Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order Approving a Proposed Rule Change To Amend the Procedures Governing the Introduction of Legal Arguments and Material Information by Companies in a Proceeding Before a Hearings Panel, 67024-67030 [2020-23258]
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Federal Register / Vol. 85, No. 204 / Wednesday, October 21, 2020 / Notices
exchanges and FINRA will also file
similar proposals to extend their
respective clearly erroneous execution
pilot programs. Thus, the proposed rule
change will help to ensure consistency
across market centers without
implicating any competitive issues.
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 15 and Rule 19b–
4(f)(6) thereunder.16
A proposed rule change filed under
Rule 19b–4(f)(6) 17 normally does not
become operative prior to 30 days after
the date of the filing. However, Rule
19b–4(f)(6)(iii) 18 permits the
Commission to 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 effective and
operative immediately upon filing. The
Commission believes that waiving the
30-day operative delay is consistent
with the protection of investors and the
public interest, as it will allow the
current clearly erroneous execution
pilot program to continue
uninterrupted, without any changes,
while the Exchange and the other
national securities exchanges consider a
permanent proposal for clearly
erroneous execution reviews. For this
reason, the Commission hereby waives
the 30-day operative delay and
15 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.
17 17 CFR 240.19b–4(f)(6).
18 17 CFR 240.19b–4(f)(6)(iii).
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16 17
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designates the proposed rule change as
operative upon filing.19
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
to determine whether the proposed rule
should be approved or disapproved.
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–Phlx–2020–47 and should
be submitted on or before November 12,
2020.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
J. Matthew DeLesDernier,
Assistant Secretary.
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–
Phlx–2020–47 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
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–Phlx–2020–47. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet 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
19 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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[FR Doc. 2020–23262 Filed 10–20–20; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–90201; File No. SR–
NASDAQ–2020–002]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Order
Approving a Proposed Rule Change To
Amend the Procedures Governing the
Introduction of Legal Arguments and
Material Information by Companies in
a Proceeding Before a Hearings Panel
October 15, 2020.
I. Introduction
On July 2, 2020, 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 procedures
governing proceedings before a Hearings
Panel, including the introduction of
legal arguments and material
information by companies during such
proceedings. The proposed rule change
was published for comment in the
Federal Register on July 20, 2020.3 On
September 2, 2020, pursuant to Section
19(b)(2) of the Act,4 the Commission
designated a longer period within which
to approve the proposed rule change,
disapprove the proposed rule change, or
20 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 89309
(Jul. 14, 2020), 85 FR 43900 (‘‘Notice’’). Comments
on the proposed rule change can be found at:
https://www.sec.gov/comments/sr-nasdaq-2020002/srnasdaq2020002.htm.
4 15 U.S.C. 78s(b)(2).
1 15
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Federal Register / Vol. 85, No. 204 / Wednesday, October 21, 2020 / Notices
institute proceedings to determine
whether to disapprove the proposed
rule change.5 This order approves the
proposed rule change.
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II. Description of the Proposal
Under Nasdaq’s current rules, a
Company 6 may, within seven calendar
days of the date of a Staff Delisting
Determination 7 notification, Public
Reprimand Letter,8 or written denial of
a listing application, request a written or
oral hearing before a Hearings Panel 9 to
review the Staff Delisting
Determination, Public Reprimand
Letter, or written denial of a listing
application.10 The Hearings
Department 11 will schedule hearings to
take place, to the extent practicable,
within 45 days of the request for a
hearing.12 The Hearings Department
will send written acknowledgment of
the Company’s hearing request and
inform the Company of the date, time,
and location of the hearing, and
5 See Securities Exchange Act Release No. 89745,
85 FR 55728 (Sep. 9, 2020). The Commission
designated October 18, 2020, as the date by which
the Commission shall approve or disapprove, or
institute proceedings to determine whether to
disapprove, the proposed rule change.
6 Nasdaq Rule 5005(a)(6) defines ‘‘Company’’ as
the issuer of a security listed or applying to list on
Nasdaq.
7 Nasdaq Rule 5805(h) defines a ‘‘Staff Delisting
Determination’’ as a written determination by the
Listing Qualifications Department to delist a listed
Company’s securities for failure to meet a continued
listing standard. Nasdaq Rule 5805(f) defines the
‘‘Listing Qualifications Department’’ as the
department of Nasdaq responsible for evaluating
Company compliance with quantitative and
qualitative listing standards and determining
eligibility for initial and continued listing of a
Company’s securities.
8 Nasdaq Rule 5805(j) defines a ‘‘Public
Reprimand Letter’’ as a letter issued by Staff or a
Decision of an Adjudicatory Body in cases where
the Company has violated a Nasdaq corporate
governance or notification listing standard (other
than one required by Rule 10A–3 of the Act) and
Staff or the Adjudicatory Body determines that
delisting is an inappropriate sanction. Rule 5805(g)
defines ‘‘Staff’’ as employees of the Listing
Qualifications Department; Rule 5805(i) defines
‘‘Decision’’ as a written decision of an Adjudicatory
Body; and Rule 5805(a) defines ‘‘Adjudicatory
Body’’ as the Hearings Panel, the Listing Council,
or the Nasdaq Board, or a member thereof.
9 Nasdaq Rule 5805(d) defines ‘‘Hearings Panel’’
as an independent panel made up of at least two
persons who are not employees or otherwise
affiliated with Nasdaq or its affiliates, and who have
been authorized by the Nasdaq Board of Directors.
10 See Nasdaq Rule 5815(a)(1)(A). If a Company
fails to request in writing a hearing within seven
calendar days, it waives its right to request review
of a Staff Delisting Determination, Public
Reprimand Letter, or written denial of an initial
listing application and the Hearings Department
will take action to suspend trading of the securities
and follow procedures to delist the securities. See
Nasdaq Rule 5815(a)(2).
11 Nasdaq Rule 5805(c) defines ‘‘Hearings
Department’’ as the Hearings Department of the
Nasdaq Office of General Counsel.
12 See Nasdaq Rule 5815(a)(4).
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deadlines for written submissions to the
Hearings Panel.13 The Company will be
provided at least ten calendar days’
notice of the hearing unless the
Company waives such notice.14
Under the current hearings process,
set forth in Nasdaq Rule 5815(a)(5), the
Company may, but is not required to,
submit to the Hearings Department a
written plan of compliance and request
that the Hearings Panel grant an
exception to the listing standards for a
limited time period, as permitted by
Nasdaq Rule 5815(c)(1)(A), or may set
forth specific grounds for the
Company’s contention that the issuance
of a Staff Delisting Determination,
Public Reprimand Letter, or denial of a
listing application was in error, and may
also submit public documents or other
written material in support of its
position, including any information not
available at the time of the staff
determination. The Hearings Panel will
review the written record before the
hearing.15 Pursuant to Nasdaq Rule
5815(a)(6), at an oral hearing, the
Company may make such presentation
as it deems appropriate, including the
appearance by its officers, directors,
accountants, counsel, investment
bankers, or other persons, and the
Hearings Panel may question any
representative appearing at the
hearing.16 A Company may waive its
right to an oral hearing and seek a
decision by the Hearings Panel based
solely on its written submissions.17
The Exchange now proposes to revise
Nasdaq Rules 5815(a)(5) and (6) to
amend the procedures governing the
introduction of legal arguments and
material information by Companies in a
written or oral hearing before a Hearings
Panel as well as require Companies to
provide a written submission in such
proceedings. The Exchange is also
proposing some other changes to the
Hearings Panel proceedings as
discussed in more detail below. The
Exchange stated that the proposed
amendments are designed to improve
the efficient and effective functioning of
the hearings process in connection with
the Company’s appeal of a Staff
Delisting Determination, Public
Reprimand Letter, or denial of a listing
application.18
13 See
id.
id.
15 See Nasdaq Rule 5815(a)(5).
16 Hearings are generally scheduled to last one
hour, but the Hearings Panel may extend the time.
The Hearings Department will arrange for and keep
on file a transcript of oral hearings. See Nasdaq
Rule 5815(a)(6).
17 See Notice, supra note 3, 85 FR at 43901.
18 See id.
14 See
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Specifically, the Exchange is
proposing to amend Nasdaq Rule
5815(a)(5) to require a Company to
provide a written submission to the
Hearings Department, to which Staff
may respond in writing, stating with
specificity the grounds on which the
Company is seeking review of the Staff
Delisting Determination notification,
Public Reprimand Letter, or written
denial of a listing application (‘‘Written
Submission’’).19 The Company would
be required to include in the Written
Submission all legal arguments on
which it intends to rely.20 In addition,
the Exchange proposes to specify that
the Company may supplement the
Written Submission by providing a
written update to the Hearings
Department (‘‘Written Update’’) no later
than two business days in advance of
the hearing. The Written Update may
not include any legal argument not
raised by the Company with specificity
in the Written Submission.21
The Exchange is proposing to amend
Nasdaq Rule 5815(a)(6) to provide that
during an oral hearing, a Company
would be prohibited from introducing
any legal argument not raised by the
Company with specificity in the Written
Submission. The Exchange also
proposes to amend Nasdaq Rule
5815(a)(6) to provide that during an oral
hearing, a Company would be
prohibited from introducing any
material information that was not raised
by the Company with specificity in the
Written Submission or Written Update,
unless such information was solicited
19 The Hearings Department generally calendars a
hearing within 45 days of the request for a hearing
and will establish deadlines for written submissions
to the Hearings Panel. See Nasdaq Rule 5815(a)(4).
As determined by the Hearings Department, both
oral and written hearing matters are generally
considered on Thursdays, and the Company’s
written submission is typically due on the third
Friday before the hearing. The Hearings Department
will generally establish the Thursday before the
hearing as the deadline for Nasdaq Staff to respond
in writing. See Notice, supra note 3, 85 FR at 43901,
n.6.
20 The proposal would amend the current rule to
allow the Company’s Written Submission, as
appropriate, to include a written plan of
compliance and request that the Hearings Panel
grant an exception to the listing standards for a
limited time period, as permitted by Nasdaq Rule
5815(c)(1)(A), or may set forth specific grounds for
the Company’s contention that the issuance of a
Staff Delisting Determination, Public Reprimand
Letter, or denial of a listing application was in error,
and may also submit public documents or other
written material in support of its position,
including any information not available at the time
of the staff determination. See proposed Nasdaq
Rule 5815(a)(5).
