31594 Federal Register / Vol. 87, No. 100 / Tuesday, May 24, 2022 / Notices 

17 15 U.S.C. 78s(b)(3)(A). 

18 17 CFR 240.19b–4(f)(6). 

19 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 94265 

(February 16, 2022), 87 FR 10265 (February 23, 

2022) (‘‘Notice’’). 

4 Id. 

5 15 U.S.C. 78s(b)(2). 

6See Securities Exchange Act Release No. 94471 

(March 18, 2022), 87 FR 16778 (March 24, 2022). 

The Commission designated May 24, 2022, as the 

date by which the Commission shall approve or 

disapprove, or institute proceedings to determine 

whether to disapprove, the proposed rule change. 

7Under proposed Rule 5702(d), if an issuer also 

lists its common stock, voting preferred stock, or 

their equivalent on Nasdaq, the corporate 

governance requirements under the Nasdaq 5600 

Rule Series would apply. See Notice, supra note 3, 

n. 8. 

8Rule 5702 contains the initial and continued 

listing standards for non-convertible bonds, as well 

as disclosure requirements for companies that list 

non-convertible bonds. 

9Rule 5630 requires certain companies to 

conduct an appropriate review and oversight of all 

related party transactions for potential conflict of 

interest situations on an ongoing basis. 

10Rule 5635 sets forth the circumstances under 

which shareholder approval is required prior to an 

issuance of securities in connection with: (i) The 

acquisition of the stock or assets of another 

company; (ii) equity-based compensation of 

officers, directors, employees, or consultants; (iii) a 

change of control; and (iv) transactions other than 

public offerings. 

11Rule 5640 states that voting rights of existing 

shareholders of publicly traded common stock 

registered under Section 12 of the Act cannot be 

disparately reduced or restricted through any 

corporate action or issuance. 

12See Notice, supra note 3, at 10266. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not: (i) Significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate, it has 

become effective pursuant to Section 

19(b)(3)(A) of the Exchange Act 17 and 

Rule 19b–4(f)(6) thereunder.18

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Exchange Act. If the 

Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

should be approved or disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Exchange 

Act. Comments may be submitted by 

any of the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

FINRA–2022–012 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–FINRA–2022–012. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of such 

filing also will be available for 

inspection and copying at the principal 

office of FINRA. All comments received 

will be posted without change. Persons 

submitting comments are cautioned that 

we do not redact or edit personal 

identifying information from comment 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–FINRA– 

2022–012 and should be submitted on 

or before June 14, 2022. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–11062 Filed 5–23–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94941; File No. SR– 

NASDAQ–2022–015] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Order 

Instituting Proceedings To Determine 

Whether To Approve or Disapprove a 

Proposed Rule Change To Exempt 

Non-Convertible Bonds Listed Under 

Rule 5702 From Certain Corporate 

Governance Requirements 

May 18, 2022. 

I. Introduction 

On February 4, 2022, The Nasdaq 

Stock Market LLC (‘‘Nasdaq’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

exempt non-convertible bonds listed 

under Rule 5702 from certain corporate 

governance requirements.3 The 

proposed rule change was published for 

comment in the Federal Register on 

February 23, 2022.4 On March 18, 2022, 

pursuant to Section 19(b)(2) of the Act,5

the Commission designated a longer 

period within which to approve the 

proposed rule change, disapprove the 

proposed rule change, or institute 

proceedings to determine whether to 

disapprove the proposed rule change.6

The Commission received no comment 

letters regarding the proposed rule 

change. This order institutes 

proceedings under Section 19(b)(2)(B) of 

the Act to determine whether to approve 

or disapprove the proposed rule change. 

II. Description of the Proposed Rule 

Change 

Generally, Nasdaq proposes to exempt 

issuers listing non-convertible bonds 

under Rule 5702 from certain corporate 

governance requirements.7 Specifically, 

Nasdaq proposes to amend Nasdaq Rule 

5702 8 to exempt these issuers from the 

requirements relating to Review of 

Related Party Transactions (Nasdaq Rule 

5630),9 Shareholder Approval (Nasdaq 

Rule 5635),10 and Voting Rights (Nasdaq 

Rule 5640).11 According to Nasdaq, it is 

appropriate to exempt these issuers 

from governance requirements because 

the interests of bond holders are 

protected contractually through the trust 

indenture, and therefore, ‘‘holders of 

non-convertible bonds do not expect to 

have governance rights the way equity 

investors may.’’ 12


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Federal Register / Vol. 87, No. 100 / Tuesday, May 24, 2022 / Notices 31595 

