Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change to Rules 5605, 5615 and 5810 To Clarify and Modify Phase-In Schedules for Certain Corporate Governance Requirements and Clarify Applicability of Certain Cure Periods, 46528-46533 [2024-11700]
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Federal Register / Vol. 89, No. 104 / Wednesday, May 29, 2024 / Notices
rule change so that it has sufficient time
to consider the proposed rule change.
Accordingly, the Commission, pursuant
to Section 19(b)(2) of the Act,5
designates July 9, 2024, as the date by
which the Commission shall either
approve or disapprove, or institute
proceedings to determine whether to
disapprove, the proposed rule change
(File No. SR–NYSE–2024–18).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024–11712 Filed 5–28–24; 8:45 am]
BILLING CODE 8011–01–P
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100208; File No. SR–
NASDAQ–2024–019]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Proposed Rule Change to
Rules 5605, 5615 and 5810 To Clarify
and Modify Phase-In Schedules for
Certain Corporate Governance
Requirements and Clarify Applicability
of Certain Cure Periods
May 22, 2024
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Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 8,
2024, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to change
Rules 5605, 5615 and 5810 to clarify
and modify phase-in schedules for
certain corporate governance
requirements and clarify applicability of
certain cure periods.
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.
5 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(31).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
6 17
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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
Nasdaq is proposing to clarify and
modify the phase-in schedules to the
independent director and committee
requirement for certain companies.
Nasdaq is also proposing to clarify the
applicability of certain cure periods.
Initial Public Offerings
Nasdaq is proposing to clarify and
modify the phase-in schedules to the
independent director and committee
requirements for IPOs. Specifically,
Rule 5615(b)(1) currently references that
a company listing in connection with an
IPO is permitted to phase in its
independent audit committee
requirements in accordance with SEC
Rule 10A–3(b)(1)(iv)(A) under the Act
but does not restate the provisions of
this rule. Nasdaq proposes to amend
Rule 5615(b)(1) by specifically restating
the phase-in provisions in the text of the
rule and state that a company shall be
permitted to phase in its compliance
with the audit committee requirements
set forth in Rule 5605(c)(2) as follows:
(1) one member must satisfy the
requirements by the date the company’s
securities first trade on Nasdaq (the
‘‘Listing Date’’); (2) a majority of
members must satisfy the requirements
within 90 days of the effective date of
its registration statement; and (3) all
members must satisfy the requirements
within one year of the effective date of
its registration statement.3
Rule 5605(c)(2)(A) requires a
company to have a minimum of three
members on the audit committee. As a
result, companies listed in connection
with an IPO which are not required to
have a fully independent audit
committee until one year from the
Listing Date may appoint non3 See
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17 CFR 240.10A–3(b)(1)(iv)(A).
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independent directors to the audit
committee in order to satisfy the threeperson minimum requirement. Nasdaq
proposes to amend Rule 5615(b)(1) to
provide that companies listing in
conjunction with an IPO may also phase
in compliance with the three-person
minimum on the following schedule: at
least one member by the Listing Date, at
least two members within 90 days of the
Listing Date and at least three members
within one year of the Listing Date. This
proposal is consistent with the approach
of the NYSE.4 Nasdaq notes that in the
NYSE Approval Order the Commission
indicated that ‘‘permitting a company to
have only one member on its audit
committee by the listing date, at least
two members within ninety days of the
listing date, and three members within
a year of the listing date, affords a
reasonable accommodation for [affected]
companies.’’ 5
Rule 5615(b)(1) currently allows
companies listing in connection with an
IPO to phase in the requirements for
their independent nominations and
compensation committees but requires
one member to satisfy the requirements
at the time of listing. Some companies
expressed a concern that this
requirement interferes with a common
practice to hold a meeting of a board of
directors in order to appoint additional
independent directors shortly after the
Listing Date, but prior to the date IPO
closes.6 To accommodate this practice,
Nasdaq proposes to amend Rule
5615(b)(1) to allow the companies to
comply with the requirement to have
one independent director on the
compensation and nominations
committees by appointing an
independent director to such a
committee no later than the earlier of
the date of the initial public offering
closes or five business days from the
Listing Date. This proposal is consistent
with the approach of the NYSE.7
4 See Section 303A.00 Introduction; of the NYSE
Listed Company Manual. See also Securities
Exchange Act Release No. 61067 (November 25,
2009), 74 FR 63808 (December 4, 2009) (approving
SR–NYSE–2009–89) (the ‘‘NYSE Approval Order’’).
5 The NYSE Approval Order at 63811.
6 See e.g. NYSE IPO Guide, page 41 at https://
www.nyse.com/publicdocs/nyse/listing/nyse_ipo_
guide.pdf#process-timeline (‘‘After building a book
of demand, the lead bookrunners will agree on the
offering price with the company and shareholders,
execute the underwriting agreement and allocate
the IPO to investors. The following day, the
company begins publicly trading on the NYSE or
another exchange, rings the opening bell and hosts
other key marketing events associated with being a
public company. Two business days later, the IPO
closes, at which point stock is delivered to investors
against payment of the offering price, and various
legal opinions are delivered by counsel.’’)
7 See Section 303A.00 Introduction; of the NYSE
Listed Company Manual. See also Securities
Exchange Act Release No. 61067 (November 25,
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Nasdaq is also proposing to correct a
misleading rule reference in Rule
5615(b)(1), which allows a Company not
to adopt a nominations committee but
instead rely upon a majority of the
Independent Directors to discharge
responsibilities under Rule 5605(b). The
responsibilities of the nominations
committee are found in Rule 5605(e),
not Rule 5605(b). Accordingly, new
Rule 5615(b)(1)(C) allows a majority of
the Independent Directors to discharge
responsibilities of the nominations
committee under Rule 5605(e).
Nasdaq is also proposing to eliminate
the reference to Rule 5625 in Rule
5615(b)(1) which states that: ‘‘For
purposes of . . . Rule 5625, a Company
shall be considered to be listing in
conjunction with an initial public
offering only if it meets the conditions
in Rule 10A–3(b)(1)(iv)(A) under the
Act, namely, that the Company was not,
immediately prior to the effective date
of a registration statement, required to
file reports with the Commission
pursuant to Section 13(a) or 15(d) of the
Act.’’ By its terms, Rule 5625
(Notification of Noncompliance) applies
to any company listed on Nasdaq,
including in conjunction with an IPO,
and requires that a ‘‘Company must
provide Nasdaq with prompt
notification after an Executive Officer of
the Company becomes aware of any
noncompliance by the Company with
the requirements of this Rule 5600
Series.’’ This notification of
noncompliance requirement of Rule
5625 is not affected or modified in any
way by the aforementioned reference in
Rule 5615(b) because Rule 5625 applies
to a Nasdaq-listed company regardless
of whether it was listed ‘‘in conjunction
with an initial public offering’’ or not.
Moreover, Rule 5615(b)(1) does not
provide an exemption from Rule 5625
for any company. Accordingly, Nasdaq
proposes to eliminate the references to
Rule 5625 in Rule 5615(b)(1) to simplify
the rules to eliminate potential
confusion without any substantive
impact.
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Companies Emerging From Bankruptcy
Rule 5615(b)(2) allows a company that
is emerging from bankruptcy to phase in
independent nominations and
compensation committees and majority
independent boards requirements.
Nasdaq proposes to amend Rule
5615(b)(2) to codify its current position
that a company emerging from
bankruptcy must comply with the audit
committee composition requirements
2009), 74 FR 63808 (December 4, 2009) (approving
SR–NYSE–2009–89).
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set forth in Rule 5605(c)(2) 8 by the
Listing Date unless an exemption is
available pursuant to Rule 10A–3.
Nasdaq also proposes to make
additional clarifications to improve the
readability of the rule without changing
its substance, including to provide that
the applicable phase-in periods will be
computed beginning on the Listing Date.