21 See proposed Nasdaq Rule 5815(a)(5). The
Hearings Panel will determine that a company has
raised a legal argument with specificity if the legal
argument includes sufficient detail to be useful in
the Hearings Panel’s review of the record before the
hearing. See Notice, supra note 3, 85 FR at 43901.
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by the Hearings Panel or the Company
shows either that the material
information did not exist at the time the
Company was permitted to submit a
Written Update 22 or that exceptional or
unusual circumstances exist that
warrant consideration of the newly
raised material information. The
proposal provides that exceptional or
unusual circumstances would include,
but are not necessarily limited to,
material information that was not earlier
discoverable by the Company despite all
reasonable measures having been
taken.23 If the Hearings Panel
determines either that the Company has
shown that the material information did
not exist at the time the Company was
permitted to submit a Written Update or
that the Company has shown
exceptional or unusual circumstances
exist that warrant consideration of the
newly raised material information, then
the Company would be permitted to
introduce such information at the oral
hearing.24 Nasdaq Staff would have up
to three business days, or such shorter
time as the Hearings Panel requests,
following the oral hearing to respond in
writing to the Company’s newly raised
material information, and the Company
would be permitted to respond to the
Staff’s submission only upon request by
the Hearings Panel.25
The Exchange stated that Companies
that have requested a written or oral
hearing before a Hearings Panel to
review a Staff Delisting Determination,
Public Reprimand Letter, or written
denial of a listing application prior to
the date of Commission approval of the
proposed rule change will be subject to
the rule text in Nasdaq Rule 5815(a)(5)
and (6) that was effective prior to the
date of such Commission approval.26
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III. 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
22 The Exchange provides the following example.
Where a key component of a Company’s
compliance plan is a merger, and the Company
obtains a fully executed version of the merger
agreement the day before the hearing, the executed
merger agreement would constitute information that
did not exist at the time the Company was
permitted to submit a Written Update. However, the
fact that the Company was pursuing a merger, the
potential merger parties, and the material terms of
the contemplated merger should have been
previously disclosed by the Company, as some or
all of such information likely existed at the time the
Company was permitted to submit a Written
Update. See Notice, supra note 3, 85 FR at 43902.
23 See proposed Nasdaq Rule 5815(a)(6).
24 See id.
25 See id.
26 See Notice, supra note 3, 85 FR at 43902, n.11.
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thereunder applicable to a national
securities exchange.27 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,28 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. In
addition, the Commission finds that the
proposed rule change is consistent with
Section 6(b)(7) of the Act,29 which
requires, among other things, that the
rules of a national securities exchange
provide a fair procedure for the
prohibition or limitation by the
exchange of any person with respect to
access to services offered by the
exchange.
Nasdaq proposes to amend the
procedures that govern a written or oral
hearing before a Hearings Panel to
review a Staff Delisting Determination,
Public Reprimand Letter, or written
denial of a listing application.
Specifically, where a company has
requested either a written or an oral
hearing, Nasdaq proposes to require the
company to provide a Written
Submission in advance of the hearing,
in which the company must state in
writing with specificity the grounds
upon which it is seeking review and all
legal arguments on which it intends to
rely. In addition, Nasdaq proposes to
clarify that Nasdaq Staff may respond in
writing to a company’s Written
Submission. Nasdaq also proposes that
a company may supplement its Written
Submission by providing a Written
Update to the Hearings Department no
later than two business days in advance
of the hearing, thereby briefing the
Hearings Panel on any new material
information that has transpired since its
Written Submission. Nasdaq proposes to
allow a company only to introduce legal
arguments in the Written Submission,
and to not allow a company to introduce
any legal arguments in the Written
Update or during the oral hearing that
were not raised with specificity in the
Written Submission. Finally, Nasdaq
proposes to set forth limited
circumstances in which the Hearings
Panel will permit a company to
27 15 U.S.C. 78f(b). In approving this proposed
rule change the Commission has considered the
proposed rule change’s impact on efficiency,
competition, and capital formation. See 15 U.S.C.
78c(f).
28 15 U.S.C. 78f(b)(5).
29 15 U.S.C. 78f(b)(7).
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introduce material information at the
oral hearing.30 The Exchange stated that
the proposed amendments will enhance
the hearings process by providing the
Hearings Panel with the most developed
record in as timely a manner as
possible.31
As the Commission has previously
noted, the development and
enforcement of meaningful listing
standards 32 for an exchange is of
substantial importance to financial
markets and the investing public.
Among other things, listing standards
provide the means for an exchange to
screen issuers that seek to become
listed, and to provide listed status only
to those that are bona fide companies
that have or will have sufficient public
float, investor base, and trading interest
likely to generate depth and liquidity
sufficient to promote fair and orderly
markets.33 Meaningful listing standards
also are important given investor
expectations regarding the nature of
securities that have achieved an
exchange listing, and the role of an
exchange in overseeing its market and
assuring compliance with its listing
standards.34 Therefore it is important for
exchanges to prevent companies that are
deficient in their listing standards or
that do not meet initial listing standards
30 See
supra notes 22–24 and accompanying text.
Notice, supra note 3, 85 FR at 43902.
32 The Commission notes that this is referring to
both initial and continued listing standards.
33 In addition, once a security has been approved
for initial listing, maintenance criteria allow an
exchange to monitor the status and trading
characteristics of that issue to ensure that it
continues to meet the exchange’s standards for
market depth and liquidity so that fair and orderly
markets can be maintained. See, e.g., Securities
Exchange Act Release Nos. 82627 (Feb. 2, 2018), 3
FR 5650, 5653, n.53 (Feb. 8, 2018) (SR–NYSE–
2017–30); 81856 (Oct. 11, 2017), 82 FR 48296,
48298 (Oct. 17, 2017) (SR–NYSE–2017–31); 81079
(July 5, 2017), 82 FR 32022, 32023 (July 11, 2017)
(SR–NYSE–2017–11). The Commission has stated
that adequate listing standards, by promoting fair
and orderly markets, are consistent with Section
6(b)(5) of the Act, in that they are, among other
things, designed to prevent fraudulent and
manipulative acts and practices, promote just and
equitable principles of trade, and protect investors
and the public interest. See, e.g., Securities
Exchange Act Release Nos. 82627 (Feb. 2, 2018), 3
FR 5650, 5653, n.53 (Feb. 8, 2018) (SR–NYSE–
2017–30); 87648 (Dec. 3, 2019), 84 FR 67308, 67314,
n.42 (Dec. 9, 2019) (SR–NASDAQ–2019–059);
88716 (Apr. 21, 2020), 85 FR 23393, 23395, n.22
(Apr. 27, 2020) (SR–NASDAQ–2020–001).
34 See, e.g., Securities Exchange Act Release Nos.
65708 (Nov. 8, 2011), 76 FR 70799 (Nov. 15, 2011)
(SR–NASDAQ–2011–073) (order approving a
proposal to adopt additional listing requirements
for companies applying to list after consummation
of a ‘‘reverse merger’’ with a shell company), and
57785 (May 6, 2008), 73 FR 27597 (May 13, 2008)
(SR–NYSE–2018–17) (order approving a proposal to
adopt new initial and continued listing standards
to list securities of special purpose acquisition
companies).
31 See
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from remaining or becoming listed on
an exchange.
The Commission believes that the
proposed revisions to the hearings
process are appropriate and consistent
with Section 6(b)(5) of the Act in that
the proposed rules are designed to
protect investors and the public interest.
The Commission further believes the
proposed rule change is consistent with
Section 6(b)(7) of the Act in that it
provides a fair procedure for the
prohibition or limitation by the
Exchange of any person with respect to
access to services offered. The
Commission believes that the proposed
procedures will require companies that
have received a Staff Delisting
Determination, Public Reprimand
Letter, or have been denied initial
listing to provide all relevant legal
arguments and material information to
the Hearings Panel in a timely manner
within reasonable deadlines, so that the
Hearings Panel may make an informed
decision regarding the company’s initial
or continued listing on the Exchange.
The proposed procedures should
prevent companies that have received a
Staff Delisting Determination, Public
Reprimand Letter, or have been denied
initial listing from withholding material
information or legal arguments in an
effort to extend the time before the
Hearings Panel makes a decision or
otherwise unduly lengthen the hearings
process. The Commission notes that this
is particularly important given that
under Nasdaq rules a timely request for
a hearing will ordinarily stay the
suspension and delisting action until
the issuance of a written panel decision.
Therefore, as discussed in more detail
below, most companies will have their
stock continue to trade during the
appeal of a Staff Delisting Determination
or Public Reprimand Letter.35 The
Commission believes that the proposed
procedures are reasonable and
appropriate to allow companies to
present all relevant legal arguments and
material information before the Hearings
Panel, and for Nasdaq Staff to have a
reasonable opportunity to respond in
advance of the hearing. The
Commission further believes that the
proposed procedures are also reasonable
to allow the Hearings Panel time and
opportunity to review all relevant
material information and legal
arguments and should strengthen the
integrity, efficiency, and transparency of
the hearings process while also
providing for a fair procedure for
35 See
infra notes 65–67 and accompanying text.
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companies to present their case before
the Hearings Panel.36
The Commission believes the
proposed amendments governing the
submission of a Written Submission and
Written Update are appropriate and
consistent with the Act. The Exchange
has stated that Nasdaq Staff has
observed instances where, in advance of
a hearing, companies provide little
information about their plan to achieve
or regain compliance or regarding their
appeal of a Public Reprimand Letter or
denial of an initial listing application,
and instead present such information
for the first time during the hearing.37
Under current rules, as noted above,
companies are not required to make a
written submission upon an appeal to
the Hearings Panel, but rather
companies have the option to submit a
written submission. The new
procedures will require all companies to
submit a Written Submission upon an
appeal to the Hearings Panel. The
Exchange has stated in support of the
new requirements that when companies
belatedly provide information to the
Hearings Panel, it does not provide the
Hearings Panel with adequate time to
consider the information or to
adequately prepare or formulate
questions in advance of the hearing.38
The Exchange stated that in such
circumstances, the Hearings Panel may
need more time or information to fully
consider the matter following the
hearing, and that a company that
withholds information is effectively
rewarded by extending the time it
remains listed pending a Hearings Panel
decision.39 The Exchange also stated
that the Written Update will provide the
company an additional opportunity to
update any new material information
since the submission of its Written
Submission as well as provide an
opportunity to reply to any Nasdaq
written Staff response.40 The
Commission believes that requiring a
company to provide a Written
Submission early on in the hearings
36 See below at notes 43–60 and accompanying
text for discussion of comments received.
