Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 2, To Exempt Non-Convertible Bonds Listed Under Rule 5702 From Certain Corporate Governance Requirements, 64127-64129 [2022-22840]
Download as PDF
Federal Register / Vol. 87, No. 203 / Friday, October 21, 2022 / Notices
Information Officer, Securities and
Exchange Commission, c/o John
Pezzullo, 100 F Street NE, Washington,
DC 20549, or send an email to: PRA_
Mailbox@sec.gov.
Dated: October 17, 2022.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022–22852 Filed 10–20–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–96094; File No. SR–
NASDAQ–2022–015]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Amendment No. 2 and Order
Granting Accelerated Approval of a
Proposed Rule Change, as Modified by
Amendment No. 2, To Exempt NonConvertible Bonds Listed Under Rule
5702 From Certain Corporate
Governance Requirements
October 17, 2022.
I. Introduction
On February 4, 2022, 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
exempt non-convertible bonds listed
under Rule 5702 from certain corporate
governance requirements. The proposed
rule change was published for comment
in the Federal Register on February 23,
2022.3 On March 18, 2022, the
Commission extended the time period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to approve or
disapprove the proposed rule change.4
On May 18, 2022, the Commission
instituted proceedings to determine
whether to approve or disapprove the
proposed rule change.5 On June 13,
2022, the Exchange filed Amendment
No. 1 to the proposed rule change,
which replaced and superseded the
proposed rule change as originally
jspears on DSK121TN23PROD with NOTICES
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 94265
(February 16, 2022), 87 FR 10265 (‘‘Initial
Proposal’’).
4 See Securities Exchange Act Release No. 94471,
87 FR 16778 (March 24, 2022) (extending the time
period to May 24, 2022).
5 See Securities Exchange Act Release No. 94941,
87 FR 31594 (May 24, 2022).
2 17
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19:08 Oct 20, 2022
Jkt 259001
filed.6 On August 5, 2022, the
Commission designated a longer period
for Commission action on proceedings
to determine whether to approve or
disapprove the proposed rule change, as
modified by Amendment No. 1.7 On
August 31, 2022, the Exchange filed
Amendment No. 2 to the proposed rule
change, which superseded the original
filing, as modified by Amendment No.
1, in its entirety.8 The Commission
received no comments on the proposed
rule change. The Commission is
publishing this notice to solicit
comments on Amendment No. 2 from
interested persons and is approving the
proposed rule change, as modified by
Amendment No. 2, on an accelerated
basis.
II. The Exchange’s Description of the
Proposed Rule Change, as Modified by
Amendment No. 2
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
This Amendment No. 2 supersedes
and replaces the Initial Proposal, as
modified by Amendment No. 1, in its
entirety.
In November 2018, the Commission
approved amendments to the
Exchange’s rules that permit the
Exchange to list and trade nonconvertible corporate debt securities
(referred to herein as ‘‘bonds’’ or ‘‘non6 In Amendment No. 1, the Exchange revised the
proposal to: (i) clarify the purpose and rationale of
the proposed rule change; and (ii) make minor
technical changes to improve the structure, clarity,
and readability of the proposed rules. Amendment
No. 1 to the proposed rule change is available at:
https://www.sec.gov/comments/sr-nasdaq-2022015/srnasdaq2022015-20131121-301311.pdf.
7 See Securities Exchange Act Release No. 95434,
87 FR 49631 (August 11, 2022) (extending the time
period to October 21, 2022).
8 In Amendment No. 2, the Exchange deleted a
proposed exemption from Nasdaq Rule 5630,
Review of Related Party Transactions, for issuers
whose only securities listed on Nasdaq are nonconvertible bonds, as well as clarified the purpose
of the proposed rule change. Amendment No. 2 to
the proposed rule change is available at: https://
www.sec.gov/comments/sr-nasdaq-2022-015/
srnasdaq2022015-20137931-308238.pdf.