13Rule 5615(a)(6)(A) exempts certain nonconvertible bond issuers from the requirements 

relating to Independent Directors (as set forth in 

Rule 5605(b)), Compensation Committees (as set 

forth in Rule 5605(d)), Director Nominations (as set 

forth in Rule 5605(e)), Codes of Conduct (as set 

forth in Rule 5610), Meetings of Shareholders (as set 

forth in Rule 5620(a)), and Audit Committees (as set 

forth in Rule 5605(c), except for the applicable 

requirements Commission Rule 10A–3). Rules 

5605(f)(4) and Rule 5606(c) exempts certain nonconvertible bond issuers from the requirements 

related to Diverse Board Representation (as set forth 

in Rule 5605(f)) and Board Diversity Disclosure (as 

set forth in Rule 5606), respectively. 

14 15 U.S.C. 78s(b)(2)(B). 

15 15 U.S.C. 78s(b)(2)(B). 

16 15 U.S.C. 78f(b)(5). 

17Rule 700(b)(3), Commission Rules of Practice, 

17 CFR 201.700(b)(3). 

18See id. 

19See id. 

20 17 CFR 240.19b–4. 

21Section 19(b)(2) of the Act, as amended by the 

Securities Act Amendments of 1975, Public Law 

94–29 (June 4, 1975), grants the Commission 

flexibility to determine what type of proceeding— 

either oral or notice and opportunity for written 

comments—is appropriate for consideration of a 

particular proposal by a self-regulatory 

organization. See Securities Act Amendments of 

1975, Senate Comm. on Banking, Housing & Urban 

Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 

(1975). 

In addition, Nasdaq proposes to 

consolidate under Nasdaq Rule 5702 

other exemptions currently applicable 

to such issuers pursuant to Nasdaq 

Rules 5605(f)(4), 5606(c), and 

5616(a)(6)(A).13

III. Proceedings To Determine Whether 

To Approve or Disapprove SR– 

NASDAQ–2022–015 and Grounds for 

Disapproval Under Consideration 

The Commission is instituting 

proceedings pursuant to Section 

19(b)(2)(B) of the Act 14 to determine 

whether the proposed rule change 

should be approved or disapproved. 

Institution of such proceedings is 

appropriate at this time in view of the 

legal and policy issues raised by the 

proposed rule change. Institution of 

proceedings does not indicate that the 

Commission has reached any 

conclusions with respect to any of the 

issues involved. Rather, as stated below, 

the Commission seeks and encourages 

interested persons to provide additional 

comment on the proposed rule change. 

Pursuant to Section 19(b)(2)(B) of the 

Act,15 the Commission is providing 

notice of the grounds for disapproval 

under consideration. The Commission is 

instituting proceedings to allow for 

additional analysis of, and input from 

commenters with respect to, the 

consistency of the proposal with Section 

6(b)(5) of the Act, 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 

regulating, clearing, settling, processing 

information with respect to, and 

facilitating transactions in securities, to 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest.16 Specifically, the 

Commission solicits comments on the 

sufficiency of the Exchange’s 

justification for exempting nonconvertible bonds listed under Rule 

5702 from certain corporate governance 

requirements enumerated above. As 

stated above, the Exchange justifies the 

proposed rule change on the assertion 

that ‘‘holders of non-convertible bonds 

do not expect to have governance rights 

the way equity investors may.’’ Do 

commenters agree that holders of nonconvertible bonds do not expect that 

Nasdaq Rules pertaining to Review of 

Related Party Transactions, Shareholder 

Approval, and Voting Rights to apply to 

their bond holdings? And even if there 

is no such expectations, would nonconvertible bond holders benefit from 

any of these provisions? 

Under the Commission’s Rules of 

Practice, the ‘‘burden to demonstrate 

that a proposed rule change is 

consistent with the [Act] and the rules 

and regulations issued thereunder . . . 

is on the self-regulatory organization 

that proposed the rule change.’’ 17 The 

description of a proposed rule change, 

its purpose and operation, its effect, and 

a legal analysis of its consistency with 

applicable requirements must all be 

sufficiently detailed and specific to 

support an affirmative Commission 

finding,18 and any failure of a selfregulatory organization to provide this 

information may result in the 

Commission not having a sufficient 

basis to make an affirmative finding that 

a proposed rule change is consistent 

with the Act and the applicable rules 

and regulations.19

The Commission is instituting 

proceedings to allow for additional 

consideration and comment on the 

issues raised herein, including as to 

whether the proposal is consistent with 

the Act. 

