[Federal Register Volume 87, Number 56 (Wednesday, March 23, 2022)]
[Notices]
[Pages 16518-16521]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06091]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94450; File No. SR-NASDAQ-2021-099]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Approving Proposed Rule Change To Amend Nasdaq Rule 5815(d)(4) 
Regarding the Use of a Hearings Panel Monitor Following a Compliance 
Determination by a Nasdaq Listings Qualification Hearings Panel

March 17, 2022.

I. Introduction

    On December 10, 2021, 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 Nasdaq Rule 5815(d)(4) regarding the use 
of a Hearings Panel Monitor following a compliance determination by a 
Nasdaq Listings Qualification Hearings Panel. The proposed rule change 
was published for comment in the Federal Register on December 21, 
2021.\3\ On February 3, 2022, the Commission extended the time period 
within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
approve or disapprove the proposed rule change.\4\ The Commission 
received no comments on the proposed rule change. This order approves 
the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 93789 (December 15, 
2021), 86 FR 72293 (``Notice'').
    \4\ See Securities Exchange Act Release No. 94145, 87 FR 7521 
(February 9, 2022) (extending the time period to March 21, 2022).
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II. Description of the Proposal

    The Nasdaq Rule 5300, 5400, and 5500 series set forth the initial 
listing requirements for a Company \5\ seeking to list, as well as 
continued listing requirements that apply to a Company once listed on, 
the Nasdaq Global Select Market, Nasdaq Global Market and Nasdaq 
Capital Market, respectively. The Nasdaq Rule 5800 series contains the 
rules and procedures applicable to a Company that does not meet the 
listing standards outlined in the Nasdaq Rule 5000 series and thus is 
``deficient'' with respect to a listing standard.\6\ In this 
circumstance, staff from the Listings Qualifications Department \7\ 
(``Staff'') will issue a notification informing the Company of the 
deficiency. According to Nasdaq, where allowed by Nasdaq's rules, 
Staff's notification may provide for a cure or compliance period or 
allow the company to submit a plan of compliance for Staff to 
review.\8\ Companies that do not regain compliance within any time 
frame permitted by Staff under a plan of compliance,\9\ that do not 
regain compliance within the specified cure or compliance period,\10\ 
or that has a deficiency type that unless appealed subjects the Company 
to immediate suspension and delisting \11\ will be issued a Staff 
Delisting Determination \12\ and may request that a Hearings Panel \13\ 
(``Hearings Panel'') review such determination. If it deems 
appropriate, the Hearings Panel may grant an exception (``exception'') 
to the continued listing standard with respect to the deficiency.\14\ 
However, where a

[[Page 16519]]

