Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Provide Listed Companies With a Temporary Limited Exception From Certain Shareholder Approval Requirements in Nasdaq Rules 5635(c) and (d), 27464-27469 [2020-09827]

Download as PDF 27464 Federal Register / Vol. 85, No. 90 / Friday, May 8, 2020 / Notices A. Participation in National Market System Plans. MEMX must join the Consolidated Tape Association Plan, the Consolidated Quotation Plan, and the Nasdaq UTP Plan (or any successors thereto); the National Market System Plan Establishing Procedures Under Rule 605 of Regulation NMS; the Regulation NMS Plan to Address Extraordinary Market Volatility; the Plan for the Selection and Reservation of Securities Symbols; and the National Market System Plan Governing the Consolidated Audit Trail. B. Intermarket Surveillance Group. MEMX must join the Intermarket Surveillance Group. C. Minor Rule Violation Plan. A MRVP filed by MEMX under Rule 19d– 1(c)(2) must be declared effective by the Commission.224 D. Rule 17d–2 Agreement. An agreement pursuant to Rule 17d–2 225 that allocates regulatory responsibility for those matters specified above 226 must be declared effective by the Commission, or MEMX must demonstrate that it independently has the ability to fulfill all of its regulatory obligations. E. Participation in Multi-Party Rule 17d–2 Plans. MEMX must become a party to the multi-party Rule 17d–2 agreement concerning the surveillance, investigation, and enforcement of common insider trading rules and the agreement concerning certain Regulation NMS and Consolidated Audit Trail Rules. F. RSA. MEMX must finalize the provisions of the RSA with its regulatory services provider, as described above, that will specify the MEMX and Commission rules for which the regulatory services provider will provide certain regulatory functions, or MEMX must demonstrate that it independently has the ability to fulfill all of its regulatory obligations. It is further ordered, pursuant to Section 36 of the Act,227 that MEMX shall be exempted from the rule filing requirements of Section 19(b) of the Act with respect to the FINRA rules that MEMX proposes to incorporate by reference into MEMX’s rules, subject to the conditions specified in this Order. By the Commission. J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–09861 Filed 5–7–20; 8:45 am] BILLING CODE 8011–01–P 224 17 CFR 240.19d–1(c)(2). CFR 240.17d–2. 226 See supra notes 135–136 and accompanying text. 227 15 U.S.C. 78mm. 225 17 VerDate Sep<11>2014 17:46 May 07, 2020 Jkt 250001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88805; File No. SR– NASDAQ–2020–025] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Provide Listed Companies With a Temporary Limited Exception From Certain Shareholder Approval Requirements in Nasdaq Rules 5635(c) and (d) May 4, 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 May 1, 2020, The Nasdaq Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II 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 adopt a rule, operative through, and including, June 30, 2020, to provide listed companies with a temporary exception from certain shareholder approval requirements, as described below. The text of the proposed rule change is available on the Exchange’s website at https://nasdaq.cchwallstreet.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. 1 15 2 17 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00113 Fmt 4703 Sfmt 4703 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Given current market conditions, Nasdaq proposes to provide listed companies with a temporary exception, limited in scope and time, from certain shareholder approval requirements, as described below. In December 2019, COVID–19 began to spread and disrupt company operations and supply chains and impact consumers and investors, resulting in a dramatic slowdown in production and spending.3 By March 11, 2020, the World Health Organization characterized COVID–19 as a pandemic.4 To slow the spread of the disease, federal and state officials implemented social-distancing measures, placed significant limitations on large gatherings, limited travel and closed non-essential businesses. These necessary measures also have affected equity markets, which have seen significant declines.5 In response, governments around the world have acted swiftly and decisively to provide relief to regulated entities and are undertaking efforts to stabilize the economy and assist affected companies and their employees.6 The Commission, 3 See, e.g., Chairman Jay Clayton, Proposed Amendments to Modernize and Enhance Financial Disclosures; Other Ongoing Disclosure Modernization Initiatives; Impact of the Coronavirus; Environmental and Climate-Related Disclosure (Jan. 30, 2020), available at https:// www.sec.gov/news/public-statement/clayton-mda2020–01–30. (‘‘Yesterday, I asked the staff to monitor and, to the extent necessary or appropriate, provide guidance and other assistance to issuers and other market participants regarding disclosures related to the current and potential effects of the coronavirus. We recognize that such effects may be difficult to assess or predict with meaningful precision both generally and as an industry- or issuer-specific basis. This is an uncertain issue where actual effects will depend on many factors beyond the control and knowledge of issuers.’’). 4 See WHO Director-General’s Opening Remarks at the Media Briefing on COVID–19 (March 11, 2020), available at https://www.who.int/dg/ speeches/detail/who-director-general-s-openingremarks-at-the-media-briefing-on-covid-19-11march-2020. 5 In the United States, Level 1 market wide circuit breaker halts were triggered on March 9, March 12, March 16, and March 18, 2020. See also Phil Mackintosh, Putting the Recent Volatility in Perspective, available at https://www.nasdaq.com/ articles/putting-the-recent-volatility-in-perspective2020–03–05 (‘‘Analysts showed that we saw the fastest ‘correction’ in history (down 10% from a high), occurring in a matter of days. In the last week of February, the Dow fell 12.36% with notional trading of $3.6 trillion.’’) 6 See, e.g., the list of actions undertaken by the Board of Governors of the Federal Reserve System at https://www.federalreserve.gov/covid-19.htm. See also Families First Coronavirus Response Act, Public Law 116–127 and Coronavirus Aid, Relief, and Economic Security Act, Public Law 116–136. E:\FR\FM\08MYN1.SGM 08MYN1 Federal Register / Vol. 85, No. 90 / Friday, May 8, 2020 / Notices in particular, has recognized the importance of functioning markets in this environment 7 and has granted issuers and broker-dealers relief and extensions from existing deadlines, in order to allow these entities, as well as the Commission itself, to focus on fighting the deadly virus and preserving functioning capital markets.8 Amidst this market uncertainty, Nasdaq proposes to temporarily modify certain of its rules in an effort to streamline listed companies’ access to capital. Specifically, Nasdaq proposes to adopt Listing Rule 5636T to provide a limited temporary exception to the shareholder approval requirements in Listing Rule 5635(d) (Transactions other than Public Offerings) 9 and, in certain 7 See, e.g., Chairman Jay Clayton, The Deep and Essential Connections Among Markets, Businesses, and Workers and the Importance of Maintaining those Connections in our Fight Against COVID–19 (March 24, 2020) available at https://www.sec.gov/ news/public-statement/statement-clayton-covid-192020-03-24 (‘‘The Securities and Exchange Commission and other financial regulators are focused on two overriding and interrelated issues. First, we are facing an unprecedented national challenge — a health and safety crisis that requires all Americans, for the sake of all Americans, to significantly change their daily behavior and, for many, to make difficult personal sacrifices. Second, the recognition that the continuing, orderly operation of our markets is an essential component of our national response to, and recovery from, COVID–19. The interrelationship between these issues cannot be overstated. Our health care, pharmaceutical, manufacturing, transportation, telecommunications and many other private-sector industries are critical to our collective response to COVID–19. The thousands of firms and entrepreneurs in these industries—and the millions of employees and contractors—that are working around the clock to fight COVID–19 depend on continued access to payments and credit.’’). 8 See SEC Coronavirus (COVID–19) Response available at https://www.sec.gov/sec-coronaviruscovid-19-response, which is being updated regularly with additional actions taken by the Commission. As of April 14, 2020, the Commission response includes (but is not limited to): Providing conditional relief for certain publicly traded company filing and proxy delivery obligations (March 4 and 25, 2020); granting relief to reporting deadlines and in-person meeting requirements for investment companies (March 13, 2020); extending the industry compliance period for Consolidated Audit Trail reporting due to the fact that ‘‘disruptions as a result of COVID–19 have placed new stresses and competing priorities on the infrastructure and staff required to implement the Consolidated Audit Trail’’ (March 16, 2020); extending filing deadlines for certain reports required under Regulation A and Regulation Crowdfunding (March 26, 2020); and providing temporary relief for Business Development Companies investing in small and medium-sized businesses (April 8, 2020). 