Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order Granting Approval of a Proposed Rule Change, to Rules 5605, 5615 and 5810 To Amend Phase-In Schedules for Certain Corporate Governance Requirements and Applicability of Certain Cure Periods, 70674-70679 [2024-19496]
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70674
Federal Register / Vol. 89, No. 169 / Friday, August 30, 2024 / Notices
It is ordered:
1. The Commission establishes Docket
No. N2024–1 to consider the Postal
Service’s proposed changes to the
service standards for end-to-end Market
Dominant and Competitive products to
align with certain operational
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2. The Postal Service shall conduct a
virtual pre-filing conference regarding
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1:00 p.m. to 3:00 p.m. EDT.
3. Pursuant to 39 U.S.C. 3661(c) and
39 CFR 3020.111(d), Ping Gong is
appointed to serve as an officer of the
Commission (Public Representative) to
represent the interests of the general
public in this proceeding.
4. Pursuant to 39 CFR 3020.111(d),
the Secretary shall arrange for
publication of this order in the Federal
Register.
By the Commission.
Erica A. Barker,
Secretary.
[FR Doc. 2024–19551 Filed 8–29–24; 8:45 am]
BILLING CODE 7710–FW–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100816; File No. SR–
NASDAQ–2024–019]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Order
Granting Approval of a Proposed Rule
Change, to Rules 5605, 5615 and 5810
To Amend Phase-In Schedules for
Certain Corporate Governance
Requirements and Applicability of
Certain Cure Periods
August 26, 2024.
ddrumheller on DSK120RN23PROD with NOTICES1
I. Introduction
On May 8, 2024, The Nasdaq Stock
Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’),1 and
Rule 19b–4 thereunder,2 a proposed rule
change to amend Exchange Rules 5605,
5615, and 5810 regarding the phase-in
schedules for certain corporate
governance requirements and the
applicability of certain cure periods.
The proposed rule change was
published for comment in the Federal
Register on May 29, 2024.3 On July 12,
2024, the Commission designated a
longer period for Commission action on
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 100208
(May 22, 2024), 89 FR 46528 (‘‘Notice’’).
2 17
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the proposed rule change.4 The
Commission has received no comment
letters on the proposal. As discussed
further below, the Commission is
approving the proposed rule change.
II. Description of the Proposal
The Exchange proposes to amend the
phase-in schedules for compliance with
the independent board director and
committee requirements for certain
companies and codify its practices
regarding the applicability of certain
cure periods. As discussed below, the
changes to the phase-in provisions are
similar to those previously approved for
another national securities exchange.
The Exchange also proposes to
renumber several rules and make nonsubstantive clarifications.
A. Modifications to Phase-In Schedules
Initial Public Offerings
Currently, Exchange Rule 5615(b)(1)
references that a company listing in
connection with an IPO is permitted to
phase in its independent audit
committee requirements in accordance
with Rule 10A–3(b)(1)(iv)(A) under the
Act 5 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.6
Further, 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. The Exchange states that 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.7 Therefore, to accommodate this
4 See Securities Exchange Act Release No. 100523
(July 12, 2024), 89 FR 58450 (July 18, 2024)
(designating August 27, 2024 as the date by which
the Commission shall either approve, disapprove,
or institute proceedings to determine whether to
disapprove the proposed rule change).
5 17 CFR 240.10A–3(b)(1)(iv)(A).
6 See 17 CFR 240.10A–3(b)(1)(iv)(A). Accordingly,
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.
7 See Notice, supra note 3, at 46528. See also, e.g.,
New York Stock Exchange (‘‘NYSE’’) IPO Guide, at
41, available at https://www.nyse.com/publicdocs/
nyse/listing/nyse_ipo_guide.pdf.
PO 00000
Frm 00084
Fmt 4703
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practice, Nasdaq has proposed to amend
Rule 5615(b)(1) to allow 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 the initial public offering closes
or five business days from the Listing
Date.8 The Exchange is also proposing,
as to the requirement for a company to
have at least two members on the
compensation committee, that the
company have at least one member by
the Listing Date and at least two
members within one year of the Listing
Date.
Rule 5605(c)(2)(A) requires a
company to have a minimum of three
members on the audit committee.
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 threeperson 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.
Companies Emerging From Bankruptcy
Currently, 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 specifically
state that a company emerging from
bankruptcy must comply with the audit
committee requirements set forth in
Rule 5605(c)(2) 9 by the Listing Date
unless an exemption is available
pursuant to Rule 10A–3 under the Act.10
Nasdaq also states that it proposes to
make additional clarifications to
improve the readability of the rule
without changing its substance,
including to provide that the applicable
8 See
Notice, supra note 3, at 46528.
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.
10 This is a non-substantive change and simply
codifies how the current rule works for companies
emerging from bankruptcy because there is
currently no phase-in provision from the audit
committee requirements of Rule 5605(c)(2) for such
companies under the Exchange rules. Additionally,
Rule 5605(c)(2)(A)(ii) requires a listed company to
meet the criteria for independence in Rule 10A–
3(b)(1) under the Act subject to the exemptions
provided in Rule 10A–3(c) under the Act. See 17
CFR 240.10A–3.
9 Rule
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Federal Register / Vol. 89, No. 169 / Friday, August 30, 2024 / Notices
phase-in periods will be computed
beginning on the Listing Date.11
Companies Transferring From National
Securities Exchanges Registered Under
Section 12(b) of the Act and Companies
Listing Securities Previously Registered
Under Section 12(g) of the Act
ddrumheller on DSK120RN23PROD with NOTICES1
Currently, 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. The current rule
also states that this transition period is
not intended to supplant any applicable
requirements of Rule 10A–3 under the
Act.12
Nasdaq proposes to state 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 13 from another national
securities exchange to Nasdaq. The
other provisions in the rule on any
applicable phase-in periods and the
application of Rule 10A–3 under the
Act 14 will remain the same as in the
current rule as to companies transferring
to the Exchange from another national
securities exchange.
The Exchange is also proposing to
specify requirements applicable to a
company listing securities registered
pursuant to Section 12(g) of the Act
immediately prior to listing.15 Nasdaq
proposes to modify Rule 5615(b)(3) to
provide that a company with securities
registered pursuant to Section 12(g) of
the Act 16 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.17
11 See Notice, supra note 3, at 46529. The
proposal makes clear that for companies emerging
from bankruptcy all the phase in periods commence
at the beginning of the Listing Date. This is in
contrast to companies listing in connection with an
IPO that are permitted to compute the
compensation and nominating committee phase-in
periods by the earlier of the date the IPO closes or
five business days from the Listing Date.
