Document ID: SEC-2016-0283-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market, LLC
Posted Date: 2016-02-19T05:00Z

[Federal Register Volume 81, Number 33 (Friday, February 19, 2016)]
[Notices]
[Pages 8582-8585]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-03442]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77137; File No. SR-NASDAQ-2015-144]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Granting Approval of Proposed Rule Change To Amend Rules 5810(4), 
5810(c), 5815(c) and 5820(d) To Provide Staff With Limited Discretion 
To Grant a Listed Company That Failed To Hold Its Annual Meeting of 
Shareholders an Extension of Time To Comply With the Annual Meeting 
Requirement

February 12, 2016.

I. Introduction

    On December 9, 2015, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ a 
proposed rule change to provide staff of NASDAQ's Listing 
Qualifications Department (``Staff'') with limited discretion to grant 
a listed company, that failed to timely hold its annual meeting of 
shareholders, a certain period of time to comply with the annual 
meeting requirement.\4\ The proposed rule change was published for 
comment in the Federal Register on December 30, 2015.\5\ The Commission 
received no comments on the proposed rule change. This order approves 
the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ As described in more detail below, the total amount of time 
a listed company that fails to hold an annual meeting of 
shareholders can remain listed on the Exchange will not be changing 
under the proposed rule change.
    \5\ See Securities Exchange Act Release No. 76731 (December 22, 
2015), 80 FR 81573 (``Notice'').
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II. Description of the Proposed Rule Change

    Companies listed on the Exchange must comply with various continued 
listing requirements, one of which is to hold an annual meeting no 
later than one year after the end of the company's fiscal year.\6\ 
Currently, if an Exchange-listed company fails to hold its annual 
meeting, Staff has no discretion to allow additional time for the 
company to regain compliance. Instead, Staff is required to issue a 
Delisting Determination, subjecting the company to immediate suspension 
and delisting, unless the company appeals the Delisting Determination 
to the Hearings Panel.\7\ The only other Exchange rules where a listed 
company is subject to immediate suspension and delisting is when a 
company fails to timely solicit proxies and when the Staff determines 
that the company's continued listing raises a public interest 
concern.\8\ For all other deficiencies under the NASDAQ Listing Rules, 
a listed company is provided with either the opportunity to submit a 
plan to regain compliance or given a fixed cure period to regain 
compliance.\9\
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    \6\ Each company listing common stock or voting preferred stock, 
and their equivalents, must hold an annual meeting of shareholders 
no later than one year after the end of the company's fiscal year 
and solicit proxies for that meeting. See Exchange Rules 5620(a) and 
(b), respectively. The proposed rule change will also apply to 
Exchange listed companies that are limited partnerships required to 
hold an annual meeting. A company that is a limited partnership is 
not be required to hold an annual meeting of limited partners unless 
required by statute or regulation in the state in which the limited 
partnership is formed or doing business or by the terms of the 
partnership's limited partnership agreement. See Exchange Rules 
5615(a)(4)(D) and (F); see also Notice, supra note 5, at 81573 n.3.
    \7\ See Exchange Rule 5810(c)(1). A listed company may request 
review of a Staff delisting determination by a Hearings Panel. See 
Exchange Rule 5815. A timely request for a hearing will stay the 
suspension and delisting pending the issuance of a written Panel 
Decision. See Exchange Rule 5815(a)(1)(A).
    \8\ See Exchange Rule 5810(c)(1); see also Notice, supra note 5, 
at 81573.
    \9\ See Exchange Rules 5810(c)(2) and (3); see also Notice, 
supra note 5, at 81573. Generally, a listed company is allowed 45 
calendar days to submit a plan of compliance for certain 
deficiencies set forth in Exchange Rule 5810(c)(2)(i)-(iii). Upon 
review of the plan, Staff may grant the company up to 180 calendar 
days from the date of Staff's initial notification of the company's 
non-compliance to regain compliance. See Exchange Rule 5810(c)(2)(A) 
and (B); see also Exchange Rule 5810(c)(2)(F), which provides a 
company 60 calendar days to submit a plan to regain compliance for 
filing deficiencies. If upon review of the company's plan Staff 
determines that an extension is not warranted, Staff will issue a 
Delisting Determination, which triggers the company's right to 
request review by a Hearings Panel. See Exchange Rule 5815; see also 
Exchange Rule 5810(c)(2)(F).
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    The Exchange asserted in its filing that there are a variety of 
mitigating reasons why a listed company may fail to timely hold an 
annual meeting of shareholders.\10\ For example, the Exchange states 
that it has observed

