shares such person's home. As stated by Nasdaq, the purpose of the
proposed rule change is to exclude domestic employees who share the
director's home, and stepchildren who do not share the director's home,
from the types of relationships that always preclude a finding that a
director is independent.\9\
---------------------------------------------------------------------------
\9\ See Amendment No. 3, supra note 8, at 5.
---------------------------------------------------------------------------
Nasdaq rules require companies listing on the Exchange to meet
certain standards, including that a majority of the board of the
directors of the company (the ``Board'') be Independent Directors, and
that the company's audit, compensation and nominating committees \10\
be comprised solely of Independent Directors.\11\ ``Independent
Director'' is defined in Nasdaq Rule 5605(a)(2) to mean a person other
than an executive officer or employee of the company or any other
individual having a relationship which, in the opinion of the company's
Board, would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director.
---------------------------------------------------------------------------
\10\ If the company does not have a nominating committee, under
Nasdaq Rule 5605(e)(1) nominees for directors must be selected or
recommended by Independent Directors constituting a majority of the
Board's Independent Directors in a vote in which only Independent
Directors participate.
\11\ See Nasdaq Rule 5605(b)-(e).
---------------------------------------------------------------------------
Rule 5605(a)(2) also precludes a Board finding of independence in
specified situations where a director or a director's Family Member, as
defined in the rule, has (or has had), certain relationships with the
listed company. This list of relationships, commonly referred to as
``bright-line tests'', includes the following:
A director who accepted or who has a Family Member who
accepted any compensation from the company in excess of $120,000 during
any period of twelve consecutive months within the three years
preceding the determination of independence (with certain exceptions,
including a Family Member who is an employee other than an executive
officer); \12\
---------------------------------------------------------------------------
\12\ Nasdaq's rules state that this criterion is generally
intended to capture situations where a compensation is made directly
to (or for the benefit of) the director or a Family Member of the
director. See Nasdaq Rule IM-5605.
---------------------------------------------------------------------------
A director who is a Family Member of an individual who is,
or at any time during the past three years was, employed by the company
as an executive officer;
A director who is, or has a Family Member who 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 (with certain exceptions);
A director of the company who is, or has a Family Member
who is, employed as an executive officer of another entity where at any
time during the past three years any of the executive officers of the
company serve on the compensation committee of such other entity; and
A director who is, or has a Family Member who is, a
current partner of the company's outside auditor, or was a partner or
employee of the company's outside auditor who worked on the company's
audit at any time during any of the past three years.\13\
---------------------------------------------------------------------------
\13\ Nasdaq Rule 5605(a)(2)(A) also prohibits a director who is,
or at any time during the past three years was, employed by the
company. Additional criteria of independence apply with respect to
Board members and members of the audit and compensation committees.
See Nasdaq Rule 5605.
---------------------------------------------------------------------------
Nasdaq Rule 5605(a)(2) currently defines Family Member as ``a
person's spouse, parents, children and siblings, whether by blood,
marriage or adoption, or anyone residing in such person's home.'' As
noted by Nasdaq in its proposal, this definition includes stepchildren,
as they are ``children by . . . marriage.'' It also includes domestic
employees who reside in a person's home.
Nasdaq has proposed to re-define a Family Member to mean ``a
person's spouse, parents, children, siblings, mothers and fathers-in-
law, sons and daughters-in-law, brothers and sisters-in-law, and anyone
(other than domestic employees) who shares such person's home.''
According to Nasdaq, this definition would make its definition of
Family Member identical to the definition of ``immediate family
member'' in the corresponding corporate governance rules of the New
York Stock Exchange (``NYSE'').\14\ Nasdaq has proposed further to
interpret the term ``children'' to exclude stepchildren.\15\ As noted
by Nasdaq,
[[Page 9818]]
however, the relationship of a stepchild who shares the same home with
a director would continue to be considered a Family Member relationship
under the bright-line tests, because the definition of a Family Member
will include anyone (other than domestic employees) who shares the
director's home.\16\ Nasdaq has also proposed to exclude domestic
employees who reside in a director's home from the definition of Family
Member.