12 See 17 CFR 240.10A–3.
13 15 U.S.C. 78l(b).
14 17 CFR 240.10A–3.
15 15 U.S.C. 78l(g).
16 15 U.S.C. 78l(g).
17 See 17 CFR 240.10A–3.
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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 with
respect to the audit committee
requirements. The Exchange states that,
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.18 Therefore, Nasdaq
proposes to allow these companies a
similar phase-in period as currently
provided to an IPO, other than for 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.19 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 20 would be
permitted on the audit committee
during the transition period (unless an
exemption is available under Rule 10A–
3 under the Act 21).22 However, a phasein 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.23 The revised rule would
Notice, supra note 3, at 46529.
independent directors serving on the
compensation committee would also be required to
satisfy the requirements of Rule 10C–1 under the
Act. See 17 CFR 240.10(C)–1.
20 17 CFR 240.10A–3(b)(1).
21 17 CFR 240.10A–3.
22 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). See also infra note 23.
23 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—
70675
also specify that a company’s
compensation committee must have at
least one member at the time of listing
and at least two members within one
year of listing.24
Companies Listing in Connection With
a Carve-Out or Spin-O ff 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. The
Exchange states that, 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) 25 specifying the phasein 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.26 Nasdaq also
proposes to provide that, regarding the
requirement to have at least two
18 See
19 The
PO 00000
Frm 00085
Fmt 4703
Sfmt 4703
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.
24 See Securities Exchange Act Release No. 68013
(Oct. 9, 2012), 77 FR 62563, 62569, n.67 (Oct. 15,
2012) (Notice of Filing for SR–NASDAQ–2012–
109). See also Securities Exchange Act Release No.
68640 (Jan. 11, 2013), 78 FR 4554 (Jan. 22, 2013)
(approving SR–NASDAQ–2012–109).
25 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).
26 The independent directors serving on the
compensation committee would also be required to
satisfy the requirements of Rule 10C–1 under the
Act. See 17 CFR 240.10(C)–1.
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ddrumheller on DSK120RN23PROD with NOTICES1
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.27
Nasdaq states that its 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.28 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.29 The Exchange
states that 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 spinoff transaction closes.30 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.31
Currently, Rule 5605(c)(2)(A) requires
a company to have a minimum of three
members on the audit committee.
Nasdaq proposes to provide that
companies listing in connection with a
carve-out or spin-off transaction may
also phase in compliance with the threeperson 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.32
27 See Securities Exchange Act Release No. 68013
(Oct. 9, 2012), 77 FR 62563 (Oct. 15, 2012) (Notice
of Filing for SR–NASDAQ–2012–109) at footnote
67. See also Securities Exchange Act Release No.
34–68640 (Jan. 11, 2013), 78 FR 4554 (Jan. 22, 2013)
(approving SR–NASDAQ–2012–109).
28 See Notice, supra note 3, at 46530.
29 See id.
30 See id.
31 See id.
32 See supra notes 22 and 23. As discussed below,
as with an IPO, if a company has only one member
on the audit committee by the Listing Date as
permitted by the phase-in periods, that audit
committee member, in addition to meeting the
independence requirements in Rule 5605(c)(2),
must also meet the requirements to have accounting
or finance experience and financial sophistication
in accordance with Rule 5605(c)(2)(iv) as well meet
the other requirements set forth in 5605(c)(2).
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Companies Ceasing To Qualify as a
Foreign Private Issuer
Currently, Rule 5615(a)(3) provides
that a ‘‘Foreign Private Issuer,’’ as
defined pursuant to Rule 3b–4 under the
Act,33 may follow its home country
practice in lieu of the requirements of
the Rule 5600 Series, provided,
however, that such a Company must
comply with, among other
requirements,34 the requirement to 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 Commission rules becomes
subject to all relevant corporate
governance requirements of Rule 5605.
Pursuant to Rule 3b–4 under the
Act,35 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.36 Under Rule 3b–4
under the Act 37 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
and executive sessions requirements set
forth in Rule 5605(b); the independent
compensation and nominations
committee requirements set forth in
Rules 5605(d)(2) and (e)(1)(B); and audit
committee requirements set forth in
Rule 5605(c)(2), including the threeperson audit committee requirement,
with the exception of Rule
5605(c)(2(A)(ii) that, as noted below,
33 17
CFR 240.3b–4.
Nasdaq Rule 5615(a)(3) and IM–5615–3 for
the other requirements under the Exchange’s rules
a Foreign Private Issuer must comply with and
cannot follow home country practice.
35 See id.
36 See id.
37 See id.
34 See
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Frm 00086
Fmt 4703
Sfmt 4703
must continually be complied with by a
Foreign Private Issuer. 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,38
subject to the exemptions provided in
Rule 10A–3(c) under the Act 39).
Companies Ceasing to be a Controlled
Company
Nasdaq proposes to amend Rule
5615(c)(3) to state that the applicable
phase-in periods for companies ceasing
to be a Controlled Company for
purposes of the independent
compensation and nominations
committees and majority of independent
boards will be computed beginning on
the date the company ceases to be a
Controlled Company.40
Noncompliance During the Phase-In
Period
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 phasein period. The Exchange states that this
treatment is consistent with treatment of
a company that relied on a phase-in
period throughout its duration although,
as discussed below, there are differences
in the availability of a cure period at the
end of the phase-in period.
B. Unavailability of Cure 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
38 17
CFR 240.10A–3(b)(1).
CFR 240.10A–3(c).
40 Under current Rule 5615(c)(2), Controlled
Companies are exempt from the requirements of
Rules 5605(b) (Independent Directors), 5605(d)
(Compensation Committee Requirements) and
5605(e) (Independent Director Oversight of Director
Nominations), except for the requirements of
subsection (b)(2) which pertains to executive
sessions of independent directors. Under the
proposal, this provision is being moved unchanged
to new Rule 5615(a)(1) (Exemptions Afforded to a
Controlled Company).
39 17
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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 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, the Exchange states that it is
not appropriate for the company to rely
on the grace period immediately
thereafter because it would effectively
extend the phase-in period.41 In such a
case, Nasdaq states that it will issue a
Staff Delisting Determination letter to
delist the Company’s securities.42
Nasdaq also proposes to amend Rule
5810(c)(3)(E) to 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.
41 See
42 See
Notice, supra note 3, at 46531.
id.
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70677
C. Renumbering of Certain Rules and
Non-Substantive Clarifications
readability of the rules without
changing its substance.43
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), respectively. 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.