Company has previously been deficient with a listing standard but has 
regained compliance pursuant to an exception granted by the Hearings 
Panel, under certain circumstances, Nasdaq states that its rules do not 
allow a Company the opportunity to submit a plan to regain compliance 
or provide for a cure or compliance period in the event that the 
Company incurs another deficiency within one year of the prior 
deficiency. In these circumstances, Nasdaq Rules 5815(d)(4)(A) or (B) 
would apply.\15\
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    \5\ The term ``Company'' means the issuer of a security listed 
or applying to list on Nasdaq. See Nasdaq Rule 5005(a)(6).
    \6\ For purposes of this filing, Nasdaq's rules identify 
deficiencies for which an already listed Company may submit a plan 
of compliance (Nasdaq Rule 5815(c)(2)); and deficiencies for which 
the Nasdaq Rules provide a specified cure or compliance period 
(Nasdaq Rule 5815(c)(3)). While the Rule 5800 rule series also 
addresses denials of listing for not meeting listing standards, the 
rule proposal considered herein concerns Companies that are already 
listed and fail to meet the continued listing standards.
    \7\ The term ``Staff'' refers to the employees of the Listing 
Qualifications Department. See Nasdaq Rule 5805(g). The ``Listing 
Qualifications Department'' is the department of Nasdaq responsible 
for Company compliance with quantitative and qualitative listing 
standards and determining eligibility for initial and continued 
listing of a Company's securities. See Nasdaq Rule 5805(f).
    \8\ See Notice, supra note 3, at 72293.
    \9\ See Rule 5810(c)(2)(E).
    \10\ See Rule 5810(c)(3).
    \11\ See Rule 5810(c)(1).
    \12\ A ``Staff Delisting Determination'' or ``Delisting 
Determination'' is a written determination by the Listing 
Qualifications Department to delist a listed Company's securities 
for failure to meet a continued listing standard. See Nasdaq Rule 
5805(h).
    \13\ The ``Hearings Panel'' is an independent panel made up of 
at least two persons who are not employees or otherwise affiliated 
with Nasdaq or its affiliates, and who have been authorized by the 
Nasdaq Board of Directors. See Nasdaq Rule 5805(d).
    \14\ Pursuant to Nasdaq Rule 5815(c)(1)(A), when the Hearings 
Panel review is of a deficiency related to continued listing 
standards, the Hearings Panel may, where it deems appropriate grant 
an exception to the continued listing standards for a period not to 
exceed 180 days from the date of the Staff Delisting Determination 
with respect to the deficiency for which the exception is granted. 
See Nasdaq Rule 5815(c)(1)(A).
    \15\ See Notice, supra note 3, at 72293.
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    According to the Exchange, both Nasdaq Rules 5815(d)(4)(A) and (B) 
set forth the process by which Staff will issue a Staff Delisting 
Determination for a Company that fails to maintain compliance with one 
or more listing standards within one year of having regained compliance 
pursuant to an exception granted by a Hearings Panel.\16\ Currently, 
Nasdaq Rule 5815(d)(4)(A), entitled ``Hearings Panel Monitor,'' 
provides, in part, that a Hearings Panel has discretion to monitor a 
Company (i.e., subject the Company to a ``Hearings Panel Monitor'') for 
a period of up to one year after the date the Company regains 
compliance with a listing standard if it concludes that there is a 
likelihood that such Company will fail to maintain compliance with one 
or more listing standards during that period (including requirements 
with which the Company was not previously deficient). During this one-
year period in which the Company is under a Hearings Panel Monitor, 
Staff will monitor the Company to confirm compliance with all listing 
standards. If Staff identifies a deficiency with any listing standard 
for a Company being monitored under Nasdaq Rule 5815(d)(4)(A), Nasdaq 
states that Staff may not provide the Company with a cure or compliance 
period, nor the opportunity to submit a plan to regain compliance with 
the deficiency; instead, Staff will issue a Staff Delisting 
Determination for the Company.
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    \16\ See Notice, supra note 3, at 72293.
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    Nasdaq Rule 5815(d)(4)(B) currently states ``[i]f a Hearings Panel 
has not opted to monitor a Company that has regained compliance with 
the listing standards requiring the Company to maintain certain levels 
of stockholders' equity, to timely file periodic reports, or with the 
bid price requirement where the Company was ineligible for a compliance 
period under Rule 5810(c)(3)(A)(iii) or (iv) and within one-year of the 
date the Company regained compliance with such listing standard, the 
Listing Qualifications Department finds the Company again out of 
compliance with the requirement that was the subject of the exception, 
then, notwithstanding Rule 5810(c)(2), the Listing Qualifications 
Department will not allow the Company to provide it with a plan of 