---------------------------------------------------------------------------
\14\ See Section 303A.02 of the NYSE Listed Company Manual,
which states in this regard: ``An `immediate family member' includes
a person's spouse, parents, children, siblings, mothers and fathers-
in-law, sons and daughters-in-law, brothers and sisters-in-law, and
anyone (other than domestic employees) who shares such person's
home.'' See also Amendment No. 3, at 8, in which Nasdaq stated,
among other things, that it had heard from its listed companies and
their legal counsel that the current situation, where each market
has a different definition, complicates the preparation by listed
companies of director and officer questionnaires that the companies
need in order to analyze director independence.
\15\ See Amendment No. 3, supra note 8, at 7.
\16\ See id.
---------------------------------------------------------------------------
Concerning the aspect of the proposed rule change relating to
stepchildren, Nasdaq noted in its proposal that, over time, it had
concluded that inclusion of stepchildren in the definition of Family
Member for the purposes of the bright-line tests makes the definition
over-inclusive. The Exchange further stated that it believes that a
director's relationship with his or her stepchildren may or may not
interfere with the director's exercise of independent judgment,
depending on the facts and circumstances of the situation.\17\
---------------------------------------------------------------------------
\17\ See id.
---------------------------------------------------------------------------
The Exchange acknowledged in its proposal that if a stepchild has
been a dependent of a director or was part of the director's household
since being a minor, the director's relationship with that stepchild is
likely to be similar to a relationship with a biological child.
However, the Exchange maintained, if the director married a person who
has an adult child, the director never acted in any capacity as a
parent of this stepchild, and the stepchild never shared the director's
household, then the director and stepchild are likely to have an
attenuated relationship that is unlike the relationship of a parent and
a child.\18\
---------------------------------------------------------------------------
\18\ See id.
---------------------------------------------------------------------------
Nasdaq has concluded, therefore, that a stepchild relationship
should not preclude a director from being considered independent in all
circumstances. The Exchange believes, rather, that a company's Board is
in the best position to determine whether a given relationship between
a director and stepchild is likely to interfere with the director's
exercise of independent judgment in carrying out his or her
responsibilities based on the facts and circumstances.\19\ The Exchange
noted in its proposal that, under Nasdaq Rule 5605(a)(2) and IM-5605,
the Board must affirmatively determine that no relationship exists that
would interfere with such independent judgment.\20\
---------------------------------------------------------------------------
\19\ See id., at 7-8.
\20\ See id., at 10.
---------------------------------------------------------------------------
Nasdaq added that the proposed rule change to the definition of
Family Member for purposes of the bright-line tests of independence in
Nasdaq Rule 5605(a)(2) would not affect the additional independence
criteria for audit committee members set forth in Nasdaq Rule
5605(c)(2), which incorporate the independence requirements of the Rule
10A-3 under the Act.\21\
---------------------------------------------------------------------------
\21\ Nasdaq Rule 5605(c)(2) requires that each Company must
have, and certify that it has and will continue to have, an audit
committee of at least three members, each of whom must, among other
requirements, meet the criteria for independence set forth in Rule
10A-3(b)(1) under the Act, in addition to the requirements of Nasdaq
Rule 5605(a)(2). See also Nasdaq Rule IM-5605-4 (Audit Committee
Composition).
---------------------------------------------------------------------------
Concerning the aspect of the proposed rule change that relates to
domestic employees who share a director's home, Nasdaq stated that the
term Family Member was not intended to capture commercial
relationships. Here, too, the Exchange expressed the belief that it is
appropriate for the Board to review a relationship between a director
and a domestic employee under a facts and circumstances test.\22\
---------------------------------------------------------------------------
\22\ See Amendment No. 3, supra note 8, at 10.
---------------------------------------------------------------------------
III. Summary of Comment Letter
As previously noted, the Commission received one comment letter,
from Nasdaq, in response to the OIP. In its letter, Nasdaq stated,
among other things, that it and NYSE appear to agree that stepchildren
should be excluded from the definition of Family Member (in Nasdaq's
rules) and immediate family member (in NYSE's rules). Nasdaq believes
that ``NYSE interprets the term `children' to exclude stepchildren,
particularly in situation where the stepchild relationship is
attenuated, namely where a person has become a stepchild of a director
as an adult.'' Nasdaq stated that it based this understanding on
information that it said was provided by practitioners that represent
companies listed on both Nasdaq and NYSE and from companies previously
listed on NYSE. Nasdaq further noted that the Commission has previously
approved the proposed definition as consistent with Section 6(b)(5) of
the Act and added that it believes that Commission disapproval of its
proposed rule change would promote unfair competition.