9 Listing Rule 5635(d) states that shareholder approval is required prior to a 20% Issuance at a price that is less than the Minimum Price. The ‘‘Minimum Price’’ is defined in Rule 5635(d)(1)(A) as the lower of: (i) The Nasdaq Official Closing Price (as reflected on Nasdaq.com) immediately preceding the signing of the binding agreement; or (ii) the average Nasdaq Official Closing Price of the common stock (as reflected on Nasdaq.com) for the five trading days immediately preceding the signing VerDate Sep<11>2014 17:46 May 07, 2020 Jkt 250001 narrow circumstances, a limited attendant exception to Listing Rule 5635(c) (Equity Compensation).10 Shareholder Approval Requirements The Nasdaq shareholder approval rules generally require companies to obtain approval from shareholders prior to issuing securities in connection with: (i) Certain acquisitions of the stock or assets of another company; 11 (ii) equitybased compensation of officers, directors, employees or consultants; 12 (iii) a change of control; 13 and (iv) a 20% Issuance at a price less than the Minimum Price.14 One unavoidable consequence of the actions being taken to reduce the spread of COVID–19 is a reduction, or complete interruption, in revenue for many companies. For example, many communities have mandated that all restaurants and entertainment facilities close for a period of time. Similarly, companies in the travel sector have seen significant declines in bookings even if they are allowed to continue to operate. Thus, these businesses will have no or greatly reduced revenue to offset the operating costs or increased costs associated with the crisis. As such, investors may be reluctant to enter into new equity transactions, unless they are compensated for the risk through discounts to the trading price of a security, and companies may be forced by current circumstances to raise money through equity financings that require shareholder approval under Nasdaq’s rules. At the same time, other companies have sudden, unexpected cash needs as they undertake new or accelerated initiatives designed to address the loss of business and supply shortages caused by COVID–19. While an exception is currently available within Nasdaq’s rules for of the binding agreement. A ‘‘20% Issuance’’ is defined in Rule 5635(d)(1)(B) as a transaction, other than a public offering as defined in IM–5635–3, involving the sale, issuance or potential issuance by the Company of common stock (or securities convertible into or exercisable for common stock), which alone or together with sales by officers, directors or Substantial Shareholders of the Company, equals 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance. 10 Listing Rule 5635(c) requires shareholder approval, with certain exceptions, prior to the issuance of securities when a stock option or purchase plan is to be established or materially amended or other equity compensation arrangement made or materially amended, pursuant to which stock may be acquired by officers, directors, employees, or consultants. 11 See Listing Rule 5635(a) (Acquisition of Stock or Assets of Another Company). 12 See Listing Rule 5635(c) (Equity Compensation). 13 See Listing Rule 5635(b) (Change of Control). 14 See Listing Rule 5635(d) (Transactions other than Public Offerings). See also footnote 9 above. PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 27465 companies in financial distress where the delay in securing stockholder approval would seriously jeopardize the financial viability of the company,15 that exception is not helpful in most situations arising from the COVID–19 pandemic. For example, while a company may need additional cash so that it can continue to pay employees during a period of decreased or no revenue, the company’s viability may not otherwise be in jeopardy.16 Further, the accelerated need for funds, as well as the significantly curtailed operations of many businesses, may make impractical the requirement to mail notice to all shareholders ten days prior to issuing securities. As such, Nasdaq is concerned that this exception does not adequately address the capital raising needs of listed companies under current conditions. Proposed COVID–19 Exception In view of the above, Nasdaq proposes to create a new temporary exception from the shareholder approval requirements in Listing Rule 5635(d), accompanied by a limited exception from Listing Rule 5635(c) by adopting Listing Rule 5636T. This proposed exception would be available until and including June 30, 2020. Nasdaq notes that to rely on this exception, the company must execute a binding agreement governing the issuance of the securities, submit the notices required by Listing Rules 5636T(b)(5)(A) and (e), and obtain the required approval from Nasdaq under Listing Rule 5636T(b)(5)(B)(ii) (if applicable), as described below, no later than June 30, 2020. The issuance of the securities governed by such agreement in reliance on the exception in Listing Rule 5636T may occur after June 30, 2020, provided the issuance takes place no later than 30 calendar days following the date of the binding agreement. If the company does not issue securities within 30 calendar days, as described above, it may no 15 See Listing Rule 5635(f). Reliance by the company on a financial viability exception must expressly be approved by the company’s audit committee, or a comparable body of the board of directors comprised solely of independent, disinterested directors, and the company must obtain Nasdaq’s approval prior to proceeding with the transaction. In addition, companies are required to mail a letter (as opposed to relying solely on a press release or Form 8–K, which are also required, or a website posting) at least ten days prior to issuing securities in the exempted transaction alerting shareholders to the company’s omission to seek the shareholder approval that would otherwise be required. 16 Similarly a company that needs capital to undertake, for example, a new initiative designed to test for COVID–19 or to develop a vaccine may not otherwise be facing a threat to its viability. E:\FR\FM\08MYN1.SGM 08MYN1 27466 Federal Register / Vol. 85, No. 90 / Friday, May 8, 2020 / Notices longer rely on the exception in Listing Rule 5636T. Under proposed Listing Rule 5636T(b), the exception is limited to circumstances where the delay in securing shareholder approval would (i) have a material adverse impact on the company’s ability to maintain operations under its pre-COVID–19 business plan; (ii) result in workforce reductions; (iii) adversely impact the company’s ability to undertake new initiatives in response to COVID–19; or (iv) seriously jeopardize the financial viability of the enterprise. In addition to demonstrating that the transaction meets one of the foregoing requirements, in order to rely on the exception, the company would also have to demonstrate to Nasdaq that the need for the transaction is due to circumstances related to COVID–19 and that the company undertook a process designed to ensure that the proposed transaction represents the best terms available to the company. Nasdaq also proposes, similar to the requirement for the financial viability exception, to require that the company’s audit committee or a comparable body of the board of directors comprised solely of independent, disinterested directors expressly approve reliance on this exception. Nasdaq also proposes to require such committee or a comparable body of the board of directors comprised solely of independent, disinterested directors to determine that the transaction is in the best interest of shareholders. Unlike the requirement for the financial viability exception, no prior approval of the exception by Nasdaq would be required if the maximum issuance of common stock (or securities convertible into common stock) issuable in the transaction is less than 25% of the total shares outstanding and less than 25% of the voting power outstanding before the transaction; and the maximum discount to the Minimum Price at which shares could be issued is 15% (the ‘‘Safe Harbor Provision’’). Nasdaq notes that transactions that involve issuance of warrants exercisable for shares of common stock are not eligible for the Safe Harbor Provision. For transactions that do not fall within the Safe Harbor Provision, the Nasdaq Listing Qualifications Department must approve the company’s reliance on the exception before the company can issue any securities in the transaction. This approval will be based on a review of whether the company has established that it complies with the requirements of Listing Rule 5636T(b) (and Listing Rule 5636T(c) if applicable). Upon VerDate Sep<11>2014 17:46 May 07, 2020 Jkt 250001 completion of the review of the company’s submission, the Nasdaq Listing Qualifications Department will notify the company in writing whether the company’s reliance on the exception was approved. To provide shareholders with advance notice of the transaction, Nasdaq proposes to adopt Listing Rule 5636T(d), which would require a company relying on the proposed exception to make a public announcement by filing a Form 8–K, where required by SEC rules, or by issuing a press release disclosing as promptly as possible, but no later than two business days before the issuance of the securities: • The terms of the transaction (including the number of shares of common stock that could be issued and the consideration received); • that shareholder approval would ordinarily be required under Nasdaq rules but for the fact that the Company is relying on an exception to the shareholder approval rules; and • that the audit committee or a comparable body of the board of directors comprised solely of independent, disinterested directors expressly approved reliance on the exception and determined that the transaction is in the best interest of shareholders.17 In addition, Nasdaq has long interpreted Listing Rule 5635(c) to require shareholder approval for certain sales to officers, directors, employees, or consultants when such issuances could be considered a form of ‘‘equity compensation.’’ Nasdaq has heard from market participants that investors often require a company’s senior management to put their personal capital at risk and participate in a capital raising transaction alongside the unaffiliated investors. Nasdaq believes that as a result of uncertainty related to the ongoing spread of the COVID–19 virus, listed companies seeking to raise capital may face such requests. Accordingly, Nasdaq proposes that the temporary exception allow such investments under limited circumstances. To that end, Nasdaq proposes to adopt Listing Rule 5636T(c), which would provide for an exception from shareholder approval under Listing Rule 5635(c) for an affiliate’s participation in the transaction described in Listing Rule 5636T(b) provided the affiliate’s participation in the transaction was 17 See Listing Rule 5635(f) requiring similar disclosure, for a transaction for which a company relied on the financial viability exception, alerting shareholders to the omission to seek the shareholder approval that would otherwise be required. PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 specifically required by unaffiliated investors. In addition, to further protect against self-dealing, the proposed Listing Rule 5636T(c) would limit such participation to a de-minimis level— each affiliate’s participation must be less than 5% of the transaction and all affiliates’ participation collectively must be less than 10% of the transaction.18 Finally, any affiliate investing in the transaction must not have participated in negotiating the economic terms of the transaction. Listing Rule 5250(e)(2) requires a company to notify Nasdaq at least 15 calendar days prior to certain events, including when the company issues any common stock, or any security convertible into common stock in a transaction that may result in the potential issuance of common stock (or securities convertible into common stock) greater than 10% of either the total shares outstanding or the voting power outstanding on a pre-transaction basis (the ‘‘Notification’’). The Notification allows Nasdaq additional time to review the proposed transaction and assure that it complies with the shareholder approval requirements, including those in Listing Rules 5635(c) and (d). Absent a rule change, transactions described in proposed Listing Rules 5636T(b) and (c) would require such advance notification. Because a transaction satisfying the proposed temporary rule will be excepted from certain provisions of the shareholder approval rules, Nasdaq believes that notification 15 days prior to issuance is unnecessary. Accordingly, Nasdaq proposes to adopt Listing Rule 5636T(e) to provide that a company that relies on the exception in this Rule 5636T is not subject to the 15 day prior notification requirement described in Rule 5250(e)(2) but must still provide notification required by that rule to Nasdaq, along with a supplement, as required by Listing Rule 5636T(b)(5)(A), certifying in writing that the company complied with all requirements of Listing Rule 5636T(b), and Listing Rule 5636T(c) if applicable. Such submissions must be made, as promptly as possible, but no later than the time of the public announcement required by Listing Rule 5636T(d) and in no event later than June 30, 2020, in accordance with Listing Rule 5636T(a). In such certification, Nasdaq expects the company to describe with specificity how it complies with Listing Rule 18 Cf. Listing Rule IM–5405–1(a)(3) similarly limiting affiliates’ participation in certain prelisting trasactions in order for such transactions to constitute compelling evidence of the company’s value. E:\FR\FM\08MYN1.SGM 08MYN1 Federal Register / Vol. 85, No. 90 / Friday, May 8, 2020 / Notices 5636T(b), and Listing Rule 5636T(c) if applicable. For transactions described in Listing Rule 5636T(b)(5)(B)(ii) that require approval of the Nasdaq Listing Qualifications Department before the company can issue any securities in reliance on Listing Rule 5636T, Nasdaq expects companies to submit the Notification, and a supplement required by Listing Rule 5636T(b)(5)(A), with enough time to allow Nasdaq to complete its review of the submissions.19 The proposed rule also will remind companies that a transaction that violates other Nasdaq rules could subject the company to delisting and Nasdaq Staff would review transactions covered by proposed Listing Rule 5636T for compliance with all other Nasdaq listing requirements. As noted below, the proposed exception would not be available for the shareholder approval requirements related to equity compensation in Listing Rule 5635(c) (except for the limited circumstances described above for insider participation in transactions covered by the proposed exception), acquisitions in Listing Rule 5635(a) and a change of control in Listing Rule 5635(b). Finally, Nasdaq proposes to aggregate issuances of securities in reliance on the exception in proposed Listing Rule 5636T with any subsequent issuance by the company, other than a public offering under IM–5635–3, at a discount to the Minimum Price if the binding agreement governing the subsequent issuance is executed within 90 days of the prior issuance. Accordingly, if following the subsequent issuance, the aggregate issuance (including shares issued in reliance on the exception) equals or exceeds 20% of the total shares or the voting power outstanding before the initial issuance, then shareholder approval will be required under Rule 5635(d) prior to the subsequent issuance. Nasdaq believes that this temporary suspension will permit companies to raise capital quickly to continue running their businesses and address the immediate health crisis caused by the COVID–19 pandemic, including its impact on their employees, customers, and communities. Nasdaq notes that the proposed exception would not be available for the shareholder approval 19 Nasdaq notes that in such cases the company may not issue any securities until it receives the approval from the Nasdaq Listing Qualifications Department, which may take more than two days. Of course, if the Nasdaq Listing Qualifications Department does not approve reliance on the exception, any issuance of securities must comply with the shareholder approval requirements in Listing Rule 5635. VerDate Sep<11>2014 17:46 May 07, 2020 Jkt 250001 requirements related to equity compensation in Listing Rule 5635(c) (except for the limited circumstances described above for insider participation in transactions covered by the proposed exception), acquisitions in Listing Rule 5635(a) and a change of control in Listing Rule 5635(b). 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,20 in general, and furthers the objectives of Section 6(b)(5) of the Act,21 in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest. As a result of uncertainty related to the ongoing spread of the COVID–19 virus, the prices of securities listed on U.S. exchanges are experiencing significant volatility. Nasdaq believes that the proposed rule change is designed to remove an impediment to companies addressing certain immediate capital needs as a result of the COVID–19 pandemic and reduce uncertainty regarding the ability of companies to raise money quickly through equity financings during the current highly unusual market conditions and general economic disruptions. Nasdaq believes that in this way, the proposed rule change will protect investors, facilitate transactions in securities, and remove an impediment to a free and open market. All companies listed on the Exchange would be eligible to take advantage of the proposed suspension. In addition, Nasdaq believes the proposed rule change is designed to protect investors by limiting the exception from the shareholder approval requirements to situations where the need for the transaction is due to circumstances related to COVID– 19 and that the company undertook a process designed to ensure that the proposed transaction represents the best terms available to the company. The exception is also limited to circumstances where the delay in securing shareholder approval would (i) have a material adverse impact on the company’s ability to maintain operations under its pre-COVID–19 business plan; (ii) result in workforce reductions; (iii) adversely impact the company’s ability to undertake new initiatives in response to COVID–19; or (iv) seriously jeopardize the financial viability of the enterprise. Further, the 20 15 21 15 PO 00000 U.S.C. 78f(b). U.S.C. 78f(b)(5). Frm 00116 Fmt 4703 Sfmt 4703 27467 proposed rule requires that the company’s audit committee or a comparable body of the board of directors comprised solely of independent, disinterested directors expressly approve reliance on this exception and determine that the transaction is in the best interest of shareholders. Nasdaq also notes that to the extent the company relies on the Safe Harbor Provision instead of Nasdaq’s review and approval of the company’s reliance on the exception, as described above, the maximum issuance of common stock (or securities convertible into common stock) issuable in the transaction must be less than 25% of the total shares outstanding and less than 25% of the voting power outstanding before the transaction; and the maximum discount to the Minimum Price at which shares could be issued is 15%. Notwithstanding the proposed exception from certain shareholder approval requirements, as described above, important investor protections will remain as the proposed exception would not be available for the shareholder approval requirements related to equity compensation in Listing Rule 5635(c) (except for the limited circumstances described above for insider participation in transactions covered by the proposed exception), acquisitions in Listing Rule 5635(a) and a change of control in Listing Rule 5635(b). Finally, Nasdaq notes that the proposed rule is a temporary exception from certain shareholder approval requirements, as described above, operative through, and including, June 30, 2020. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. All companies listed on the Exchange would be eligible to take advantage of the proposed suspension. In addition, the proposed rule change is not designed to have any effect on intermarket competition but instead seeks to address concerns Nasdaq has observed surrounding the application of the shareholder approval requirements, as described above, to companies listed on Nasdaq. Other exchanges can craft relief based on their own rules and observations. E:\FR\FM\08MYN1.SGM 08MYN1 27468 Federal Register / Vol. 85, No. 90 / Friday, May 8, 2020 / Notices C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 22 and Rule 19b– 4(f)(6) thereunder.23 A proposed rule change filed under Rule 19b–4(f)(6) 24 normally does not become operative for 30 days after the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii),25 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposed rule change may become operative immediately upon filing. The Exchange stated that waiver of the operative delay would allow companies to quickly raise money through equity financings to maintain operations or financial viability, compensate its workforce, or undertake new initiatives in response to COVID–19 during the current highly unusual market and economic conditions and ongoing uncertainty relating to the global spread of the COVID–19 virus. In addition, the Exchange stated that the proposed exception from the shareholder approval requirements is limited to situations where the need for the transaction is due to circumstances related to COVID–19 and the company undertook a process designed to ensure that the proposed transaction represents the best terms available to the company. The Exchange stated that the proposed exception is further limited to circumstances where the delay in securing shareholder approval would (i) 22 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 24 17 CFR 240.19b–4(f)(6). 25 17 CFR 240.19b–4(f)(6)(iii). 23 17 VerDate Sep<11>2014 17:46 May 07, 2020 Jkt 250001 have a material adverse impact on the company’s ability to maintain operations under its pre-COVID–19 business plan; (ii) result in workforce reductions; (iii) adversely impact the company’s ability to undertake new initiatives in response to COVID–19; or (iv) seriously jeopardize the financial viability of the enterprise. The Exchange also noted that the proposed rule requires that the company’s audit committee or a comparable body of the board of directors comprised solely of independent, disinterested directors expressly approve reliance on this exception and determine that the transaction is in the best interest of shareholders. Finally, the Exchange stated that the proposed exception would not be available for the shareholder approval requirements related to equity compensation in Listing Rule 5635(c) (except for the limited circumstances described above for insider participation in transactions covered by the proposed exception), acquisitions in Listing Rule 5635(a) and a change of control in Listing Rule 5635(b). The Commission notes that while the proposed rule change would provide a temporary exception to certain shareholder approval requirements, it is limited to situations where the need for the transaction is related to COVID–19 circumstances and only where the delay in obtaining shareholder approval meets one of the four specified conditions for the transaction set forth in the temporary rule and described above. In addition, the Commission notes that there are important investor protections built into the proposed temporary rule. For example, the exception from the shareholder approval requirements is limited to situations where the company undertook a process designed to ensure that the proposed transaction represents the best terms available to the company. In addition, the proposed rule change requires that the company’s audit committee or a comparable body of the board of directors comprised solely of independent, disinterested directors expressly approve reliance on the exception and determine that the transaction is in the best interest of shareholders. Companies that are using the Safe Harbor Provision, and therefore do not need prior Exchange approval, will also be limited to a maximum issuance of less than 25% of the total shares outstanding and voting power outstanding before the transaction and a maximum discount to the Minimum Price of no more than 15%. Further, the Commission notes that shareholder approval would continue to be required PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 for transactions that do not qualify for the proposed temporary exception, such as for acquisitions of stock or assets of another company (Nasdaq Rule 5635(a)), for changes of control (Nasdaq Rule 5635(c)), and for equity compensation (Nasdaq Rule 5635(c)), except in the limited circumstances provided for in Rule 5636T(c)). The Commission also notes that the proposal is a temporary measure designed to allow companies to raise necessary capital quickly in response to current, unusual market conditions. For these reasons, the Commission believes that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest. Accordingly, the Commission hereby waives the 30-day operative delay and designates the proposal operative upon filing.26 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 27 of the Act to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule 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–2020–025 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–2020–025. This file number should be included on the subject line if email is used. To help the 26 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule change’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 27 15 U.S.C. 78s(b)(2)(B). E:\FR\FM\08MYN1.SGM 08MYN1 Federal Register / Vol. 85, No. 90 / Friday, May 8, 2020 / Notices 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–2020–025 and should be submitted on or before May 29, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.28 J. Matthew DeLesDernier, Assistant Secretary. In the event that the time, date, or location of this meeting changes, an announcement of the change, along with the new time, date, and/or place of the meeting will be posted on the Commission’s website at https:// www.sec.gov. The General Counsel of the Commission, or his designee, has certified that, in his opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B) and (10) and 17 CFR 200.402(a)(3), (a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and (a)(10), permit consideration of the scheduled matters at the closed meeting. The subject matter of the closed meeting will consist of the following topic: Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings; Resolution of litigation claims; and Other matters relating to enforcement proceedings. At times, changes in Commission priorities require alterations in the scheduling of meeting agenda items that may consist of adjudicatory, examination, litigation, or regulatory matters. CONTACT PERSON FOR MORE INFORMATION: For further information; please contact Vanessa A. Countryman from the Office of the Secretary at (202) 551–5400. Dated: May 6, 2020. Vanessa A. Countryman, Secretary. [FR Doc. 2020–10049 Filed 5–6–20; 4:15 pm] BILLING CODE 8011–01–P [FR Doc. 2020–09827 Filed 5–7–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88807; File No. 265–33] Asset Management Advisory Committee; Meeting Sunshine Act Meetings TIME AND DATE: 2:00 p.m. on Wednesday, May 13, 2020. The meeting will be held via remote means and/or at the Commission’s headquarters, 100 F Street NE, Washington, DC 20549. STATUS: This meeting will be closed to the public. MATTERS TO BE CONSIDERED: Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the closed meeting. Certain staff members who have an interest in the matters also may be present. PLACE: 28 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 20:55 May 07, 2020 Jkt 250001 Securities and Exchange Commission. ACTION: Notice of meeting. AGENCY: Notice is being provided that the Securities and Exchange Commission Asset Management Advisory Committee will hold a public meeting on May 27, 2020, by remote means. The meeting will begin at 9:00 a.m. (ET) and will be open to the public via webcast on the Commission’s website at www.sec.gov. Persons needing special accommodations to take part because of a disability should notify the contact person listed below. The public is invited to submit written statements to the Committee. The SUMMARY: PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 27469 meeting will include a discussion of matters relating to the subcommittees and to COVID–19 and the asset management industry. DATES: The public meeting will be held on May 27, 2020. Written statements should be received on or before May 22, 2020. ADDRESSES: The meeting will be held by remote means and webcast on www.sec.gov. Written statements may be submitted by any of the following methods. To help us process and review your statement more efficiently, please use only one method. At this time, electronic statements are preferred. Electronic Statements • Use the Commission’s internet submission form (https://www.sec.gov/ rules/other.shtml); or • Send an email message to rulecomments@sec.gov. Please include File Number 265–33 on the subject line; or Paper Statements • Send paper statements in triplicate to Vanessa Countryman, Federal Advisory Committee Management Officer, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File No. 265–33. This file number should be included on the subject line if email is used. The Commission will post all statements on the Commission’s website at (https://www.sec.gov/comments/26533/265-33.htm). Statements also will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Room 1580, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. For up-to-date information on the availability of the Public Reference Room, please refer to https://www.sec.gov/fast-answers/ answerspublicdocshtm.html or call (202) 551–5450. All statements received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. FOR FURTHER INFORMATION CONTACT: Christian Broadbent or Mark Uyeda, Senior Special Counsels, Sirimal Mukerjee, Branch Chief, or Angela Mokodean, Senior Counsel, at (202) 551–6720, Division of Investment Management, Securities and Exchange Commission, 100 F Street NE, Washington DC 20549–3628. E:\FR\FM\08MYN1.SGM 08MYN1

