Document ID: SEC-2021-0061-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2021-01-15T05:00Z

[Federal Register Volume 86, Number 10 (Friday, January 15, 2021)]
[Notices]
[Pages 4158-4161]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-00814]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90883; File No. SR-NASDAQ-2020-100]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Modify the Quorum 
Requirement for Non-U.S. Companies Under Certain Limited Circumstances

January 11, 2021.
    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 31, 2020, the Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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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[[Page 4159]]

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

    The Exchange proposes to a proposal to modify the quorum 
requirement applicable to a non-U.S. company where such company's home 
country law is in direct conflict with Nasdaq's quorum requirement.
    The text of the proposed rule change is detailed below: proposed 
new language is italicized and proposed deletions are in brackets.
* * * * *
    The Nasdaq Stock Market Rules
* * * * *
    5615. Exemptions From Certain Corporate Governance Requirements
    This rule provides the exemptions from the corporate governance 
rules afforded to certain types of Companies, and sets forth the phase-
in schedules for initial public offerings, Companies emerging from 
bankruptcy, Companies transferring from other markets and Companies 
ceasing to be Smaller Reporting Companies. This rule also describes the 
applicability of the corporate governance rules to Controlled Companies 
and sets forth the phase-in schedule afforded to Companies ceasing to 
be Controlled Companies.

(a) Exemptions to the Corporate Governance Requirements

    (1)-(3) No change.
    (4) Limited Partnerships
    A limited partnership is not subject to the requirements of the 
Rule 5600 Series, except as provided in this Rule 5615(a)(4). A limited 
partnership may request a written interpretation pursuant to Rule 5602.
    (A)-(D) No change.
    (E) Quorum
    (i) In the event that a meeting of limited partners is required 
pursuant to paragraph (D), the quorum for such meeting shall be not 
less than 33\1/3\ percent of the limited partnership interests 
outstanding.
    (ii) Notwithstanding the quorum requirements in paragraph (i) 
above, Nasdaq may accept any quorum requirement for a non-U.S. Company 
if the Company's home country law mandates such quorum for the 
shareholders' meeting and prohibits the Company from establishing a 
higher quorum required by paragraph (i) above. A Company relying on 
this provision shall submit to Nasdaq a written statement from an 
independent counsel in such Company's home country describing the home 
country law that conflicts with Nasdaq's quorum requirement and 
certifying that, as the result, the Company is prohibited from 
complying with the quorum requirements in paragraph (i) above.
    (F)-(J) No change
    (5)-(6) No change.
    (b)-(c) No change.
* * * * *
    5620. Meetings of Shareholders
    (a) No change.
    IM-5620. Meetings of Shareholders or Partners--No change.
    (b) No change.
    (c) Quorum
    (i) Each Company that is not a limited partnership shall provide 
for a quorum as specified in its by-laws for any meeting of the holders 
of common stock; provided, however, that in no case shall such quorum 
be less than 33\1/3\% of the outstanding shares of the Company's common 
voting stock. Limited partnerships that are required to hold an annual 
meeting of partners are subject to the requirements of Rule 
5615(a)(4)(E).
    (ii) Notwithstanding the quorum requirements in paragraph (i) 
above, Nasdaq may accept any quorum requirement for a non-U.S. Company 
if the Company's home country law mandates such quorum for the 
shareholders' meeting and prohibits the Company from establishing a 
higher quorum required by paragraph (i) above. A Company relying on 
this provision shall submit to Nasdaq a written statement from an 
independent counsel in such Company's home country describing the home 
country law that conflicts with Nasdaq's quorum requirement and 
certifying that, as the result, the Company is prohibited from 
complying with the quorum requirements in paragraph (i) above.
* * * * *

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 
discused 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.

