Document ID: SEC-2015-2191-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market, LLC,
Posted Date: 2015-12-30T05:00Z

[Federal Register Volume 80, Number 250 (Wednesday, December 30, 2015)]
[Notices]
[Pages 81573-81576]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-32647]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76731; File No. SR-NASDAQ-2015-144]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of a Proposed Rule Change To Amend Rules 5810(4), 
5810(c), 5815(c) and 5820(d) To Provide Staff With Limited Discretion 
To Grant a Listed Company That Failed To Hold Its Annual Meeting of 
Shareholders an Extension of Time To Comply With the Requirement

December 22, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 9, 2015, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III, below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ proposes to amend Rule 5810(c) to provide NASDAQ staff with 
limited discretion to grant a listed company additional time to solicit 
proxies and hold an annual meeting of shareholders. The text of the 
proposed rule change is available from NASDAQ's Web site at http://nasdaq.cchwallstreet.com/Filings/, at NASDAQ's principal office, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NASDAQ included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. NASDAQ has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Each company listing common stock or voting preferred stock, and 
their equivalents, must hold an annual meeting of shareholders no later 
than one year after the end of the company's fiscal year and solicit 
proxies for that meeting.\3\ An annual meeting allows the equity owners 
of the company the opportunity to elect directors and meet with 
management to discuss company affairs. Currently, should a company fail 
to hold its annual meeting as required by Rule 5620, staff of the 
Listing Qualifications Department (``Staff'') has no discretion to 
allow additional time for the company to regain compliance. Rather, 
Staff is required by Rule 5810(c)(1) to issue a delisting 
determination, subjecting the company to immediate suspension and 
delisting unless the company appeals to a Hearings Panel.\4\ NASDAQ 
proposes to amend Rule 5810(4), 5810(c), 5815(c) and 5820(d) to provide 
Staff with limited discretion to grant a listed company that failed to 
hold its annual meeting of shareholders an extension of time to comply 
with the requirement.\5\
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    \3\ See Rules 5620(a) and (b), respectively. Rule 5615(a)(4)(D) 
also requires a limited partnership to hold an annual meeting of 
limited partners if required by statute or regulation in the state 
in which the limited partnership is formed or doing business or by 
the terms of the partnership's limited partnership agreement. Rule 
5615(a)(4)(F) requires the limited partnership to distribute 
information statements or proxies when a meeting of limited partners 
is required. The proposed process described herein would apply in 
the identical manner to limited partnerships required to hold a 
meeting as it does to other companies. See also Rules 5615(a)(4)(E) 
and (F) (partner meetings and proxy solicitation of limited 
partnerships).
    \4\ A listed company may request review of a Staff Delisting 
Determination by a Hearings Panel. A timely request for a hearing 
will stay the suspension and delisting pending the issuance of a 
written Panel Decision. See Rule 5815.
    \5\ The Exchange notes that companies and certain limited 
partnerships are also required to solicit proxies and provide proxy 
statements for all meetings of shareholders or partners. See Rules 
5620(b) and 5615(a)(4)(F), respectively. A company or limited 
partnership that has not timely held an annual meeting has not 
violated the proxy solicitation rule because no meeting has been 
held.
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    NASDAQ notes that the only other rule where a company is subject to 
immediate suspension and delisting, besides when it fails to solicit 
proxies and hold an annual meeting, is when Staff makes a determination 
pursuant to the Rule 5100 Series that the company's continued listing 
raises a public interest concern. This determination generally is made 
only following discussion and review of the facts and circumstances 
with the company. For all other deficiencies under the Rule 5000 
Series, a listed company is provided with either a fixed compliance 
period within which to regain compliance,\6\ or given the opportunity 
to submit a plan to regain compliance, which Staff reviews to determine 
whether to grant the company a limited time to implement.\7\ Generally, 
a company is allowed 45 days to submit the plan of compliance \8\ and, 
upon review of the plan, Staff may grant the company up to 180 days 
from the date of Staff's initial notification of the company's non-
compliance to regain compliance. If upon review of the company's plan 
Staff determines that an extension is not warranted, Staff will issue a 
Delisting Determination, which triggers the company's right to request 
review by a Hearings Panel.
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    \6\ See Rule 5810(c)(3).
    \7\ See Rule 5810(c)(2).
    \8\ Companies deficient with the filing requirement for periodic 
reports are provided up to 60 days to submit a plan of compliance. 
See Rule 5810(c)(2)(F). Staff can shorten these deadlines where 
deemed appropriate.
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    There are a variety of reasons a company may fail to timely hold an 
annual meeting. In many of these cases, the circumstances that 
precipitated the delay may arise just before a planned meeting. For 
example, NASDAQ has

