Document ID: SEC-2010-0880-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2010-06-17T04:00Z

[Federal Register: June 17, 2010 (Volume 75, Number 116)]
[Notices]               
[Page 34506-34508]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17jn10-126]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62285; File No. SR-NASDAQ-2008-014]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change and Amendments No. 1 and 2 
Thereto To Amend Certain Corporate Governance Disclosure Requirements 
for Listed Companies

June 11, 2010.
    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 February 27, 2008, The NASDAQ Stock Market LLC (``Nasdaq'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by Nasdaq. Nasdaq filed Amendment No. 1 to the 
proposed rule change on December 18, 2009 and Amendment No. 2 to the 
proposed rule change on April 30, 2010.\3\ The Commission is publishing 
this notice to solicit comments on the proposed rule change, as 
amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced and superseded the original filing 
in its entirety, and Amendment No. 2 replaced and superseded 
Amendment No. 1 in its entirety.
---------------------------------------------------------------------------

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

    Nasdaq proposes changes to Listing Rules 5605 and 5610, as well as 
IM-5605-4 and IM-5610, to replace certain disclosure requirements with 
references to the applicable disclosure requirements of Regulation S-K, 
require the same disclosure as required by SEC Rules 10A-3(d)(1) and 
(2) and permit disclosure through a Web site and/or a press release to 
satisfy certain Nasdaq disclosure requirements.
    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in [brackets].\4\
---------------------------------------------------------------------------

    \4\ Changes are marked to the rule text that appears in the 
electronic manual of Nasdaq found at http://
nasdaqomx.cchwallstreet.com/.

* * * * *
    5605. Boards of Directors and Committees.
    (a) No change.
    IM-5605. No change.
    (b) No change.
    IM-5605-1 and IM-5605-2. No change.
    (c) Audit Committee Requirements.
    (1) No change.
    IM-5605-3. No change.
    (2) Audit Committee Composition.
    (A) No change.
    (B) Non-Independent Director for Exceptional and Limited 
Circumstances Notwithstanding paragraph (2)(A)(i), one director who: 
(i) Is not independent as defined in Rule 5605(a)(2); (ii) meets the 
criteria set forth in Section 10A(m)(3) under the Act and the rules 
thereunder; and (iii) is not a current officer or employee or a 
Family Member of such officer or employee, may be appointed to the 
audit committee, if the board, under exceptional and limited 
circumstances, determines that membership on the committee by the 
individual is required by the best interests of the Company and its 
Shareholders[, and the board discloses, in the next annual proxy 
statement subsequent to such determination (or, if the Company does 
not file a proxy, in its Form 10-K or 20-F), the nature of the 
relationship and the reasons for that determination]. A Company, 
other than a Foreign Private Issuer, that relies on this exception 
must comply with the disclosure requirements set forth in Item 
407(d)(2) of Regulation S-K. A Foreign Private Issuer that relies on 
this exception must disclose in its next annual report (e.g., Form 
20-F or 40-F) the nature of the relationship that makes the 
individual not independent and the reasons for the board's 
determination. A member appointed under this exception may not serve 
longer than two years and may not chair the audit committee.
    IM-5605-4. Audit Committee Composition.
    Audit committees are required to have a minimum of three members 
and be comprised only of Independent Directors. In addition to 
satisfying the Independent Director requirements under Rule 
5605(a)(2), audit committee members must meet the criteria for 
independence set forth in Rule 10A-3(b)(1) under the Act (subject to 
the exemptions provided in Rule 10A-3(c) under the Act): They must 
not accept any consulting, advisory, or other compensatory fee from 
the Company other than for board service, and they must not be an 
affiliated person of the Company. As described in Rule 10A-3(d)(1) 
and (2), a Company must disclose reliance on certain exceptions from 
Rule 10A-3 and disclose an assessment of whether, and if so, how, 
such reliance would materially adversely affect the ability of the 
audit committee to act independently and to satisfy the other 
requirements of Rule 10A-3. It is recommended also that a Company 
disclose in its annual proxy (or, if the Company does not file a 
proxy, in its Form 10-K or 20-F) if any director is deemed 
independent but falls outside the safe harbor provisions of Rule 
10A-3(e)(1)(ii) under the Act. A director who qualifies as an audit 
committee financial expert under Item 407(d)(5)(ii) and (iii) of 
Regulation S-K is presumed to qualify as a financially sophisticated 
audit committee member under Rule 5605(c)(2)(A).
    (3) No change.
    IM-5605-5. No change.
    (4)-(5) No change.
    (d) Independent Director Oversight of Executive Officer 
Compensation.
    (1)-(2) No change.
    (3) Non-Independent Committee Member under Exceptional and 
Limited Circumstances.
    Notwithstanding paragraphs 5605(d)(1)(B) and 5605(d)(2)(B) 
above, if the compensation committee is comprised of at least three 
members, one director who is not independent as defined in Rule 
5605(a)(2) and is not a current officer or employee or a Family 
Member of an officer or employee, may be appointed to the 
compensation committee if the board, under exceptional and limited 
circumstances, determines that such individual's membership on the 
committee is required by the best interests of the Company and its 
[shareholders, and the board discloses,] Shareholders. A Company 
that relies on this exception must disclose either on or through the 
Company's website or in the proxy statement for the next annual 
meeting subsequent to such determination (or, if the Company does 
not file a proxy, in its Form 10-K or 20-F), the nature of the 
relationship and the reasons for the determination. In addition, the 
Company must provide any disclosure required by Instruction 1 to 
Item 407(a) of Regulation S-K regarding its reliance on this 
exception. A member appointed under this exception may not serve 
longer than two years.
    IM-5605-6. No change.
    (e) Independent Director Oversight of Director Nominations.
    (1)-(2) No change.
    (3) Non-Independent Committee Member under Exceptional and 
Limited Circumstances.
    Notwithstanding paragraph 5605(e)(1)(B) above, if the 
nominations committee is comprised of at least three members, one 
director, who is not independent as defined in Rule 5605(a)(2) and 
is not a current officer or employee or a Family Member of an 
officer or employee, may be appointed to the nominations committee 
if the board, under exceptional and limited circumstances, 
determines that such individual's membership on the committee is 
required by the best interests of the Company and its Shareholders[, 
and the board discloses,]. A Company that relies on this exception 
must disclose either on or through the Company's website or in the 
proxy statement for next annual meeting subsequent to such 
determination (or, if the Company does not file a proxy, in its Form 
10-K or 20-F), the nature of the relationship and the reasons for 
the determination. In addition, the Company must provide any 
disclosure required by Instruction 1 to Item 407(a) of Regulation S-