37 See Notice, supra note 3, 85 FR at 43902.
38 See id.
39 See Notice, supra note 3, 85 FR at 43903.
Pursuant to Nasdaq Rule 5815(a)(1)(B), a timely
request for a hearing generally stays the suspension
and delisting action pending the issuance of a
written panel decision.
40 The Commission notes that the information the
company may provide in the Written Update may
not include any legal argument not raised by the
company with specificity in the Written
Submission but is otherwise not limited. The
proposed language will specifically state that the
Nasdaq Staff may respond in writing to the Written
Submission. Nasdaq stated this is a clarification of
current procedures. See Notice, supra note 3, 85 FR
at 43901.
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process and allowing a company to
supplement this information up to two
business days prior to the hearing
should enable the Hearings Panel to
prepare for the hearing with the most
up-to-date information regarding the
company and its ability to achieve or
maintain compliance with listing
standards when appealing a Staff
Delisting Determination, Public
Reprimand Letter, or a denial of initial
listing.
In addition, the Commission believes
that the proposed restrictions on a
company’s ability to present material
information during the oral hearing are
appropriate and consistent with the Act.
As discussed above, such restrictions
should improve the Hearings Panel’s
access to relevant information in a
timely manner and allow the Hearings
Panel to prepare for the hearings process
in order to make an informed decision.
Under the proposal, a company would
be permitted to introduce new material
information that is solicited by the
Hearings Panel to ensure the Hearings
Panel is not unnecessarily restricted and
that the company can appropriately
respond to any such inquiry by the
Hearings Panel at the oral hearing.
Further, a company would be permitted
to introduce new material information if
the company shows that such
information did not exist at the time the
company was permitted to submit a
Written Update or that exceptional or
unusual circumstances exist that
warrant consideration of the new
material information. Such exceptions
are fair to allow a company to raise new
information if the Hearings Panel finds
that the company has shown that it was
truly unable to present such information
prior to the oral hearing or exceptional
circumstances existed. The Commission
also has previously found a similar
provision of a national securities
exchange that limited a company’s
ability to introduce new material
information that was not identified in
its initial request for review of a
delisting as consistent with Sections
6(b)(5) and 6(b)(7) of the Act, stating,
among other things, that the new
procedures may contribute to a more
efficient appeals process and reduce
unnecessary delays.41
Further, the Commission believes that
the proposed requirement for a
company to present all legal arguments
on which it intends to rely in its Written
Submission, and the related restrictions
41 See Securities Exchange Act Release No. 47161
(Jan. 10, 2003), 68 FR 2603, 2604 (Jan. 17, 2003)
(SR–NYSE–2001–46) (approving proposed rule
change to modify, among other things, the
exchange’s procedures for issuer appeals of
delisting determinations) (‘‘NYSE 2003 Order’’).
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on presenting any legal arguments later
in the Written Update or oral hearings
process, are also appropriate and
consistent with the Act. The Exchange
has stated that where companies
belatedly provide legal arguments to the
Hearings Panel, Nasdaq Staff may be
unable to fully develop legal arguments
or advise the Hearings Panel effectively
regarding a company’s request for relief.
As a result, the Hearings Panel may not
have all the relevant information before
it and may not be able to properly
adjudicate the issue during the
hearing.42 Requiring a company to raise
legal arguments in the Written
Submission should allow Nasdaq Staff
the opportunity to provide a thorough
response to the legal argument and
provide the Hearings Panel the benefit
of Nasdaq Staff’s views and perspective,
thus improving the integrity and
transparency of the hearings process
while at the same time providing a fair
procedure for the company to set forth
its legal arguments in the hearings
process.
One commenter opposed Nasdaq’s
proposed revisions to the hearings
process, stating its belief that the
proposal is highly prejudicial to issuers
and will impede the Hearings Panel’s
ability to make fully informed listing
decisions.43 This commenter stated that
issuers are often still in the process of
assembling their legal team for the
hearing in the days leading up to the
deadline for making the prehearing
submission, which ‘‘limits the issuer’s
ability to provide any and all
comprehensive legal arguments or other
detailed information regarding its
compliance plan.’’ 44 The commenter
stated that requiring ‘‘the issuer to
submit the totality of its compliance
plan and any legal arguments in
connection therewith several weeks
ahead of the hearing would place the
issuer at a significant disadvantage
before the Panel’’ and that the proposal
‘‘fails to take into consideration the fact
that companies that are subject to
delisting . . . are typically dealing with
a very fluid set of circumstances in their
efforts to regain compliance with the
applicable listing criteria; circumstances
that are rapidly evolving, sometimes
right up to the time of the hearing.’’ 45
The commenter stated that the Nasdaq’s
current procedures, which require the
hearing to be held within 45 days of the
hearing request and do not require the
42 See
Notice, supra note 3, 85 FR at 43903.
Letter from David A. Donohoe, Jr., Donohoe
Advisory Associates LLC, to Secretary,
Commission, dated August 10, 2020 (‘‘Donohoe
Letter’’), at 3.
44 Id. at 2.
45 Id.
43 See
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Hearings Panel to issue its decision
within any particular time period
following the hearing,46 allow for
sufficient time for the Hearings Panel to
seek a response from Nasdaq Staff on
any new information provided at the
hearing.47 The commenter stated that it
is ‘‘not uncommon for the Panel to
afford the Staff an opportunity to make
a responsive submission post-hearing
and then to give the company the
opportunity to respond to such posthearing submission’’ and that ‘‘[s]uch an
exchange can easily be completed
within two weeks, allowing the Panel to
make a decision within 30 days.’’ 48 The
commenter argued that the current
hearings process has served Nasdaq,
investors, and issuers well for many
years and provides the Hearings Panel
with the necessary tools to ensure that
Nasdaq Staff has an adequate
opportunity to respond to an issuer’s
compliance plan and any legal
arguments in connection therewith
without arbitrarily limiting the issuer’s
ability to present information it deems
relevant to the Hearings Panel’s
decision.49
In response to this commenter,
Nasdaq stated that, rather than
impeding the Hearings Panel’s ability to
make fully informed listing decisions,
the proposal will ‘‘increase the
information available to the Hearings
Panel in advance of a hearing, which
will allow the Panelists adequate time to
review the information and ask
questions of the company during the
hearing and, thereby, make a fully
informed decision.’’ 50 Nasdaq stated
that the proposal does not in any way
limit the nature and amount of
information, whether legal arguments or
factual statements, that a company may
submit to the Hearings Panel for
consideration, but rather requires a
company to submit the relevant legal
arguments and material information by
a reasonable deadline and prevents the
belated submission of such
information.51 In addition, Nasdaq
stated that the proposed rules will
provide a company with ample
opportunity to present the material
information necessary to allow for a full
46 The commenter noted, however, that Nasdaq
advises all issuers in advance of the hearing that it
is their intention to issue the panel decision within
30 calendar days of the hearing date. See id. at 3.
47 See id.
48 Id.
49 See id.
50 Letter from Arnold Golub, Vice President and
Deputy General Counsel, Nasdaq, to Secretary,
Commission, dated September 1, 2020 (‘‘Response
Letter’’), at 1.
51 See id. at 2.
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and complete consideration of the
issues by the Hearings Panel.52
Nasdaq further stated that, as
recognized by the opposing
commenter,53 most hearings relate to
deficiencies where the company
receives a cure period or is allowed to
submit to Nasdaq Staff a plan to regain
compliance before receiving a delisting
letter.54 Therefore, the company should
be on notice long before the hearings
process of both the nature of the
deficiency and the timing of when the
company will receive a delisting, and
the company should have adequate time
before receiving a delisting letter to
assemble its legal team, consider its
legal arguments, and develop its plan to
regain compliance.55 Nasdaq stated that,
as noted by the commenter,56 in most
52 See id. at 3. Nasdaq stated, for example, that
the proposal allows a company appealing a staff
determination to submit additional information two
business days prior to the hearing. Nasdaq also
stated that the proposal permits the company an
opportunity to present new material information
under certain conditions at the oral hearing as
discussed above. See Response Letter, at 2. See also
supra notes 21–24 and accompanying text.
53 See Donohoe Leter, at 2 (stating that ‘‘marketbased deficiencies (e.g., bid price, market value of
listed securities, and market value of publicly held
shares) and stockholders’ equity deficiencies . . .
represent the lion’s share of compliance issues
resulting in hearings.’’).
54 Nasdaq stated that from January 1, 2020
through August 31, 2020, 28 of the 45 hearings
held, or 62%, related only to bid price, market
value of listed securities, market value of publicly
held shares, and stockholders’ equity deficiencies.
See Response Letter, at 2, n.4. Deficiencies relating
to all such listing standards allow a company to
submit a plan of compliance. See Nasdaq Rule
5810(c)(2) and (c)(3) (setting forth deficiencies for
which a company may submit a plan of
compliance). Generally, deficiencies relating to bid
price, market value of listed securities, and market
value of publicly held shares allow for a cure period
of 180 days. See Nasdaq Rule 5810(c)(3). In
addition, under certain circumstances, companies
that fail to meet the continued listing requirement
for minimum bid price may be allowed a cure
period of 360 days. See Nasdaq Rule 5810(c)(3)(A).
55 See Response Letter, at 2–3. Pursuant to Nasdaq
Rules, there are only a limited set of deficiencies
for which Nasdaq’s initial notice to the company is
a delisting determination and the company’s
securities are immediately subject to suspension
and delisting, including where a company fails to
timely solicit proxies and where, under its
discretionary authority in the Nasdaq Rule 5100
Series, Nasdaq Staff has determined that a
company’s continued listing raises a public interest
concern. See Nasdaq Rule 5810(c)(1); Response
Letter, at 2, n.6. Moreover, Nasdaq stated that it
would be concerned if a company ignored its prior
communications with Staff about the deficiency
and only began to act upon receiving the delisting
letter, as suggested by the commenter. See Response
Letter, at 2–3.
