Document ID: SEC-2023-0986-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2023-09-11T04:00Z

[Federal Register Volume 88, Number 174 (Monday, September 11, 2023)]
[Notices]
[Pages 62417-62420]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-19470]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98285; File No. SR-NASDAQ-2023-031]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify Requirements Relating to the Waiver of the Code of Conduct in 
Listing Rule 5610 and IM-5610

September 5, 2023.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on August 21, 2023, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. 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

    The Exchange proposes to modify the requirements related to the 
waiver of the code of conduct in Listing Rules 5610 and IM-5610.
    The text of the proposed rule change is set forth below. Proposed 
new language is italicized; deleted text is in brackets.
* * * * *

The Nasdaq Stock Market Rules

* * * * *

[[Page 62418]]

5610. Code of Conduct

    Each Company shall adopt a code of conduct applicable to all 
directors, officers and employees, which shall be publicly 
available. A code of conduct satisfying this rule must comply with 
the definition of a ``code of ethics'' set out in section 406(c) of 
the Sarbanes-Oxley Act of 2002 (``the Sarbanes-Oxley Act'') and any 
regulations promulgated thereunder by the Commission. [See 17 CFR 
228.406 and 17 CFR 229.406.] In addition, the code must provide for 
an enforcement mechanism. Any waivers of the code for directors or 
Executive Officers must be approved by the [B]board or a board 
committee. Companies, other than Foreign Private Issuers, shall 
disclose such waivers within four business days by filing a current 
report on Form 8-K with the Commission or, in cases where a Form 8-K 
is not required, by distributing a press release. Foreign Private 
Issuers shall disclose such waivers within four business days either 
by distributing a press release or including disclosure in a Form 6-
K[ or in the next Form 20-F or 40-F]. Alternatively, within four 
business days, a Company, including a Foreign Private Issuer, may 
disclose waivers on the Company's website in a manner that satisfies 
the requirements of Item 5.05(c) of Form 8-K.

IM-5610. Code of Conduct

    Ethical behavior is required and expected of every corporate 
director, officer and employee whether or not a formal code of 
conduct exists. The requirement of a publicly available code of 
conduct applicable to all directors, officers and employees of a 
Company is intended to demonstrate to investors that the board and 
management of Nasdaq Companies have carefully considered the 
requirement of ethical dealing and have put in place a system to 
ensure that they become aware of and take prompt action against any 
questionable behavior. For Company personnel, a code of conduct with 
enforcement provisions provides assurance that reporting of 
questionable behavior is protected and encouraged, and fosters an 
atmosphere of self-awareness and prudent conduct.
    Rule 5610 requires Companies to adopt a code of conduct 
complying with the definition of a ``code of ethics'' under section 
406(c) of the Sarbanes-Oxley Act of 2002 (``the Sarbanes-Oxley 
Act'') and any regulations promulgated thereunder by the Commission. 
[See 17 CFR 228.406 and 17 CFR 229.406.] Thus, the code must include 
such standards as are reasonably necessary to promote the ethical 
handling of conflicts of interest, full and fair disclosure, and 
compliance with laws, rules and regulations, as specified by the 
Sarbanes-Oxley Act. However, the code of conduct required by Rule 
5610 must apply to all directors, officers, and employees. Companies 
can satisfy this obligation by adopting one or more codes of 
conduct, such that all directors, officers and employees are subject 
to a code that satisfies the definition of a ``code of ethics.''
    As the Sarbanes-Oxley Act recognizes, investors are harmed when 
the real or perceived private interest of a director, officer or 
employee is in conflict with the interests of the Company, as when 
the individual receives improper personal benefits as a result of 
his or her position with the Company, or when the individual has 
other duties, responsibilities or obligations that run counter to 
his or her duty to the Company. Also, the disclosures a Company 
makes to the Commission are the essential source of information 
about the Company for regulators and investors--there can be no 
question about the duty to make them fairly, accurately and timely. 
Finally, illegal action must be dealt with swiftly and the violators 
reported to the appropriate authorities. Each code of conduct must 
require that any waiver of the code for Executive Officers or 
directors may be made only by the board or a board committee and 
must be disclosed to Shareholders, along with the reasons for the 
waiver. All Companies, other than Foreign Private Issuers, must 
disclose such waivers within four business days by filing a current 
report on Form 8-K with the Commission, providing website disclosure 
that satisfies the requirements of Item 5.05(c) of Form 8-K, or, in 
cases where a Form 8-K is not required, by distributing a press 
release. Foreign Private Issuers must disclose such waivers within 
four business days either by providing website disclosure that 
satisfies the requirements of Item 5.05(c) of Form 8-K, by including 
disclosure in a Form 6-K[ or in the next Form 20-F or 40-F] or by 
distributing a press release. This disclosure requirement provides 
investors the comfort that waivers are not granted except where they 
are truly necessary and warranted, and that they are limited and 
qualified so as to protect the Company and its Shareholders to the 
greatest extent possible.
    Each code of conduct must also contain an enforcement mechanism 
that ensures prompt and consistent enforcement of the code, 
protection for persons reporting questionable behavior, clear and 
objective standards for compliance, and a fair process by which to 
determine violations.
* * * * *