Agencies

[Federal Register Volume 85, Number 90 (Friday, May 8, 2020)]
[Notices]
[Pages 27464-27469]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-09827]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88805; File No. SR-NASDAQ-2020-025]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Provide Listed Companies With a Temporary Limited Exception From 
Certain Shareholder Approval Requirements in Nasdaq Rules 5635(c) and 
(d)

May 4, 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 May 1, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt a rule, operative through, and 
including, June 30, 2020, to provide listed companies with a temporary 
exception from certain shareholder approval requirements, as described 
below.
    The text of the proposed rule change is available on the Exchange's 
website at https://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    Given current market conditions, Nasdaq proposes to provide listed 
companies with a temporary exception, limited in scope and time, from 
certain shareholder approval requirements, as described below.
    In December 2019, COVID-19 began to spread and disrupt company 
operations and supply chains and impact consumers and investors, 
resulting in a dramatic slowdown in production and spending.\3\ By 
March 11, 2020, the World Health Organization characterized COVID-19 as 
a pandemic.\4\ To slow the spread of the disease, federal and state 
officials implemented social-distancing measures, placed significant 
limitations on large gatherings, limited travel and closed non-
essential businesses.
---------------------------------------------------------------------------

    \3\ See, e.g., Chairman Jay Clayton, Proposed Amendments to 
Modernize and Enhance Financial Disclosures; Other Ongoing 
Disclosure Modernization Initiatives; Impact of the Coronavirus; 
Environmental and Climate-Related Disclosure (Jan. 30, 2020), 
available at https://www.sec.gov/news/public-statement/clayton-mda-2020-01-30. (``Yesterday, I asked the staff to monitor and, to the 
extent necessary or appropriate, provide guidance and other 
assistance to issuers and other market participants regarding 
disclosures related to the current and potential effects of the 
coronavirus. We recognize that such effects may be difficult to 
assess or predict with meaningful precision both generally and as an 
industry- or issuer-specific basis. This is an uncertain issue where 
actual effects will depend on many factors beyond the control and 
knowledge of issuers.'').
    \4\ See WHO Director-General's Opening Remarks at the Media 
Briefing on COVID-19 (March 11, 2020), available at https://www.who.int/dg/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing-on-covid-19-11-march-2020.
---------------------------------------------------------------------------

    These necessary measures also have affected equity markets, which 
have seen significant declines.\5\ In response, governments around the 
world have acted swiftly and decisively to provide relief to regulated 
entities and are undertaking efforts to stabilize the economy and 
assist affected companies and their employees.\6\ The Commission,

[[Page 27465]]

in particular, has recognized the importance of functioning markets in 
this environment \7\ and has granted issuers and broker-dealers relief 
and extensions from existing deadlines, in order to allow these 
entities, as well as the Commission itself, to focus on fighting the 
deadly virus and preserving functioning capital markets.\8\
---------------------------------------------------------------------------

    \5\ In the United States, Level 1 market wide circuit breaker 
halts were triggered on March 9, March 12, March 16, and March 18, 
2020. See also Phil Mackintosh, Putting the Recent Volatility in 
Perspective, available at https://www.nasdaq.com/articles/putting-the-recent-volatility-in-perspective-2020-03-05 (``Analysts showed 
that we saw the fastest `correction' in history (down 10% from a 
high), occurring in a matter of days. In the last week of February, 
the Dow fell 12.36% with notional trading of $3.6 trillion.'')
    \6\ See, e.g., the list of actions undertaken by the Board of 
Governors of the Federal Reserve System at https://www.federalreserve.gov/covid-19.htm. See also Families First 
Coronavirus Response Act, Public Law 116-127 and Coronavirus Aid, 
Relief, and Economic Security Act, Public Law 116-136.
    \7\ See, e.g., Chairman Jay Clayton, The Deep and Essential 
Connections Among Markets, Businesses, and Workers and the 
Importance of Maintaining those Connections in our Fight Against 
COVID-19 (March 24, 2020) available at https://www.sec.gov/news/public-statement/statement-clayton-covid-19-2020-03-24 (``The 
Securities and Exchange Commission and other financial regulators 
are focused on two overriding and interrelated issues. First, we are 
facing an unprecedented national challenge -- a health and safety 
crisis that requires all Americans, for the sake of all Americans, 
to significantly change their daily behavior and, for many, to make 
difficult personal sacrifices. Second, the recognition that the 
continuing, orderly operation of our markets is an essential 
component of our national response to, and recovery from, COVID-19. 
The interrelationship between these issues cannot be overstated. Our 
health care, pharmaceutical, manufacturing, transportation, 
telecommunications and many other private-sector industries are 
critical to our collective response to COVID-19. The thousands of 
firms and entrepreneurs in these industries--and the millions of 
employees and contractors--that are working around the clock to 
fight COVID-19 depend on continued access to payments and 
credit.'').
    \8\ See SEC Coronavirus (COVID-19) Response available at https://www.sec.gov/sec-coronavirus-covid-19-response, which is being 
updated regularly with additional actions taken by the Commission. 
As of April 14, 2020, the Commission response includes (but is not 
limited to): Providing conditional relief for certain publicly 
traded company filing and proxy delivery obligations (March 4 and 
25, 2020); granting relief to reporting deadlines and in-person 
meeting requirements for investment companies (March 13, 2020); 
extending the industry compliance period for Consolidated Audit 
Trail reporting due to the fact that ``disruptions as a result of 
COVID-19 have placed new stresses and competing priorities on the 
infrastructure and staff required to implement the Consolidated 
Audit Trail'' (March 16, 2020); extending filing deadlines for 
certain reports required under Regulation A and Regulation 
Crowdfunding (March 26, 2020); and providing temporary relief for 
Business Development Companies investing in small and medium-sized 
businesses (April 8, 2020).
---------------------------------------------------------------------------