56 See Donohoe Letter, at 2 (stating that ‘‘in the
majority of cases, the Panel is not rendering a
determination as to whether the Staff erred in its
determination to delist an issuer, but rather is
seeking to determine whether, at the time of the
Panel’s decision, the issuer has adequately
addressed the Staff’s concerns and presented a
definitive plan to regain compliance within a
reasonable period of time and, certainly within the
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cases, the Hearings Panel does not
render a decision regarding the legal
merits of Nasdaq Staff’s determination
in the matter. Given that most matters
do not require the Hearings Panel to
consider legal arguments put forth by
the company, Nasdaq stated that it is
more important that such arguments be
raised early in the process to allow
Nasdaq Staff adequate time to consider
the claims raised and respond in
advance of the hearing.57 Nasdaq stated
that requiring the Hearings Panel to
solicit subsequent submissions, as
proposed by the commenter,58 would
only serve to delay the adjudication of
the matter, potentially to the detriment
of prospective future investors.59 One
commenter also expressed unqualified
support for the Nasdaq proposal and
Nasdaq’s efforts to improve the
effectiveness of Hearings Panel
proceedings.60
As discussed above, the Commission
believes, as noted by Nasdaq, that the
proposed procedures will require
companies to submit relevant legal
arguments and material information by
a reasonable deadline and prevent the
belated submission of such
information.61 The proposal permits the
addition of any new information up to
two business days prior to the hearing
to be submitted in the Written Update,
except for any legal argument not raised
by the Company with specificity in the
Written Submission. Thus, the company
should be able to provide any new
information that has evolved since the
submission of the Written Submission,
including updates on its compliance
plan, in its Written Update. Further, the
Hearings Panel can allow the admission
of additional material information at an
oral hearing if certain conditions are
met.62 The Commission notes that the
discretionary period available to the Panel under
the Nasdaq Listing Rules.’’).
57 See Response Letter, at 3.
58 See supra note 48 and accompanying text.
59 See Response Letter, at 3.
60 See Letter from Jeffrey P. Mahoney, General
Counsel, Council of Institutional Investors, to
Secretary, Commission, dated August 4, 2020 (‘‘CII
Letter’’).
61 The Commission notes that the one commenter
agreed with Nasdaq that ‘‘when companies
belatedly provide information to the Hearings Panel
. . . it does not provide the Hearings Panel with
adequate time to prepare for and consider the
information in advance of the hearing’’ and that
‘‘where companies belatedly provide legal
arguments to the Hearings Panel, Nasdaq staff is
unable to adequately brief the Hearings Panel
concerning its response to the legal argument and,
as a result, the Hearings Panel does not have
adequate time to prepare for and consider the legal
argument in advance of the hearing and thus cannot
properly adjudicate the issue.’’ See CII Letter.
62 Indeed, in its filing, Nasdaq stated that it has
observed that companies primarily seek to
introduce material information, such as a new
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New York Stock Exchange (‘‘NYSE’’)
provides for similar procedures
regarding the submission of information
where an issuer requests a review of a
delisting determination by the
Committee of the Board of Directors of
the NYSE and the Commission found
such procedures to be consistent with
both Section 6(b)(5) and 6(b)(7) under
the Exchange Act.63 The Commission
further notes that the requirement for all
legal arguments upon which the
company will rely to be presented in the
company’s opening submission is not
novel and is analogous to provisions in
the Commission’s Rules of Practice and
Federal Rules of Appellate Procedure,
routinely enforced by the Commission
and the federal courts of appeals.64
equity offering or merger, as opposed to legal
arguments at the hearing. See Notice, supra note 3,
85 FR at 43902, n.9.
63 See Section 804.00 of the NYSE Listed
Company Manual (‘‘The Committee’s review and
final decision will be based on oral argument (if
any) and the written briefs and accompanying
materials submitted by the parties. The company
will not be permitted to argue grounds for reversing
the staff’s decision that are not identified in its
request for review, however, the company may ask
the Committee for leave to adduce additional
evidence or raise arguments not identified in its
request for review, if it can demonstrate that the
proposed additional evidence or new arguments are
material to its request for review and that there was
reasonable ground for not adducing such evidence
or identifying such issues earlier. This section will
not, however, (i) authorize a company to seek to file
a reply brief in support of its request for review or
(ii) be deemed to limit the staff’s response to a
request for review to the issues raised in the request
for review. Upon review of a properly supported
request, the Committee may in its sole discretion
permit new arguments or additional evidence to be
raised before the Committee.’’). See also supra note
41 and accompanying text.
64 See 17 CFR 201.420(c) (stating, in reference to
Commission review of a determination by a selfregulatory organization, that ‘‘[a]ny exception to a
determination not supported in an opening brief
. . . may, at the discretion of the Commission, be
deemed to have been waived by the applicant’’).
See also 17 CFR 201.222(a) (providing that a
hearing officer may require a party, in its prehearing
submission, to include ‘‘[a]n outline or narrative
summary of its case or defense’’ and ‘‘[t]he legal
theories upon which it will rely’’); Island Creek
Coal Co. v. Wilkerson, 910 F.3d 254, 256 (6th Cir.
2018) (‘‘Time, time, and time again, we have
reminded litigants that we will treat an ‘argument’
as ‘forfeited when it was not raised in the opening
brief.’ . . . . The obligation to identify the issues
on appeal in the opening brief applies to arguments
premised on the loftiest charter of government as
well as the most down to earth ordinance.’’); United
States v. Van Smith, 530 F.3d 967, 973 (D.C. Cir.
2008) (‘‘We require petitioners and appellants to
raise all of their arguments in the opening brief, and
have repeatedly held that an argument first made
in a reply brief ordinarily comes too late for our
consideration.’’); Barna v. Bd. Of Sch. Dirs. of the
Panther Valley Sch. Dist., 877 F.3d 136, 145–46 (3d
Cir. 2017) (‘‘We have long recognized, consistent
with Federal Rule of Appellate Procedure 28(a) . . .
that an appellant’s opening brief must set forth and
address each argument the appellant wishes to
pursue in an appeal.’’ . . . . and the court will not
‘‘reach arguments raised for the first time in a reply
brief or at oral argument.’’).
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67029
Finally, the Commission notes that
when a company requests a Hearings
Panel review, the suspension and
delisting of the company’s securities is
generally stayed pending the issuance of
the Hearing Panel’s decision.65 The
Commission believes that where a
company has received a delisting
determination, it is important to have an
efficient, fair, and effective process for
reviewing such determination, given
that the company’s shares will likely
continue to trade during the duration of
the Hearings Panel’s review.66 If such
company is not in compliance with
listing standards and will not be able to
regain compliance in accordance with
Nasdaq rules, the continued trading of
such securities could be misleading to
investors. Allowing a company that will
not be able to demonstrate compliance
with the Exchange’s listing standards to
delay providing material information
and legal arguments and thereby extend
the delisting review process and thus
the trading of the security on the
Exchange during the pendency of the
Hearings Panel’s review would raise
issues under the Exchange Act,
including investor protection
concerns.67
Based on the above, the Commission
believes the proposed procedures
provide companies with ample
opportunity for a fair procedure and
efficient process for reviewing appeals
before the Hearings Panel. The
Commission therefore believes that
Nasdaq’s proposal is consistent with
Section 6(b)(7) of the Act in setting forth
a fair procedure for the Hearings Panel’s
review of a Staff Delisting
Determination, Public Reprimand
65 See Nasdaq Rule 5815(a)(1)(B). There are some
exceptions to this rule for companies subject to late
filing delinquencies, companies involved in a
change of control as described in Nasdaq Rule
5110(a), or companies involved in a bankruptcy or
liquidation as described in Nasdaq Rule 5110(b).
See Nasdaq Rule 5815(a)(1)(B)(i) and (ii).
66 See NYSE 2003 Order, supra note 41, 68 FR at
2604 (stating that ensuring appeals are considered
in a timely manner and resolved promptly is
particularly important because the NYSE may
permit an issuer to continue to trade during the
appeal process).
67 See In re Tassaway, Securities Exchange Act
Release No. 11291, 45 S.E.C. 706, 709, 1975 SEC
LEXIS 2057, at *6 (Mar. 13, 1975) (‘‘[P]rimary
emphasis must be placed on the interests of
prospective future investors . . . [who are] entitled
to assume that the securities in [Nasdaq] meet
[Nasdaq’s] standards. Hence the presence in
[Nasdaq] of non-complying securities could have a
serious deceptive effect.’’). See also In re Biorelease
Corporation, Securities Exchange Act Release No.
35575, 1995 SEC LEXIS 818, at *13 (Apr. 6, 1995)
(‘‘[T]hough exclusion from the system may hurt
existing investors, primary emphasis must be
placed on the interests of prospective future
investors. Prospective investors are entitled to
assume that the securities listed [on Nasdaq] meet
the system’s listing standards.’’).
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Letter, or denial of a listing application.
The Commission also believes that
Nasdaq’s proposal will further the
purposes of Section 6(b)(5) of the Act
by, among other things, protecting
investors and the public interest by
setting forth reasonable deadlines and a
fair and efficient process for the
Hearings Panel to review a delisting
determination and make an informed
determination regarding whether a
company should remain listed on the
Exchange. Where the Hearings Panel
ultimately determines that the
continued listing of a company on
Nasdaq is not appropriate, the proposal
would help to prevent such a company
from unnecessarily delaying the review
process and thereby extending the time
period that the company’s securities are
traded on Nasdaq, while at the same
time ensuring that companies have a fair
procedure and reasonable process to
provide relevant information to the
Hearings Panel in a timely manner. The
Commission believes the proposal
furthers these goals consistent with
Sections 6(b)(5) and 6(b)(7) of the Act.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,68 that the
proposed rule change (SR–NASDAQ–
2020–002), be, and it hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.69
J. Matthew DeLesDernier,
Assistant Secretary.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
The Exchange proposes to extend the
current pilot program related to Nasdaq
Rule 11890 (Clearly Erroneous
Transactions) to the close of business on
April 20, 2021.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/nasdaq/rules, 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. Purpose
[Release No. 34–90202; File No. SR–
NASDAQ–2020–070]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend Rule
11890 (Clearly Erroneous
Transactions)
October 15, 2020.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2020–23258 Filed 10–20–20; 8:45 am]
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 October
13, 2020, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
(‘‘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.
The purpose of the proposed rule
change is to extend the current pilot
program related to Rule 11890, Clearly
Erroneous Transactions, to the close of
business on April 20, 2021. The pilot
program is currently due to expire on
October 20, 2020.