[[Page 8583]]

cases where a listed company was required to reschedule the annual 
meeting after the meeting's deadline in order to provide its 
shareholders more time to review proxy materials in connection with a 
shareholder proxy contest.\11\ The Exchange also stated that it had 
encountered listed companies that could not hold an annual meeting 
because the company was delinquent in filing periodic reports and, as a 
result, could not include the required financial information in a proxy 
statement.\12\
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    \10\ See Notice, supra note 5, at 81573.
    \11\ See Notice, supra note 5, at 81573-74.
    \12\ See Notice, supra note 5, at 81574. Under the current 
rules, the Exchange states that a listed company could receive an 
extension of time to regain compliance with the periodic filing 
requirement. However, if during any such compliance period the 
company subsequently fails to hold an annual meeting of shareholders 
for any reason, Staff would be required to immediately issue a 
Delisting Determination for both the periodic filing delinquency and 
the annual meeting deficiency, notwithstanding that the extended 
compliance period for the periodic filing delinquency has not 
expired. See Rule 5810(c)(2)(A); see also Notice, supra note 5, at 
81574.
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    Accordingly, the Exchange has proposed to amend Exchange Rules 
5810(4), 5810(c), 5815(c) and 5820(d) to provide listed companies that 
fail to hold a timely annual meeting with the ability to submit a plan 
of compliance for Staff's review.\13\ In its filing, the Exchange 
proposed to amend Exchange Rule 5810(c)(1) by deleting the language 
that a failure of a listed company to timely hold its annual 
shareholders' meeting results in an immediate suspension and delisting. 
The Exchange also proposed to amend Exchange Rule 5810(c)(2)(A)(iii) by 
including references to Exchange Rules 5620(a) (Meeting of 
Shareholders) and 5615(a)(4)(D) (Partner Meetings of Limited 
Partnerships) under the list of deficiencies for which a listed company 
may submit a plan of compliance for Staff review.
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    \13\ See Notice, supra note 5, at 81574.
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    Under proposed Exchange Rule 5810(c)(2)(G), in the case of 
deficiencies from the annual meeting requirements of Exchange Rules 
5620(a) and 5615(a)(4)(D), Staff's notice shall provide the listed 
company with 45 calendar days to submit a plan to regain compliance 
with these provisions; provided, however, that the company shall not be 
provided with an opportunity to submit such a plan if review of a prior 
Staff Delisting Determination with respect to the company is already 
pending.\14\ In determining whether to grant the company an extension 
to comply with the annual meeting requirement, and the length of any 
such extension, Staff will consider certain factors, which should be 
addressed in the company's compliance plan, including the likelihood 
that the listed company would be able to hold an annual meeting within 
the exception period, the company's past compliance history, the 
reasons for the failure to timely hold an annual meeting, corporate 
events that may occur within the exception period, the company's 
general financial status, and the company's disclosures to the 
market.\15\ Under proposed Exchange Rule 5810(c)(2)(G), Staff would be 
limited to grant an extension upon review of the compliance plan, to no 
more than 180 calendar days from the deadline to hold the annual 
meeting. As noted above, the deadline to hold an annual meeting of 
shareholders is one year after the end of the company's fiscal 
year.\16\ The Exchange is also making other conforming changes to the 
provisions in Exchange Rule 5810(c)(2)(B) to make clear that annual 
meeting deficiencies are governed by the new provisions in Exchange 
Rule 5810(c)(2)(G), rather than the plan review provisions that apply 
to other deficiencies.
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    \14\ See proposed Exchange Rule 5810(c)(2)(G)(i). The Exchange 
also proposes that Staff may extend the deadline for up to an 
additional 15 calendar days upon good cause shown and may request 
such additional information from the listed company as is necessary 
