Document ID: SEC-2009-0052-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2009-01-13T05:00Z

[Federal Register: January 13, 2009 (Volume 74, Number 8)]
[Notices]               
[Page 1743-1744]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13ja09-99]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59203; File No. SR-NASDAQ-2008-084]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Approving Proposed Rule Change to Require Limited Partnerships to 
Obtain Shareholder Approval for the Use of Equity Compensation and Make 
Other Clarifying Changes to the Listing Requirements for Limited 
Partnerships

January 6, 2009.

I. Introduction

    On November 18, 2008, 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 require limited partnerships to obtain 
shareholder approval for the use of equity compensation and to make 
other clarifying changes to the listing requirements for limited 
partnerships. The proposed rule change was published for comment in the 
Federal Register on December 2, 2008.\3\ The Commission received no 
comments on the proposal. 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. 59014 (November 25, 
2008), 73 FR 73358.
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II. Description of the Proposal

    Nasdaq's current listing requirements provide that issuers must 
obtain shareholder approval for a variety of corporate actions, 
including the issuance of equity compensation.\4\ However, these 
requirements do not currently apply to Limited Partnerships 
(``LPs'').\5\ Nasdaq is proposing to expand the requirement to obtain 
shareholder approval for equity compensation to entities that are LPs. 
As such, the proposed rule would provide that each issuer that is a 
limited partnership must obtain shareholder approval when a stock 
option or purchase plan is to be established or materially amended or 
other equity compensation arrangement is to be made or materially 
amended, pursuant to which stock may be acquired by officers, 
directors, employees, or consultants, as would be required under Nasdaq 
Rule 4350(i)(1)(A) and IM-43540-5.\6\
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    \4\ See Nasdaq Rule 4350(i)(1)(A).
    \5\ See Nasdaq Rules 4350(i)(1)(A) and 4360.
    \6\ See proposed Nasdaq Rule 4360(k).
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    In addition, Nasdaq proposes to make two other changes to the 
listing requirements for LPs. Specifically, the Exchange proposes to 
amend the rules applicable to LPs to require that: (1) the auditor of a 
listed LP must be registered as a public accounting firm with the 
Public Company Accounting Oversight Board (``PCAOB''), as provided for 
in the Sarbanes-Oxley Act of 2002; \7\ and (2) an LP must notify Nasdaq 
of any material non-compliance with the qualitative listing 
requirements for LPs in Rule 4360. Nasdaq states that when it adopted 
these requirements for other companies in 2003 in response to 
requirements imposed by the Sarbanes-Oxley Act, Nasdaq inadvertently 
excluded LPs from these requirements. The Exchange notes, however, that 
these requirements are already applicable to LPs. Specifically, with 
respect to the proposed auditor registration requirement, it is 
unlawful for an auditor to participate in the preparation or issuance 
of an audit report with respect to any listed company, including an LP, 
unless it is registered with the PCAOB.\8\ With respect to the proposed 
notification requirement, each listed company is required to sign a 
listing agreement prior to listing on Nasdaq in which the company has 
agreed to promptly notify Nasdaq in writing of any corporate action or 
other event which will cause the company to cease to be in compliance 
with Nasdaq listing requirements.\9\ As such, Nasdaq asserts that these 
changes are simply clarifying changes designed to highlight the 
requirements and facilitate understanding and compliance of the rules 
by LPs.
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    \7\ Section 102 of the Sarbanes Oxley Act, 15 U.S.C. 7212.
    \8\ Id.
    \9\ See http://www.nasdaq.com/about/Listing_Agreement.pdf.
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III. Discussion and Commission Findings

    After careful review, 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 
and, in particular, with Section 6(b)(5) of the Act,\10\ 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 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 issuers.\11\
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    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 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).
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    The Commission notes the importance of shareholder approval rules, 
as such rules provide shareholders with a voice in transactions that 
are material to, and may have an effect on, their respective 
investments. With respect to equity compensation plans, shareholder 
approval rules also help to protect investors against the potential 
dilutive effect of such plans. The Commission acknowledges that 
treating LPs differently with respect to certain limited types of 
shareholder approval rules may be appropriate given the structure and 
use of LPs and the expectations of investors in such entities.\12\ 
However, as the Commission has indicated previously, it believes that 
the rationale for treating an LP differently from other types of 
issuers with respect to shareholder input on equity compensation is 
less compelling.\13\ Accordingly, the Commission believes that it is 
consistent with the protection of investors and the public interest to 
require LPs to obtain shareholder approval for the issuance of equity 
compensation, as it will ensure that investors in LP securities have a 
check on the potential dilution that may result from the issuance of 
equity-based awards. Further, by requiring LPs to obtain shareholder 
approval for stock

[[Page 1744]]

option or other equity compensation plans under the same terms and 
conditions as other Nasdaq listed companies, the new rule will ensure 
that shareholders of all Nasdaq companies will have the same 
protections against the potential dilutive effects of such plans.
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    \12\ For a detailed discussion of the reasons that LPs differ 
from other issuers and may be appropriately excluded from certain 
shareholder approval rules, see Securities Exchange Act Release No. 
55796 (May 22, 2007), 72 FR 29566 (SR-NYSE-2007-28) (approving 
NYSE's proposal to exempt LPs from certain of its shareholder 
approval rules, excluding its equity compensation requirement).
    \13\ See id., 72 FR at 29567.
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    The Commission also believes that the proposed clarifying changes 
specifying that an auditor of a listed LP must be registered with the 
PCAOB and that an LP must notify Nasdaq of any material non-compliance 
with the corporate governance rules should eliminate any confusion 
regarding the requirements for LPs. As noted above, Nasdaq asserts that 
LPs are already subject to these requirements, but these proposed 
changes will ensure that such requirements are part of Nasdaq's 
rulebook governing the listing requirements for LPs and thus are 
transparent to issuers.\14\ Accordingly, the Commission finds that the 
proposed rule change is consistent with the Act.
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    \14\ See supra notes 8 and 9 and accompanying text.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-NASDAQ-2008-084) be, and 
hereby is, approved.
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    \15\ 15 U.S.C. 78s(b)(2).
    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E9-437 Filed 1-12-09; 8:45 am]

BILLING CODE 8011-01-P