Document ID: SEC-2022-1382-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2022-10-21T04:00Z

[Federal Register Volume 87, Number 203 (Friday, October 21, 2022)]
[Notices]
[Pages 64127-64129]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-22840]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96094; File No. SR-NASDAQ-2022-015]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Amendment No. 2 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment No. 2, To 
Exempt Non-Convertible Bonds Listed Under Rule 5702 From Certain 
Corporate Governance Requirements

October 17, 2022.

I. Introduction

    On February 4, 2022, 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 exempt non-convertible bonds listed under Rule 
5702 from certain corporate governance requirements. The proposed rule 
change was published for comment in the Federal Register on February 
23, 2022.\3\ On March 18, 2022, the Commission extended the time period 
within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
approve or disapprove the proposed rule change.\4\ On May 18, 2022, the 
Commission instituted proceedings to determine whether to approve or 
disapprove the proposed rule change.\5\ On June 13, 2022, the Exchange 
filed Amendment No. 1 to the proposed rule change, which replaced and 
superseded the proposed rule change as originally filed.\6\ On August 
5, 2022, the Commission designated a longer period for Commission 
action on proceedings to determine whether to approve or disapprove the 
proposed rule change, as modified by Amendment No. 1.\7\ On August 31, 
2022, the Exchange filed Amendment No. 2 to the proposed rule change, 
which superseded the original filing, as modified by Amendment No. 1, 
in its entirety.\8\ The Commission received no comments on the proposed 
rule change. The Commission is publishing this notice to solicit 
comments on Amendment No. 2 from interested persons and is approving 
the proposed rule change, as modified by Amendment No. 2, on an 
accelerated basis.
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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. 94265 (February 16, 
2022), 87 FR 10265 (``Initial Proposal'').
    \4\ See Securities Exchange Act Release No. 94471, 87 FR 16778 
(March 24, 2022) (extending the time period to May 24, 2022).
    \5\ See Securities Exchange Act Release No. 94941, 87 FR 31594 
(May 24, 2022).
    \6\ In Amendment No. 1, the Exchange revised the proposal to: 
(i) clarify the purpose and rationale of the proposed rule change; 
and (ii) make minor technical changes to improve the structure, 
clarity, and readability of the proposed rules. Amendment No. 1 to 
the proposed rule change is available at: https://www.sec.gov/comments/sr-nasdaq-2022-015/srnasdaq2022015-20131121-301311.pdf.
    \7\ See Securities Exchange Act Release No. 95434, 87 FR 49631 
(August 11, 2022) (extending the time period to October 21, 2022).
    \8\ In Amendment No. 2, the Exchange deleted a proposed 
exemption from Nasdaq Rule 5630, Review of Related Party 
Transactions, for issuers whose only securities listed on Nasdaq are 
non-convertible bonds, as well as clarified the purpose of the 
proposed rule change. Amendment No. 2 to the proposed rule change is 
available at: https://www.sec.gov/comments/sr-nasdaq-2022-015/srnasdaq2022015-20137931-308238.pdf.
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II. The Exchange's Description of the Proposed Rule Change, as Modified 
by Amendment No. 2

    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.