Companies Transferring From National
Securities Exchanges
Rule 5615(b)(3) provides that
companies transferring from other
markets with a substantially similar
requirement shall be afforded the
balance of any grace period afforded by
the other market. Rule 5615(b)(3) further
provides that companies transferring
from other listed markets that do not
have a substantially similar requirement
shall be afforded one year from the date
of listing on Nasdaq.
Nasdaq proposes to clarify that the
phase-in period currently contained in
Rule 5615(b)(3) is applicable only to
companies that transfer securities
registered pursuant to Section 12(b) of
the Act 9 from another national
securities exchange to Nasdaq and to
specify requirements applicable to a
company listing securities registered
pursuant to Section 12(g) of the Act,10
as described below.
Companies Listing Securities Previously
Registered Under Section 12(g)
Nasdaq proposes to modify Rule
5615(b)(3) to provide that a company
with securities registered pursuant to
Section 12(g) of the Act 11 that lists
those securities on Nasdaq must satisfy
the audit committee requirements set
forth in the Rule 5605(c) except for the
requirement to have at least three
members on the audit committee, as
described below, by the Listing Date,
unless an exemption is available
pursuant to Rule 10A–3 under the Act.
Nasdaq proposes to modify Rule
5615(b)(3) to also provide that a
company with securities registered
pursuant to Section 12(g) of the Act that
lists those securities on Nasdaq will be
provided a similar phase-in period as
available to companies listing in
connection with an IPO, other than the
audit committee requirements. Like a
company conducting an IPO, these
companies would not have been subject
to another exchange’s corporate
8 Rule 5605(c)(2) requires a company to have, an
audit committee of at least three members, which
must meet certain independence, professional
competence and other requirements as specified in
the rule.
9 15 U.S.C. 78l(b).
10 15 U.S.C. 78l(g).
11 15 U.S.C. 78l(g).
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46529
governance standards at the time of
their listing. Therefore, Nasdaq proposes
to allow these companies a similar
phase-in period as currently provided to
an IPO, other than the audit committee
requirements, and require, on the
nominations and compensation
committee, one independent director
upon listing, a majority of independent
directors within 90 days of Listing Date,
and a fully independent committee
within one year of Listing Date.12 The
company also would have twelve
months from its Listing Date to comply
with the majority independent board
requirement set forth in Rule 5605(b).
Under the revised rule, for a company
with securities registered pursuant to
Section 12(g) of the Act that lists those
securities on Nasdaq, only directors
who are independent, as defined in Rule
5605(a)(2), and meet the criteria for
independence set forth in Rule 10A–
3(b)(1) under the Act would be
permitted on the audit committee
during the transition period (unless an
exemption is available under Rule 10A–
3 under the Act).13 However, a phase-in
period would be permitted with respect
to the committee size requirement: at
least one independent director member
is required as of the date of listing, two
independent director members within
ninety days of the Listing Date, and
three independent director members
within one year of the Listing Date.14
These changes adopt the same phase-in
schedule for these companies as is in
place for a similar company listing on
the New York Stock Exchange
(‘‘NYSE’’).15 The revised rule would
also specify that a company’s
compensation committee must have at
least one member at the time of listing
12 The independent directors serving on the
compensation committee would also be required to
satisfy the requirements of Rule 10C–1 under the
Act.
13 Each member of the audit committee must also:
(1) not have participated in the preparation of the
financial statements of the company or any current
subsidiary of the company at any time during the
past three years; and (2) be able to read and
understand fundamental financial statements,
including a company’s balance sheet, income
statement, and cash flow statement. See Rule
5605(c)(2)(A).
14 During the phase-in period a company must
comply with the requirement in Rule 5605(c)(2)(A)
that every listed company’s audit committee—
without distinction as to the committee’s size—
have at least one member who has past employment
experience in finance or accounting, requisite
professional certification in accounting, or any
other comparable experience or background which
results in the individual’s financial sophistication.
15 See Section 303A.00 of the NYSE Listed
Company Manual. See also Securities Exchange Act
Release No. 61067 (November 25, 2009), 74 FR
63808 (December 4, 2009) (approving SR–NYSE–
2009–89).
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and at least two members within one
year of listing.16
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Companies Listing in Connection With
a Carve-Out or Spin-Off Transaction
Nasdaq proposes to provide that a
company listing in connection with a
carve-out or spin-off transaction will
have a similar phase-in period as
currently available to companies listing
in connection with an IPO. Like a
company conducting an IPO, these
companies would not have been subject
to another exchange’s corporate
governance standards at the time of
their listing. Therefore, Nasdaq proposes
to adopt Rule 5615(b)(4) 17 specifying
the phase-in provisions and stating that
a company shall be permitted to phase
in its compliance with the audit
committee requirements set forth in
Rule 5605(c)(2) as follows: (1) one
member must satisfy the requirements
by the Listing Date; (2) a majority of
members must satisfy the requirements
within 90 days of the effective date of
its registration statement; and (3) all
members must satisfy the requirements
within one year of the effective date of
its registration statement.
Nasdaq also proposes to allow these
companies a similar phase-in period as
an IPO and require that a company
listing in connection with a carve-out or
spin-off transaction shall have twelve
months from its Listing Date to comply
with the majority independent board
requirement set forth in Rule 5605(b),
and, on the nominations and
compensation committee, one
independent director by the date the
transaction closes, a majority of
independent directors within 90 days of
the Listing Date, and a fully
independent committee within one year
of the Listing Date.18 Nasdaq also
proposes to provide that, regarding the
requirement to have at least two
members on the compensation
committee, a company’s compensation
committee must have at least one
member by the date the transaction
closes and at least two members within
one year of the Listing Date.19
16 See Securities Exchange Act Release No. 68013
(October 9, 2012), 77 FR 62563 (October 15, 2012)
(Notice of Filing for SR–NASDAQ–2012–109) at
footnote 67. See also Securities Exchange Act
Release No. 34–68640 (January 11, 2013), 78 FR
4554 (January 22, 2013) (approving SR–NASDAQ–
2012–109).
17 Nasdaq proposes to renumber current Rule
5615(b)(4) regarding phase-in schedule for a
company ceasing to be a Smaller Reporting
Company to Rule 5615(b)(5).
18 The independent directors serving on the
compensation committee would also be required to
satisfy the requirements of SEC Rule 10C–1 under
the Act.
19 See Securities Exchange Act Release No. 68013
(October 9, 2012), 77 FR 62563 (October 15, 2012)
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Nasdaq’s current policy is to treat
companies listing in connection with a
carve-out or spin-off transaction as IPOs
for purposes of phase-in periods. Thus,
Nasdaq allows such companies to phase
in the requirements for their
independent nominations and
compensation committees but require
one member to satisfy the requirements
at the time of listing. Some companies
expressed a concern that this
requirement interferes with a common
practice to hold a meeting of a board of
directors in order to appoint additional
independent directors shortly after the
Listing Date, but prior to the date a
carve-out or spin-off transaction closes.
To accommodate this practice, Nasdaq
proposes to allow the companies to
comply with the requirement to have
one independent director on the
compensation and nominations
committees by appointing an
independent director to such a
committee no later than the date such
carve-out or spin-off transaction closes.
This proposal is consistent with the
approach of the NYSE.20
Rule 5605(c)(2)(A) requires a
company to have a minimum of three
members on the audit committee. As a
result, companies listed in connection
with a carve-out or spin-off transaction
which are not required to have a fully
independent audit committee until one
year from the Listing Date may appoint
non-independent directors to the audit
committee in order to satisfy the threeperson minimum requirement. Nasdaq
proposes to provide that companies
listing in connection with a carve-out or
spin-off transaction may also phase in
compliance with the three-person
minimum on the following schedule: at
least one member by the Listing Date, at
least two members within 90 days of the
Listing Date and at least three members
within one year of the Listing Date.21
This proposal is consistent with the
approach of the NYSE.22
Companies Ceasing To Be a Smaller
Reporting Company
Nasdaq proposes to amend the title of
Rule 5615(b)(4), renumber it to Rule
(Notice of Filing for SR–NASDAQ–2012–109) at
footnote 67. See also Securities Exchange Act
Release No. 34–68640 (January 11, 2013), 78 FR
4554 (January 22, 2013) (approving SR–NASDAQ–
2012–109).