On September 10, 2010, the
Commission approved, on a pilot basis,
changes to Rule 11890 that, among other
things: (i) Provided for uniform
treatment of clearly erroneous execution
reviews in multi-stock events involving
twenty or more securities; and (ii)
reduced the ability of the Exchange to
deviate from the objective standards set
forth in the rule.3 In 2013, the Exchange
adopted a provision designed to address
68 15
69 17
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16:58 Oct 20, 2020
3 See Securities Exchange Act Release No. 62886
(September 10, 2010), 75 FR 56613 (September 16,
2010) (SR–NASDAQ–2010–076).
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the operation of the Plan.4 Finally, in
2014, the Exchange adopted two
additional provisions providing that: (i)
A series of transactions in a particular
security on one or more trading days
may be viewed as one event if all such
transactions were effected based on the
same fundamentally incorrect or grossly
misinterpreted issuance information
resulting in a severe valuation error for
all such transactions; and (ii) in the
event of any disruption or malfunction
in the operation of the electronic
communications and trading facilities of
an Exchange, another SRO, or
responsible single plan processor in
connection with the transmittal or
receipt of a trading halt, an Officer,
acting on his or her own motion, shall
nullify any transaction that occurs after
a trading halt has been declared by the
primary listing market for a security and
before such trading halt has officially
ended according to the primary listing
market.5
These changes were originally
scheduled to operate for a pilot period
to coincide with the pilot period for the
Plan to Address Extraordinary Market
Volatility (the ‘‘Limit Up-Limit Down
Plan’’ or ‘‘LULD Plan’’).6 In April 2019,
the Commission approved an
amendment to the LULD Plan for it to
operate on a permanent, rather than
pilot, basis.7 In light of that change, the
Exchange amended Rule 11890 to untie
the pilot program’s effectiveness from
that of the LULD Plan and to extend the
pilot’s effectiveness to the close of
business on October 18, 2019.8 The
Exchange later amended Rule 11890 to
extend the pilot’s effectiveness to the
close of business on April 20, 2020,9
and subsequently, to the close of
business on October 20, 2020.10
The Exchange now proposes to amend
Rule 11890 to extend the pilot’s
effectiveness for a further six months
until the close of business on April 20,
2021. If the pilot period is not either
4 See Securities Exchange Act Release No. 68819
(February 1, 2013), 78 FR 9438 (February 8, 2013)
(SR–NASDAQ–2013–022).
5 See Securities Exchange Act Release No. 72434
(June 19, 2014), 79 FR 36110 (June 25, 2014) (SR–
NASDAQ–2014–044).
6 See Securities Exchange Act Release No. 67091
(May 31, 2012), 77 FR 33498 (June 6, 2012) (the
‘‘Limit Up-Limit Down Release’’).
7 See Securities Exchange Act Release No. 85623
(April 11, 2019), 84 FR 16086 (April 17, 2019)
(approving Eighteenth Amendment to LULD Plan).
8 See Securities Exchange Act Release No. 85603
(April 11, 2019), 84 FR 16064 (April 17, 2019) (SR–
NASDAQ–2019–028).
9 See Securities Exchange Act Release No. 87358
(October 18, 2019), 84 FR 57129 (October 24, 2019)
(SR–NASDAQ–2019–085).
10 See Securities Exchange Act Release No. 88504
(March 27, 2020), 85 FR 18598 (April 2, 2020) (SR–
NASDAQ–2020–013).
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]]>Agencies
[Federal Register Volume 85, Number 204 (Wednesday, October 21, 2020)]
[Notices]
[Pages 67024-67030]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-23258]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90201; File No. SR-NASDAQ-2020-002]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order
Approving a Proposed Rule Change To Amend the Procedures Governing the
Introduction of Legal Arguments and Material Information by Companies
in a Proceeding Before a Hearings Panel
October 15, 2020.
I. Introduction
On July 2, 2020, 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 procedures governing proceedings
before a Hearings Panel, including the introduction of legal arguments
and material information by companies during such proceedings. The
proposed rule change was published for comment in the Federal Register
on July 20, 2020.\3\ On September 2, 2020, pursuant to Section 19(b)(2)
of the Act,\4\ the Commission designated a longer period within which
to approve the proposed rule change, disapprove the proposed rule
change, or
[[Page 67025]]
institute proceedings to determine whether to disapprove the proposed
rule change.\5\ This order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 89309 (Jul. 14,
2020), 85 FR 43900 (``Notice''). Comments on the proposed rule
change can be found at: https://www.sec.gov/comments/sr-nasdaq-2020-002/srnasdaq2020002.htm.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 89745, 85 FR 55728
(Sep. 9, 2020). The Commission designated October 18, 2020, as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
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II. Description of the Proposal
Under Nasdaq's current rules, a Company \6\ may, within seven
calendar days of the date of a Staff Delisting Determination \7\
notification, Public Reprimand Letter,\8\ or written denial of a
listing application, request a written or oral hearing before a
Hearings Panel \9\ to review the Staff Delisting Determination, Public
Reprimand Letter, or written denial of a listing application.\10\ The
Hearings Department \11\ will schedule hearings to take place, to the
extent practicable, within 45 days of the request for a hearing.\12\
The Hearings Department will send written acknowledgment of the
Company's hearing request and inform the Company of the date, time, and
location of the hearing, and deadlines for written submissions to the
Hearings Panel.\13\ The Company will be provided at least ten calendar
days' notice of the hearing unless the Company waives such notice.\14\
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\6\ Nasdaq Rule 5005(a)(6) defines ``Company'' as the issuer of
a security listed or applying to list on Nasdaq.
\7\ Nasdaq Rule 5805(h) defines a ``Staff Delisting
Determination'' as a written determination by the Listing
Qualifications Department to delist a listed Company's securities
for failure to meet a continued listing standard. Nasdaq Rule
5805(f) defines the ``Listing Qualifications Department'' as the
department of Nasdaq responsible for evaluating Company compliance
with quantitative and qualitative listing standards and determining
eligibility for initial and continued listing of a Company's
securities.
\8\ Nasdaq Rule 5805(j) defines a ``Public Reprimand Letter'' as
a letter issued by Staff or a Decision of an Adjudicatory Body in
cases where the Company has violated a Nasdaq corporate governance
or notification listing standard (other than one required by Rule
10A-3 of the Act) and Staff or the Adjudicatory Body determines that
delisting is an inappropriate sanction. Rule 5805(g) defines
``Staff'' as employees of the Listing Qualifications Department;
Rule 5805(i) defines ``Decision'' as a written decision of an
Adjudicatory Body; and Rule 5805(a) defines ``Adjudicatory Body'' as
the Hearings Panel, the Listing Council, or the Nasdaq Board, or a
member thereof.
\9\ Nasdaq Rule 5805(d) defines ``Hearings Panel'' as an
independent panel made up of at least two persons who are not
employees or otherwise affiliated with Nasdaq or its affiliates, and
who have been authorized by the Nasdaq Board of Directors.
\10\ See Nasdaq Rule 5815(a)(1)(A). If a Company fails to
request in writing a hearing within seven calendar days, it waives
its right to request review of a Staff Delisting Determination,
Public Reprimand Letter, or written denial of an initial listing
application and the Hearings Department will take action to suspend
trading of the securities and follow procedures to delist the
securities. See Nasdaq Rule 5815(a)(2).
\11\ Nasdaq Rule 5805(c) defines ``Hearings Department'' as the
Hearings Department of the Nasdaq Office of General Counsel.
\12\ See Nasdaq Rule 5815(a)(4).
\13\ See id.
\14\ See id.
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Under the current hearings process, set forth in Nasdaq Rule
5815(a)(5), the Company may, but is not required to, submit to the
Hearings Department a written plan of compliance and request that the
Hearings Panel grant an exception to the listing standards for a
limited time period, as permitted by Nasdaq Rule 5815(c)(1)(A), or may
set forth specific grounds for the Company's contention that the
issuance of a Staff Delisting Determination, Public Reprimand Letter,
or denial of a listing application was in error, and may also submit
public documents or other written material in support of its position,
including any information not available at the time of the staff
determination. The Hearings Panel will review the written record before
the hearing.\15\ Pursuant to Nasdaq Rule 5815(a)(6), at an oral
hearing, the Company may make such presentation as it deems
appropriate, including the appearance by its officers, directors,
accountants, counsel, investment bankers, or other persons, and the
Hearings Panel may question any representative appearing at the
hearing.\16\ A Company may waive its right to an oral hearing and seek
a decision by the Hearings Panel based solely on its written
submissions.\17\
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\15\ See Nasdaq Rule 5815(a)(5).
\16\ Hearings are generally scheduled to last one hour, but the
Hearings Panel may extend the time. The Hearings Department will
arrange for and keep on file a transcript of oral hearings. See
Nasdaq Rule 5815(a)(6).
\17\ See Notice, supra note 3, 85 FR at 43901.
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The Exchange now proposes to revise Nasdaq Rules 5815(a)(5) and (6)
to amend the procedures governing the introduction of legal arguments
and material information by Companies in a written or oral hearing
before a Hearings Panel as well as require Companies to provide a
written submission in such proceedings. The Exchange is also proposing
some other changes to the Hearings Panel proceedings as discussed in
more detail below. The Exchange stated that the proposed amendments are
designed to improve the efficient and effective functioning of the
hearings process in connection with the Company's appeal of a Staff
Delisting Determination, Public Reprimand Letter, or denial of a
listing application.\18\
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\18\ See id.
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Specifically, the Exchange is proposing to amend Nasdaq Rule
5815(a)(5) to require a Company to provide a written submission to the
Hearings Department, to which Staff may respond in writing, stating
with specificity the grounds on which the Company is seeking review of
the Staff Delisting Determination notification, Public Reprimand
Letter, or written denial of a listing application (``Written
Submission'').\19\ The Company would be required to include in the
Written Submission all legal arguments on which it intends to rely.\20\
In addition, the Exchange proposes to specify that the Company may
supplement the Written Submission by providing a written update to the
Hearings Department (``Written Update'') no later than two business
days in advance of the hearing. The Written Update may not include any
legal argument not raised by the Company with specificity in the
Written Submission.\21\
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\19\ The Hearings Department generally calendars a hearing
within 45 days of the request for a hearing and will establish
deadlines for written submissions to the Hearings Panel. See Nasdaq
Rule 5815(a)(4). As determined by the Hearings Department, both oral
and written hearing matters are generally considered on Thursdays,
and the Company's written submission is typically due on the third
Friday before the hearing. The Hearings Department will generally
establish the Thursday before the hearing as the deadline for Nasdaq
Staff to respond in writing. See Notice, supra note 3, 85 FR at
43901, n.6.
