Document ID: SEC-2007-0778-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NASDAQ Stock Market LLC
Posted Date: 2007-06-06T04:00Z

[Federal Register: June 6, 2007 (Volume 72, Number 108)]
[Notices]               
[Page 31361-31363]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06jn07-135]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55822; File No. SR-NASDAQ-2007-022]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto 
and Order Granting Accelerated Approval of Proposed Rule Change as 
Modified by Amendment No. 1 Thereto To Change the Conflicts of Interest 
Rule

 May 29, 2007.
    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 March 7, 2007, The NASDAQ Stock Market LLC (``Nasdaq'') filed with 
the Securities and Exchange Commission (``Commission'' or ``SEC'') the 
proposed rule change as described in Items I and II below, which Items 
have been substantially prepared by Nasdaq. On April 26, 2007, Nasdaq 
submitted Amendment No. 1 to the proposed rule change. This order 
provides notice of the proposed rule change, as modified by Amendment 
No. 1 and approves the proposed rule change, as amended, on an 
accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq proposes to modify Nasdaq's conflicts of interest rule to 
eliminate the requirement that related party transactions be approved 
by a listed company's audit committee or another independent body of 
the board of directors. The text of the proposed rule change is below. 
Proposed new language is in italics; proposed deletions are in 
brackets.\3\
---------------------------------------------------------------------------

    \3\ Nasdaq's proposed changes are marked to the rule text that 
appears in Nasdaq's electronic manual found at (http://www.nasdaq.complinet.com
).

---------------------------------------------------------------------------

* * * * *
    4350. Qualitative Listing Requirements for Nasdaq Issuers Except 
for Limited Partnerships
    (a)-(g) No change.
    (h) Conflicts of Interest
    Each issuer shall conduct [an] appropriate review and oversight of 
all related party transactions for potential conflict of interest 
situations on an ongoing basis [and all such transactions must be 
approved] by the company's audit committee or another independent body 
of the board of directors. For purposes of this rule, the term 
``related party transaction'' shall refer to transactions required to 
be disclosed pursuant to SEC Regulation S-K, Item 404. However, in the 
case of small business issuers (as that term is defined in SEC Rule 
12b-2), the term ``related party transactions'' shall refer to 
transactions required to be disclosed pursuant to SEC Regulation S-B, 
Item 404, and in the case of non-U.S. issuers, the term ``related party 
transactions'' shall refer to transactions required to be disclosed 
pursuant to Form 20-F, Item 7.B.
    (i)-(n) No change.
* * * * *

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 III below. Nasdaq has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.

[[Page 31362]]

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

1. Purpose
    Nasdaq proposes to modify its rule governing the review and 
approval of related party transactions by listed companies. 
Specifically, Nasdaq proposes to eliminate the requirement in Nasdaq 
Rule 4350(h) that related party transactions be approved by a listed 
company's audit committee or another independent body of the board of 
directors. The existing rule requires both an appropriate review of 
related party transactions on an ongoing basis and approval of those 
transactions by the company's audit committee or another independent 
body of the board of directors. The rule, as proposed, would continue 
to require ongoing review of related party transactions by a company's 
audit committee or another independent body of the board of directors. 
In addition, the proposed rule text would clarify that the issuer's 
audit committee or other independent body of the board must provide 
appropriate oversight of related party transactions.\4\ For the 
purposes of the rule, the term ``related party transaction'' generally 
is defined as a transaction that is required to be disclosed in 
Regulation S-K under the Securities Act of 1933.\5\
---------------------------------------------------------------------------

    \4\ See Amendment No. 1 to the proposed rule change.
    \5\ 17 CFR 229.404. For small business issuers, the relevant 
definition of ``related party transaction'' is those transactions 
required to be disclosed by SEC Regulation S-B, Item 404, 17 CFR 
228.404. For non-U.S. issuers, the term ``related party 
transactions'' refers to transactions required to be disclosed 
pursuant to Form 20-F, Item 7.B.
---------------------------------------------------------------------------

    The growing focus on internal controls over the past few years has 
led more companies to look closely at related party transactions. Also, 
Nasdaq notes that within the past year, the Commission has adopted 
significant revisions to its rules regarding related party 
transactions.\6\ In addition to adopting a principles-based disclosure 
requirement, the new rules require disclosure regarding a company's 
policies and procedures for the review, approval, or ratification of 
related party transactions. Nasdaq believes that this disclosure 
requirement would further advance the trend toward obtaining approval 
of related party transactions as a corporate governance best practice, 
thereby reducing the need for Nasdaq to impose an approval requirement 
in its corporate governance listing standards.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 54302 (August 29, 
2006), 71 FR 53158 (September 8, 2006) (File No. S7-03-06) (relating 
to executive compensation and related person disclosure).
---------------------------------------------------------------------------

    Nasdaq also notes that the comparable rules of the New York Stock 
Exchange, Inc. (``NYSE'') and the American Stock Exchange LLC 
(``Amex'') do not include an approval requirement.\7\ Accordingly, the 
proposed rule change would conform Nasdaq's rule to the NYSE's and 
Amex's rules, creating more uniformity across market centers with 
respect to the review and oversight of related party transactions by 
listed companies and reducing questions of compliance for issuers that 
move their listing to a different market.
---------------------------------------------------------------------------

    \7\ See Section 307.00 of the NYSE Listed Company Manual; 
Section 120 of the Amex Company Guide.
---------------------------------------------------------------------------

2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\8\ in general and with Section 
6(b)(5) of the Act,\9\ in particular. Section 6(b)(5) requires, among 
other things, that Nasdaq's rules 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. The proposed rule change 
will benefit issuers by providing additional clarity and transparency 
to Nasdaq's requirements relating to related party transactions and 
promoting greater uniformity with existing standards of the NYSE and 
Amex. The additional clarity, transparency and greater uniformity will 
reduce administrative costs associated with compliance with Nasdaq's 
rules on conflicts of interest.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    Nasdaq does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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 e-mail to rule-comments@sec.gov. Please include 

File Number SR-NASDAQ-2007-022 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2007-022. This 
file number should be included on the subject line if e-mail 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 provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of Nasdaq. 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-2007-022 and 
should be submitted on or before June 27, 2007.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    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.\10\ The 
Commission notes that

[[Page 31363]]

the proposed rule change would align Nasdaq's corporate governance 
listing standards regarding related party transactions with comparable 
provisions of other exchanges.
---------------------------------------------------------------------------

    \10\ In approving this rule change, the Commission notes that it 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The Commission finds good cause pursuant to Section 19(b)(2) of the 
Act\11\ to approve the proposed rule change prior to the thirtieth day 
after publication for comment in the Federal Register. As noted above, 
the proposed rule change would amend Nasdaq's corporate governance 
listing standards regarding related party transactions by conforming 
these standards with comparable provisions of other exchanges, and thus 
the proposed rule change does not present any new regulatory issues. 
Accelerating approval of the proposed rule change would promote greater 
uniformity among the exchanges' corporate governance rules for listed 
issuers.
---------------------------------------------------------------------------

    \11\15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-NASDAQ-2007-022), as modified by 
Amendment No. 1, be, and it hereby is, approved on an accelerated 
basis.\12\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-10791 Filed 6-5-07; 8:45 am]

BILLING CODE 8010-01-P