to make a determination regarding whether to grant such an 
extension. See id.
    \15\ See proposed Exchange Rule 5810(c)(2)(G)(ii). Under this 
proposal, Staff review on whether to grant additional time to comply 
will be based on information provided by a variety of sources, which 
may include the listed company, its audit committee, its outside 
auditors, the staff of the Commission, and any other regulatory 
body. See id.
    \16\ See proposed Exchange Rule 5810(c)(2)(G)(ii). In its 
filing, the Exchange noted that it has observed that a substantial 
majority of listed companies that received delisting notices for 
failing to hold their annual meetings regain compliance within a six 
month period. See Notice, supra note 5, at 81574 n.15.
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    The Exchange also has proposed to amend, in conjunction with the 
changes described above, Exchange Rules 5815(c) and 5820(d) to limit 
the maximum length of an extension that a NASDAQ Hearings Panel or the 
NASDAQ Listing and Hearing Review Council (``Council''), respectively, 
may grant a listed company for the failure to hold an annual meeting to 
no more than 360 calendar days from the date of non-compliance.\17\ 
Under the Exchange's current rules, when a non-compliant company 
receives a Delisting Determination, it may appeal that determination to 
the Hearings Panel, which can grant an exception from the continuing 
listed standards (which require compliance with the annual meeting 
requirement) for a maximum of 180 calendar days from the date of the 
Delisting Determination,\18\ and the company may further appeal an 
unfavorable Hearings Panel decision to the Council, which can grant an 
exception from the continuing listed standards for a maximum of 360 
calendar days from the date of the Delisting Determination.\19\ 
Therefore, under both the proposed rule change and the current rules, 
the total amount of time that a company could remain listed while not 
in compliance with the annual meeting requirement is 360 calendar 
days.\20\
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    \17\ See proposed Exchange Rules 5810(c)(1)(G) and 5820(d)(5).
    \18\ See Exchange Rule 5815(c)(1)(A). As noted above, an appeal 
to the Hearings Panel results in an automatic stay of the suspension 
and delisting.
    \19\ See Exchange Rule 5820(d)(1).
    \20\ See Notice, supra note 5, at 81574 (Exchange representing 
that the total time that a listed company may be granted to regain 
compliance with the annual meeting requirement is unchanged from the 
current NASDAQ Listing Rules).
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    Furthermore, the Exchange proposes to amend Exchange Rule 5810(4) 
to make clear that a Public Reprimand Letter is not an available 
notification type for unresolved deficiencies from the standards of 
Exchange Rules 5250(c) (Obligation to File Periodic Financial Reports), 
and the annual meeting requirements of Exchange Rules 5615(a)(4)(D), 
and 5620(a).
    Lastly, the Exchange noted in its filing that a listed company that 
submits a plan of compliance and is not subject to the Exchange's all-
inclusive annual listing fee program (``Fee Program'') prior to January 
1, 2018 will be subject to the $5,000 compliance plan review fee, in 
addition to any other fees incurred in the appellate process, whereas a 
company that has opted-in to the Fee Program will not.\21\
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    \21\ See Exchange Rule 5810(c)(2)(A). Effective January 1, 2018, 
all listed companies will be subject to the Fee Program and the 
$5,000 fee will no longer be applicable to any company. See Exchange 
Rule IM-5910-1 and IM-5920-1; see also Notice, supra note 5, at 
81574. In addition, all listed companies, regardless of whether they 
participate in the Fee Program or not, are subject to the $10,000 
fee for each of the review by the Hearing Panel and appeal to the 
Council set forth in Exchange Rules 5815(a)(3) and 5820(a), 
respectively. See Notice, supra note 5, at 81574. Listed companies 
may be subject to these fees at different times depending on if and 
when they regain compliance. See id.
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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 rules and 
regulations thereunder applicable to a national securities 
exchange.\22\ In particular, the