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.\23\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\24\ which
requires, among other things, that the rules of a national securities
exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
---------------------------------------------------------------------------
\23\ 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).
\24\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
As discussed above, Nasdaq has proposed to define a Family Member,
for purposes of the bright-line tests of whether a director qualifies
as an Independent Director, to mirror the definition of ``immediate
family member'' under NYSE's rules. The Commission notes that other
exchanges, too, use the same or similar language in their corporate
governance rules, all of which have been approved by the Commission as
consistent with the Act.\25\ The Commission notes, in addition, that it
has received no comments, other than the aforementioned letter from the
Exchange, in support of its proposal in response to the OIP.
---------------------------------------------------------------------------
\25\ See, e.g., Securities Exchange Act Release Nos. 48863 (Dec.
1, 2003), 68 FR 68432 (Dec. 8, 2003) (order approving File No. SR-
Amex-2003-65, now incorporated in NYSE American LLC Company Guide at
Section 803, Commentary .01); 49810 (June 4, 2004), 69 FR 32647
(June 10, 2004) (order approving SR-PCX-2003-35, now incorporated in
the rules of NYSE Arca, Inc., at Rule 5.3-E(k)(5)(H)); and 49911
(June 24, 2004), 69 FR 39989 (July 1, 2004) (order approving File
No. SR-CHX-2003-19, now incorporated in the rules of NYSE Chicago,
Inc., at Article 22, Rule 19(o)). In addition to approving Nasdaq's
proposed new rule text defining Family Member for purposes of the
bright-line tests, which mirrors the rule language of these other
exchanges, the Commission is also approving Nasdaq's interpretation
of ``children'' as excluding stepchildren, an interpretation that
the Commission has not approved previously for other exchanges.
---------------------------------------------------------------------------
As to Nasdaq's proposal to interpret the term ``children'' to
exclude stepchildren from the definition of Family Member, Nasdaq
explained in support of its proposal that in some cases a stepchild has
been a dependent or was part of the director's household since being a
minor and the director/stepchild relationship is likely then to be
similar to a relationship with a biological child, who is covered by
the bright-line tests, while in other cases the director and stepchild
relationship is attenuated, as in a situation where the director is
married to a person who has an adult child who never shared the
[[Page 9819]]
director's household, and the director never acted in any capacity as a
parent to the stepchild. As a result of these different fact patterns,
Nasdaq believes it is appropriate to leave to the Board the
determination as to whether such a relationship is likely to interfere
with the director's exercise of independent judgement in carrying out
the director's responsibilities, based on the Board's analysis of the
facts and circumstances of the director/stepchild relationship. Nasdaq
has further noted that a stepchild who shares a home with the director
would continue to be covered by the bright-line tests through the
definition of Family Member, which still includes anyone, other than a
domestic employee, who shares the director's home. Additionally, the
Commission notes that, as Nasdaq points out, the Exchange's rules place
a responsibility on the Board of a listed company to make an
affirmative determination, beyond applying the bright-line tests, that
any individual serving as an independent director has no relationship
that would impair his or her independence.\26\
---------------------------------------------------------------------------
\26\ See supra, text accompanying note 20.
---------------------------------------------------------------------------
In addition, the Commission notes that, in the proposal as modified
by Amendment No. 3, the Exchange stated that, to comply with the
Exchange's rules, it will expect the Boards of its listed companies to
continue to elicit through director questionnaires the information
necessary to make independence determinations, which, it states, will
need to include questions about stepchild relationships. The Commission
believes that this should help to ensure that listed companies inquire
about stepchild relationships so that such companies can discern the
essential facts and circumstances to be able to make the affirmative
findings necessary under Nasdaq rules to determine a director is
independent. This is important given that Nasdaq will no longer be
including stepchildren within the blanket exclusions of the Family
Member relationships identified in the bright-line tests that
automatically disqualify a director from being independent. The
Commission notes that the proposal, in the narrow context of excluding
stepchildren who do not share the director's home from the definition
of Family Member for purposes of the bright-line tests, should provide
additional flexibility to Boards by permitting them to consider the
independence of a director based on the particular facts and
circumstances of a director and stepchild relationship, while at the
same time continuing to require Boards to have the responsibility to
ensure that such a relationship would not interfere with or impair a
Board member's independence.\27\
---------------------------------------------------------------------------
\27\ See Nasdaq Rule 5605(a)(2) and IM-5605.