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

1. Purpose
    Nasdaq is proposing to modify Listing Rules 5620(c) and 
5615(a)(4)(E) (the ``Quorum Rules'') to allow Nasdaq to accept a quorum 
less than 33 \1/3\% of the outstanding shares of a company's common 
voting stock where the company is incorporated outside of the U.S. and 
such company's home country law prohibits the company from establishing 
a quorum that satisfies the Quorum Rules.
    Listing Rule 5620(c) establishes quorum requirements for an annual 
meeting of shareholders for Nasdaq companies listing common stock or 
voting preferred stock, and their equivalents.\3\ Under this rule, each 
company that is not a limited partnership must provide for a quorum as 
specified in its by-laws for any meeting of the holders of common 
stock; provided, however, that in no case shall such quorum be less 
than 33\1/3\% of the outstanding shares of the company's common voting 
stock (the ``Nasdaq Quorum Requirement''). Nasdaq notes that domestic 
listed companies are subject to quorum requirements under the laws of 
their states of incorporation.\4\
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    \3\ Listing Rule 5620(a).
    \4\ For example, Delaware allows companies to establish their 
own quorum requirements in their certificates of incorporation or 
bylaws, provided that the quorum must be at least one-third of the 
shares entitled to vote on the matter. In the absence of a quorum 
provision in the company's certificate of incorporation or bylaws, 
Delaware requires a quorum of 50% of the shares entitled to vote on 
the matter. See Del. Code Sec. 216.
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    Nasdaq recently discovered that the laws of certain foreign 
jurisdictions are in direct conflict with the Nasdaq Quorum 
Requirement. In particular, Nasdaq was approached by a French company 
that took advantage of the foreign private issuer exception and relied 
on home country practices in lieu of the Nasdaq Quorum Requirement, but 
lost its foreign private issuer status and cannot comply with the 
Nasdaq Quorum Requirement due to certain French law requirements.\5\ In 
that regard, Article L. 225-98 of the French Commercial code \6\ 
provides that upon first notice, the ordinary shareholders' meeting 
shall have a quorum requirement of one-fifth (20%) of the shares 
entitled to vote. The Article further provides that by-laws of a

[[Page 4160]]