[[Page 8584]]

Commission finds that the proposal is consistent with Section 6(b)(5) 
of the Act,\23\ which requires, among other things, that the rules of a 
national securities exchange be 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; and are not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \22\ In approving the proposed rule changes, the Commission has 
considered their impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \23\ 15 U.S.C. 78s(b)(4).
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    The development and enforcement of meaningful corporate governance 
listing standards for a national securities exchange is of substantial 
importance to financial markets and the investing public, especially 
given investor expectations regarding the nature of companies that have 
achieved an exchange listing for their securities. In particular, the 
Commission believes that the goal of ensuring that listed companies 
have met their requirement to hold an annual meeting of shareholders 
under the Exchange's Listing Rules is of critical importance to allow 
shareholders the ability to exercise their rights to participate in 
corporate governance matters, such as the election of directors. As a 
publicly listed company, it is at a company's annual meeting that 
shareholders will typically exercise their right to vote on such 
important corporate matters as the election of directors. For these 
same reasons, it is also important that companies that have failed to 
timely hold an annual meeting of shareholders do not remain listed on a 
national securities exchange if such deficiency is not cured in a 
timely manner.
    As discussed above, the Exchange believes that, in some cases, 
there may be mitigating reasons for why a listed company failed to 
fulfill its annual meeting requirement, and for which immediate 
suspension and delisting may not be an appropriate outcome under the 
circumstances.\24\ In these cases, the proposed rule change gives Staff 
discretion to analyze whether the reason for the annual meeting 
deficiency and the plan to regain compliance merit an exception to 
immediate suspension and delisting.\25\ In this regard, the Commission 
notes that under the Exchange's current rules, a listed company 
receiving a Staff Delisting Determination for a failure to hold an 
annual meeting may immediately appeal the determination to a Hearings 
Panel, which generally results in an automatic stay of the suspension 
and delisting pending the issuance of a written Panel Decision.\26\ In 
practice, it is the Commission's understanding from the Exchange that 
listed companies will often appeal a suspension and delisting 
determination for failure to hold an annual meeting in order to receive 
the automatic stay from the Hearings Panel. As such, the proposed rule 
change provides Staff with the ability to analyze particular instances 
of non-compliance with the annual meeting requirement prior to any 
appeal to the Hearings Panel, and if Staff deems it warranted, allow a 
non-compliant company to carry out a compliance plan for a limited time 
that could enable the company to become compliant again without the 
need to appeal to the Hearings Panel (or Council).
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    \24\ See Notice, supra note 5, at 81575.
    \25\ See proposed Exchange Rule 5810(c)(2)(G).
    \26\ See supra note 7. The Commission notes that the proposed 
factors, set forth in proposed Exchange Rule 5810(c)(2)(G)(ii), that 
would be used to determine whether to grant an exception for the 
failure to hold an annual meeting, and the length of any such 
exception, are substantially similar to the factors used by a 
Hearings Panel to determine whether to grant a further stay of a 
Staff Delisting Determination. See Exchange Rule 5815(a)(1)(B).
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    Importantly, the Commission notes that the maximum time allowed by 
the proposed requirements for a deficient company to remain listed 
while trying to regain compliance with the annual meeting requirement 
(360 calendar days) would be the same as the maximum time allowed by 
the current requirements for a deficient company (that appeals to both 
the Hearings Panel and Council, and is granted the maximum permitted 
extensions of time by those adjudicatory bodies) to remain listed while 
not in compliance with the annual meeting requirement (also 360 
calendar days).\27\ The difference under the proposed rule change is 
that, pursuant to Staff's discretion, the non-compliant company may be 
granted an exception from the continued listed requirements of up to 
180 calendar days from the annual meeting deadline (i.e., the first 
180-days of the overall 360-day time period) in order to potentially 
fulfill a compliance plan and avoid a Delisting Determination.\28\ By 
contrast, under the Exchange's current rules, since there is no 
opportunity for a compliance plan, the full 360-day period is spent 
before the Hearings Panel and the Council, assuming the non-compliant 
company has appealed its Delisting Determination to both the Hearings 
Panel and Council and been granted the maximum allowable exceptions 
from the continued listing requirements by those adjudicatory bodies. 
In the Commission's view, the fact that the current maximum time period 
that a company could remain listed while not in compliance with the 
annual meeting requirement will be unchanged under the proposal 
suggests that the proposal is reasonably designed to continue to afford 
adequate protection to investors with respect to companies that fail to 
hold an annual meeting in the time required under the Exchange rules.
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    \27\ Compare proposed Rules 5815(c)(1)(G) and 5820(d)(5) with 
current rules 5815(c)(1)(A) and 5820(d)(1); see also Notice, supra 
note 5, at 81574 (Exchange representing that the total time that a 
listed company may be granted to regain compliance with the annual 
meeting requirement is unchanged from the current NASDAQ Listing 
Rules).
    \28\ If the non-complaint company is ultimately unsuccessful in 
this regard, however, and is issued a Delisting Determination, the 
Hearings Panel and Council may grant an additional exception only 
out to 360 calendar days from the annual meeting deadline. In other 
words, if a non-compliant company receives the full 180-day 
exception from Staff in order to attempt to carry out a compliance 
plan but does not regain compliance by the end of that 180-day 
period and is therefore issued a Delisting Determination, it would 
only have 180 more days to avail itself of its appeal rights.
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    Moreover, the Commission emphasizes that, under the proposal, Staff 
retains the discretion not to grant an exception from the continued 
listing requirements to a company that has failed to hold its annual 
meeting on time. The Commission expects Staff to exercise this 
discretion carefully and discerningly. Staff's analysis in this regard 
would include consideration of the factors set forth in proposed 
Exchange Rule 5810(c)(2)(G)(ii), which the deficient company also would 
be required to discuss in its compliance plan. The Commission expects 
Staff to carefully scrutinize these factors when conducting its 
analysis, and not to grant an exception from the continued listing 
requirements when Staff believes that such an exception is not 
warranted or it is unlikely the company will be able to hold its annual 
meeting within the time permitted. For example, a listed company that 
demonstrates a history of failures to hold a timely annual meeting 
could, and most likely should, still be subject to immediate suspension 
and delisting.\29\
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    \29\ See proposed Exchange Rule 5810(c)(2)(G)(ii). The 
Commission notes that such a company would have a right to appeal 
the determination to a Hearings Panel, which will generally stay the 
suspension and delisting.
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    Additionally, the Exchange rules will continue to provide Staff 
with the ability to send an immediate Delisting Determination to a 
deficient company when Staff has determined that, after review of the 
facts and circumstances of the deficiency, continued listing raises a