PO 00000
Frm 00128
Fmt 4703
Sfmt 4703
64127
convertible bonds’’) on the Nasdaq Bond
Exchange.9 Under the Exchange’s listing
rules then adopted, a non-convertible
bond was eligible for initial listing on
the Exchange only if it had a principal
amount outstanding or market value of
at least $5 million and its issuer had at
least one class of an equity security
listed on Nasdaq, the New York Stock
Exchange (‘‘NYSE’’), or NYSE American
(collectively, a ‘‘listed company’’).10 In
February 2020, Nasdaq amended Rule
5702 to allow the listing of nonconvertible bonds issued by certain
companies not listed on Nasdaq, NYSE
American or NYSE (the ‘‘2020
Filing’’).11
Nasdaq now proposes to exempt
issuers whose only securities listed on
Nasdaq are non-convertible bonds listed
under Rule 5702 12 from the
requirements relating Shareholder
Approval (Rule 5635) and Voting Rights
(Rule 5640)(collectively, the ‘‘Rules’’).13
9 See Securities Exchange Act Release No. 84575
(November 13, 2018), 83 FR 58309 (November 19,
2018) (approving SR–NASDAQ–2018–070, as
modified by Amendment Nos. 1–3) (‘‘Approval
Order’’).
10 Rule 5702(a).
11 Specifically, the 2020 Filing expanded the
categories of non-convertible bonds eligible to be
listed under Rule 5702 to include non-convertible
bonds of affiliates of a listed company where: a
listed company directly or indirectly owns a
majority interest in, or is under common control
with, the issuer of the non-convertible bond; or a
listed company has guaranteed the non-convertible
bond. In addition, for un-affiliated companies, the
2020 Filing allowed listing of non-convertible
bonds where a nationally recognized securities
rating organization (an ‘‘NRSRO’’) has assigned a
current rating to the non-convertible bond that is no
lower than an S&P Corporation ‘‘B’’ rating or
equivalent rating by another NRSRO; or if no
NRSRO has assigned a rating to the issue, an
NRSRO has currently assigned (i) an investment
grade rating to an immediately senior issue of the
same company, or (ii) a rating that is no lower than
an S&P Corporation ‘‘B’’ rating, or an equivalent
rating by another NRSRO, to a pari passu or junior
issue of the same company. Securities and
Exchange Act Release No. 88304 (February 28,
2020), 85 FR 12953 (March 5, 2020)(SR–Nasdaq
2020–008).
12 If an issuer has a class of equity securities listed
on Nasdaq, the issuer is subject to the requirements
of the Rules, except as otherwise provided in the
Nasdaq 5600 Rule Series.
13 To increase the clarity of the rule, Nasdaq
proposes to consolidate without substantively
changing in the proposed Rule 5702(d) other
exemptions applicable to an issuer of a nonconvertible bond, as provided by Rule
5615(a)(6)(A), which states, in the relevant parts,
that issuers ‘‘whose only securities listed on Nasdaq
are . . . debt securities . . . are exempt from the
requirements relating to Independent Directors (as
set forth in Rule 5605(b)), Compensation
Committees (as set forth in Rule 5605(d)), Director
Nominations (as set forth in Rule 5605(e)), Codes
of Conduct (as set forth in Rule 5610), and Meetings
of Shareholders (as set forth in Rule 5620(a)). In
addition, these issuers are exempt from the
requirements relating to Audit Committees (as set
forth in Rule 5605(c)), except for the applicable
requirements of SEC Rule 10A–3. Nasdaq also
E:\FR\FM\21OCN1.SGM
Continued
21OCN1
jspears on DSK121TN23PROD with NOTICES
64128
Federal Register / Vol. 87, No. 203 / Friday, October 21, 2022 / Notices
Rule 5640 states that voting rights of
existing shareholders of publicly traded
common stock registered under Section
12 of the Securities Exchange Act of
1934 cannot be disparately reduced or
restricted through any corporate action
or issuance. As such, by its terms, the
rule does not apply to bondholders
because they are not shareholders of
publicly traded common stock
registered under Section 12 of the Act.