Additionally, Nasdaq proposes to
amend the title of Rule 5615(b)(4),
concerning companies that cease to be
a Smaller Reporting Company, and
renumber it to Rule 5615(b)(5) and add
an introductory sentence to improve the
readability of the rule without changing
its substance.
Nasdaq is also proposing to correct a
misleading rule reference in Rule
5615(b)(1), which makes references to
the nominations committee’s
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 outlined in Rule 5605(e).
Further, Nasdaq proposes 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.’’ Moreover, Rule 5615(b)(1) does
not provide an exemption from Rule
5625 for any company. Accordingly,
Nasdaq states it is proposing to
eliminate the references to Rule 5625 in
Rule 5615(b)(1) to eliminate potential
confusion without any substantive
impact.
Finally, Nasdaq proposes to add an
introductory paragraph to the phase-in
rules in Rule 5615(b). The Exchange
believes the change will improve the
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange.44 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,45 which requires,
among other things, that the rules of a
national securities exchange be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest and not
be designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
The development and enforcement of
meaningful listing standards for a
national securities exchange is of
critical importance to financial markets
and the investing public.46 Meaningful
listing standards are especially
important given investor expectations
regarding the nature of companies that
have achieved an exchange listing for
their securities, and the role of an
exchange in overseeing its market and
ensuring compliance with its listing
standards.47 The corporate governance
standards embodied in the listing rules
of national securities exchanges, in
particular, play an important role in
PO 00000
Frm 00087
Fmt 4703
Sfmt 4703
43 See
id.
U.S.C. 78f(b). 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).
45 15 U.S.C. 78f(b)(5).
46 See, e.g., Securities Exchange Act Release Nos.
99238 (Dec. 26, 2023), 89 FR 113, 116 (Jan. 2, 2024)
(SR–NYSE–2023–34) and 81856, (Oct. 11, 2017), 82
FR 48296, 48298 (Oct. 17, 2017) (SR–NYSE–2017–
31). Among other things, the Commission has stated
that listing standards provide the means for an
exchange to screen issuers that seek to become
listed, and to provide listed status only to those that
are bona fide companies and that have or will have
sufficient public float, investor base, and trading
interest likely to generate depth and liquidity
sufficient to promote fair and orderly markets. See
e.g., Securities Exchange Act Release No. 93256
(Oct. 4, 2021), 86 FR 56338, 56342 (Oct. 8, 2021)
(‘‘SR–NASDAQ–2021–007 Approval Order’’).
47 See SR–NASDAQ–2021–007 Approval Order,
supra note 46, at 56342. The Commission has also
stated that adequate listing standards, by promoting
fair and orderly markets, are consistent with
Section 6(b)(5) of the Act, in that they are, among
other things, designed to prevent fraudulent and
manipulative acts and practices, promote just and
equitable principles of trade, and protect investors
and the public interest. See id. at 56342, n.59.
44 15
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assuring that companies listed for
trading on the exchanges’ markets
observe good governance practices,48
including the maintenance of fair and
impartial boards and on key committees
such as the audit, compensation, and
nominating committees. The
Commission believes that Nasdaq’s
proposal will foster greater
transparency, accountability, and
objectivity in the oversight of listed
companies.
As described above, the Exchange
proposes to amend, or adopt new,
phase-in schedules for certain listed
companies to comply with corporate
governance requirements relating to
audit, compensation and nominating
committees and majority independent
boards. Specifically, the proposal would
clarify and amend existing phase-in
schedules for companies listing in
connection with an IPO; companies
emerging from bankruptcy,49 and
companies transferring from other
national securities exchanges with or
without substantially similar
requirements. The Exchange is also
proposing to adopt new rules that
provide certain corporate governance
phase-in schedules for companies (i)
listing securities that were, immediately
prior to listing, registered pursuant to
Section 12(g) of the Act; (ii) listing in
connection with a carve-out or spin-off
transaction; or (iii) ceasing to qualify as
a Foreign Private Issuer. The Exchange
states in support of the changes to, or
additions of, these phase-in periods that
they are substantially similar to those
available for similar companies listing
under the NYSE.50
Consistent with the Commission’s
previous order approving NYSE’s
analogous corporate governance
requirements,51 the Commission
believes phase-in periods for specified
companies newly listing on the
Exchange or newly becoming subject to
certain corporate governance listing
standards as a result of a change in
status are reasonable. The proposal
would permit a phase-in schedule
similar to that allowed under the
current rules for a company listing in
48 See e.g., Securities Exchange Act Release No.
48745 (Nov. 4, 2003), 68 FR 64154, 64175 (Nov. 12,
2003) (relating to approval of corporate governance
rule filings SR–NYSE–2002–33, SR–NASD–2002–
77, SR–NASD–2002–80, SR–NASD–2002–138, SR–
NASD–2002–139, and SR–NASD–2002–141).
49 See supra note 10.
50 See Notice, supra note 3, at 46531. See also
Section 303A.00 (Introduction) of the NYSE Listed
Company Manual. See also Securities Exchange Act
Release No. 61067 (Nov. 25, 2009), 74 FR 63808
(Dec. 4, 2009) (approving SR–NYSE–2009–89)
(‘‘NYSE 2009–89 Approval Order’’).
51 NYSE 2009–89 Approval Order, supra note 50,
at 63810–12.
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conjunction with an IPO, and would
extend such a phase-in schedule
appropriately, to companies listing in
connection with a carve-out or spin-off
transaction.52 As the Commission has
previously stated in reference to
approving similar NYSE rule changes,
the proposed rules offer 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.53 The proposal provides a listed
company with a limited phase-in period
to assure that the listed company’s
board of directors and key committees
are comprised in a manner that is
designed to provide an objective
oversight role and are consistent with
phase-in periods previously approved
by the Commission.54 Further, the
Commission notes that the Exchange’s
proposal on the phase-in periods does
not make any changes to the
requirements for companies to comply
with any of the provisions of Rule 10A–
3 under the Act.55
The proposal also would allow
companies listing in conjunction with
an IPO, a carve-out, or a spin-off, in
addition to companies listing securities
previously registered under Section
12(g) of the Act, a phase-in period with
respect to the Exchange requirement
that the audit committee have a
minimum of three members. As the
Commission previously stated in
approving NYSE’s similar phase-in
provisions, permitting a company to
have only one member on its audit
committee by the listing date, at least
two members within 90 days of the
listing date and at least three members
within a year of the listing date, affords
a reasonable accommodation for such
companies.56
52 Id.
53 Id.
54 See
NYSE 2009–89 Approval Order, supra note
50.