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

    In its filing with the Commission, the Exchange 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. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.
* * * * *
    (b) Not applicable.
    (c) Not applicable.

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

1. Purpose
    Nasdaq is proposing to amend Listing Rules 5610 and IM-5610 to 
provide that waivers of the code of conduct for directors or executive 
officers may be approved by a board committee rather than exclusively 
by the board, as this rule currently requires and to require that 
Foreign Private Issuers must disclose such waivers within four business 
days.
    Ethical behavior is required and expected of every corporate 
director, officer and employee whether or not a formal code of conduct 
exists. The requirement of a publicly available code of conduct 
applicable to all directors, officers and employees of a company is 
intended to demonstrate to investors that the board and management of 
Nasdaq companies have carefully considered the requirement of ethical 
dealing and have put in place a system to ensure that they become aware 
of and take prompt action against any questionable behavior. For 
company personnel, a code of conduct with enforcement provisions 
provides assurance that reporting of questionable behavior is protected 
and encouraged, and fosters an atmosphere of self-awareness and prudent 
conduct.
    Listing Rules 5610 and IM-5610 require companies to adopt a code of 
conduct applicable to directors, officers, and employees, which shall 
be publicly available. A code of conduct satisfying this rule must 
comply with the definition of a ``code of ethics'' set out in section 
406(c) of the Sarbanes-Oxley Act of 2002 and any regulations 
promulgated thereunder by the Commission.\3\ In addition, the code must 
provide for an enforcement mechanism. Any waivers of the code for 
directors or executive officers must be approved by the board and 
publicly disclosed to shareholders, along with the reasons for the 
waiver. Companies, other than foreign private issuers, must disclose 
such waivers within four business days by filing a current report on 
Form 8-K with the Commission or, in cases where a Form 8-K is not 
required, by distributing a press release. Foreign private issuers must 
disclose such waivers either by distributing a press release or 
including disclosure in a Form 6-K or in the next Form 20-F or 40-F.\4\ 
Nasdaq believes this

[[Page 62419]]