Rule 5635 sets forth the circumstances
under which shareholder approval is
required prior to an issuance of
securities in connection with: (i) the
acquisition of the stock or assets of
another company; (ii) equity-based
compensation of officers, directors,
employees or consultants; (iii) a change
of control; and (iv) transactions other
than public offerings. Each of these
rules predicates the need for
shareholder approval on an issuance of
securities by the company, but does not
meaningfully protect bondholders
because they do not have a right to vote
in the event of an issuance of securities
by the company that could trigger the
approval requirements under Rule
5635.14
trigger the approval requirements under
Rule 5635. In addition Nasdaq believes
that Rule 5702 adequately protects
bondholders by setting forth the
requirements to help ensure that the
issuer of the non-convertible bond is
capable of meeting its financial
obligations.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,15 in general, and furthers the
objectives of Section 6(b)(5) of the Act,16
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest.
Nasdaq believes that exempting
issuers whose only securities listed on
Nasdaq are non-convertible bonds listed
under Rules 5702 from the requirements
of the Rules is designed to remove
impediments to and perfect the
mechanism of a free and open market
because Rule 5640, by its terms, does
not apply to bondholders as they are not
shareholders of publicly traded common
stock registered under Section 12 of the
Act and bondholders do not have a right
to vote in the event of an issuance of
securities by the company that could
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.
proposes to include in the proposed Rule 5702(d)
exemptions from the requirements relating to
Diverse Board Representation (as set forth in Rule
5605(f)) and Board Diversity Disclosure (as set forth
in Rule 5606) applicable to an issuer of a nonconvertible bond, as provided by Rules 5605(f)(4)
and 5606(c), respectively.
14 See also general provisions relating to
shareholder approval in Rule 5635(e) regarding
determining the number of shares issuable in a
transaction and the voting power outstanding.
15 15 U.S.C. 78f(b).
16 15 U.S.C. 78f(b)(5).
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19:08 Oct 20, 2022
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. Nasdaq
believes the proposed rule is not
designed to limit the ability of the
issuers of nonconvertible securities to
list them on any other national
securities exchange because it is
designed to provide transparency to the
applicability of the Rules to such issuers
given that the Rules do not
meaningfully protect bondholders. In
addition, the proposed rule change may
enhance competition among issuers by
allowing more issuers to list their nonconvertible bonds on Nasdaq, provided
they meet the requirements of the rule.
III. Discussion and Commission
Findings
The Commission finds that the
proposed rule change, as modified by
Amendment No. 2, is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange.17 In particular, the
Commission finds that the proposed
rule change, as modified by Amendment
No. 2, is consistent with Section 6(b)(5)
of the Act,18 which requires that the
rules of an exchange be designed to
promote just and equitable principles of
trade, to remove impediments and to
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
As stated above, the Exchange
proposes to exempt issuers whose only
securities listed on Nasdaq are nonconvertible bonds listed under Rule
5702 from the corporate governance
requirements relating to Shareholder
17 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
18 15 U.S.C. 78f(b)(5).
PO 00000
Frm 00129
Fmt 4703
Sfmt 4703
Approval (Nasdaq Rule 5635) and
Voting Rights (Nasdaq Rule 5640). The
Commission is approving the proposed
rule change because, as described above,
today, bondholders are not entitled to
vote in the event of an issuance of
securities under Nasdaq Rule 5635.
Further, Nasdaq Rule 5640, by its terms,
is not applicable to bondholders.