IV. Procedure: Request for Written 

Comments 

The Commission requests that 

interested persons provide written 

submissions of their views, data, and 

arguments with respect to the issues 

identified above, as well as any other 

concerns they may have with the 

proposal. In particular, the Commission 

invites the written views of interested 

persons concerning whether the 

proposal is consistent with Sections 

6(b)(5), or any other provision of the 

Act, or the rules and regulations 

thereunder. Although there do not 

appear to be any issues relevant to 

approval or disapproval that would be 

facilitated by an oral presentation of 

views, data, and arguments, the 

Commission will consider, pursuant to 

Rule 19b–4 under the Act,20 any request 

for an opportunity to make an oral 

presentation.21

Interested persons are invited to 

submit written data, views, and 

arguments regarding whether the 

proposal should be approved or 

disapproved by June 14, 2022. Any 

person who wishes to file a rebuttal to 

any other person’s submission must file 

that rebuttal by June 28, 2022. 

Commission may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NASDAQ–2022–015 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NASDAQ–2022–015. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 


jspears on DSK121TN23PROD with NOTICES1
31596 Federal Register / Vol. 87, No. 100 / Tuesday, May 24, 2022 / Notices 

22 17 CFR 200.30–3(a)(57). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Notice of Filing infra note 4, 87 FR at 20495. 

4Securities Exchange Act Release No. 94583 

(Apr. 1, 2022), 87 FR 20495 (Apr. 7, 2022) (File No. 

SR–OCC–2022–005) (‘‘Notice of Filing’’). 

5The comment on the Proposed Rule Change is 

available at https://www.sec.gov/comments/sr-occ2022-005/srocc2022005.htm. 

6Capitalized terms used but not defined herein 

have the meanings specified in OCC’s Rules and ByLaws, available at https://www.theocc.com/about/ 

publications/bylaws.jsp. 7See generally, 17 CFR 240.17Ad–22(e)(4) and 

(e)(7). 8Securities Exchange Act Release No. 83916 

(Aug. 23, 2018), 83 FR 44076 (Aug. 29, 2018) (File 

No. SR–OCC–2017–020). 

9See supra note 8, 83 FR at 44079. 

10Securities Exchange Act Release No. 82351 

(Dec. 19, 2017), 82 FR 61107, 61111 (Dec. 26, 2017) 

(File No. SR–OCC–2017–020). 

11 Id. 

12 Id. 

13OCC By-Laws Art. VI, Section 27(a)(i), 

regarding default or insolvency of OCC, requires 

OCC to notify various stakeholders if OCC fails to 

comply with an undisputed obligation to pay 

money or deliver property to a Clearing Member for 

a period of thirty days from the date that OCC 

receives notice from the Clearing Member of the 

past due obligation. See Notice of Filing supra note 

4, 87 FR at 20495. 

14Securities Exchange Act Release No. 82351 

(Dec. 19, 2017), 82 FR 61107, 61112 (Dec. 26, 2017) 

(File No. SR–OCC–2017–020). 

15The letter OCC received from the FIA has been 

provided as Exhibit 3A to File No. SR–OCC–2022– 

005. 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–NASDAQ–2022–015, and 

should be submitted on or before June 

14, 2022. Rebuttal comments should be 

submitted by June 28, 2022. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.22

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–11066 Filed 5–23–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94938; File No. SR–OCC– 

2022–005] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Order 

Granting Approval of Proposed Rule 

Change by the Options Clearing 

Corporation Concerning Revisions to 

OCC’s Partial Tear-Up Rules 

May 18, 2022. 

I. Introduction 

On March 22, 2022, the Options 

Clearing Corporation (‘‘OCC’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change SR–OCC–2022– 

005 (‘‘Proposed Rule Change’’) pursuant 

to Section 19(b) of the Securities 

Exchange Act of 1934 (‘‘Exchange 

Act’’) 1 and Rule 19b–4 2 thereunder to 

amend OCC’s rules regarding OCC’s 

payment obligations and the allocation 

of losses related to the use of Partial 

Tear-Up (defined below) as a recovery 

tool.3 The Proposed Rule Change was 

published for public comment in the 

Federal Register on April 7, 2022.4 The 

Commission received one comment 

regarding the Proposed Rule Change.5

This order approves the Proposed Rule 

Change. 