---------------------------------------------------------------------------
The Commission also notes that the Exchange's proposal would permit
a finding of independence if there is a company relationship with the
minor stepchild of a director who is not sharing the director's home,
while Rule 10A-3 and Exchange Rule 5605(c)(2), which incorporates the
independence requirements of Rule 10A-3, could preclude a finding of
independence in such case for a director serving as a member of an
audit committee. Exchange Rule 5605(c)(2) also incorporates the
independence requirements of Rule 5605(a)(2) for a director serving on
the audit committee. In the proposal as modified by Amendment No. 3, to
avoid any confusion, Nasdaq has made clear that the change it is
proposing to the interpretation of Family Member concerning
stepchildren in Nasdaq Rule 5605(a)(2), for purposes of the bright-line
tests in that provision, will not affect the additional independence
criteria for audit committee members in Nasdaq Rule 5605(c)(2),
incorporating the provisions of Rule 10A-3.\28\
---------------------------------------------------------------------------
\28\ The Commission would expect the Exchange to make clear to
its listed companies that the proposed broader exclusion from the
definition of Family Member, as it applies to minor stepchildren not
sharing the director's home, may not be applied for purposes of
determining the independence of audit committee members, where the
stricter standards of Rule 10A-3, as well as Exchange Rule
5605(c)(2), still apply.
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Finally, the Commission believes that it is reasonable for Nasdaq
to exclude domestic employees who share a director's home from the
definition of Family Member, as do other exchanges. The Commission
notes that Nasdaq stated in its proposal that it believes that it is
appropriate for a company's Board to review a relationship between a
director and a domestic employee who shares the director's home under a
facts and circumstances test, as in the case of a stepchild
relationship.\29\ The Commission also notes that this proposed
provision is consistent with the rules of other exchanges.\30\ As noted
above with respect to other relationships, the Board would continue to
need to make an affirmative determination that such a domestic employee
relationship with the director does not interfere with the director's
independence, pursuant to the requirements in Exchange Rule 5605(a)(2)
and IM 5605.
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\29\ See Amendment No. 3, supra note 8, at 10.
\30\ See supra, note 25.
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V. Accelerated Approval of the Proposed Rule Change, as Modified by
Amendment No. 3
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 3, prior to the thirtieth day
after the date of publication of notice of the filing of Amendment No.
3 in the Federal Register. Amendment No. 3 provided clarifications and
additional information regarding the justification of the proposal and
also made clear that the proposed rule change would not impact the
applicability of the Exchange's additional independence criteria for
audit committee members set forth in Nasdaq Rule 5605(c)(2), which
incorporate the independence requirements of Rule 10A-3. In Amendment
No. 3, Nasdaq also stated that Boards of its listed companies will be
expected to elicit the information necessary for Boards to make
independence determinations and specifically ask about stepchild
relationships. The Commission also notes that the proposed rule
language being adopted herein was noticed for comment in the Federal
Register and no comments were received in response to that notice. The
clarifications and additional justification in Amendment No. 3 have
assisted the Commission in evaluating the proposal under the Act.
Accordingly, the Commission finds good cause, pursuant to Section
19(b)(2) of the Act,\31\ to approve the proposed rule change, as
modified by Amendment No. 3, on an accelerated basis.
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\31\ 15 U.S.C. 78s(b)(2).
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VI. Solicitation of Comments on Amendment No. 3 to the Proposed Rule
Change
Interested persons are invited to submit written data, views, and
arguments concerning whether Amendment No. 3 to the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NASDAQ-2019-049 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-2019-049. This
[[Page 9820]]
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 website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2019-049, and should be submitted
on or before March 12, 2020.
VII. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\32\ that the proposed rule change (SR-NASDAQ-2019-049), as
modified by Amendment No. 3, be, and it hereby is, approved on an
accelerated basis.
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\32\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(57).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-03320 Filed 2-19-20; 8:45 am]
BILLING CODE 8011-01-P