20 See Section 303A.00 Introduction; of the NYSE
Listed Company Manual. See also Securities
Exchange Act Release No. 61067 (November 25,
2009), 74 FR 63808 (December 4, 2009) (approving
SR–NYSE–2009–89).
21 See footnote 15 above.
22 See Section 303A.00 Introduction; of the NYSE
Listed Company Manual. See also Securities
Exchange Act Release No. 61067 (November 25,
2009), 74 FR 63808 (December 4, 2009) (approving
SR–NYSE–2009–89).
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5615(b)(5) and add an introductory
sentence to improve the readability of
the rule without changing its substance.
Companies Ceasing To Qualify as a
Foreign Private Issuer
Pursuant to Rule 5615(a)(3), a Foreign
Private Issuer, as defined under SEC
Rule 3b–4 under the Exchange Act of
1934 (the ‘‘Act’’), may follow its home
country practice in lieu of the
requirements of the Rule 5600 Series,
provided, however, that such a
Company is required to comply with the
Notification of Noncompliance
requirement (Rule 5625), the Voting
Rights requirement (Rule 5640), the
Diverse Board Representation Rule
(Rule 5605(f)), the Board Diversity
Disclosure Rule (Rule 5606), have an
audit committee that satisfies Rule
5605(c)(3), and ensure that such audit
committee’s members meet the
independence requirement in Rule
5605(c)(2)(A)(ii).
A Foreign Private Issuer that ceases to
qualify as such under SEC rules
becomes subject to all relevant corporate
governance requirements of Rule 5605.
Depending on the type of issuer, these
may include the requirement to have
independent nominations and
compensation committees and a
majority of independent directors. In
addition, the company’s directors may
be required to meet the definition of
independence under Rule 5605(a).
Pursuant to Rule 3b–4 under the Act, a
company must test its status as a
Foreign Private Issuer on an annual
basis at the end of its most recently
completed second fiscal quarter (for
purposes of this subsection, the
‘‘Foreign Private Issuer Determination
Date’’). Nasdaq proposes to modify its
rules to take into consideration Rule 3b–
4 under the Act. Under this rule, a
company’s determination that it fails to
qualify as a Foreign Private Issuer
governs its eligibility to use the forms
and rules designated for Foreign Private
Issuers beginning on the first day of the
fiscal year following the determination
date, effectively providing the company
with a six-month grace period.
Similarly, Nasdaq proposes to require a
company that ceases to be a Foreign
Private Issuer to be in compliance with
the domestic company requirements
within the same timeframe of six
months, except for the requirement set
forth in Rule 5605(c)(2)(A)(ii).
Specifically, the company shall have
six months from the Foreign Private
Issuer Determination Date to comply
with the majority independent board
requirement set forth in Rule 5605(b);
the independent compensation and
nominations committee requirements
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set forth in Rules 5605(d)(2) and
(e)(1)(B); and audit committee
requirements set forth in Rule
5605(c)(2), including the three-person
audit committee requirement. During
the phase-in period, a company shall
have an audit committee that satisfies
Rule 5605(c)(3) and members of such
audit committee shall meet the criteria
for independence referenced in Rule
5605(c)(2)(A)(ii) (the criteria set forth in
Rule 10A–3(b)(1) under the Act, subject
to the exemptions provided in Rule
10A–3(c) under the Act). This proposal
is consistent with the approach of the
NYSE.23
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Preamble to Phase-In Rules
Nasdaq proposes to add an
introductory paragraph to Rule 5615(b)
to improve the readability of the rules
without changing its substance. Nasdaq
also proposes to codify its current
policy that a company that demonstrates
compliance with a requirement during a
phase-in period but subsequently falls
out of compliance with that requirement
before the end of the phase-in period,
would not be considered deficient with
the requirement until the end of the
phase-in period. This treatment is
consistent with treatment of a company
that relied on a phase-in period
throughout its duration.
Unavailability of Grace Periods
Following the Expiration of Phase-In
Periods
Nasdaq proposes to amend Rules
5605(b)(1), 5605(c)(4), 5605(d)(4), and
5810(c)(3)(E) to codify its current
position that a company relying on any
phase-in period in Rule 5615(b) is not
eligible for a cure period provided by
Rule 5810(c)(3)(E), immediately
following the expiration of the phase-in
period, unless the company complied
with the audit committee composition
requirement in Rule 5605(c)(2)(A), the
compensation committee composition
requirement in Rule 5605(d)(2)(A), or
the majority independent board
requirement in Rule 5605(b)(1), as
applicable, during such phase-in period
but fell out of compliance with such
requirement after having complied with
the requirement before the end of the
phase-in period. Nasdaq also proposes
to codify its current policy that, if a
company demonstrated compliance
with the applicable requirement during
the phase-in period, but subsequently
fell out of compliance before the end of
the phase-in period, for purposes of
23 See Section 303A.00 Introduction; of the NYSE
Listed Company Manual. See also Securities
Exchange Act Release No. 61067 (November 25,
2009), 74 FR 63808 (December 4, 2009) (approving
SR–NYSE–2009–89).
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computing the applicable cure period,
the event that caused the failure to
comply is the event causing the
company to fall out of compliance after
having complied with the requirement,
and not the end of the phase-in period.
In these circumstances, as described
above, the company would not be
considered deficient with the
requirement until the end of the phasein period.
In a situation where a company lists
on Nasdaq or becomes subject to the
requirements after it lists, relies on the
phase-in period for one of the
independent committees or the
independent board requirements, and
allows the phase-in period to run out
without demonstrating compliance with
the rule, Nasdaq believes it is not
appropriate for the company to rely on
the grace period immediately thereafter
thus effectively extending the phase-in
period. In such a case, Nasdaq will issue
a Staff Delisting Determination letter to
delist the Company’s securities.
Nasdaq also proposes to amend Rule
5810(c)(3)(E) to describe procedures for
administering a cure period in the event
a company fails to comply with the
compensation committee composition
requirement under Rule 5605(d)(2)(A)
due to one vacancy. Specifically, as
amended, Rule 5810(c)(3)(E) will
provide that if a company fails to meet
the compensation committee
composition requirement under Rule
5605(d)(2)(A) due to one vacancy, or
one compensation committee member
ceases to be independent due to
circumstances beyond the member’s
reasonable control, the Listing
Qualifications Department will
promptly notify the company and
inform it has until the earlier of its next
annual shareholders meeting or one year
from the occurrence of the event that
caused the failure to comply with this
requirement to cure the deficiency.
However, if the company’s next annual
shareholders’ meeting is held sooner
than 180 days after the event that
caused the deficiency, then the
company has 180 days from the event
that caused the deficiency to cure it.
Renumbering of Certain Rules and Other
Clarifications
Nasdaq proposes to amend Rule
5615(c)(3) to clarify that the applicable
phase-in periods for companies ceasing
to be a Controlled Company will be
computed beginning on the date the
company ceases to be a Controlled
Company.
In light of the proposed clarifications
and modifications described above and
to promote a coherent structure of the
Listing Rules, Nasdaq proposes to
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46531
renumber Rules 5615(c)(1), 5615(c)(2),
and 5615(c)(3) as 5615(a)(7)(A),
5615(a)(7)(B), and 5615(b)(7). Nasdaq
also proposes to amend the title of the
proposed Rule 5615(b)(7) to improve the
readability of the rule without changing
its substance and update cross
references to account for renumbering of
the rules.
2. Statutory Basis
Nasdaq believes that the proposed
rule change is consistent with the
provisions of Section 6 of the Act,24 in
general and with Sections 6(b)(5) of the
Act,25 in particular in that it is designed
to prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in securities, 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. The
Exchange further believes that the
proposal is consistent with Rule 10A–3
under the Act concerning audit
committee requirements for listed
companies.