Moreover, issuers that list nonconvertible bonds pursuant to Nasdaq
Rule 5702, if they also have a class of
equity securities listed on Nasdaq, must
continue to comply with the
requirements of Nasdaq Rules 5635 and
5640 through their equity listing.19 The
Exchange also proposes to consolidate
in proposed Rule 5702(d), without
substantive changes, other exemptions
currently applicable to an issuer whose
only security listed on Nasdaq is a nonconvertible bond (i.e., requirements
from rules pertaining to Independent
Directors, Compensation Committees,
Director Nominations, Diverse Board
Representation, Board Diversity
Disclosure, Codes of Conduct, Meetings
of Shareholders, and Audit Committees,
except for the applicable requirements
of SEC Rule 10A–3).20
Accordingly, the Commission believes
that the proposed rule change, as
modified by Amendment No. 2, is
consistent with Section 6(b)(5) of the
Act because it clarifies the application
of Nasdaq Rules 5635 and 5640 to
issuers that only list non-convertible
bonds on Nasdaq and consolidates all
relevant exemptions in one provision.
IV. Solicitation of Comments on
Amendment No. 2 to the Proposed Rule
Change
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether Amendment No. 2 is
consistent with the Act. Comments may
be submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2022–015 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2022–015. This
19 See
20 See
E:\FR\FM\21OCN1.SGM
supra note 12 and accompanying text.
supra note 13.
21OCN1
Federal Register / Vol. 87, No. 203 / Friday, October 21, 2022 / Notices
jspears on DSK121TN23PROD with NOTICES
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NASDAQ–2022–015 and
should be submitted on or before
November 14, 2022.
V. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 2
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment No. 2, prior to
the thirtieth day after the date of
publication of notice of the filing of
Amendment No. 2 in the Federal
Register. Amendment No. 2 merely
amends the proposed rule to delete a
proposed exemption for issuers whose
only securities listed on Nasdaq are
non-convertible bonds from Nasdaq
Rule 5630, Review of Related Party
Transactions, as well as provide greater
clarity as to the purpose of the proposed
rule change. Amendment No. 2 does not
change the substance of the remaining
proposed exemptions for issuers of nonconvertible bonds from Nasdaq Rules
5635 and 5640, which were previously
noticed.21 Accordingly, the Commission
finds good cause, pursuant to Section
19(b)(2) of the Act,22 to approve the
proposed rule change, as modified by
21 See
Initial Proposal, supra note 3.
22 15 U.S.C. 78s(b)(2).
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19:08 Oct 20, 2022
Jkt 259001
Amendment No. 2, on an accelerated
basis.
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,23 that the
proposed rule change (SR–NASDAQ–
2022–015), as modified by Amendment
No. 2 thereto, be, and it hereby is,
approved on an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
J. Matthew DeLesDernier,
Deputy Secretary.
64129
of Authority No. 236–3 of August 28,
2000, and Delegation of Authority No.
523 of December 22, 2021.
Stacy E. White,
Deputy Assistant Secretary for Professional
and Cultural Exchanges, Bureau of
Educational and Cultural Affairs, Department
of State.
[FR Doc. 2022–22875 Filed 10–20–22; 8:45 am]
BILLING CODE 4710–05–P
SURFACE TRANSPORTATION BOARD
[Docket No. FD 36641]
[FR Doc. 2022–22840 Filed 10–20–22; 8:45 am]
Eastern Maine Railway Company—
Acquisition and Operation
Exemption—Central Maine & Quebec
Railway US Inc., d/b/a Canadian Pacific
BILLING CODE 8011–01–P
DEPARTMENT OF STATE
[Public Notice: 11896]
Notice of Determinations; Culturally
Significant Objects Being Imported for
Exhibition—Determinations: ‘‘Robert
Motherwell Drawing: As Fast as the
Mind Itself’’ Exhibition
Notice is hereby given of the
following determinations: I hereby
determine that certain objects being
imported from abroad pursuant to
agreements with their foreign owners or
custodians for temporary display in the
exhibition ‘‘Robert Motherwell Drawing:
As Fast as the Mind Itself’’ at the Menil
Drawing Institute, The Menil Collection,
Houston, Texas, and at possible
additional exhibitions or venues yet to
be determined, are of cultural
significance, and, further, that their
temporary exhibition or display within
the United States as aforementioned is
in the national interest. I have ordered
that Public Notice of these
determinations be published in the
Federal Register.