\20\ The proposal would amend the current rule to allow the
Company's Written Submission, as appropriate, to include a written
plan of compliance and request that the Hearings Panel grant an
exception to the listing standards for a limited time period, as
permitted by Nasdaq Rule 5815(c)(1)(A), or may set forth specific
grounds for the Company's contention that the issuance of a Staff
Delisting Determination, Public Reprimand Letter, or denial of a
listing application was in error, and may also submit public
documents or other written material in support of its position,
including any information not available at the time of the staff
determination. See proposed Nasdaq Rule 5815(a)(5).
\21\ See proposed Nasdaq Rule 5815(a)(5). The Hearings Panel
will determine that a company has raised a legal argument with
specificity if the legal argument includes sufficient detail to be
useful in the Hearings Panel's review of the record before the
hearing. See Notice, supra note 3, 85 FR at 43901.
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The Exchange is proposing to amend Nasdaq Rule 5815(a)(6) to
provide that during an oral hearing, a Company would be prohibited from
introducing any legal argument not raised by the Company with
specificity in the Written Submission. The Exchange also proposes to
amend Nasdaq Rule 5815(a)(6) to provide that during an oral hearing, a
Company would be prohibited from introducing any material information
that was not raised by the Company with specificity in the Written
Submission or Written Update, unless such information was solicited
[[Page 67026]]
by the Hearings Panel or the Company shows either that the material
information did not exist at the time the Company was permitted to
submit a Written Update \22\ or that exceptional or unusual
circumstances exist that warrant consideration of the newly raised
material information. The proposal provides that exceptional or unusual
circumstances would include, but are not necessarily limited to,
material information that was not earlier discoverable by the Company
despite all reasonable measures having been taken.\23\ If the Hearings
Panel determines either that the Company has shown that the material
information did not exist at the time the Company was permitted to
submit a Written Update or that the Company has shown exceptional or
unusual circumstances exist that warrant consideration of the newly
raised material information, then the Company would be permitted to
introduce such information at the oral hearing.\24\ Nasdaq Staff would
have up to three business days, or such shorter time as the Hearings
Panel requests, following the oral hearing to respond in writing to the
Company's newly raised material information, and the Company would be
permitted to respond to the Staff's submission only upon request by the
Hearings Panel.\25\
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\22\ The Exchange provides the following example. Where a key
component of a Company's compliance plan is a merger, and the
Company obtains a fully executed version of the merger agreement the
day before the hearing, the executed merger agreement would
constitute information that did not exist at the time the Company
was permitted to submit a Written Update. However, the fact that the
Company was pursuing a merger, the potential merger parties, and the
material terms of the contemplated merger should have been
previously disclosed by the Company, as some or all of such
information likely existed at the time the Company was permitted to
submit a Written Update. See Notice, supra note 3, 85 FR at 43902.
\23\ See proposed Nasdaq Rule 5815(a)(6).
\24\ See id.
\25\ See id.
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The Exchange stated that Companies that have requested a written or
oral hearing before a Hearings Panel to review a Staff Delisting
Determination, Public Reprimand Letter, or written denial of a listing
application prior to the date of Commission approval of the proposed
rule change will be subject to the rule text in Nasdaq Rule 5815(a)(5)
and (6) that was effective prior to the date of such Commission
approval.\26\
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\26\ See Notice, supra note 3, 85 FR at 43902, n.11.
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III. 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.\27\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\28\ 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. In addition, the Commission finds that the proposed
rule change is consistent with Section 6(b)(7) of the Act,\29\ which
requires, among other things, that the rules of a national securities
exchange provide a fair procedure for the prohibition or limitation by
the exchange of any person with respect to access to services offered
by the exchange.
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\27\ 15 U.S.C. 78f(b). In approving this proposed rule change
the Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\28\ 15 U.S.C. 78f(b)(5).
\29\ 15 U.S.C. 78f(b)(7).
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Nasdaq proposes to amend the procedures that govern a written or
oral hearing before a Hearings Panel to review a Staff Delisting
Determination, Public Reprimand Letter, or written denial of a listing
application. Specifically, where a company has requested either a
written or an oral hearing, Nasdaq proposes to require the company to
provide a Written Submission in advance of the hearing, in which the
company must state in writing with specificity the grounds upon which
it is seeking review and all legal arguments on which it intends to
rely. In addition, Nasdaq proposes to clarify that Nasdaq Staff may
respond in writing to a company's Written Submission. Nasdaq also
proposes that a company may supplement its Written Submission by
providing a Written Update to the Hearings Department no later than two
business days in advance of the hearing, thereby briefing the Hearings
Panel on any new material information that has transpired since its
Written Submission. Nasdaq proposes to allow a company only to
introduce legal arguments in the Written Submission, and to not allow a
company to introduce any legal arguments in the Written Update or
during the oral hearing that were not raised with specificity in the
Written Submission. Finally, Nasdaq proposes to set forth limited
circumstances in which the Hearings Panel will permit a company to
introduce material information at the oral hearing.\30\ The Exchange
stated that the proposed amendments will enhance the hearings process
by providing the Hearings Panel with the most developed record in as
timely a manner as possible.\31\
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\30\ See supra notes 22-24 and accompanying text.
\31\ See Notice, supra note 3, 85 FR at 43902.
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As the Commission has previously noted, the development and
enforcement of meaningful listing standards \32\ for an exchange is of
substantial importance to financial markets and the investing public.
Among other things, listing standards provide the means for an exchange
to screen issuers that seek to become listed, and to provide listed
status only to those that are bona fide companies that have or will
have sufficient public float, investor base, and trading interest
likely to generate depth and liquidity sufficient to promote fair and
orderly markets.\33\ Meaningful listing standards also are important
given investor expectations regarding the nature of securities that
have achieved an exchange listing, and the role of an exchange in
overseeing its market and assuring compliance with its listing
standards.\34\ Therefore it is important for exchanges to prevent
companies that are deficient in their listing standards or that do not
meet initial listing standards
[[Page 67027]]
from remaining or becoming listed on an exchange.
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\32\ The Commission notes that this is referring to both initial
and continued listing standards.
\33\ In addition, once a security has been approved for initial
listing, maintenance criteria allow an exchange to monitor the
status and trading characteristics of that issue to ensure that it
continues to meet the exchange's standards for market depth and
liquidity so that fair and orderly markets can be maintained. See,
e.g., Securities Exchange Act Release Nos. 82627 (Feb. 2, 2018), 3
FR 5650, 5653, n.53 (Feb. 8, 2018) (SR-NYSE-2017-30); 81856 (Oct.
11, 2017), 82 FR 48296, 48298 (Oct. 17, 2017) (SR-NYSE-2017-31);
81079 (July 5, 2017), 82 FR 32022, 32023 (July 11, 2017) (SR-NYSE-
2017-11). The Commission has stated that adequate listing standards,
by promoting fair and orderly markets, are consistent with Section
6(b)(5) of the Act, in that they are, among other things, designed
to prevent fraudulent and manipulative acts and practices, promote
just and equitable principles of trade, and protect investors and
the public interest. See, e.g., Securities Exchange Act Release Nos.
82627 (Feb. 2, 2018), 3 FR 5650, 5653, n.53 (Feb. 8, 2018) (SR-NYSE-
2017-30); 87648 (Dec. 3, 2019), 84 FR 67308, 67314, n.42 (Dec. 9,
2019) (SR-NASDAQ-2019-059); 88716 (Apr. 21, 2020), 85 FR 23393,
23395, n.22 (Apr. 27, 2020) (SR-NASDAQ-2020-001).
\34\ See, e.g., Securities Exchange Act Release Nos. 65708 (Nov.
8, 2011), 76 FR 70799 (Nov. 15, 2011) (SR-NASDAQ-2011-073) (order
approving a proposal to adopt additional listing requirements for
companies applying to list after consummation of a ``reverse
merger'' with a shell company), and 57785 (May 6, 2008), 73 FR 27597
(May 13, 2008) (SR-NYSE-2018-17) (order approving a proposal to
adopt new initial and continued listing standards to list securities
of special purpose acquisition companies).
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The Commission believes that the proposed revisions to the hearings
process are appropriate and consistent with Section 6(b)(5) of the Act
in that the proposed rules are designed to protect investors and the
public interest. The Commission further believes the proposed rule
change is consistent with Section 6(b)(7) of the Act in that it
provides a fair procedure for the prohibition or limitation by the
Exchange of any person with respect to access to services offered. The
Commission believes that the proposed procedures will require companies
that have received a Staff Delisting Determination, Public Reprimand
Letter, or have been denied initial listing to provide all relevant
legal arguments and material information to the Hearings Panel in a
timely manner within reasonable deadlines, so that the Hearings Panel
may make an informed decision regarding the company's initial or
continued listing on the Exchange. The proposed procedures should
prevent companies that have received a Staff Delisting Determination,
Public Reprimand Letter, or have been denied initial listing from
withholding material information or legal arguments in an effort to
extend the time before the Hearings Panel makes a decision or otherwise
unduly lengthen the hearings process. The Commission notes that this is
particularly important given that under Nasdaq rules a timely request
for a hearing will ordinarily stay the suspension and delisting action
until the issuance of a written panel decision. Therefore, as discussed
in more detail below, most companies will have their stock continue to
trade during the appeal of a Staff Delisting Determination or Public
Reprimand Letter.\35\ The Commission believes that the proposed
procedures are reasonable and appropriate to allow companies to present
all relevant legal arguments and material information before the
Hearings Panel, and for Nasdaq Staff to have a reasonable opportunity
to respond in advance of the hearing. The Commission further believes
that the proposed procedures are also reasonable to allow the Hearings
Panel time and opportunity to review all relevant material information
and legal arguments and should strengthen the integrity, efficiency,
and transparency of the hearings process while also providing for a
fair procedure for companies to present their case before the Hearings
Panel.\36\
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\35\ See infra notes 65-67 and accompanying text.
\36\ See below at notes 43-60 and accompanying text for
discussion of comments received.