    Amidst this market uncertainty, Nasdaq proposes to temporarily 
modify certain of its rules in an effort to streamline listed 
companies' access to capital. Specifically, Nasdaq proposes to adopt 
Listing Rule 5636T to provide a limited temporary exception to the 
shareholder approval requirements in Listing Rule 5635(d) (Transactions 
other than Public Offerings) \9\ and, in certain narrow circumstances, 
a limited attendant exception to Listing Rule 5635(c) (Equity 
Compensation).\10\
---------------------------------------------------------------------------

    \9\ Listing Rule 5635(d) states that shareholder approval is 
required prior to a 20% Issuance at a price that is less than the 
Minimum Price. The ``Minimum Price'' is defined in Rule 
5635(d)(1)(A) as the lower of: (i) The Nasdaq Official Closing Price 
(as reflected on Nasdaq.com) immediately preceding the signing of 
the binding agreement; or (ii) the average Nasdaq Official Closing 
Price of the common stock (as reflected on Nasdaq.com) for the five 
trading days immediately preceding the signing of the binding 
agreement. A ``20% Issuance'' is defined in Rule 5635(d)(1)(B) as a 
transaction, other than a public offering as defined in IM-5635-3, 
involving the sale, issuance or potential issuance by the Company of 
common stock (or securities convertible into or exercisable for 
common stock), which alone or together with sales by officers, 
directors or Substantial Shareholders of the Company, equals 20% or 
more of the common stock or 20% or more of the voting power 
outstanding before the issuance.
    \10\ Listing Rule 5635(c) requires shareholder approval, with 
certain exceptions, prior to the issuance of securities when a stock 
option or purchase plan is to be established or materially amended 
or other equity compensation arrangement made or materially amended, 
pursuant to which stock may be acquired by officers, directors, 
employees, or consultants.
---------------------------------------------------------------------------

Shareholder Approval Requirements
    The Nasdaq shareholder approval rules generally require companies 
to obtain approval from shareholders prior to issuing securities in 
connection with: (i) Certain acquisitions of the stock or assets of 
another company; \11\ (ii) equity-based compensation of officers, 
directors, employees or consultants; \12\ (iii) a change of control; 
\13\ and (iv) a 20% Issuance at a price less than the Minimum 
Price.\14\
---------------------------------------------------------------------------

    \11\ See Listing Rule 5635(a) (Acquisition of Stock or Assets of 
Another Company).
    \12\ See Listing Rule 5635(c) (Equity Compensation).
    \13\ See Listing Rule 5635(b) (Change of Control).
    \14\ See Listing Rule 5635(d) (Transactions other than Public 
Offerings). See also footnote 9 above.
---------------------------------------------------------------------------

    One unavoidable consequence of the actions being taken to reduce 
the spread of COVID-19 is a reduction, or complete interruption, in 
revenue for many companies. For example, many communities have mandated 
that all restaurants and entertainment facilities close for a period of 
time. Similarly, companies in the travel sector have seen significant 
declines in bookings even if they are allowed to continue to operate. 
Thus, these businesses will have no or greatly reduced revenue to 
offset the operating costs or increased costs associated with the 
crisis. As such, investors may be reluctant to enter into new equity 
transactions, unless they are compensated for the risk through 
discounts to the trading price of a security, and companies may be 
forced by current circumstances to raise money through equity 
financings that require shareholder approval under Nasdaq's rules. At 
the same time, other companies have sudden, unexpected cash needs as 
they undertake new or accelerated initiatives designed to address the 
loss of business and supply shortages caused by COVID-19.
    While an exception is currently available within Nasdaq's rules for 
companies in financial distress where the delay in securing stockholder 
approval would seriously jeopardize the financial viability of the 
company,\15\ that exception is not helpful in most situations arising 
from the COVID-19 pandemic. For example, while a company may need 
additional cash so that it can continue to pay employees during a 
period of decreased or no revenue, the company's viability may not 
otherwise be in jeopardy.\16\ Further, the accelerated need for funds, 
as well as the significantly curtailed operations of many businesses, 
may make impractical the requirement to mail notice to all shareholders 
ten days prior to issuing securities. As such, Nasdaq is concerned that 
this exception does not adequately address the capital raising needs of 
listed companies under current conditions.
---------------------------------------------------------------------------

    \15\ See Listing Rule 5635(f). Reliance by the company on a 
financial viability exception must expressly be approved by the 
company's audit committee, or a comparable body of the board of 
directors comprised solely of independent, disinterested directors, 
and the company must obtain Nasdaq's approval prior to proceeding 
with the transaction. In addition, companies are required to mail a 
letter (as opposed to relying solely on a press release or Form 8-K, 
which are also required, or a website posting) at least ten days 
prior to issuing securities in the exempted transaction alerting 
shareholders to the company's omission to seek the shareholder 
approval that would otherwise be required.
    \16\ Similarly a company that needs capital to undertake, for 
example, a new initiative designed to test for COVID-19 or to 
develop a vaccine may not otherwise be facing a threat to its 
viability.
---------------------------------------------------------------------------

Proposed COVID-19 Exception
    In view of the above, Nasdaq proposes to create a new temporary 
exception from the shareholder approval requirements in Listing Rule 
5635(d), accompanied by a limited exception from Listing Rule 5635(c) 
by adopting Listing Rule 5636T. This proposed exception would be 
available until and including June 30, 2020. Nasdaq notes that to rely 
on this exception, the company must execute a binding agreement 
governing the issuance of the securities, submit the notices required 
by Listing Rules 5636T(b)(5)(A) and (e), and obtain the required 
approval from Nasdaq under Listing Rule 5636T(b)(5)(B)(ii) (if 
applicable), as described below, no later than June 30, 2020. The 
issuance of the securities governed by such agreement in reliance on 
the exception in Listing Rule 5636T may occur after June 30, 2020, 
provided the issuance takes place no later than 30 calendar days 
following the date of the binding agreement. If the company does not 
issue securities within 30 calendar days, as described above, it may no