compliance or grant additional time for the Company to regain 
compliance. Rather, the Listing Qualifications Department will promptly 
issue a Staff Delisting Determination, and the Company may request 
review by a Hearings Panel. The Hearings Panel will consider the 
Company's compliance history when rendering its Decision.'' \17\ 
According to the Exchange, while entitled ``No Hearings Panel 
Monitor'', paragraph (B) of Nasdaq Rule 5815(d)(4) amounts to what is 
in effect a mandatory Hearings Panel Monitor.\18\
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    \17\ Nasdaq states that this provision limits the grounds for an 
immediate Delisting Determination to a recurrence of the initial 
deficiency in the three enumerated areas in the rule that gave rise 
to the previous hearing before the Hearings Panel. See Notice, supra 
note 3, at 72293-4.
    \18\ See Id. at 72294. The Exchange added that it is not aware 
of the reason for the original language in Nasdaq Rule 5815(d)(4)(B) 
stating the rule would not call for a Panel Monitor. Id. at n. 6.
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    The Exchange has proposed to clarify Nasdaq Rule 5815(d)(4) in 
several ways. First, the Exchange proposes to clarify that the use of a 
Hearings Panel Monitor is discretionary if a Company qualifies for 
monitoring under Nasdaq Rule 5815(d)(4)(A), but the use of a Hearings 
Panel Monitor is mandatory if a Company qualifies for monitoring under 
Nasdaq Rule 5815(d)(4)(B). Specifically, the Exchange proposes to 
modify Nasdaq Rule 5815(d)(4)(A) by adding the word ``Discretionary'' 
to the heading of Nasdaq Rule 5815(d)(4)(A) to make clear that the 
Hearings Panel Monitor under that provision is discretionary, and to 
retitle Nasdaq Rule 5815(d)(4)(B) to ``Mandatory Hearings Panel'' to 
make clear that a Hearings Panel Monitor under that provision is 
mandatory. In addition, the Exchange proposes to further modify Nasdaq 
Rule 5815(d)(4)(B) to make explicit the mandatory nature of appointing 
a Hearings Panel Monitor by stating in the rule that after having been 
granted an exception to the requirement to maintain certain levels of 
stockholders' equity, to timely file periodic reports, or with the bid 
price requirement where the Company was ineligible for a compliance 
period under Nasdaq Rule 5810(c)(3)(A)(iii) or (iv), a ``Hearings Panel 
will impose a Hearings Panel Monitor for a period of one year from the 
date the company regains compliance'' with those three specific listing 
requirements in Rule 5815(d)(4)(B).
    The Exchange proposes to further clarify Nasdaq Rules 5815(d)(4)(A) 
and (B) by amending those rules to clearly state that under both 
paragraphs (A) and (B) of the rule, if a Company falls out of 
compliance with the listing standard deficiency that was the subject of 
the exception granted by the Listing Qualifications Department during 
the one-year monitoring period, the Company will not be afforded an 
applicable cure or compliance period pursuant to Nasdaq Rule 
5810(c)(3), nor as currently provided by the rule be permitted to 
provide the Listing Qualifications Department with a plan of compliance 
under Nasdaq Rule 5810(c)(2). The Exchange represented that while the 
original language in both Nasdaq Rule 5815(d)(4)(A) and (B) included 
language regarding Staff's inability to afford a Company under a 
Hearings Panel Monitor a cure or compliance period, the current rules 
do not specifically include a reference to Nasdaq Rule 5810(c)(3) 
itself.\19\ The Exchange believes that adding a specific reference to 
Nasdaq Rule 5810(c)(3) will remove any potential confusion regarding 
this point.\20\
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    \19\ See Notice, supra note 3, at 72294.
    \20\ Id. The rule provisions stating that the Listing 
Qualification Department cannot grant additional time for the 
Company to regain compliance will remain in Rule 5815(d)(A) and (B).
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    The Exchange also proposes to add a new paragraph (C) to Nasdaq 
Rule 5815(d)(4), which will set out the procedures for a Hearings Panel 
Monitor that is appointed under either paragraphs (A) or (B) of Nasdaq 
Rule 5815(d)(4), in the event the Company receives a Staff Delisting 
Determination during the one-year monitoring period. Pursuant to 
proposed Nasdaq Rule 5815(d)(4)(C), if a Company receives a Staff 
Delisting Determination during the one-year period under paragraph 
(d)(4)(A) or (B) of Nasdaq Rule 5815(d)(4), the Company may request 
review by a Hearings Panel. Unless subparagraph (C) indicates 
otherwise, the hearing will be conducted in accordance with the 
procedures outlined in Nasdaq Rule 5815. Upon a request for a hearing 
by the Company, the Hearings Department will promptly schedule a new 
hearing with the initial Hearings Panel or a newly convened Hearings 
Panel if the initial Hearings Panel is unavailable. The hearing may be 
oral or written, at the Company's election and the Hearings Panel will 
consider the Company's compliance