In approving substantially similar
amendments by the NYSE, except for
the clarification of the unavailability of
a grace period following the expiration
of a phase-in period, as described above,
the Commission indicated that it
believes that:
the proposed amendments relating to the
phase-in period for specified companies
newly listing on the [NYSE] (or newly
becoming subject to certain corporate
governance listing standards as a result of
change in status) are reasonable. The
proposed rules would permit a phase-in
schedule similar to that allowed under the
current rules for a company listing in
conjunction with an IPO, and would extend
such a phase-in schedule appropriately to
companies listing in conjunction with spinoff and carve-out transactions, while offering
an acceptable minimal tolerance for the
special circumstances of each of these types
of new listings with respect to the point in
time that the standards would begin to apply.
The Commission notes that the [NYSE’s]
proposal does not make adjustments for
compliance with any requirements of Rule
10A–3 under the Act.
. . .
The proposed rule change also would
allow a company listing in conjunction with
an IPO, a spin-off, or a carve-out a phase-in
period with respect to the NYSE requirement
that the audit committee of a listed company
have at least three members. In the
24 15
25 15
E:\FR\FM\29MYN1.SGM
U.S.C. 78f.
U.S.C. 78f(b)(5).
29MYN1
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lotter on DSK11XQN23PROD with NOTICES1
Commission’s view, permitting a company to
have only one member on its audit
committee by the listing date, at least two
members within ninety days of the listing
date, and three members within a year of the
listing date, affords a reasonable
accommodation for such companies.26
The proposed rule change is also
consistent with the provisions of
Section 6 of the Act,27 in general and
with Sections 6(b)(5) of the Act, in that
it will clarify Nasdaq’s current position
as to the applicability of the phase-in
periods for independent board and
committee requirements for companies
listing in connection with the IPO and
codify treatment of a carve-out or spinoff transaction in this regard. The
amended rules will also provide for
treatment of companies that ceased to
qualify as a foreign private issuer, the
eventuality on which the rules are
currently silent. This greater clarity and
uniformity of treatment will promote
just and equitable principles of trade.
The proposed changes will enhance
investor protection by making the
impacted rules more transparent and
easier to understand. In addition,
Nasdaq will continue to protect
investors and the public interest by
maintaining the current requirements
for the audit, nominations, and
compensation committees, as well as
the requirement for a majority
independent board.
The proposed rule change is also
designed to provide companies that are
newly listing on Nasdaq and becoming
subject to certain corporate governance
listing standards as a result of this
change in status a reasonable transition
period, similar to that allowed under the
current rules for a company listing in
conjunction with an IPO and to that
allowed by the NYSE. In this regard, the
proposed rule change is designed to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system.
The proposed rule change makes no
adjustments for compliance with any
requirements of SEC Rules 10A–3 or
10C–1 under the Act, nor does the
proposed rule change grant an
exemption or phase-in period with
respect to the requirement in Rule
5605(c)(2)(A) that every listed
company’s audit committee—without
distinction as to the committee’s size—
have at least one member who has past
employment experience in finance or
accounting, requisite professional
certification in accounting, or any other
comparable experience or background
which results in the individual’s
26 See
27 15
the NYSE Approval Order at 63,810.
U.S.C. 78f.
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18:05 May 28, 2024
Jkt 262001
financial sophistication. The revised
rules will also require that, for a
company with securities registered
pursuant to Section 12(g) of the Act that
lists those securities on Nasdaq, only
independent directors, as defined in
Rule 5605(a)(2), be permitted on the
audit committee during the transition
period. In addition, SEC Rule 10A–3
under the Act requires at least one
member of a listed company’s audit
committee to be independent as of the
Listing Date, even when the company is
allowed a phase-in period with respect
to the other audit committee members.28
As a result, Nasdaq believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices and to protect
investors and the public interest.
To improve the readability of the
rules Nasdaq proposes to renumber
certain rules and make other clarifying
and conforming changes without
changing the substance of such rules.
Nasdaq believes that the improved
readability of the rules will perfect the
mechanism of a free and open market by
making the rules easier to understand
and apply.
Finally, Nasdaq proposes to amend
Listing Rules 5605(b)(1), 5605(c)(4),
5605(d)(4), and 5810(c)(3)(E) to codify
its current position that a company
relying on any phase-in period in Rule
5615(b) is not eligible for a cure period
provided by Rule 5810(c)(3)(E),
immediately following the expiration of
the phase-in period, unless the
Company demonstrated compliance
with the applicable requirement during
such phase-in period. In a situation
where a company lists on Nasdaq, relies
on the phase-in period for one of the
independent committees or the
independent board requirements, and
allows the phase-in period to run out
without gaining compliance with the
rule, Nasdaq believes it is not
appropriate for the Company to rely on
the grace period immediately thereafter
thus effectively extending the phase-in
period. Nasdaq believes that this rule
change will protect investors and the
public interest by limiting the maximum
time a company may remain listed
without fully complying with
independent committees or the
independent board requirements.
Finally, Nasdaq believes that
codifying Nasdaq’s position regarding
the computation of the applicable
phase-in periods, as well as other
clarifying changes will perfect the
28 See
17 CFR 240.10A–3(b)(1)(iv) (providing an
exemption for an issuer that was not required to file
reports with the Commission pursuant to section
13(a) or 15(d) of the Act).
PO 00000
Frm 00175
Fmt 4703
Sfmt 4703
mechanism of a free and open market by
making the rules easier to understand
and apply.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Nasdaq does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as amended.
The proposed rule change will have
little or no impact on competition as it
merely eliminates potential confusion,
clarifies Nasdaq current position as to
the applicability of its rules, and
harmonizes Nasdaq’s rules regarding the
applicability of the phase-in periods for
audit, nominations, and compensation
committees, as well as the requirement
for a majority independent board with
the requirements of the NYSE.29
Similarly, Nasdaq believes that the
proposed amendments will have little or
no impact on the intra market
competition.
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
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission shall: (a) by order
approve or disapprove such proposed
rule change, or (b) institute proceedings
to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
29 See Section 303A.00 Introduction; of the NYSE
Listed Company Manual. See also Securities
Exchange Act Release No. 61067 (November 25,
2009), 74 FR 63808 (December 4, 2009) (approving
SR–NYSE–2009–89).
E:\FR\FM\29MYN1.SGM
29MYN1
Federal Register / Vol. 89, No. 104 / Wednesday, May 29, 2024 / Notices
• Send an email to rule-comments@
sec.gov. Please include file number SR–
NASDAQ–2024–019 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–2024–019. 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 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–NASDAQ–2024–019 and should be
submitted on or before June 20, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–11700 Filed 5–28–24; 8:45 am]
lotter on DSK11XQN23PROD with NOTICES1
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100213; File No. SR–
NYSEARCA–2024–31]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of
Amendment No. 1 to a Proposed Rule
Change To List and Trade Shares of
the Bitwise Ethereum ETF
May 22, 2024.
On March 28, 2024, NYSE Arca, Inc.
(‘‘NYSE Arca’’ 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 list and trade shares of the
Bitwise Ethereum ETF under NYSE
Arca Rule 8.201–E (Commodity-Based
Trust Shares). The proposed rule change
was published for comment in the
Federal Register on April 8, 2024.3 On
May 21, 2024, the Exchange filed
Amendment No. 1 to the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. Amendment No. 1
replaced and superseded the proposed
rule change in its entirety. The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as modified by Amendment No.
1, from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade shares of the Bitwise Ethereum
ETF (the ‘‘Trust’’) under NYSE Arca
Rule 8.201–E (Commodity-Based Trust
Shares). This Amendment No. 1 to SR–
NYSEARCA–2024–31 replaces SR–
NYSEARCA–2024–31 as originally filed
and supersedes such filing in its
entirety. The proposed rule change is
available on the Exchange’s website at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 99889
(Apr. 2, 2024), 89 FR 24509. Comments on the
proposed rule change are available at: https://
www.sec.gov/comments/sr-nysearca-2024-31/
srnysearca202431.htm.