II. Background 6

As a covered clearing agency, OCC is 

required to establish policies and 

procedures reasonably designed to 

manage its credit exposures and 

liquidity risk.7 However, a Clearing 

Member default may result in losses or 

shortfalls that exceed OCC’s routine risk 

managemet tools. To address such credit 

losses or liquidity shortfalls, OCC has 

established tools to to re-establish a 

matched book and to allocate uncovered 

losses following the default of a Clearing 

Member.8 One such tool, ‘‘Partial TearUp,’’ is a process designed to return 

OCC to a matched book by 

extinguishing positions that remain 

open after OCC has attempted one or 

more auctions.9 OCC Rule 1111(e) sets 

forth the process for determining and 

terminating Partial Tear-Up positions. 

When it initially proposed Rule 

1111(e) in 2018, OCC noted that the 

Partial Tear-Up process would be 

initiated only if OCC determined that 

potential losses from remaining 

positions of the defaulting member 

would exceed OCC’s financial 

resources.10 OCC further stated that, in 

order for OCC to maintain its ability to 

meet obligations to non-defaulting 

members, the process was designed to 

be initiated in advance of exhausting 

OCC’s financial resources.11 OCC also 

acknowledged that the process may be 

used to allocate losses if OCC’s 

resources are insufficient to pay the 

Partial Tear-Up Price.12 Rule 1111(e)(iii) 

currently provides that when the Partial 

Tear-Up process is used to allocate 

losses, each Clearing Member will 

receive a pro rata payment based on 

OCC’s remaining resources and an 

unsecured claim against OCC for the 

difference between the pro rata amount 

received and the Partial Tear-Up Price. 

An unsecured claim issued pursuant 

to Rule 1111(e) provides a mechanism 

for OCC to compensate Clearing 

Members that receive a pro rata 

payment, when warranted by particular 

circumstances (e.g., when funds are 

subsequently recovered from a defaulted 

Clearing Member or the estate of the 

defaulted Clearing Member). However, 

OCC Rules do not currently describe a 

specific payment obligation for these 

claims. OCC states that the Proposed 

Rule Change is intended to provide 

clarity regarding the nature of the claim 

issued following a Partial Tear-Up. More 

specifically, the revisions to Rule 

1111(e) would add the following details 

about the claim: (i) A Clearing Member 

receiving a pro rata payment following 

a Partial Tear-Up will have a claim for 

the value of the difference between the 

pro rata amount received and the Partial 

Tear-Up Price; and (ii) such a claim 

shall be an unsecured claim on any 

recovery from a suspended or defaulted 

Clearing Member (or from the estate of 

a suspended or defaulted Clearing 

Member). OCC believes that clarifying 

the nature of the claim arising out of 

Rule 1111(e) would, in turn, clarify that 

such claims would not provide a basis 

for Clearing Members to trigger the 

close-out netting process under Article 

VI, Section 27 of OCC’s By-Laws.13

In proposing to adopt Partial Tear-Up 

as a recovery tool, OCC proposed a 

mechanism for re-allocating losses for 

non-defaulting Clearing Members 

arising out of Partial Tear-Up.14 OCC 

Rule 1111(g) currently provides OCC’s 

Board of Directors (the ‘‘Board’’) with 

discretionary authority to levy a special 

charge against remaining non-defaulting 

Clearing Members for the purpose of reallocating the losses, costs, and fees 

imposed on holders of torn-up 

positions. Currently, Rule 1111 does not 

impose any ex ante limit on the amount 

of any discretionary special charge that 

could be levied by the Board. Following 

the adoption of OCC Rule 1111, OCC 

received a letter from the Futures 

Industry Association (‘‘FIA’’) requesting 

that OCC limit the amount of the Rule 

1111(g) Board-levied special charge to 

the amount of a Clearing Member’s 

required contribution to the Clearing 

Fund.15 Upon consideration of this 

request, OCC proposes to amend Rule 

1111(g) to cap the amount of the special 

charge levied under the rule to the 

amount of the Clearing Member’s 

required contribution to the Clearing 

Fund at the time of the special charge. 


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