[[Page 16520]]

history when rendering its decision. If the Company does not request 
review of the Staff Delisting Determination, then proposed Nasdaq Rule 
5815(d)(4)(C) provides that the Company's securities will be suspended. 
The Exchange stated that as revised, Nasdaq Rule 5815(d)(4)(C) also 
will correct the erroneous inclusion of language in the current rule 
which could allow the Hearings Department to promptly schedule a 
hearing without first receiving a request for appeal from the 
Company.\21\
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    \21\ Id. The Exchange also represents that historically the 
Hearings Department has not immediately scheduled a new hearing for 
a Company under a Panel Monitor that has received a Delisting 
Determination from Staff. According to the Exchange, a new hearing 
would not be scheduled until the Company in question had requested 
an appeal from the Delisting Determination. The Exchange states that 
the proposed rule change will simply codify the existing practice of 
the Hearings Department. Id. at n. 7. In addition, the Exchange 
described other existing inconsistencies between paragraphs (A) and 
(B) of Rule 5815(d)(4), but states that each of the provisions will 
apply to both 5815(c)(4)(A) and (B) through the implementation of 
proposed Rule 5815(d)(4)(C). See Id. at n. 8.
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III. Discussion and Commission Findings

    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.\22\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\23\ 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 foster cooperation 
and coordination with persons engaged in 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, and are not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers. In addition, the Commission finds that the proposed rule 
change is consistent with Section 6(b)(7) of the Act, which requires, 
among other things, that the rules of a national securities exchange 
provide a fair procedure for the prohibition or limitation by the 
exchange of any person with respect to access to services offered by 
the exchange.
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    \22\ 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).
    \23\ 15 U.S.C. 78f(b)(5).
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    The Exchange proposes to clarify when a Hearings Panel Monitor is 
discretionary or mandatory under paragraphs (A) and (B) of Nasdaq Rule 
5815(d)(4) by adding the specific terms ``Discretionary'' and 
``Mandatory'' to the title of Nasdaq Rule 5815(d)(4)(A) and (B), 
respectively. The Commission notes that Nasdaq Rule 5815(d)(4)(B) is 
currently titled ``No Hearings Panel Monitor''; despite this current 
title, and the current rule language, the Exchange represented that 
``the rule itself actually outlines a process of a mandatory Hearings 
Panel Monitor.'' \24\ In this regard, the Commission believes that the 
proposed rule change will provide necessary clarity to the rule by 
correcting the inaccurate title to the rule, given that Nasdaq has 
stated that in effect paragraph (B) sets forth a mandatory Hearings 
Panel Monitor process. The Exchange has also proposed to make clear 
when a Hearings Panel will be mandatory by stating explicitly in Nasdaq 
Rule 5815(d)(4)(B)--but not in Nasdaq Rule 5815(d)(4)(A), which is a 
discretionary process--that a Hearings Panel will impose a Hearings 
Panel Monitor for a period of one year from the date the Company 
regains compliance with the listing standards relating to maintaining 
certain levels of stockholders' equity, to timely file periodic 
reports, or with the bid price requirement where the Company was 
ineligible for a compliance period under Nasdaq Rule 5810(c)(3)(A)(iii) 
or (iv), following an exception that was granted by a Hearings Panel. 
The Commission believes that these changes to Nasdaq Rule 5815(d)(4)(A) 
and (B) will help remove impediments to and perfect the mechanism of a 
free and open market and a national market system and protect investors 
and the public interest by removing any confusion or ambiguity about 
when a Hearings Panel Monitor will be discretionary or mandatory.
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    \24\ See Notice, supra note 3, at 72294.
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    The Exchange also proposes to clarify that if a Company falls out 
of compliance with the listing standard deficiency that was the subject 
of the exception granted by the Listing Qualifications Department 
during the one-year monitoring period under either Nasdaq Rule 
5815(d)(4)(A) or (B), the Company will not be afforded an applicable 
cure or compliance period pursuant to Nasdaq Rule 5810(c)(3). The 
current rule language states that the Company will not be permitted to 
provide the Listing Qualifications Department with a plan of compliance 
notwithstanding Nasdaq Rule 5810(c)(2) and that the Company cannot be 
granted any additional time to regain compliance. While the current 
rule does prohibit any extension of time, the Exchange stated that 
specifically referencing Rule 5810(c)(3) will avoid any potential 
confusion.\25\ The Commission believes that the proposed change should 
help to avoid any potential confusion by making clear that a Company 
cannot receive any extension of time, including by being afforded an 
applicable cure or compliance period pursuant to Nasdaq Rule 
5810(c)(3), and as the rule currently states, by submitting a plan of 
compliance under Nasdaq 5810(c)(2). Additionally, because the current 
text of the rules prohibit any additional time to regain compliance, 
the Commission believes that adding an explicit reference to Nasdaq 
Rule 5810(c)(3) in Nasdaq Rule 5815(d)(4)(A) and (B) is consistent with 
the Act because it will clarify and provide transparency on the 
specific provisions in Rule 5810 that are not available to a Company 
when a deficiency occurs during the one year monitoring period.
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    \25\ Id.
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    Finally, the Exchange proposed to create a new paragraph (C) to 
Nasdaq Rule 5815(d)(4) which will outline how a Company may seek an 
appeal of a Staff Delisting Determination. Pursuant to the Rule, if a 
Company receives a Staff Delisting Determination during a one-year 
Hearings Panel Monitor under Nasdaq Rule 5815 (d)(4)(A) or (B), the 
Company may request review by a Hearings Panel. The Hearings Department 
will schedule a hearing with the original Hearings Panel or a new 
Hearings Panel if the original Hearings Panel is unavailable, the 
hearing may be written or oral, and the Hearings Panel will consider 
the Company's compliance history when rendering its decision. Nasdaq 
Rule 5815(d)(4)(C) also provides that unless specifically addressed in 
the Rule, the procedures for requesting and preparing for a review by a 
Hearings Panel will continue to be governed by Nasdaq Rule 5815. The 
Commission believes that it is consistent with the Act to combine the 
procedures that a Company must follow to request a hearing after 
receiving a Staff Delisting Determination into one paragraph of Nasdaq 
Rule 5815(d)(4). Currently, the procedures for requesting a hearing 
following a Staff Delisting Determination are set forth in either or 
both paragraphs (A) and (B) of Rule 5815(d)(4). While both paragraphs 
address such hearings, the differences in the description of and 
procedures for