[[Page 27466]]

longer rely on the exception in Listing Rule 5636T.
    Under proposed Listing Rule 5636T(b), the exception is limited to 
circumstances where the delay in securing shareholder approval would 
(i) have a material adverse impact on the company's ability to maintain 
operations under its pre-COVID-19 business plan; (ii) result in 
workforce reductions; (iii) adversely impact the company's ability to 
undertake new initiatives in response to COVID-19; or (iv) seriously 
jeopardize the financial viability of the enterprise. In addition to 
demonstrating that the transaction meets one of the foregoing 
requirements, in order to rely on the exception, the company would also 
have to demonstrate to Nasdaq that the need for the transaction is due 
to circumstances related to COVID-19 and that the company undertook a 
process designed to ensure that the proposed transaction represents the 
best terms available to the company. Nasdaq also proposes, similar to 
the requirement for the financial viability exception, to require that 
the company's audit committee or a comparable body of the board of 
directors comprised solely of independent, disinterested directors 
expressly approve reliance on this exception. Nasdaq also proposes to 
require such committee or a comparable body of the board of directors 
comprised solely of independent, disinterested directors to determine 
that the transaction is in the best interest of shareholders.
    Unlike the requirement for the financial viability exception, no 
prior approval of the exception by Nasdaq would be required if the 
maximum issuance of common stock (or securities convertible into common 
stock) issuable in the transaction is less than 25% of the total shares 
outstanding and less than 25% of the voting power outstanding before 
the transaction; and the maximum discount to the Minimum Price at which 
shares could be issued is 15% (the ``Safe Harbor Provision''). Nasdaq 
notes that transactions that involve issuance of warrants exercisable 
for shares of common stock are not eligible for the Safe Harbor 
Provision.
    For transactions that do not fall within the Safe Harbor Provision, 
the Nasdaq Listing Qualifications Department must approve the company's 
reliance on the exception before the company can issue any securities 
in the transaction. This approval will be based on a review of whether 
the company has established that it complies with the requirements of 
Listing Rule 5636T(b) (and Listing Rule 5636T(c) if applicable). Upon 
completion of the review of the company's submission, the Nasdaq 
Listing Qualifications Department will notify the company in writing 
whether the company's reliance on the exception was approved.
    To provide shareholders with advance notice of the transaction, 
Nasdaq proposes to adopt Listing Rule 5636T(d), which would require a 
company relying on the proposed exception to make a public announcement 
by filing a Form 8-K, where required by SEC rules, or by issuing a 
press release disclosing as promptly as possible, but no later than two 
business days before the issuance of the securities:
     The terms of the transaction (including the number of 
shares of common stock that could be issued and the consideration 
received);
     that shareholder approval would ordinarily be required 
under Nasdaq rules but for the fact that the Company is relying on an 
exception to the shareholder approval rules; and
     that the audit committee or a comparable body of the board 
of directors comprised solely of independent, disinterested directors 
expressly approved reliance on the exception and determined that the 
transaction is in the best interest of shareholders.\17\
---------------------------------------------------------------------------

    \17\ See Listing Rule 5635(f) requiring similar disclosure, for 
a transaction for which a company relied on the financial viability 
exception, alerting shareholders to the omission to seek the 
shareholder approval that would otherwise be required.
---------------------------------------------------------------------------

    In addition, Nasdaq has long interpreted Listing Rule 5635(c) to 
require shareholder approval for certain sales to officers, directors, 
employees, or consultants when such issuances could be considered a 
form of ``equity compensation.'' Nasdaq has heard from market 
participants that investors often require a company's senior management 
to put their personal capital at risk and participate in a capital 
raising transaction alongside the unaffiliated investors. Nasdaq 
believes that as a result of uncertainty related to the ongoing spread 
of the COVID-19 virus, listed companies seeking to raise capital may 
face such requests. Accordingly, Nasdaq proposes that the temporary 
exception allow such investments under limited circumstances.
    To that end, Nasdaq proposes to adopt Listing Rule 5636T(c), which 
would provide for an exception from shareholder approval under Listing 
Rule 5635(c) for an affiliate's participation in the transaction 
described in Listing Rule 5636T(b) provided the affiliate's 
participation in the transaction was specifically required by 
unaffiliated investors. In addition, to further protect against self-
dealing, the proposed Listing Rule 5636T(c) would limit such 
participation to a de-minimis level--each affiliate's participation 
must be less than 5% of the transaction and all affiliates' 
participation collectively must be less than 10% of the 
transaction.\18\ Finally, any affiliate investing in the transaction 
must not have participated in negotiating the economic terms of the 
transaction.
---------------------------------------------------------------------------

    \18\ Cf. Listing Rule IM-5405-1(a)(3) similarly limiting 
affiliates' participation in certain pre-listing trasactions in 
order for such transactions to constitute compelling evidence of the 
company's value.
---------------------------------------------------------------------------

    Listing Rule 5250(e)(2) requires a company to notify Nasdaq at 
least 15 calendar days prior to certain events, including when the 
company issues any common stock, or any security convertible into 
common stock in a transaction that may result in the potential issuance 
of common stock (or securities convertible into common stock) greater 
than 10% of either the total shares outstanding or the voting power 
outstanding on a pre-transaction basis (the ``Notification''). The 
Notification allows Nasdaq additional time to review the proposed 
transaction and assure that it complies with the shareholder approval 
requirements, including those in Listing Rules 5635(c) and (d). Absent 
a rule change, transactions described in proposed Listing Rules 
5636T(b) and (c) would require such advance notification. Because a 
transaction satisfying the proposed temporary rule will be excepted 
from certain provisions of the shareholder approval rules, Nasdaq 
believes that notification 15 days prior to issuance is unnecessary. 
Accordingly, Nasdaq proposes to adopt Listing Rule 5636T(e) to provide 
that a company that relies on the exception in this Rule 5636T is not 
subject to the 15 day prior notification requirement described in Rule 
5250(e)(2) but must still provide notification required by that rule to 
Nasdaq, along with a supplement, as required by Listing Rule 
5636T(b)(5)(A), certifying in writing that the company complied with 
all requirements of Listing Rule 5636T(b), and Listing Rule 5636T(c) if 
applicable. Such submissions must be made, as promptly as possible, but 
no later than the time of the public announcement required by Listing 
Rule 5636T(d) and in no event later than June 30, 2020, in accordance 
with Listing Rule 5636T(a). In such certification, Nasdaq expects the 
company to describe with specificity how it complies with Listing Rule

[[Page 27467]]

5636T(b), and Listing Rule 5636T(c) if applicable. For transactions 
described in Listing Rule 5636T(b)(5)(B)(ii) that require approval of 
the Nasdaq Listing Qualifications Department before the company can 
issue any securities in reliance on Listing Rule 5636T, Nasdaq expects 
companies to submit the Notification, and a supplement required by 
Listing Rule 5636T(b)(5)(A), with enough time to allow Nasdaq to 
complete its review of the submissions.\19\ The proposed rule also will 
remind companies that a transaction that violates other Nasdaq rules 
could subject the company to delisting and Nasdaq Staff would review 
transactions covered by proposed Listing Rule 5636T for compliance with 
all other Nasdaq listing requirements. As noted below, the proposed 
exception would not be available for the shareholder approval 
requirements related to equity compensation in Listing Rule 5635(c) 
(except for the limited circumstances described above for insider 
participation in transactions covered by the proposed exception), 
acquisitions in Listing Rule 5635(a) and a change of control in Listing 
Rule 5635(b).
---------------------------------------------------------------------------

    \19\ Nasdaq notes that in such cases the company may not issue 
any securities until it receives the approval from the Nasdaq 
Listing Qualifications Department, which may take more than two 
days. Of course, if the Nasdaq Listing Qualifications Department 
does not approve reliance on the exception, any issuance of 
securities must comply with the shareholder approval requirements in 
Listing Rule 5635.
---------------------------------------------------------------------------