55 See 17 CFR 240.10A–3. As the Exchange states,
the proposal also makes no adjustments for
compliance with Rule 10C–1 under the Act as well.
See Notice, supra note 3, at 46532.
56 Under existing Exchange Rule 5615(b)(1)
companies listing in connection with an IPO are
allowed to phase in the requirements for
independent compensation and nomination
committees and must have one independent
director member at the time of listing. Consistent
with NYSE rules, Nasdaq is also proposing to
provide that companies listing in connection with
an IPO can comply with the requirement to have
one independent director on the compensation and
nomination committee no later than the earlier of
the date the IPO closes or five business days from
the Listing Date and for purposes of the listing of
carve-outs and spin-offs that such committees have
an independent director by the date the transaction
closes. The Commission believes this is reasonable
and has previously approved similar NYSE rules as
consistent with the Act. See Section 303A.00
PO 00000
Frm 00088
Fmt 4703
Sfmt 4703
The Commission further states that
the proposed rule change does not grant
an exemption or phase-in period to any
newly-listed company with respect to
the provision set forth in Rule 5605(c)
that requires every listed company’s
audit committee, and without
distinction as to the committee’s size, to
have at least one member who has past
accounting or finance experience and
other comparable experience or
background which results in financial
sophistication.57 In addition, Rule 10A–
3 under the Act 58 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 independence of other audit
committee members.59 Thus, if a newlylisted company that is eligible for a
phase-in period with respect to the size
requirement chooses to have initially
only one member on its audit
committee, that member would need to
be independent and also have to meet
the Exchange’s financial sophistication
requirement.
The Exchange is also proposing, as
described above, to provide a phase-in
to certain corporate governance
requirements for companies that cease
to be Foreign Private Issuers. As the
Exchange explained in its proposal,
Foreign Private Issuers can follow home
country practice for certain corporate
governance provisions.60 The Exchange
is proposing to allow a Foreign Private
Issuer that ceases to qualify as such to
comply with certain corporate
governance requirements (e.g. the
majority independent board
requirement), six months after the date
it was determined to no longer qualify
as a Foreign Private Issuer.61 Foreign
Private Issuers are not permitted to
follow home country practice with
respect to the independent audit
committee requirements under Rule
5605(c)(2)(A)(ii) and the audit
committee requirements in Rule
5605(c)(3) 62 and the phase-in rule for
Foreign Private Issuers makes clear that
the company must continue to have an
audit committee meeting these
requirements during any phase in for
other corporate governance
requirements provided for in the new
(Introduction) of the NYSE Listed Company
Manual; NYSE 2009–89. Approval Order, supra
note 50.
57 See Notice, supra note 3, at 46532.
58 17 CFR 240.10A–3.
59 See 17 CFR 240.10A–3(b)(1)(iv).
60 See Notice, supra note 3, at 46530.
61 See supra section II.A, ‘‘Companies Ceasing to
Qualify as a Foreign Private Issuer.’’
62 See Nasdaq IM–5615–3 (Foreign Private
Issuers).
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ddrumheller on DSK120RN23PROD with NOTICES1
provision. The phase-in provisions for
companies ceasing to be Foreign Private
Issuers are consistent with NYSE rules
and appear to be a reasonable
accommodation.
The amended rules will also address
the treatment of companies that wish to
avail themselves of a cure period
following the expiration of a phase-in
period with respect to the independence
requirements applicable to the board of
directors, audit committee and
compensation committee, the
permissibility of which the rules are
currently silent.63 In prohibiting a cure
period following the expiration of a
phase-in period (unless the company
demonstrated compliance with the
applicable requirement during such
phase-in period and then fell out of
compliance before the expiration of the
phase-in period), the Exchange states it
seeks to limit the maximum time a
company may remain listed without
fully complying with independent
committees or the independent board
requirements. The Commission believes,
given the importance of these
requirements to assure adequate
oversight, that it is reasonable not to
provide a cure period under such
circumstances because the company has
already had a phase-in period and failed
to comply throughout that period.64 The
greater clarity and uniformity of
treatment afforded by the proposal can
help to foster accountability of
companies’ corporate governance
practices.
In addition, the Commission believes
that the renumbering of certain rules
and other non-substantive changes,
clarifications and corrections will add
clarity to the Exchange’s corporate
governance listing rules, as well as
remove any confusion regarding the
application of phase-in periods.
Finally, as described above, many of
the changes proposed by Nasdaq are
similar to rules that were previously
approved for the NYSE and found to be
consistent with the Act.
63 The Exchange states it is codifying its current
position. See Notice, supra note 3, at 46532. The
Exchange proposal is also amending Rule
5810(c)(3)(E) to describe procedures for
administering a cure period if one member of the
compensation committee fails to comply with the
compensation requirement in Rule 5605(d)(2)(A) in
certain circumstances. See also Rule 5805(d)(4)
(Cure Period for Compensation Committee).
64 While the Exchange is proposing to allow a
cure period if the company came into compliance
and then fell out of compliance during the phasein period, any cure period will be measured from
the earlier period when the company fell out of
compliance as opposed to end of the phase-in
period.
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IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act 65 that the
proposed rule change (SR–NASDAQ–
2024–019) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.66
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024–19496 Filed 8–29–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
35307; 812–15602]
Gladstone Alternative Income Fund
and Gladstone Management
Corporation
August 26, 2024.
Securities and Exchange
Commission (‘‘Commission’’ or ‘‘SEC’’).
ACTION: Notice.
AGENCY:
Notice of an application under section
6(c) of the Investment Company Act of
1940 (the ‘‘Act’’) for an exemption from
sections 18(a)(2), 18(c) and 18(i) of the
Act, under sections 6(c) and 23(c) of the
Act for an exemption from rule 23c–3
under the Act, and for an order pursuant
to section 17(d) of the Act and rule 17d–
1 under the Act.
Summary of Application: Applicants
request an order to permit certain
registered closed-end investment
companies to issue multiple classes of
shares and to impose asset-based
distribution and/or service fees and
early withdrawal charges.
Applicants: Gladstone Alternative
Income Fund and Gladstone
Management Corporation.
Filing Dates: The application was
filed on July 12, 2024.