2 17
30 17
CFR 200.30–3(a)(12).
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18:05 May 28, 2024
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Fmt 4703
Sfmt 4703
46533
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to list and
trade shares (‘‘Shares’’) of the Trust 4
pursuant to NYSE Arca Rule 8.201–E,
which governs the listing and trading of
Commodity Based Trust Shares.5
According to the Registration
Statement, the Trust will not be
registered as an investment company
under the Investment Company Act of
1940,6 and is not required to register
thereunder. The Trust is not a
commodity pool for purposes of the
Commodity Exchange Act.7
The Exchange represents that the
Shares satisfy the requirements of NYSE
Arca Rule 8.201–E and thereby qualify
for listing on the Exchange.8
Operation of the Trust 9
The Trust will issue the Shares
which, according to the Registration
Statement, represent units of undivided
beneficial ownership of the Trust. The
Trust is a Delaware statutory trust and
will operate pursuant to a trust
agreement (the ‘‘Trust Agreement’’)
between Bitwise Investment Advisers,
LLC (the ‘‘Sponsor’’ or ‘‘Bitwise’’) and
Delaware Trust Company, as the Trust’s
trustee (the ‘‘Trustee’’). Coinbase
Custody Trust Company, LLC will
maintain custody of the Trust’s ether
(the ‘‘Ether Custodian’’). Bank of New
York Mellon will be the custodian for
4 The Trust is a Delaware statutory trust. On
March 28, 2024, the Trust filed with the
Commission an initial registration statement (the
‘‘Registration Statement’’) on Form S–1 under the
Securities Act of 1933 (15 U.S.C. 77a). The
description of the operation of the Trust herein is
based, in part, on the most recent Registration
Statement. The Registration Statement is not yet
effective, and the Shares will not trade on the
Exchange until such time that the Registration
Statement is effective.
5 Commodity-Based Trust Shares are securities
issued by a trust that represents investors’ discrete
identifiable and undivided beneficial ownership
inerest in the commodities deposited into the trust.
6 15 U.S.C. 80a–1.
7 17 U.S.C. 1.
8 With respect to the application of Rule 10A–3
(17 CFR 240.10A–3) under the Act, the Trust relies
on the exemption contained in Rule 10A–3(c)(7).
9 The description of the operation of the Trust,
the Shares, and the ether market contained herein
is based, in part, on the Registration Statement. See
note 4, supra.
E:\FR\FM\29MYN1.SGM
29MYN1
]]>Agencies
[Federal Register Volume 89, Number 104 (Wednesday, May 29, 2024)]
[Notices]
[Pages 46528-46533]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-11700]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100208; File No. SR-NASDAQ-2024-019]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change to Rules 5605, 5615 and 5810
To Clarify and Modify Phase-In Schedules for Certain Corporate
Governance Requirements and Clarify Applicability of Certain Cure
Periods
May 22, 2024
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on May 8, 2024, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to change Rules 5605, 5615 and 5810 to
clarify and modify phase-in schedules for certain corporate governance
requirements and clarify applicability of certain cure periods.
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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Nasdaq is proposing to clarify and modify the phase-in schedules to
the independent director and committee requirement for certain
companies. Nasdaq is also proposing to clarify the applicability of
certain cure periods.
Initial Public Offerings
Nasdaq is proposing to clarify and modify the phase-in schedules to
the independent director and committee requirements for IPOs.
Specifically, Rule 5615(b)(1) currently references that a company
listing in connection with an IPO is permitted to phase in its
independent audit committee requirements in accordance with SEC Rule
10A-3(b)(1)(iv)(A) under the Act but does not restate the provisions of
this rule. Nasdaq proposes to amend Rule 5615(b)(1) by specifically
restating the phase-in provisions in the text of the rule and state
that a company shall be permitted to phase in its compliance with the
audit committee requirements set forth in Rule 5605(c)(2) as follows:
(1) one member must satisfy the requirements by the date the company's
securities first trade on Nasdaq (the ``Listing Date''); (2) a majority
of members must satisfy the requirements within 90 days of the
effective date of its registration statement; and (3) all members must
satisfy the requirements within one year of the effective date of its
registration statement.\3\
---------------------------------------------------------------------------
\3\ See 17 CFR 240.10A-3(b)(1)(iv)(A).
---------------------------------------------------------------------------
Rule 5605(c)(2)(A) requires a company to have a minimum of three
members on the audit committee. As a result, companies listed in
connection with an IPO which are not required to have a fully
independent audit committee until one year from the Listing Date may
appoint non-independent directors to the audit committee in order to
satisfy the three-person minimum requirement. Nasdaq proposes to amend
Rule 5615(b)(1) to provide that companies listing in conjunction with
an IPO may also phase in compliance with the three-person minimum on
the following schedule: at least one member by the Listing Date, at
least two members within 90 days of the Listing Date and at least three
members within one year of the Listing Date. This proposal is
consistent with the approach of the NYSE.\4\ Nasdaq notes that in the
NYSE Approval Order the Commission indicated that ``permitting a
company to have only one member on its audit committee by the listing
date, at least two members within ninety days of the listing date, and
three members within a year of the listing date, affords a reasonable
accommodation for [affected] companies.'' \5\
---------------------------------------------------------------------------
\4\ See Section 303A.00 Introduction; of the NYSE Listed Company
Manual. See also Securities Exchange Act Release No. 61067 (November
25, 2009), 74 FR 63808 (December 4, 2009) (approving SR-NYSE-2009-
89) (the ``NYSE Approval Order'').
\5\ The NYSE Approval Order at 63811.
---------------------------------------------------------------------------
Rule 5615(b)(1) currently allows companies listing in connection
with an IPO to phase in the requirements for their independent
nominations and compensation committees but requires one member to
satisfy the requirements at the time of listing. Some companies
expressed a concern that this requirement interferes with a common
practice to hold a meeting of a board of directors in order to appoint
additional independent directors shortly after the Listing Date, but
prior to the date IPO closes.\6\ To accommodate this practice, Nasdaq
proposes to amend Rule 5615(b)(1) to allow the companies to comply with
the requirement to have one independent director on the compensation
and nominations committees by appointing an independent director to
such a committee no later than the earlier of the date of the initial
public offering closes or five business days from the Listing Date.
This proposal is consistent with the approach of the NYSE.\7\
---------------------------------------------------------------------------
\6\ See e.g. NYSE IPO Guide, page 41 at https://www.nyse.com/publicdocs/nyse/listing/nyse_ipo_guide.pdf#process-timeline (``After
building a book of demand, the lead bookrunners will agree on the
offering price with the company and shareholders, execute the
underwriting agreement and allocate the IPO to investors. The
following day, the company begins publicly trading on the NYSE or
another exchange, rings the opening bell and hosts other key
marketing events associated with being a public company. Two
business days later, the IPO closes, at which point stock is
delivered to investors against payment of the offering price, and
various legal opinions are delivered by counsel.'')
\7\ See Section 303A.00 Introduction; of the NYSE Listed Company
Manual. See also Securities Exchange Act Release No. 61067 (November
25, 2009), 74 FR 63808 (December 4, 2009) (approving SR-NYSE-2009-
89).
---------------------------------------------------------------------------
[[Page 46529]]
Nasdaq is also proposing to correct a misleading rule reference in
Rule 5615(b)(1), which allows a Company not to adopt a nominations
committee but instead rely upon a majority of the Independent Directors
to discharge responsibilities under Rule 5605(b). The responsibilities
of the nominations committee are found in Rule 5605(e), not Rule
5605(b). Accordingly, new Rule 5615(b)(1)(C) allows a majority of the
Independent Directors to discharge responsibilities of the nominations
committee under Rule 5605(e).