disclosure requirement provides investors the comfort that waivers are 
not granted except where they are truly necessary and warranted, and 
that they are limited and qualified so as to protect the company and 
its shareholders to the greatest extent possible.
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    \3\ See 17 CFR 229.406.
    \4\ See Listing Rule 5610. Alternatively, a company, including a 
foreign private issuer, may disclose waivers on the company's 
website in a manner that satisfies the requirements of Item 5.05(c) 
of Form 8-K. If a company elects to disclose the information through 
its website, such information must remain available on the website 
for at least a 12-month period. Following the 12-month period, the 
company must retain the information for a period of not less than 
five years. See also instructions to Item 16B of Form 20-F.
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    By expressly setting out the inherent obligation of ethical conduct 
in this manner, Nasdaq provides assurance to investors, regulators and 
itself that each of its issuers has in place a system to focus 
attention throughout the company on the obligation of ethical conduct, 
encourage reporting of potential violations, and deal fairly and 
promptly with questionable behavior.
    Nasdaq is proposing to allow waivers of the code to be approved 
either by the board of directors or a committee of the board. This 
would give listed companies flexibility to place the oversight of a 
company's code of conduct within the jurisdiction of a particular 
committee if that structure is more effective and appropriate, while 
following the obligations of ethical conduct required by Listing Rules 
5610 and IM-5610. The approach of delegating oversight authority to a 
board committee is also consistent with the provisions of Listing Rule 
5630 that requires approval of related party transactions by the 
company's audit committee or another independent body of the board of 
directors.\5\ In addition, Nasdaq believes that the proposed change 
would align the requirements of this rule with the requirements of Rule 
303A.10 of the Listed Company Manual of the New York Stock Exchange 
(``NYSE'').\6\
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    \5\ See Listing Rule 5630.
    \6\ In 2002, the NASD, through its subsidiary, The Nasdaq Stock 
Market, Inc., filed with the Commission a proposed rule change to 
amend NASD Rules to adopt the code of conduct requirements. See 
Securities Exchange Act Release No. 48125 (July 2, 2003), 68 FR 
41194 (July 10, 2003) (SR-NASD-2002-139) (``Nasdaq Code of Conduct 
Proposal''). At about the same time, NYSE proposed similar changes 
to its listing standards. See Securities Exchange Act Release No. 
47672 (April 11, 2003) 68 FR 19051 (April 17, 2003) (``NYSE 
Corporate Governance Proposal''). The Commission discussed and 
approved both the Nasdaq Code of Conduct Proposal and the NYSE 
Corporate Governance Proposal in one order (the ``2003 Order''). See 
Securities Exchange Act Release No. 48745 (November 4, 2003), 68 FR 
64154 (November 12, 2003).
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    Nasdaq is also proposing to clarify that Foreign Private Issuers 
are required to disclose any waivers of the code for directors or 
executive officers within four business days by providing website 
disclosure that satisfies the requirements of Item 5.05(c) of Form 8-K, 
by including disclosure in a Form 6-K or by distributing a press 
release. The disclosure of any code of conduct waivers provides 
investors the comfort that waivers are not granted except where they 
are truly necessary and warranted, and that they are limited and 
qualified so as to protect the company and its shareholders to the 
greatest extent possible. Accordingly, Nasdaq believes that Foreign 
Private Issuers, like other Nasdaq listed companies, should be required 
to make such disclosure within four business days by providing website 
disclosure that satisfies the requirements of Item 5.05(c) of Form 8-K, 
by including disclosure in a Form 6-K or by distributing a press 
release rather than providing such disclosure in the next Form 20-F or 
40-F.\7\
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    \7\ Listing Rules 5610 and IM-5610 already specifically provide 
that companies, other than Foreign Private Issuers, must disclose 
code of conduct waivers within four business. Nasdaq is proposing to 
remove references in Listing Rules 5610 and IM-5610 to Forms 20-F 
and 40-F as an alternative disclosure venue for code of conduct 
waivers.
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    Finally, Nasdaq proposes to remove citation to 17 CFR 228.406 and 
17 CFR 229.406 from the rule language, without changing the substance 
of Rules 5610 and IM-5610, to maintain consistency within the rulebook.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act,\8\ in general, and furthers the objectives of section 
6(b)(5) of the Act,\9\ in particular, in that it is designed 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.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    Nasdaq believes that the proposed amendments to Listing Rules 5610 
and IM-5610 to provide that waivers of the code of conduct for 
directors or executive officers may be approved by a board committee 
and to require that Foreign Private Issuers must disclose such waivers 
within four business days are designed to protect investors and the 
public interest because there would continue to be other significant 
protections for shareholders with respect to the waivers of the code of 
conduct. Specifically, consistent with the provisions of Listing Rule 
5630, waivers of the code of conduct for directors or executive 
officers would be approved by the board or a board committee and 
publicly disclosed, as described above. Nasdaq believes this disclosure 
requirement provides investors the comfort that waivers are not granted 
except where they are truly necessary and warranted, and that they are 
limited and qualified so as to protect the company and its shareholders 
to the greatest extent possible. The proposed amendment would make 
Nasdaq's requirements regarding the granting of the waivers by the 
board or a board committee of the code of conduct substantively similar 
to those of the NYSE.\10\ In the 2003 Order, the Commission determined 
that this approach is consistent with the requirements of the Exchange 
Act.
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    \10\ Nasdaq reviewed recent code of ethics disclosure of a 
sample of NYSE listed companies and observed that a number of 
companies provide for waivers to the code of conduct to be approved 
by the board or a board committee.
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    Finally, Nasdaq believes that removing citation from the rule 
language is consistent with the requirements of the Exchange Act 
because the removal does not change the substance of the rule.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change will 
make Nasdaq requirements with respect to the waivers of the code of 
conduct substantively similar to those of the NYSE. All listed 
companies would be affected in the same manner by these changes. As 
such, these changes are neither intended to, nor expected to, impose 
any burden on competition.

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

    No written comments were either solicited or received.

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

[[Page 62420]]

19(b)(3)(A)(iii) of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of its 
intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    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 Act.

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NASDAQ-2023-031 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-2023-031. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NASDAQ-2023-031 and should 
be submitted on or before October 2, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-19470 Filed 9-8-23; 8:45 am]
BILLING CODE 8011-01-P