Hearing or Notification of Hearing: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing on any application by
emailing the SEC’s Secretary at
Secretarys-Office@sec.gov and serving
the Applicants with a copy of the
request by email, if an email address is
listed for the relevant Applicant below,
or personally or by mail, if a physical
address is listed for the relevant
Applicant below. Hearing requests
should be received by the Commission
by 5:30 p.m. on September 20, 2024,
and should be accompanied by proof of
65 15
66 17
PO 00000
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
Frm 00089
Fmt 4703
Sfmt 4703
70679
service on the Applicants, in the form
of an affidavit, or, for lawyers, a
certificate of service. Pursuant to rule 0–
5 under the Act, hearing requests should
state the nature of the writer’s interest,
any facts bearing upon the desirability
of a hearing on the matter, the reason for
the request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
emailing the Commission’s Secretary.
ADDRESSES: The Commission:
Secretarys-Office@sec.gov. Applicants:
William J. Tuttle, P.C., Kirkland & Ellis
LLP, william.tuttle@kirkland.com and
Erin M. Lett, Kirkland & Ellis LLP,
erin.lett@kirkland.com.
FOR FURTHER INFORMATION CONTACT:
Trace W. Rakestraw, Senior Special
Counsel, at (202) 551–6825 (Division of
Investment Management, Chief
Counsel’s Office).
SUPPLEMENTARY INFORMATION: For
Applicants’ representations, legal
analysis, and conditions, please refer to
Applicants’ application, dated July 12,
2024, which may be obtained via the
Commission’s website by searching for
the file number at the top of this
document, or for an Applicant using the
Company name search field on the
SEC’s EDGAR system. The SEC’s
EDGAR system may be searched at
https://www.sec.gov/edgar/searchedgar/
legacy/companysearch.html. You may
also call the SEC’s Public Reference
Room at (202) 551–8090.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024–19512 Filed 8–29–24; 8:45 am]
BILLING CODE 8011–01–P
DEPARTMENT OF STATE
[Public Notice: 12493]
Notice of Determinations; Additional
Culturally Significant Objects Being
Imported for Exhibition—
Determinations: ‘‘Art and War in the
Renaissance: The Battle of Pavia
Tapestries’’ Exhibition
On February 27, 2024, notice
was published in the Federal Register of
determinations pertaining to certain
objects to be included in an exhibition
entitled ‘‘Art and War in the
Renaissance: The Battle of Pavia
Tapestries.’’ Notice is hereby given of
the following determinations: I hereby
determine that certain additional objects
being imported from abroad pursuant to
an agreement with their foreign owner
SUMMARY:
E:\FR\FM\30AUN1.SGM
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]]>Agencies
[Federal Register Volume 89, Number 169 (Friday, August 30, 2024)]
[Notices]
[Pages 70674-70679]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19496]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100816; File No. SR-NASDAQ-2024-019]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order
Granting Approval of a Proposed Rule Change, to Rules 5605, 5615 and
5810 To Amend Phase-In Schedules for Certain Corporate Governance
Requirements and Applicability of Certain Cure Periods
August 26, 2024.
I. Introduction
On May 8, 2024, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend Exchange Rules 5605, 5615, and 5810
regarding the phase-in schedules for certain corporate governance
requirements and the applicability of certain cure periods. The
proposed rule change was published for comment in the Federal Register
on May 29, 2024.\3\ On July 12, 2024, the Commission designated a
longer period for Commission action on the proposed rule change.\4\ The
Commission has received no comment letters on the proposal. As
discussed further below, the Commission is approving the proposed rule
change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 100208 (May 22,
2024), 89 FR 46528 (``Notice'').
\4\ See Securities Exchange Act Release No. 100523 (July 12,
2024), 89 FR 58450 (July 18, 2024) (designating August 27, 2024 as
the date by which the Commission shall either approve, disapprove,
or institute proceedings to determine whether to disapprove the
proposed rule change).
---------------------------------------------------------------------------
II. Description of the Proposal
The Exchange proposes to amend the phase-in schedules for
compliance with the independent board director and committee
requirements for certain companies and codify its practices regarding
the applicability of certain cure periods. As discussed below, the
changes to the phase-in provisions are similar to those previously
approved for another national securities exchange. The Exchange also
proposes to renumber several rules and make non-substantive
clarifications.
A. Modifications to Phase-In Schedules
Initial Public Offerings
Currently, Exchange Rule 5615(b)(1) references that a company
listing in connection with an IPO is permitted to phase in its
independent audit committee requirements in accordance with Rule 10A-
3(b)(1)(iv)(A) under the Act \5\ 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.\6\
---------------------------------------------------------------------------
\5\ 17 CFR 240.10A-3(b)(1)(iv)(A).
\6\ See 17 CFR 240.10A-3(b)(1)(iv)(A). Accordingly, 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.
---------------------------------------------------------------------------
Further, 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. The Exchange
states that 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.\7\ Therefore,
to accommodate this practice, Nasdaq has proposed to amend Rule
5615(b)(1) to allow 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 the initial public offering closes or five
business days from the Listing Date.\8\ The Exchange is also proposing,
as to the requirement for a company to have at least two members on the
compensation committee, that the company have at least one member by
the Listing Date and at least two members within one year of the
Listing Date.
---------------------------------------------------------------------------
\7\ See Notice, supra note 3, at 46528. See also, e.g., New York
Stock Exchange (``NYSE'') IPO Guide, at 41, available at https://www.nyse.com/publicdocs/nyse/listing/nyse_ipo_guide.pdf.
\8\ See Notice, supra note 3, at 46528.
---------------------------------------------------------------------------
Rule 5605(c)(2)(A) requires a company to have a minimum of three
members on the audit committee. 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.
Companies Emerging From Bankruptcy
Currently, 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 specifically state that a company
emerging from bankruptcy must comply with the audit committee
requirements set forth in Rule 5605(c)(2) \9\ by the Listing Date
unless an exemption is available pursuant to Rule 10A-3 under the
Act.\10\ Nasdaq also states that it proposes to make additional
clarifications to improve the readability of the rule without changing
its substance, including to provide that the applicable
[[Page 70675]]
phase-in periods will be computed beginning on the Listing Date.\11\
---------------------------------------------------------------------------
\9\ 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.
\10\ This is a non-substantive change and simply codifies how
the current rule works for companies emerging from bankruptcy
because there is currently no phase-in provision from the audit
committee requirements of Rule 5605(c)(2) for such companies under
the Exchange rules. Additionally, Rule 5605(c)(2)(A)(ii) requires a
listed company to meet the criteria for independence in Rule 10A-
3(b)(1) under the Act subject to the exemptions provided in Rule
10A-3(c) under the Act. See 17 CFR 240.10A-3.