Nasdaq is also proposing to eliminate the reference to Rule 5625 in
Rule 5615(b)(1) which states that: ``For purposes of . . . Rule 5625, a
Company shall be considered to be listing in conjunction with an
initial public offering only if it meets the conditions in Rule 10A-
3(b)(1)(iv)(A) under the Act, namely, that the Company was not,
immediately prior to the effective date of a registration statement,
required to file reports with the Commission pursuant to Section 13(a)
or 15(d) of the Act.'' By its terms, Rule 5625 (Notification of
Noncompliance) applies to any company listed on Nasdaq, including in
conjunction with an IPO, and requires that a ``Company must provide
Nasdaq with prompt notification after an Executive Officer of the
Company becomes aware of any noncompliance by the Company with the
requirements of this Rule 5600 Series.'' This notification of
noncompliance requirement of Rule 5625 is not affected or modified in
any way by the aforementioned reference in Rule 5615(b) because Rule
5625 applies to a Nasdaq-listed company regardless of whether it was
listed ``in conjunction with an initial public offering'' or not.
Moreover, Rule 5615(b)(1) does not provide an exemption from Rule 5625
for any company. Accordingly, Nasdaq proposes to eliminate the
references to Rule 5625 in Rule 5615(b)(1) to simplify the rules to
eliminate potential confusion without any substantive impact.
Companies Emerging From Bankruptcy
Rule 5615(b)(2) allows a company that is emerging from bankruptcy
to phase in independent nominations and compensation committees and
majority independent boards requirements. Nasdaq proposes to amend Rule
5615(b)(2) to codify its current position that a company emerging from
bankruptcy must comply with the audit committee composition
requirements set forth in Rule 5605(c)(2) \8\ by the Listing Date
unless an exemption is available pursuant to Rule 10A-3. Nasdaq also
proposes to make additional clarifications to improve the readability
of the rule without changing its substance, including to provide that
the applicable phase-in periods will be computed beginning on the
Listing Date.
---------------------------------------------------------------------------
\8\ Rule 5605(c)(2) requires a company to have, an audit
committee of at least three members, which must meet certain
independence, professional competence and other requirements as
specified in the rule.
---------------------------------------------------------------------------
Companies Transferring From National Securities Exchanges
Rule 5615(b)(3) provides that companies transferring from other
markets with a substantially similar requirement shall be afforded the
balance of any grace period afforded by the other market. Rule
5615(b)(3) further provides that companies transferring from other
listed markets that do not have a substantially similar requirement
shall be afforded one year from the date of listing on Nasdaq.
Nasdaq proposes to clarify that the phase-in period currently
contained in Rule 5615(b)(3) is applicable only to companies that
transfer securities registered pursuant to Section 12(b) of the Act \9\
from another national securities exchange to Nasdaq and to specify
requirements applicable to a company listing securities registered
pursuant to Section 12(g) of the Act,\10\ as described below.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78l(b).
\10\ 15 U.S.C. 78l(g).
---------------------------------------------------------------------------
Companies Listing Securities Previously Registered Under Section 12(g)
Nasdaq proposes to modify Rule 5615(b)(3) to provide that a company
with securities registered pursuant to Section 12(g) of the Act \11\
that lists those securities on Nasdaq must satisfy the audit committee
requirements set forth in the Rule 5605(c) except for the requirement
to have at least three members on the audit committee, as described
below, by the Listing Date, unless an exemption is available pursuant
to Rule 10A-3 under the Act.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78l(g).
---------------------------------------------------------------------------
Nasdaq proposes to modify Rule 5615(b)(3) to also provide that a
company with securities registered pursuant to Section 12(g) of the Act
that lists those securities on Nasdaq will be provided a similar phase-
in period as available to companies listing in connection with an IPO,
other than the audit committee requirements. Like a company conducting
an IPO, these companies would not have been subject to another
exchange's corporate governance standards at the time of their listing.
Therefore, Nasdaq proposes to allow these companies a similar phase-in
period as currently provided to an IPO, other than the audit committee
requirements, and require, on the nominations and compensation
committee, one independent director upon listing, a majority of
independent directors within 90 days of Listing Date, and a fully
independent committee within one year of Listing Date.\12\ The company
also would have twelve months from its Listing Date to comply with the
majority independent board requirement set forth in Rule 5605(b).
---------------------------------------------------------------------------
\12\ The independent directors serving on the compensation
committee would also be required to satisfy the requirements of Rule
10C-1 under the Act.
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Under the revised rule, for a company with securities registered
pursuant to Section 12(g) of the Act that lists those securities on
Nasdaq, only directors who are independent, as defined in Rule
5605(a)(2), and meet the criteria for independence set forth in Rule
10A-3(b)(1) under the Act would be permitted on the audit committee
during the transition period (unless an exemption is available under
Rule 10A-3 under the Act).\13\ However, a phase-in period would be
permitted with respect to the committee size requirement: at least one
independent director member is required as of the date of listing, two
independent director members within ninety days of the Listing Date,
and three independent director members within one year of the Listing
Date.\14\ These changes adopt the same phase-in schedule for these
companies as is in place for a similar company listing on the New York
Stock Exchange (``NYSE'').\15\ The revised rule would also specify that
a company's compensation committee must have at least one member at the
time of listing
[[Page 46530]]
and at least two members within one year of listing.\16\
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\13\ Each member of the audit committee must also: (1) not have
participated in the preparation of the financial statements of the
company or any current subsidiary of the company at any time during
the past three years; and (2) be able to read and understand
fundamental financial statements, including a company's balance
sheet, income statement, and cash flow statement. See Rule
5605(c)(2)(A).
\14\ During the phase-in period a company must comply with the
requirement in Rule 5605(c)(2)(A) that every listed company's audit
committee--without distinction as to the committee's size--have at
least one member who has past employment experience in finance or
accounting, requisite professional certification in accounting, or
any other comparable experience or background which results in the
individual's financial sophistication.
\15\ See Section 303A.00 of the NYSE Listed Company Manual. See
also Securities Exchange Act Release No. 61067 (November 25, 2009),
74 FR 63808 (December 4, 2009) (approving SR-NYSE-2009-89).
\16\ See Securities Exchange Act Release No. 68013 (October 9,
2012), 77 FR 62563 (October 15, 2012) (Notice of Filing for SR-
NASDAQ-2012-109) at footnote 67. See also Securities Exchange Act
Release No. 34-68640 (January 11, 2013), 78 FR 4554 (January 22,
2013) (approving SR-NASDAQ-2012-109).
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Companies Listing in Connection With a Carve-Out or Spin-Off
Transaction
Nasdaq proposes to provide that a company listing in connection
with a carve-out or spin-off transaction will have a similar phase-in
period as currently available to companies listing in connection with
an IPO. Like a company conducting an IPO, these companies would not
have been subject to another exchange's corporate governance standards
at the time of their listing. Therefore, Nasdaq proposes to adopt Rule
5615(b)(4) \17\ specifying the phase-in provisions and stating that a
company shall be permitted to phase in its compliance with the audit
committee requirements set forth in Rule 5605(c)(2) as follows: (1) one
member must satisfy the requirements by the Listing Date; (2) a
majority of members must satisfy the requirements within 90 days of the
effective date of its registration statement; and (3) all members must
satisfy the requirements within one year of the effective date of its
registration statement.
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\17\ Nasdaq proposes to renumber current Rule 5615(b)(4)
regarding phase-in schedule for a company ceasing to be a Smaller
Reporting Company to Rule 5615(b)(5).
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Nasdaq also proposes to allow these companies a similar phase-in
period as an IPO and require that a company listing in connection with
a carve-out or spin-off transaction shall have twelve months from its
Listing Date to comply with the majority independent board requirement
set forth in Rule 5605(b), and, on the nominations and compensation
committee, one independent director by the date the transaction closes,
a majority of independent directors within 90 days of the Listing Date,
and a fully independent committee within one year of the Listing
Date.\18\ Nasdaq also proposes to provide that, regarding the
requirement to have at least two members on the compensation committee,
a company's compensation committee must have at least one member by the
date the transaction closes and at least two members within one year of
the Listing Date.\19\
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\18\ The independent directors serving on the compensation
committee would also be required to satisfy the requirements of SEC
Rule 10C-1 under the Act.