    Finally, Nasdaq proposes to aggregate issuances of securities in 
reliance on the exception in proposed Listing Rule 5636T with any 
subsequent issuance by the company, other than a public offering under 
IM-5635-3, at a discount to the Minimum Price if the binding agreement 
governing the subsequent issuance is executed within 90 days of the 
prior issuance. Accordingly, if following the subsequent issuance, the 
aggregate issuance (including shares issued in reliance on the 
exception) equals or exceeds 20% of the total shares or the voting 
power outstanding before the initial issuance, then shareholder 
approval will be required under Rule 5635(d) prior to the subsequent 
issuance.
    Nasdaq believes that this temporary suspension will permit 
companies to raise capital quickly to continue running their businesses 
and address the immediate health crisis caused by the COVID-19 
pandemic, including its impact on their employees, customers, and 
communities. Nasdaq notes that the proposed exception would not be 
available for the shareholder approval requirements related to equity 
compensation in Listing Rule 5635(c) (except for the limited 
circumstances described above for insider participation in transactions 
covered by the proposed exception), acquisitions in Listing Rule 
5635(a) and a change of control in Listing Rule 5635(b).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\20\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\21\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest. As a result of uncertainty related to the ongoing spread of 
the COVID-19 virus, the prices of securities listed on U.S. exchanges 
are experiencing significant volatility. Nasdaq believes that the 
proposed rule change is designed to remove an impediment to companies 
addressing certain immediate capital needs as a result of the COVID-19 
pandemic and reduce uncertainty regarding the ability of companies to 
raise money quickly through equity financings during the current highly 
unusual market conditions and general economic disruptions. Nasdaq 
believes that in this way, the proposed rule change will protect 
investors, facilitate transactions in securities, and remove an 
impediment to a free and open market. All companies listed on the 
Exchange would be eligible to take advantage of the proposed 
suspension.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In addition, Nasdaq believes the proposed rule change is designed 
to protect investors by limiting the exception from the shareholder 
approval requirements to situations where the need for the transaction 
is due to circumstances related to COVID-19 and that the company 
undertook a process designed to ensure that the proposed transaction 
represents the best terms available to the company. The exception is 
also limited to circumstances where the delay in securing shareholder 
approval would (i) have a material adverse impact on the company's 
ability to maintain operations under its pre-COVID-19 business plan; 
(ii) result in workforce reductions; (iii) adversely impact the 
company's ability to undertake new initiatives in response to COVID-19; 
or (iv) seriously jeopardize the financial viability of the enterprise. 
Further, the proposed rule requires that the company's audit committee 
or a comparable body of the board of directors comprised solely of 
independent, disinterested directors expressly approve reliance on this 
exception and determine that the transaction is in the best interest of 
shareholders.
    Nasdaq also notes that to the extent the company relies on the Safe 
Harbor Provision instead of Nasdaq's review and approval of the 
company's reliance on the exception, as described above, the maximum 
issuance of common stock (or securities convertible into common stock) 
issuable in the transaction must be less than 25% of the total shares 
outstanding and less than 25% of the voting power outstanding before 
the transaction; and the maximum discount to the Minimum Price at which 
shares could be issued is 15%.
    Notwithstanding the proposed exception from certain shareholder 
approval requirements, as described above, important investor 
protections will remain as the proposed exception would not be 
available for the shareholder approval requirements related to equity 
compensation in Listing Rule 5635(c) (except for the limited 
circumstances described above for insider participation in transactions 
covered by the proposed exception), acquisitions in Listing Rule 
5635(a) and a change of control in Listing Rule 5635(b).
    Finally, Nasdaq notes that the proposed rule is a temporary 
exception from certain shareholder approval requirements, as described 
above, operative through, and including, June 30, 2020.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. All companies listed on the 
Exchange would be eligible to take advantage of the proposed 
suspension. In addition, the proposed rule change is not designed to 
have any effect on intermarket competition but instead seeks to address 
concerns Nasdaq has observed surrounding the application of the 
shareholder approval requirements, as described above, to companies 
listed on Nasdaq. Other exchanges can craft relief based on their own 
rules and observations.

[[Page 27468]]

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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \22\ and Rule 19b-
4(f)(6) thereunder.\23\
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \24\ normally 
does not become operative for 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\25\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative immediately upon filing. The Exchange 
stated that waiver of the operative delay would allow companies to 
quickly raise money through equity financings to maintain operations or 
financial viability, compensate its workforce, or undertake new 
initiatives in response to COVID-19 during the current highly unusual 
market and economic conditions and ongoing uncertainty relating to the 
global spread of the COVID-19 virus. In addition, the Exchange stated 
that the proposed exception from the shareholder approval requirements 
is limited to situations where the need for the transaction is due to 
circumstances related to COVID-19 and the company undertook a process 
designed to ensure that the proposed transaction represents the best 
terms available to the company. The Exchange stated that the proposed 
exception is further limited to circumstances where the delay in 
securing shareholder approval would (i) have a material adverse impact 
on the company's ability to maintain operations under its pre-COVID-19 
business plan; (ii) result in workforce reductions; (iii) adversely 
impact the company's ability to undertake new initiatives in response 
to COVID-19; or (iv) seriously jeopardize the financial viability of 
the enterprise. The Exchange also noted that the proposed rule requires 
that the company's audit committee or a comparable body of the board of 
directors comprised solely of independent, disinterested directors 
expressly approve reliance on this exception and determine that the 
transaction is in the best interest of shareholders. Finally, the 
Exchange stated that the proposed exception would not be available for 
the shareholder approval requirements related to equity compensation in 
Listing Rule 5635(c) (except for the limited circumstances described 
above for insider participation in transactions covered by the proposed 
exception), acquisitions in Listing Rule 5635(a) and a change of 
control in Listing Rule 5635(b).
---------------------------------------------------------------------------

    \24\ 17 CFR 240.19b-4(f)(6).
    \25\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    The Commission notes that while the proposed rule change would 
provide a temporary exception to certain shareholder approval 
requirements, it is limited to situations where the need for the 
transaction is related to COVID-19 circumstances and only where the 
delay in obtaining shareholder approval meets one of the four specified 
conditions for the transaction set forth in the temporary rule and 
described above. In addition, the Commission notes that there are 
important investor protections built into the proposed temporary rule. 
For example, the exception from the shareholder approval requirements 
is limited to situations where the company undertook a process designed 
to ensure that the proposed transaction represents the best terms 
available to the company. In addition, the proposed rule change 
requires that the company's audit committee or a comparable body of the 
board of directors comprised solely of independent, disinterested 
directors expressly approve reliance on the exception and determine 
that the transaction is in the best interest of shareholders. Companies 
that are using the Safe Harbor Provision, and therefore do not need 
prior Exchange approval, will also be limited to a maximum issuance of 
less than 25% of the total shares outstanding and voting power 
outstanding before the transaction and a maximum discount to the 
Minimum Price of no more than 15%. Further, the Commission notes that 
shareholder approval would continue to be required for transactions 
that do not qualify for the proposed temporary exception, such as for 
acquisitions of stock or assets of another company (Nasdaq Rule 
5635(a)), for changes of control (Nasdaq Rule 5635(c)), and for equity 
compensation (Nasdaq Rule 5635(c)), except in the limited circumstances 
provided for in Rule 5636T(c)). The Commission also notes that the 
proposal is a temporary measure designed to allow companies to raise 
necessary capital quickly in response to current, unusual market 
conditions. For these reasons, the Commission believes that waiver of 
the 30-day operative delay is consistent with the protection of 
investors and the public interest. Accordingly, the Commission hereby 
waives the 30-day operative delay and designates the proposal operative 
upon filing.\26\
---------------------------------------------------------------------------

    \26\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \27\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether 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-2020-025 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-2020-025. This 
file number should be included on the subject line if email is used. To 
help the

[[Page 27469]]

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-2020-025 and should be submitted 
on or before May 29, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
---------------------------------------------------------------------------

    \28\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-09827 Filed 5-7-20; 8:45 am]
BILLING CODE 8011-01-P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.