Document ID: SEC-2020-0924-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market LLC
Posted Date: 2020-06-12T04:00Z

[Federal Register Volume 85, Number 114 (Friday, June 12, 2020)]
[Notices]
[Pages 35967-35969]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12686]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89028; File No. SR-NASDAQ-2020-026]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Adopt a New Requirement 
Related to the Qualification of Management for Companies From 
Restrictive Markets

June 8, 2020.
    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 May 29, 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 and II 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange proposes to adopt a new requirement related to the 
qualification of management for certain companies.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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 
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
    Under federal securities laws, a company's management is 
responsible for preparing financial statements and for establishing and 
maintaining disclosure controls and procedures and internal control 
over financial reporting.\3\ Nasdaq's listing requirements include 
transparent quantitative criteria, which are based on the company's 
financial statements and market information. They also impose 
disclosure obligations (along with applicable federal securities laws) 
and establish minimum corporate governance requirements, which are 
designed to protect investors and the public interest. A company's 
management is also responsible for ensuring compliance with these 
listing requirements on an ongoing basis.\4\ For these reasons, Nasdaq 
believes that it is critically important for companies to have 
management that is familiar with these responsibilities, or an advisor 
to guide the company in fulfilling these obligations, in order to 
protect investors and the public interest.
---------------------------------------------------------------------------

    \3\ See, e.g., SEC Chairman Jay Clayton, PCAOB Chairman William 
D. Duhnke III, SEC Chief Accountant Sagar Teotia, SEC Division of 
Corporation Finance Director William Hinman, SEC Division of 
Investment Management Director Dalia Blass, Emerging Market 
Investments Entail Significant Disclosure, Financial Reporting and 
Other Risks; Remedies are Limited (April 21, 2020), available at 
https://www.sec.gov/news/public-statement/emerging-market-investments-disclosure-reporting (``Emerging Market Risks 
Statement'') (``Management is responsible for the preparation of the 
financial statements, including responsibility for establishing and 
maintaining disclosure controls and procedures (``DCP'') and 
internal control over financial reporting (``ICFR''), and for 
maintaining accountability for the company's assets, among other 
things . . . Management . . . must determine that the financial 
statements, and other financial information included in the report 
filed with the SEC, fairly present in all material respects the 
financial condition, results of operations and cash flows of the 
company.'') See also Section 404(b) of the Sarbanes Oxley Act, 15 
U.S.C. 7262(b).
    \4\ For example, Nasdaq Rules require prompt notification to 
Nasdaq after an executive officer of the company, or a person 
performing an equivalent role, becomes aware of any noncompliance 
with Nasdaq's corporate governance requirements. Rule 5625. 
Similarly, SEC rules and the Sarbanes-Oxley Act impose a heightened 
obligation on the CEO and CFO of a public company, including the 
requirement to certify the company's periodic financial statements. 
See, e.g., Section 302 of the Sarbanes Oxley Act, Public Law 107-
204, 116 Stat. 745 (2002), and Rules 13a-14 and 15d-14 under the 
Act, 17 CFR 240.13a-14 and 240.15d-14. See also Section 906 of the 
Sarbanes Oxley Act.
---------------------------------------------------------------------------

    Accordingly, Nasdaq has observed instances where it appears that 
management lacked familiarity with the requirements to be a Nasdaq-
listed public company in the U.S. or was otherwise unprepared for the 
rigors of operating as a public company. The risks arising from these 
situations are heightened when a company's business is principally 
administered in a jurisdiction that has secrecy laws, blocking 
statutes, national security laws or other laws or regulations 
restricting access to information by regulators of U.S.-listed 
companies in such jurisdiction (a ``Restrictive Market'').\5\
---------------------------------------------------------------------------

    \5\ See Emerging Market Risks Statement (``As a result, in many 
emerging markets, including China, there is substantially greater 
risk that disclosures will be incomplete or misleading and, in the 
event of investor harm, substantially less access to recourse, in 
comparison to U.S. domestic companies.'')
---------------------------------------------------------------------------

    Accordingly, Nasdaq proposes to adopt a new listing standard in 
Rule 5210(c) to require that listing applicants from Restrictive Market 
countries have, and certify to Nasdaq that they will continue to have, 
a member of senior management or a director with relevant past 
employment experience at a U.S.-listed public company or other 
experience, training or background which results in the individual's 
general familiarity with the regulatory and reporting requirements 
applicable to a U.S.-listed public company under Nasdaq rules and 
federal securities laws. Alternatively, in the absence of such an 
individual, the company could retain on an ongoing basis an advisor or 
advisors, acceptable to Nasdaq, that will provide such guidance to the 
company.
    It is expected that the member of senior management, director or 
advisor would be a resource to the company on matters such as the 
Nasdaq corporate governance requirements, disclosure of material 
information, SEC reporting obligations including financial reporting 
obligations, internal controls over financial reporting, related party 
transactions, insider trading restrictions, whistleblower protections 
and investor communications. As such, Nasdaq expects this proposed 
requirement will heighten compliance by companies from Restrictive 
Markets and enhance investor protection. The proposed requirement is 
similar to the requirements of other global markets, which also include 
qualification requirements for management.\6\
---------------------------------------------------------------------------

    \6\ For example, the Toronto Stock Exchange requires management 
to have ``adequate public company experience which demonstrates that 
they are able to satisfy all of their reporting and public company 
obligations.'' See Section 311 of the TSX Company Manual. The Hong 
Kong Stock Exchange requires business experience and management 
continuity, which can achieve similar objectives to the proposed 
requirement. See Rule 8.05A of the Hong Kong Stock Exchange Main 
Board Listing Rules. Nasdaq's main markets in the Nordics require 
management to be familiar with the way the company has structured 
its internal reporting lines, the management pertaining to financial 
reporting, its investor relation management and its procedures for 
disclosing ad hoc and regular information to the stock market. See 
Section 2.15.2 of the Nordic Main Market Rulebook for Issuers of 
Shares.