[[Page 81574]]

observed cases where a company has attempted to hold an annual meeting 
before the deadline, but was required to adjourn and reschedule the 
meeting to allow its shareholders more time to review proxy materials 
in connection with a shareholder proxy contest. NASDAQ has also 
encountered companies that could not hold an annual meeting because 
they were delinquent in filing periodic reports and therefore could not 
include required financial information in a proxy statement. In that 
case, under the current rules, the company could receive an extension 
of the time to regain compliance with the filing requirement. However, 
if during any such compliance period the company subsequently fails to 
hold an annual meeting of shareholders for any reason, Staff would 
issue a delist determination at that time for both the filing 
delinquency and the annual meeting deficiency, notwithstanding that the 
compliance period for the filing delinquency has not expired.\9\. [sic] 
Under these circumstances, as required by the Listing Rules, Staff will 
notify the company in writing of the annual meeting deficiency \10\ and 
the company must publicly disclose such notification.\11\ The 
deficiency will then be considered at the same time and together with 
the filing delinquency in any subsequent delisting proceeding.\12\
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    \9\ See Rule 5810(c)(2)(A).
    \10\ See Rule 5810(a).
    \11\ See Rule 5810(b).
    \12\ See Rule 5810(d).
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    For these reasons, NASDAQ is proposing to amend Rules 5810(c), 
5815(c) and 5820(d) to afford those companies and limited partnerships 
that fail to hold an annual meeting in accordance with the listing 
rules an opportunity to submit a plan of compliance for Staff's 
review.\13\ Accordingly, we are also proposing to modify Rule 5810(4) 
to make clear that a Public Reprimand Letter is not an available 
notification type for unresolved deficiencies from the standards of 
Rules 5250(c) (obligation to file periodic financial reports), 
5615(a)(4)(D) (partner meetings of limited partnerships), and 5620(a) 
(meetings of shareholders). Under proposed Rule 5810(c)(2)(G), Staff's 
written deficiency notice shall provide the Company with 45 calendar 
days to submit a plan to regain compliance. A non-compliant company 
will have to publicly disclose, under both Commission and NASDAQ rules, 
that it has received notification of non-compliance with the annual 
meeting rule.\14\ In addition, we are proposing to modify Rule 
5810(c)(2)(B) to make clear that annual meeting deficiencies are 
governed by proposed Rule 5810(c)(2)(G).
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    \13\ As noted above, the company or limited partnership 
generally would have 45 days to submit a plan to regain compliance, 
although Staff could shorten that period where it believes 
appropriate.
    \14\ See Rule 5810(b) and IM-5810-1. See also Item 3.01 of SEC 
Form 8-K.
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    In determining whether to grant the Company an extension to comply 
with the annual meeting requirement, Staff will consider the likelihood 
that the Company would be able to hold an annual meeting within the 
exception period, the Company's past compliance history, the reasons 
for the failure to timely hold an annual meeting, corporate events that 
may occur within the exception period, the Company's general financial 
status, and the Company's disclosures to the market. This review will 
be based on information provided by a variety of sources, which may 
include the Company, its audit committee, its outside auditors, the 
staff of the SEC and any other regulatory body. The proposed rule 
change will limit the length of an extension granted by Staff, upon 
review of the plan, to no more than 180 calendar days from the deadline 
to hold the annual meeting (i.e., one year after the end of the 
Company's fiscal year).\15\ The proposed rule change will also limit 
the maximum length of an extension that a NASDAQ Hearings Panel or the 
NASDAQ Listing and Hearing Review Council \16\ may grant for such a 
deficiency to no more than 360 calendar days from the date of non-
compliance with the rule. In doing so, the total time that a company 
may be granted to regain compliance with the annual meeting requirement 
is unchanged from the existing rule.\17\ The proposed rule change 
merely vests Staff with the limited discretion to grant an extension to 
regain compliance for a prescribed portion of this time. NASDAQ 
believes that the proposed rule change provides consistency with the 
administration of other continued listing standards where companies are 
provided a cure period or opportunity to submit a plan to regain 
compliance after they become deficient, without undermining the 
requirement that NASDAQ-listed companies hold annual meetings.
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    \15\ NASDAQ has observed that a substantial majority of 
companies that received delisting notices for failing to solicit 
proxies and hold their annual meetings regain compliance within a 
six month period.
    \16\ The Hearings Panel reviews staff delisting determinations 
and the Listing and Hearing Review Council reviews Panel Decisions.
    \17\ Under the current rule, the 360 calendar day limit on 
extensions starts on the date of Staff's written notification to a 
company of the deficiency, which is typically the first business day 
of a calendar year for companies with calendar year fiscal years. 
Under the proposed rule, the 360 calendar day period would start on 
the deadline to hold the annual meeting, which is one year after the 
end of a company's fiscal year. Thus, while the proposal does not 
change the total length of an extension a company may be granted, 
the starting date for an extension period under the proposed rule 
would be a day or two earlier than under the current rule.
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    Lastly, in accordance with Rule 5810(c)(2) a company or limited 
partnership not subject to the all-inclusive annual fee program that 
submits such a plan is subject to the $5,000 compliance plan review 
fee. Effective January 2018, all companies will be subject to the all-
inclusive annual fee program and this fee will no longer be applicable 
to any company. Further, all companies, regardless of whether they 
participate in the all-inclusive annual fee program or not, are subject 
to the $10,000 fee for each of a Panel hearing and appeal to the 
Listing and Hearing Review Council set forth in Listing Rules 
5815(a)(3) and 5820(a), respectively. Accordingly, under the proposed 
rule as compared to the current rule, companies and limited 
partnerships may be subject to these fees at different times, if at 
all, depending on whether and when they regain compliance. 
Notwithstanding, a company that elects not to participate in the all-
inclusive annual fee program prior to January 2018 will incur the 
$5,000 compliance plan review fee whereas a company that has opted-in 
to the all-inclusive fee will not. This fee would be in addition to any 
fees incurred in the appellate process.
2. Statutory Basis
    NASDAQ believes that the proposed rule changes are consistent with 
the provisions of Section 6 of the Act,\18\ in general, and with 
Sections 6(b)(4) and 6(b)(5) of the Act,\19\ in particular, in that 
they provide for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility or system which the Exchange operates or controls, and is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect

[[Page 81575]]

investors and the public interest; and are not designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers.
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    \18\ 15 U.S.C. 78f.
    \19\ 15 U.S.C. 78f(b)(4) and (5).
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    Specifically, the proposed changes are consistent with these 
requirements because they permit Staff to grant additional time to a 
company to comply with the annual meeting requirement in limited 
situations after Staff review of a compliance plan. The proposed 
changes, however, do not change the total length of an extension a 
company may be granted--as is the case under the current rule, such 
maximum time period would remain 360 calendar days. Furthermore, as is 
the case under the current rule, a company notified that it is 
deficient in the annual meeting requirement is required to publicly 
disclose such notice and the rules basis for it. NASDAQ also separately 
publicly discloses a list of noncompliant companies and the listing 
standards with which they do not comply. For these reasons, the 
proposed rule protects investors and the public interest.
    As noted above, there are various reasons why a company may not be 
able to hold an annual meeting and for which immediate delisting is an 
inappropriate outcome under the circumstances. In lieu of the current 
requirement that Staff send an immediate Delisting Determination, the 
proposal vests Staff with discretion to determine whether the reason 
for the deficiency and the plan to regain compliance merit an 
extension. The Rules allow Staff such discretion for other 
deficiencies, and the only case where Staff sends an immediate 
Delisting Determination is where Staff has concluded, after review of 
the facts and circumstances, that continued listing is contrary to the 
public interest. NASDAQ believes that it is consistent with the Act to 
provide Staff with discretion to grant an extension for an annual 
meeting deficiency based on a plan of compliance, consistent with the 
process currently used for the majority of deficiencies under NASDAQ's 
rules. The Exchange is not extending the total time that a company may 
remain listed on NASDAQ while deficient; rather, the proposed rule 
change will allow Staff limited discretion to grant an extension to 
regain compliance with the listing standard for a prescribed portion of 
this time, which, to the extent exercised, will limit the length of 
time a Hearings Panel and Listing and Hearing Review Council may 
subsequently grant. Accordingly, the Exchange believes that the 
proposal promotes the requirements of the Act by providing Staff with 
limited discretion to allow additional time where the circumstances do 
not support immediate delisting, while maintaining Staff's authority to 
delist a company when warranted.
    The Exchange also believes that assessing the $5,000 compliance 
plan review fee on companies that have not opted-in to the all-
inclusive annual fee program prior to January 2018 is reasonable 
because NASDAQ is changing the process in an effort to make it more 
consistent with how other deficiencies are handled. The Exchange notes 
that companies that do not resolve their annual meeting deficiencies 
during an extension period provided by Staff under the proposed changes 
may subsequently be subject to the $10,000 fee for each of a Panel 
Hearing and an appeal to the Listing and Hearing Review Council. 
However, because most companies resolve annual meeting deficiencies 
within six months, under the proposed rules, they would likely not 
incur these fees. Further, the Exchange believes that the proposed rule 
change is equitably allocated because the fees assessed to companies as 
a result of the changes will be allocated uniformly among similarly-
situated companies. Moreover, the Exchange believes that assessing 
different fees between companies that opt-in to the all-inclusive 
annual fee program and those that do not is an equitable allocation 
because participation in the program is elective and available to all 
listed companies. As a consequence, companies are able to weigh the 
benefits of the program against the relative risk of incurring 
additional fees and choose whether opting-in to the program at this 
juncture is appropriate.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. The 
proposed rule change will not burden competition as it provides 
discretion to Staff to provide a limited time to regain compliance when 
immediate delisting is not warranted, thereby potentially reducing the 
time and costs associated with appealing a delisting determination. 
Moreover, the proposed rule change is intended to promote consistent 
and fair regulation, and is not being adopted for competitive purposes. 
To the extent a competitor marketplace believes that the proposed rule 
change places them at a competitive disadvantage, it may file with the 
Commission a proposed rule change to adopt the same or similar rule.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2015-144 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2015-144. 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 Web site (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

[[Page 81576]]

provisions of 5 U.S.C. 552, will be available for Web site 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 the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2015-144, and should 
be submitted on or before January 20, 2016.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Brent J. Fields,
Secretary.
[FR Doc. 2015-32647 Filed 12-29-15; 8:45 am]
BILLING CODE 8011-01-P