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The Commission believes the proposed amendments governing the
submission of a Written Submission and Written Update are appropriate
and consistent with the Act. The Exchange has stated that Nasdaq Staff
has observed instances where, in advance of a hearing, companies
provide little information about their plan to achieve or regain
compliance or regarding their appeal of a Public Reprimand Letter or
denial of an initial listing application, and instead present such
information for the first time during the hearing.\37\ Under current
rules, as noted above, companies are not required to make a written
submission upon an appeal to the Hearings Panel, but rather companies
have the option to submit a written submission. The new procedures will
require all companies to submit a Written Submission upon an appeal to
the Hearings Panel. The Exchange has stated in support of the new
requirements that when companies belatedly provide information to the
Hearings Panel, it does not provide the Hearings Panel with adequate
time to consider the information or to adequately prepare or formulate
questions in advance of the hearing.\38\ The Exchange stated that in
such circumstances, the Hearings Panel may need more time or
information to fully consider the matter following the hearing, and
that a company that withholds information is effectively rewarded by
extending the time it remains listed pending a Hearings Panel
decision.\39\ The Exchange also stated that the Written Update will
provide the company an additional opportunity to update any new
material information since the submission of its Written Submission as
well as provide an opportunity to reply to any Nasdaq written Staff
response.\40\ The Commission believes that requiring a company to
provide a Written Submission early on in the hearings process and
allowing a company to supplement this information up to two business
days prior to the hearing should enable the Hearings Panel to prepare
for the hearing with the most up-to-date information regarding the
company and its ability to achieve or maintain compliance with listing
standards when appealing a Staff Delisting Determination, Public
Reprimand Letter, or a denial of initial listing.
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\37\ See Notice, supra note 3, 85 FR at 43902.
\38\ See id.
\39\ See Notice, supra note 3, 85 FR at 43903. Pursuant to
Nasdaq Rule 5815(a)(1)(B), a timely request for a hearing generally
stays the suspension and delisting action pending the issuance of a
written panel decision.
\40\ The Commission notes that the information the company may
provide in the Written Update may not include any legal argument not
raised by the company with specificity in the Written Submission but
is otherwise not limited. The proposed language will specifically
state that the Nasdaq Staff may respond in writing to the Written
Submission. Nasdaq stated this is a clarification of current
procedures. See Notice, supra note 3, 85 FR at 43901.
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In addition, the Commission believes that the proposed restrictions
on a company's ability to present material information during the oral
hearing are appropriate and consistent with the Act. As discussed
above, such restrictions should improve the Hearings Panel's access to
relevant information in a timely manner and allow the Hearings Panel to
prepare for the hearings process in order to make an informed decision.
Under the proposal, a company would be permitted to introduce new
material information that is solicited by the Hearings Panel to ensure
the Hearings Panel is not unnecessarily restricted and that the company
can appropriately respond to any such inquiry by the Hearings Panel at
the oral hearing. Further, a company would be permitted to introduce
new material information if the company shows that such information did
not exist at the time the company was permitted to submit a Written
Update or that exceptional or unusual circumstances exist that warrant
consideration of the new material information. Such exceptions are fair
to allow a company to raise new information if the Hearings Panel finds
that the company has shown that it was truly unable to present such
information prior to the oral hearing or exceptional circumstances
existed. The Commission also has previously found a similar provision
of a national securities exchange that limited a company's ability to
introduce new material information that was not identified in its
initial request for review of a delisting as consistent with Sections
6(b)(5) and 6(b)(7) of the Act, stating, among other things, that the
new procedures may contribute to a more efficient appeals process and
reduce unnecessary delays.\41\
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\41\ See Securities Exchange Act Release No. 47161 (Jan. 10,
2003), 68 FR 2603, 2604 (Jan. 17, 2003) (SR-NYSE-2001-46) (approving
proposed rule change to modify, among other things, the exchange's
procedures for issuer appeals of delisting determinations) (``NYSE
2003 Order'').
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Further, the Commission believes that the proposed requirement for
a company to present all legal arguments on which it intends to rely in
its Written Submission, and the related restrictions
[[Page 67028]]
on presenting any legal arguments later in the Written Update or oral
hearings process, are also appropriate and consistent with the Act. The
Exchange has stated that where companies belatedly provide legal
arguments to the Hearings Panel, Nasdaq Staff may be unable to fully
develop legal arguments or advise the Hearings Panel effectively
regarding a company's request for relief. As a result, the Hearings
Panel may not have all the relevant information before it and may not
be able to properly adjudicate the issue during the hearing.\42\
Requiring a company to raise legal arguments in the Written Submission
should allow Nasdaq Staff the opportunity to provide a thorough
response to the legal argument and provide the Hearings Panel the
benefit of Nasdaq Staff's views and perspective, thus improving the
integrity and transparency of the hearings process while at the same
time providing a fair procedure for the company to set forth its legal
arguments in the hearings process.
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\42\ See Notice, supra note 3, 85 FR at 43903.
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One commenter opposed Nasdaq's proposed revisions to the hearings
process, stating its belief that the proposal is highly prejudicial to
issuers and will impede the Hearings Panel's ability to make fully
informed listing decisions.\43\ This commenter stated that issuers are
often still in the process of assembling their legal team for the
hearing in the days leading up to the deadline for making the
prehearing submission, which ``limits the issuer's ability to provide
any and all comprehensive legal arguments or other detailed information
regarding its compliance plan.'' \44\ The commenter stated that
requiring ``the issuer to submit the totality of its compliance plan
and any legal arguments in connection therewith several weeks ahead of
the hearing would place the issuer at a significant disadvantage before
the Panel'' and that the proposal ``fails to take into consideration
the fact that companies that are subject to delisting . . . are
typically dealing with a very fluid set of circumstances in their
efforts to regain compliance with the applicable listing criteria;
circumstances that are rapidly evolving, sometimes right up to the time
of the hearing.'' \45\ The commenter stated that the Nasdaq's current
procedures, which require the hearing to be held within 45 days of the
hearing request and do not require the Hearings Panel to issue its
decision within any particular time period following the hearing,\46\
allow for sufficient time for the Hearings Panel to seek a response
from Nasdaq Staff on any new information provided at the hearing.\47\
The commenter stated that it is ``not uncommon for the Panel to afford
the Staff an opportunity to make a responsive submission post-hearing
and then to give the company the opportunity to respond to such post-
hearing submission'' and that ``[s]uch an exchange can easily be
completed within two weeks, allowing the Panel to make a decision
within 30 days.'' \48\ The commenter argued that the current hearings
process has served Nasdaq, investors, and issuers well for many years
and provides the Hearings Panel with the necessary tools to ensure that
Nasdaq Staff has an adequate opportunity to respond to an issuer's
compliance plan and any legal arguments in connection therewith without
arbitrarily limiting the issuer's ability to present information it
deems relevant to the Hearings Panel's decision.\49\
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\43\ See Letter from David A. Donohoe, Jr., Donohoe Advisory
Associates LLC, to Secretary, Commission, dated August 10, 2020
(``Donohoe Letter''), at 3.
\44\ Id. at 2.
\45\ Id.
\46\ The commenter noted, however, that Nasdaq advises all
issuers in advance of the hearing that it is their intention to
issue the panel decision within 30 calendar days of the hearing
date. See id. at 3.
\47\ See id.
\48\ Id.
\49\ See id.
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In response to this commenter, Nasdaq stated that, rather than
impeding the Hearings Panel's ability to make fully informed listing
decisions, the proposal will ``increase the information available to
the Hearings Panel in advance of a hearing, which will allow the
Panelists adequate time to review the information and ask questions of
the company during the hearing and, thereby, make a fully informed
decision.'' \50\ Nasdaq stated that the proposal does not in any way
limit the nature and amount of information, whether legal arguments or
factual statements, that a company may submit to the Hearings Panel for
consideration, but rather requires a company to submit the relevant
legal arguments and material information by a reasonable deadline and
prevents the belated submission of such information.\51\ In addition,
Nasdaq stated that the proposed rules will provide a company with ample
opportunity to present the material information necessary to allow for
a full and complete consideration of the issues by the Hearings
Panel.\52\
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\50\ Letter from Arnold Golub, Vice President and Deputy General
Counsel, Nasdaq, to Secretary, Commission, dated September 1, 2020
(``Response Letter''), at 1.
\51\ See id. at 2.
\52\ See id. at 3. Nasdaq stated, for example, that the proposal
allows a company appealing a staff determination to submit
additional information two business days prior to the hearing.
Nasdaq also stated that the proposal permits the company an
opportunity to present new material information under certain
conditions at the oral hearing as discussed above. See Response
Letter, at 2. See also supra notes 21-24 and accompanying text.
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Nasdaq further stated that, as recognized by the opposing
commenter,\53\ most hearings relate to deficiencies where the company
receives a cure period or is allowed to submit to Nasdaq Staff a plan
to regain compliance before receiving a delisting letter.\54\
Therefore, the company should be on notice long before the hearings
process of both the nature of the deficiency and the timing of when the
company will receive a delisting, and the company should have adequate
time before receiving a delisting letter to assemble its legal team,
consider its legal arguments, and develop its plan to regain
compliance.\55\ Nasdaq stated that, as noted by the commenter,\56\ in
most
[[Page 67029]]
cases, the Hearings Panel does not render a decision regarding the
legal merits of Nasdaq Staff's determination in the matter. Given that
most matters do not require the Hearings Panel to consider legal
arguments put forth by the company, Nasdaq stated that it is more
important that such arguments be raised early in the process to allow
Nasdaq Staff adequate time to consider the claims raised and respond in
advance of the hearing.\57\ Nasdaq stated that requiring the Hearings
Panel to solicit subsequent submissions, as proposed by the
commenter,\58\ would only serve to delay the adjudication of the
matter, potentially to the detriment of prospective future
investors.\59\ One commenter also expressed unqualified support for the
Nasdaq proposal and Nasdaq's efforts to improve the effectiveness of
Hearings Panel proceedings.\60\
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\53\ See Donohoe Leter, at 2 (stating that ``market-based
deficiencies (e.g., bid price, market value of listed securities,
and market value of publicly held shares) and stockholders' equity
deficiencies . . . represent the lion's share of compliance issues
resulting in hearings.'').