\11\ See Notice, supra note 3, at 46529. The proposal makes
clear that for companies emerging from bankruptcy all the phase in
periods commence at the beginning of the Listing Date. This is in
contrast to companies listing in connection with an IPO that are
permitted to compute the compensation and nominating committee
phase-in periods by the earlier of the date the IPO closes or five
business days from the Listing Date.
---------------------------------------------------------------------------
Companies Transferring From National Securities Exchanges Registered
Under Section 12(b) of the Act and Companies Listing Securities
Previously Registered Under Section 12(g) of the Act
Currently, 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. The
current rule also states that this transition period is not intended to
supplant any applicable requirements of Rule 10A-3 under the Act.\12\
---------------------------------------------------------------------------
\12\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------
Nasdaq proposes to state 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
\13\ from another national securities exchange to Nasdaq. The other
provisions in the rule on any applicable phase-in periods and the
application of Rule 10A-3 under the Act \14\ will remain the same as in
the current rule as to companies transferring to the Exchange from
another national securities exchange.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78l(b).
\14\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------
The Exchange is also proposing to specify requirements applicable
to a company listing securities registered pursuant to Section 12(g) of
the Act immediately prior to listing.\15\ Nasdaq proposes to modify
Rule 5615(b)(3) to provide that a company with securities registered
pursuant to Section 12(g) of the Act \16\ 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.\17\
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78l(g).
\16\ 15 U.S.C. 78l(g).
\17\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------
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 with respect to the audit committee requirements. The
Exchange states that, 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.\18\ Therefore, Nasdaq proposes
to allow these companies a similar phase-in period as currently
provided to an IPO, other than for 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.\19\ 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).
---------------------------------------------------------------------------
\18\ See Notice, supra note 3, at 46529.
\19\ The independent directors serving on the compensation
committee would also be required to satisfy the requirements of Rule
10C-1 under the Act. See 17 CFR 240.10(C)-1.
---------------------------------------------------------------------------
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 \20\ would be permitted on the audit
committee during the transition period (unless an exemption is
available under Rule 10A-3 under the Act \21\).\22\ 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.\23\ The revised rule would also specify
that a company's compensation committee must have at least one member
at the time of listing and at least two members within one year of
listing.\24\
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\20\ 17 CFR 240.10A-3(b)(1).
\21\ 17 CFR 240.10A-3.
\22\ 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). See also infra note 23.
\23\ 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.
\24\ See Securities Exchange Act Release No. 68013 (Oct. 9,
2012), 77 FR 62563, 62569, n.67 (Oct. 15, 2012) (Notice of Filing
for SR-NASDAQ-2012-109). See also Securities Exchange Act Release
No. 68640 (Jan. 11, 2013), 78 FR 4554 (Jan. 22, 2013) (approving SR-
NASDAQ-2012-109).
---------------------------------------------------------------------------
Companies Listing in Connection With a Carve-Out or Spin-O ff
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. The Exchange states that, 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) \25\ 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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\25\ 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.\26\ Nasdaq also proposes to provide that, regarding the
requirement to have at least two
[[Page 70676]]
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.\27\
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\26\ The independent directors serving on the compensation
committee would also be required to satisfy the requirements of Rule
10C-1 under the Act. See 17 CFR 240.10(C)-1.
\27\ See Securities Exchange Act Release No. 68013 (Oct. 9,
2012), 77 FR 62563 (Oct. 15, 2012) (Notice of Filing for SR-NASDAQ-
2012-109) at footnote 67. See also Securities Exchange Act Release
No. 34-68640 (Jan. 11, 2013), 78 FR 4554 (Jan. 22, 2013) (approving
SR-NASDAQ-2012-109).
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Nasdaq states that its 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.\28\ 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.\29\ The Exchange states that 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.\30\ 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.\31\
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\28\ See Notice, supra note 3, at 46530.
\29\ See id.
\30\ See id.
\31\ See id.
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Currently, Rule 5605(c)(2)(A) requires a company to have a minimum
of three members on the audit committee. 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.\32\
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\32\ See supra notes 22 and 23. As discussed below, as with an
IPO, if a company has only one member on the audit committee by the
Listing Date as permitted by the phase-in periods, that audit
committee member, in addition to meeting the independence
requirements in Rule 5605(c)(2), must also meet the requirements to
have accounting or finance experience and financial sophistication
in accordance with Rule 5605(c)(2)(iv) as well meet the other
requirements set forth in 5605(c)(2).
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Companies Ceasing To Qualify as a Foreign Private Issuer
Currently, Rule 5615(a)(3) provides that a ``Foreign Private
Issuer,'' as defined pursuant to Rule 3b-4 under the Act,\33\ may
follow its home country practice in lieu of the requirements of the
Rule 5600 Series, provided, however, that such a Company must comply
with, among other requirements,\34\ the requirement to 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 Commission rules becomes subject to all relevant corporate
governance requirements of Rule 5605.
---------------------------------------------------------------------------
\33\ 17 CFR 240.3b-4.
\34\ See Nasdaq Rule 5615(a)(3) and IM-5615-3 for the other
requirements under the Exchange's rules a Foreign Private Issuer
must comply with and cannot follow home country practice.
---------------------------------------------------------------------------
Pursuant to Rule 3b-4 under the Act,\35\ 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.\36\ Under Rule 3b-4 under the Act \37\ 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).
---------------------------------------------------------------------------
\35\ See id.
\36\ See id.
\37\ See id.
---------------------------------------------------------------------------
Specifically, the company shall have six months from the Foreign
Private Issuer Determination Date to comply with the majority
independent board and executive sessions requirements set forth in Rule
5605(b); the independent compensation and nominations committee
requirements 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, with the exception of Rule
5605(c)(2(A)(ii) that, as noted below, must continually be complied
with by a Foreign Private Issuer. 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,\38\ subject to the exemptions
provided in Rule 10A-3(c) under the Act \39\).
---------------------------------------------------------------------------
\38\ 17 CFR 240.10A-3(b)(1).
\39\ 17 CFR 240.10A-3(c).
---------------------------------------------------------------------------
Companies Ceasing to be a Controlled Company
Nasdaq proposes to amend Rule 5615(c)(3) to state that the
applicable phase-in periods for companies ceasing to be a Controlled
Company for purposes of the independent compensation and nominations
committees and majority of independent boards will be computed
beginning on the date the company ceases to be a Controlled
Company.\40\
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\40\ Under current Rule 5615(c)(2), Controlled Companies are
exempt from the requirements of Rules 5605(b) (Independent
Directors), 5605(d) (Compensation Committee Requirements) and
5605(e) (Independent Director Oversight of Director Nominations),
except for the requirements of subsection (b)(2) which pertains to
executive sessions of independent directors. Under the proposal,
this provision is being moved unchanged to new Rule 5615(a)(1)
(Exemptions Afforded to a Controlled Company).