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

[[Page 35968]]

    In determining whether a company's business is principally 
administered in a Restrictive Market, Nasdaq may consider the 
geographic locations of the company's: (a) Principal business segments, 
operations or assets; (b) board and shareholders' meetings; (c) 
headquarters or principal executive offices; (d) senior management and 
employees; and (e) books and records.\7\ For example, a company's 
headquarters could be located in Country A, while the majority of its 
senior management, employees, assets, operations and books and records 
are located in Country B, which is a Restrictive Market. In this case, 
Nasdaq would consider the company's business to be principally 
administered in Country B, which is a Restrictive Market, and Nasdaq 
would require the company to meet the criteria set forth in Rule 
5210(c).
---------------------------------------------------------------------------

    \7\ This threshold would capture both foreign private issuers 
based in Restrictive Markets and companies based in the U.S. or 
another jurisdiction that principally administer their businesses in 
Restrictive Markets. The factors that Nasdaq would consider when 
determining whether a business is principally administered in a 
Restrictive Market is supported by SEC guidance regarding foreign 
private issuer status, which suggests that a foreign company may 
consider certain factors including the locations of: The company's 
principal business segments or operations; its board and 
shareholders' meetings; its headquarters; and its most influential 
key executives (potentially a subset of all executives). See 
Division of Corporation Finance of the SEC, Accessing the U.S. 
Capital Markets--A Brief Overview for Foreign Private Issuers 
(February 13, 2013), available at https://www.sec.gov/divisions/corpfin/internatl/foreign-private-issuers-overview.shtml#IIA2c.
---------------------------------------------------------------------------

    Once listed, a company subject to proposed Rule 5210(c) will be 
subject to proposed Rule 5250(g). This rule will contain the continuing 
obligations for a Restricted Market Company listed on Nasdaq to have at 
least one member of senior management or director who has relevant past 
employment experience at a U.S.-listed public company or other 
experience, training or background which results in the individual's 
general familiarity with the regulatory and reporting requirements 
applicable to a U.S.-listed public company under Nasdaq rules and 
federal securities laws or, in the absence of such an individual, to 
retain on an ongoing basis an advisor or advisors, acceptable to 
Nasdaq, that will provide such guidance to the Company.
    Nasdaq proposes changes to Rule 5810 to allow a company from a 
Restrictive Market that is subject to, but does not maintain compliance 
with, this requirement to provide Nasdaq Staff with a plan to regain 
compliance. Based on its review of the company's plan, Nasdaq Staff 
generally would be able to allow the company up to 180 days to regain 
compliance.\8\ Companies would be required under Rule 5810(b) to 
disclose that they do not meet this requirement, which would alert 
investors to the heightened risk during this time.
---------------------------------------------------------------------------

    \8\ See Rule 5810(c)(2)(B). Staff cannot grant additional time 
if the company is currently under review by an Adjudicatory Body for 
a Staff Delisting Determination.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\10\ in particular, in that it 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. Further, 
the Exchange believes that this proposal is not designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Nasdaq believes that requiring applicants from Restrictive Market 
countries to satisfy the proposed requirement will help ensure that the 
company has at least one member of senior management or director or an 
advisor who serves as a resource for the company to assist in 
compliance with the company's reporting and public company obligations 
in the U.S. on an ongoing basis. This will better enable the company to 
satisfy the regulatory and reporting requirements applicable to a U.S.-
listed public company under Nasdaq rules and federal securities laws, 
which will enhance investor protection and the public interest.
    The proposed rule changes would apply to companies from Restrictive 
Market countries that apply to list on Nasdaq after the date of 
effectiveness, but would not apply to companies from other countries or 
to companies already listed on Nasdaq. Notwithstanding, the Exchange 
believes that the proposal does not unfairly discriminate among 
companies. With respect to the discrimination between companies from 
Restrictive Markets and other companies, Nasdaq believes that the 
distinction is fair because Nasdaq and the SEC have identified 
additional concerns around companies from Restrictive Markets,\11\ 
which the proposed rule change is designed to address. With respect to 
the discrimination between newly listing companies from Restrictive 
Markets and companies from Restrictive Markets that are already listed 
before this rule is effective, Nasdaq believes that this is an 
appropriate distinction because this requirement was not in place when 
the later group of companies listed and these companies have structured 
alternative mechanisms to comply with the requirements to be a U.S-
listed public company. To the extent there are future concerns about 
such a listed company that arise from an apparent unfamiliarity with 
the requirements to be a U.S.-listed public company, however, Nasdaq 
would exercise its regulatory authority and could consider that lack of 
familiarity when determining whether to allow the company to remain 
listed.
---------------------------------------------------------------------------

    \11\ See Emerging Market Risks Statement, supra note 3.
---------------------------------------------------------------------------

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. While the proposed rule change 
will apply only to companies from Restrictive Markets, Nasdaq and the 
SEC have identified specific concerns with such companies that make the 
imposition of a heightened requirement on such companies appropriate to 
enhance investor protection, which is a central purpose of the Act. Any 
impact on competition, either among listed companies or between 
exchanges, is incidental to that purpose.

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 up to 90 days (i) as the 
Commission may designate 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 will: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine

[[Page 35969]]

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:

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-2020-026 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-2020-026. 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-2020-026 and should be submitted 
on or before July 6, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

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

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12686 Filed 6-11-20; 8:45 am]
BILLING CODE 8011-01-P