\19\ See Securities Exchange Act Release No. 68013 (October 9,
2012), 77 FR 62563 (October 15, 2012) (Notice of Filing for SR-
NASDAQ-2012-109) at footnote 67. See also Securities Exchange Act
Release No. 34-68640 (January 11, 2013), 78 FR 4554 (January 22,
2013) (approving SR-NASDAQ-2012-109).
---------------------------------------------------------------------------
Nasdaq's current policy is to treat companies listing in connection
with a carve-out or spin-off transaction as IPOs for purposes of phase-
in periods. Thus, Nasdaq allows such companies to phase in the
requirements for their independent nominations and compensation
committees but require one member to satisfy the requirements at the
time of listing. Some companies expressed a concern that this
requirement interferes with a common practice to hold a meeting of a
board of directors in order to appoint additional independent directors
shortly after the Listing Date, but prior to the date a carve-out or
spin-off transaction closes. To accommodate this practice, Nasdaq
proposes to allow the companies to comply with the requirement to have
one independent director on the compensation and nominations committees
by appointing an independent director to such a committee no later than
the date such carve-out or spin-off transaction closes. This proposal
is consistent with the approach of the NYSE.\20\
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\20\ See Section 303A.00 Introduction; of the NYSE Listed
Company Manual. See also Securities Exchange Act Release No. 61067
(November 25, 2009), 74 FR 63808 (December 4, 2009) (approving SR-
NYSE-2009-89).
---------------------------------------------------------------------------
Rule 5605(c)(2)(A) requires a company to have a minimum of three
members on the audit committee. As a result, companies listed in
connection with a carve-out or spin-off transaction which are not
required to have a fully independent audit committee until one year
from the Listing Date may appoint non-independent directors to the
audit committee in order to satisfy the three-person minimum
requirement. Nasdaq proposes to provide that companies listing in
connection with a carve-out or spin-off transaction may also phase in
compliance with the three-person minimum on the following schedule: at
least one member by the Listing Date, at least two members within 90
days of the Listing Date and at least three members within one year of
the Listing Date.\21\ This proposal is consistent with the approach of
the NYSE.\22\
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\21\ See footnote 15 above.
\22\ See Section 303A.00 Introduction; of the NYSE Listed
Company Manual. See also Securities Exchange Act Release No. 61067
(November 25, 2009), 74 FR 63808 (December 4, 2009) (approving SR-
NYSE-2009-89).
---------------------------------------------------------------------------
Companies Ceasing To Be a Smaller Reporting Company
Nasdaq proposes to amend the title of Rule 5615(b)(4), renumber it
to Rule 5615(b)(5) and add an introductory sentence to improve the
readability of the rule without changing its substance.
Companies Ceasing To Qualify as a Foreign Private Issuer
Pursuant to Rule 5615(a)(3), a Foreign Private Issuer, as defined
under SEC Rule 3b-4 under the Exchange Act of 1934 (the ``Act''), may
follow its home country practice in lieu of the requirements of the
Rule 5600 Series, provided, however, that such a Company is required to
comply with the Notification of Noncompliance requirement (Rule 5625),
the Voting Rights requirement (Rule 5640), the Diverse Board
Representation Rule (Rule 5605(f)), the Board Diversity Disclosure Rule
(Rule 5606), have an audit committee that satisfies Rule 5605(c)(3),
and ensure that such audit committee's members meet the independence
requirement in Rule 5605(c)(2)(A)(ii).
A Foreign Private Issuer that ceases to qualify as such under SEC
rules becomes subject to all relevant corporate governance requirements
of Rule 5605. Depending on the type of issuer, these may include the
requirement to have independent nominations and compensation committees
and a majority of independent directors. In addition, the company's
directors may be required to meet the definition of independence under
Rule 5605(a). Pursuant to Rule 3b-4 under the Act, a company must test
its status as a Foreign Private Issuer on an annual basis at the end of
its most recently completed second fiscal quarter (for purposes of this
subsection, the ``Foreign Private Issuer Determination Date''). Nasdaq
proposes to modify its rules to take into consideration Rule 3b-4 under
the Act. Under this rule, a company's determination that it fails to
qualify as a Foreign Private Issuer governs its eligibility to use the
forms and rules designated for Foreign Private Issuers beginning on the
first day of the fiscal year following the determination date,
effectively providing the company with a six-month grace period.
Similarly, Nasdaq proposes to require a company that ceases to be a
Foreign Private Issuer to be in compliance with the domestic company
requirements within the same timeframe of six months, except for the
requirement set forth in Rule 5605(c)(2)(A)(ii).
Specifically, the company shall have six months from the Foreign
Private Issuer Determination Date to comply with the majority
independent board requirement set forth in Rule 5605(b); the
independent compensation and nominations committee requirements
[[Page 46531]]
set forth in Rules 5605(d)(2) and (e)(1)(B); and audit committee
requirements set forth in Rule 5605(c)(2), including the three-person
audit committee requirement. During the phase-in period, a company
shall have an audit committee that satisfies Rule 5605(c)(3) and
members of such audit committee shall meet the criteria for
independence referenced in Rule 5605(c)(2)(A)(ii) (the criteria set
forth in Rule 10A-3(b)(1) under the Act, subject to the exemptions
provided in Rule 10A-3(c) under the Act). This proposal is consistent
with the approach of the NYSE.\23\
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\23\ See Section 303A.00 Introduction; of the NYSE Listed
Company Manual. See also Securities Exchange Act Release No. 61067
(November 25, 2009), 74 FR 63808 (December 4, 2009) (approving SR-
NYSE-2009-89).
---------------------------------------------------------------------------
Preamble to Phase-In Rules
Nasdaq proposes to add an introductory paragraph to Rule 5615(b) to
improve the readability of the rules without changing its substance.
Nasdaq also proposes to codify its current policy that a company that
demonstrates compliance with a requirement during a phase-in period but
subsequently falls out of compliance with that requirement before the
end of the phase-in period, would not be considered deficient with the
requirement until the end of the phase-in period. This treatment is
consistent with treatment of a company that relied on a phase-in period
throughout its duration.
Unavailability of Grace Periods Following the Expiration of Phase-In
Periods
Nasdaq proposes to amend Rules 5605(b)(1), 5605(c)(4), 5605(d)(4),
and 5810(c)(3)(E) to codify its current position that a company relying
on any phase-in period in Rule 5615(b) is not eligible for a cure
period provided by Rule 5810(c)(3)(E), immediately following the
expiration of the phase-in period, unless the company complied with the
audit committee composition requirement in Rule 5605(c)(2)(A), the
compensation committee composition requirement in Rule 5605(d)(2)(A),
or the majority independent board requirement in Rule 5605(b)(1), as
applicable, during such phase-in period but fell out of compliance with
such requirement after having complied with the requirement before the
end of the phase-in period. Nasdaq also proposes to codify its current
policy that, if a company demonstrated compliance with the applicable
requirement during the phase-in period, but subsequently fell out of
compliance before the end of the phase-in period, for purposes of
computing the applicable cure period, the event that caused the failure
to comply is the event causing the company to fall out of compliance
after having complied with the requirement, and not the end of the
phase-in period. In these circumstances, as described above, the
company would not be considered deficient with the requirement until
the end of the phase-in period.
In a situation where a company lists on Nasdaq or becomes subject
to the requirements after it lists, relies on the phase-in period for
one of the independent committees or the independent board
requirements, and allows the phase-in period to run out without
demonstrating compliance with the rule, Nasdaq believes it is not
appropriate for the company to rely on the grace period immediately
thereafter thus effectively extending the phase-in period. In such a
case, Nasdaq will issue a Staff Delisting Determination letter to
delist the Company's securities.