FOR FURTHER INFORMATION CONTACT:
Elliot Chiu, Attorney-Adviser, Office of
the Legal Adviser, U.S. Department of
State (telephone: 202–632–6471; email:
section2459@state.gov). The mailing
address is U.S. Department of State, L/
PD, 2200 C Street NW (SA–5), Suite
5H03, Washington, DC 20522–0505.
SUPPLEMENTARY INFORMATION: The
foregoing determinations were made
pursuant to the authority vested in me
by the Act of October 19, 1965 (79 Stat.
985; 22 U.S.C. 2459), E.O.12047 of
March 27, 1978, the Foreign Affairs
Reform and Restructuring Act of 1998
(112 Stat. 2681, et seq.; 22 U.S.C. 6501
note, et seq.), Delegation of Authority
No. 234 of October 1, 1999, Delegation
SUMMARY:
23 Id.
24 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00130
Fmt 4703
Sfmt 4703
Eastern Maine Railway Company
(EMR), a Class III common carrier, has
filed a verified notice of exemption
under 49 CFR 1150.41 to acquire from
the current owner and operator, Central
Maine & Quebec Railway US Inc., d/b/a
Canadian Pacific (CMQR), and to
operate approximately 36.57 miles of a
main line and approximately nine miles
of branch line in Maine. The main line
is between milepost 109 (Grindstone,
Penobscot County, Me.) and milepost
72.43 (near Brownville in Piscataquis
County, Me.). The branch lines consist
of: (1) the East Millinocket branch line,
from milepost 0.0 to milepost 7.72; and
(2) the Millinocket branch line, from
milepost 104.65 southward 1.2 miles to
the end of the track. EMR will also
acquire all other associated yard, spur,
siding, and other track along the main
line between milepost 109 and milepost
72.43.1
According to the verified notice, EMR
will also acquire incidental trackage
rights on CMQR between milepost 72.43
(near Brownville) and the connection of
CMQR’s track with an EMR rail line in
the vicinity of Brownville Junction
(milepost 75.07 of CMQR’s Bangor
Subdivision), a distance of
approximately three miles, including
CMQR’s Brownville Junction yard, as
well as use of the CMQR main line to
the west for one mile (to milepost 1.0 of
CMQR’s Moosehead Subdivision).
Furthermore, the Maine Northern
Railway Company (‘‘MNRC’’) currently
has overhead trackage rights over the
Line. EMR is acquiring the Line subject
to these overhead trackage rights. Thus,
MNRC’s overhead trackage rights will
remain unchanged by EMR’s acquisition
of the Line.
1 The Line refers collectively to the main line,
branch lines, and all other associated yard, spur,
siding, and other track along the main line.
E:\FR\FM\21OCN1.SGM
21OCN1
Agencies
[Federal Register Volume 87, Number 203 (Friday, October 21, 2022)]
[Notices]
[Pages 64127-64129]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-22840]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96094; File No. SR-NASDAQ-2022-015]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Amendment No. 2 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment No. 2, To
Exempt Non-Convertible Bonds Listed Under Rule 5702 From Certain
Corporate Governance Requirements
October 17, 2022.