French company whose shares are listed on a regulated market (which 
includes Euronext Paris) cannot provide for a higher quorum for 
shareholders' meetings than that set forth above. As this rule 
constitutes a public order under French law, it is required to be 
followed and compliance is enforced by the French courts and by the 
French stock exchange authority, the Autorit[eacute] des march[eacute]s 
financiers. According to article L. 225-121, any decision taken in 
violation of the aforementioned rules on quorum is deemed null and 
void. As such, a French company listed on a regulated market cannot 
comply with the Nasdaq Quorum Requirement.
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    \5\ Ordinary shares of at least one Nasdaq listed company DBV 
Technologies S.A. (DBV), are listed on Euronext Paris which is a 
regulated market under French and EU regulations. Accordingly, as 
explained below, DBV cannot amend its bylaws to increase the quorum 
requirement to comply with the Nasdaq Quorum Requirement. Since its 
IPO in 2014, DBV qualified as a foreign private issuer and relied on 
home country practices in lieu of complying with the Nasdaq Quorum 
Requirement.
    \6\ Available at https://www.legifrance.gouv.fr/affichCodeArticle.do?idArticle=LEGIARTI000038799445&cidTexte=LEGITEXT000005634379&dateTexte=20190721.
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    Listing Rule 5615(a)(3) allows a foreign private issuer \7\ to 
follow its home country practice in lieu of the requirements of the 
Rule 5600 Series, including the Nasdaq Quorum Requirement, subject to 
certain disclosure requirements and the requirement that an independent 
counsel in such company's home country certify to Nasdaq that the 
company's practices are not prohibited by the home country's laws.\8\ 
Accordingly, a French foreign private issuer could rely on Listing Rule 
5615(a)(3) to remain in compliance with the Nasdaq corporate governance 
requirements in the Rule 5600 Series.\9\
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    \7\ A foreign company will qualify as a foreign private issuer 
if 50% or less of its outstanding voting securities are held by U.S. 
residents; or if more than 50% of its outstanding voting securities 
are held by U.S. residents and none of the following three 
circumstances applies: the majority of its executive officers or 
directors are U.S. citizens or residents; more than 50% of the 
issuer's assets are located in the United States; or the issuer's 
business is administered principally in the United States. These 
tests are found in Securities Act Rule 405 and Exchange Act Rule 3b-
4.
    \8\ See Listing Rule 5615(a)(3)(B) and Listing Rule IM-5615-3.
    \9\ As of December 31, 2019, approximately 62% of DBV's 
outstanding ordinary shares were held by U.S. residents. See 
company's Form 20-F filed on March 20, 2020. As of June 30, 2020, 
according to the information provided to Nasdaq by the company, more 
than 50% of DBV's outstanding ordinary shares were held by U.S. 
residents and the majority of DBV's executive officers were U.S. 
citizens and residents and DBV's business was administered 
principally in the United States. Accordingly, DBV will no longer 
qualify as a foreign private issuer and will be required to comply 
with SEC rules for domestic issuers as of January 1, 2021.
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    A non-U.S. company \10\ that is not a foreign private issuer 
currently is required to comply with the Nasdaq Quorum Requirement 
without regard to the requirements of such company's home country laws. 
As described above, for some companies, including DBV, the company's 
home country law prohibits the company from establishing a higher 
quorum required by the Nasdaq Quorum Requirement.
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    \10\ The term non-US company refers to a company incorporated 
outside of U.S. See also Listing Rules 5630 and 5640 that use this 
term.
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    Accordingly, Nasdaq proposes to modify the Nasdaq Quorum 
Requirement to allow Nasdaq to accept any quorum requirement for a non-
U.S. company if such company's home country law mandates such quorum 
for the shareholders' meeting and prohibits the company from 
establishing the higher quorum required the Nasdaq Quorum Requirement. 
This approach is consistent with the provisions of Listing Rule 5640 
that allows Nasdaq to accept any action or issuance relating to the 
voting rights structure of a non-U.S. company that is not prohibited by 
the company's home country law.\11\ Nasdaq proposes to require that a 
company relying on this provision shall submit to Nasdaq a written 
statement from an independent counsel in such company's home country 
describing the home country law that conflicts with Nasdaq's quorum 
requirement. Nasdaq also proposes to require such counsel to certify 
that, as the result of the conflict with the home country law, the 
company is prohibited from complying with the Nasdaq Quorum 
Requirement.
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    \11\ The proposed modified Nasdaq Quorum Requirement will apply 
only in circumstances where the company's home country law 
specifically prohibits the company from establishing a higher quorum 
required the Nasdaq Quorum Requirement, whereas Listing 5640 allows 
Nasdaq to accept any voting rights structure of a non-U.S. company 
that is not prohibited by the company's home country law.
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    Nasdaq also proposes to modify Listing Rule 5615(a)(4)(E) governing 
the quorum requirements for limited partnerships listed on Nasdaq to 
also reflect this change to the Nasdaq Quorum Requirement.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\12\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\13\ 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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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    Nasdaq believes that the proposed amendments to Listing Rules 
5620(c) and 5615(a)(4)(E) are designed to protect interests and the 
public interest because the proposal would eliminate a conflict forcing 
a company to choose between following Nasdaq's rules or the law in its 
home jurisdiction. Further, while the Nasdaq Quorum Requirement would 
not apply, there would continue to be other protections for 
shareholders provided by the company's home country laws. Nasdaq also 
believes that Nasdaq's long experience of listing foreign private 
issuers, including DBV, while allowing such companies to rely on home 
country practices in lieu of the Nasdaq Quorum Requirement provides 
evidence of an appropriate level of investor protection. In addition, 
this modification is consistent with the provisions of Listing Rule 
5640 that allows Nasdaq to accept any action or issuance relating to 
the voting rights structure of a non-U.S. company that is not 
prohibited by the company's home country law.

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 
address conflicting requirements of jurisdictions affecting a small 
number of non-U.S. companies, as described above; and 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

    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:

[[Page 4161]]

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-2020-100 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-2020-100. 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 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-2020-100 and should be submitted 
on or before February 5, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-00814 Filed 1-14-21; 8:45 am]
BILLING CODE 8011-01-P