Nasdaq also proposes to amend Rule 5810(c)(3)(E) to describe
procedures for administering a cure period in the event a company fails
to comply with the compensation committee composition requirement under
Rule 5605(d)(2)(A) due to one vacancy. Specifically, as amended, Rule
5810(c)(3)(E) will provide that if a company fails to meet the
compensation committee composition requirement under Rule 5605(d)(2)(A)
due to one vacancy, or one compensation committee member ceases to be
independent due to circumstances beyond the member's reasonable
control, the Listing Qualifications Department will promptly notify the
company and inform it has until the earlier of its next annual
shareholders meeting or one year from the occurrence of the event that
caused the failure to comply with this requirement to cure the
deficiency. However, if the company's next annual shareholders' meeting
is held sooner than 180 days after the event that caused the
deficiency, then the company has 180 days from the event that caused
the deficiency to cure it.
Renumbering of Certain Rules and Other Clarifications
Nasdaq proposes to amend Rule 5615(c)(3) to clarify that the
applicable phase-in periods for companies ceasing to be a Controlled
Company will be computed beginning on the date the company ceases to be
a Controlled Company.
In light of the proposed clarifications and modifications described
above and to promote a coherent structure of the Listing Rules, Nasdaq
proposes to renumber Rules 5615(c)(1), 5615(c)(2), and 5615(c)(3) as
5615(a)(7)(A), 5615(a)(7)(B), and 5615(b)(7). Nasdaq also proposes to
amend the title of the proposed Rule 5615(b)(7) to improve the
readability of the rule without changing its substance and update cross
references to account for renumbering of the rules.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\24\ in general and with
Sections 6(b)(5) of the Act,\25\ in particular in that it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, 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. The Exchange further
believes that the proposal is consistent with Rule 10A-3 under the Act
concerning audit committee requirements for listed companies.
---------------------------------------------------------------------------
\24\ 15 U.S.C. 78f.
\25\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
In approving substantially similar amendments by the NYSE, except
for the clarification of the unavailability of a grace period following
the expiration of a phase-in period, as described above, the Commission
indicated that it believes that:
the proposed amendments relating to the phase-in period for
specified companies newly listing on the [NYSE] (or newly becoming
subject to certain corporate governance listing standards as a
result of change in status) are reasonable. The proposed rules would
permit a phase-in schedule similar to that allowed under the current
rules for a company listing in conjunction with an IPO, and would
extend such a phase-in schedule appropriately to companies listing
in conjunction with spin-off and carve-out transactions, while
offering an acceptable minimal tolerance for the special
circumstances of each of these types of new listings with respect to
the point in time that the standards would begin to apply. The
Commission notes that the [NYSE's] proposal does not make
adjustments for compliance with any requirements of Rule 10A-3 under
the Act.
. . .
The proposed rule change also would allow a company listing in
conjunction with an IPO, a spin-off, or a carve-out a phase-in
period with respect to the NYSE requirement that the audit committee
of a listed company have at least three members. In the
[[Page 46532]]
Commission's view, permitting a company to have only one member on
its audit committee by the listing date, at least two members within
ninety days of the listing date, and three members within a year of
the listing date, affords a reasonable accommodation for such
companies.\26\
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\26\ See the NYSE Approval Order at 63,810.
The proposed rule change is also consistent with the provisions of
Section 6 of the Act,\27\ in general and with Sections 6(b)(5) of the
Act, in that it will clarify Nasdaq's current position as to the
applicability of the phase-in periods for independent board and
committee requirements for companies listing in connection with the IPO
and codify treatment of a carve-out or spin-off transaction in this
regard. The amended rules will also provide for treatment of companies
that ceased to qualify as a foreign private issuer, the eventuality on
which the rules are currently silent. This greater clarity and
uniformity of treatment will promote just and equitable principles of
trade. The proposed changes will enhance investor protection by making
the impacted rules more transparent and easier to understand. In
addition, Nasdaq will continue to protect investors and the public
interest by maintaining the current requirements for the audit,
nominations, and compensation committees, as well as the requirement
for a majority independent board.
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\27\ 15 U.S.C. 78f.
---------------------------------------------------------------------------
The proposed rule change is also designed to provide companies that
are newly listing on Nasdaq and becoming subject to certain corporate
governance listing standards as a result of this change in status a
reasonable transition period, similar to that allowed under the current
rules for a company listing in conjunction with an IPO and to that
allowed by the NYSE. In this regard, the proposed rule change is
designed to remove impediments to and perfect the mechanism of a free
and open market and a national market system.
The proposed rule change makes no adjustments for compliance with
any requirements of SEC Rules 10A-3 or 10C-1 under the Act, nor does
the proposed rule change grant an exemption or phase-in period with
respect to the requirement in Rule 5605(c)(2)(A) that every listed
company's audit committee--without distinction as to the committee's
size--have at least one member who has past employment experience in
finance or accounting, requisite professional certification in
accounting, or any other comparable experience or background which
results in the individual's financial sophistication. The revised rules
will also require that, for a company with securities registered
pursuant to Section 12(g) of the Act that lists those securities on
Nasdaq, only independent directors, as defined in Rule 5605(a)(2), be
permitted on the audit committee during the transition period. In
addition, SEC Rule 10A-3 under the Act requires at least one member of
a listed company's audit committee to be independent as of the Listing
Date, even when the company is allowed a phase-in period with respect
to the other audit committee members.\28\ As a result, Nasdaq believes
that the proposed rule change is designed to prevent fraudulent and
manipulative acts and practices and to protect investors and the public
interest.
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\28\ See 17 CFR 240.10A-3(b)(1)(iv) (providing an exemption for
an issuer that was not required to file reports with the Commission
pursuant to section 13(a) or 15(d) of the Act).
---------------------------------------------------------------------------
To improve the readability of the rules Nasdaq proposes to renumber
certain rules and make other clarifying and conforming changes without
changing the substance of such rules. Nasdaq believes that the improved
readability of the rules will perfect the mechanism of a free and open
market by making the rules easier to understand and apply.
Finally, Nasdaq proposes to amend Listing Rules 5605(b)(1),
5605(c)(4), 5605(d)(4), and 5810(c)(3)(E) to codify its current
position that a company relying on any phase-in period in Rule 5615(b)
is not eligible for a cure period provided by Rule 5810(c)(3)(E),
immediately following the expiration of the phase-in period, unless the
Company demonstrated compliance with the applicable requirement during
such phase-in period. In a situation where a company lists on Nasdaq,
relies on the phase-in period for one of the independent committees or
the independent board requirements, and allows the phase-in period to
run out without gaining compliance with the rule, Nasdaq believes it is
not appropriate for the Company to rely on the grace period immediately
thereafter thus effectively extending the phase-in period. Nasdaq
believes that this rule change will protect investors and the public
interest by limiting the maximum time a company may remain listed
without fully complying with independent committees or the independent
board requirements.
Finally, Nasdaq believes that codifying Nasdaq's position regarding
the computation of the applicable phase-in periods, as well as other
clarifying changes will perfect the mechanism of a free and open market
by making the rules easier to understand and apply.
B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended. The proposed rule
change will have little or no impact on competition as it merely
eliminates potential confusion, clarifies Nasdaq current position as to
the applicability of its rules, and harmonizes Nasdaq's rules regarding
the applicability of the phase-in periods for audit, nominations, and
compensation committees, as well as the requirement for a majority
independent board with the requirements of the NYSE.\29\ Similarly,
Nasdaq believes that the proposed amendments will have little or no
impact on the intra market competition.
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\29\ See Section 303A.00 Introduction; of the NYSE Listed
Company Manual. See also Securities Exchange Act Release No. 61067
(November 25, 2009), 74 FR 63808 (December 4, 2009) (approving SR-
NYSE-2009-89).
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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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) by order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
[[Page 46533]]
Send an email to [email protected]. Please include
file number SR-NASDAQ-2024-019 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-2024-019. 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 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NASDAQ-2024-019 and should
be submitted on or before June 20, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-11700 Filed 5-28-24; 8:45 am]
BILLING CODE 8011-01-P