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

1. Purpose
    This Amendment No. 2 supersedes and replaces the Initial Proposal, 
as modified by Amendment No. 1, in its entirety.
    In November 2018, the Commission approved amendments to the 
Exchange's rules that permit the Exchange to list and trade non-
convertible corporate debt securities (referred to herein as ``bonds'' 
or ``non-convertible bonds'') on the Nasdaq Bond Exchange.\9\ Under the 
Exchange's listing rules then adopted, a non-convertible bond was 
eligible for initial listing on the Exchange only if it had a principal 
amount outstanding or market value of at least $5 million and its 
issuer had at least one class of an equity security listed on Nasdaq, 
the New York Stock Exchange (``NYSE''), or NYSE American (collectively, 
a ``listed company'').\10\ In February 2020, Nasdaq amended Rule 5702 
to allow the listing of non-convertible bonds issued by certain 
companies not listed on Nasdaq, NYSE American or NYSE (the ``2020 
Filing'').\11\
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    \9\ See Securities Exchange Act Release No. 84575 (November 13, 
2018), 83 FR 58309 (November 19, 2018) (approving SR-NASDAQ-2018-
070, as modified by Amendment Nos. 1-3) (``Approval Order'').
    \10\ Rule 5702(a).
    \11\ Specifically, the 2020 Filing expanded the categories of 
non-convertible bonds eligible to be listed under Rule 5702 to 
include non-convertible bonds of affiliates of a listed company 
where: a listed company directly or indirectly owns a majority 
interest in, or is under common control with, the issuer of the non-
convertible bond; or a listed company has guaranteed the non-
convertible bond. In addition, for un-affiliated companies, the 2020 
Filing allowed listing of non-convertible bonds where a nationally 
recognized securities rating organization (an ``NRSRO'') has 
assigned a current rating to the non-convertible bond that is no 
lower than an S&P Corporation ``B'' rating or equivalent rating by 
another NRSRO; or if no NRSRO has assigned a rating to the issue, an 
NRSRO has currently assigned (i) an investment grade rating to an 
immediately senior issue of the same company, or (ii) a rating that 
is no lower than an S&P Corporation ``B'' rating, or an equivalent 
rating by another NRSRO, to a pari passu or junior issue of the same 
company. Securities and Exchange Act Release No. 88304 (February 28, 
2020), 85 FR 12953 (March 5, 2020)(SR-Nasdaq 2020-008).
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    Nasdaq now proposes to exempt issuers whose only securities listed 
on Nasdaq are non-convertible bonds listed under Rule 5702 \12\ from 
the requirements relating Shareholder Approval (Rule 5635) and Voting 
Rights (Rule 5640)(collectively, the ``Rules'').\13\
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    \12\ If an issuer has a class of equity securities listed on 
Nasdaq, the issuer is subject to the requirements of the Rules, 
except as otherwise provided in the Nasdaq 5600 Rule Series.
    \13\ To increase the clarity of the rule, Nasdaq proposes to 
consolidate without substantively changing in the proposed Rule 
5702(d) other exemptions applicable to an issuer of a non-
convertible bond, as provided by Rule 5615(a)(6)(A), which states, 
in the relevant parts, that issuers ``whose only securities listed 
on Nasdaq are . . . debt securities . . . are exempt from the 
requirements relating to Independent Directors (as set forth in Rule 
5605(b)), Compensation Committees (as set forth in Rule 5605(d)), 
Director Nominations (as set forth in Rule 5605(e)), Codes of 
Conduct (as set forth in Rule 5610), and Meetings of Shareholders 
(as set forth in Rule 5620(a)). In addition, these issuers are 
exempt from the requirements relating to Audit Committees (as set 
forth in Rule 5605(c)), except for the applicable requirements of 
SEC Rule 10A-3. Nasdaq also proposes to include in the proposed Rule 
5702(d) exemptions from the requirements relating to Diverse Board 
Representation (as set forth in Rule 5605(f)) and Board Diversity 
Disclosure (as set forth in Rule 5606) applicable to an issuer of a 
non-convertible bond, as provided by Rules 5605(f)(4) and 5606(c), 
respectively.

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[[Page 64128]]

    Rule 5640 states that voting rights of existing shareholders of 
publicly traded common stock registered under Section 12 of the 
Securities Exchange Act of 1934 cannot be disparately reduced or 
restricted through any corporate action or issuance. As such, by its 
terms, the rule does not apply to bondholders because they are not 
shareholders of publicly traded common stock registered under Section 
12 of the Act.
    Rule 5635 sets forth the circumstances under which shareholder 
approval is required prior to an issuance of securities in connection 
with: (i) the acquisition of the stock or assets of another company; 
(ii) equity-based compensation of officers, directors, employees or 
consultants; (iii) a change of control; and (iv) transactions other 
than public offerings. Each of these rules predicates the need for 
shareholder approval on an issuance of securities by the company, but 
does not meaningfully protect bondholders because they do not have a 
right to vote in the event of an issuance of securities by the company 
that could trigger the approval requirements under Rule 5635.\14\
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    \14\ See also general provisions relating to shareholder 
approval in Rule 5635(e) regarding determining the number of shares 
issuable in a transaction and the voting power outstanding.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\15\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\16\ 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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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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    Nasdaq believes that exempting issuers whose only securities listed 
on Nasdaq are non-convertible bonds listed under Rules 5702 from the 
requirements of the Rules is designed to remove impediments to and 
perfect the mechanism of a free and open market because Rule 5640, by 
its terms, does not apply to bondholders as they are not shareholders 
of publicly traded common stock registered under Section 12 of the Act 
and bondholders do not have a right to vote in the event of an issuance 
of securities by the company that could trigger the approval 
requirements under Rule 5635. In addition Nasdaq believes that Rule 
5702 adequately protects bondholders by setting forth the requirements 
to help ensure that the issuer of the non-convertible bond is capable 
of meeting its financial obligations.