[[Page 34507]]

K regarding its reliance on this exception. A member appointed under 
this exception may not serve longer than two years.
    (4)-(5) No change.
    IM-5605-7. No change.
    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 Board. Companies, other 
than Foreign Private Issuers, shall disclose such waivers [in 
a]within four business days by filing a current report on Form 8-K 
with the Commission [within four business days]or, in cases where a 
Form 8-K is not required, by distributing a press release. Foreign 
Private Issuers shall 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. 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.
    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 and must be disclosed to 
Shareholders, along with the reasons for the waiver. All Companies, 
other than Foreign Private Issuers, must disclose such waivers [in 
a]within four business days by filing a current report on Form 8-K 
with the Commission [within four business days], 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 
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, Nasdaq 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. Nasdaq 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 proposes to make changes to its rules to replace certain 
disclosure requirements with references to the applicable disclosure 
requirements of Regulation S-K, require the same disclosure as required 
by SEC Rules 10A-3(d)(1) and (2) and permit disclosure through a Web 
site and/or a press release to satisfy certain Nasdaq disclosure 
requirements.
    Nasdaq currently requires a listed company to disclose in its proxy 
statement (or if the company does not file a proxy, in its Form 10-K or 
20-F) any reliance on the provisions of Nasdaq's audit, compensation 
and nominating committee requirements that allow a company to have one 
non-independent director on the committee under exceptional and limited 
circumstances.\5\ With respect to the audit committee, Nasdaq proposes 
to replace its current disclosure requirement in Listing Rule 
5605(c)(2)(B) with a reference to the disclosure requirement in Item 
407(d)(2) of Regulation S-K, which requires similar disclosure.\6\ A 
foreign private issuer, which is not subject to Item 407(d)(2), would 
continue to be required to comply with Nasdaq's current disclosure 
requirements. Nasdaq believes that this proposed change will avoid 
duplication and confusion, given that the current Nasdaq disclosure 
requirement is duplicative of the disclosure required by Item 407(d)(2) 
and will facilitate compliance for listed companies while continuing to 
provide transparency to investors. Nasdaq also proposes to add a 
reference to IM-5605-4 to require the disclosures specified in SEC 
Rules 10A-3(d)(1) and (2), which require disclosure of reliance on 
certain exceptions contained in SEC Rule 10A-3.\7\ Nasdaq believes that 
this addition will highlight listed companies' disclosure requirements 
and help facilitate compliance.
---------------------------------------------------------------------------