\54\ Nasdaq stated that from January 1, 2020 through August 31,
2020, 28 of the 45 hearings held, or 62%, related only to bid price,
market value of listed securities, market value of publicly held
shares, and stockholders' equity deficiencies. See Response Letter,
at 2, n.4. Deficiencies relating to all such listing standards allow
a company to submit a plan of compliance. See Nasdaq Rule 5810(c)(2)
and (c)(3) (setting forth deficiencies for which a company may
submit a plan of compliance). Generally, deficiencies relating to
bid price, market value of listed securities, and market value of
publicly held shares allow for a cure period of 180 days. See Nasdaq
Rule 5810(c)(3). In addition, under certain circumstances, companies
that fail to meet the continued listing requirement for minimum bid
price may be allowed a cure period of 360 days. See Nasdaq Rule
5810(c)(3)(A).
\55\ See Response Letter, at 2-3. Pursuant to Nasdaq Rules,
there are only a limited set of deficiencies for which Nasdaq's
initial notice to the company is a delisting determination and the
company's securities are immediately subject to suspension and
delisting, including where a company fails to timely solicit proxies
and where, under its discretionary authority in the Nasdaq Rule 5100
Series, Nasdaq Staff has determined that a company's continued
listing raises a public interest concern. See Nasdaq Rule
5810(c)(1); Response Letter, at 2, n.6. Moreover, Nasdaq stated that
it would be concerned if a company ignored its prior communications
with Staff about the deficiency and only began to act upon receiving
the delisting letter, as suggested by the commenter. See Response
Letter, at 2-3.
\56\ See Donohoe Letter, at 2 (stating that ``in the majority of
cases, the Panel is not rendering a determination as to whether the
Staff erred in its determination to delist an issuer, but rather is
seeking to determine whether, at the time of the Panel's decision,
the issuer has adequately addressed the Staff's concerns and
presented a definitive plan to regain compliance within a reasonable
period of time and, certainly within the discretionary period
available to the Panel under the Nasdaq Listing Rules.'').
\57\ See Response Letter, at 3.
\58\ See supra note 48 and accompanying text.
\59\ See Response Letter, at 3.
\60\ See Letter from Jeffrey P. Mahoney, General Counsel,
Council of Institutional Investors, to Secretary, Commission, dated
August 4, 2020 (``CII Letter'').
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As discussed above, the Commission believes, as noted by Nasdaq,
that the proposed procedures will require companies to submit relevant
legal arguments and material information by a reasonable deadline and
prevent the belated submission of such information.\61\ The proposal
permits the addition of any new information up to two business days
prior to the hearing to be submitted in the Written Update, except for
any legal argument not raised by the Company with specificity in the
Written Submission. Thus, the company should be able to provide any new
information that has evolved since the submission of the Written
Submission, including updates on its compliance plan, in its Written
Update. Further, the Hearings Panel can allow the admission of
additional material information at an oral hearing if certain
conditions are met.\62\ The Commission notes that the New York Stock
Exchange (``NYSE'') provides for similar procedures regarding the
submission of information where an issuer requests a review of a
delisting determination by the Committee of the Board of Directors of
the NYSE and the Commission found such procedures to be consistent with
both Section 6(b)(5) and 6(b)(7) under the Exchange Act.\63\ The
Commission further notes that the requirement for all legal arguments
upon which the company will rely to be presented in the company's
opening submission is not novel and is analogous to provisions in the
Commission's Rules of Practice and Federal Rules of Appellate
Procedure, routinely enforced by the Commission and the federal courts
of appeals.\64\
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\61\ The Commission notes that the one commenter agreed with
Nasdaq that ``when companies belatedly provide information to the
Hearings Panel . . . it does not provide the Hearings Panel with
adequate time to prepare for and consider the information in advance
of the hearing'' and that ``where companies belatedly provide legal
arguments to the Hearings Panel, Nasdaq staff is unable to
adequately brief the Hearings Panel concerning its response to the
legal argument and, as a result, the Hearings Panel does not have
adequate time to prepare for and consider the legal argument in
advance of the hearing and thus cannot properly adjudicate the
issue.'' See CII Letter.
\62\ Indeed, in its filing, Nasdaq stated that it has observed
that companies primarily seek to introduce material information,
such as a new equity offering or merger, as opposed to legal
arguments at the hearing. See Notice, supra note 3, 85 FR at 43902,
n.9.
\63\ See Section 804.00 of the NYSE Listed Company Manual (``The
Committee's review and final decision will be based on oral argument
(if any) and the written briefs and accompanying materials submitted
by the parties. The company will not be permitted to argue grounds
for reversing the staff's decision that are not identified in its
request for review, however, the company may ask the Committee for
leave to adduce additional evidence or raise arguments not
identified in its request for review, if it can demonstrate that the
proposed additional evidence or new arguments are material to its
request for review and that there was reasonable ground for not
adducing such evidence or identifying such issues earlier. This
section will not, however, (i) authorize a company to seek to file a
reply brief in support of its request for review or (ii) be deemed
to limit the staff's response to a request for review to the issues
raised in the request for review. Upon review of a properly
supported request, the Committee may in its sole discretion permit
new arguments or additional evidence to be raised before the
Committee.''). See also supra note 41 and accompanying text.
\64\ See 17 CFR 201.420(c) (stating, in reference to Commission
review of a determination by a self-regulatory organization, that
``[a]ny exception to a determination not supported in an opening
brief . . . may, at the discretion of the Commission, be deemed to
have been waived by the applicant''). See also 17 CFR 201.222(a)
(providing that a hearing officer may require a party, in its
prehearing submission, to include ``[a]n outline or narrative
summary of its case or defense'' and ``[t]he legal theories upon
which it will rely''); Island Creek Coal Co. v. Wilkerson, 910 F.3d
254, 256 (6th Cir. 2018) (``Time, time, and time again, we have
reminded litigants that we will treat an `argument' as `forfeited
when it was not raised in the opening brief.' . . . . The obligation
to identify the issues on appeal in the opening brief applies to
arguments premised on the loftiest charter of government as well as
the most down to earth ordinance.''); United States v. Van Smith,
530 F.3d 967, 973 (D.C. Cir. 2008) (``We require petitioners and
appellants to raise all of their arguments in the opening brief, and
have repeatedly held that an argument first made in a reply brief
ordinarily comes too late for our consideration.''); Barna v. Bd. Of
Sch. Dirs. of the Panther Valley Sch. Dist., 877 F.3d 136, 145-46
(3d Cir. 2017) (``We have long recognized, consistent with Federal
Rule of Appellate Procedure 28(a) . . . that an appellant's opening
brief must set forth and address each argument the appellant wishes
to pursue in an appeal.'' . . . . and the court will not ``reach
arguments raised for the first time in a reply brief or at oral
argument.'').
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Finally, the Commission notes that when a company requests a
Hearings Panel review, the suspension and delisting of the company's
securities is generally stayed pending the issuance of the Hearing
Panel's decision.\65\ The Commission believes that where a company has
received a delisting determination, it is important to have an
efficient, fair, and effective process for reviewing such
determination, given that the company's shares will likely continue to
trade during the duration of the Hearings Panel's review.\66\ If such
company is not in compliance with listing standards and will not be
able to regain compliance in accordance with Nasdaq rules, the
continued trading of such securities could be misleading to investors.
Allowing a company that will not be able to demonstrate compliance with
the Exchange's listing standards to delay providing material
information and legal arguments and thereby extend the delisting review
process and thus the trading of the security on the Exchange during the
pendency of the Hearings Panel's review would raise issues under the
Exchange Act, including investor protection concerns.\67\
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\65\ See Nasdaq Rule 5815(a)(1)(B). There are some exceptions to
this rule for companies subject to late filing delinquencies,
companies involved in a change of control as described in Nasdaq
Rule 5110(a), or companies involved in a bankruptcy or liquidation
as described in Nasdaq Rule 5110(b). See Nasdaq Rule
5815(a)(1)(B)(i) and (ii).
\66\ See NYSE 2003 Order, supra note 41, 68 FR at 2604 (stating
that ensuring appeals are considered in a timely manner and resolved
promptly is particularly important because the NYSE may permit an
issuer to continue to trade during the appeal process).
\67\ See In re Tassaway, Securities Exchange Act Release No.
11291, 45 S.E.C. 706, 709, 1975 SEC LEXIS 2057, at *6 (Mar. 13,
1975) (``[P]rimary emphasis must be placed on the interests of
prospective future investors . . . [who are] entitled to assume that
the securities in [Nasdaq] meet [Nasdaq's] standards. Hence the
presence in [Nasdaq] of non-complying securities could have a
serious deceptive effect.''). See also In re Biorelease Corporation,
Securities Exchange Act Release No. 35575, 1995 SEC LEXIS 818, at
*13 (Apr. 6, 1995) (``[T]hough exclusion from the system may hurt
existing investors, primary emphasis must be placed on the interests
of prospective future investors. Prospective investors are entitled
to assume that the securities listed [on Nasdaq] meet the system's
listing standards.'').
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Based on the above, the Commission believes the proposed procedures
provide companies with ample opportunity for a fair procedure and
efficient process for reviewing appeals before the Hearings Panel. The
Commission therefore believes that Nasdaq's proposal is consistent with
Section 6(b)(7) of the Act in setting forth a fair procedure for the
Hearings Panel's review of a Staff Delisting Determination, Public
Reprimand
[[Page 67030]]
Letter, or denial of a listing application. The Commission also
believes that Nasdaq's proposal will further the purposes of Section
6(b)(5) of the Act by, among other things, protecting investors and the
public interest by setting forth reasonable deadlines and a fair and
efficient process for the Hearings Panel to review a delisting
determination and make an informed determination regarding whether a
company should remain listed on the Exchange. Where the Hearings Panel
ultimately determines that the continued listing of a company on Nasdaq
is not appropriate, the proposal would help to prevent such a company
from unnecessarily delaying the review process and thereby extending
the time period that the company's securities are traded on Nasdaq,
while at the same time ensuring that companies have a fair procedure
and reasonable process to provide relevant information to the Hearings
Panel in a timely manner. The Commission believes the proposal furthers
these goals consistent with Sections 6(b)(5) and 6(b)(7) of the Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\68\ that the proposed rule change (SR-NASDAQ-2020-002), be, and it
hereby is, approved.
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\68\ 15 U.S.C. 78s(b)(2).
\69\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\69\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-23258 Filed 10-20-20; 8:45 am]
BILLING CODE 8011-01-P