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. Nasdaq believes the proposed 
rule is not designed to limit the ability of the issuers of 
nonconvertible securities to list them on any other national securities 
exchange because it is designed to provide transparency to the 
applicability of the Rules to such issuers given that the Rules do not 
meaningfully protect bondholders. In addition, the proposed rule change 
may enhance competition among issuers by allowing more issuers to list 
their non-convertible bonds on Nasdaq, provided they meet the 
requirements of the rule.

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. Discussion and Commission Findings

    The Commission finds that the proposed rule change, as modified by 
Amendment No. 2, is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\17\ In particular, the Commission finds that the proposed 
rule change, as modified by Amendment No. 2, is consistent with Section 
6(b)(5) of the Act,\18\ which requires that the rules of an exchange be 
designed to promote just and equitable principles of trade, to remove 
impediments and to 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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    \17\ 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).
    \18\ 15 U.S.C. 78f(b)(5).
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    As stated above, the Exchange proposes to exempt issuers whose only 
securities listed on Nasdaq are non-convertible bonds listed under Rule 
5702 from the corporate governance requirements relating to Shareholder 
Approval (Nasdaq Rule 5635) and Voting Rights (Nasdaq Rule 5640). The 
Commission is approving the proposed rule change because, as described 
above, today, bondholders are not entitled to vote in the event of an 
issuance of securities under Nasdaq Rule 5635. Further, Nasdaq Rule 
5640, by its terms, is not applicable to bondholders. Moreover, issuers 
that list non-convertible bonds pursuant to Nasdaq Rule 5702, if they 
also have a class of equity securities listed on Nasdaq, must continue 
to comply with the requirements of Nasdaq Rules 5635 and 5640 through 
their equity listing.\19\ The Exchange also proposes to consolidate in 
proposed Rule 5702(d), without substantive changes, other exemptions 
currently applicable to an issuer whose only security listed on Nasdaq 
is a non-convertible bond (i.e., requirements from rules pertaining to 
Independent Directors, Compensation Committees, Director Nominations, 
Diverse Board Representation, Board Diversity Disclosure, Codes of 
Conduct, Meetings of Shareholders, and Audit Committees, except for the 
applicable requirements of SEC Rule 10A-3).\20\
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    \19\ See supra note 12 and accompanying text.
    \20\ See supra note 13.
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    Accordingly, the Commission believes that the proposed rule change, 
as modified by Amendment No. 2, is consistent with Section 6(b)(5) of 
the Act because it clarifies the application of Nasdaq Rules 5635 and 
5640 to issuers that only list non-convertible bonds on Nasdaq and 
consolidates all relevant exemptions in one provision.

IV. Solicitation of Comments on Amendment No. 2 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 2 
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 [email protected]. Please include 
File Number SR-NASDAQ-2022-015 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-2022-015. This

[[Page 64129]]

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-2022-015 and should be submitted 
on or before November 14, 2022.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 2, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
2 in the Federal Register. Amendment No. 2 merely amends the proposed 
rule to delete a proposed exemption for issuers whose only securities 
listed on Nasdaq are non-convertible bonds from Nasdaq Rule 5630, 
Review of Related Party Transactions, as well as provide greater 
clarity as to the purpose of the proposed rule change. Amendment No. 2 
does not change the substance of the remaining proposed exemptions for 
issuers of non-convertible bonds from Nasdaq Rules 5635 and 5640, which 
were previously noticed.\21\ Accordingly, the Commission finds good 
cause, pursuant to Section 19(b)(2) of the Act,\22\ to approve the 
proposed rule change, as modified by Amendment No. 2, on an accelerated 
basis.
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    \21\ See Initial Proposal, supra note 3.
    \22\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-NASDAQ-2022-015), as 
modified by Amendment No. 2 thereto, be, and it hereby is, approved on 
an accelerated basis.
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    \23\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-22840 Filed 10-20-22; 8:45 am]
BILLING CODE 8011-01-P