    \5\ Nasdaq Listing Rules 5605(c)(2)(B), 5605(d)(3) and 
5605(e)(3).
    \6\ See 17 CFR 229.407(d)(2) (requiring a company that is 
relying on the exceptional and limited circumstances exception to 
disclose the nature of the relationship that makes an individual not 
independent and the reasons for the board of directors' 
determination to appoint the individual to the audit committee).
    \7\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    With respect to the compensation and nominating committees, Nasdaq 
proposes to revise Listing Rules 5605(d)(3) and 5605(e)(3) to require 
the disclosures described in Instruction 1 to Item 407(a) of Regulation 
S-K from issuers that are otherwise subject to this requirement. For 
further disclosures that are required by Nasdaq's rules, but not also 
by Instruction 1 to Item 407(a) of Regulation S-K, Nasdaq proposes to 
broaden the methods of disclosure

[[Page 34508]]

available to issuers to permit Web site disclosure. Nasdaq believes 
that allowing companies to rely on the Internet to satisfy these 
disclosure requirements will allow companies to provide investors with 
information in a more timely, efficient and cost effective manner, 
consistent with other disclosures that may be made on the issuer's Web 
site. As such, the proposal is consistent with Nasdaq's rule that 
permits Web site postings for the distribution of an annual report to 
shareholders \8\ and the Commission's recent changes to require 
companies to post their proxy materials on a Web site.\9\ Also, 
allowing Web site disclosure would eliminate the need for a company to 
amend a public filing if the company discovers that it failed to make a 
disclosure required solely by Nasdaq's rules.
---------------------------------------------------------------------------

    \8\ Nasdaq Listing Rule 5250(d)(1).
    \9\ See Securities Exchange Act Release No. 56135 (July 26, 
2007), 72 FR 42222 (August 1, 2007).
---------------------------------------------------------------------------

    In addition, Nasdaq requires that each listed company adopt a code 
of conduct applicable to all directors, officers and employees.\10\ Any 
waivers to the code of conduct must be approved by the board of 
directors, and issuers, other than foreign private issuers, must 
disclose such waivers in a Form 8-K within four business days. Foreign 
private issuers must disclose such waivers either in a Form 6-K or in 
the next Form 20-F or 40-F. In Listing Rule 5610 and IM-5610, Nasdaq 
proposes to broaden the methods of disclosure of waivers to a code of 
conduct to include distributing a press release if a Form 8-K is not 
required \11\ or posting on the company's Web site in a manner 
consistent with Item 5.05 of Form 8-K.\12\ This proposal will conform 
Nasdaq's rule with that of the Commission \13\ and other markets.\14\
---------------------------------------------------------------------------

    \10\ Nasdaq Listing Rule 5610 and IM-5610.
    \11\ A Form 8-K is required for waivers that apply to a 
company's principal executive officer, principal financial officer, 
principal accounting officer, controller or persons performing 
similar functions. In these cases, the waiver cannot be disclosed 
only by distributing a press release.
    \12\ Item 5.05 of Form 8-K allows Web site disclosure of waivers 
to a code of ethics, provided that an issuer has disclosed in its 
most recently filed annual report its Internet address and its 
intention to provide disclosure in this manner.
    \13\ Id.
    \14\ See Section 303A.10 of the NYSE Listed Company Manual.
---------------------------------------------------------------------------

2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\15\ in general and with Section 
6(b)(5) of the Act,\16\ in particular. The proposed rule change would 
remove disclosure requirements in Nasdaq's rules that duplicate 
Commission disclosure requirements and provide cross references to 
Commission requirements. In addition, the proposed rule change would 
allow additional methods of disclosure for Nasdaq-listed companies for 
certain disclosures not required by the Commission, thereby reducing 
costs for those companies, and allowing them to rely on technology to 
provide information to investors in a timelier manner. As such, the 
proposed rule change is 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.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f.
    \16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    Nasdaq does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 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 self-regulatory organization consents, the Commission will:
    A. By order approve 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, as amended, 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2008-014 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2008-014. This 
file number should be included on the subject line if e-mail 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 Web site (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 Web site 
viewing and printing in the Commission's Public Reference Room on 
official business days between the hours of 10 a.m. and 3 p.m. Copies 
of such filing also will be available for inspection and copying at the 
principal office of Nasdaq. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NASDAQ-2008-014 and should be submitted on or before 
July 8, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-14608 Filed 6-16-10; 8:45 am]
BILLING CODE 8010-01-P