I. Introduction
On February 4, 2022, 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 exempt non-convertible bonds listed under Rule
5702 from certain corporate governance requirements. The proposed rule
change was published for comment in the Federal Register on February
23, 2022.\3\ On March 18, 2022, the Commission extended the time period
within which to approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
approve or disapprove the proposed rule change.\4\ On May 18, 2022, the
Commission instituted proceedings to determine whether to approve or
disapprove the proposed rule change.\5\ On June 13, 2022, the Exchange
filed Amendment No. 1 to the proposed rule change, which replaced and
superseded the proposed rule change as originally filed.\6\ On August
5, 2022, the Commission designated a longer period for Commission
action on proceedings to determine whether to approve or disapprove the
proposed rule change, as modified by Amendment No. 1.\7\ On August 31,
2022, the Exchange filed Amendment No. 2 to the proposed rule change,
which superseded the original filing, as modified by Amendment No. 1,
in its entirety.\8\ The Commission received no comments on the proposed
rule change. The Commission is publishing this notice to solicit
comments on Amendment No. 2 from interested persons and is approving
the proposed rule change, as modified by Amendment No. 2, on an
accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 94265 (February 16,
2022), 87 FR 10265 (``Initial Proposal'').
\4\ See Securities Exchange Act Release No. 94471, 87 FR 16778
(March 24, 2022) (extending the time period to May 24, 2022).
\5\ See Securities Exchange Act Release No. 94941, 87 FR 31594
(May 24, 2022).
\6\ In Amendment No. 1, the Exchange revised the proposal to:
(i) clarify the purpose and rationale of the proposed rule change;
and (ii) make minor technical changes to improve the structure,
clarity, and readability of the proposed rules. Amendment No. 1 to
the proposed rule change is available at: https://www.sec.gov/comments/sr-nasdaq-2022-015/srnasdaq2022015-20131121-301311.pdf.
\7\ See Securities Exchange Act Release No. 95434, 87 FR 49631
(August 11, 2022) (extending the time period to October 21, 2022).
\8\ In Amendment No. 2, the Exchange deleted a proposed
exemption from Nasdaq Rule 5630, Review of Related Party
Transactions, for issuers whose only securities listed on Nasdaq are
non-convertible bonds, as well as clarified the purpose of the
proposed rule change. Amendment No. 2 to the proposed rule change is
available at: https://www.sec.gov/comments/sr-nasdaq-2022-015/srnasdaq2022015-20137931-308238.pdf.
---------------------------------------------------------------------------
II. The Exchange's Description of the Proposed Rule Change, as Modified
by Amendment No. 2
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
This Amendment No. 2 supersedes and replaces the Initial Proposal,
as modified by Amendment No. 1, in its entirety.
In November 2018, the Commission approved amendments to the
Exchange's rules that permit the Exchange to list and trade non-
convertible corporate debt securities (referred to herein as ``bonds''
or ``non-convertible bonds'') on the Nasdaq Bond Exchange.\9\ Under the
Exchange's listing rules then adopted, a non-convertible bond was
eligible for initial listing on the Exchange only if it had a principal
amount outstanding or market value of at least $5 million and its
issuer had at least one class of an equity security listed on Nasdaq,
the New York Stock Exchange (``NYSE''), or NYSE American (collectively,
a ``listed company'').\10\ In February 2020, Nasdaq amended Rule 5702
to allow the listing of non-convertible bonds issued by certain
companies not listed on Nasdaq, NYSE American or NYSE (the ``2020
Filing'').\11\
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\9\ See Securities Exchange Act Release No. 84575 (November 13,
2018), 83 FR 58309 (November 19, 2018) (approving SR-NASDAQ-2018-
070, as modified by Amendment Nos. 1-3) (``Approval Order'').
\10\ Rule 5702(a).
\11\ Specifically, the 2020 Filing expanded the categories of
non-convertible bonds eligible to be listed under Rule 5702 to
include non-convertible bonds of affiliates of a listed company
where: a listed company directly or indirectly owns a majority
interest in, or is under common control with, the issuer of the non-
convertible bond; or a listed company has guaranteed the non-
convertible bond. In addition, for un-affiliated companies, the 2020
Filing allowed listing of non-convertible bonds where a nationally
recognized securities rating organization (an ``NRSRO'') has
assigned a current rating to the non-convertible bond that is no
lower than an S&P Corporation ``B'' rating or equivalent rating by
another NRSRO; or if no NRSRO has assigned a rating to the issue, an
NRSRO has currently assigned (i) an investment grade rating to an
immediately senior issue of the same company, or (ii) a rating that
is no lower than an S&P Corporation ``B'' rating, or an equivalent
rating by another NRSRO, to a pari passu or junior issue of the same
company. Securities and Exchange Act Release No. 88304 (February 28,
2020), 85 FR 12953 (March 5, 2020)(SR-Nasdaq 2020-008).