---------------------------------------------------------------------------
Noncompliance During the Phase-In Period
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.
The Exchange states that this treatment is consistent with treatment of
a company that relied on a phase-in period throughout its duration
although, as discussed below, there are differences in the availability
of a cure period at the end of the phase-in period.
B. Unavailability of Cure 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
[[Page 70677]]
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, the Exchange states that it is
not appropriate for the company to rely on the grace period immediately
thereafter because it would effectively extend the phase-in period.\41\
In such a case, Nasdaq states that it will issue a Staff Delisting
Determination letter to delist the Company's securities.\42\
---------------------------------------------------------------------------
\41\ See Notice, supra note 3, at 46531.
\42\ See id.
---------------------------------------------------------------------------
Nasdaq also proposes to amend Rule 5810(c)(3)(E) to 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.
C. Renumbering of Certain Rules and Non-Substantive Clarifications
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),
respectively. 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.
Additionally, Nasdaq proposes to amend the title of Rule
5615(b)(4), concerning companies that cease to be a Smaller Reporting
Company, and renumber it to Rule 5615(b)(5) and add an introductory
sentence to improve the readability of the rule without changing its
substance.
Nasdaq is also proposing to correct a misleading rule reference in
Rule 5615(b)(1), which makes references to the nominations committee's
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 outlined in Rule 5605(e).
Further, Nasdaq proposes 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.'' Moreover, Rule 5615(b)(1) does
not provide an exemption from Rule 5625 for any company. Accordingly,
Nasdaq states it is proposing to eliminate the references to Rule 5625
in Rule 5615(b)(1) to eliminate potential confusion without any
substantive impact.
Finally, Nasdaq proposes to add an introductory paragraph to the
phase-in rules in Rule 5615(b). The Exchange believes the change will
improve the readability of the rules without changing its
substance.\43\
---------------------------------------------------------------------------
\43\ See id.
---------------------------------------------------------------------------
III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\44\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\45\ which
requires, among other things, that the rules of a national securities
exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest and not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\44\ 15 U.S.C. 78f(b). 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).
\45\ 15 U.S.C. 78f(b)(5).
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The development and enforcement of meaningful listing standards for
a national securities exchange is of critical importance to financial
markets and the investing public.\46\ Meaningful listing standards are
especially important given investor expectations regarding the nature
of companies that have achieved an exchange listing for their
securities, and the role of an exchange in overseeing its market and
ensuring compliance with its listing standards.\47\ The corporate
governance standards embodied in the listing rules of national
securities exchanges, in particular, play an important role in
[[Page 70678]]
assuring that companies listed for trading on the exchanges' markets
observe good governance practices,\48\ including the maintenance of
fair and impartial boards and on key committees such as the audit,
compensation, and nominating committees. The Commission believes that
Nasdaq's proposal will foster greater transparency, accountability, and
objectivity in the oversight of listed companies.
---------------------------------------------------------------------------
\46\ See, e.g., Securities Exchange Act Release Nos. 99238 (Dec.
26, 2023), 89 FR 113, 116 (Jan. 2, 2024) (SR-NYSE-2023-34) and
81856, (Oct. 11, 2017), 82 FR 48296, 48298 (Oct. 17, 2017) (SR-NYSE-
2017-31). Among other things, the Commission has stated that listing
standards provide the means for an exchange to screen issuers that
seek to become listed, and to provide listed status only to those
that are bona fide companies and that have or will have sufficient
public float, investor base, and trading interest likely to generate
depth and liquidity sufficient to promote fair and orderly markets.
See e.g., Securities Exchange Act Release No. 93256 (Oct. 4, 2021),
86 FR 56338, 56342 (Oct. 8, 2021) (``SR-NASDAQ-2021-007 Approval
Order'').
\47\ See SR-NASDAQ-2021-007 Approval Order, supra note 46, at
56342. The Commission has also stated that adequate listing
standards, by promoting fair and orderly markets, are consistent
with Section 6(b)(5) of the Act, in that they are, among other
things, designed to prevent fraudulent and manipulative acts and
practices, promote just and equitable principles of trade, and
protect investors and the public interest. See id. at 56342, n.59.
\48\ See e.g., Securities Exchange Act Release No. 48745 (Nov.
4, 2003), 68 FR 64154, 64175 (Nov. 12, 2003) (relating to approval
of corporate governance rule filings SR-NYSE-2002-33, SR-NASD-2002-
77, SR-NASD-2002-80, SR-NASD-2002-138, SR-NASD-2002-139, and SR-
NASD-2002-141).
---------------------------------------------------------------------------
As described above, the Exchange proposes to amend, or adopt new,
phase-in schedules for certain listed companies to comply with
corporate governance requirements relating to audit, compensation and
nominating committees and majority independent boards. Specifically,
the proposal would clarify and amend existing phase-in schedules for
companies listing in connection with an IPO; companies emerging from
bankruptcy,\49\ and companies transferring from other national
securities exchanges with or without substantially similar
requirements. The Exchange is also proposing to adopt new rules that
provide certain corporate governance phase-in schedules for companies
(i) listing securities that were, immediately prior to listing,
registered pursuant to Section 12(g) of the Act; (ii) listing in
connection with a carve-out or spin-off transaction; or (iii) ceasing
to qualify as a Foreign Private Issuer. The Exchange states in support
of the changes to, or additions of, these phase-in periods that they
are substantially similar to those available for similar companies
listing under the NYSE.\50\
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\49\ See supra note 10.
\50\ See Notice, supra note 3, at 46531. See also Section
303A.00 (Introduction) of the NYSE Listed Company Manual. See also
Securities Exchange Act Release No. 61067 (Nov. 25, 2009), 74 FR
63808 (Dec. 4, 2009) (approving SR-NYSE-2009-89) (``NYSE 2009-89
Approval Order'').