[[Page 8585]]

public interest concern.\30\ Accordingly, the Commission believes the 
proposed rule change will continue to enable the Exchange to 
immediately suspend and delist companies that have failed to hold an 
annual meeting when the circumstances warrant it, but at the same time 
will provide the Exchange with flexibility to address instances in 
which the failure to hold an annual meeting, in the Exchange's 
discretion, counsels in favor of giving the non-compliant company an 
opportunity to regain compliance for a limited time period without 
being subject to immediate suspension and delisting or having to avail 
themselves of the Hearings Panel process to stay the action. The 
Commission believes, therefore, that the proposed rule change is 
designed to protect investors and the public interest, as well as to 
promote just and equitable principles of trade.
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    \30\ See Exchange Rule 5810(c)(1).
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    The Commission further notes that, as an additional protection of 
investors and the public interest, a listed company that receives 
notification that it is deficient in satisfying the annual meeting 
requirement will continue to be required to publicly disclose that it 
has received notification of non-compliance with the annual meeting 
requirement.\31\ In addition, the Exchange publicly discloses a list of 
companies that are non-compliant with the continued listing standards 
and the listing standards with which they failed to comply.\32\ 
Furthermore, by making it clear in the proposed rules that a Public 
Reprimand Letter does not apply to deficiencies from the requirement to 
hold an annual meeting, the Commission believes that the proposal 
should benefit the public interest and protect investors by helping to 
ensure that deficient companies are subject to suspension and delisting 
for failure to hold an annual meeting and ensures that the only cure 
under the Exchange rules is for the company to hold its annual 
meeting.\33\ Accordingly, for the foregoing reasons, the Commission 
believes that the proposed rule change is reasonably designed to 
further the goals of Section 6(b)(5) of the Act.
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    \31\ See Exchange Rule 5810(b) and IM-5810-1. See also Item 3.01 
of Commission Form 8-K, which requires that a registrant disclose 
any notification from the exchange that maintains its principal 
listing that the registrant does not satisfy a rule or standard for 
continued listing on the exchange.
    \32\ See Exchange List of Non-Compliant Companies, available at 
https://listingcenter.nasdaq.com/NonCompliantCompanyList.aspx.
    \33\ Exchange Rule 5805(j) defines a ``Public Reprimand Letter'' 
as a letter issued by Staff or a written decision of an Adjudicatory 
Body in cases where the listed company has violated an Exchange 
corporate governance or notification listing standard (other than 
one required by Rule 10A-3 of the Act) and Staff or the Adjudicatory 
Body determines that delisting is an inappropriate sanction.
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    The Commission also finds that the proposal is consistent with 
Section 6(b)(4) of the Act,\34\ which requires that the rules of an 
exchange provide for the equitable allocation of reasonable dues, fees, 
and other charges among its members and issuers and other persons using 
its facilities. Specifically, the Commission believes that assessing 
the $5,000 compliance plan review fee for deficiencies from the annual 
meeting requirement on listed companies that have not opted-in to the 
Fee Program is reasonable and equitably allocated because it is the 
same fee that is charged for other deficiencies that allow for the 
submission of a plan of compliance.\35\ Furthermore, the Commission 
believes that assessing different fees between listed companies that 
elect to participate in the Fee Program and those that do not are 
consistent with the approach allowed when the Fee Program was 
adopted.\36\
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    \34\ 15 U.S.C. 78s(b)(5).
    \35\ See proposed Exchange Rule 5810(c)(2)(A)(iii); see also 
supra note 21.
    \36\ See Notice, supra note 5, at 81575.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\37\ that the proposed rule change (SR-NASDAQ-2015-144), be, and hereby 
is, approved.
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    \37\ 15 U.S.C. 78f(b)(2).
    \38\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-03442 Filed 2-18-16; 8:45 am]
BILLING CODE 8011-01-P