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Nasdaq now proposes to exempt issuers whose only securities listed
on Nasdaq are non-convertible bonds listed under Rule 5702 \12\ from
the requirements relating Shareholder Approval (Rule 5635) and Voting
Rights (Rule 5640)(collectively, the ``Rules'').\13\
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\12\ If an issuer has a class of equity securities listed on
Nasdaq, the issuer is subject to the requirements of the Rules,
except as otherwise provided in the Nasdaq 5600 Rule Series.
\13\ To increase the clarity of the rule, Nasdaq proposes to
consolidate without substantively changing in the proposed Rule
5702(d) other exemptions applicable to an issuer of a non-
convertible bond, as provided by Rule 5615(a)(6)(A), which states,
in the relevant parts, that issuers ``whose only securities listed
on Nasdaq are . . . debt securities . . . are exempt from the
requirements relating to Independent Directors (as set forth in Rule
5605(b)), Compensation Committees (as set forth in Rule 5605(d)),
Director Nominations (as set forth in Rule 5605(e)), Codes of
Conduct (as set forth in Rule 5610), and Meetings of Shareholders
(as set forth in Rule 5620(a)). In addition, these issuers are
exempt from the requirements relating to Audit Committees (as set
forth in Rule 5605(c)), except for the applicable requirements of
SEC Rule 10A-3. Nasdaq also proposes to include in the proposed Rule
5702(d) exemptions from the requirements relating to Diverse Board
Representation (as set forth in Rule 5605(f)) and Board Diversity
Disclosure (as set forth in Rule 5606) applicable to an issuer of a
non-convertible bond, as provided by Rules 5605(f)(4) and 5606(c),
respectively.
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[[Page 64128]]
Rule 5640 states that voting rights of existing shareholders of
publicly traded common stock registered under Section 12 of the
Securities Exchange Act of 1934 cannot be disparately reduced or
restricted through any corporate action or issuance. As such, by its
terms, the rule does not apply to bondholders because they are not
shareholders of publicly traded common stock registered under Section
12 of the Act.
Rule 5635 sets forth the circumstances under which shareholder
approval is required prior to an issuance of securities in connection
with: (i) the acquisition of the stock or assets of another company;
(ii) equity-based compensation of officers, directors, employees or
consultants; (iii) a change of control; and (iv) transactions other
than public offerings. Each of these rules predicates the need for
shareholder approval on an issuance of securities by the company, but
does not meaningfully protect bondholders because they do not have a
right to vote in the event of an issuance of securities by the company
that could trigger the approval requirements under Rule 5635.\14\
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\14\ See also general provisions relating to shareholder
approval in Rule 5635(e) regarding determining the number of shares
issuable in a transaction and the voting power outstanding.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\15\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\16\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
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Nasdaq believes that exempting issuers whose only securities listed
on Nasdaq are non-convertible bonds listed under Rules 5702 from the
requirements of the Rules is designed to remove impediments to and
perfect the mechanism of a free and open market because Rule 5640, by
its terms, does not apply to bondholders as they are not shareholders
of publicly traded common stock registered under Section 12 of the Act
and bondholders do not have a right to vote in the event of an issuance
of securities by the company that could trigger the approval
requirements under Rule 5635. In addition Nasdaq believes that Rule
5702 adequately protects bondholders by setting forth the requirements
to help ensure that the issuer of the non-convertible bond is capable
of meeting its financial obligations.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. Nasdaq believes the proposed
rule is not designed to limit the ability of the issuers of
nonconvertible securities to list them on any other national securities
exchange because it is designed to provide transparency to the
applicability of the Rules to such issuers given that the Rules do not
meaningfully protect bondholders. In addition, the proposed rule change
may enhance competition among issuers by allowing more issuers to list
their non-convertible bonds on Nasdaq, provided they meet the
requirements of the rule.