[[Page 16521]]

requesting and conducting such hearings between paragraphs (A) and (B) 
could lead to confusion. Therefore, the Commission believes that 
providing the same procedures for requesting and conducting a hearing 
under Rules 5815(d)(4)(A) and (B) and consolidating these procedures 
into proposed paragraph (C) provides transparency and clarity to such 
hearings, and thus may help ensure that the Exchange's rules do not 
permit unfair discrimination between issuers, and provides a fair 
procedure for review of a Staff Delisting Determination, consistent 
with the Act.
    As the Commission has previously noted, the development and 
enforcement of meaningful listing standards \26\ for an exchange is of 
substantial importance to financial markets and the investing public. 
Among other things, listing standards provide the means for an exchange 
to screen issuers that seek to become listed, and to provide listed 
status only to those that are bona fide companies that have or will 
have sufficient public float, investor base, and trading interest 
likely to generate depth and liquidity sufficient to promote fair and 
orderly markets.\27\ Meaningful listing standards also are important 
given investor expectations regarding the nature of securities that 
have achieved an exchange listing, and the role of an exchange in 
overseeing its market and assuring compliance with its listing 
standards.\28\ Therefore it is important for exchanges to prevent 
companies that are deficient in their listing standards or that do not 
meet initial listing standards from remaining or becoming listed on an 
exchange. Clarifying the rules and procedures for appeal where a listed 
Company has recurrent deficiencies so is under a Hearings Panel Monitor 
and cannot avail itself of additional time to demonstrate compliance, 
should further investor protection under Section 6(b)(5) of the Act by 
helping to eliminate potential confusion about the application of Rule 
5815(d)(4), while at the same time ensuring such Companies have a fair 
procedure for review consistent with Section 6(b)(7) of the Act.
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    \26\ The Commission notes that this is referring to both initial 
and continued listing standards.
    \27\ In addition, once a security has been approved for initial 
listing, maintenance criteria allow an exchange to monitor the 
status and trading characteristics of that issue to ensure that it 
continues to meet the exchange's standards for market depth and 
liquidity so that fair and orderly markets can be maintained. See, 
e.g., Securities Exchange Act Release Nos. 82627 (Feb. 2, 2018), 3 
FR 5650, 5653, n.53 (Feb. 8, 2018) (SR-NYSE-2017-30); 81856 (Oct. 
11, 2017), 82 FR 48296, 48298 (Oct. 17, 2017) (SR-NYSE-2017-31); 
81079 (July 5, 2017), 82 FR 32022, 32023 (July 11, 2017) (SR-NYSE-
2017-11). The Commission has stated that adequate listing standards, 
by promoting fair and orderly markets, are consistent with Section 
6(b)(5) of the Act, in that they are, among other things, designed 
to prevent fraudulent and manipulative acts and practices, promote 
just and equitable principles of trade, and protect investors and 
the public interest. See, e.g., Securities Exchange Act Release Nos. 
82627 (Feb. 2, 2018), 3 FR 5650, 5653, n.53 (Feb. 8, 2018) (SR-NYSE-
2017-30); 87648 (Dec. 3, 2019), 84 FR 67308, 67314, n.42 (Dec. 9, 
2019) (SR-NASDAQ-2019-059); 88716 (Apr. 21, 2020), 85 FR 23393, 
23395, n.22 (Apr. 27, 2020) (SR-NASDAQ-2020-001).
    \28\ See, e.g., Securities Exchange Act Release Nos. 65708 (Nov. 
8, 2011), 76 FR 70799 (Nov. 15, 2011) (SR-NASDAQ-2011-073) (order 
approving a proposal to adopt additional listing requirements for 
companies applying to list after consummation of a ``reverse 
merger'' with a shell company), and 57785 (May 6, 2008), 73 FR 27597 
(May 13, 2008) (SR-NYSE-2018-17) (order approving a proposal to 
adopt new initial and continued listing standards to list securities 
of special purpose acquisition companies).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\29\ that the proposed rule change (SR-NASDAQ-2021-099) be, and 
hereby is, approved.
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    \29\ 15 U.S.C. 78s(b)(2).

    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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-06091 Filed 3-22-22; 8:45 am]
BILLING CODE 8011-01-P