---------------------------------------------------------------------------
Consistent with the Commission's previous order approving NYSE's
analogous corporate governance requirements,\51\ the Commission
believes phase-in periods for specified companies newly listing on the
Exchange or newly becoming subject to certain corporate governance
listing standards as a result of a change in status are reasonable. The
proposal 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 connection with a carve-out or spin-off transaction.\52\ As
the Commission has previously stated in reference to approving similar
NYSE rule changes, the proposed rules offer 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.\53\ The proposal provides a listed company with a
limited phase-in period to assure that the listed company's board of
directors and key committees are comprised in a manner that is designed
to provide an objective oversight role and are consistent with phase-in
periods previously approved by the Commission.\54\ Further, the
Commission notes that the Exchange's proposal on the phase-in periods
does not make any changes to the requirements for companies to comply
with any of the provisions of Rule 10A-3 under the Act.\55\
---------------------------------------------------------------------------
\51\ NYSE 2009-89 Approval Order, supra note 50, at 63810-12.
\52\ Id.
\53\ Id.
\54\ See NYSE 2009-89 Approval Order, supra note 50.
\55\ See 17 CFR 240.10A-3. As the Exchange states, the proposal
also makes no adjustments for compliance with Rule 10C-1 under the
Act as well. See Notice, supra note 3, at 46532.
---------------------------------------------------------------------------
The proposal also would allow companies listing in conjunction with
an IPO, a carve-out, or a spin-off, in addition to companies listing
securities previously registered under Section 12(g) of the Act, a
phase-in period with respect to the Exchange requirement that the audit
committee have a minimum of three members. As the Commission previously
stated in approving NYSE's similar phase-in provisions, permitting a
company to have only one member on its audit committee by the listing
date, at least two members within 90 days of the listing date and at
least three members within a year of the listing date, affords a
reasonable accommodation for such companies.\56\
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\56\ Under existing Exchange Rule 5615(b)(1) companies listing
in connection with an IPO are allowed to phase in the requirements
for independent compensation and nomination committees and must have
one independent director member at the time of listing. Consistent
with NYSE rules, Nasdaq is also proposing to provide that companies
listing in connection with an IPO can comply with the requirement to
have one independent director on the compensation and nomination
committee no later than the earlier of the date the IPO closes or
five business days from the Listing Date and for purposes of the
listing of carve-outs and spin-offs that such committees have an
independent director by the date the transaction closes. The
Commission believes this is reasonable and has previously approved
similar NYSE rules as consistent with the Act. See Section 303A.00
(Introduction) of the NYSE Listed Company Manual; NYSE 2009-89.
Approval Order, supra note 50.
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The Commission further states that the proposed rule change does
not grant an exemption or phase-in period to any newly-listed company
with respect to the provision set forth in Rule 5605(c) that requires
every listed company's audit committee, and without distinction as to
the committee's size, to have at least one member who has past
accounting or finance experience and other comparable experience or
background which results in financial sophistication.\57\ In addition,
Rule 10A-3 under the Act \58\ 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
independence of other audit committee members.\59\ Thus, if a newly-
listed company that is eligible for a phase-in period with respect to
the size requirement chooses to have initially only one member on its
audit committee, that member would need to be independent and also have
to meet the Exchange's financial sophistication requirement.
---------------------------------------------------------------------------
\57\ See Notice, supra note 3, at 46532.
\58\ 17 CFR 240.10A-3.
\59\ See 17 CFR 240.10A-3(b)(1)(iv).
---------------------------------------------------------------------------
The Exchange is also proposing, as described above, to provide a
phase-in to certain corporate governance requirements for companies
that cease to be Foreign Private Issuers. As the Exchange explained in
its proposal, Foreign Private Issuers can follow home country practice
for certain corporate governance provisions.\60\ The Exchange is
proposing to allow a Foreign Private Issuer that ceases to qualify as
such to comply with certain corporate governance requirements (e.g. the
majority independent board requirement), six months after the date it
was determined to no longer qualify as a Foreign Private Issuer.\61\
Foreign Private Issuers are not permitted to follow home country
practice with respect to the independent audit committee requirements
under Rule 5605(c)(2)(A)(ii) and the audit committee requirements in
Rule 5605(c)(3) \62\ and the phase-in rule for Foreign Private Issuers
makes clear that the company must continue to have an audit committee
meeting these requirements during any phase in for other corporate
governance requirements provided for in the new
[[Page 70679]]
provision. The phase-in provisions for companies ceasing to be Foreign
Private Issuers are consistent with NYSE rules and appear to be a
reasonable accommodation.
---------------------------------------------------------------------------
\60\ See Notice, supra note 3, at 46530.
\61\ See supra section II.A, ``Companies Ceasing to Qualify as a
Foreign Private Issuer.''
\62\ See Nasdaq IM-5615-3 (Foreign Private Issuers).
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The amended rules will also address the treatment of companies that
wish to avail themselves of a cure period following the expiration of a
phase-in period with respect to the independence requirements
applicable to the board of directors, audit committee and compensation
committee, the permissibility of which the rules are currently
silent.\63\ In prohibiting a cure period following the expiration of a
phase-in period (unless the company demonstrated compliance with the
applicable requirement during such phase-in period and then fell out of
compliance before the expiration of the phase-in period), the Exchange
states it seeks to limit the maximum time a company may remain listed
without fully complying with independent committees or the independent
board requirements. The Commission believes, given the importance of
these requirements to assure adequate oversight, that it is reasonable
not to provide a cure period under such circumstances because the
company has already had a phase-in period and failed to comply
throughout that period.\64\ The greater clarity and uniformity of
treatment afforded by the proposal can help to foster accountability of
companies' corporate governance practices.
---------------------------------------------------------------------------
\63\ The Exchange states it is codifying its current position.
See Notice, supra note 3, at 46532. The Exchange proposal is also
amending Rule 5810(c)(3)(E) to describe procedures for administering
a cure period if one member of the compensation committee fails to
comply with the compensation requirement in Rule 5605(d)(2)(A) in
certain circumstances. See also Rule 5805(d)(4) (Cure Period for
Compensation Committee).
\64\ While the Exchange is proposing to allow a cure period if
the company came into compliance and then fell out of compliance
during the phase-in period, any cure period will be measured from
the earlier period when the company fell out of compliance as
opposed to end of the phase-in period.
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In addition, the Commission believes that the renumbering of
certain rules and other non-substantive changes, clarifications and
corrections will add clarity to the Exchange's corporate governance
listing rules, as well as remove any confusion regarding the
application of phase-in periods.
Finally, as described above, many of the changes proposed by Nasdaq
are similar to rules that were previously approved for the NYSE and
found to be consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\65\ that the proposed rule change (SR-NASDAQ-2024-019) be, and hereby
is, approved.
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\65\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\66\
---------------------------------------------------------------------------
\66\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-19496 Filed 8-29-24; 8:45 am]
BILLING CODE 8011-01-P