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. Discussion and Commission Findings
The Commission finds that the proposed rule change, as modified by
Amendment No. 2, is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange.\17\ In particular, the Commission finds that the proposed
rule change, as modified by Amendment No. 2, is consistent with Section
6(b)(5) of the Act,\18\ which requires that the rules of an exchange be
designed to promote just and equitable principles of trade, to remove
impediments and to perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest.
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\17\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\18\ 15 U.S.C. 78f(b)(5).
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As stated above, the Exchange proposes to exempt issuers whose only
securities listed on Nasdaq are non-convertible bonds listed under Rule
5702 from the corporate governance requirements relating to Shareholder
Approval (Nasdaq Rule 5635) and Voting Rights (Nasdaq Rule 5640). The
Commission is approving the proposed rule change because, as described
above, today, bondholders are not entitled to vote in the event of an
issuance of securities under Nasdaq Rule 5635. Further, Nasdaq Rule
5640, by its terms, is not applicable to bondholders. Moreover, issuers
that list non-convertible bonds pursuant to Nasdaq Rule 5702, if they
also have a class of equity securities listed on Nasdaq, must continue
to comply with the requirements of Nasdaq Rules 5635 and 5640 through
their equity listing.\19\ The Exchange also proposes to consolidate in
proposed Rule 5702(d), without substantive changes, other exemptions
currently applicable to an issuer whose only security listed on Nasdaq
is a non-convertible bond (i.e., requirements from rules pertaining to
Independent Directors, Compensation Committees, Director Nominations,
Diverse Board Representation, Board Diversity Disclosure, Codes of
Conduct, Meetings of Shareholders, and Audit Committees, except for the
applicable requirements of SEC Rule 10A-3).\20\
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\19\ See supra note 12 and accompanying text.
\20\ See supra note 13.
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Accordingly, the Commission believes that the proposed rule change,
as modified by Amendment No. 2, is consistent with Section 6(b)(5) of
the Act because it clarifies the application of Nasdaq Rules 5635 and
5640 to issuers that only list non-convertible bonds on Nasdaq and
consolidates all relevant exemptions in one provision.
IV. Solicitation of Comments on Amendment No. 2 to the Proposed Rule
Change
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 2
is consistent with the Act. Comments may be submitted by any of the
following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NASDAQ-2022-015 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2022-015. This
[[Page 64129]]
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2022-015 and should be submitted
on or before November 14, 2022.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 2
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 2, prior to the thirtieth day
after the date of publication of notice of the filing of Amendment No.
2 in the Federal Register. Amendment No. 2 merely amends the proposed
rule to delete a proposed exemption for issuers whose only securities
listed on Nasdaq are non-convertible bonds from Nasdaq Rule 5630,
Review of Related Party Transactions, as well as provide greater
clarity as to the purpose of the proposed rule change. Amendment No. 2
does not change the substance of the remaining proposed exemptions for
issuers of non-convertible bonds from Nasdaq Rules 5635 and 5640, which
were previously noticed.\21\ Accordingly, the Commission finds good
cause, pursuant to Section 19(b)(2) of the Act,\22\ to approve the
proposed rule change, as modified by Amendment No. 2, on an accelerated
basis.
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\21\ See Initial Proposal, supra note 3.
\22\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\23\ that the proposed rule change (SR-NASDAQ-2022-015), as
modified by Amendment No. 2 thereto, be, and it hereby is, approved on
an accelerated basis.
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\23\ Id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-22840 Filed 10-20-22; 8:45 am]
BILLING CODE 8011-01-P